REG - Digital 9 Infrastr. - Annual Results for the year ended 31 December 2022
09/03/2023 07:00
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RNS Number : 3711S Digital 9 Infrastructure PLC 09 March 2023
THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE INFORMATION FOR THE
PURPOSES OF THE UK VERSION OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014.
9 March 2023
DIGITAL 9 INFRASTRUCTURE PLC
("D9" or the "Company" or, together with its subsidiaries, the "Group")
ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
The Board of Digital 9 Infrastructure plc (ticker: DGI9) is pleased to
announce the Company's audited results for the year ended 31 December 2022.
Summary of key financials
Year ended Period ended Change
31 December 2022 31 December 2021 (%)
Earnings per share 11.09p 9.77p 13.5%
IFRS Net Asset Value ("NAV") £950.0m £756m 25.7%
IFRS NAV per share 109.76p 104.62p 4.9%
IFRS Investment Valuation £921m £746m 23.5%
Ongoing charges ratio (annualised) 1 (#_edn1) 1.10% 1.04% 5.8%
Dividends paid or declared per share 6.00p 4.50p -
(6.00p annualised)
Operating cash dividend cover 2 (#_edn2) 0.4x 0.4x -
Total Return (based on NAV) 3 (#_edn3) 10.4% 13.1% (2.7)%
Highlights
· The Group's diversified portfolio of nine high-quality data
centre, subsea fibre, wireless and terrestrial fibre assets (together, the
"Investee Companies") continued to perform strongly during the year in line
with management expectations. Consolidated Investee Company revenue was £409
million and consolidated Investee Company EBITDA was £206 million for the
year 31 December 2022, increasing to £226 million on a contracted run rate
basis.
· The portfolio generated strong operational and financial
performance which contributed to an IFRS NAV increase of 26% to £950 million
(31 December 2021: £756 million), or a 4.9% increase in NAV per share to
109.76p (31 December 2021: 104.62pps), alongside the equity raises during the
year.
· The Company exceeded its annual total return target by 0.4%
at 10.4% and met the final dividend target of 6.0 pence per ordinary share for
2022.
· The Company successfully deployed all capital raised since IPO
with £605 million deployed in 2022 alone. This Included £577 million in
aggregate for the acquisitions of Verne Global Finland (formerly Ficolo Oy)
and Arqiva Group ("Arqiva") (including £163 million funded through a
non-recourse vendor loan note) in July 2022 and October 2022, respectively.
The Company continues to focus on the operational performance and optimisation
of each of the assets acquired to date.
· The Group held unrestricted cash of £55.5 million as at 31
December 2022. During the period, the Company successfully raised £155
million in gross equity proceeds from existing and new shareholders, supported
by a £375 million revolving credit facility ("RCF").
· At period-end, the RCF was £331.2 million drawn, with a
further £43.8 million available to draw. The Company drew an additional £25
million post-period end to fund additional capital expenditure at Verne Global
London and Aqua Comms.
· The Company's aggregate level of borrowings continue to be
in line with the Investment Policy set out at IPO. Total leverage, including
the Company's drawn RCF, as at 31 December 2022 was 25.9% of an adjusted Gross
Asset Value of £1.3 billion (31 December 2021: £758 million).
· The Company's operating cash dividend cover of 0.4x at 31
December 2022 (0.4x: 31 December 2021) was primarily attributable to the
impact of (i) the Arqiva accretion payment during this period of high
inflation and (ii) as the customer contracts secured by the growth platforms
are yet to fully ramp. As the portfolio investments continue to mature, and
the accretion payments by Arqiva reduce in line with inflation rates
normalising and ultimately expire, the Company expects an increase in
operating cash flow to translate progressively into cash dividend cover.
Post Balance Sheet activity
· The Company today declared a dividend of 1.5 pence per share
in respect of the period from 1 October to 31 December 2022. This dividend
will be paid on or around 31 March 2023 to shareholders on the register at 17
March 2023.
· The Company reaffirms its target aggregate dividend of 6.0
pence per ordinary share for the year ended 31 December 2023, payable
quarterly. 4 (#_edn4)
· Further to the Company's recent Trading Update, the Company
and Investment Manager have evaluated options and commenced processes seeking
complementary sources of growth capital to support the growth capital
expenditure pipeline of c.£223 million for the year ended 31 December 2023.
Such complementary sources of growth capital continue to be considered only
where they are in the best interests of enhancing shareholder value. This
includes:
o A process to syndicate a minority stake in existing Investee Companies to
a strategic capital partner in conjunction with a leading investment bank.
o In relation to Investee Company level debt, a term sheet has been agreed
for a $100 million facility to be provided to one of the high growth Investee
Companies. Debt financing at Investee Company level is only appropriate where
the incremental return on new investment would significantly exceed the cost
of debt. Apart from Arqiva, the Investee Companies had no financial gearing in
place at 31 December 2022.
· Following the initiation of the externally-facilitated
recruitment and selection process for the Head of Digital Infrastructure at
Triple Point, the Board and Investment Manager have thoroughly evaluated the
skills and experience D9 would benefit from and expect to announce the
selected candidate in Q2 2023.
· In February 2023, the Company drew an additional £25
million of the RCF post-period end to fund additional capital expenditure at
Verne Global London and Aqua Comms.
Phil Jordan, Chair, Digital 9 Infrastructure plc, commented:
"I am pleased to report an excellent set of results for 2022, headlined by a
5% increase in NAV per share and a 10.4% total return. The latter was in line
with the Company's target and included a proposed dividend of 6 pence per
share, in line with our IPO target and with our 2023 objective.
The Company's first 18 months since IPO were characterised by accretive
portfolio growth through targeted acquisitions, supporting sustainable and
growing income and capital growth for our shareholders. As a FTSE 250
investment company since December 2022, the Company is proud to own and
actively manage an unrivalled £1.2 billion portfolio of nine high-quality
Digital Infrastructure investments. We continue evaluating complementary
sources of growth capital to support our Investee Companies, as previously
announced.
On behalf of the Board, I remain confident in the Company's ability to
continue generating sustainable and growing income and capital growth to our
shareholders. We look forward to welcoming shareholders to our Capital Markets
Day on 20 March 2023."
Arnaud Jaguin, Investment Director at Triple Point, commented:
"Our investment portfolio delivered a robust operational performance in 2022,
with all Investee Companies reporting accelerated customer demand. We managed
to substantially invest or commit all available capital raised since IPO
during the year, and we have now moved into a period of consolidation and
value creation.
We are now focused on the optimisation of our portfolio of nine attractive and
complementary assets, which offer accretive convergence value across our four
target subsectors. The Investee Companies benefit from high-quality management
teams and continue to add key hires to deliver their business plans. They have
the potential to be platforms for significant future growth and provide
attractive and compelling opportunities to deploy additional capital.
We expect the portfolio will achieve higher returns due to the arbitrage
between making investment in our existing asset base compared to making new
acquisitions"
Annual report and results webcast for analysts
The Annual Report is now available for download at
www.d9infrastructure.com/investors (http://www.d9infrastructure.com/investors)
.
The Company will be hosting a live webcast presentation for sell side analysts
at 9.30am GMT today. The presentation will also be accessible on-demand in due
course via the Company's website.
The results will also be available to view and download on the Company's
website and hard copy will be posted to shareholders on or around 17 March
2023.
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
Triple Point Investment Management LLP +44 (0)20 7201 8989
(Investment Manager)
Ben Beaton
Arnaud Jaguin
J.P. Morgan Cazenove (Corporate Broker) +44 (0)20 7742 4000
William Simmonds
Jérémie Birnbaum
Akur Capital (Financial Adviser) +44 (0)20 7493 3631
Tom Frost
Anthony Richardson
Siobhan Sergeant
FTI Consulting (Communications Adviser) dgi9@fticonsulting.com
Ed Berry +44 (0)7703 330 199
Mitch Barltrop +44 (0)7807 296 032
Maxime Lopes +44 (0) 7890 896 777
LEI: 213800OQLX64UNS38U92
About Digital 9 Infrastructure plc:
Digital 9 Infrastructure plc (DGI9) is an investment trust listed on the
London Stock Exchange and a constitutent of the FTSE 250, with ticker DGI9.
The Company invests in the infrastructure of the internet that underpins the
world's digital economy: digital infrastructure.
The Investment Manager is Triple Point Investment Management LLP ("Triple
Point") which is authorised and regulated by the Financial Conduct Authority,
with extensive experience in infrastructure, real estate and private credit,
while keeping ESG principles central to its business mission. Triple Point's
Digital Infrastructure team has over $300 billion in digital infrastructure
transaction experience and in-depth relationships across global tech and
global telecoms companies.
The number 9 in Digital 9 Infrastructure comes from the UN Sustainable
Development Goal 9, which focuses the fund on investments that increase
connectivity globally and improve the sustainability of digital
infrastructure. The assets DGI9 invests in typically comprise scalable
platforms and technologies including (but not limited to) subsea fibre, data
centres, terrestrial fibre and wireless networks.
From its IPO in March 2021 and subsequent capital raises, DGI9 has raised
total equity of £905 million and a revolving credit facility of £375
million, invested into the following data centres, subsea fibre, terrestrial
fibre and wireless networks:
• Aqua Comms, a leading owner and operator of 20,000km of the most modern
subsea fibre systems - the backbone of the internet - with a customer base
comprising global tech and global telecommunications carriers (April 2021);
• Verne Global Iceland, the leading Icelandic data centre platform, with
40MW of high intensity computing solutions in operation or development,
powered by 100% baseload renewable power (September 2021);
• EMIC-1, a partnership with Meta on a 10,000km fibre system from Europe to
India (July 2021);
• SeaEdge UK1, a data centre and landing station for the North Sea Connect
subsea cable, part of the North Atlantic Loop subsea network, improving
connectivity between the UK, Ireland, Scandinavia and North America (December
2021);
• Elio Networks (previously Host Ireland) a leading enterprise broadband
provider that owns and operates Fixed Wireless Access networks (April 2022);
• Verne Global London (previously Volta), a premier data centre based in
central London, providing 6MW retail co-location services (April 2022);
• Verne Global Finland (previously Ficolo), a leading Finnish data centre
and cloud infrastructure platform, with c.23MW of data centre capacity,
powered by 100% renewable power and distributing surplus heat to district
heating networks (July 2022).
• Giggle, a revolutionary Fibre to the Home network providing affordable
broadband to social housing in Glasgow (July 2022); and
• Arqiva, the only UK national terrestrial television and radio broadcasting
network in the United Kingdom - providing data, network and communications
services, as well as a national IoT connectivity platform (October 2022).
The Company's Ordinary Shares were admitted to trading on the Specialist Fund
Segment of the Main Market of the London Stock Exchange on 31 March 2021. It
was admitted to the premium listing segment of the Official List of the
Financial Conduct Authority and migrated to trading on the premium segment of
the Main Market on 30 August 2022.
For more information on the Investment Manager please visit
www.triplepoint.co.uk. For more information, please visit
www.d9infrastructure.com.
CHAIR'S STATEMENT
I am pleased to present the Company's 2022 Annual Report. The period since our
IPO was characterised by accretive portfolio growth through targeted
acquisitions. The Company faced several challenges last year, but the
portfolio is well positioned heading into 2023 to deliver sustainable and
growing income and capital growth for our shareholders.
As well as the challenging macro-economic environment characterised by rising
inflation and interest rates, the Company's Investment Manager also
experienced change, following the departure of investment team personnel in
November 2022. The remainder of the Triple Point Digital Infrastructure team
has continued in place and is supported by an excellent Operating Partner
panel and the management teams at the respective investee companies to deliver
on respective business plans.
Our Investee Companies have identified significant growth opportunities,
reflected in their recent forecasting and growth capital planning. As we aim
to strike the right balance between growth, financial leverage and total
return, we will remain disciplined in our capital management approach.
As a constituent of the FTSE 250 since December 2022, the Company is proud to
own and actively manage a £1.2 billion portfolio of nine high-quality Digital
Infrastructure investments. These investments create a global growth platform
of carrier-neutral, interconnected data centre, subsea fibre, wireless, and
fibre assets; all with a common purpose to reduce the digital divide and help
decarbonise the sub-sectors in which they operate.
Shareholder Returns
The Company generated a total return for shareholders of 10.4%, 0.4% in excess
of the Company's target. Owing to the quality and organic growth of the assets
within the portfolio, the Company's NAV increased to £950 million or a NAV
per share increase of 4.9% to 109.76 pence (2021: 104.62 pence), providing
shareholders with a compelling opportunity for capital growth.
The Company has paid or declared dividends totalling 6 pence per share for the
twelve-month period, in line with our target set at IPO. The Board has
maintained its target annual dividend of 6 pence per share for the year ending
31 December 2023, payable quarterly 5 (#_edn5) .
D9 reported a profit before tax of £92.0 million (2021: £38.3 million) for
the year, equal to 11.09 pence per share (2021: 9.77 pence per share)
calculated on the weighted average number of shares in issue during the year.
This was the net result of income received from investments acquired and
revaluation gain arising on the investments held at fair value through profit
or loss as at 31 December 2022.
The Company's annualised ongoing charges ratio ("OCR") 6 (#_edn6) was 1.10%
(2021: 1.04%). As the Company has now largely deployed its available capital,
we expect the OCR to decrease as economies of scale and operating efficiencies
are achieved. The Board will continue to monitor the OCR closely as we seek to
grow D9 and continue delivering value to our shareholders.
Portfolio Performance
During the year the Company deployed £768 million, including a £163 million
vendor loan note into new investments, and we are delighted to welcome Arqiva,
Verne Global Finland (previously Ficolo Oy), Verne Global London (previously
Volta Data Centres), Elio Networks (previously Host Ireland) and Giggle
Broadband to the Company's portfolio.
Our diversified portfolio performed strongly during the year in line with
management expectations. Consolidated Investee Company revenue was £409
million and consolidated Investee Company EBITDA was £206 million for the
year 31 December 2022 7 (#_edn7) (,) 8 (#_edn8) , increasing to £226
million on a contracted run rate basis.
Our Investee Companies are led by high-quality management and operational
teams, who complement the experience of the Investment Manager. Among the
Investee Company management teams, the Board was delighted to welcome the
expansion of Verne Global's senior leadership team with three key
appointments: Mike Allen as Chief Operating Officer; Kate Hennessy as Chief
Financial Officer; and Hildegard van Zyl as General Counsel. They bring with
them considerable experience and diverse skills and demonstrate the ability of
D9's platform to attract the highest calibre individuals within the sector. We
are also delighted to welcome Jim Fagan as the CEO of Aqua Comms, effective
from 1 May 2023, who brings 25 years' industry leading experience in
Asia-Pacific, North America and EMEA, including executive roles with Global
Cloud Xchange, Rackspace, and Pacnet (later acquired by Telstra).
Growth Capital Expenditure Pipeline
The business planning process confirmed significant growth opportunities for
our Investee Companies via a significant growth capital expenditure pipeline
of £223 million for 2023, and over £900 million over the five-year period.
The Board maintains conviction that it is in the best interests of
shareholders to continue funding the Investee Companies long-term growth both
through growth capital expenditure and the reinvestment of operating cash flow
by the Investee Companies due to the long-term opportunities for enhanced
returns and ultimately capital growth.
The Board and Investment Manager have evaluated options and commenced
processes seeking complementary sources of growth capital to support our
Investee Companies alongside the capital expenditure already committed by the
Company. These processes include a syndication through a competitive process
of a minority stake in existing Investee Companies to a strategic capital
partner in conjunction with a leading investment bank and the arrangement of
appropriate debt financing at Investee Company level. The syndication would
provide proceeds which could be used to pay down the RCF and/or fund growth
capital expenditure and provide valuable follow-on capital to Investee
Companies. In relation to Investee Company level debt, a term sheet has been
agreed for a $100 million facility to be provided to one of the high growth
Investee Companies, the proceeds of which will be used to finance accretive
growth opportunities, and to repay a Company shareholder loan, which will be
used to reduce the drawings of the Group's RCF. Further updates on these
processes will be announced to shareholders following their completion.
As our Investee Companies mature, we expect them to begin to optimise their
capital structure and take on appropriate levels of longer-term structural
debt finance in the future to facilitate growth. With the exception of Arqiva,
the Investee Companies had no financial gearing in place at 31 December 2022.
The utilisation of debt financing at Investee Company level or complementary
sources of capital will only be approved by the Board when it is accretive to
shareholder value. This value could be achieved when the incremental return on
a new investment significantly exceeds the cost of debt or to fund growth
capital expenditure and provide valuable follow-on capital to Investee
Companies.
Dividend Cover
We have paid or declared dividends totalling 6 pence per share for the
12-month period from 1 January 2022 to 31 December 2022, in line with our
target set at IPO. We remain committed to implementing a progressive dividend
policy; however, in the current environment the Board has decided that it is
appropriate to maintain a target annual dividend of 6 pence per share for the
year ending 31 December 2023, payable quarterly 9 (#_edn9) .
The Company's dividends are underpinned by the Operating Cash Flows of our
Investee Companies, with an operating cash dividend cover of 0.4x as at 31
December 2022 (0.4x at 31 December 2021; 0.5x at 30 June 2022). Cash dividend
cover was broadly in line with 31 December 2021, with a decline over the
second half of 2022 reflecting the impact of the Arqiva accretion payment
during this period of high inflation, and as the customer contracts secured by
the growth platforms are yet to fully ramp. As these investments continue to
mature, we expect this to translate progressively into cash cover at the
Company level. For illustrative purposes only, if all sold contract capacity
of the data centre platform assets was at maximum capacity, portfolio cash
flow cover would be 80% at 31 December 2022.
Further information can be found in the Investment Manager's Report.
Share Price
The Board and Investment Manager are disappointed that the share price closed
the year out at a 21% discount to NAV at 86.40 pence per share (closing share
price as at 31 December 2021 was at an 8.8% premium to the NAV as at the same
date). This followed a period of high market volatility for global equity
markets, and particularly UK investment trusts, at the end of the year,
following an increase in interest rates in the UK, European and North American
markets. Like many other investment trusts, the share price has been
particularly suppressed following the UK Government's mini-budget announcement
on 23 September 2022 driving a further increase in gilt yields, and prior to
that the Company had traded at a healthy premium to NAV for the first nine
months of the year. The Board and Investment Manager closely monitor the share
price and are focussed on narrowing the discount to NAV. We have confidence in
the actions the Company is taking to enhance shareholder value that we believe
will, in turn, support a recovery of the share price.
Following the departure of investment team personnel in November 2022, we saw
further downward pressure on the share price; however, we believe this is
unjustifiable and does not reflect the inherent value and capital appreciation
potential of the portfolio, particularly the Nordic data centres. We remain
confident in the growth potential of the underlying investment portfolio and
expect a positive impact on the share price when economic uncertainty reduces
and as significant demand for infrastructure that underpins the digital
economy continues to increase. We have continued to update the market on
progress with shareholders, for example through our Trading Update released in
January 2023, to demonstrate the significant customer demand of the Investee
Companies. The Company will continue to seek shareholder approval at its
annual general meeting, as a matter of course, to allow it to undertake share
buybacks to reduce the discount to NAV where it has uncommitted cash, or cash
in excess of scheduled dividend payments, taking into account the Company's
working capital position and other relevant economic factors.
Environmental, Social and Governance
The Board recognises that Digital Infrastructure is critical to a future
sustainable economy but to ensure it fulfils its role, the infrastructure
developed must have ESG considerations at its core. The Company is focused on
investment opportunities that are aligned with the Sustainable Development
Goal 9. Ensuring alignment to this theme and wider ESG factors is an important
part of the investment decision making process and on-going asset ownership.
Progress continues with each Investee Company to enhance their understanding
and approach to ESG, with 2022 seeing a focus on data capture with all
Investee Companies making progress on their carbon footprint. A continued
focus on the decarbonisation theme of sustainable digital infrastructure is
reflected in D9's data centre platform reporting a carbon footprint which is
estimated to be 86% lower than the average UK data centre and 93% lower than
the average US data centre. The ESG metrics each Investee Company now tracks
and reports continues to extend. Targets have now been implemented for SDG9
alignment (e.g., energy efficiency tracked through an aggregated PUE of 1.3
and connectivity through a growth in network capacity of 10% year-on-year) and
operational ESG action (e.g., net zero roadmaps to be implemented by all
Investee Companies by 31 December 2024 and the implementation of enhanced
cyber security standards across all). These aim to ensure ongoing alignment to
the Company's commitment to SDG9 and to ensure each Investee Company continues
to improve across a range of operational ESG-related activities to protect the
wider value of each business. Reporting and outcomes are provided in the
Sustainability Report.
The Investment Manager's Team
As previously announced, Ben Beaton currently leads the Digital Infrastructure
team supported by the existing and established Digital Infrastructure team
within Triple Point, which includes Investment Director, Arnaud Jaguin.
Further biographical details of Ben and Arnaud, the Operating Partners
supporting the portfolio businesses, and the Investee Company CEOs can be
found in the Annual Report.
As disclosed on 1 December 2022, the Investment Manager initiated a formal
recruitment and selection process for the Head of Digital Infrastructure with
a leading executive search firm led by consultants with specialist Digital
Infrastructure expertise, focusing on senior asset management/value creation
individuals and industry professionals, to complement the existing skillset of
the team and Investee Company management; this process is being overseen by
the Board. The Board and the Investment Manager have thoroughly evaluated the
skills and experience D9 would benefit from and expect to announce the
selected candidate in Q2 2023.
Outlook
In the year ahead, the Board and the Investment Manager are focused on
portfolio optimisation and value creation, as well as leveraging the synergies
between the platform investments within the portfolio. We intend to continue
reinvesting in our subsea and data centre platforms to fulfil the accelerated
customer demand and create long-term opportunities for sustainable income and
capital growth for the portfolio.
The Investment Manager, with the support of the Board, continues to dedicate
extensive resource to managing the portfolio's growth, operational
performance, and liquidity position.
In doing so, the Investment Manager will continue to execute the Company's
accretive convergence strategy by driving the breadth and depth of customer
relationships across global tech and telecom operators. Through this
investment approach, we aim to build a global platform that promotes
scalability, flexibility, reliability, and neutrality across the digital
infrastructure value chain.
On behalf of the Board, I remain confident in the Company's future ability to
continue generating sustainable and growing income and capital growth for our
shareholders, and we thank our shareholders for their support during the year.
We look forward to welcoming shareholders to our Capital Markets Day on 20
March 2023.
Phil Jordan
Chair
8 March 2023
STRATEGY AND BUSINESS MODEL
The Board is responsible for the Company's Investment Objective and Investment
Policy and has overall responsibility for ensuring the Company's activities
are in line with such overall strategy. The Investment Policy was amended on
27 February 2022 as approved by shareholders at a General Meeting, and further
non-material amendments to the Investment Policy were announced on 24 August
2022.
The Group's current Investment Policy and Investment Objective are published
below.
Investment Objective
The Company's investment objective is to generate a total return for investors
comprising sustainable and growing income and capital growth through investing
in a diversified portfolio of resilient Digital Infrastructure Investments.
Investment policy
The Company intends to achieve its investment objective by investing in a
diversified portfolio of Digital Infrastructure Investments which provide key
infrastructure for global data transfer (subsea fibre-optic networks, wireless
networks and terrestrial fibres) and data storage (data centres), all of which
contribute to facilitating global digital communication.
The Company is focused on the provision of Digital Infrastructure integrated
with green and cleaner power in line with UN Sustainable Development Goal 9:
"Build resilient infrastructure, promote inclusive and sustainable
industrialization and foster innovation".
The Company seeks to invest in assets or Investee Companies which typically
have secured medium to long term contracts underpinned by high quality
counterparties.
The Company invests (directly or via subsidiary companies) in a range of
Digital Infrastructure assets which deliver a reliable, functioning internet.
The portfolio will typically comprise future proofed, non-legacy, scalable
platforms and technologies including (but not limited to) subsea fibre, data
centres, terrestrial fibre, tower infrastructure and small cell networks which
meet the following criteria:
· assets and Investee Companies which deliver communications, data
transfer, interconnectivity and data storage;
· assets and Investee Companies which derive a significant proportion of
their revenues from high quality counterparties (meaning, for these purposes,
companies (or their parent companies) which are included in the FTSE 350 (or
equivalent) or which are investment-grade rated by a recognised grading
agency) and/or a diversified portfolio of counterparties that, by reason of
its diversity, is resilient and well placed to weather economic downturns;
· assets and Investee Companies with high cash flow visibility and
resilience, specifically from medium to long term contracts or from a
diversified portfolio of shorter term contracts providing essential underlying
services.
The Group focuses, primarily, on Digital Infrastructure Investments where the
assets (or Investee Companies which own the assets) are operational and, where
appropriate, there is a contract in place with the end user and/or off-taker.
Where suitable opportunities arise, however, the Group may provide limited
funding during the Construction Phase or Development Phase of a Digital
Infrastructure asset, in particular, on a forward funding basis where
development risk for the Company is limited, subject to the restrictions set
out below.
Investment restrictions
The Company invests and manages its assets with the objective of spreading
risk and, in doing so, will maintain the following investment restrictions:
· the Company will not invest more than 25 per cent. of Adjusted Gross
Asset Value in any single asset or Investee Company. When the Gross Asset
Value reaches £2 billion (as notified by the Company in its annual or half
year financial results report), this restriction will change to 20 per cent.
of Adjusted Gross Asset Value;
· investments will be focused on acquiring a controlling interest
(meaning more than a 50 per cent. interest) in the relevant investment assets
or Investee Companies being acquired or invested in but can also comprise
minority interests (where appropriate minority protections are in place);
· at least 50 per cent. of Adjusted Gross Asset Value will be invested
in developed markets, in particular (but not limited to), the UK, EU and US;
· neither the Company nor any of its subsidiaries will invest in any
assets or Investee Companies located in or with co-investment exposure to any
Restricted Territories;
· neither the Company nor any of its subsidiaries will invest in any assets
or Investee companies using technologies or equipment under any current
prohibition ruling by relevant UK, EU, or US authorities, unless such
equipment is in the process of being removed in line with the guidelines of
such UK, EU or US authorities;
· the Company may invest a limited amount in assets (or Investee
Companies which own assets) which are predominantly in construction, which
typically will be undertaken via a forward funding arrangement which pays a
return during the Construction Phase, with any investments which expose the
Company to development risk limited to, in aggregate, no more than 5 per cent.
of Adjusted Gross Asset Value, and the aggregate value of assets in
construction or development being no more than 20 per cent. of Adjusted Gross
Asset Value (such amount to be calculated as the aggregate value of all
material construction or development activities, including forward funded
developments, within Investee Companies);
· neither the Company nor any of its subsidiaries will invest in any
listed entities, or in private closed-ended investment companies or any funds
of any kind; and
· the Company itself will not conduct any trading activities which are
significant in the context of the Group as a whole.
Compliance with the above investment limits will be measured at the time of
investment and non-compliance resulting from changes in the price or value of
assets following investment will not be considered as a breach of the
investment limits.
For the purposes of the foregoing, the term "Adjusted Gross Asset Value" shall
mean the aggregate value of the total assets of the Company as determined with
the accounting principles adopted by the Company from time to time as adjusted
to include any third-party debt funding drawn by, or available to, any Group
company (which, for the avoidance of doubt, excludes Investee Companies).
Borrowing Policy
The Directors do not intend to use gearing at the Company level, other than
utilising short-term credit facilities for financing acquisitions (which could
be at the level of the Company or a Group company (which, for the avoidance of
doubt, excludes Investee Companies)), such borrowings to be at a Conservative
level. Intragroup debt between the Company and its subsidiaries, and the debt
of Investee Companies, will not be included in the definition of borrowings
for these purposes.
Long term gearing is likely to be applied at an Investee Company level in
order to enhance returns but will be at a prudent level, appropriate for the
particular Investee Company and sub-sector.
Hedging and Derivatives
The Company will not employ derivatives for investment purposes. Derivatives
may however be used for efficient portfolio management. In particular, the
Company may engage in interest rate or currency hedging or otherwise seek to
mitigate the risk of interest rate increases and currency movements.
The Group will only enter into hedging contracts and other derivative
contracts when they are available in a timely manner and on acceptable terms.
The Company reserves the right to terminate any hedging arrangement in its
absolute discretion. Any such hedging transactions will not be undertaken for
speculative purposes.
Cash management
The Company may hold cash on deposit for working capital purposes and awaiting
investment and, as well as cash deposits, may invest in cash equivalent
investments, which may include government issued treasury bills, money market
collective investment schemes, other money market instruments and short-term
investments in money market type funds ("Cash and Cash Equivalents"). There is
no restriction on the amount of Cash and Cash Equivalents that the Company may
hold and there may be times when it is appropriate for the Company to have a
significant Cash and Cash Equivalents position.
Business Model
D9 is an investment entity and therefore does not produce consolidated
accounts. D9 creates shareholder value by investing in companies and assets
that provide the critical Digital Infrastructure required to deliver equal,
ubiquitous internet access to people and organisations across the globe.
Furthermore, our open-access, low-carbon connectivity platform provides a
sustainable solution to exponential growth in global data demand, fuelling a
greener future.
We are leading the way in carrier-neutral connectivity globally and are
committed to democratising access to critical digital infrastructure. By
building a diversified portfolio of investments across the key sectors, we aim
to offer our customers access to a resilient and uniquely interconnected
ecosystem.
We aim to create shareholder value through three primary approaches:
1. Significant opportunity for accretive investment in
growth platform.
2. Portfolio convergence and global customer relationships:
Portfolio synergies through a value chain focus and relationships with the
biggest purchasers across the digital infrastructure value chain (global
carriers and global tech).
3. SDG9 purpose driven initiatives: United Nations Sustainable
Development Goal 9, focusing us on connectivity and environmentally
sustainable investments.
The business model for each target sector depends on the sector's
characteristics and location, but they each exhibit a fundamental commonality
that is critical for our wider business model, being the interconnectedness of
our assets delivering a resilient ecosystem to our customers. Through this we
target a robust customer base delivering a creditworthy, inflation-linked
income stream to deliver returns to our shareholders.
Investment Process
The Investment Manager's Digital Infrastructure team employs a rigorous
investment process when appraising new opportunities presented to it for
consideration. The Company makes its investments via its sole direct
subsidiary and main investment vehicle, Digital 9 Holdco Limited ("Holdco").
The Strategy in Practice: Arqiva
Always-on
Increasing digital connectivity has both mirrored and facilitated changes in
the way consumers behave. We are always "switched-on", with seeming limitless
content, information, and data now at our fingertips - and consumers and
businesses are hungry for more.
For example, the average person in the UK spent five hours and 16 minutes per
day watching TV and video content across all devices in 2022, which included
two hours and 24 minutes of live TV. As of December 2022, 88% of BBC audience
engagement time is through traditional broadcasting. 10 (#_edn10)
The Board believes there is a significant opportunity for more investment in
the digital infrastructure that delivers this data and content. D9 is
exploring new frontiers in wireless via a landmark investment in Arqiva, an
established wireless "national champion".
Pioneering new technologies
Arqiva plays a central role in keeping people connected and has done so for
the past 100 years.
With a tradition of innovation, alongside its well-established licensed
customer base and reputation for excellent service, Arqiva has strong roots in
leading the development of Internet Protocol television ("IPTV") or delivering
content to consumers via the internet.
Arqiva works with customers to meet new challenges and has helped to develop
cloud solutions to help the UK's transition to IPTV consumption. It has
integrated over 50 platforms through its Video on Demand processing platform
and has launched Arqade and Arqplex in recent years to take advantage of the
benefits of cloud processing for content owners and broadcasters.
This was possible because of Arqiva's heritage in broadcasting. Having
delivered the world's first TV broadcast for the BBC in 1936, Arqiva remains
at the heart of TV and radio and enables household names like the BBC, ITV,
Discovery, BT Sport, and Sky to distribute their content to UK consumers.
Reliable investment returns
Arqiva's revenue is underpinned by long-term contracts with blue-chip
customers including the BBC, ITV, Channel 4, Sky, Discovery, and Thames Water.
Revenue contracts benefit from inflation protection, with an estimated 65-70%
of forecast recurring revenue for the financial year ending 30 June 2023
linked to the consumer price index ("CPI") or the retail price index ("RPI").
Around 80% of Arqiva's revenues are contracted, with a weighted average
unexpired contract term of c. eight years. Arqiva's operational cash flow will
generally benefit from an inflationary environment, however inflation-linked
swaps currently in place (until April 2027), offset the positive inflationary
effect on operational cash flow. Therefore, while Arqiva will benefit from an
inflationary environment in the longer term with cash flows increasing over
our original investment case and driving a higher valuation, the overall
effect in the short-to-medium term will be a negative impact on cash flows
from Arqiva to the Company.
The Company is working closely with Arqiva to consider the optimisation of its
capital structure.
No one left behind
One of D9's investment objectives is ensuring that global connectivity is
accessible to all. Digital Terrestrial Television ("DTT") is a complementary
technology to Internet Protocol Television ("IPTV") which continues to play a
crucial role in the daily lives of millions of people across the UK.
DTT, which many consumers know better as Freeview, provides near universal
access to channels that keep the UK informed and entertained. Superfast
broadband connection or a subscription fee is not required, instead ensuring
communities are not cut off from what many perceive to be an essential
service. DTT provides access to free-to-air standard channels and radio
services, reaching 98.5% of UK households. 11 (#_edn11)
Its infrastructure is the only means by which just under eight million adults
are able to access television content. These people are some of the most
vulnerable in UK society, with three million living alone, four million
belonging to the C2DE 12 (#_edn12) socio-economic group, and nearly 1.8
million who have a disability. 13 (#_edn13) The digital skills gap prevents
around one in 10 people across the UK from accessing broadcast alternatives
due to their inability to set up internet services or access TV online, while
a similar number (7%) do not have a strong enough internet connection to
support alternative services. 14 (#_edn14)
The role that Arqiva plays in supporting essential broadcasting and
transmission services has extremely high barriers to entry, given the
significant investment that would be required to replicate existing
infrastructure.
Sustainable growth
The next phase of Arqiva's growth is unlocking the potential in its digital
connectivity platform, which revolves around Internet of Things ("IoT"). The
Investment Manager views this part of Arqiva's strategy as a huge NAV
accretion opportunity and expects it to be a key driver of value in the
future. Smart Utilities already contributes around a quarter of Arqiva's
revenues and it is expected to continue to grow.
We have seen a rising number of IoT devices, ranging from our cars and smart
watches to smart TVs over the past few years, and there is potential for the
market for industrial application to grow exponentially.
Having first applied IoT solutions to gas and electricity metering in 2013,
Arqiva has since developed a national IoT utilities connectivity platform. It
is one of the preeminent UK Critical National Infrastructure Providers, having
deployed the largest smart water metering network in the world. Now over 12
million premises can connect to Arqiva's smart meter networks.
Smart meters offer a number of benefits to consumers, from providing
transparency of usage and more accurate bills, to enabling consumers to switch
energy suppliers with greater ease. Arqiva also owns one of the largest
contracts with the Data Communications Company ("DCC"), which operates the
network connecting smart meters to energy suppliers. This enables Britain to
make the fullest use of its energy by helping to digitise the UK's energy
system, tracking and monitoring supply in real-time.
One-portfolio approach
As IoT usage increases, there will be a significant rise in the amount of data
generated by IoT devices. As a result, data centres will be expected to store,
process, and analyse more data than ever before.
D9's portfolio is structured in the way that supports data transfer and
storage at all stages of its journey. By building a diversified portfolio of
investments across key sectors, Investee Company customers, and, ultimately
D9's shareholders, benefit from a uniquely interconnected ecosystem: from IoT
where data is generated, to terrestrial fibre, wireless networks, subsea
cables and landing stations where data is transported; to data centres, where
data is processed and stored.
This is the critical global infrastructure chain that underpins connectivity
and communications.
Case study: smart water metering
Today, less than 10% of UK premises have a smart water meter, and less than
30% have a smart energy meter. The rollout of smart meters would deliver huge
benefits for households, the environment and the water industry. Smart
metering of water has been shown to reduce house consumption by 17-18%,
ensuring the security of future water supplies and protecting local
environments. 15 (#_edn15) Fitting one million smart water meters in the UK
each year for the next 15 years could save one billion litres of water a day
by the mid-2030s and reduce the UK's current greenhouse gas emissions by up to
0.5%. 16 (#_edn16)
Arqiva has one of the largest smart water networks in the world. Its IoT
technology can help aid the UK's water resilience and combat water scarcity
through the more efficient operation and management of UK water utility
networks. This is because Arqiva's smart metering networks deliver around 50
million data points every day, meaning leaks and pollution incidents can be
detected more quickly.
KEY PERFORMANCE INDICATORS
In order to track the Company and/or Group's progress the following key
performance indicators are monitored:
RELEVANCE TO STRATEGY PERFORMANCE EXPLANATION
KPI AND DEFINITION
1. Dividends per share (pence)
Dividends paid and declared on every ordinary outstanding share in relation to The dividend reflects the Company's ability to deliver a growing income stream The Company has paid or declared dividends of 6 pence per share in respect of The Company met its target for the year ended 31 December 2022, and is
the year. from the portfolio. the year to 31 December 2022 (4.5 pence per share in 2021, or 6 pence on an targeting a dividend of 6 pence per share for the year ending 31 December
annualised basis). 2023. 17 (#_edn17)
2. Total return (%) 18 (#_edn18)
The change in NAV in the period and dividends paid per share in the period. The total return highlights the underlying performance of the portfolio's 10.4% year to 31 December 2022 (13.1% period from IPO to 31 December 2021). A medium-term total return target of 10% per annum was set during the IPO
investment valuations, including dividends paid. process. The Company exceeded this target in the current financial year by
0.4%.
3. Total shareholder return (%) 19 (#_edn19)
The change in share price and dividends paid per share. The total shareholder return highlights the gross return to investors -19.56% in respect of the year to 31 December 2022 (+16.94% for the period This decrease was driven by a fall in the share price from 113.8 pence per
including dividends paid. from IPO to 31 December 2021). share on 31 December 2021 to 86.4 pence per share on 31 December 2022.
4. Earnings per share (pence)
The post-tax earnings attributable to shareholders divided by weighted average The EPS reflects our ability to generate earnings from our investments 11.09 pence per share for the year to 31 December 2022 (see Note 22) (9.77 EPS increased by 13.5%. The main driver for which was the increase in the
number of shares in issue over the period. including valuation increases. pence per share from IPO to 31 December 2021). underlying valuation of the Company's investments during the period.
5. NAV per share (pence)
NAV divided by number of shares outstanding as at the period end. The NAV per share reflects our ability to grow the portfolio and to add value 109.76 pence per share (104.62 pence per share as at 31 December 2021) (see This is an increase of 4.9% during the year driven by growth in the underlying
to it throughout the life cycle of our assets. Note 23). valuation of the Company's investments and income paid to the Group during the
period.
6. Operating cashflow dividend cover 20 (#_edn20)
Operational cash flow of the Investee Companies divided by dividends paid to The operating cashflow dividend cover reflects the Company's ability to cover Operating cashflow dividend cover for the year to 31 December 2022 was 40% As these investments continue to mature, it is expected to translate
shareholders during the year. its dividends from the operational cash flow generated by its Investee (39.6% for the period from IPO to 31 December 2021). Operating cash dividend progressively into cash cover at the Company level.
Companies, after deducting Investee Companies' maintenance capex and interest cover is measured as total dividends paid and payable at 31 December 2022, as
costs. a percentage of total operating cashflows for the Investee Companies. For more detail on dividends and dividend cover please the Investment
Manager's report.
7. Ongoing Charges Ratio 21 (#_edn21)
Annualised ongoing charges are the Company's management fee and all other Ongoing charges show the drag on performance caused by the operational 1.10% for the year to 31 December 2022 (1.04% from IPO to 31 December 2021). A key measure of our operational performance. Keeping costs low supports our
operating expenses (i.e. excluding acquisition costs and other non-recurring expenses incurred by the Company. ability to pay dividends. As the Group has acquired more Investments during
items) expressed as a percentage of the average published undiluted NAV in the the period, the Group structure has become more complex. As a result, audit
period, calculated in accordance with Association of Investment Companies costs and professional fees have increased. Additional costs were also
guidelines. incurred as a result of the Company's move to the premium segment.
8. Points of presence (POPs)
A Point of Presence is a discrete geographic location within the Investee Points of presence represent a physical demonstration of the fibre networks 58 (17 at 31 December 2021). POPs, with kilometres of fibre and growth in network capacity provide a
Company network, containing Investee Company owned exchange equipment and distribution to a wider set of customers. We seek growth in this value over picture of the connectivity provided by the Company. These KPIs are intended
allows for connection into the wider network. time. to be tracked over time and their growth demonstrate an increase in
connectivity as a result of the Company's investments. The number of Points of
Presence grew significantly during the reporting year due to the acquisition
of Elio Networks, a fixed wireless provider with a large network.
9. Kilometres of fibre
The total length of fibre (operational and in development) owned or part-owned Kilometres of fibre represent a physical demonstration of the fibre networks 32,000 km at 31 December 2022 (32,000 km at 31 December 2021). Kilometres of fibre, with POPs and growth in network capacity provide a
by Investee Companies 22 (#_edn22) . presence. We seek growth in this value over time. picture of the connectivity provided by the Company. These KPIs are intended
to be tracked over time and their growth demonstrate an increase in
connectivity as a result of the Company's investments.
10. Growth in network capacity
The increase in sold capacity across fibre networks, between two points in Growth in network capacity represents the network's ability to respond to and 13% (7% at 31 December 2021). Growth in network capacity, with kilometres of fibre and POPs provide a
time. This metric is relevant to our Investee Companies. deliver on demand for more connectivity. We seek a positive percentage growth picture of the connectivity provided by the Company. These KPIs are intended
year-on-year. to be tracked over time and their growth demonstrate an increase in
connectivity as a result of the Company's investments.
11. Power Usage Effectiveness (PUE)
PUE is the total energy entering a data centre divided by the energy used by PUE is a measure of our energy efficiency and represents the decarbonisation 1.33 (1.22 at 31 December 2021). PUE is applicable to Data Centre assets and represents an important measure in
IT equipment inside the datacentre. of our investments either through targeting assets with the most advanced the environmental sustainability of an asset. Efficiency and increases in
energy efficiency practices, or through improvements of existing systems. The efficiency can contribute to a lower carbon emission and better use of natural
decarbonisation measure reflects the Company's success in aligning to SDG9, resource. Industry average is commonly reported to be 1.3 in cold air
target 9.4. temperature locations and 1.4 in warm air temperature locations. PUE showed a
slight increase this year, mostly due to the acquisition of additional data
centres in Finland and the UK, with a variety of ages and efficiency
credentials, as well as a slight decrease in efficiency at Verne Global
Iceland due to changes in customer usage. Work is undergoing to improve the
PUE of each data centre over time.
INVESTMENT MANAGER'S REPORT
Review of the Period
We are pleased that during the year, all available capital raised since IPO
has been substantially invested or committed. Further, the Investee Companies
benefit from high-quality management teams, who continue to add key hires with
a comprehensive understanding of their respective sectors. They have the
potential to be platforms for significant future growth through providing
attractive and compelling opportunities to deploy additional capital.
The Company has now moved into a period of consolidation and focus on the
operational performance and optimisation of each of the assets acquired to
date. The Board and Investment Manager have evaluated options and commenced
processes seeking complementary sources of growth capital to support our
Investee Companies alongside the capital expenditure already committed by the
Company. These sources include the syndication through a competitive process
of a minority stake in existing Investee Companies to a strategic capital
partner and/or appropriate debt financing at Investee Company level. Further
detail on these processes can be found below.
The Investment Manager includes a strong team of investment professionals
which have been involved with the Investee Companies since their acquisition,
who work with the operating partners and management of the Investee Companies.
As disclosed on 1 December 2022, Triple Point initiated a formal recruitment
and selection process with a leading executive search firm led by consultants
specialising in Digital Infrastructure for senior asset management/value
creation and industry professionals who complement the existing skillset of
the team and Investee Company management. The Board and Triple Point have
thoroughly evaluated the skills and experience D9 would benefit from and look
forward to updating shareholders on the outcome as soon as practicable. Triple
Point are encouraged by the high quality candidates in the process, and expect
to select a candidate in Q2 2023.
Investment Activity
During the year, the Company, through its subsidiaries invested or committed
c.£768 million into the target digital infrastructure sectors, including a
£163 million vendor loan note to fund the acquisition of Arqiva. This is
split between c.£693 million into acquiring five new Investee Companies,
c.£20 million fees and c.£58 million as reinvestments into the portfolio.
The investments were funded by a combination of cash held by the Group and
utilising the RCF. The Company invested £77.5 million into D9 HoldCo, with
the remainder of investments made with existing cash on hand and by drawing on
the RCF.
· April: Elio Networks (previously Host Ireland), £51 million. A
leading enterprise broadband provider which owns and operates the highest
capacity licensed Fixed Wireless Access network in Greater Dublin.
· April: Verne Global London (previously Volta Data Centres), £45
million. A 6MW data centre offering robust connectivity to customers requiring
low latency solutions in Central London.
· July: Verne Global Finland (previously Ficolo Oy), £114 million. A
leading Finnish data centre and cloud services platform, with ultra-modern
infrastructure spread across three campuses, with 23MW existing capacity and
further development potential up to 90MW.
· July: Giggle Broadband, £1 million. A development opportunity
providing affordable broadband to social housing through a revolutionary FTTH
network across the city of Glasgow.
· October: Arqiva, £300 million (£463 million including vendor loan
note): The only UK provider of national terrestrial TV and Radio broadcasting
and a leading national IoT utilities connectivity platform.
Throughout the year we have reinvested c.£75 million of RCF and cash proceeds
into existing Investee Companies to fund capex projects.
Due to accelerated customer demand, the Investee Companies, in aggregate, have
a significantly increased growth capital expenditure pipeline of c.£223
million for the year ending 31 December 2023. Notably, Verne Global Iceland
identified a substantially increased growth capital expenditure pipeline in
its latest five-year business plan, with capital expenditure pipeline in 2023
increasing to $115 million (£95 million). Over the five-year period, the
Investee Companies have capital expenditure opportunities of over £900
million.
The Company has committed capital towards several projects including
completion of the build out of the remaining capacity at Verne Global London
bringing it to 6MW. Capital committed to Aqua Comms will see the launch of the
AEC-3 subsea cable, its third transatlantic submarine cable system, adding
further resilience to its existing transatlantic AEC-1 and AEC-2 fibre network
links and continue the development of EMIC-1, launching in 2024.
The Company, through its subsidiary undertakings, has to date committed to
fund c.£46 million of the total pipeline which will be funded by a
combination of cash and the available RCF (c.£5 million is expected to fall
due in 2024 as EMIC-1 approaches being operational).
The Company's intercontinental reach is illustrated in the map set out in the
Annual Report.
Liquidity
The Group held unrestricted cash of £55.5 million as at 31 December 2022.
During the period, the Company successfully raised £155 million in gross
equity proceeds from existing and new shareholders, supported by a £375
million RCF.
At period-end, the RCF was £331.2 million drawn, with a further £43.8
million available to draw. The Company drew an additional £25 million of the
RCF post-period end to fund additional capital expenditure at Verne Global
London and Aqua Comms.
Shareholder Returns
At IPO, the Company committed to a 10% total return target comprising
sustainable and growing income and capital growth. At 31 December 2022, the
Company generated a total return for shareholders of 10.4%, 0.4% in excess of
the Company's target. The total return was comprised of a 6 pence dividend per
share, and NAV growth of 5% per share, from 1 January to 109.76 pence per
share.
Since IPO, the Company has continued to deliver income for shareholders in
meeting the target annualised dividend of 6 pence per Ordinary Share. 23
(#_edn23)
Dividend outlook
The Group's portfolio is comprised of market-leading companies which generate
sustainable inflation-link cash flows, and companies that have exceptional
growth opportunities. Together, the portfolio is designed to produce income
and capital growth, thereby achieving the Company's total return target. The
Company's dividend target is unchanged for the year ended 31 December 2023.
The Company's methodology to bridge from EBITDA to OCF is described in the
illustrative table below.
The table is presented on a full-year basis assuming ownership of Investee
Companies and £300 million being drawn of the RCF for the full financial
period.
In the full year ended 31 December 2022, the Company's dividend cover was
0.4x, a decrease of 25% from the six-month period ended 30 June 2022. This
decline was primarily attributable to the impact of the Arqiva accretion
payment, which was paid in June 2022.
EBITDA to OCF Bridge £'000
EBITDA 206,294
(-) Cash tax (428)
(-) Δ Working Capital (13,825)
(-) Maintenance Capex (20,813)
(+) Adjustment for exceptional transaction expenses 1,208
(-) IFRS 16 Adjustment (18,645)
Gross Operating Cash Flow 153,792
(-) VLN interest (9,780)
(-) Arqiva Interest Costs (51,419)
(-) Accretion Payments* (46,584)
Adjusted cash flow 46,009
(-) D9 Financing costs (16,954)
(-) Fund Operating expenses (10,360)
Net cash flow 18,695
Dividends 50,274
Operating cash Flow cover 0.4x
*D9's share of Arqiva's accretion payments. The inflation-linked swaps are due
to expire in 2027, after which point Arqiva will benefit from the incremental
revenue growth from the inflationary period without the added cost of the
accretion payments. For further information see below.
Path to Dividend Cover
There exist two principal factors which are expected to significantly improve
dividend cover generated from the existing portfolio over the coming years,
notably; the ramp up of existing customer contracts in Verne Global Iceland,
and the anticipated fall in inflation over the coming year, which will reduce
accretion payments due from Arqiva under their inflation linked swaps. Further
detail can be found below.
Verne Global
Verne Global Iceland, Verne Global London, and Verne Global Finland have
presold existing data centre capacity, the take up of which will ramp up over
time. It is expected that of the 13.1MWs remaining contracted capacity to be
ramped, 4.2MW will be fully ramped by December 2023, 8.6MW by December 2024
with all MW fully ramped by December 2027.
Once fully ramped, the Investment Manager expect this fulfilment of contracted
capacity will add c.£21.2 million to OCF. This figure excludes future OCF
contribution from capacity that has not yet been sold.
Arqiva
The Company defines Arqiva's OCF as EBITDA less interest, cash taxes, changes
in working capital, maintenance capital expenditure and accretion payments.
As previously disclosed, Arqiva uses interest rate swaps, including
inflation-linked interest rate swaps, to hedge interest rate exposures.
Inflation-linked swaps convert existing interest costs to RPI-linked costs,
which fluctuate in line with the RPI index, as do a significant portion of
Arqiva's revenues. The notional amounts of these swaps accrete with RPI, and
these accretion amounts require cash settlement annually in June. These swaps
are entered into on terms (including maturity) that mirror the debt instrument
that they hedge, and act as an effective hedge against rising interest rates.
65-70% of Arqiva's revenues remain linked to inflation, and therefore a high
inflationary environment is beneficial to the long-term profitability and
value of the Company's investment in Arqiva. A 1% increase in inflation versus
the inflation curve assumed for the current valuation model results in a
c.£22 million valuation gain for the Company's investment as of 31 December
2022, which is reflected in the NAV.
However, a 1% increase in inflation against the current assumed curve also
results in a c.£5 million reduction in the OCF attributable to D9 for the
financial year ending June 2023, due to the cash settlement of the accretion
payments mentioned above.
As a result of the current higher inflationary environment, operating cash
flow generated by Arqiva in 2022, since D9's period of ownership, was
negatively impacted by the June 2022 cash settlement of inflation-linked swap
accretion payment, which amounted to £46.6 million on a D9 pro rata basis.
Inflation continues to be high, which has a positive impact on the long-term
value of the business, and a negative impact on short-term OCF generation.
However, if inflation falls back to more typical levels, as is expected at the
end of 2023, there will be a positive impact on OCF generation.
Illustratively, assuming inflation fell to 4%, the Company would benefit from
an additional £24.1 million of OCF on a pro rata basis as a direct result of
a reduced accretion payment. The Company anticipates the portfolio will
benefit materially from the sustainable cash flows Arqiva generates following
the expiry of inflation-linked swaps in 2027. However, in the short term it is
expected that dividend cover will be impacted by the accretion payment in June
2023 that is based on the prevailing RPI index at the end of March.
This £24.1 million increase in OCF, taken with the Verne Global Iceland and
Verne Global London ramp-up benefit of £21.2 million, would have the impact
of increasing OCF dividend cover to c.1.3x on a like-for-like basis.
Re-investment of OCF and Complementary Capital
The Company believes the free cash flow generated by the portfolio's growth
platforms will, over time, grow as accelerated demand is fulfilled by ramping
up customers' workloads and moving construction assets into full operation -
particularly in the case of Verne Global, Aqua Comms, and EMIC-1.
Until the point of the growth platforms' maturity, the Company expects these
Investee Companies will require utilising their operating cash flow to support
their respective growth plans alongside capital expenditure as identified by
the Company's growth capital expenditure pipeline.
In the Trading Update published on 11 January 2023, the Company announced that
it was exploring complementary sources of capital, including debt at an
Investee Company level and a potential syndication of a minority stake in
existing Investee Companies to a strategic partner, a process which has since
commenced in conjunction with a leading investment bank, to fund the
significantly increased growth capital expenditure pipeline of the Investee
Companies and provide valuable follow-on capital to Investee Companies.
In relation to Investee Company level debt, a term sheet has been agreed for a
$100 million facility to be provided to one of the high growth Investee
Companies, the proceeds of which will be used to finance accretive growth
opportunities, and to repay a Company shareholder loan, with the intention
this will be used to reduce the drawings of the Group RCF.
Further updates on these processes will be announced to shareholders following
their completion.
Portfolio Summary and Key Value Drivers
The Company's portfolio now consists of nine attractive and complementary
investments, with four high-quality platforms comprising best in sector
operators, benefitting from accretive convergence value throughout the
portfolio. With our most recent investment in Giggle Broadband, we have now
invested across the four target sub-sectors: Data Centres, Subsea Fibre,
Terrestrial Fibre and Wireless networks. The tables below show the portfolio's
asset and sector concentration levels comprising valuations as at 31 December
2022.
Concentration by Asset
Asset Percentage of GAV
Aqua Comms 18%
EMIC-1 2%
Verne Global Iceland 25%
SEUK-1 1%
Elio Networks 4%
Verne Global London 4%
Verne Global Finland 10%
Arqiva 27%
Giggle Fibre 0%
Cash 6%
RCF Proceeds 3%
Concentration by Sector
Asset Percentage of GAV
Subsea Fibre 19%
Data centre 41%
Wireless 31%
Terrestrial Fibre 0%
Cash & Equivalents 9%
High revenue visibility
We have invested in businesses with high revenue visibility, with a weighted
average remaining contract term for recurring revenue of 7.1 years across the
Investee Companies. This is reflective of our investment approach, with
investments underpinned by a combination of diversified and long-term contract
stacks with high quality counterparties.
Weighted average remaining contract term Percentage of Investee Company recurring revenue
0-3 years 8%
3-5 years 22%
5-10 years 10%
10-20+ years 60%
Balanced and stable currency mix
Currency markets have fluctuated as central banks respond to rising inflation
by increasing interest rates and adopting a contractionary monetary policy.
The Company has over 99% exposure to major currencies (GBP, USD, EUR),
offering a balanced currency mix to major economies.
Currency Percentage of Investee Company revenue
GBP 79%
USD 11%
EUR 10%
ISK 0%
Inflation protection 24 (#_edn24)
Amidst an economic backdrop of record inflation levels not seen in decades, we
believe D9 is well positioned to cope with the risks arising from rising
inflation with 66% of recurring revenues benefitting from a form of inflation
protection at underlying contract level.
Inflation protection Percentage Investee Company recurring revenue with inflation protection
Inflation-linked, no cap 52%
Fixed uplift of 2% to 5% 12%
Inflation-linked, cap of 2% to 3% 2%
Without inflation protection 34%
Diversified customer stack offering resilient income streams
The Group's portfolio consists of an increasingly diversified contract stack,
both by the number of customers and the sectors in which they operate
contributing to a resilient income stream across the Investee Companies.
As shown in the table below, the portfolio concentration to the highest
revenue generating customers has reduced as a result of this increased
diversification, meaning there is a lower dependency on any one customer
across the portfolio.
Customer Concentration by Annual Recurring Revenue ("ARR")
ARR is a metric of predictable and recurring revenue generated by Investee
Company customers during a year, not adjusted for period of ownership.
2021 2022
Customer by Revenue ARR GBP m % of total ARR ARR GBP m % of total ARR
Top 5 22.4 52% 171.5 51%
Top 10 30.3 71% 217.4 65%
Top 20 35.9 84% 254.2 76%
Growth capital requirements and value creation
The sub-sectors in which the Company invests are typically growth sectors
where extensive capital expenditure can be deployed, for example, to increase
data capacity and fibre connectivity. Through the "power of the platform",
accretive incremental growth capital expenditure can drive enhanced portfolio
returns and strong opportunities for valuation uplifts.
For the period between 2023 and 2027 the Investee Companies, in aggregate,
have a growth capital expenditure pipeline of c.£903 million.
Besides driving returns through platform reinvestment, the Company is also
able to create value through a combination of complementary acquisitions and
organic growth. This has been demonstrated through the acquisitions, and
subsequent restructuring, of Verne Global Finland and Verne Global London into
a single Northern European data centre platform under a single brand. The
platform is able to benefit from shared resources and cross-selling of
capacity to customers, whilst accessing a wider customer base in itself.
The Board and the Investment Manager recognise the importance of balancing the
possibility of raising additional equity in the current capital markets, with
a prudent approach to short and long-term borrowings within the Company's
capital structure to sustainably finance growth capital expenditure.
The Board and Investment Manager have evaluated options and commenced
processes seeking complementary sources of growth capital to support our
Investee Companies alongside the capital expenditure already committed by the
Company. These processes include a syndication through a competitive process
of a minority stake in existing Investee Companies to a strategic capital
partner in conjunction with a leading investment bank and the arrangement of
appropriate debt financing at Investee Company level. The syndication would
provide proceeds which could be used to pay down the RCF and/or fund growth
capital expenditure and provide valuable follow-on capital to Investee
Companies. In relation to Investee Company level debt, a term sheet has been
agreed for a $100 million facility to be provided to one of the high growth
Investee Companies, the proceeds of which will be used to finance accretive
growth opportunities, and to repay a Company shareholder loan, which will be
used to reduce the drawings of the Group RCF.
The Company will update shareholders as further progress is made.
The Company will consider the most suitable use of any additional capital at
the time, taking account of efficient management of its costs (including
reducing RCF interest payments through the repayment of the RCF) as well as
the financing of accretive portfolio growth opportunities.
Review of Portfolio
Aqua Comms (including EMIC-1)
Sector Subsea Initial investment £170 million
Currency USD Total capex funded to date £29 million
Date invested April 2021 Total investment to date £199 million
Ownership 100% Closing value (31 Dec 2022) £257 million
SDG9 alignment Connectivity
Aqua Comms has established itself as a leading subsea fibre operator in the
transatlantic market with two of the most modern systems in AEC-1 and AEC-2.
In 2023 we expect to launch the AEC-3 system, providing further network
connectivity between the US and UK. The cable will provide up to 20TB of
capacity bringing Aqua Comms' total capacity to c.60TB across its operational
subsea cables.
Aqua Comms is also managing the EMIC-1 system with its development continuing
through 2023 before launch in 2024. Construction on the cable system and
negotiations with the various stakeholders along the route are on time and on
budget.
In December 2022, Aqua Comms announced the appointment of Jim Fagan as CEO
effective from 1 May 2023, following Nigel Bayliff standing down from the
role. Jim's appointment follows a competitive recruitment and selection
process, and the Investment Manager continues to support the leadership
transition period closely. Jim brings 25 years' industry leading experience in
Asia-Pacific, North America and EMEA, including executive roles with Global
Cloud Xchange, Rackspace, and Pacnet (later acquired by Telstra).
In September 2022, Aqua Comms completed the acquisition of Openbyte
Infrastructure Private Limited ("Openbyte"). The acquisition was funded from
existing cash in Aqua Comms. Openbyte is an India-based licensed telecom
consultancy company focused on providing neutral, open access landing
solutions for submarine cables. The acquisition complements Aqua Comms
investment in EMIC-1 and is key to supporting Aqua Comms' global connectivity
expansion plans, providing a carrier-neutral platform in India for Aqua Comms
services.
Aqua Comms remains one of the Company's cornerstone investment platforms since
IPO and the Investment Manager is very confident of the ability to create
accretive organic growth as well as seeking out potential additional pipeline
acquisitions in subsea fibre.
Verne Global Iceland
Sector Data centre Initial investment £231 million
Currency USD Total capex funded to date £50 million
Date invested September 2021 Total investment to date £281 million
Ownership 100% Closing value (31 Dec 2022) £329 million
SDG9 alignment Decarbonisation
Verne Global Iceland is a leading data centre platform based in Iceland. It
provides highly scalable data centre capacity to its enterprise customers in a
geographically optimal environment, powered by 100% baseload renewable energy.
Energy is sourced exclusively from local, stable and predictable hydroelectric
and geothermal power generation which is secured with a ten-year fixed-price
supply contract, enabling customers to reduce their carbon footprint
significantly. Verne Global Iceland's year-round, free-air cooling
capabilities make it one of the most energy-efficient data centres in the
world and reaffirms the Company's ambition to decarbonise digital
infrastructure in line with UN SDG9.
At 31 December 2022, Verne Global Iceland had 99% of recurring revenue
benefiting from fixed annual uplifts ranging from 2% to 5% offering strong
revenue inflation protection generated from c.40 leading global
High-Performance Computing, supercomputing and enterprise customers. This
delivers long-term, inflation-protected income in a variety of sectors
including automotive, artificial intelligence and financial services.
In light of increased global temperatures, increasing ESG reporting
requirements, along with the recent power pricing and availability crisis in
Northern Europe, enterprises are focused on sustainable data centre solutions,
which benefit from low-cost, long-term, renewable power, and that bring
stability, availability and scalability to support their rapidly increasing
high performance compute needs.
As a result, Verne Global Iceland is experiencing accelerated customer demand
for its facilities from both new and existing customers and has booked and
sold all of its remaining capacity. Due to this level of demand, Verne Global
Iceland has identified a substantially increased growth capital expenditure
pipeline in its latest five-year business plan, with capital expenditure
pipeline in 2023 increasing to $115 million (£95 million). Furthermore, its
capital expenditure pipeline for the five years to 31 December 2027 increased
from $208 million (£172 million) in its 2021 plan to c. $472 million (£391
million).
This capital expenditure will fund the expansion of capacity from an existing
40 Mega Watts ("MW") in operation or development to a total of 94MW out of a
potential of more than 100MW on the site. At 31 December 2022, the Group had
funded c.$60 million, (c.£49.5 million), of capital expenditure in Verne
Global Iceland since its acquisition for £231 million in September 2021. The
Group has not currently committed to any further capital expenditure for 2023
onwards.
The Company's Investment Policy includes a restriction that the Company will
not invest more than 25% of Adjusted Gross Asset Value in any single asset or
Investee Company (measured at the time of any investment into such asset or
Investee Company) and therefore the Group cannot currently materially increase
its exposure to Verne Global Iceland.
The Company and the Investment Manager continue to believe in Nordic data
centres as a significant differentiator for the Company's investment
proposition, giving exposure to the fastest growing market for low-carbon,
low-cost data centre services.
Verne Global Finland (Previously Ficolo Oy)
Sector Data centre Initial investment £114 million
Currency EUR Total capex funded to date £5 million
Date invested July 2022 Total investment to date £119 million
Ownership 100% Closing value (31 Dec 2022) £132 million
SDG9 alignment Decarbonisation
Verne Global Finland is a leading Finnish data centre and cloud services
platform. It has ultra-modern infrastructure, spread across three campuses
(The Air, The Rock and The Deck) with industry-leading sustainability
credentials and surplus heat distribution, offering a full suite of cloud
infrastructure, connectivity and cybersecurity services. Verne Global Finland
has existing buildings capable of providing up to 23MW of capacity of which
7.4MW is currently developed.
Verne Global Finland was acquired in July 2022. This acquisition expands D9's
Nordic data centre portfolio and continues to deliver on our strategy of
sustainable data storage.
As part of the five-year business plan, Verne Global Finland identified a
growth capital expenditure pipeline of £92 million for the five-year period
to 31 December 2027. This is to realise the potential to expand existing
resilient fit out capacity of 7.4MW to 17MW; the Group has not yet committed
to underwrite any of this expenditure. At 31 December 2022, the Group had
funded £5.1 million in growth capital expenditure in Verne Global Finland,
since its acquisition for c.£114 million in July 2022.
In order to capitalise on the benefits of a multi-campus, consolidated data
centre offering, the rebranding to Verne Global Finland is expected to support
the growth and consolidation of the Group's Nordic data centre platform. The
Company and the Investment Manager believe further synergies can be derived
through offering the combined Verne Global data centres' customers with a
choice of Nordic data centre locations through a common platform and therefore
drive greater convergence value across the portfolio.
Verne Global London (previously Volta Data Centres)
Sector Data centre Initial investment £45 million
Currency GBP Total capex funded to date £8 million
Date invested April 2022 Total investment to date £54 million
Ownership 100% Closing value (31 Dec 2022) £56 million
SDG9 alignment Connectivity
Verne Global London (previously Volta) wholly owns and operates a premier data
centre with state-of-the-art facilities based in Farringdon, central London,
providing 6MW of retail co-location services. It has over 40 networks
available in its carrier-neutral facility, making it one of the most connected
central London data centres (first among independents), offering ultra-low
latency and high-performance connectivity. It also has a PUE of 1.5 making it
one of the most energy efficient data centres in London, which we are looking
to improve further, and procures its power from renewable sources, delivering
on our ambition to decarbonise digital infrastructure.
Since its acquisition, the Verne Global team has taken on the day-to-day
operations within the facility. This includes negotiating new and existing
customer contracts, implementing a hedged power procurement strategy, and
designing the expansion within the facility as it builds towards full capacity
of 6MW, with development expected to be completed in 2023. This will include a
new 2.1MW contract with a key financial services customer, bringing total
utilisation to 4.3MW out of a total available 6MW.
We will continue to promote convergence value across our various data centre
strategies, including our broader Nordic data centre platform, as we educate
UK customers on the benefits of shifting energy-intensive, latency insensitive
data workloads into the Nordics.
SeaEdge UK1
Sector Data centre Initial investment £16 million
Currency GBP Total capex funded to date Nil
Date invested December 2021 Total investment to date £16 million
Ownership 100% Closing value (31 Dec 2022) £18 million
SDG9 alignment Connectivity & Decarbonisation
D9 owns the underlying real estate of the SeaEdge UK1 (also known as Stellium
DC1) data centre asset and subsea fibre landing station, located on the UK's
largest purpose-built data centre campus in Newcastle. It is the UK's only
landing station for the North Sea Connect subsea cable, which improves
connectivity in northern England and forms part of the North Atlantic Loop
subsea network, which includes D9's Aqua Comms' AEC-1 and AEC-2 cables.
The asset is leased on fully repairing and insuring terms to the tenant and
operator, Stellium Data Centres Limited, via a 25-year occupational lease with
over 23 years remaining. Stellium continues to meet its payment obligations
under the lease, delivering on the Company's target yield at acquisition.
Elio Networks (formerly Host Ireland)
Sector Wireless Initial investment £51 million
Currency EUR Total capex funded to date £0 million
Date invested April 2022 Total investment to date £51 million
Ownership 100% Closing value (31 Dec 2022) £59 million
SDG9 alignment Connectivity
Elio Networks is a leading enterprise broadband provider that owns and
operates the highest capacity licensed Fixed Wireless Access ("FWA") network
in Greater Dublin, connecting c.1,600 enterprise customers with high-quality
wireless access across c.50 base stations.
Elio Networks continued its growth in high-quality wireless connectivity
operations in 2022, with unique customer connections growing from c.2,650 in
December 2021 to c.2,800 in December 2022.
The Company has a diverse client base including larger multinationals,
government bodies, global technology companies, small professional service
firms, retail and hospitality companies. Elio Networks was launched to address
the growing requirement for affordable high speed broadband in the greater
Dublin area. Since then, they have grown to become the largest wireless
Internet Service Provider ("ISP") in the greater Dublin region. This was
D9's first investment into wireless infrastructure and is in line with the
Company's focus on supporting the SDG9, by providing lower cost and lower
latency connectivity to Irish businesses.
As part of its five-year business plan, Elio Networks has identified a growth
capital expenditure pipeline of c. €8 million (c. £7 million) for the
period to 2027, including €1.3 million (£1.1 million) in 2023. At 31
December 2022, the Group had not funded any growth capital expenditure in Elio
Networks since its acquisition for £51 million in April 2022.
In line with its strategic growth plans, Elio Networks has recently undergone
a re-branding exercise and launched under its new name in February 2023.
Furthermore, the network is launching in Cork city in early 2023, reaffirming
its position as a leading connectivity player.
D9 believe Elio Networks continues to provide an attractive entry point to
Ireland's extensive FWA network and represents a growth platform for further
geographical expansion throughout Ireland and internationally.
Arqiva
Sector Wireless Initial investment £300 million
Currency GBP Total capex funded to date £0 million
Date invested October 2022 Total investment to date £300 million
Ownership 48.02% Closing value (31 Dec 2022) £355 million
SDG9 alignment Connectivity
Arqiva is the sole provider of national terrestrial TV and radio broadcasting
infrastructure in the UK. It serves as a key strategic asset for the nation,
owning c.1,450 broadcast transmission sites and reaching 98.5% of UK
households. The breadth of its broadcasting network aligns Arqiva well with
D9's goal to improve connectivity for consumers. Arqiva also operates a
state-of-the-art smart metering platform, which covers c.12 million premises
and delivers c.50 million data points every day.
Arqiva is a large, robust business with c.1,300 employees and predictable
earnings underpinned by long-term, inflation-linked contracts, strong market
positions, diverse revenue streams and long-life assets. Arqiva has a healthy
balance sheet consisting of long-term senior and junior debt, which is
supported by interest rate swaps and inflation-linked swaps to hedge and
manage its exposure to interest rates.
Arqiva's revenue is supported by long-term contracts with blue-chip customers
including the BBC, ITV, Channel 4, Sky, Discovery and Thames Water. Revenue
contracts benefit from inflation protection, with an estimated 65-70% of
forecast recurring revenue for the financial year ending 30 June 2023 linked
to the consumer price index or the retail price index. Arqiva's operational
cash flow will generally benefit from an inflationary environment, however
inflation-linked swaps currently in place (until April 2027), offset the
positive inflationary effect on operational cash flow. Therefore, while Arqiva
will benefit from an inflationary environment in the longer term, the overall
effect in the short-to-medium term is negative.
The Group completed the acquisition of a 48.02% equity stake in Arqiva on 18
October 2022 for approximately £463 million, following the granting of
regulatory approval. £300 million of the acquisition was funded by a drawdown
on the Group's RCF and £163 million through a non-recourse vendor loan note
(VLN) issued by the vendor, which is listed on the International Stock
Exchange. It should be noted that D9 holds a 51.76% economic interest in
Arqiva, but that this corresponds only to a non-controlling 48.02% equity
stake.
The VLN is due to mature in 2029 and has the following stepped interest rate
profile:
• 6% per annum up to and including 30 June 2025;
• 7% per annum from 1 July 2025 up to 30 June 2026;
• 8% per annum from 1 July 2026 up to 30 June 2027;
and
• 9% per annum from 1 July 2027 to maturity.
Interest payments on the VLN are due annually in arrears on 30 June. Interest
can be rolled up but accrued interest must be paid in full before
distributions can be made to the Group. After the fourth anniversary of the
VLN, the Group can only receive distributions if the entirety of the VLN
principal and any rolled up interest has been repaid in full. The VLN becomes
repayable in full if the Group's equity position in Arqiva is reduced by more
than 50%. The Company expects Arqiva's future cashflows to cover D9's VLN
interest payments. The Investment Manager expects that the VLN will be
refinanced prior to its fourth anniversary in October 2026, as was anticipated
at acquisition.
In Q3 2022, after the Company had signed the SPA, Arqiva successfully
deleveraged its capital structure through the refinancing of £625 million of
junior notes with a £450 million term loan and residual cash proceeds from
the 2019 sale of Arqiva's telecoms business to Cellnex.
The Arqiva Group uses interest rate swaps (including inflation-linked interest
rate swaps) to hedge interest rate exposures. Inflation-linked swaps convert
existing interest costs to RPI-linked costs, which fluctuate in line with the
RPI index, as do a significant portion of Arqiva's revenues. The notional
amounts of these swaps accrete with RPI, and these accretion amounts require
cash settlement annually. These swaps are entered into on terms (including
maturity) that mirror the debt instrument that they hedge, and act as an
effective hedge against rising interest rates.
Arqiva's cash flows are sensitive to inflation: an increase in inflation
generally results in (i) incremental EBITDA growth due to inflation-linked
customer contracts and (ii) accretion payments on the inflation-linked swaps.
In the short term, inflation has a net negative cash impact on Arqiva: for
Arqiva's financial year ending 30 June 2023, a 1% increase in inflation is
expected to cost Arqivaan additional c.£10 million, owing mainly to the
accretion payments. However, each year of inflation will drive incremental
revenue growth flowing into all years thereafter. The inflation-linked swaps
are due to expire in 2027, after which point Arqiva will benefit from the
incremental revenue growth from the inflationary period without the added cost
of the accretion payments. Arqiva's large contracts typically run past the
expiry of the swaps.
As a result of the current macro-economic environment, inflation is currently
higher than at the point the Group agreed to acquire its stake in Arqiva in
June 2022; it is expected that this will have a negative impact on short-term
cash flows due to the inflation-linked swaps. The key upside of a short-term,
high-inflationary period is the incremental revenue increase received across
the years that follow. Inflation in 2022 and 2023 is therefore expected to
have a material positive impact on cash flows from 2027 onwards once the
inflation-linked swaps expire.
Giggle Broadband
Sector Terrestrial Initial investment £0 million
Currency GBP Total capex funded to date £3 million
Date invested July 2022 Total investment to date £3 million
Ownership 100% Closing value (31 Dec 2022) £3 million
SDG9 alignment Connectivity
In July 2022 the Group invested £1 million seed capital into Giggle, a
development opportunity that provides affordable broadband to social housing
through a revolutionary Fibre to the Home ("FTTH") network across the city of
Glasgow. Giggle represents a truly affordable broadband solution for social
housing, allowing families on social benefits to access top quality broadband
without having to enter into long-term contracts, contributing positively
towards breaking the digital divide.
Due to its attractive proposition, Giggle has attracted a best-in-class senior
executive team led by experienced executive Dave Axam and supported by a CFO,
CTIO and CCO each with extensive experience in building FTTH networks. Dave
has a proven track record in delivering strategic transformation projects and
has previously held roles at BT and most recently as COO of LightSpeed
Broadband, a fibre alt-net.
Giggle has identified a growth capital expenditure pipeline of c.£113 million
for the five-year period to 31 December 2027, including c.£22 million in
2023. Following the Group's further investment of £2 million in the project
in December 2022, no further capital expenditure has been committed by the
Group, however alternative funding options are being explored.
Portfolio Financial Performance
Per the table below, the Company's Investee Companies generated £409 million
in revenue in 2022 and £206 million in EBITDA, both growing slightly compared
to the previous year. On a run-rate basis, where data centre contracted
revenue is assumed to have fully ramped, the portfolio generated EBITDA of
£226 million, a £20 million uplift on actual EBITDA and an increase of 6% on
the previous year. Consolidated Investee Company revenue and EBITDA disclosed
in the Company's Trading Update published in January 2023 included revenues
from infrastructure as a service ("IaaS") which were not included in the
Company's consolidated revenues for the year.
IaaS is a service which Verne Global Iceland provides to one of its largest
customers, whereby Verne Global Iceland purchases the equipment required and
holds this on its Balance Sheet. The customer pays for the equipment, as a
result there is no negative cash impact for Verne Global Iceland.
2022 (12 months) 2022 (pro rata) 2021 % change
Revenue £409 million £152 million £401 million 2%
EBITDA 25 (#_edn25) £206 million £71 million £204 million 1%
Run-rate EBITDA £226 million £88 million £214million 5%
Portfolio Valuation Performance
The portfolio comprises a diversified portfolio of Digital Infrastructure
assets providing critical network connectivity and data storage services. The
portfolio has demonstrated resilience throughout the year, and we are
confident that it is well positioned to deliver our target returns through a
combination of capital growth and income.
At the reporting date, the Group's portfolio, consisting of nine investments
held via the Company's subsidiaries, was valued at £1.2 billion, excluding
cash, after factoring for the Group's RCF. The Company and its subsidiaries
held unrestricted cash of £55 million (£74 million total cash proceeds). The
Group drew an additional £25 million of the RCF following the period end to
fund additional capital expenditure at Verne Global London and Aqua Comms.
Including this post period draw, the RCF was £356.2 million drawn, with a
further £18.8 million available to draw. The party to the RCF is D9 HoldCo.
Net Asset Value
The Company's net assets were valued at £950 million (£756 million at 31
December 2021, £852 million at 30 June 2022), reflecting an increase of 26%
year-on-year. This includes £152 million of net proceeds through equity
raises and £127 million through net revaluation gains, which includes FX
movement after reinvested capex.
The bridge below shows the movement in NAV during the period.
The NAV per share was 109.76 pence at 31 December 2022 (104.62 pence at 31
December 2021, 105.13 pence at 30 June 2022), resulting in a Total Return for
the financial year of 10.4% above the 10% target return.
The bridge below shows the movement in NAV during the period and their effect
on a pence per share basis.
Valuation Performance
In accordance with accounting standards, "Investments at fair value through
profit or loss" as reported in the Balance sheet include, in addition to the
portfolio asset valuation, the cash and other net assets held within
intermediate unconsolidated holding companies.
The revaluation gain delivered 14.66 pence per share uplift to the Company's
audited NAV per share. There are several key drivers in the valuation uplift
during the period:
· First-time valuations: the introduction of the new investments in
Elio Networks, Verne Global London, Verne Global Finland and Arqiva saw these
assets being revalued for the first time since acquisition (Elio Networks and
Verne Global London were held at cost in June 2022). The investments were made
on competitive terms and the revaluation gains are reflective of the
investments now being held at Fair Value rather than at cost.
· Discount rate: there is more detail in the Discount Rates section,
but material valuation changes are seen in Aqua Comms, in particular, due to
the appropriate application of the company size premium when deriving its
discount rate. As previously disclosed, the interim valuation at 30 June 2022
involved a refresh of the previous year-end model and hadn't factored this
change.
· FX movements: the Company's portfolio is valued in Pound Sterling,
however this involves converting certain Investee Company valuations from
their host currency into Pound Sterling at the spot rate at the valuation
date. Given the relative strengthening of the US Dollar and Euro relative to
British Pound during the year, particularly during the first six months, the
value of those investments had additional FX appreciation. The following
companies are valued in their host currency:
a) Aqua Comms: US Dollar
b) Verne Global Iceland: US Dollar
c) Verne Global Finland: Euro
d) Elio Networks: Euro
During the year, the USD:GBP spot rate moved from 1.3477 at 31 December 2021
to 1.2103 at 31 December 2022, representing a 10% increase in US Dollar valued
entities. The EUR:GBP spot rate has moved from 1.1907 to 1.1273 reflecting an
increase of 5%.
The chart below outlines the NAV movement for the Company on a pence per share
basis for each asset.
Commentary on portfolio performance. The chart below shows the net total
return during the year for each asset as a percentage of the aggregate of the
opening value of the asset and investments in the asset in the year. The total
return includes the income return as dividends and interest paid or accrued to
the Company. Note that this measure does not time-weight for investments in
the year as indicated.
Portfolio Total Return by Asset (year to 31 December 2022)
Summary of Portfolio Valuation methodology
Investment valuations are calculated at the financial half-year (30 June) and
the financial year-end (31 December) periods by the Investment Manager and
then reviewed by the Board.
Independent Valuation Adviser
For this period, as a result of the increasing size and complexity of the
Company's portfolio, the Board has sought an independent review of the
Company's valuations prepared by the Investment Manager. This review, provided
by a market leading adviser, gives an additional layer of scrutiny to the
Investee Company valuations and the inputs which underpin the discount rates
used.
Further information on the Company's approach to valuation can be seen in Note
9.
In determining a DCF valuation, we consider and reflect changes to two
principal inputs, being forecast cash flows from the investment and discount
rates. We consider both the macro-economic environment and investment-specific
value drivers when deriving a balanced base case of cash flows and selecting
an appropriate discount rate. The discount rate is built-up annually during
the cash flow forecast period on first principles applying the capital asset
pricing model.
Discount rates
Over the course of the year, the weighted average discount rate increased very
slightly from 12.56% to 12.64%, as shown in the chart below. In the
mid-to-long term, we expect discount rates to reduce as the Investee Companies
mature and risk premiums reduce.
During the year, we witnessed an increase to risk-free rates across North
America and Europe as central banks started to take action in response to
higher inflation. For example, the ten-year UK bond yield increase from 0.97%
on 1 January 2022 to 2.24% on 30 June 2022 and 3.67% on 31 December 2022.
Higher risk-free rates translate into an increase in the discount rates
applied to Investee Company cashflows. This can be seen when comparing the
2021 Q4 and 2022 Q2 discount rates applied in the chart below, where Aqua
Comms and Verne Global Iceland were both revalued.
For the second part of the year, the combined impact of higher risk-free rates
and the introduction of the new investments in Elio Networks, Verne Global
London and Verne Global Finland to the portfolio at a higher-than-average
discount rate added further upward pressure to the weighted average discount
rate. However, this was offset by reductions in the discount rates applied for
Aqua Comms (due to appropriate application of the company size premium) as
well as the introduction of Arqiva at a significantly lower-than-average
discount rate. The net impact in the latter half of the year resulted in a
reduction in the portfolio weighted average discount rate from 13.8% to 12.6%.
Valuation period Weighted average cost of equity
FY 2021 12.6%
Q2 2022 13.8%
FY 2022 12.6%
Inflation
A prevalent theme this year has been inflationary pressures to power prices,
supply chain costs and employee costs. The ability to pass cost inflation to
customers varies by Investee Company so a granular approach was taken to model
the effects of inflation.
The Company has used inflation forecasts provided by an independent provider.
CPI is forecast at an average of 7.3% in 2023 and 3.2% for the first half of
2024, before returning to its long-term target of 2.0%. For RPI, we have
applied 10% in 2023, 4.8% for the first half of 2024, and reducing gradually
by 50bps year-on-year from 4.0% at the end of 2024 to 2.0% by 2028.
As mentioned earlier, Arqiva has been negatively impacted from a cash flow
perspective due to the recent increased levels of inflation and the impact
this has on their existing inflation linked swaps held on their balance sheet.
While these have a negative impact on cash outflows over the short-term, it
should be highlighted that over the longer-term this is positive for Arqiva's
enterprise value. This plays out in two ways, higher revenues in the future as
a result of the compounding effect of inflation on their revenues and a larger
EBITDA used in any exit assumptions.
The Investment Manager aims to construct and maintain a portfolio that
generates year-on-year revenue growth on a progressive basis. The Investment
Manager does not aim to construct and maintain a portfolio of investments
purely with direct inflation-linked returns; however it targets any potential
portfolio downside inflation impact to be broadly offset through revenue
growth over the medium to long-term.
Debt Financing
In March 2022, the Group raised £300 million of capital through a bespoke RCF
with an international syndicate of four banks. In August, the RCF was
increased by £75 million via an accordion facility, bringing the total
capital commitments by the bank syndicate under the RCF to £375 million.
Following the increase by £75 million, there is capacity for a further £125
million of financing in the accordion facility which the Company can draw
from, if and when appropriate and agreed with the syndicate.
At the time of the RCF's inception, competitive terms were achieved given the
Company's size and relatively limited portfolio diversification. The interest
rate for the RCF is an agreed margin over SONIA, whereby the starting margin
of 3.75% will ratchet down to 3.25% once certain criteria are met. These
criteria include achieving increased portfolio diversification and a lower
gearing ratio at the Company level. As at 31 December 2022, the Company has
met one of the agreed criteria through underlying portfolio investment
diversification, achieved by the four acquisitions during the year, bringing
total portfolio investments to eight. Therefore, the Group is now benefitting
from the first margin ratchet of 3.50% instead of 3.75% previously. As at 31
December 2022, the Group has drawn £331.2 million under the RCF which
includes one non-cash draw in the amount of £1.2 million for a letter of
credit. The drawn funds have enabled the Company to acquire Arqiva and make
further investments into existing Investee Companies through growth capital
expenditure. An additional £25 million of the RCF was drawn post-period end
to fund additional capital expenditure at Verne Global London and Aqua Comms.
Given the combination of rising interest rates and the Company's added
maturity and diversification compared to when the RCF was agreed, the existing
debt structure is under permanent review by the Board and the Investment
Manager, to explore market driven optimisation aspects for the benefit of the
Company's shareholders. One aspect under review is bringing forward the
deployment of asset level financing into selected Investee Companies, helping
to repay the drawn RCF. Asset level debt would be in the form of structured
term debt together with an appropriate interest rate structure so that the
Company is not exposed to interest rates fluctuations. Once specific asset
level financing propositions have been identified in Q1 2023, the RCF will
likely be downsized to adjust for the revised debt structure and not to exceed
target gearing ratios.
The Group completed the acquisition of a 48.02% equity stake in Arqiva on 18
October 2022 for approximately £463 million, following the granting of
regulatory approval. £300 million of the acquisition was funded by a drawdown
on the Group's RCF and £163 million through a non-recourse VLN issued by the
vendor, which is listed on the International Stock Exchange ("TISE") 26
(#_edn26) .
The VLN is due to mature in 2029 and has the following stepped interest rate
profile:
· 6% per annum up to and including 30 June 2025;
· 7% per annum from 1 July 2025 up to 30 June 2026;
· 8% per annum from 1 July 2026 up to 30 June 2027; and
· 9% per annum from 1 July 2027 to maturity.
Interest payments on the VLN are due annually in arrears on 30 June. Interest
can be rolled up but accrued interest must be paid in full before
distributions can be made to the Group. After the fourth anniversary of the
VLN, the Group can only receive distributions if the entirety of the VLN
principal and any rolled up interest has been repaid in full. The VLN becomes
repayable in full if the Group's equity position in Arqiva is reduced by more
than 50%. The Company expects Arqiva's future cashflows to cover D9's VLN
interest payments. The Investment Manager expects that the VLN will be
refinanced prior to its fourth anniversary in October 2026, as was anticipated
at acquisition.
As at 31 December 2022, the only Investee Company with asset level debt was
Arqiva, In August 2022, Arqiva secured a 5.5-year £450 million term loan
facility at an interest rate of c.10.3% per annum. Proceeds of the loan,
together with cash held on the balance sheet, were used on 30 September 2022
to redeem the £625 million 6.75% coupon junior notes, which were due in
September 2023. Alongside the term facility, the Arqiva Group also entered
into a £50 million working capital facility providing additional liquidity
support, which was subsequently increased to £70 million in December 2022.
Further details of its capital structure are outlined in the "The Strategy in
Practice - Arqiva" section.
As set out in the Prospectus, gearing will only be used by the Company to
finance acquisitions and growth capital expenditure on a short-term basis,
with longer-term gearing likely to be applied at an asset level. As at 31
December 2022, D9 and D9 HoldCo had unrestricted cash of £55 million and an
undrawn RCF of £45 million, giving £90 million in potential liquidity. In
aggregate, excluding Investee Companies and including undrawn RCF, D9 had
gross debt of £538 million, comprising of the VLN and RCF as at 31 December
2022 which is 40.6% of Adjusted GAV and below the 50% maximum permitted in the
Company's Investment Policy.
£'000 Leverage as a % of Adjusted GAV Leverage as a % of GAV
Drawn RCF 331,200 25.0% 25.8%
Total RCF (excluding accordion) 375,000 28.3% 29.2%
RCF and VLN 538,000 40.5% 41.9%
This gives the Company headroom under this restriction of £124.5 million.
This level of debt is equivalent to 3.3x EBITDA including the Company's own
and VLN interest costs as a deduction in the calculation of EBITDA. The
Company's Net Debt / EBITDA ratio is disclosed below.
Net Debt / EBITDA £ million
Drawn RCF 331.2
VLN 163.0
Cash & Cash Equivalents (inc restricted) (73.6)
Net Debt 420.6
Portfolio EBITDA 206.3
Net Debt / EBITDA 2.04x
Arqiva debt (pro-rated for D9 ownership) 754.0
Adjusted net debt / EBITDA 5.69x
Outlook
Over the next 12 months we expect a shift in our approach from one of growth
through M&A activity to one of portfolio optimisation and value creation
as our Investee Companies look to execute their respective business plans. We
are confident that the portfolio we have built since IPO is well positioned to
deliver on the Investment Policy and deliver value to the Company's
shareholders.
The underlying fundamentals driving the fourth industrial revolution, one of
technological progress and adoption, are accelerating. Digitalisation has
taken hold of our everyday lives and interaction with appliances, driving
endless demand for the digital infrastructure supporting this unstoppable
transformation.
We are playing our part in solving the world's biggest problems by helping to
close the digital divide and creating greener, more sustainable connectivity.
An investment in our portfolio seeks to accelerate economic growth, social
development and critical climate action.
We believe big problems create strong demand, strong demand drives good
investments, and good investments solve big problems. The internet is the
lifeblood of progress, and we're making sure its progress benefits people and
the planet alike.
Ben Beaton
Fund Manager
Triple Point Investment Management LLP
8 March 2023
SUSTAINABILITY
Introduction
This report provides a summary of the Company's sustainability outcomes,
approach and ambition (as implemented by the Investment Manager). The report
includes Environmental, Social and Governance performance, including reporting
aligned with TCFD (voluntary), SFDR and planning for the pending SDR. Refer to
section 3 for regulated reporting results, and reporting aligned with a range
of best practice frameworks.
D9's approach to sustainability is predicated on the belief that digital
infrastructure is essential to a thriving society, and that access to digital
services is becoming a new human right.
How such a vital and global service is delivered could have significant
environmental and social implications. Digital access needs to be open and
inclusive, reaching those who have previously been excluded. Implementation
needs to take account of the wider possible negative impacts (in particular
environmental impacts such as carbon intensity and resource use) such
infrastructure can have.
For Digital Infrastructure to provide a real social service it must be
developed as sustainably as possible. In seeking to build a network of
sustainable digital infrastructure, D9's approach is to consider:
I. Does this asset align to the theme of sustainable digital
infrastructure? We use Sustainable Development Goal 9 to ascertain this,
focusing on targets relating to reduction in digital divide and environmental
quality (SDG targets 9.4 and 9.c). For outcomes and targets refer to section
2.i.
II. Does this asset have sound business practices that
reassure us it conducts itself in a way which is aligned to sustainable
business practice and long-term success, allowing it to achieve the
implementation of sustainable digital infrastructure whilst managing wider ESG
operational risks and opportunities. For outcomes and targets refer to section
2.ii.
III. How can this asset improve over time, and what can D9 do
to help facilitate this? For outcomes and targets refer to section 2.iii.
Milestones: action demonstrating commitment to align D9 to sustainability
• Jan 2021: D9 commits to align to SDG9 and select assets aligned
with one or both of decarbonisation of digital infrastructure and reducing the
digital divide.
• March 2021: ESG Integration approach captured and
reported in dedicated ESG Integration Policy
• June 2021: Investment Manager, on behalf of D9, becomes a member
of the Sustainable Digital Infrastructure Alliance (SDIA)
• July 2021: Investment Manager publishes first
Sustainable Financial Disclosure Regulation (SFDR) Article 8 disclosure for D9
• January 2022: Baseline of Scope 1 and 2 emissions across
the portfolio, with process to ensure roll out for each new asset
• March 2022: Update and strengthen Article 8 disclosure,
publish first voluntary TCFD report
• August 2022: Investment Manager engages Carbon Trust to
develop Net Zero Roadmap including targets dedicated to D9 (submission of net
zero targets and transition plan is intended to be submitted to the SBT
Initiative for approval in September 2023, this submission will include a D9
reduction pathway)
• September 2022: Investment manager joins PCAF
• November 2022: Sustainability Targets set across D9
portfolio (see Section 2.i and 2.ii)
• December 2022: Investment Manager joins the Net Zero
Asset Managers initiative (NZAM)
• December 2022: Investment Manager becomes B Corp
certified
Section 1: Sustainability commitment from D9
2022 Highlights
• Sustainability training provided to all Board members
• Appointment of a Board apprentice
• Triple Point Net Zero Roadmap project to develop a net zero target
and transition plan initiated with a dedicated plan for D9's contribution to
this pathway incorporated (the plan is intended to be submitted to the Science
Based Targets Initiative for approval, in September 2023)
Goals for the year ahead
• Dedicated Investment Manager resource to be allocated to D9
Investee Companies to support improved ESG performance in relation to our
stated targets, data capture and reporting requirements, with a particular
focus on Scope 3
• Developing data collection to assess avoided emissions
as a result of clients of the Nordic data centre platform having the option to
select between locations to achieve the best data transmission results for the
lowest carbon footprint
Net Zero Roadmap activities
The Company recognises the need to take action in the production of net zero
targets and a net zero transition plan in line with the Paris Agreement. Real
carbon emission reduction outcomes are best achieved at the individual
Investee Company level. Companies need support in this process (particularly
in Scope 3 data collection and then the subsequent changes to business
practice). It is also relevant for the Company, with support from the
Investment Manager, to make progress on developing commitments which align
with industry frameworks, such as Science Based Targets (SBTs) - which help to
ensure a credible and detailed understanding of what needs to be achieved.
The Company:
In April 2023, D9 representatives will participate in a workshop with
specialist external carbon consultants to establish net zero targets for the
Company. These targets will contribute to the Investment Manager's net zero
target and transition plan which will be submitted to the Science Based Target
Initiative (SBTi) for approval, whilst also providing important and useful
guidance to support each Investee Company as they begin preparing individual
net zero roadmaps. It is recognised that this approach has limitations as it
would predominantly focus on Investee Company Scope 1 and 2 emissions, and an
incomplete Scope 3 data set. Scope 3 data collection being a key area of
engagement with Investee Companies in 2023. The Company's targets will be
adjusted as progress is made in Scope 3 data collection, and in time will
reflect the individual net zero roadmaps of each Investee Company.
The Company has committed that all wholly-owned Investee Companies implement
their own net zero roadmap with targets and a transition plan within the next
24 months. Arqiva is the only company that the Group is invested in, in which
it does not own greater than 50% of the equity and hence does not have
operational control. It is noted, Arqiva have embarked on the collection and
reporting of their carbon footprint, including scope 3 and the Investment
Manager will work collaboratively with Arqiva to make progress on their net
zero planning.
The Investment Manager:
Target setting has been split between near and long-term setting in order to
accommodate the publication of SBTi's "Guide to net zero for financial
institutions"; upon publication of this guidance Triple Point will be in a
position to integrate the guidance and set long-term targets in line with it.
The Investment Manager intends to set near-term Science-Based Targets for 2030
across all of its eligible assets as a first step towards reaching Net Zero
emissions by 2050, and as part of their obligations as signatories of the Net
Zero Asset Managers initiative. A bottom-up approach is being taken whereby
targets for D9 will be developed, alongside those for each Triple Point
strategy to inform an Investment Manager-wide initiative. Data for the
baseline year of 2021 has already been collected and ratified by external
specialists the Carbon Trust and the Investment Manager intends to submit
targets and a transition pathway to the SBTi in September 2023.
Section 2: Sustainability Vision for D9 and approach in action
The sustainability vision of the Company is to build a portfolio of
sustainable digital infrastructure assets, and to demonstrate these
credentials through alignment to Sustainable Development Goal 9:
Build Resilient Infrastructure, promote inclusive and sustainable
industrialisation and foster innovation.
Digital infrastructure is recognised as essential for a modern thriving
economy, crisis resilience and human wellbeing. Those without access to good
connectivity or infrastructure are economically disadvantaged. 27 (#_edn27)
D9 is a thematic investment opportunity, investing in the theme of sustainable
digital infrastructure. The investment team commits to developing a digital
infrastructure network whose sum is greater than their parts by contributing
to the societal need for greater connectivity with a lower environmental
footprint, than digital infrastructure built without sustainability as a
consideration.
2.i "Does this asset align to the theme of sustainable digital
infrastructure?"
This intended contribution to the societal need for greater digital
connectivity with a low environmental footprint, aligns to two Sustainable
Development Goal 9 targets. To manage Company's alignment, when selecting an
asset for inclusion in the portfolio we require one or both of these targets
to be addressed by the asset.
• Target 9.4: By 2030, upgrade infrastructure and retrofit
industries to make them sustainable, with increased resource-use efficiency
and greater adoption of clean and environmentally sound technologies and
industrial processes, with all countries taking action in accordance with
their respective capabilities
• Target 9.c: Significantly increase access to information and
communications technology and strive to provide universal and affordable
access to the Internet in least developed countries by 2020
The Investment Manager identifies an appropriate KPI to demonstrate alignment
to one or more of the SDG9 targets, and these are monitored and reported. This
year the Company has set targets, where appropriate, and will report against
achieving these targets year-on-year. The table below shows the KPIs
identified and how these align to SDG9 with associated targets, with results
for each portfolio company. Noting, Arqiva and Giggle performance has not been
included but the KPIs identified for tracking SDG9 alignment in future
reporting are shown.
Wireless Subsea Fibre Data Centres
Verne
Global
SDG 9 alignment Metric Units Target (2023) 2021 2022 Elio Networks Aqua Comms Iceland London The Rock The Deck The Air - Phase 0 The Air - Phase 1
Decarbonisation and Energy Security Scope 1 and 2 (market-based) emissions intensity tCO2e/£M - 19 23 40 20 24 3 29
revenue
tCO2e/ - 8 10 564 213 4 1 22
GWh
Renewable energy consumption % - 98.66% A 98.66% A 23% 64% 100% 99% 94%
Power Usage Effectiveness (PUE) 1.3 1.22 A 1.33 A 1.30 1.54 1.33 1.36 1.26 1.54
Carbon Usage Effectiveness (CUE) kgCO2e/ 0 - 0.04 0.01 0.30 0.08 0.08 0.09 0.08
kWh
Water Usage Effectiveness (WUE) litres/kWh 0.002 - 0.03 - - 0.026 0.003 0.051 0.051
Increased technology to improve energy and water efficiency(1) Growth in smart meter business 10
Increasing connectivity and reducing the digital divide Growth in network capacity (% increase in sold TB/s) % 10 7% A 13% A 6% 13%
Percentage of customers by revenue also deployed in Nordic Data Centres % 10 n/a
Average speed increase for customers compared to previous quickest provider % n/a
operating in the area(2)
Number of customers(2) # n/a
Sustainability Table 1: Per Investee Company alignment to the chosen SDG9
targets. 2021 data is aggregated. 2022 data is aggregated and provided per
company. Independent limited assurance has only been provided over aggregated
D9 data marked with the 'A' symbol. PwC's assurance statement for the 2022
data can be found in the Annual Report, on pages 189 to 191. PwC's assurance
statement for the 2021 data can be found in the 2021 Annual Report. n/a
reflects where information is not yet available, but the KPI is relevant to
the Company and is being tracked for future reporting. SeaEdge is excluded
as an asset where D9 acts as landlord, not owner, and has limited influence on
behaviours. As recent acquisitions data on Arqiva and Giggle are not yet
included. Outcomes will be tracked and reported in the 2023 annual report, the
metrics which will be tracked are shown in the table (for Arqiva see metric
labelled 1; for Giggle see metric labelled 2).
The following information provides contextualisation of how the carbon
footprint of D9's companies compare to the wider global economy. It should be
noted there are few digital infrastructure strategies which report their
carbon intensity, and therefore providing a comparison to an aggregated
digital infrastructure footprint is not possible. The first table provides
comparison to indices which show footprints indicative of certain economic
activities. The second comparison is provided as a chart to demonstrate
context for the emissions of our data centres. As a particularly
emission-intensive activity, it is appropriate to draw out the D9 data centre
footprint and compare to market.
Strategy Descriptor tCO2e/£million 28 (#_edn28)
Digital 9 Infrastructure Digital infrastructure, selected with existing or future sustainable 23
credentials a strategic requirement
iShares US Technology ETF Large technology companies e.g. Microsoft, Meta, Apple, Alphabet 25
iShares Core S&P 500 ETF An example of US economy snapshot 171
iShares North American Natural Resources ETF Oil & Gas 605
Sustainability Table 2: comparison of D9's carbon footprint to alternative
relevant technology, natural resource and broad economic indices. Footprint
data represents Scope 1 and 2 (market-based) emissions.
Sustainability Chart 3: emissions comparison. Aggregated D9 data centre energy
use compared to the average UK Data Centre and the average US Data Centre.
Total location-based emissions of D9's data centre portfolio compared to a
data centre portfolio with an average PUE, consuming grid electricity in the
UK and US respectively. 29 (#_edn29)
2.ii "Does this asset have sound business practices that reassure us it
conducts itself in a way which is aligned to sustainable business practice and
long-term success?"
It is essential that the broader ESG quality of an Investee Company is
assessed. An asset may align with the theme of offering a contribution to the
creation of a sustainable digital infrastructure network, but the quality of
the assets contribution may be compromised as a result of poor management of
unintended impacts and externalities.
The following non-subsector specific metrics are now tracked to gauge the
ongoing management of ESG risks and opportunities for the Investee Companies
of D9.
Category Metric Aqua Comms Verne G Iceland Verne G London Verne G Finland Elio Networks Arqiva** Giggle**
E Emissions Scope 1 emissions 10 46 19 15 2 n/a n/a
E Emissions Scope 2 emissions (location-based) 783 1,289 2,696 591 142 n/a n/a
E Emissions Scope 2 emissions (market-based) 552 449 - 162 234 n/a n/a
E Energy Renewable energy consumption (%) 64% 100% 99% 94% 23% n/a n/a
E Net Zero roadmap in place yes/no no no(4) no(8) no no(10) no no
E Biodiversity management plan in place yes/no no yes(5) no(9) no no no no
S Living wage employer % of employees receiving a living wage 100 100 100 n/a 100 98.9(13) 100
S Uphold employee right to collective bargaining yes/no yes yes yes yes yes yes yes
S D&I approach policy implemented : yes/no yes yes yes no yes yes yes
S/G Board Gender diversity % self-identifying female A 0 0 0 0 0 n/a n/a
S/G Board Ethnic diversity % ethnic minorities 67(1) 0 0 33 50(11) n/a n/a
S/G Company gender diversity % self-identifying female 26 17(6) 44 8.3 14 8(14) 23
S/G Company ethnic diversity % ethnic minorities 53(2) 0 33 8.3 0 n/a(15) 3.8
S/G Serious health and safety incidents* # 0 0 0 0 0 0 0
G Customer complaints # 0 0 0 0 0 0 0
G Cyber Essentials Plus certificate achieved (for in-house IT), or valid yes/no no(3) yes(7) yes(7) yes(7) n/a(12) no no(16)
alternate
G Is CEO remuneration linked to ESG? yes/no no no no no no no no
Sustainability Table 4. Operational ESG metrics tracked to provide overview of
sustainability-related business behaviours across the Investee Companies. Only
companies where we hold an equity stake are included. Emissions data and board
gender diversity data has only been included where data has been assured.
NOTES Data as at 31 December 2022 unless stated otherwise
* All Health and Safety data is report according to RIDDOR definitions:
https://www.hse.gov.uk/riddor/reportable-incidents.htm
** Emissions data on Giggle and Arqiva excluded from reporting.
1 Based on "White British" only. If it was "white" then answer would be 0%.
This detail is unconfirmed as Aqua Comms does not formally collect this data.
2 Based on "White British" only. If it was "white" then answer would be 2.6%
not including Board and 2.3% if Board is included. This detail is unconfirmed
as Aqua Comms does not formally collect this data.
3 The company are in the process of acquiring this certification.
4 No formal net zero roadmap however the company has implemented some action
such as a feasibility study on hydrogen backup power as a solution for
existing diesel engines.
5 Verne Global Iceland carbon offset is implemented for 2022 emissions via local
Icelandic Wetland fund, whose goal is, in addition to offset emissions, to
increase and/or restore biodiversity.
6 Verne Global
7 ISO 27001
8 Via purchasing renewable sources of energy to lower market-based emissions.
9 To date biodiversity action is linked to action by Verne Global Iceland.
10 Currently offsetting carbon with Climate Partners.
11 Based on "White Irish" only.
12 Company IT is outsourced.
13 1.2% of employees (12) are on salaries between National Living Wage and Real
Living Wage. These 12 employees are a combination of apprentices and some
administrative roles.
14 Disclosure of gender data is optional for employees. Currently only 23% of
Arqiva employees report this information. Statistic is based on the disclosing
23%.
15 Sufficient diversity data is not yet available for Arqiva, this information
set is still being developed by the company.
16 Currently working to achieve cyber essentials in Q1 23, with plans to achieve
Cyber Essentials Plus later in 2023.
Targets (for the coming two years - we will monitor for progress
year-on-year); all D9 companies will be engaged to act, the following will be
required by wholly-owned D9 companies:
• prepare a net zero roadmap with targets and a transition
pathway by end of 2024
• develop an action plan on biodiversity, mapping the
potential and actual negative impacts of their business model on biodiversity,
with mitigation plans to reduce negative impacts and innovations to create
quantified biodiversity net gain
• develop further diversity & inclusion measures,
including, but not limited to training for all staff, improved understanding
of the divergent demographics of their existing workforce (e.g. race and
ethnicity, gender, LGBTQ+, disability, menopause, mental health, neuro
diversity, returners, working families) with action plans to support, and
non-discriminatory hiring policy with conscious inclusion hiring training
• implement a minimum of Cyber Essentials Certification
plus where IT management is in-house
• CEO executive remuneration linked to clear ESG
behaviours or actions
The operational metrics detailed in table 4 will be tracked and reported along
with progress against the targets listed above. As plans by Investee Companies
are developed to meet these targets further detail on the commitments and
action for each Investee Company will be provided.
Throughout the due diligence and onboarding process, an asset is assessed for
a wide range of ESG qualities, through a bespoke set of analysis tailored to
each D9 subsector and drawing on best practice frameworks, including UN Global
Compact, Sustainable Accounting Standards Board (SASB) and SDIA. The chart in
the Annual Report depicts topic analysis per subsector.
The outcomes of this assessment not only help inform an understanding of the
quality of the business and future ESG metric monitoring but also allow for
the identification of future areas of improvement or innovation.
2.iii "How can this asset improve over time"
D9 is committed to managing Investee Companies for improved sustainability
behaviours over time. During 2022 the following actions by Investee Companies
improved their Sustainability credentials.
Environmental Social Governance
Arqiva · Solar panels installed at 4 sites in the UK. · Second place in the large company category for Britain's Healthiest · n/a
Workplace competition 2022.
· EV charging points at two corporate sites.
Aqua Comms · Completed the transition to renewable energy on targeted sites of key · Participation in the University of Limerick Cooperative Education · Inclusion of sustainability on to Board agenda.
suppliers. Programme (one student for nine months) and have launched a new graduate
programme with three new graduates hired.
· Commenced a programme to power down any unused locations and to remove any
unused equipment in operational locations from the energy network. This has · Replaced all corporate gifting at conferences this year with community
had an estimated saving of 200 kW per card (based on Ciena specification). contributions (i) pledging a tree through DC for Bees Program (300 in total)
for each participant at CCT 2022 in Dublin; (ii) making donations to RNLI at
· All products purchased by the marketing team have been analysed for their Capacity Europe; and (iii) making a donation to Ocean Conservancy at PTC.
sustainability credentials (e.g., move to electronic business cards). The
review will now be rolled out to other parts of the organisation. · Held the first Comms Team CSR activity held on 28 September 2022- Beach
Clean-up at Bull Island Beach (landing point for CC-1 cable).
· Voluntary surrender by certain team members of their company car parking
spaces in favour of public transport. · Provided funding to Flossie and the Beach Cleaners to support their
education of schoolchildren on the importance of protecting our marine life.
· For any new sites, analysis of power supply by provider is a critical due
diligence element in the procurement approach.
· Provided funding to Clew Bay Oyster Co-op Limited in Co Mayo to support the
biodiversity with focus on their Oyster morbidity and seagrass regeneration
studies.
Verne Global Finland (previously Ficolo Oy) · Use of South Pole to offset emissions from · Monetary support for employees embarking on additional studies (fixed · n/a
non-renewable energy sources. term contract of employment) and as well as data for projects.
· Donations to Save the Children/Pelastakaa Lapset in 2022 of €900.
· Donation through Kesko Oy, Refugees coming from Ukraine of €131,620.
Giggle · Procurement and process in place to use hybrid · Developing a programme of local community support to promote digital · n/a
and EV vehicles. inclusion.
· Initiated a programme to assess environmental · Begun donations to the Wheatly Foundation in Glasgow, for every home
credentials of supply chain and select those with strongest (e.g., sub duct passed. A potential for a £1 million total donation.
supplier using recycled plastics).
· Promote local employment and encourage local applicants (e.g., of the
existing 27 FTE, 17 are Glasgow-based).
Verne Global Iceland · Initiated programme of Scope 3 data collection. · Inclusion of sustainability on to board agenda.
· Supporters of the Wetland Fund a carbon offsite
and habitat protection project in Iceland.
· Implementation of EV charging on site.
· Initiated programme of Scope 3 data collection. · n/a
Verne Global London (previously Volta)
D9 is working with each Investee Company to identify further areas of
improvement for the year ahead. The table below outlines company specific
activities which will be supported to drive improved sustainability outcomes.
Investee Company Project Planned activities Target outcomes Benefits to Investee Company KPI Current Target
Aqua Comms Scope 3 emissions Tracking business Scope 3; engaging counterparties to gather and report A Scope 3 carbon footprint Proactive implementation of data collection which will be a requirement as the % of data in scope assets 0 >50% (some data may still remain estimated)
business grows; positioning as a leader
ESG-linked remuneration Support AC in design of an ESG-linked remuneration scheme for all employees Improved overall ESG performance Incentivising behaviours which create strong culture and long-term value # employees with links 0 >80%
Verne Global Iceland Health & safety tracking Review of H&S policy, and procedures, to ensure best practices is in place Safer and better working conditions for employees Reduce reputational and legal risk; more appealing workplace # of health and safety incidents/near misses 1 0
and effective
Wellbeing thought leadership Looking to collaborate with partners to analyse the effects of heat and noise Production of a thought leadership paper Continuing to strengthen Verne Global Iceland's position as a thought leader
and lack of natural light on workers, with mitigation measures identified and drive best practice
Verne Global Finland Renewable energy sourcing Support VG Finland in improved energy position through clearer context Appropriate positioning of energy use Reduction in reputational risk; increased opportunity for innovation and
relating to renewable energy claims possible efficiencies
Verne Global London Scope 3 emissions Tracking business Scope 3; engaging counterparties to gather and report A Scope 3 carbon footprint Proactive implementation of data collection which will be a requirement as the % of data in scope assets 0 >50% (some data may still remain estimated)
business grows; positioning as a leader
Nordic strategy Metro-edge centres such as VG London have worse PUEs and less renewable energy Lower overall platform emissions resulting from transfer of some client data Smart solutions for clients seeking to reduce their own footprint; business % customers by revenue also deployed in Nordic data centres n/a >10%
than Iceland/Nordic DCs. Look to identify customer use-cases within VG London processing from London to location-based renewables in Iceland/Finland development opportunity
that could be migrated to alternate DCs on platform and hence avoid emissions
Elio Networks Scope 3 emissions Tracking business Scope 3; engaging counterparties to gather and report A Scope 3 carbon footprint Proactive implementation of data collection which will be a requirement as the % of data in scope assets 0 >50% (some data may still remain estimated)
business grows; positioning as a leader
Cyber security Elio to undertake cyber security accreditation. More comprehensive Cyber security certification in place Reduced cyber and reputational risk as business grows; stronger market offer # security breaches 0 0
certification requirements to be reviewed. Penetration testing to be completed
Sustainability Table 6. Detail on the per Investee Company sustainability
activity for action throughout 2023. Planning and improvements for the two
newest acquisitions (Arqiva and Giggle) are in development.
Section 3: Framework-based reporting
Respecting latest reporting requirements and to demonstrate clearly how the D9
and the Investment Manager align with relevant frameworks, the Annual Report
provides reporting according to the following:
I. PRI
II. UN Global Compact
III. UN SDGs
IV. Impact Management Project
V. SFDR
VI. TCFD
VII. Planned approach to SDR
Section 172(1) Statement
The Board is committed to promoting the long-term success of the Company
whilst conducting business in a fair, ethical, and transparent manner.
The Board makes every effort to understand the views of the Company's key
stakeholders and to take into consideration these views as part of its
decision-making process.
As an investment company, the Company does not have any employees and conducts
its core activities through third-party service providers. The Board seeks to
ensure each service provider has an established track record, has in place
suitable policies and procedures to ensure they maintain high standards of
business conduct, treat shareholders fairly, and employ corporate governance
best practice.
As a Jersey incorporated entity, the Company voluntarily discloses how the
Directors have had regard to the matters set out in section 172(1)(a) to (f)
and fulfils the reporting requirements under section 414CZA of the Companies
Act 2002 (the "Act").
The following disclosure describes how the directors have had regard to the
matters set out in section 172(1) (a) to (f) when performing their duty under
s172 and forms the directors' statement required under section 414CZA of the
Act.
Stakeholder Engagement
Stakeholder Why is it important to engage? How have the Investment Manager/Directors engaged? What were the key topics of engagement? What was the feedback obtained and the outcome of the engagement?
Shareholders Shareholders and their continued support is critical to the continuing The Investment Manager and Board have been continuously engaged with An important topic of engagement with shareholders has been on the The Board considered that the feedback from shareholders has been invaluable
existence of the business and delivery of our long-term strategy. shareholders throughout the period. acquisitions undertaken during the year, the short-term strategy and capital this year, through enhanced understanding of shareholder expectations, and has
allocation for the Company following committing substantially all of the assisted in enhancing the level of disclosure, highlighted by the Trading
Directors and representatives of the Investment Manager met with shareholders equity and debt capital raised since IPO, and the departure of Investment Update released in January 2023.
following the release of the Interim and Annual Results, as well as engaging Manager personnel.
directly following announcements to the London Stock Exchange, including the
Trading Update on 11 January 2023. Engagement also took place during the equity fundraising earlier in 2022.
The Board remain cognisant of shareholder views and during decision making.
The Board's shareholder engagement programme is kept under review and evolved
to ensure appropriate engagement.
Investment Manager The Investment Manager is responsible for executing the Investment Objective The Board maintains regular and open dialogue with the Investment Manager at The Board has provided constructive feedback to the Investment Manager As a result of the engagement between the Board and the Investment Manager,
within the Investment Policy of the Company. Board meetings and has regular contact on operational and investment matters throughout the acquisition process of the assets acquired during the year; the Group has been able to substantially commit all of the available capital
outside of meetings. equity fundraising; transition to the premium segment of the main market of into a portfolio of assets with strong underlying performance.
the London Stock Exchange; during the period of change of personnel of the
Investment Manager in November 2022; and reporting process. More recently, engagement between the Board and Investment Manager has been
enhanced, in particular in exploring the options to address the higher capital
requirements of the Investee Companies.
Investee Companies The performance and long-term success of the Company is linked to the The Investment Manager has held regular meetings with the Board and management On an ongoing basis the Investment Manager engages with the Investee Companies Through this engagement, particularly between the Investment Manager and the
performance of the companies in which the Company invests. of each of the Investee Companies and received regular reporting including on matters including finance, capex requirements, sustainability and strategy. Investee Companies, the Investment Manager has enhanced the sustainability
financial.
practices and reporting of the Investee Companies, explored opportunities for
During the year, the Board has engaged with the Investee Companies on their synergies and optimisation between the Investee Companies.
The Board has directly engaged with the Investee Company CEOs and operating strategy, and other key matters relevant to the Investee Companies.
partners during the year, including inviting key members of management to
present at Board Meetings with the opportunity to ask questions directly.
Suppliers The Company's suppliers include third-party service providers, each of which The Board maintains close working relationships with all its key advisers. The Management Engagement Committee met in the year and undertook a thorough The Board has continued to be open in providing feedback to its service
is essential in ensuring the ongoing operational performance of the Company.
review of the performance of the service providers and agreed feedback to providers to make clear their expectations, following the Management
The Company relies on the performance of third-party service providers to The Management Engagement Committee has responsibility for overseeing and provide to the service providers to enhance performance moving forward, or Engagement Committee process and, where appropriate, on an ad hoc basis.
undertake all its main activities. monitoring the performance of each supplier. A detailed annual assessment is assist in the process of changing service providers where this was considered
undertaken of each supplier to ensure they continue to fulfil their duties to appropriate.
a high standard.
Regulators Engagement with the regulator is imperative to the Company's ability to During the period the Company has had to engage with various regulators The key topics of engagement with regulators during the year have been in Without engagement with the regulator the Company would not have been able to
operate. (including the Financial Conduct Authority and Jersey Financial Services relation to the change of Directors, change of Investment Policy, and complete additional equity raises, acquisitions, transition to the premium
Commission) on a number of different matters. transition to the premium segment of the Main Market of the London Stock segment of the Main Market of the London Stock Exchange or its change of
Exchange. investment policy.
Principal Decisions
Principal decisions have been defined as those that have a material impact to
the Group and its key stakeholders. In taking these decisions, the Directors
considered their duties under section 172 of the Act.
Deployment of capital
During the year, deployment of the IPO proceeds and subsequent fundraises has
been a focus for the Company which has now committed substantially all
available capital. The Board considered each investment in the context of the
Company's Investment Policy, potential returns to investors and from a
sustainability perspective.
Equity Raises
Two equity raises were completed in January and July 2022 raising total gross
proceeds of £155.2 million. The additional equity enabled the Company to
complete acquisitions of attractive assets and capital expenditure, ultimately
aiding in the achievement of the Company's investment objective.
Transition to the premium segment of the Main Market of the London Stock
Exchange
During the year, the Company transitioned from the specialist fund segment to
the premium segment of the Main Market of the London Stock Exchange. The Board
considered that there were a number of benefits to being a constituent of the
premium segment, including increasing the profile of the Company, unlocking
further attractive investment opportunities and also may result in a more
diversified shareholder register with improved liquidity, all of which would
be to the benefit of shareholders.
Revolving Credit Facility of £375 million
In March 2022, the Group signed its first debt facility of a £300 million RCF
with an international syndicate of four banks, with an initial term of three
years expiring on 14 March 2025, which can be extended for a further 12
months. The RCF was obtained to assist the Company in acting quickly on
potential investment opportunities, helping to finance the acquisition of
further investments in its near-term pipeline. The RCF was increased to £375
million in August 2022 under the accordion provision, to assist in funding
existing commitments across the portfolio and supporting the near-term
pipeline. The RCF has supported Investee Companies with their capex
requirements, alongside allowing the Investment Manager to deliver on
executing the Investment Objective of the Company.
RISK MANAGEMENT
Framework
The Board and the Investment Manager recognise that risk is inherent in the
operation of the Company and are committed to effective risk management to
ensure that shareholder value is protected and maximised.
As an externally managed investment company, the Company outsources key
services to the Investment Manager and other service providers and rely on
their systems and controls. The Board has ultimate responsibility for risk
management and internal controls within the Company and has convened a Risk
Committee to assist it in these responsibilities. The Risk Committee
undertakes a formal risk review twice a year to assess and challenge the
effectiveness of our risk management and to help define risk appetite and
controls to manage risks within that appetite, particularly those which would
threaten its business model, future performance, solvency, valuation,
liquidity or reputation. Further details of the Risk Committee's activities
can be found in the Risk Committee Report.
The Investment Manager has responsibility for identifying potential risks at
an early stage, escalating risks or changes to risk and relevant
considerations and implementing appropriate mitigations which are recorded in
the Group's risk register. Where relevant the financial model is stress tested
to assess the potential impact of recorded risks against the likelihood of
occurrence and graded suitably. In assessing risks, both internal controls and
external factors that could mitigate the risk are considered. A post
mitigation risk score is then determined for each principal risk. The Board
regularly reviews the risk register to ensure gradings and mitigating actions
remain appropriate.
Risk Appetite Statement
Managing risk is fundamental to the delivery of the Company's strategy, and
this is achieved by defining risk appetite and managing risks within that
appetite. Risk appetite is the level of risk the Company is willing to take to
achieve its strategic objectives. The Board is responsible for setting the
Company's risk appetite and ensuring that the Company operates within these
parameters. The Board has defined its risk appetite using a category of risks
inherent to the environment in which the Company operates. Risk appetite is
set for each category of risk enabling the actual risks which are identified
by Management to be compared to the defined appetite, to identify where any
additional mitigation activity is required. The Company manages its risks
within the tolerance set, particularly those which would threaten its business
model, future performance, solvency, valuation, liquidity, or reputation. Any
risks outside of tolerance are subject to additional oversight and action
planning.
The Board has reviewed the Company's appetite for each of the principal risks
set out below. The Company seeks to take risk in executing its strategy and in
line with its Investment Policy. The Company's risk management framework is
designed to manage rather than eliminate the risk of failure to achieve
objectives and breaches of risk appetite.
The Board will review and monitor the Company's risk appetite on an annual
basis to ensure that it remains appropriate and consistent with the Investment
Policy.
Principal Risks and Uncertainties
The table below sets out what we believe to be the principal risks and
uncertainties facing the Group. The table does not cover all of the risks that
the Group may face. The Board defines the Group's risk appetite, enabling the
Group, in both quantitative and qualitative terms, to judge the level of risk
it is prepared to take in achieving its overall objectives. Additional risks
and uncertainties not presently known to management or deemed to be less
material at the date of this report may also have an adverse effect on the
Group..
Risk Description Risk Impact Risk Mitigation Impact Likelihood Change in Year
1. Lack of capital may limit our ability to grow and pay a progressive dividend. Without sufficient capital at sustainable rates, we will be unable to pursue Management continues to review the sources of funding available for its Moderate-to-High High Increase
suitable investments in line with our Investment Policy. This would working capital requirements and dividends.
significantly impair our ability to pay dividends to shareholders at the
targeted rate. Capital expenditure allocations are carefully reviewed and optimised.
This risk has increased due to the current macroeconomic environment and the
ability of the Company to raise further capital in the equity markets given
the Company's share price trading at a discount to its NAV.
The Board and Investment Manager have evaluated options and commenced
processes seeking complementary sources of growth capital to support our
Investee Companies alongside the capital expenditure already committed by the
Company. These processes include a syndication of a minority stake in existing
Investee Companies to a strategic capital partner in conjunction with a
leading investment bank and the arrangement of appropriate debt financing at
Investee Company level. The syndication would provide proceeds which could be
used to pay down the RCF and/or fund growth capital expenditure and provide
valuable follow-on capital to Investee Companies. In relation to Investee
Company level debt, a term sheet has been agreed for a $100 million facility
to be provided to one of the high growth Investee Companies, the proceeds of
which will be used to finance accretive growth opportunities, and to repay a
Company shareholder loan, which will be used to reduce the drawings of the
Group RCF.
Such complementary sources of growth capital will only be considered where the
Board and the Investment Manager believe that this would be the most
appropriate way to create shareholder value.
The Company has a RCF in place to support portfolio investments and growth
capital expenditure requirements.
2. Persistent, negative market sentiment in relation to our Arqiva acquisition The impact of Arqiva's interest rate swaps are currently attracting negative A detailed Arqiva case study can be found above. Moderate-to-High Moderate-to-High New Risk
(specifically persistent, high inflation compounding liquidity challenges) market sentiment. We view this to be likely to change as inflation reduces.
Sentiment impacts the share price.
The timing of the cashflows is likely to be impacted by higher inflation in
the short term but greater long-term benefit.
We will continue to provide transparent analysis of the swap instruments at
investor days and also reinforce our view of the long-term value of Arqiva
within the portfolio.
3. Competitive markets, including where a well-funded competitor enters the D9 invests in an increasingly competitive environment, as new investors seek Before acquiring assets, the Investment Manager carries out thorough due Moderate Moderate Decrease
market or aggressively acquires market share across the respective markets and to invest into the sector from traditional infrastructure or other sectors. diligence and applies realistic assumptions to ensure the total return target
segments of D9's Investee Companies, which may adversely affect the revenue Global content companies, such as the FAANGs, may choose to invest in the can be met.
and margins of D9's investments. infrastructure directly, rather than as a customer. This increased competition
could make it harder to find new assets, access to good pricing and gain Where possible, the Investment Manager seeks to secure off-market assets with This risk has decreased given the Company has now moved from an acquisitive
market share. strategic benefits through an alignment with D9's other investee companies, period to a period of consolidation and focus on the operational performance
thus avoiding competitive bidding situations. and optimisation of each of the assets acquired to date.
Such competition creates pricing risk when bidding on target acquisitions,
potentially driving higher pricing. This could result in the Company being Frequent communication between D9 and its investee companies will lead to
outbid on a particular asset or paying a premium. This competition can also, innovative and proactive thinking regarding its services to remain competitive
in certain markets, lead to a decline in prices the operators of such assets and adapt to emerging technologies and customer preferences.
are able to charge for the services provided once acquired.
As a result, this could impair D9's ability to deploy funds therefore
affecting the NAV, the Company's earnings and returns to Shareholders.
4. Dependence on key Investment Manager personnel. The loss of key personnel in the Investment Team could impact the performance The Company is seeking to appoint an Investment Director imminently. Within Moderate-to-High Moderate-to-High Increase
of the Investee Company therefore adversely impacting the NAV of the the broader team it ensures that there are retention and succession plans in
Company. place for all key individuals, with incentive schemes and market compensation
packages for key personnel.
This risk has increased due to the departure of investment team personnel
during the year.
5. Interruptions or poor-quality services to our customers as a result of failure D9's Investee Companies rely on infrastructure and technology to provide their The Digital Infrastructure Investments in which the Group invests use proven Moderate-to-High Low-to-Moderate Stable
of infrastructure, equipment and/or third-party networks. customers with a highly reliable service. There may be a failure to deliver technologies, typically backed by manufacturer warranties, when installing
this level of service as a result of numerous factors. Failure to deliver may applicable machinery and equipment.
breach performance conditions in contracts with customers and therefore affect
revenue streams, which in turn could impact the performance of D9 and D9's Investee Companies hire experts with the technical knowledge, and seek
therefore adversely impact the NAV. third party advice where required.
Where appropriate, there are insurances in place to cover issues such as
accidental damage and power issues.
6. Risk of supply-chain vulnerabilities and disruptions. D9's Investee Companies need to maintain and develop their assets to deliver As part of the procurement process, due diligence is conducted on third Moderate-to-High Moderate Stable
to customers. Significant supply chain pressure could lead to an inability to parties and SLAs are put in place to ensure the delivery of service. All
meet customer contracts and/or delay in business development projects. Investee Companies are now considering longer lead times in their planning and
their boards continue to scrutinise planning.
Inventory and accelerated capital growth investments have increased. In
addition, they are managing supply chains more closely for a better
understanding of vulnerabilities.
7. D9 acquires Digital Infrastructure Investments which operate in a highly Failure of D9's Investee Companies to comply with their regulatory obligations Experts are engaged to ensure compliance with all relevant regulations. Moderate-to-High Low-to-Moderate Stable
regulated sector, and which will be subject to the different regulatory and/or maintain a relevant permit or licence may result in sanctions from the
regimes of all the countries in which they operate. applicable regulator including fines and/or the revocation of its Thorough due diligence is carried out prior to completing on investments to
authorisation to provide services. This could result in the relevant assess the regulatory environment and how compliance is maintained.
infrastructure ceasing to be operable and possibly subject to decommissioning
requirements which may in turn, have a material adverse effect on the After completion, the Investment Manager and Investee Companies maintain a
performance of the Company, the NAV, the Company's earnings and returns to frequent and ongoing dialogue on the subject to ensure compliance and
Shareholders. preparedness for any change. This includes a number of compliance KPIs which
form part of regular portfolio monitoring meetings.
8. Reliance on the Investment Manager. We rely on the Investment Manager's services and its reputation in the Digital Unless there is a default, either party may terminate the Investment Moderate Moderate-to High Increase
Infrastructure market. As a result, our performance will, to a large extent, Management Agreement by giving not less than 12 months' written notice, with
depend on the Investment Manager's abilities in the market. Termination of the such notice not to expire before the fourth anniversary of the date of
Investment Management Agreement would severely affect our ability to admission.
effectively manage our operations and may have a negative impact on the share
This risk has increased as the Investment Manager is engaged in several
price of the Company. The Board will regularly review and monitor the Investment Manager's processes on behalf of the Company seeking complementary sources of capital to
performance. In addition, the Board meets regularly with the Investment help fulfil the growth capital expenditure pipeline of the Investee Companies.
Manager to ensure that we maintain a positive working relationship.
9. An Investee Company counterparty may become insolvent, be unable to make Issues may arise with counterparties that could affect their ability to make Prior to investing in a Digital Infrastructure Investment, the Investment Moderate Low Stable
contractual payments or terminate a contract early. contractual payments or result in the early termination of such projects due Manager will undertake due diligence to assess the material contracts in
to counterparty insolvency. place, including termination provisions and whether any such contracts are
close to termination. Where possible, the Investment Manager will seek to
This could result in a material effect on the Group's revenue stream, build in suitable mechanisms to protect the Group's income stream, including
resulting in a material adverse effect on the performance of the Company, the the diversification of its investments.
NAV, the Company's earnings and returns to Shareholders.
Further, the number of Counterparties in respect of a particular Digital
Infrastructure Investment may be significantly diversified so as to reduce the
impact of a Counterparty terminating an agreement at will or deciding not to
renew such contract on expiry.
Emerging Risks
Emerging risks are characterised by a degree of uncertainty, having been
highlighted at the periodic risk review meetings. The Board receive a
quarterly risk report highlighting such risks, with the best insights
available. These may later be added to the main risk register and assessed in
the usual way or be deemed no longer relevant.
Introduction of, or amendment to laws, regulations, or technology (especially
in relation to climate change)
The global ambition for a more sustainable future has never been greater.
There is increasing pressure for governments and authorities to enforce
green-related legislation. This could materially affect organisations which
are not set up to deal with such changes in the form of financial penalties,
operational and capital expenditure to restructure operations and
infrastructure, or even ceasing of certain activities.
As part of our purpose-driven investment strategy and thorough ESG due
diligence process, we will continue to actively seek acquisitions that deliver
on sustainability targets and are aligned with our ambition to decarbonise
Digital Infrastructure.
Development of disruptive technology
The digital infrastructure sector is constantly evolving. As a result, there
is a risk that disruptive technology emerges which results in current digital
infrastructure assets becoming obsolete. We constantly monitor the emerging
technology trends with digital infrastructure to ensure Investee Companies
evolve their business models where required and new investment opportunities
are accurately assessed.
Going Concern and Viability
Going Concern
The Company's business activities, together with the factors likely to affect
its investments its future development, performance and position are set out
in the Strategic report and in the financial statements and related Notes to
our Annual Report and Accounts to 31 December 2022. The financial position of
the Company, its cash flows, liquidity position and borrowing facilities are
described in the financial statements and related Notes to the accounts. In
addition, Note 19 to the accounts includes the Company's policies and
processes for managing its capital, its financial risk management objectives,
details of its financial instruments and hedging activities, and its exposures
to credit risk and liquidity risk.
The Board have made an assessment of going concern, taking into account a wide
range of information relating to present and future conditions, including the
Company's cash and liquidity position, current performance and outlook, which
has considered the ongoing geopolitical uncertainties arising from the war in
Ukraine, the volatile macro landscape and existing inflationary pressures and
current and expected financial commitments using information available to the
date of issue of these Financial statements.
The Group has targeted high-quality digital infrastructure investments and
will continue to analyse investment opportunities to ensure that they are the
right fit for the Group. The Company has liquid resources and a strong
investment portfolio with an expectation of medium-term capital growth.
During the year the Company has invested £605 million of cash (£768 million
including the VLN) including transaction costs. At 31 December 2022, liquidity
remained positive at £55 million, the cash balance of the Company at year end
was £30 million, the remaining uninvested cash of £25 million is held by its
wholly owned subsidiary Digital 9 Holdco Limited for investment purposes.
Including the undrawn element of the RCF, restricted and unrestricted cash
throughout the Group (not including Investee Companies), the Company had £117
million at 31 December 2022.
The Company, through its subsidiary undertakings, had an expected investment
commitment of £46 million, relating to growth capital expenditure
requirements at Aqua Comms, Verne Global London and EMIC-1. The Company had
ongoing charges of £10 million and an OCR of 1.10% in the year to 31 December
2022, detailed in Note 7 to the financial statements, which are indicative of
the ongoing charges run rate for the short-term.
Although not a commitment, the Company has announced a continued dividend
target for the financial year ending 31 December 2023 of 6.0 pence per share.
Income and non-income cash is expected to be received from the portfolio
investments during the coming year, some of which will be required to support
the payment of this dividend target and the Company's other financial
commitments. As mentioned above the Company continues to explore complementary
sources of capital to help fulfil the growth capital expenditure pipeline of
the Investee Companies. Any proceeds raised, may also be used to underpin the
Company's dividend and expenses in the financial year ending 31 December 2023.
The Board believes that there are currently no material uncertainties in
relation to the Company's ability to continue for a period of at least 12
months from the date of the approval of the Company's financial statements
and, therefore, has adopted the going concern basis in the preparation of the
financial statements, please see Note 2 of the financial statements for more
information.
Viability Statement
In accordance with Principle 21 of the AIC Code, the Board has assessed the
prospects of the Group over a period longer than 12 months required by the
relevant "Going Concern" provisions. The Board has considered the nature of
the Group's assets and liabilities, and associated cash flows, and has
determined that five years, up to 31 December 2027, is the maximum timescale
over which the performance of the Group can be forecast with a material degree
of accuracy and therefore is the appropriate period over which to consider the
viability.
In determining this timescale, the Board has considered the following:
· That the business model of the Group assumes the future growth in its
investment portfolio through the acquisition of a diversified portfolio of
digital infrastructure investments which are intended to be held for the
duration of the viability period.
· On 9 March 2022 the Company secured a floating rate RCF with an
initial term of three years which may be extended by a further year to March
2026.
· Market Comparisons have been considered to similar funds in the
infrastructure space who apply a five-year forecast in their viability
statements. It would seem appropriate to benchmark to similar funds.
· In assessing the Company's viability, we carried out a robust
assessment of the emerging risks and principal risks facing the Group,
including those that would threaten its business model, future performance,
solvency, liquidity and dividend cover for a five-year period.
In assessing the Company's viability, the Board has carried out a robust
assessment of the emerging risks and principal risks facing the Group,
including those that would threaten its business model, future performance,
solvency, liquidity and dividend cover for a five-year period. The Board
considered the potential impact on the Company of a number of scenarios in
addition to the Company's business plan and recent Investee Company forecasts,
which quantify the financial impact of the principal risks occurring. The
Directors' assessment has been made with reference to the principal risks and
uncertainties and emerging risks summarised above and how they could impact
the prospects of the Company both individually and in aggregate.
The business model was subject to a sensitivity analysis, which involved
flexing a number of key assumptions underlying the forecasts. The
sensitivities performed were designed to provide the Directors with an
understanding of the Company's performance in the event of a severe but
plausible downturn scenario, taking full account of mitigating actions that
could be taken to avoid or reduce the impact or occurrence of the underlying
risks outlined below:
· Inflation: 8% for 2023, 4% for 2024, 2025 and return to long-term
target of 2% thereafter.
· Interest rates: increase the margin by 1.00% in response to the
current economic climate.
· Distributions from investments: apply a discount of 16% to all
portfolio investments. This figure is arrived at by removing each investment's
largest revenue contributor indefinitely from the revenue stream. We have then
weighted the Net Operating Profit After Tax ("NOPAT") margin to the revenues
generated from those customers to arrive at a D9 weighted NOPAT margin from
its revenue-generating investments.
· Portfolio valuations: apply a discount of 16% to the portfolio
valuations, in line with the loss in dividends paid up to D9.
The outcome in the downturn scenario on the Company's covenant testing is that
there are no breaches, and the Company can maintain a covenant headroom on the
existing facility.
In the downturn scenario mitigating actions would be to reduce variable costs
to enable the Group to meet its future liabilities.
The remaining principal risks and uncertainties, whilst having an impact on
the Company's business, are not considered by the Directors to have a
reasonable likelihood of impacting the Company's viability over the five-year
period.
The long-term resilience of the Company, beyond the Viability statement
period, comes from the effective implementation of our business model,
continuing to support our Investee Companies growth ambitions and the
consistent delivery of our strategic objectives. As the Investee Companies
move into their stabilisation phase, we expect them to generate long-term
sustainable revenues which will underpin the Company's dividends.
Board Approval of the Strategic Report
The Strategic Report has been approved by the Board of Directors and signed on
its behalf by the Chair.
Phil Jordan
Chair
8 March 2023
AUDITED ANNUAL FINANCIAL STATEMENTS
For the year ended 31 December 2022
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
Year ended 31 December 2022 8 January to 31 December 2021
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Income
Income from investments held at fair value 5 4,129 - 4,129 2,923 - 2,923
Gains on investments held at fair value 9 - 97,228 97,228 - 45,502 45,502
Other income 773 - 773 - - -
Interest income - - - 14 - 14
Total income 4,902 97,228 102,130 2,937 45,502 48,439
Expenses
Acquisition expenses - - - - (5,516) (5,516)
Investment management fees 6 (5,802) (1,934) (7,736) (2,214) (738) (2,952)
Other operating expenses 7 (2,323) - (2,323) (1,012) (648) (1,660)
Total operating expenses (8,125) (1,934) (10,059) (3,226) (6,902) (10,128)
Operating (loss)/profit (3,223) 95,294 92,071 (289) 38,600 38,311
Finance expense (2) - (2) (2) - (2)
(Loss)/profit on ordinary activities before taxation (3,225) 95,294 92,069 (291) 38,600 38,309
Taxation 8 - - - - - -
(Loss)/profit and total comprehensive (expense)/income attributable to (3,225) 95,294 92,069 (291) 38,600 38,309
shareholders
(Loss)/earnings per ordinary share - basic and diluted (pence) 22 (0.39p) 11.48p 11.09p (0.07p) 9.84p 9.77p
The total column of this statement is the Statement of Comprehensive Income of
Digital 9 Infrastructure Plc ("the Company") prepared in accordance with
International Financial Reporting Standards, as adopted by the European Union
("EU"). The supplementary revenue return and capital columns have been
prepared in accordance with the Association of Investment Companies Statement
of Recommended Practice (AIC SORP).
All revenue and capital items in the above statement derive from continuing
operations. The Company does not have any other income or expenses that are
not included in the net profit for the year. The net profit for the year
disclosed above represents the Company's total comprehensive income.
This Statement of Comprehensive Income includes all recognised gains and
losses.
The accompanying notes form part of these Financial Statements.
STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
31 December 2021 31 December 2021
Note £'000 £'000
Non-current assets
Investments at fair value through profit or loss 9 920,971 746,229
Total non-current assets 920,971 746,229
Current assets
Trade and other receivables 10 1,417 228
Cash and cash equivalents 11 30,001 11,311
Total current assets 31,418 11,539
Total assets 952,389 757,768
Current liabilities
Trade and other payables 12 (2,769) (1,912)
Total current liabilities (2,769) (1,912)
Total net assets 949,620 755,856
Equity attributable to equity holders
Stated capital 13 819,242 717,547
Capital reserve 133,894 38,600
Revenue reserve (3,516) (291)
Total Equity 949,620 755,856
Net asset value per ordinary share - basic and diluted 23 109.76p 104.62p
The Financial Statements were approved and authorised for issue by the Board
on 8March 2023 and signed on its behalf by:
Phil Jordan
Chair
8 March 2023
The accompanying notes form part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
Note Stated capital £'000 Capital reserve Revenue reserve £'000 Total equity £'000
£'000
Balance at 8 January 2021 - - - -
Transactions with owners
Ordinary shares issued 13 750,000 - - 750,000
Share issue costs (14,616) - - (14,616)
Dividends paid 14 (17,837) - - (17,837)
Profit/(loss) and total comprehensive income/(expense) for the period - 38,600 (291) 38,309
Balance at 31 December 2021 717,547 38,600 (291) 755,856
Note Stated capital £'000 Capital reserve Revenue reserve £'000 Total equity £'000
£'000
Balance at 31 December 2021 717,547 38,600 (291) 755,856
Transactions with owners
Ordinary shares issued 13 155,201 - - 155,201
Share issue costs (3,232) - - (3,232)
Dividends paid 14 (50,274) - - (50,274)
Profit/(loss) and total comprehensive income/(expense) for the period - 95,294 (3,225) 92,069
Balance at 31 December 2021 819,242 133,894 (3,516) 949,620
The accompanying notes form part of these Financial Statements.
STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
Year ended 8 January 2021 to 31 December 2021
31 December 2022
Note £'000
Cash flows from operating activities
Profit on ordinary activities before taxation 92,069 38,309
Adjustments for:
Gains on investments held at fair value 9 (97,228) (45,502)
Cash flow used in operations (5,159) (7,193)
Increase in trade and other receivables 10 (1,189) (228)
Increase in trade and other payables 12 871 1,898
Net cash outflow from operating activities (5,477) (5,523)
Cash flows from investing activities
Loans to subsidiaries (29,105) -
Purchase of investments at fair value through profit or loss 9 (48,409) (667,739)
Net cash flow used in investing activities (77,514) (667,739)
Cash flows from financing activities
Proceeds from issue of Ordinary Shares 13 155,201 717,012
Dividends paid 14 (50,274) (17,837)
Cost of issue of shares 13 (3,246) (14,602)
Net cash flow generated from financing activities 101,681 684,573
Net increase in cash and cash equivalents 18,690 11,311
Reconciliation of net cash flow to movements in cash and cash equivalents
Cash and cash equivalents at 8 January 2021 11,311 -
Net increase in cash and cash equivalents 18,690 11,311
Cash and cash equivalents at end of the year 11 30,001 11,311
The accompanying notes form part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
1. CORPORATE INFORMATION
Digital 9 Infrastructure plc (the "Company" or "D9") is a Jersey registered
alternative investment fund, and it is regulated by the Jersey Financial
Services Commission as a "listed fund" under the Collective Investment Funds
(Jersey) Law 1988 (the "Funds Law") and the Jersey Listed Fund Guide published
by the Jersey Financial Services Commission. The Company is registered with
number 133380 under the Companies (Jersey) Law 1991.
The Company is domiciled in Jersey and the address of its registered office,
which is also its principal place of business, is 26 New Street, St Helier,
Jersey, JE2 3RA. The Company is tax domiciled in the United Kingdom.
The Company was incorporated on 8 January 2021 and is a Public Company. The
Company's Ordinary Shares were admitted to trading on the Specialist Fund
Segment of the Main Market of the London Stock Exchange under the ticker DGI9
on 31 March 2021. It was admitted to the premium listing segment of the
Official List of the Financial Conduct Authority and migrated to trading on
the premium segment of the Main Market on 30 August 2022.
The Company's principal activity is investing in a diversified portfolio of
critical digital infrastructure assets which contribute to improving global
digital communications whilst targeting sustainable income and capital growth
for investors.
These financial statements comprise only the results of the Company, as its
investment in Digital 9 Holdco Limited ("D9 Holdco") is measured at fair value
through profit or loss.
2. BASIS OF PREPARATION
Basis of Preparation
2.
These financial statements for the year ended 31 December 2022 have been
prepared in accordance with International Financial Reporting Standards as
adopted by the European Union.
Where presentational guidance set out in the Association of Investment
Companies Statement of Recommended Practice (the "AIC SORP") is consistent
with the requirements of International Financial Reporting Standards ("IFRS")
the Directors have sought to prepare the financial statements on a basis
compliant with the recommendations of the AIC SORP. In particular,
supplementary information which analyses the Statement of Comprehensive Income
between items of a revenue and capital nature has been presented alongside the
total Statement of Comprehensive Income.
The functional and reporting currency is sterling, reflecting the primary
economic environment in which the Company operates. Transactions in foreign
currencies are translated into sterling at the rates of exchange ruling on the
date of the transaction. Foreign currency monetary assets and liabilities are
translated into sterling at the rates of exchange ruling at the balance sheet
date.
The financial statements have been prepared on a historical cost basis, except
for the following:
• Investments at fair value through profit or loss
The accounting policies adopted are consistent with those of the previous
financial year.
(a) Going concern
The Financial statements are prepared on a going concern basis as disclosed in
the Strategic report, as the Directors are satisfied that the Company has
the resources to continue in business for the foreseeable future. The
Directors have made an assessment of going concern, taking into account a wide
range of information relating to present and future conditions, including the
Company's cash and liquidity position, current performance and outlook, which
has considered the ongoing geopolitical uncertainties arising from the war in
Ukraine, the volatile macro landscape and existing inflationary pressures and
current and expected financial commitments using information available to the
date of issue of these Financial statements.
As part of this assessment the Directors considered an analysis of the
adequacy of the Company's liquidity, solvency and capital adequacy. As at 31
December 2022, the Group had a total cash balance of £73.6 million and the
Company had a cash balance of £30 million. Of this balance, restricted cash
was £18.1 million and unrestricted cash was £55.5 million. The Company also
had £43.8 million remaining undrawn on its RCF, plus a further uncommitted
accordion of £125 million. Following the period end, the Group drew a further
£25 million on it's available RCF balance. The Company is well progressed in
the arrangement of repayment of one of its existing shareholder loans from its
investee companies, this repayment will add to the Company's cash on hand and
provide additional unrestricted cash for the Company.
Uncertainty around the valuation of the Company's assets as set out in the Key
estimation uncertainties section was considered. The valuation policy and
process was consistent with the Company's Interim Results, which saw a change
to methodology. The Company takes a Free Cash Flow to Equity approach,
applying the cost of equity as the discount rate to the relevant equity cash
flows, rather than a blended WACC including the cost of debt.
This year, a key focus of the portfolio valuations at 31 December 2022 was an
assessment of the impact of the macroeconomic environment on the operational
and financial performance of each portfolio company. In particular this
focused on increasing inflationary pressures, volatility in power prices, and
ongoing geopolitical uncertainties. We have incorporated into our cash flow
forecasts a balanced view of future income receipts and expenses and also
considered future syndication opportunities for the portfolio.
In relation to Investee Company level debt, a term sheet has been agreed for a
$100 million facility to be provided to one of the high growth Investee
Companies, the proceeds of which will be used to finance accretive growth
opportunities, and to repay a Company shareholder loan, increasing liquidity
at the Company. The Company may use the proceeds to reduce the drawings of the
Group's RCF.
The Directors also considered the Company's existing financial commitments.
The Company had follow on investment commitments at 31 December 2022 totalling
c.£46 million in Aqua Comms, Verne Global London and EMIC-1. The Company had
ongoing charges of £10 million in the year to 31 December 2022, these are
indicative of the ongoing run rate in the short-term. In addition, while not a
commitment at 31 December 2022, the Company has a dividend target for the
financial year ending 31 December 2023 of 6.0 pence per share. 30 (#_edn30)
The major cash outflows of the Company are the payment of fees and costs
relating to the acquisition of new assets, both of which are discretionary.
The Directors have reviewed Company forecasts and pipeline projections which
cover a period of at least 12 months from the date of approval of this report,
considering foreseeable changes in investment and the wider pipeline. In
addition to the considerations listed above there are a number of mitigating
actions within management control to enhance available liquidity. These
include seeking to extend the maturity of available credit facilities, the
timing of certain income receipts from the portfolio, in extreme downside
scenarios the removal of dividend payments and the level and timing of new
investments or realisations.
On the basis of this review, the Directors have a reasonable expectation that
the Company has adequate resources to continue in operational existence for at
least 12 months from the date of approval of this report. Accordingly, the
going concern basis continues to be adopted in preparing these financial
statements.
The Company has assessed its position on the significant implications of
Russia's invasion of Ukraine to its business. The most significant implication
for the Group is the increase in power prices which affect the data centre
operators given their power consumption.
Verne Global Iceland is isolated from wider European power price movements as
it has a long-term contract with an Icelandic power provider with fixed
uplifts. Meanwhile, Verne Global Finland's (previously Ficolo Oy) performance
is impacted given the market instability and Finland's proximity to Russia
which did result in delays to customer decisions and growth during 2022 would
have been higher without these factors. Verne Global London (previously Volta)
is most affected by power price given it is on UK grid, which although does
not get much of its power from Russia unlike other European countries, is not
isolated from wider market movements. There are secondary impacts as a result
of spiking Nord Pool prices. Verne Global London has re-negotiated some of the
contracts to pass on the increased costs to its customers.
(b) Investment entities
The sole objective of the Company and through its subsidiary D9 Holdco is to
acquire Digital Infrastructure Projects, via individual corporate entities. D9
Holdco will issue equity and loans to finance its investments in the Digital
Infrastructure Projects.
The Directors have concluded that in accordance with IFRS 10, the Company
meets the definition of an investment entity having evaluated against the
criteria presented below that needs to be met. Under IFRS 10, investment
entities are required to hold financial investments at fair value through
profit or loss rather than consolidate them on a line-by-line basis. There are
three key conditions to be met by the Company for it to meet the definition of
an investment entity.
For each reporting period, the Directors will continue to assess whether the
Company continues to meet these conditions:
1. It obtains funds from one or more investors for the
purpose of providing these investors with professional investment management
services;
2. It commits to its investors that its business purpose
is to invest its funds solely for returns (including having an exit strategy
for investments) from capital appreciation, investment income or both; and
3. It measures and evaluates the performance of
substantially all its investments on a fair value basis.
The Company satisfies the first criteria as it has multiple investors and has
obtained funds from a diverse group of shareholders for the purpose of
providing them with investment opportunities to invest in a large pool of
digital infrastructure assets.
In satisfying the second criteria, the notion of an investment timeframe is
critical. An investment entity should not hold its investments indefinitely
but should have an exit strategy for their realisation. The intention of the
Company is to seek equity interests in digital infrastructure projects that
have an indefinite life; the underlying assets that it invests in will have a
medium to long term expected life. The exit strategy for each asset will
depend on the characteristics of the assets, transaction structure, exit price
potentially achievable, suitability and availability of alternative
investments, balance of the portfolio and lot size of the assets as compared
to the value of the portfolio. Whilst the Company intends to hold the
investments on a medium to long-term basis, the Company may also dispose of
the investments should an appropriate opportunity arise where, in the
Investment Manager's opinion, the value that could be realised from such
disposal would represent a satisfactory return on the investment and enhance
the value of the Company as a whole.
The Company's Investment Manager, and the Company's Board will regularly
review the market and consider whether any disposals should be made.
The Company satisfies the third criteria as it measures and evaluates the
performance of all of its investments on a fair value basis which is the most
relevant for investors in the Company. Management use fair value information
as a primary measurement to evaluate the performance of all of the investments
and in decision making.
In assessing whether it meets the definition, the Company shall also consider
whether it has the following typical characteristics of an investment entity:
a) it has more than one investment
b) it has more than one investor
c) it has investors that are not related parties of the entity
d) it has ownership interests in the form of equity or similar interests.
As per IFRS 10 a parent investment entity is required to consolidate
subsidiaries that are not themselves investment entities and whose main
purpose is to provide services relating to the entity's investment activities.
The Directors have assessed whether D9 Holdco satisfies those conditions set
above by considering the characteristics of the whole group structure, rather
than individual entities. The Directors have concluded that the Company and D9
Holdco are formed in connection with each other for business structure
purposes. When considered together, both entities display the typical
characteristics of an investment entity.
The acquisitions made during the period and changes in the group structure
have not impacted the management's judgement and conclusion over the IFRS 10
investment entity application and the Company has applied the same accounting
policies described.
The Directors are therefore of the opinion that the Company meets the criteria
and characteristics of an investment entity and therefore, subsidiaries are
measured at fair value through profit or loss, in accordance with IFRS 13
"Fair Value Measurement", IFRS 10 "Consolidated Financial Statements" and IFRS
9 "Financial Instruments".
(c) New and amended standards adopted by the Company
A number of amended standards became applicable for the current reporting
period. The Group did not have to change its accounting policies or make
retrospective adjustments as a result of adopting these amended standards.
Management do not expect the new or amended standards will have a material
impact on the Company's financial statements. The most significant of these
standards are set out below:
New standards and amendments - applicable 1 January 2022
(a) Amendments to IAS 16 Property, Plant and Equipment: Proceeds before
Intended Use.
(b) Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent
Assets: Onerous Contracts - Cost of Fulfilling a Contract.
(c) Amendments to IFRS 3 Business Combination: Reference to the Conceptual
Framework.
(d) Annual Improvements to IFRS Standards 2018-2020.
FORTHCOMING REQUIREMENTS
The following standards and interpretations had been issued but were not
mandatory for annual reporting periods ending on 31 December 2022.
(a) IFRS 17 Insurance Contracts
(b) Classification of Liabilities as Current or Non-current - Amendments to
IAS 1
(c) Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2
(d) Definition of Accounting Estimates - Amendments to IAS 8
(e) Deferred Tax related to Assets and Liabilities arising from a Single
Transaction - Amendments to IAS 12
(f) Sale or contribution of assets between an investor and its associate
or joint venture - Amendments to IFRS 10 and IAS 28
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Financial Instruments
Financial assets and financial liabilities are recognised on the Company's
Statement of Financial Position when the Company becomes a party to the
contractual provisions of the instrument. Financial assets are to be
derecognised when the contractual rights to the cash flows from the instrument
expire or the asset is transferred, and the transfer qualifies for
de-recognition in accordance with IFRS 9 Financial Instruments.
The Company did not use any derivative financial instruments during the
period.
(i) Financial assets
The Company's investment in D9 Holdco comprises both equity and debt. The
Company classifies its financial assets as either investments at fair value
through profit or loss or financial assets at amortised cost (e.g. cash and
cash equivalents and trade and other receivables). The classification depends
on the purpose for which the financial assets are acquired. Management
determines the classification of its financial assets at initial recognition.
(ii) Financial asset at fair value through profit or loss
At initial recognition, the Company measures its investments through its
investment in D9 Holdco, at fair value through profit or loss and any
transaction costs are expensed to the Statement of Comprehensive Income. The
Company will subsequently continue to measure all investments at fair value
and any changes in the fair value are to be recognised as unrealised gains or
losses through profit or loss within the capital column of the Statement of
Comprehensive Income.
IFRS 13 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (an exit price). When measuring fair
value, the Company takes into consideration the characteristics of the asset
or liability if market participants would take those characteristics into
account when pricing the asset or liability at the measurement date, including
assumptions about risk.
(iii) Financial liabilities and equity
Debt and equity instruments are measured at amortised cost and are classified
as either financial liabilities or as equity in accordance with the substance
of the contractual arrangement.
All financial liabilities are classified as at amortised cost. These
liabilities are initially measured at fair value less transaction costs and
subsequently using the effective interest method.
(iv) Equity instruments
The Company's Ordinary Shares are classified as equity under stated capital
and are not redeemable. Costs associated or directly attributable to the issue
of new equity shares, including the costs incurred in relation to the
Company's IPO on 31 March 2021 and its subsequent equity raises, are
recognised as a deduction in equity and are charged against stated capital.
(b) Finance income
Finance income is recognised using the effective interest method. This is
calculated by applying the effective interest rate to the gross carrying
amount of a financial asset unless the assets subsequently became credit
impaired. In the latter case, the effective interest rate is applied to the
amortised cost of the financial asset. Finance income is recognised on an
accrual basis.
(c) Finance expenses
Borrowing costs are recognised in the Statement of Comprehensive Income in the
period to which they relate on an accruals basis.
(d) Fair value estimation for investments at fair value
The fair value of financial investments at fair value through profit or loss
is based on the valuation models adjusted in accordance with the IPEV
(International Private Equity and Venture Capital) valuation guidelines where
appropriate to comply with IFRS 13.
The Company records the fair value of D9 Holdco by calculating and aggregating
the fair value of each of the individual investments in which the Company
holds an indirect investment. The total change in the fair value of the
investment in D9 Holdco is recorded through profit and loss within the capital
column of the Statement of Comprehensive Income.
(e) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and deposits held on call
with banks. Deposits to be held with original maturities of greater than
three months are included in other financial assets. Cash and cash
equivalents are measured at amortised cost using the effective interest method
and assessed for expected credit losses at each reporting date.
There are no material expected credit losses as the bank institution has high
credit ratings assigned by international credit rating agencies.
(f) Trade and other receivables
Trade and other receivables are measured at amortised cost using the effective
interest method, less any impairment. They are included in current assets,
except where maturities are greater than 12 months after the reporting date,
in which case they are to be classified as non-current assets.
The effective interest rate is the rate that exactly discounts estimated
future cash payments or receipts through the expected life of the financial
instrument to the relevant asset's carrying amount.
Impairment provisions for all receivables are recognised based on a
forward-looking expected credit loss model using the simplified approach. The
methodology used to determine the amount of the provision is based on whether
there has been a significant increase in credit risk since initial recognition
of the financial asset. For those where the credit risk has not increased
significantly since initial recognition of the financial asset, 12 month
expected credit losses along with gross interest income are recognised. For
those for which credit risk has increased significantly, lifetime expected
credit losses along with the gross interest income are recognised. For those
that are determined to be credit impaired, lifetime expected credit losses
along with interest income on a net basis are recognised.
(g) Amortised costs
Assets that are held for collection of contractual cash flows, where those
cash flows represent solely payments of principal and interest, are measured
at amortised cost. Interest income from these financial assets is included in
finance income using the effective interest rate method. Any gain or loss
arising on derecognition is recognised directly in profit or loss and
presented in other gains/(losses) together with foreign exchange gains and
losses. Impairment losses are presented as separate line item in the statement
of profit or loss.
(h) Trade and other payables
Trade and other payables are classified as current liabilities if payment is
due within one year or less from the end of the current accounting period. If
not, they are presented as non-current liabilities. Trade and other payables
are recognised initially at their fair value and subsequently measured at
amortised cost using the effective interest method until settled.
(i) Segmental reporting
The Chief Operating Decision Maker (the "CODM") being the Board of Directors,
is of the opinion that the Company is engaged in a single segment of business,
being investment in Digital Infrastructure Projects.
The internal financial information to be used by the CODM on a quarterly basis
to allocate resources, assess performance and manage the Company will present
the business as a single segment comprising the portfolio of investments in
digital infrastructure assets.
(j) Foreign currency transactions and balances
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the reporting date are translated at the
foreign exchange rate ruling at that date. Foreign exchange differences
arising on translation are recognised in the Statement of Comprehensive Income
as a revenue or capital item depending on the income or expense to which they
relate.
All exchange differences recognised in income or expenses, except for those
arising on financial instruments measured at fair value through profit or loss
in accordance with IFRS 9, is on an aggregate net basis. The total amount of
exchange differences recognised in income or expenses includes exchange
differences recognised on subsequent settlement and re-translation to the
closing rate on balances arising from foreign currency transactions.
(k) Revenue recognition
Gains and losses on fair value of investments in the Statement of
Comprehensive Income will represent gains or losses that arise from the
movement in the fair value of the Company's investment in D9 Holdco.
Investment income comprises dividend income received from the Company's
subsidiary. Interest income is recognised in the Statement of Comprehensive
Income using the effective interest method.
Other income is recognised to the extent that the economic benefits will flow
to the Company and the income can be reliably measured. Income is measured as
the fair value of consideration received or receivable, excluding discounts,
rebates and value added tax. Other Income comprises fees charged to Investee
Companies under a Management Services Agreement. Other Income is recognised
100% through revenue.
Dividend income receivable on equity shares is recognised on the ex-dividend
date. Dividend income on equity shares where no ex-dividend date is quoted is
brought into account when the Company's right to receive payment is
established.
(l) Dividends
Dividends payable are recognised as distribution in the financial statements
in the period in which they are paid or when the Company's obligation to make
payment has been established.
(m) Fund Expenses
Expenses are accounted for on an accruals basis. Share issue costs of the
Company directly attributable to the issue and listing of shares are charged
to stated capital. The Company's investment management fee, administration
fees and all other expenses are charged through the Statement of Comprehensive
Income.
In order to better reflect the activities of an investment trust company and
in accordance with guidance issued by the AIC SORP, supplementary information
which analyses the Statement of Comprehensive Income between items of a
revenue and a capital nature has been presented alongside the Statement of
Comprehensive Income.
Expenses have been charged wholly to the revenue column of the Statement of
Comprehensive Income, except as follows:
• expenses which are incidental to the acquisition or disposal of an
investment are treated as capital.
• expenses are treated as capital where a connection with the
maintenance or enhancement of the value of the investments can be
demonstrated; and
• the investment management fee has been allocated 75% to revenue and
25% to capital on the Statement of Comprehensive Income in line with the
Board's expected long-term split of returns, in the form of income and capital
gains respectively, from the investment portfolio.
(n) Acquisition costs and disposals
In line with SORP, acquisition costs and disposals are expensed to the capital
column of the Statement of Comprehensive Income as they are incurred for
investments which are held at fair value through profit or loss.
(o) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. The tax currently payable is based on the taxable profit for the year.
Taxable profit differs from net profit as reported in the Statement of
Comprehensive Income because it excludes items of income or expenses that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Company's liability for current tax is
calculated using tax rates that were applicable at the balance sheet date.
Where expenses are allocated between the capital and revenue accounts, any tax
relief in respect of expenses is allocated between capital and revenue returns
on the marginal basis using the Company's effective rate of corporation tax
for the accounting period.
Deferred taxation is recognised in respect of all temporary differences that
have originated but not reversed at the financial reporting date, where
transactions or events that result in an obligation to pay more taxation in
the future or right to pay less taxation in the future have occurred at the
financial reporting date. This is subject to deferred tax assets only being
recognised if it is considered more likely than not that there will be
suitable profits from which the future reversal of the temporary differences
can be deducted. Deferred tax is measured on a non-discounted basis, at the
average tax rates that are expected to apply in the periods in which the
timing differences are expected to reverse based on tax rates and laws that
have been enacted or substantively enacted by the balance sheet date.
(p) Earnings per share
The Company presents basic and diluted earnings per share ("EPS").
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
• the profit attributable to owners of the company, excluding any
costs of servicing equity other than ordinary shares
• by the weighted average number of ordinary shares outstanding
during the financial year, adjusted for bonus elements in ordinary shares
issued during the year and excluding treasury shares
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of
basic earnings per share to take into account:
• the after-income tax effect of interest and other financing costs
associated with dilutive potential ordinary shares, and
• the weighted average number of additional ordinary shares that
would have been outstanding assuming the conversion of all dilutive potential
ordinary shares.
4. ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
In the application of the Company's accounting policies, the Directors are
required to make judgements, estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expenses. It is possible
that actual results may differ from these estimates.
(a) Significant accounting judgements
(i) Investment entity
As discussed above in Note 2(b), the Company meets the definition of an
investment entity as defined in IFRS 10 and therefore its subsidiary entities
have not been consolidated in these financial statements.
(b) Key sources of estimation uncertainty
The estimates and underlying assumptions underpinning our investments are
reviewed on an ongoing basis by both the Board and the Investment Manager.
Revisions to any accounting estimates are recognised in the period in which
the estimate is revised if the revision affects only that period, or in the
period of the revision and future periods if the revision affects both current
and future periods.
(i) Fair value measurement of investments at fair value
through profit or loss
The fair value of investments in Digital Infrastructure Projects is calculated
by discounting at an appropriate discount rate future cash flows expected to
be generated by the trading subsidiary companies and received by D9 Holdco,
through dividend income, equity redemptions and Shareholder loan repayments or
restructurings and adjusted in accordance with the IPEV (International Private
Equity and Venture Capital) valuation guidelines where appropriate to comply
with IFRS 13 and IFRS 9.
Estimates such as the forecasted cash flows of the investments, are believed
to be reasonable, the results of which form the basis of making judgements
about the fair value of assets not readily available from other sources.
Discount rates used in the valuation represent the Investment Manager's and
the Board's assessment of the rate of return in the market for assets with
similar characteristics and risk profile.
The discounted cash flow from revenue is forecasted over an eight to 15 year
period followed by a terminal value based on a long-term growth rate or exit
multiples. The discounted cash flow comprises a bottom-up analysis of the
weighted average cost of capital over time, using unobservable inputs; and
calculation of the appropriate beta based on comparable listed companies.
A broad range of assumptions are used in the Company's valuation models, which
are arrived at by reviewing and challenging the business plans of the Investee
Companies with their management. The Investment Manager exercises its
judgement and uses its experience in assessing the expected future cash flows
from each investment and long-term growth rates. The impact of changes in the
key drivers of the valuation are set out below.
The following significant unobservable inputs were used in the model:
Inflation
A long-term inflation sensitivity of plus and minus 1% is presented above.
Interest rates
The valuations are sensitive to changes in interest rates, a sensitivity of 1%
has been applied to interest rates applicable to the floating rate debt across
the Company's portfolio.
Discount rates
The Investment Manager considers a variance of plus or minus 1% is to be a
reasonable range of alternative assumptions for discount rates.
The Company has also carried out sensitivity analysis of these unobservable
inputs and the results are disclosed in Note 9.
5. INVESTMENT INCOME
Year ended 8 January 2021 to 31 December 2021
31 December 2022
£'000
UK dividends 3.226 2,923
Loan interest income 903 -
4,129 2,923
6. INVESTMENT MANAGEMENT FEES
Year ended 31 December 2022 8 January 2021 to 31 December 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Management fees 5,802 1,934 7,736 2,214 738 2,952
Total management fees 5,802 1,934 7,736 2,214 738 2,952
The Company and the Investment Manager entered into an Investment Management
Agreement on 8 March 2021 and a Side Letter dated 17 March 2021.
The Company and Triple Point Investment Management LLP (the "Investment
Manager") have entered into the Investment Management Agreement pursuant to
which the Investment Manager has been given responsibility, subject to the
overall supervision of the Board, for active discretionary investment
management of the Company's Portfolio in accordance with the Company's
Investment Objective and Policy.
The Investment Manager is appointed to be responsible for risk management and
portfolio management and is the Company's AIFM. The Investment Manager has
full discretion under the Investment Management Agreement to make investments
in accordance with the Company's Investment Policy from time to time.
This discretion is, however, subject to: (i) the Board's ability to give
instructions to the Investment Manager from time to time; and (ii) the
requirement of the Board to approve certain investments where the Investment
Manager has a conflict of interest in accordance with the terms of the
Investment Management Agreement.
With effect from 31 March 2021, the date of admission of the Ordinary Shares
to trading on the Specialist Fund Segment of the Main Market of the London
Stock Exchange, the Company shall pay the Investment Manager a management fee
(the "Annual Management Fee") calculated, invoiced and payable quarterly in
arrears based on the Adjusted Net Asset Value which is based on funds deployed
and committed at the relevant quarter date.
The total amount accrued and due to Triple Point at the year-end was £2.2
million (2021: £1.3 million).
The management fee is calculated at the rates set out below:
Adjusted Net Asset Value Annual Management Fee (percentage of Adjusted Net Asset Value)
On such part of the Adjusted Net Asset Value that is up to and including GBP 1.0%
500 million
On such part of the Adjusted Net Asset Value that is above GBP 500 million and 0.9%
up to and including GBP 1 billion
On such part of the Adjusted Net Asset Value that exceeds GBP 1 billion 0.8%
7. OTHER OPERATING EXPENSES
Year ended 8 January 2021 to
31 December 2022 31 December 2021
£'000
Allocated to Revenue:
Legal and professional fees 344 153
Auditors' fees - audit services 1 257 180
Auditors' fees - non-audit services 2 120 111
Directors' fees 261 181
Administration and company secretarial fees 207 163
Premium segment admission costs 677 -
Other administrative expenses 457 224
2,323 1,012
Allocated to Capital:
Aborted deals costs - 648
2,323 1,660
1 - Fees presented include VAT but exclude audit fees on the financial
statements of subsidiaries totaling £429,000 (2021 - £271,000).
2 - Fees for non-audit services relate to the review of interim financial
statements and limited assurance on environmental, social and corporate
governance. Total fees for non-audit services performed by the Company's
auditors for the subsidiary companies was £Nil (2021 - £166,000).
8. TAXATION
The Company is registered in Jersey, Channel Islands but resident in the
United Kingdom for taxation. The standard rate of corporate income tax
currently applicable to the Company is 19% (2021 - 19%).
The financial statements do not directly include the tax charges for the
Company's intermediate holding company, as D9 Holdco is held at fair value. D9
Holdco is subject to taxation in the United Kingdom.
The tax charge for the period is less than the standard rate of corporation
tax in the UK of 19% (2021 - 19%). The differences are explained below.
Year ended 31 December 2022 8 January 2021 to 31 December 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net (loss)/profit before tax (3,225) 95,294 92,069 (291) 38,600 38,309
Tax at UK corporation tax standard rate of 19% (613) 18,106 17,493 (55) 7,334 7,279
Effects of:
Gain on financial assets not taxable - (18,473) (18,473) - (8,645) (8,645)
Exempt UK dividend income (613) - (613) (555) - (555)
Expenses not deductible for tax purposes 138 - 138 - 1,048 1,048
Other disallowed expenses - - - - 123 123
Unutilised management expenses 1,088 367 1,455 610 140 750
- - - - - -
Investment companies which have been approved by HM Revenue & Customs
under section 1158 of the Corporation Tax Act 2010 are exempt from tax on
capital gains. The Directors are of the opinion that the Company has complied
with the requirements for maintaining investment trust status for the purposes
of section 1158 of the Corporation Tax Act 2010. The Company has not provided
for deferred tax on any capital gains or losses arising on the revaluation of
investments.
The Company has unrelieved excess management expenses of £11.5 million (2021
- £4 million). It is unlikely that the Company will generate sufficient
taxable profits in the future to utilise these expenses and therefore no
deferred tax asset has been recognised.
The unrecognised deferred tax asset calculated using a tax rate of 25% amounts
to £2 million (2021 - £1 million). The Finance Act 2021 received Royal
Assent on 10 June 2021 and the rate of Corporation Tax of 25% effective from 1
April 2023 has been used to calculate the potential deferred tax asset.
9. FINANCIAL ASSET AT FAIR VALUE THROUGH PROFIT OR LOSS
As set out in Note 2, the Company designates its interest in its wholly owned
direct subsidiary as a financial asset at fair value through profit or loss.
Summary of the Company's valuation:
Total
£'000
At 31 December 2022:
Opening balance 1 January 2022 746,229
Equity investments in D9 Holdco(1) 48,409
Debt investments in D9 Holdco 29,105
Change in fair value of investments 97,228
As at 31 December 2022 920,971
At 31 December 2021:
Opening balance on incorporation -
Investments in D9 Holdco(1) 700,727
Change in fair value of investments 45,502
As at 31 December 2021 746,229
1 D9 Holdco was incorporated as a 100% subsidiary undertaking and the amount
reflects the Company's investments through D9 Holdco
As outlined above, the Company made both equity and debt investments during
the period. The Company views the equity and debt instruments as one
investment and measures the performance of these investments together.
Therefore, the Company's equity and debt investments are presented as
investment at fair value through profit or loss in the Statement of Financial
Position.
Included in debt investments as at the year-end is a loan of £29.1 million
(2021 - £Nil) due from D9 Holdco upon which interest is charged at a rate of
Sterling Overnight Index Average (SONIA) plus a 3.75% margin. Interest of
£0.9 million was charged during the year on the loan. The debt instrument is
measured at fair value as at 31 December 2022.
During the period, the Company through its subsidiary companies made further
investments and acquisitions as follows:
Date D9 Subsidiaries(1) Investments Acquisition cost
Apr 2022 D9 DC Opco 1 Limited Verne Global London - Owns a long leasehold property and data centre operator £45.5m
in Central London
Apr 2022 D9 Wireless Opco 1 Limited Elio Networks - Operates fixed wireless access network in Dublin €60.6m
Apr-Dec 2022 Digital 9 Holdco Limited Provided Capex loans to Verne Global Iceland for the construction of data £38.5m
centres
Jan-Dec 2022 Digital 9 Subsea Limited EMIC 1 - progress payments for the construction of Subsea cables $18.9m
Sep-Dec 2022 Digital 9 Holdco Limited Provided Capex loans to Verne Global London for the construction of data £4.4m
centre
Nov 2022 Digital 9 Holdco Limited Provided Capex loan to Aqua Comms for undersea cables construction $5m
Aug-Dec 2022 Digital 9 Holdco Limited Provided loans to Verne Global London £3.7m
Jul 2022 D9 DC Opco 3 Limited Verne Global Finland - Operates data centres in Finland €135m
Oct 2022 D9 Wireless Opco 2 Limited Acquired 48.02% voting stake in Arqiva Group Limited - network and £300m
communications service provider, the sole operator of digital terrestrial
television and radio infrastructure in the United Kingdom
1 Subsidiaries of Digital 9 Holdco Limited are the companies that make
acquisitions
Valuation process
The Investment Manager includes a team that is responsible for carrying out
the fair valuation of financial assets for financial reporting purposes,
including level 3 fair valuations. This valuation is presented to the Board
for its approval and adoption. The valuation is carried out on a six-monthly
basis as at 30 June and 31 December each year and is reported to Shareholders
in the Annual Report and Financial Statements.
Valuation methodology
The Company owns 100% of its subsidiary D9 Holdco. The Company meets the
definition of an investment entity as described by IFRS 10, as such the
Company's investment in D9 Holdco is valued at fair value. D9 Holdco's cash,
working capital balances and fair value of investments are included in
calculating fair value of D9 Holdco. The Company acquires underlying
investments in special purpose vehicles ("SPV") through its investment in D9
Holdco.
The Investment Manager has carried out fair market valuations of the SPV
investments as at 31 December 2022 and the Directors have satisfied themselves
as to the methodology used, the discount rates and key assumptions applied,
and the valuations. All SPV investments are at fair value through profit or
loss and are valued using the IFRS 13 framework for fair value measurement.
The following economic assumptions were used in the valuation of the SPVs.
The main Level 3 inputs used by the Group are derived and evaluated as
follows:
· The Investment Manager uses its judgment in arriving at the
appropriate discount rate using a capital asset pricing model to calculate a
pre-tax rate that reflects current market assessment. This is based on its
knowledge of the market, considering intelligence gained from its bidding
activities, discussions with financial advisers in the appropriate market and
publicly available information on relevant transactions. The bottom-up
analysis of the discount rate and the appropriate beta is based on comparable
listed companies. For the Interim Report, after consultation with its
advisers, the Company decided to make a slight change to its valuation
methodology. Its investments are still being valued using a discounted cash
flow approach, but they are now being valued on a Free Cash Flow to Equity
("FCFE") basis rather than Free Cash Flow to the Firm ("FCFF"). Where Investee
Companies do not have leverage, for the FCFE model, the Investment Manager has
used its knowledge of the market; combined with the ability of the Investee
Companies' cash flows to support leverage on their balance sheets to apply an
appropriate level of debt over the period. A cost of equity has been used as
the discount rate, replacing a cost of capital. In theory, there should be no
difference between the FCFE and FCFF approaches, but in practice there are
minor variations. Going forward, the Company will continue to value its
investments on a FCFE basis, incorporating the investment companies' debt
structuring ambitions when confirmed by the respective Boards of those
companies. The portfolio weighted average cost of equity for investments
valued under the FCFE discounted cash flows approach is 12.64%. The cost of
equity could decline further in the future as the portfolio companies benefit
from lower operational risk as they execute on their growth plans.
· To calculate portfolio NAV, 98% of total NAV from investment
companies is valued using the FCFE discounted cash flows approach with the
remaining 2% of investments being valued at cost.
· Expected cash inflows are estimated based on terms of the contracts
and the Company's knowledge of the business and how the current economic
environment is likely to impact it taking into consideration of growth rate
factors.
· Foreign exchange rates of GBP against USD, EUR and ISK
Fair value measurements
As set out above, the Company accounts for its interest in its wholly owned
direct subsidiary as a financial asset at fair value through profit or loss.
IFRS 13 requires disclosure of fair value measurement by level. The level of
fair value hierarchy within the financial assets or financial liabilities is
determined on the basis of the lowest level input that is significant to the
fair value measurement. Financial assets and financial liabilities are
classified in their entirety into only one of the following 3 levels:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2 - inputs other than quoted prices included within Level 1 that are
observable for the assets or liabilities, either directly (i.e., as prices) or
indirectly (i.e. derived from prices); and
Level 3 - inputs for assets or liabilities that are not based on observable
market data (unobservable inputs).
The following table presents the Company's financial assets and financial
liabilities measured and recognised at fair value at 31 December 2022 and 31
December 2021:
Total Quoted prices in active markets (Level 1) Significant observable inputs Significant unobservable inputs
(Level 2) (Level 3)
Date of valuation £'000 £'000 £'000 £'000
Assets measured at fair value:
Equity investment in D9 Holdco 31 December 2022 891,866 - - 891,866
Debt investment in D9 Holdco 31 December 2022 29,105 - - 29,105
Assets measured at fair value:
Equity investment in D9 Holdco 31 December 2021 746,229 - - 746,229
There have been no transfers between Level 1 and Level 2 during the period,
nor have there been any transfers between Level 2 and Level 3 during the year.
The Company's investments are reported as Level 3 in accordance with IFRS 13
where external inputs are "unobservable" and value is the Directors' best
estimate, based upon advice from relevant knowledgeable experts.
Fair value measurements using significant unobservable inputs (Level 3)
As set out within the significant accounting estimates and judgements in Note
3(b), the valuation of the Company's financial asset is an estimation
uncertainty. The sensitivity analysis was performed based on the current
capital structure and expected performance of the Company's investment in D9
Holdco. For each of the sensitivities, it is assumed that potential changes
occur independently of each other with no effect on any other base case
assumption, and that the number of investments in the SPVs remains static
throughout the modelled life. The following table summarises the quantitative
information about the significant unobservable inputs used in Level 3 fair
value measurement and the changes to the fair value of the financial asset if
these inputs change upwards or downwards by 1%:
Unobservable inputs Valuation if rate increases by 1% Movement in valuation Valuation if rate decreases by 1% Movement in valuation
£'000 £'000 £'000 £'000
Inflation 954,328 33,357 890,539 (30,432)
Interest rates 869,808 (51,163) 972,411 51,440
Discount rates 763,774 (157,197) 1,111,450 190,479
10. TRADE AND OTHER RECEIVABLES
31 December 2022 31 December 2021
£'000 £'000
Amounts due from subsidiary undertakings 601 209
Other receivables 816 19
1,417 228
The Directors consider that the carrying value of trade and other receivables
approximate their fair value.
11. CASH AND CASH EQUIVALENTS
31 December 2022 31 December 2021
£'000 £'000
Foreign currencies account - 27
Cash at bank 30,001 11,284
30,001 11,311
Foreign currency accounts refer to funds held in USD and Euro currencies.
Foreign currency balances are subject to foreign currency exchange risks, but
the risk is considered insignificant.
The Directors consider that the carrying value of cash and cash equivalents
approximate their fair value.
12. TRADE AND OTHER PAYABLES
31 December 2022 31 December 2021
£'000 £'000
Trade payables 216 -
Accruals 2,553 1,912
2,769 1,912
The Directors consider that the carrying value of trade and other payables
approximate their fair value. All amounts are unsecured and due for payment
within one year from the reporting date. £2.2 million (2021: £1.3 million)
of the above accruals figure relates to fees payable to the Investment
Manager.
13. STATED CAPITAL
Ordinary shares of no par value 31 December 2021
Allotted, issued and fully paid: No of shares Price £'000
Allotted following admission to London Stock Exchange
31 March 2021 300,000,000 100.0p 300,000
10 June 2021 166,666,667 105.0p 175,000
1 October 2021 255,813,953 107.5p 275,000
Ordinary Shares at 31 December 2021 722,480,620 750,000
Dividends paid (Note 14) (17,837)
Share issue costs (14,616)
Stated capital at 31 December 2021 717,547
31 December 2022
Allotted, issued and fully paid: No of shares Price £'000
As at 1 January 2022 722,480,620 717,547
Allotted during the period
31 March 2021 88,148,880 108.0p 95,201
1 October 2021 54,545,454 110.0p 60,000
Ordinary Shares at 31 December 2022 865,174,954 872,748
Dividends paid (Note 14) (50,274)
Share issue costs (3,232)
Stated capital at 31 December 2022 819,242
Shareholders are entitled to all dividends paid by the Company and, on a
winding up, provided the Company has satisfied all its liabilities, the
shareholders are entitled to all of the residual assets of the Company.
On 28 January 2022, the Company raised gross proceeds of £95.2 million via
the Placing of new Ordinary Shares at a price of 108.0p. Further 88,148,880
Ordinary Shares were admitted to trading on the London Stock Exchange.
On 8 July 2022, the Company announced it raised £60 million via a placing and
offer for subscription of new ordinary shares at a price of 110.0p.
Subsequently, 54,545,454 new ordinary shares were issued and admitted to
trading on the London Stock Exchange.
14. DIVIDENDS
Dividend per share Year ended 8 January 2021 to 31 December 2021
31 December 2022
£'000 £'000
Dividend period 31 March 2021 to 30 June 2021 1.5 pence - 7,000
Dividend period 1 July 2021 to 30 September 2021 1.5 pence - 10,837
Dividends period 1 October 2021 to 31 December 2021 1.5 pence 12,159 -
Dividend period 1 January 2022 to 31 March 2022 1.5 pence 12,159 -
Dividend period 1 April 2022 to 30 June 2022 1.5 pence 12,978 -
Dividend period 1 July 2022 to 30 September 2022 1.5 pence 12,978 -
Total dividends paid 50,274 17,837
In addition to the above dividends, since year end the Directors have
recommended the payment of an interim dividend of £12,977,624 equivalent to
1.50 pence per fully paid ordinary share. The aggregate amount of the proposed
dividend expected to be paid on or around 31 March 2023 out of reserves at 31
December 2022, but not recognised as a liability at year end.
15. SUBSIDIARIES
At the reporting date, the Company had one wholly owned subsidiary, being its
100% investment in Digital 9 Holdco Limited. The following table shows
subsidiaries of the Company. As the Company is regarded as an Investment
Entity as referred to in Note 2, these subsidiaries have not been consolidated
in the preparation of the financial statements.
Name Place of business % Interest Principal activity Registered office
Digital 9 Holdco Limited UK 100% Holding company 1 King William Street, London EC4N 7AF
The following companies are held by D9 Holdco Limited and its underlying
subsidiaries:
Digital 9 DC Limited UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
Digital 9 Fibre Limited UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
Digital 9 Wireless Limited UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
Digital 9 Subsea Holdco Limited UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
Digital 9 Subsea Limited(1) UK 100% Subsea fibre optic network 1 King William Street, London EC4N 7AF
Digital 9 Seaedge Limited(2) UK 100% Leaseholding company 1 King William Street, London EC4N 7AF
D9 DC Opco 1 Limited(2) UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
D9 DC Opco 2 Limited(2) UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
D9 DC Opco CAN 1 Limited(14) Canada 100% Dormant 44 Chipman Hill Suite 1000 Saint John NB E2L 2A9 Canada
D9 DC Opco 3 Limited(2) UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
D9 Wireless Opco 1 Limited(3) UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
D9 Wireless Midco 1 Limited(3) UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
D9 Wireless Opco 2 Limited(4) UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
D9 Wireless Opco 3 Limited(3) UK 100% Dormant 1 King William Street, London EC4N 7AF
D9 Fibre Opco 1 Limited(13) UK 100% Dormant 1 King William Street, London EC4N 7AF
D9 Fibre Opco 2 Limited(13) UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
Giggle Fibre Limited(16) UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
Giggle Broadband Limited(15) Scotland 100% Fibre broadband services Floor 2, Framework Building, 124 St Vincent Street, Glasgow Scotland G2 5HF
Aqua Comms Designated Activity Company(1) Ireland 100% Holding company The Exchange Building, 4 Foster Place, Dublin 2
Aqua Comms Connect Limited(5) Ireland 100% Intermediate holding company The Exchange Building, 4 Foster Place, Dublin 2
America Europe Connect 2 Limited(5) Ireland 100% Subsea fibre optic network The Exchange Building, 4 Foster Place, Dublin 2
America Europe Connect 2 Denmark ApS(5) Denmark 100% Subsea fibre optic network c/o Bech-Bruun Langeline Alle 35, Copenhagen
North Sea Connect Denmark ApS(5) Denmark 100% Subsea fibre optic network c/o Bech-Bruun Langeline Alle 35, Copenhagen
Aqua Comms Management (UK) Limited(5) UK 100% Management company 85 Great Portland Street, London W1W 7LT
Aqua Comms Denmark ApS(5) Denmark 100% Subsea fibre optic network c/o Bech-Bruun Langeline Alle 35, Copenhagen
Aqua Comms (Ireland) Limited(5) Ireland 100% Subsea fibre optic network The Exchange Building, 4 Foster Place, Dublin 2
America Europe Connect Limited(5) Ireland 100% Subsea fibre optic network The Exchange Building, 4 Foster Place, Dublin 2
Celtix Connect Limited(5) Ireland 100% Subsea fibre optic network The Exchange Building, 4 Foster Place, Dublin 2
Aqua Comms Management Limited(5) Ireland 100% Management company The Exchange Building, 4 Foster Place, Dublin 2
Sea Fibre Networks Limited(5) Ireland 100% Subsea fibre optic network The Exchange Building, 4 Foster Place, Dublin 2
Aqua Comms (IOM) Limited(5) Isle of Man 100% Subsea fibre optic network c/o PCS Limited, Ground Floor, Murdoch Chambers, South Quay, Douglas, IOM IM1
5AS
Aqua Comms (UK) Limited(5) UK 100% Subsea fibre optic network 85 Great Portland Street, London W1W 7LT
Aqua Comms Services Limited(5) Ireland 100% Subsea fibre optic network The Exchange Building, 4 Foster Place, Dublin 2
America Europe Connect (UK) Limited(5) UK 100% Subsea fibre optic network 85 Great Portland Street, London W1W 7LT
America Europe Connect 2 USA Inc(5) USA 49% Subsea fibre optic network 251 Little Falls Drive, Wilmington, Delaware, 19808 USA
Aqua Comms (Americas) Inc(5) USA 49% Subsea fibre optic network 3500 South Dupont Highway, Dover, Delaware 19901 Kent, United States
Verne Holdings Limited(2) UK 100% Holding company 1 King William Street, London EC4N 7AF
Verne Global GmbH(17) Germany 100% Data centre solutions Äußere Sulzbacher Straße 118, 90491 Nürnberg
Verne Global hf.(6) Iceland 100% Data centre operation Valhallarbraut 868, 262 Reykjanesbaer, Iceland
Verne Global Ltd(17) UK 100% Data centre solutions 1 King William Street, London EC4N 7AF
Verne Global Inc.(17) USA 100% Data centre solutions 1825 Washington Street, Canton MA 02021 USA
GAData Holdings Limited(7) Jersey 100% Holding company 28 Esplanade, St Helier, Jersey JE3 3QA
Volta Data Centres Limited(8) UK 100% Data centre operator 36-43 Great Sutton Street London EC1V 0AB
GSS Propco Limited(8) Jersey 100% Property investment 28 Esplanade, St Helier, Jersey JE3 3QA
Leeson Telecom Limited(9) Ireland 100% Enterprise broadband 6-9 Trinity St, Dublin, D02 EY47, Ireland
Leeson Telecom One Limited(9) Ireland 100% Enterprise broadband 6-9 Trinity St, Dublin, D02 EY47, Ireland
Leeson Telecom Holdings Limited(10) Ireland 100% Enterprise broadband 6-9 Trinity St, Dublin, D02 EY47, Ireland
W R Computer Network Limited(10) Ireland 100% Enterprise broadband 6-9 Trinity St, Dublin, D02 EY47, Ireland
Ficolo Oy(11) Finland 100% Data centre operator Konepajanranta 4, 28100 Pori, Finland
Arqiva Group Limited(12) UK 48.02% Holding Company Crawley Court, Winchester, Hampshire SO21 2QA
1 - Held by Digital 9 Subsea Holdco 10 - Held by Leeson Telecom Limited
2 - Held by Digital 9 DC Limited 11 - Held by D9 DC Opco 3 Limited
3 - Held by Digital 9 Wireless Limited 12 - Held by D9 Wireless Opco 2 Limited
4 - Held by D9 Wireless Midco 1 Limited 13 - Held by Digital 9 Fibre Limited
5 - Held by Aqua Comms Designed Activity Company and its intermediate holding 14 - Held by D9 Opco 2 Limited
companies
6 - Held by Verne Holdings Limited 15 - Held by Giggle Fibre Limited
7 - Held by D9 DC Opco 1 Limited 16 - Held by D9 Fibre Opco 2 Limited
8 - Held by GAData Holdings Limited 17 - Held by Verne Global hf
9 - Held by D9 Wireless Opco 1 Limited
16. TRANSACTIONS WITH INVESTMENT ADVISERS AND RELATED PARTY DISCLOSURE
Directors
Directors are remunerated for their services at such rate as the directors
shall from time to time determine. The Directors are each paid an annual fee
of £40,000 other than the Chair of the Audit Committee and Chair of the Risk
Committee who are each entitled to an additional £5,000 and the Chair of the
Company who is entitled to receive an annual fee of £75,000.
Director Number of Ordinary Shares held * Dividends paid * Dividends paid
31 December 2022 31 December 2021
Jack Waters (resigned 23 May 2022) 70,000 £1,050 £1,800
Philip Jordan (from 23 May 2022) 73,909 £1.518 -
Aaron Le Cornu (from 1 April 2022) 72,500 £2,437 -
Lisa Harrington 38,604 £2,316 £879
Keith Mansfield 86,429 £3,934 £1,479
Monique O'Keefe (resigned 23 May 2022) 10,000 £150 £300
Charlotte Valeur 10,000 £600 £300
* - Dividends disclosed for the period from the date of appointment and up to
the date of resignation.
Investment Manager
The Company considers Triple Point as the Investment Manager as a key
management personnel and therefore a related party. Further details of the
investment management contract and transactions with the Investment Manager
are disclosed in Note 6.
Transaction with subsidiary undertakings
During the period, the Company made equity investments in Digital 9 Holdco
Limited totalling £48.4 million (2021 - £700.7 million).
During the period, the Company received dividend income of £3.2 million (2021
- £2.9 million) from Digital 9 Holdco Limited.
As per Note 18, the Company, through its subsidiary undertakings has capital
expenditure commitments totalling £46 million (2021 - £Nil).
Loan to subsidiary undertaking
As at the year end the Company provided a loan of £29.5 million (2021 -
£Nil) to Digital 9 Holdco Limited. Interests of £0.9 million (2021 - £Nil)
were charged on the loan.
Amounts due from subsidiary undertakings
Included within Note 10 is an amount due from subsidiary undertakings:
31 December 2022 31 December 2021
Subsidiary undertakings: £'000 £'000
Aqua Comms DAC 160 -
D9 DC Opco 1 Limited 32 -
D9 DC Opco 3 Limited 34 -
D9 Wireless Opco 1 Limited 30 -
Digital 9 Seaedge Limited 15 -
Digital 9 Subsea Limited 42 -
Verne Holdings Limited 288 -
Digital 9 DC Limited - 193
Digital 9 Fibre Limited - 16
601 209
17. EVENTS AFTER THE REPORTING PERIOD
Dividends
The Company announced a dividend of 1.5 pence per share equivalent to
£12,977,624 with respect to the period from 1 October 2022 to 31 December
2022 to be paid on 31 March 2023 to shareholders on the register on 17 March
2023.
RCF
An additional £25m of the RCF was drawn post-period end to fund additional
capital expenditure at Verne Global London and Aqua Comms.
The Directors have determined that there have been no other significant events
after the reporting date requiring recognition or disclosure in these
financial statements.
18. COMMITMENTS AND CONTINGENT LIABILITIES
The Company, through its subsidiary undertakings has committed £46 million
for capital expenditures at 31 December 2022 (2021 - £Nil). Please see below
for a breakdown of committed expenditures.
19. FINANCIAL RISK MANAGEMENT
The Company is exposed to market risk, interest rate risk, credit risk and
liquidity risk in the current and future periods. The Board oversees the
management of these risks. The Board's policies for managing each of these
risks are summarised below.
Market Risk
The Company's activities are exposed to a potential reduction in demand for
internet, data centre or cell network service and competition for assets and
services. Whilst the Company seeks to invest in a diverse portfolio of digital
infrastructure, demand for the Company's digital infrastructure assets is
dependent on demand for internet, data, network or other telecom services and
the continued development of the internet. Furthermore, the ongoing use of the
infrastructure services D9 is providing requires competitive prices which are
cost-effective to the end users. Some factors that could impact the volume of
demand or the ability to provide competitive pricing includes:
· continued development and expansion of the internet as a secure
communications medium and marketplace for the distribution and consumption of
data and video
· continued growth in cloud hosted services as a delivery platform
· ongoing growth in demand for access to high-capacity broadband
· continued focus on technologies, assets and services which can offer
competitive pricing and high-quality reliable services
· continued partnership with suppliers and hyperscalers to maintain and
provide the most cost-effective access
Variations in any of the above factors can affect the valuation of assets held
by the Company and as a result impact the financial performance of the
Company.
Market risk arising from foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of
a financial instrument translated into GBP will fluctuate because of changes
in foreign exchange rates.
The Group had the following foreign currency balances and their GBP
equivalents at the end of the reporting period:
USD EUR GBP
$'000 €'000 £'000
Bank balances 12,344 1,192 62,339
Investment at fair value 642,932 215,781 404,923
The Company is primarily exposed to changes in USD/GBP and EUR/GBP exchange
rates as its investments in Aqua Comms DAC and Verne Holdings Limited held by
D9 Holdco and its subsidiary are primarily in USD and to changes in EUR/GBP
exchange rates as its investments in Leeson Telecom and Ficolo Oy are
primarily in EUR. The sensitivity of profit or loss to changes in the exchange
rates arises mainly on the fair value of investment. To demonstrate the impact
of foreign currency risk (in GBP), a 5% increase / decrease in USD/GBP and
EUR/GBP rates are measured as this is in line with the relevant change in the
rate during the last six months.
Impact on post tax profit Impact on other components of equity
£'000 £'000
USD/GBP and EUR/GBP exchange rates - increase by 5% 34,947 34,947
USD/GBP and EUR/GBP exchange rates - decrease by 5% (34,947) (34,947)
The above figures represent impacts of changes in USD/GBP and EUR/GBP exchange
rates. The Company's exposure to other foreign exchange movements is not
material.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates.
The Company's main interest rate risk arises in the valuation of the financial
asset and loan to Digital 9 Holdco where interest rate is one of the key
assumptions of the Weighted Average Cost of Capital. Exposure to interest rate
risk on the financial asset valuation is included in note 9 above.
The Company's interest rate risk on interest bearing financial assets is
limited to interest earned on cash deposit. Exposure to interest rate risk on
the liquidity funds is immaterial to the Company.
Credit risk
Credit risk is the risk that a counterparty of the Company will be unable or
unwilling to meet a commitment that it has entered with the Company. It is a
key part of the pre-investment due diligence. The credit standing of the
companies which we intend to lend or invest is reviewed, and the risk of
default estimated for each significant counterparty position. Monitoring is
on-going and period end positions are reported to the Board.
Credit risk arises on the debt investments held at fair value through profit
or loss, this includes loan provided to Digital 9 Holdco Limited. The
Company's debt investments at fair value through profit or loss is considered
to have low credit
risk, and management have not recognized any loss allowance recognised during
the year.
Credit risk also arises from cash and cash equivalents, derivative financial
instruments and deposits with banks and financial institutions. The Company
and its subsidiaries may mitigate their risk on cash investments and
derivative transactions by only transacting with major international
financial institutions with high credit ratings assigned by international
credit rating agencies. The Company's cash and cash equivalents are all
deposited with Barclays Bank plc which has a Fitch rating of A+.
The Company had no derivatives during the period.
The carrying value of the investments, trade and other receivables and cash
represent the Company's maximum exposure to credit risk.
Liquidity risk
Liquidity risk is the risk that the Company may not be able to meet its
financial obligations as they fall due. Prudent liquidity risk management
implies maintaining sufficient cash and marketable securities and the
availability of funding through an adequate amount of committed credit
facilities to meet obligations when due and to close out market positions.
The investment Manager and the Board continuously monitor forecast and actual
cash flows from operating, financing, and investing activities to consider
payment of dividends, repayment of trade and other payables or funding further
investing activities. The Company ensures it maintains adequate reserves and
will put in place banking facilities and it will continuously monitor forecast
and actual cash flows to seek to match the maturity profiles of financial
assets and liabilities. Further analysis on the Company's liquidity is
included within the Basis of Preparation - Going Concern assessment.
At 31 December 2022 Total 1-3 months 3 - 12 months 1 - 2 years 2 - 5 years More than 5 years
£'000 £'000 £'000 £'000 £'000 £'000
Trade payables 216 216 - - - -
Accruals 2,553 - 2,553 - - -
2,769 216 2,553 - - -
At 31 December 2021 Total 1-3 months 3 - 12 months 1 - 2 years 2 - 5 years More than 5 years
£'000 £'000 £'000 £'000 £'000 £'000
Accruals 1,912 1,912 - - - -
1,912 1,912 - - - -
20. FINANCIAL INSTRUMENTS
Cash at bank balances at amortised cost Financial assets at amortised cost Financial liabilities at amortised cost Financial assets at fair value through profit or loss Total value
£'000 £'000 £'000 £'000 £'000
Period ended 31 December 2022
Non-current assets:
Equity investments held at fair value through profit or loss - - - 891,866 891,866
Debt investment held at fair value through profit or loss - - - 29,105 29,105
Current assets:
Trade and other receivables - 1,417 - - 1,417
Cash and cash equivalents 30,001 - - - 30,001
Total Assets 30,001 1,417 - 920,971 952,389
Current liabilities:
Trade and other payables - - (2,769) - (2,769)
Total liabilities - - (2,769) - (2,769)
Net assets 30,001 1,417 (2,769) 920,971 949,620
Cash at bank balances at amortised cost Financial assets at amortised cost Financial liabilities at amortised cost Financial assets at fair value through profit or loss Total value
£'000 £'000 £'000 £'000 £'000
Period ended 31 December 2021
Non-current assets:
Equity investments held at fair value through profit or loss - - - 746,229 746,229
Current assets:
Trade and other receivables - 228 - - 228
Cash and cash equivalents 11,311 - - - 11,311
Total Assets 11,311 228 - 746,229 757,768
Current liabilities:
Trade and other payables - - (1,912) - (1,912)
Total liabilities - - (1,912) - (1,912)
Net assets 11,311 228 (1,912) 746,229 755,856
21. CAPITAL MANAGEMENT
The Company's objectives when managing capital are to safeguard the Company's
ability to continue as a going concern in order to provide returns for
shareholders and to maintain an optimal capital structure to minimise the cost
of capital.
In order to maintain or adjust the capital structure, the Company may adjust
the amount of dividends paid to shareholders, return capital to shareholders
or issue new shares.
22. EARNINGS PER SHARE
Earnings per share ("EPS") amounts are calculated by dividing profit for the
period attributable to ordinary equity holders of the Company by the weighted
average number of Ordinary Shares in issue during the period. As there are no
dilutive instruments outstanding, both basic and diluted earnings per share
are the same.
The calculation of basic and diluted earnings per share is based on the
following:
Year ended 31 December 2022:
Revenue Capital Total
Calculation of Basic Earnings per share
Net (loss)/profit attributable to ordinary shareholders (£'000) (3,225) 95,294 92,069
Weighted average number of ordinary shares 829,961,949 829,961,949 829,961,949
Earnings per share - basic and diluted (0.39p) 11.48p 11.09p
There is no difference between basic or diluted Loss per Ordinary Share as
there are no convertible securities.
There is no difference between the weighted average Ordinary or diluted number
of Shares.
Calculation of Weighted Average Number of Shares in Issue
01-Jan-22 28-Jan-22 12-Jul-22 31- Dec-22
No. of days 365 338 173 365
Ordinary Shares
No. of shares
Opening Balance 722,480,620 722,480,620 810,629,500 865,174,954
New Issues - 88,148,880 54,545,454 -
Closing Balance 722,480,620 810,629,500 865,174.954 865,174,954
Weighted Average 722,480,620 81,628,278 25,853,051 829,961,949
Period ended 31 December 2021:
Revenue Capital Total
Calculation of Basic Earnings per share
Net profit attributable to ordinary shareholders (£'000) (291) 38,600 38,309
Weighted average number of ordinary shares 392,462,432 392,462,432 392,462,432
Earnings per share - basic and diluted (0.07p) 9.84p 9.77p
There is no difference between basic or diluted Loss per Ordinary Share as
there are no convertible securities.
There is no difference between the weighted average Ordinary or diluted number
of Shares.
Calculation of Weighted Average Number of Shares in Issue
08-Jan-21 31-Mar-21 10-Jun-21 01-Oct-21 31- Dec-21
No. of days 358 276 205 92 358
Ordinary Shares
No. of shares
Opening Balance - 2 300,000,000 466,666,667 722,480,620
New Issues 2 299,999,998 166,666,667 255,813,953 -
Closing Balance 2 300,000,000 466,666,667 722,480,620 722,480,620
Weighted Average 2 231,284,915 95,437,617 65,739,899 392,462,433
23. NET ASSET VALUE PER SHARE
Net Asset Value per share is calculated by dividing net assets in the
Statement of Financial Position attributable to Ordinary equity holders of the
parent by the number of Ordinary Shares outstanding at the end of the period.
Although there are no dilutive instruments outstanding, both basic and diluted
NAV per share are disclosed below.
Net asset values have been calculated as follows:
31 December 2022 31 December 2021
Net assets at end of period (£'000) £949,620 755,856
Shares in issue at end of period 865,174,954 722,480,620
IFRS NAV per share - basic and dilutive 109.76p 104.62p
24. ULTIMATE CONTROLLING PARTY
In the opinion of the Board, on the basis of the shareholdings advised to
them, the Company has no ultimate controlling party.
UNAUDITED ALTERNATIVE PERFORMANCE MEASURES
For the year ended 31 December 2022
We assess our performance using a variety of measures that are not
specifically defined under IFRS. These alternative performance measures are
termed "APMs". The APMs that we use may not be directly comparable with those
used by other companies.
These APMs are used to present an alternative view of how the Company has
performed over the year and are all financial measures of historical
performance.
The Sections below define our APMs and how they relate to the Company and its
subsidiaries.
1. ONGOING CHARGES RATIO
Ongoing Charges Ratio is a figure published annually by an investment company
which shows the drag on performance caused by operational expenses.
Annualised to Period to Annualised to
31 December 2022 31 December 2021 31 December 2021
£'000 £'000 £'000
Management fee 7,736 2,952 4,209
Other operating expenses 1,645 1,012 1,253
Total management fee and other operating expenses (a) 9,381 3,964 5,462
Average undiluted net assets (b) 852,738 524,904
Ongoing charges ratio % (c = a/b) (%) (c) 1.10 1.04%
%
2. TOTAL RETURN
Total NAV return is a way to measure the performance of an investment
company. A fund's NAV return is the percentage change between its net asset
value at the beginning and end of a particular period plus dividends paid.
This is relevant to the Company, as D9 targets a 10% return through a
combination of dividends and capital growth.
31 December 2022 31 December 2021
Closing NAV per share (pence) 109.76p 104.62p
Add back dividends paid (pence) 9.00p 3.00p
Adjusted closing NAV (pence) 118.76p 107.62p
Adjusted NAV per share as at the period end less NAV per share at 31 (a) (118.76p - 107.62p) (107.62p - 98.00p)
December 2021 (31 March 2021)
NAV per share at 31 December 2021 (31 March 2021) (b) 107.62p 98.00p
Total return % (c = a/b) (%) (c) 10.40% 9.82%
The above return is for the period from IPO to 31 December 2022 (31 December
2021 - 13.09% annualised).
3. DIVIDEND COVER
The Company's explanation of Dividend cover and how it is calculated is
included in the Investment Managers Report. Dividend cover reflects how the
cashflows from investee companies before reinvestment can cover the Company's
dividends.
Year to Period to
31 December 2022
31 December 2021
£'000 £'000
Operating cash flows 18,695 11,882
Dividends paid and declared for the period 51,092 29,996
Dividends covered by operating cash flows 40.00% 39.61%
Dividend cover is measured as total dividends paid and payable at 31 December
2022, as a percentage of total operating cash flows for the Company and its
subsidiaries.
4. MARKET CAPITALISATION
Market capitalisation refers to the market value of a company's equity. It
is a simple but important measure that is calculated by multiplying a
company's shares outstanding by its price per share.
31 December 2022 31 December 2021
Closing share price at period end (a) 86.4p 113.8p
Number of shares in issue at period end (b) 865,174,954 722,480,620
Market capitalisation (c) = (a) x (b) (c) £747,511,160 £822,182,945
5. CAPITAL DEPLOYED
This is a measure of amounts invested into the portfolio of investments less
any amounts relating to refinance proceeds or sell-downs.
Deployment including committed fund
31 December 2022 31 December 2021
Deployed Committed fund £'000 £'000
Aqua Comms DAC £176,077 £13,487 £189,564 £175,615
EMIC-1 £22,617 £24,757 £47,374 £22,796
Verne Global Iceland £292,441 - £292,441 £247,190
SeaEdge UK1 £16,335 - £16,355 £16,292
Elio Networks £50,807 - £50,807 -
Verne Global London £53,642 £7,776 £61,418 -
Verne Global Finland £118,927 - £118,927 -
Arqiva £462,998 - £462,998* -
Giggle 3,000 - 3,000 -
Total deployment £1,196,864 £46,020 £1,242,884 £461,893
* - Includes £163 million Vendor Loan Notes issued by D9 Wireless Opco 2
Limited
6. TOTAL SHAREHOLDER RETURN
A measure of the return based upon share price movements over the period and
assuming reinvestment of dividends. This APM, allows shareholders to establish
their return by using share price as a metric rather than NAV.
31 December 2022 31 December 2021
Closing share price (pence) 86.40 113.80
Add back effect of dividend reinvestment (pence) 5.14 3.14
Adjusted closing share price (pence) (a) 91.54 116.94
Opening share price at beginning of the year (2021 at IPO) (pence) (b) 113.80 100.00
Total shareholder return (c = ((a-b)/(b)) (%) (c) (19.56)% 16.94
The above return is for the year to 31 December 2022 (31 December 2021 - from
IPO to 31 December 2021 equates to 23.08% annualised).
GLOSSARY AND DEFINITIONS
"Adjusted Gross Asset Value" the aggregate value of the total assets of the Company as determined with the
accounting principles adopted by the Company from time to time as adjusted to
include any third-party debt funding drawn by, or available to, any Group
company (which, for the avoidance of doubt, excludes Investee Companies);
"Admission" the admission of the Company's ordinary share capital to trading on the
Premium Segment of the Main Market of the London Stock Exchange;
"Aqua Comms" Aqua Comms Designation Activity Company, a private company limited by shares
incorporated and registered in Ireland;
"AIC Code" AIC Code of Corporate Governance produced by the Association of Investment
Companies;
"AIC Guide" AIC Corporate Governance Guide for Investment Companies produced by the
Association of Investment Companies;
"AIFM" the alternative investment fund manager of the Company being Triple Point
Investment Management LLP;
"AIFMD" the EU Alternative Investment Fund Managers Directive 2011/61/EU;
"Board" the Directors of the Company from time to time;
"CAGR" compound annual growth rate;
"Conservative" in respect of the Company's borrowing policy, the level of any short term
revolving credit facility put in place by the Company will be determined by
the quality of the investments to be made, including the covenant strength of
counterparties within the proposed Investee Company, the terms available to
the Company and the timeframe for which such short term borrowings are
expected to be required. In any event, the aggregate level of borrowings will
be expected to be no more than a maximum of 50 per cent. of Adjusted Gross
Asset Value;
"Construction Phase" in respect of a new development project, the phase where contracts have been
agreed and relevant permits are in place;
"CTA 2010" Corporation Tax Act 2010 and any statutory modification or re-enactment
thereof for the time being in force;
"D9" or "Company" Digital 9 Infrastructure plc, incorporated and registered in Jersey (company
number 133380);
"Development Phase" in respect of a new development project, the initial phase before relevant
contracts or permits are in place;
"Digital Infrastructure" key services and technologies that enable methods, systems and processes for
the provision of reliable and resilient data storage and transfer;
"Digital Infrastructure Investments" an investment which falls within the parameters of the Company's investment
policy and which may include (but is not limited to) an investment into or
acquisition of an Investee Company or a direct investment in Digital
Infrastructure assets or projects via an Investment SPV or a forward funding
arrangement;
"DTR" the Disclosure Guidance and Transparency Rules sourcebook containing the
Disclosure Guidance, Transparency Rules, corporate governance rules and the
rules relating to primary information providers;
"EBITDA" earnings before interest, taxes, depreciation and amortisation;
"EPS" earnings per share;
"ESG" Environmental, Social and Governance;
"EU or European Union" the European Union first established by the treaty made at Maastricht on 7
February 1992;
"FAANGs" global content providers such as Meta, Amazon, Apple, Netflix, Google;
"FCA" the Financial Conduct Authority;
"FTTH" Fibre to the Home;
"FTTP" Fibre to the Premises;
"GAV" the gross assets of the Company in accordance with applicable accounting rules
from time to time;
"Group" the Company and any other companies in the Company's Group for the purposes of
Section 606 of the Corporation Tax Act 2010 from time to time but excluding
Investee Companies;
"Internet of Things" or "IoT" the network of physical objects (things) that are embedded with technologies
such as sensors or software for the purpose of connecting and exchanging data
with other devices and systems via the internet;
"Investee Company" a company or special purpose vehicle which owns and/or operates Digital
Infrastructure assets or projects in which the Group invests or acquires;
"Investment Manager" Triple Point Investment Management LLP (partnership number OC321250);
"Investment Objective" the Company's investment objective as set out in the Prospectus dated 8 March
2021;
"Investment Policy" the Company's investment policy as set out in the announcement dated 24 August
2022;
"Investment SPV" a special purpose vehicle used to acquire or own one or more Digital
Infrastructure Investments;
"IPO" the Company's initial public offering launched on 8 March 2021 which resulted
in the admission of, in aggregate, 300 million Ordinary Shares to trading on
the Specialist Fund Segment of the Main Market on 31 March 2021;
"LTM" Last Twelve Months;
"LTM Contracted Run-Rate EBITDA" accounts for the portfolio EBITDA including signed, but not yet fully ramped
up contracts. The Company's EBITDA margin is applied to total annual revenue
expected to be delivered by a contract to estimate the EBITDA generated from
contracts which are yet to fully ramp;
"MRR" monthly recurring revenue;
"NAV" Net Asset Value being the net assets of the Company in accordance with
applicable accounting rules from time to time;
"Ongoing Charges Ratio" a measure of all operating costs incurred in the reporting period, calculated
as a percentage of average net assets in that year. Operating costs exclude
costs of buying and selling investments, interest costs, taxation,
non-recurring costs and the costs of buying back or issuing ordinary shares;
"Ordinary Shares" ordinary shares of no-par value in the capital of the Company;
"RCF" revolving credit facility
"Restricted Territories" the Republic of China, Democratic People's Republic of Korea (North Korea),
Russia, Iran and Syria.
"SDG9" the UN's Sustainable Development Goal 9;
"SASB" Sustainability Accounting Standards Board;
"SDIA" Sustainable Digital Infrastructure Alliance;
"SFDR" Sustainable Finance Disclosure Regulation;
"SDR" Sustainability Disclosure Requirements;
"TCFD" Taskforce for Climate-related Financial Disclosures;
"Total Shareholder Return" the increase in Net Asset Value in the period plus distributions paid in the
period; and
"Verne Global" Verne Global Iceland, Verne Global London, Verne Global Finland collectively
"Verne Global Finland" Ficolo Oy, a company incorporated in Finland
"Verne Global Iceland" Verne Holdings Limited, a private limited company incorporated in England and
Wales
"Verne Global London" Volta Data Centres Limited, a private limited company incorporated in England
and Wales
1 (#_ednref1) Alternative Performance Measure. Further information on APMs
can be found below.
2 (#_ednref2) Alternative Performance Measure. Further information on APMs
can be found below.
3 (#_ednref3) Alternative Performance Measure. Further information on APMs
can be found below.
4 (#_ednref4) This is a target only and not a profit forecast and there can
be no assurance that it will be met.
5 (#_ednref5) This is a target only and not a forecast. There can be no
assurance that this target will be met and it should not be taken as an
indication of the Company's expected future results.
6 (#_ednref6) Alternative Performance Measure. Further information on APMs
can be found below.
7 (#_ednref7) The revenue and EBITDA figures are for the full, actual year
to 31 December 2022 and are not pro-rated for the period of ownership. EBITDA
excludes Infrastructure as a Service ("IaaS") revenue for Verne Global
Iceland.
8 (#_ednref8) The Company is now presenting EBITDA excluding IaaS revenue at
the data centre level for Verne Global Iceland, which passes through the
profit & loss statement as a cost after EBITDA. This is a more prudent
measure when looking at the Investee Companies' financial performance. The
Company previously reported EBITDA on a reported EBITDA basis, including IaaS
revenue. The comparable figure for 2022 would be £225 million, and £216
million for 2021.
9 (#_ednref9) This is a target only and not a forecast. There can be no
assurance that this target will be met and it should not be taken as an
indication of the Company's expected future results
10 (#_ednref10)
https://www.nao.org.uk/wp-content/uploads/2022/12/A-Digital-BBC.pdf
(https://www.nao.org.uk/wp-content/uploads/2022/12/A-Digital-BBC.pdf)
11 (#_ednref11) https://www.arqiva.com/group-financial-results/2022/Arqiva
(https://www.arqiva.com/group-financial-results/2022/Arqiva)
GroupLimited/Arqiva%20Group%20Ltd%20financial%20statements%202022.pdf
12 (#_ednref12)
https://nrs.co.uk/nrs-print/lifestyle-and-classification-data/social-grade/
(https://nrs.co.uk/nrs-print/lifestyle-and-classification-data/social-grade/)
13 (#_ednref13)
https://nrs.co.uk/nrs-print/lifestyle-and-classification-data/social-grade/
(https://nrs.co.uk/nrs-print/lifestyle-and-classification-data/social-grade/)
14 (#_ednref14) https://www.arqiva.com/Importance_of_Broadcast_summary.pdf
(https://www.arqiva.com/Importance_of_Broadcast_summary.pdf)
15 (#_ednref15)
https://www.arqiva.com/Arqiva+Waterwise+Net+Zero+Report+FINAL.pdf
(https://www.arqiva.com/Arqiva+Waterwise+Net+Zero+Report+FINAL.pdf)
16 (#_ednref16)
https://www.arqiva.com/news-views/news/smart-water-metering-rollout-could-deliver-19-billion-net-benefit-to-society
17 (#_ednref17) The target dividend is a target only and not a forecast.
There can be no assurance that the target will be met and it should not be
taken as an indication of the Company's expected or actual future results
18 (#_ednref18) Alternative Performance Measure. See Unaudited Alternative
Performance Measures for further information.
19 (#_ednref19) Alternative Performance Measure. See Unaudited Alternative
Performance Measures for further information.
20 (#_ednref20) Alternative Performance Measure. See Unaudited Alternative
Performance Measures for further information.
21 (#_ednref21) Alternative Performance Measure. See Unaudited Alternative
Performance Measures for further information.
22 (#_ednref22) Total kilometres of fibre owned or part-owned 32,000 km
(14,250 km operational; 17,750 km in development (including EMIC-1)).
23 (#_ednref23) The target dividend is a target only and not a forecast.
There can be no assurance that the target will be met, and it should not be
taken as an indication of the Company's expected or actual future results.
24 (#_ednref24) A portion of the inflation protection from Arqiva is subject
to swaps. Note, Arqiva has predominantly uncapped, 0% floor, RPI-linked
escalators within its core customer contracts. Taking advantage of the
favourable and high proportion of inflation-linked revenue in the underlying
business, Arqiva has inflation-linked swaps whose payments are financed by the
inflation-linked customer contracts that run beyond 2027. Please see Arqiva
commentary for more information.
25 (#_ednref25) The Company is now presenting EBITDA excluding
Infrastructure as a Service ("IaaS") revenue at the data centre level for
Verne Global Iceland, which passes through the profit & loss statement as
a cost after EBITDA. This is a more prudent measure when looking at the
Investee Companies' financial performance. The Company previously reported
EBITDA on a reported EBITDA basis, including IaaS revenue. The comparable
figure for 2022 would be £225 million, and £216 million for 2021.
26 (#_ednref26) https://tisegroup.com/market/securities/14809
(https://tisegroup.com/market/securities/14809)
27 (#_ednref27) OECD, "Digital Transformation in the Age of COVID19,
Building Resilience and Bridging Divides. Digital Economy Outlook, 202
28 (#_ednref28) ETF information is sourced from MSCI. ETFs are reported in
USD and have been converted using Bank of England spot rate for 30 December
2022. D9 data is based on £million revenue; ETF data is based on $million
sales
29 (#_ednref29) An average PUE of 1.55 is used
(https://uptimeinstitute.com/about-ui/press-releases/2022-global-data-center-survey-reveals-strong-industry-growth),
with location-based emissions data from UK Government GHG Conversion Factors
for Company Reporting and the US Environmental Protection Agency (US Average).
30 (#_ednref30) This is a target only and not a forecast. There can be no
assurance that this target will be met and it should not be taken as an
indication of the Company's expected future results.
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. END FR EAEDNEEPDEEARecent news on Digital 9 Infrastructure
See all newsREG - Digital 9 Infrastr. - Results for the full year ended 31 December 2024
AnnouncementREG - Digital 9 Infrastr. - Rescheduling of D9’s Investor Presentation
AnnouncementREG - Digital 9 Infrastr. - Notice of Annual Results & Investor Presentation
AnnouncementREG - Digital 9 Infrastr. - Revolving Credit Facility Refinancing
AnnouncementREG - Digital 9 Infrastr. - Unaudited Net Asset Value
Announcement