REG - Digital 9 Infrastr. - Portfolio Trading Update
28/02/2024 07:00
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RNS Number : 6957E Digital 9 Infrastructure PLC 28 February 2024
28 February 2024
DIGITAL 9 INFRASTRUCTURE PLC
("D9", the "Company" or, together with its subsidiaries, the "Group")
PORTFOLIO TRADING UPDATE
The Board of Directors of Digital 9 Infrastructure plc (the "Board") and the
Company's Investment Manager, Triple Point Investment Management LLP ("Triple
Point"), today provide an unaudited Portfolio Trading Update on the 6-month
period ended 31 December 2023.
This Portfolio Trading Update is to be read in conjunction with the previously
disclosed conclusion of the Board's Strategic Review of the Company. On 29
January 2024, the Board determined that it would be in the best interests of
shareholders as a whole to put forward a proposal for a managed wind-down of
the Company to maximise shareholder value (the "Managed Wind-Down").
Concurrently with the publication of the Portfolio Trading Update today, the
Board has published a Company Update (the "Company Update") and a Circular to
convene a general meeting of shareholders on 25 March 2024 (the "Circular").
1. Key Highlights
· Overall during the period the portfolio companies have continued to
perform in line with expectations, with Verne Global Iceland ("Verne Global")
accelerating its top line growth to 33% year on year, on the back of continued
strong customer demand, while Arqiva Group ("Arqiva") and Aqua Comms DAC
("Aqua Comms") grew by 8% and 9% respectively.
· In line with business plans, margins have remained under pressure for
some of the businesses, particularly Arqiva and Aqua Comms.
· Available cash resources and operational cash flows enabled portfolio
companies to accelerate capex investment to £61m (+31% vs. the same period in
2022) allowing commercial momentum and competitiveness to be maintained.
· There were limited changes to portfolio management teams during the
period. However, in February 2024, Aqua Comms CEO Jim Fagan decided to leave
the company to pursue another opportunity. Aqua Comms' Chief Networks Officer
Andy Hudson has been appointed acting CEO, and Chairman Alan Harper will
provide enhanced commercial and strategic assistance to Andy Hudson through
the remainder of 2024.
2. Portfolio Performance Overview
In the 6 months to 31 December 2023, the aggregate revenues of Verne Global,
Verne Global Finland, Verne Global London, Aqua Comms, Arqiva, Elio Networks
and SeaEdge UK1 (together, the "Investee Companies", and each an "Investee
Company") grew by 9% year on year (which resulted, in aggregate, in full-year
2023 revenue growth of 10%). The revenue growth was driven mainly by the
performance of Arqiva, Aqua Comms and Verne Global. EBITDA during the period
was negatively affected by Arqiva and Aqua Comms, as was factored into
business plans. Further details are provided in the following sections.
Financial Period 6-month period ended 31 December 2023 6-month period ended 31 December 2022 2023 2022
Revenue £224.7m £205.6m £446.6m £405.5m
% growth year on year 9% 2% 10% 4%
EBITDA £93.5m £99.6m £197.7m £202.4m
% growth year on year (6%) (2%) (2%) 0%
% margin 42% 48% 44% 50%
Cash Flow from Operations £73.3m £83.7m £162.0m £174.3m
Capital Expenditure ("Capex") £60.8m £46.5m £109.5m £95.5m
Note: Revenue and EBITDA figures included in all financial tables in this
document are for the full, actual 6- or 12-month period to 31 December and are
not pro-rated for the period of ownership. Cash flow from operations is
defined as EBITDA less tax and changes in working capital. Arqiva's figures
are pro-rated for the Company's economic ownership of 51.76%. All other
Investee Companies are 100% owned. FX rates are as of 31 December 2023.
3. Investee Company Performance
3.1. Verne Global Iceland
Verne Global 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 10-year fixed-price
supply contract, enabling customers to reduce their carbon footprint
significantly. Verne Global'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
United Nations Sustainable Development Goal 9 ("UN SDG 9").
Financial Period 6-month period ended 31 December 2023 6-month period ended 31 December 2022 2023 2022
Revenue £13.4m £10.0m £24.7m £19.9m
% growth year on year 33% 6% 24% 9%
EBITDA £5.7m £3.5m £9.9m £7.0m
% growth year on year 61% 16% 42% 17%
% margin 42% 35% 40% 35%
Cash Flow from Operations £5.7m £5.0m £10.3m £8.9m
Capex £26.7m £17.7m £49.1m £36.0m
During the period, Verne Global generated sustained and accelerated demand for
its facilities from both new and existing customers. Compared to the same
period in 2022, revenue increased by 33% in the second half of 2023 driven by
new colocation contracts coming online along with the continued ramp-up of
existing colocation contracts. Compared to the same period in 2022, EBITDA
increased by 61% in the second half of 2023, while EBITDA margin increased
from 35% to 42% year-on-year as the business continued to scale.
As announced on 15 February 2024, Verne Global signed its first increase (the
"Accordion Facility") under the terms of its existing green term loan debt
facility with additional proceeds of US $17 million available to help fund the
growth capital expenditure pipeline while the Company awaits the closing of
the sale of the Verne Global group of companies to funds managed or advised by
Ardian France SA or any of its affiliates (the "Verne Global Sale"), as
previously announced by the Company on 27 November 2023.
3.2. Verne Global Finland
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 23 MW.
Financial Period 6-month period ended 31 December 2023 6-month period ended 31 December 2022 2023 2022
Revenue £7.1m £6.6m £13.4m £12.7m
% growth year on year 7% 2% 5% 14%
EBITDA £2.8m £1.5m £4.4m £2.9m
% growth year on year 89% 21% 48% 21%
% margin 39% 22% 33% 23%
Cash Flow from Operations £0.6m (£1.0m) (£0.1m) (£2.2m)
Capex £0.4m £1.0m £2.0m £1.8m
Although Capex plans have been delayed pending closing of the Verne Global
Sale, Verne Global Finland has continued to grow its client base and is
looking to expand its data centre capacity further to meet increasing customer
demand, particularly in its Helsinki campus.
Compared to the 6-month period ended 31 December 2022, the 6-month period
ended 31 December 2023 achieved revenue growth of 7% and EBITDA growth of 89%
as Verne Global Finland secured new customer contracts, increasing utilisation
on its sites. EBITDA growth in the 6-month period ended 31 December 2023 also
reflected year-end adjustments for one-off items relating to intergroup
recharges and severance payments.
3.3. Verne Global London
Verne Global London wholly owns and operates a hyper-connected data centre in
Farringdon, central London, providing up to 6 MW of colocation services. Verne
Global London facility is a fully accredited hub for connectivity and content
distribution to networks across the UK and worldwide and is in an ideal
location for latency-sensitive workloads.
Financial Period 6-month period ended 31 December 2023 6-month period ended 31 December 2022 2023 2022
Revenue £5.9m £5.3m £12.6m £9.0m
% growth year on year 11% 56% 40% 30%
EBITDA £1.3m £0.7m £2.9m (£0.7m)
% growth year on year 74% n.a. n.m. n.a.
% margin 22% 14% 23% (8%)
Cash Flow from Operations £0.6m £0.6m £1.9m (£1.1m)
Capex £3.3m £3.3m £10.2m £6.6m
Compared to the 6-month period ended 31 December 2022, the 6-month period
ended 31 December 2023 achieved revenue growth of 11% and EBITDA growth of 74%
as a result of customer contracts ramping up, upfront installation fees and
smaller bespoke projects for customers. This resulted in strong growth overall
in 2023, as revenue grew 40% year-on-year and EBITDA margin turned positive,
at 22%.
3.4. Aqua Comms
Aqua Comms is a leading carrier-neutral owner and operator of subsea fibre,
providing essential connectivity through 20,000 km of transatlantic, North Sea
and Atlantic, and Irish sea routes. Aqua Comms serves mainly hyperscalers and
global carriers who have an exponential data demand.
Financial Period 6-month period ended 31 December 2023 6-month period ended 31 December 2022 2023 2022
Revenue £14.4m £13.3m £28.1m £27.1m
% growth year on year 9% 1% 4% 5%
EBITDA £4.4m £5.4m £8.5m £12.6m
% growth year on year (19%) (11%) (33%) 0%
% margin 31% 41% 30% 47%
Cash Flow from Operations £6.9m £4.0m £7.8m £9.9m
Capex £13.0m £4.3m £14.6m £6.7m
Aqua Comms had a successful year in 2023 in its core transatlantic market,
achieving approximately double the growth rate of the overall market,
demonstrating Aqua Comms' ability to capture market share and testament to the
strength of the sales team.
Compared to the same 6-month period in 2022, revenue increased by 9% in the
second half of 2023 mainly driven by increased sales in Aqua Comms' lease
business. EBITDA decreased by 19% mainly because of the planned addition of
headcount to support sales, operations and expansion into new geographies such
as Asian markets in line with the business' long-term strategy, along with
additional and temporary overlapping costs to internalise its previously
outsourced Network Operations Centre. In addition, the launch of Aqua Comms'
third transatlantic cable, AEC-3, in August 2023 temporarily hindered
profitability as all related costs were incurred upfront (e.g. backhaul
leases). Therefore, Aqua Comms expects that revenue ramp-up will occur in
future years. Aqua Comms also expects customer demand to remain strong in the
foreseeable future whilst capacity demand continues to grow at very high
rates.
Aqua Comms' 2023 Cash Flow from Operations of £8m will allow the
transatlantic business to be self-funded in 2024.
In February 2024, CEO Jim Fagan decided to leave the business to pursue an
external opportunity. He hands over a company which has a strong, growing
Atlantic business and a significant pipeline of future opportunities to extend
its reach to new markets on the back of strong competences and market
positioning. Aqua Comms' Chief Networks Officer Andy Hudson has been appointed
acting CEO after leading all aspects of Aqua Comms' global operations and
engineering since June 2017. Chairman Alan Harper will provide enhanced
commercial and strategic assistance to Andy Hudson through the remainder of
2024 as Aqua Comms continues to execute on its ambitious sale plans for its
multiple Atlantic routes and the new EMIC-1 system, which is under
construction.
3.5. Arqiva Group
Arqiva is the UK's pre-eminent national provider of television and radio
broadcast infrastructure and provides end-to-end connectivity solutions in the
media and utility industries. It has been an early and leading participant in
the development of smart utility infrastructure in the UK through its smart
water and energy metering services. It is also a leading provider of satellite
uplink infrastructure and distribution services in the UK.
Financial Period 6-month period ended 31 December 2023 6-month period ended 31 December 2022 2023 2022
Revenue £179.3m £166.0m £358.6m £328.2m
% growth year on year 8% 1% 9% 0%
EBITDA £76.8m £85.9m £166.9m £175.7m
% growth year on year (11%) (3%) (5%) 1%
% margin 43% 52% 47% 54%
Cash Flow from Operations £57.0m £73.0m £137.0m £154.0m
Capex £17.0m £20.1m £32.8m £43.9m
Note: Figures presented are pro-rated based on D9's 51.76% economic interest
in Arqiva. Cash Flow from Operations is defined as EBITDA less tax and changes
in working capital.
Arqiva sustained good business momentum in the 6-month period ended 31
December 2023, with revenue up 8% year-on-year, reflecting strong growth in
smart water metering, whilst the media business saw upwards indexation of
inflation-linked revenue contracts and higher passthrough power charges.
Limited offset was driven by some TV channel customers entering
administration. EBITDA dropped by 11% year-on-year in the period and by 5% for
the full year, as a result of an increased mix of utility device sales, higher
power costs and TV channel revenue reductions, as well as some one-offs. Our
business plan for Arqiva already anticipated a drop in EBITDA in this period.
The UK government is currently drafting the Media Bill, which includes a range
of provisions to modernise broadcasting regulation and support public service
broadcasters. At its second reading in the House of Commons in November, MPs
spoke about the importance of protecting delivery of Broadcast TV in the
long-term to ensure broadcast services remain available to everyone in the UK.
Whilst current macroeconomic factors are impacting some customers, Arqiva
continues to see positive commercial momentum in both media and smart
utilities. Several major Digital Audio Broadcasting ("DAB") contracts have
been extended to 2035, with DAB remaining the UK's dominant listening
platform, delivering 42% of all listening hours. Arqiva has signed a
multi-year deal with a UK Public Service Broadcaster ("PSB"), representing the
first Satellite Direct to Home deal (including satellite capacity) that has
been signed with a PSB. Arqiva continues to carefully monitor customer demand
and requirements to ensure efficient management of satellite transponder
capacity. In November, Arqiva announced the extension of its smart water meter
network through a contract to deliver an additional 300,000 meters for its
existing customer Anglian Water ("Anglian") by 2025. This should allow Anglian
to continue to improve network monitoring, identify and reduce leakages, and
engage with customers to modify behaviour and help them reduce consumption. To
date, Anglian's smart water metering programme has helped customers find and
resolve over 200,000 leaks in their properties, on average saving three
million litres of water per day over the past three years.
As disclosed in June 2023, Arqiva implemented a collar on its inflation-linked
swaps, which applies a cap and floor to future accretion payments, limiting
downside cash flow exposure for the business. For its financial year ending
June 2023, Arqiva paid £147 million in accretion (equating to c.£76 million
pro-rated for D9's 51.76% economic interest in Arqiva). This was based on a
13.5% Retail Price Index ("RPI") inflation rate in March 2023. As a result of
the collar, accretion payments going forwards are effectively limited. For
example, net of the collar, the accretion payment for the year to June 2024 is
effectively capped at c.£75 million (c.£39m pro-rated for D9's ownership).
This maximum payment will only be payable if RPI in March 2024 exceeds the
collar's cap of 6.0%. If RPI is lower, the accretion payment will be
proportionally lower as well, down to an RPI floor of 2.5%. If the January
2024 RPI levels of 4.9% continue to March 2024, the June 2024 accretion
payment will be c.£60 million (c.£31 million pro-rated for D9's ownership).
The swaps expire in April 2027, and, for the avoidance of doubt, the accretion
payments are made by Arqiva out of its operational cash flows.
3.6. Elio Networks
Elio Networks is a leading enterprise connectivity provider that owns and
operates the highest capacity Fixed Wireless Access ("FWA") network in Greater
Dublin, connecting c.1,600 enterprise customers with high-quality wireless
access across c.50 base stations.
Financial Period 6-month period ended 31 December 2023 6-month period ended 31 December 2022 2023 2022
Revenue £4.2m £3.9m £8.2m £7.7m
% growth year on year 7% 6% 6% 6%
EBITDA £2.0m £2.1m £4.2m £4.1m
% growth year on year (3%) (9%) 4% (14%)
% margin 49% 53% 51% 53%
Cash Flow from Operations £1.9m £1.6m £4.1m £3.9m
Capex £0.4m £0.2m £0.8m £0.5m
Elio Networks continued growing its high-quality wireless connectivity
operations in 2023, with unique customer connections of c.2,700 in December
2023. Elio Networks completed a re-branding exercise and launched under its
new name in February 2023. Furthermore, Elio Networks extended its services to
Cork City in early 2023, reaffirming its position as the leading wireless
fixed connectivity player in Ireland.
Compared to the 6-month period ended 31 December 2022, the 6-month period
ended 31 December 2023 achieved revenue growth of 7% as Elio Networks
continued to focus on higher quality and capacity enterprise connections. The
6-month period ended 31 December 2023 saw a marginal 3% decrease in EBITDA
versus the 6-month period ended 31 December 2022 as the business invested in
marketing to support growth through the re-brand.
3.7. SeaEdge UK1
SeaEdge UK1 is a data centre asset and subsea fibre landing station, located
on the UK's largest data centre campus in Newcastle. Data centre operator,
Stellium Data Centres Ltd, occupies and operates the asset via a 25-year
occupational lease.
Financial Period 6-month period ended 31 December 2023 6-month period ended 31 December 2022 2023 2022
Revenue £0.5m £0.5m £1.0m £0.9m
% growth year on year 3% n.a. 11% n.a.
EBITDA £0.5m £0.5m £1.0m £0.9m
% growth year on year 7% n.a. 13% n.a.
% margin 95% 91% 94% 93%
Cash Flow from Operations £0.5m £0.5m £1.0m £0.9m
Capex £0.0m £0.0m £0.0m £0.0m
Revenue growth of 11% and EBITDA growth of 13% were achieved in 2023. Compared
to the 6-month period ended 31 December 2022, revenue increased by 3% and
EBITDA by 7% for the 6-month period ended 31 December 2023 due to positive
revenue indexation and reduced expenses.
3.8. Giggle Broadband
As previously reported, the Company invested £4.3 million seed capital into
Giggle, a greenfield opportunity to provide affordable broadband to social
housing through a Fibre to the Home network across the city of Glasgow.
As disclosed in the Company's Interim Report for the 6-month period ended 30
June 2023, due to the significant capex requirements of c.£150 million and
funding constraints, the Company was unable to continue to fund the
development capital expenditure required by Giggle and made a provision
against its full value. The Company sold its 100% stake in Giggle to its
senior management in Q4 2023 for £1.
ENDS.
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
Triple Point Investment Management LLP +44 (0)20 7201 8989
(Investment Manager) D9contact@triplepoint.co.uk
Diego Massidda
Ben Beaton
Arnaud Jaguin
J.P. Morgan Cazenove (Joint Corporate Broker) +44 (0)20 7742 4000
William Simmonds
Jérémie Birnbaum
Peel Hunt (Joint Corporate Broker) +44 (0) 20 7418 8900
Luke Simpson
Huw Jeremy
About Digital 9 Infrastructure plc:
Digital 9 Infrastructure plc (DGI9) is an investment trust listed on the
London Stock Exchange and a constituent of the FTSE All-Share, with the 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, which is
authorised and regulated by the Financial Conduct Authority. For more
information on the Investment Manager please visit www.triplepoint.co.uk
(https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Furldefense.com%2Fv3%2F__http%3A%2Fwww.triplepoint.co.uk__%3B!!O2kDR7mm-zSJ!q-IhiRmOFrs2QYD7gmr9EcM8ukutg1_xde5Fce9GgBpHkvhSc3nlYhW7glbEiZG--1yRCrGc2K4WAjub3ANF%24&data=05%7C01%7CHelen.Richardson%40triplepoint.co.uk%7C736257c2b4244d9b148e08dbce910edc%7Ccde8812e0dbd4dc3b4463655beb81efb%7C0%7C0%7C638330894771285360%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=2SpCRgIybR8ARfciJBsE4bOmxNcDDFvRX9K9FehSEto%3D&reserved=0)
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