CityFibre Need Fresh Funding for UK FTTP Build as Doubts Cast Over Debt Pile
Network operator CityFibre has today published their annual accounts to the end of 2023, which among other things reveals that the provider is seeking fresh investment to fuel the ongoing roll-out of their 10Gbps capable Fibre-to-the-Premises (FTTP) based broadband ISP network and avoid problems further down the line.
Just to recap. The alternative network operator currently still aspires to cover up to 8 million UK premises with their new full fibre network (funded by c.£2.4bn in equity, c.£4.9bn debt and c.£800m of BDUK / public subsidy) – representing c.30% of the UK. So far, they’ve covered around 3.8m premises and have connected 400,000 customers (8th May 2024).
CityFibre has also won several stated aid funded contracts under the Government’s £5bn Project Gigabit broadband roll-out scheme, which is focused on upgrading the final 10-20% of hardest to reach premises (usually those in rural areas). The operator expects these to help boost their coverage by another 1.3 million premises.
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However, it remains unclear precisely when they’ll reach the 8 million target, with their current build + M&A plan potentially get them up to c.6m (if it all goes well). The operator has already been through some redundancies and scaled back quite a few of their commercial builds at the start of 2024, largely in order to focus on the aforementioned delivery for Project Gigabit.
New results and a material uncertainty
The latest annual report, which covers the period to the end of December 2023, notes that CityFibre saw a big increase in revenue to £99.67m in 2023 (2022: £30.97m), added 163,000 customers and they had a gross profit of £42.76m (2022: –£20.19m).
The above is generally very positive, but on the flip side they also recorded a total loss for the year of £419.3m and that’s a surge on the £94.15m recorded in 2022 – dwarfing revenue. Gross debt also increased by £1.3bn million to £3.13bn (2022: £1.83bn) and that should be considered against the company having total assets of £4.172bn (2022: £3.221bn).
Suffice to say that, with key sources of funding due to run out by the middle of 2025, CityFibre are on the hunt for fresh investment and are said to have appointed US investment bank Evercore to help find a solution.
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Extract from Director’s Report
As the Group and Company are reliant on securing further external funding which is not guaranteed, a material uncertainty exists which may cast significant doubt on the ability of the Group and Company to continue as a going concern and as a result they may be unable to realise this assets and discharge their liabilities in the normal course of business.
The financial statements for the Group and Company are prepared on a going concern basis, with the identification of this material uncertainty, but the Directors have a reasonable expectation that the Group can continue in operation and meet its liabilities as they fall due.
The ultimate parent company, Connect Infrastructure Topco Limited, has confirmed it will continue to provide financial support to the Group and Company to such levels as to enable the Group and Company to be able to pay its debts as and when they fall due for payment, for at least 12 months from the approval of these financial statements.
The need for further funding is nothing new and other network operators are facing many of the same challenges, much of which has been fueled by high interest rates, rising build costs and agressive competition from rivals that can make it harder to grow take-up. In addition, the current environment also makes it harder to attract fresh investment.
However, despite the challenges, CityFibre still views itself as being in a “strong position” as they approach future financing, not least due positive EBITDA, the recent addition of Sky Broadband to their portfolio of supporting ISPs, the ongoing acquisition and integration of altnet provider Lit Fibre, and the Project Gigabit wins. But there’s no doubt that this remains a difficult period and not just for CityFibre.
A CityFibre spokesperson said:
“We are at a particularly capital-intensive phase of our long-term business plan, as we accelerate our build to at least 8 million premises and invest billions into the UK’s digital infrastructure. But 2024 is proving to be a significant year for CityFibre: we are EBITDA positive, we’ve secured a long-term partnership with Sky and we’re a trusted partner of Government, which has awarded us £800m to connect rural communities to full fibre broadband as part of Project Gigabit.
CityFibre is in a strong position and we are raising financing in line with our long-term plan, building on our positive momentum throughout 2024 and cementing CityFibre’s place as the UKs third digital network.”
At the end of the day, there aren’t too many unexpected surprises to be found in the operator’s annual report, particularly given previous developments and the state of the wider market. Much will now depend upon the operator’s ability to resolve their financing issues and to produce more of those M&As (mergers and acquisitions) that they were so boldly talking about earlier in the year.
All of this will also provide some much-needed food for thought when Ofcom begins their Telecoms Access Review 2026 (TAR) in the near future, as the regulator will have to be careful with a market that is currently under such a significant strain.
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Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook and Linkedin.
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So Thames Water has a debt pile of 7X it’s annual revenues and is considered to be on the verge of bankruptcy, CityFibre has a debt pile 31X it’s annual revenue and thinks it’s in a strong position. Maybe I’m just the thick one who thinks the emperor has no clothes on…. Someone please explain.
Cityfibre isn’t a natural monopoly and doesn’t have a 60+ billion pounds debt pile
There nowhere near comparable Big Dave:
* Thames Water – no revenue growth opportunity (they already have 100pc of the customers they can ever get) plus pricing capped by OFWAT
* CityFibre – opportunity to grow it’s revenue by 50x and no pricing regulation
CityFibre is also in the build stage of a new network, where you have to take years spending big and growing debt and then years more waiting for a payback on that. So we expect all the big builders to be dealing with large amounts of debt and making huge capital investments.
The strain right now comes, at least in part, from the fact that their models have been thrown a bit out of whack by wider economic problems (e.g. unexpectedly high interest rates) and more altnets than originally expected having entered the fray etc.
Thames water has been in a comfortable monopoly for so long that it never had any drive to fix the leaks on their network and are now paying the price. The problem is that instead of mandating them to expand with more reservoirs, the gov has introduce scarcity controls in certain areas like a 3rd world country
It is still a valid comparison though as it is a good showcase of CF’s money issue. I disagree on the “strong position” and wouldn’t be surprised if no one bails them out forcing them to stick to bduk
One of the strangest comparisons I have ever heard. Thames Water is a company privatized in 1989 but originating from a company founded in 1609!
Is this Big Dave or an imposter? I appreciate Mark’s measured response but I just can’t understand why we can’t agree “yes you are thick” which is out of character…
@drevilbob
Thames Water’s debt pile is £15.2bn, not £60bn.
Apologies that’s the total debt pile of all the water companies, 15.2 billion pounds on a natural monopoly is still poor. Foreign investors have taken the dividends by creating the debt, considering the taxpayer paid the debts it had in the 80s when it was made private.
With a customer take up rate of 5% against the 8m premises built to, they will have to go some way to even start getting any ROI.
Someone can correct me if I’m wrong but the early BDUK build was 20%+ take up to before subsides were paid back and the cabinet becoming commercially viable. Think it may be higher now.
Something seems flawed in the CityFibre model.
Lots of mixed messages here, it seems! But overall, definitely some concern. It would be a great shame if they crash and burn, now that they’ve finally resumed building in my city and might even reach me some time next year. I’ve definitely been seeing more of their vans about, whereas Openreach is MIA.
Gigaclear just completed a build in our small village earlier this year, and OpenReach are due to upgrade our exchange to FTTP by end of 2026. We were a bit surprised to have CityFibre start digging the streets up for their build last week… I won’t complain about some competition but doesn’t seem viable.
Again, it highlights the madness of the UK’s great free-for-all. Some areas are triple-served while others still have nothing. Ultimately, we have one electricity grid and multiple suppliers and regional operators. It seems that in an idea world, we’d have one national fibre infrastructure network with guaranteed access to multiple service providers, but perhaps that’s too simplistic.
Australia tried the “one network” thing with NBN, and it’s worked out rather badly for them.
We had this to a large degree with Openreach too for many years – and whilst it wasn’t directly comparable, we did see the expected lack of desire to innovate.
Sadly we need companies to be able to build their own infrastructure to drive competition – it happens at the network/wholesale level, as there is very little to compete on other than price and customer service at the retail level.
NBN is not a good comparison because it was hamstrung by a change of government that tried to avoid fibre at any cost (literally)
the NBN, as originally designed, would have been rather world leading.
NBN is a very fair comparison – what makes anyone think that the UK government would do better than the Australian government at resisting pressure to “cut the cost” of building a network that’s better than the incumbent networks?
Fundamentally, that’s what killed the NBN as originally planned; Australia voted in a more right-wing government, who weren’t happy with the cost of a full fibre network as compared to the cost of sweating incumbents’ copper assets further. And I don’t believe that the government that brought us austerity would have done different – given the choice between £1bn and “good enough”, or £10bn and future-proof, I believe they’d have gutted a UK NBN for exactly the same reasons as their Aussie counterparts did.
Because you had idiot politicians in Australia who didn’t believe you could go from 100Mbps to 1Gbps without changing the fibre, who came into government and scrapped the idea of going 100% fibre. That’s what you get with governments run by people who have no STEM education.
CityFibre’s build stalled in my area of North Tyneside, I’m not holding my breath for it to resume anytime soon.
It also stalled in Gloucester last year, and has now resumed, so there might be hope…
Stalled here too. I’m not worried about them continuing, just hoping they if anything, bring a service to the streets they have placed cable and boxes into.
There were a few LA defects which are now completed, and they last week finished up at the main exchange so I’m hoping something happens now
Blackpool build has also stalled, they haven’t expanded in about a year now and when they pop up on roadworks it’s just fixing defects.
Their biggest problem is they are massively under penetrated. Even if they stop building they don’t have a big enough customer base to repay the interest on the debt let alone make an operating profit.
The Altnet space is going to go from crowed to non-existent very soon because none of them have the customer base needed to make them sustainable.
CityFibre have always shouted about how brilliant they are but its smoke and mirrors, they can’t get customers, they have build a network that lacks the quality and capacity in some places whilst operating in an urban environment where they are being overbuilt sometimes as many as 4 times before they have actually got a customer. Throw into the mix their Project Gigabit contracts which will almost certainly drown them then the outlook looks bleak!
CF have been slowing down their build for 18 months or so now so I’m guessing the majority of it must be over 2 years old now. They really need more take up for what they’ve already built. Openreach have reached 50% in Oxfordshire & 34% overall so really CF should be looking towards a million customers by now. Sorry Openreach haters but that is the facts.
“they can’t get customers”
This opinion doesn’t seem to be reflected in the figures. In one year they have doubled the number of connections and tripled revenue. They have recently signed a deal with the second biggest ISP in the country. The report also says they have 40% take up in their most established areas and are winning 40%-50% of broadband switches within their footprint.This doesn’t sound like a business that is failing to grow.
It would be interesting to understand of the doubling of customer numbers, are the majority new customers coming from addresses that went ready for service in the same period?
The challenge for all altnets is to get increase the uptake of connections, if they are failing to significantly increase the number of properties with active connections on properties that were previously ready for service and customers on other connections with 18/24 month deals coming to an end, that’s where CityFibre (and the other AltNets) need to focus – driving uptake and hence revenue.
On the revenue figure I would like to know if that is all the BDUK contracts recognised upfront to make it look better. Is cityfibre building anywhere that isn’t BDUK anymore? Debt markets still look pretty closed to me, they need to sell – ASAP.
I’m sure VMO2 are waiting to pounce in Cityfibre if in trouble. They have some overbuild but also have areas VM do not have. This is what I don’t want to happen. The country needs more than 2 technology dictating dinosaurs that ramp up prices at a yearly opportunity.
My mothers address went “available for connection” yesterday for Cityfibre. We can finally ditch the asymmetric GPON Openreach FTTP for symmetric XGS-PON Cityfibre which is a bit cheaper too. Once connected, she doesn’t intend going back to Openreach. From flaky ADSL Max up to 2019, to choice of 2 FTTP providers in a middle of a farm field. Never thought she would get Cityfibre, but happy now!
and does your “mother” think she needs symmetric speeds, or is she being misled by her child?
Did you mean to announce you live with your mother as part of the post where she, total coincidence, has the same opinions of Openreach for the same reasons you do?
“My mothers address went “available for connection” yesterday for Cityfibre. *We* can finally ditch…”
I suspect customer acquisition performance is much more important than vanity metrics about build rates (but I accept that’ll become more important if another provider gets there first).
I certainly know where I’d be focusing my improvement plans.
Build restarted in Weston-super-Mare where Openreach and Virgin Media is available.
The big problem here is overbuild of competing networks. I know areas which have Virgin (cable), Openreach FTTP, CityFibre FTTP, and Grain FTTP, with the latter three all digging up the same road a total of three times in 9 months, it’s crazy! It’s not sustainable as there are only so many customers to go round.
Meanwhile, places like Skelmersdale, where I am, only had Openreach FTTP in the new build estates with no other activity. NexFibre came along and covered the whole town. My estate went live for orders on the 1st of September and from walking around, they already have 25% takeup based on the number of boxes installed on people’s houses. I wonder what each network’s takeup is in the other areas with multiple altnets?
New build estates tend to have a contractual agreement of who can install there network.
Normally this is with Openreach, OFNL has some footprint and persimmon homes have fibrenest.
Anyone looking to build cabinets/their own Chambers either need a wayleave or wait for the LA to adopt the road.
Doing all the civils across a town and a year later not having it hooked up to your National platform seems like a bad way to get a return on your investment. CityFibre seem quite new to the game in a few areas.
Saudis clearly dont want to invest anymore money in them anymore
City fibre have just run the trunking and cables in my area ( Woodbridge Suffolk) which is a lot better than BT who finished their fibre run 2.5 miles away on my std code and 30feet away on another std code.
Hopefully if it gets up and running it might be better than the old aluminium and copper overhead cables with underground joint boxes by bt
Cityfibre where waiting till they secured sky before seeking investment so it gives them a better position when doing so.
Reading these comments is hilarious, when it comes to fixed line networks too much competition is abhorrent, but pivot to mobile networks and anything less than maximum competition in physical networks is a disaster. Make your minds up.
It’s down to cost per customer.
Fixed line = upfront high $$ cost per customer which you may never get.
Mobile = Relatively low cost to build a mast which covers a wide area. That cost is not linked to number of homes “RFS”.
So you need a much higher % takeup for fixed line to make a return. A much lower break even point on mobile.
So, are tehy buying APFN or not?
I think we have to consider the losses include expansion, so agree they cant really be compared to the water company, once network builds and acquisitions stop then the expenses will nosedive, the question at that point will be is if their revenue is enough to deal with their debt and network maintenance costs.
There is multiple signs they in trouble though, the large amount of paused builds, the seemingly inability to do something as simple as swapping out old obsolete GPON cards for hybrid XGS-PON as that rollout looks to have completely stalled with yayzi claiming they doing some kind of on demand system that has no form of demand registration. I still have a gut feeling VM02 may buy CF out at some point in the future, a possible reason why no mustang work is going on in my city, as that would make no sense if they could simply buy CF instead.
Will be interesting to know if anyone in a CF city, has a VM overbuild going on.
A concern as CF are the only company who has rolled out FTTP in my part of the city, no other provider has taken an interest.
Some of these complete guesses as to what’s happening make me laugh.
Builds have been restarting with new contractors in place.
As to the comment about XGSPON rollout stalling? I think the 1000s of PONs delivered over the last 12 months alone says otherwise.