REG - Digital 9 Infrastr. - Results for the year ended 31 December 2023
30/04/2024 07:00
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RNS Number : 5171M Digital 9 Infrastructure PLC 30 April 2024
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE UK'S
MARKET ABUSE REGULATION. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, SUCH
INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.
30 April 2024
DIGITAL 9 INFRASTRUCTURE PLC
("D9" or the "Company" or, together with its subsidiaries, the "Group")
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023
Digital 9 Infrastructure plc today announces its audited results and
publication of its Net Asset Value ("NAV") for the year ended 31 December 2023
and material developments post-period end.
Financial Highlights
Summary i 31 December 2023 31 December 2022 Change
("FY 2023") ("FY 2022")
Earnings per share (FY ended) (27.43p) 11.09p N/M
IFRS Net Asset Value ("NAV") £686.3m £949.6m (28%)
IFRS NAV per share 79.33p 109.76p (28%)
IFRS Investment Valuation £676.1m £921.0m (27%)
Adj. Gross Asset Value(i) £1,067.3m £1,327.3m (20%)
Aggregate Group debt (i) £544.8m £494.2m 10%
Group Cash (unrestricted) (i) £17.6m £55.5m (68%)
Ongoing charges ratio (annualised) (i) 1.33% 1.10% 23bps
Dividends paid per share 3.00p 6.00p (3.00p)
Total return (based on NAV) (i) (23.10%) 10.40% N/M
Consolidated portfolio revenue (i) £446.6m £405.5m 10%
Consolidated portfolio EBITDA (i) £197.7m £202.4m (2%)
· The Company's NAV declined by 28% (£263.3 million) to £686.3 million
(31 December 2022: £949.6 million), equivalent to a NAV per share of 79.33p
(31 December 2022: 109.76p per share).
· The NAV decline was primarily due to a (£179.3 million) change in the
fair value of the Company's Investment Portfolio. The latter included £32.8
million of FX movements, which primarily related to Verne Global.
· The audited valuation of the portfolio as of 31 December 2023 includes
two material revisions to the unaudited independent valuation published in
March 2024 amounting to (£41.5 million), resulting in the audited portfolio
NAV of £686.3 million (2022: £949.6 million).
· The change in the fair value of the Investment Portfolio was largely
driven by Verne Global (£128.1 million) mainly due to FX movement and the
recognition of the potential earn-out at $34.1 million, (£26.8 million*) out
of a total potential contingent consideration of $135 million (£108
million**), which formed part of the Verne Transaction as defined below. Fair
value movement including FX for the rest of the portfolio was (£51.2
million), relating mainly to Aqua Comms and Arqiva Group.
· The NAV decline also includes additional expenses incurred by the
Company during the year. This included £41.8 million of interest costs in
respect of the RCF and the Arqiva Group Vendor Loan Note ("VLN"), £26.0
million of dividends paid in respect of Q4 2022 and Q1 2023 and £15.1 million
of professional and transaction related fees, including the break fee incurred
in connection with the Verne Transaction and the Strategic Review, as
announced by the Company on 28 March 2024.
· Total return based on NAV declined to minus 23.10% (31 December 2022:
10.40%), impacted by the decline in NAV and the reduced distribution of
dividends in the period from 6.0 pence per share in the prior year to 3.0
pence per share paid in the current year.
· As announced by the Company on 28 September 2023, the Board elected
not to declare the Q2 2023 dividend and to withdraw the Company's target
dividend of 6.0 pence per Ordinary Share for the year ending 31 December 2023.
No dividend distributions are planned or foreseen in the medium-term. Any
future cash distributions to shareholders are expected to take the form of
returns of capital but with final allocation amounts to be determined at the
time by the Board in conjunction with the Investment Manager and taking into
consideration fund liquidity.
· Once the RCF is fully repaid and cancelled, and subject to Group
liquidity, the Board intends to prioritise distribution of Managed Wind-Down
sale proceeds to shareholders in the form of returns of capital. The Board
does not anticipate the Company repaying the Arqiva VLN in the short-term
given its attractive cost and long maturity to 2029.
* GBP amounts based on a 1.27 USD/GBP exchange rate as of 31 December 2023.
** GBP amounts based on a 1.25 USD/GBP exchange rate as of 25 April 2024.
Portfolio Highlights
In £ million FY 2023 FY 2022 Change %
Consolidated Portfolio Revenue 446.6 405.5 10%
Aqua Comms* 28.1 27.1 4%
Verne Global** 50.7 41.6 22%
Arqiva 358.6 328.2 9%
Sea Edge UK1 1.0 0.9 11%
Elio Networks 8.2 7.7 6%
Consolidated Portfolio EBITDA 197.7 202.4 (2%)
Aqua Comms* 8.5 12.6 (33%)
Verne Global** 17.1 9.2 86%
Arqiva 166.9 175.7 (5%)
Sea Edge UK1 1.0 0.9 13%
Elio Networks 4.2 4.1 2%
* Excluding EMIC-1
** Verne Global platform including Iceland, Finland and London campuses
· The Group's diversified portfolio of high-quality assets continued to
perform in line with business plans during the period.
· Consolidated portfolio company revenue increased by 10% to £446.6
million in FY 2023 (FY 2022: £405.5 million).
· Consolidated portfolio company EBITDA declined by 2.3% to £197.7
million (FY 2022: £202.4 million).
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 Irish Sea routes.
Revenue increased by 4% to £28.1 million (FY 2022: £27.1 million) driven by
increased sales in the lease business. EBITDA declined by 33% to £8.5 million
(FY 2022: £12.6 million) due to the planned addition of headcount to support
sales, operations and expansion into new geographies in Asia, additional and
temporary overlapping costs to internalise its previously outsourced Network
Operations Centre, and the launch of Aqua Comms' third transatlantic cable,
AEC-3, costs for which were incurred upfront.
EMIC-1
Managed by Aqua Comms, EMIC-1 connects key European hubs with Salalah, Oman
and Mumbai, India, bringing a new, high-capacity cable system to underserved
markets experiencing exponential growth in bandwidth requirements.
EMIC-1 is a pre-revenue development asset and is expected to launch in 2025.
Aqua Comms achieved a large pre-sale on EMIC-1 in Q4 2023. Going forward,
EMIC-1's launch has the potential to be delayed due to the geopolitical
situation in the Red Sea and Middle East, which is impacting the ability of
all new cable systems to be deployed in the region. Post-period end, the
Company contributed additional capital to EMIC-1 of £2 million taking its
total investment into EMIC-1 as of 29 April 2024 to £38 million.
Verne Global Group
The Verne Global Group of Companies includes Verne Global Iceland, Verne
Global Finland and Verne Global London. Verne Global Iceland is a leading data
centre platform providing highly scalable capacity to enterprise customers in
a geographically optimal environment, powered by 100% baseload renewable
energy. Verne Global Finland is a leading Finnish data centre and cloud
services platform. Verne Global London wholly owns and operates a
hyper-connected data centre in central London, providing up to 6 MW of
colocation services.
Revenue increased by 22% to £50.7 million (FY 2022: £41.6 million) due to
accelerated customer demand from new and existing customers. Operational
profits increased at a faster pace with EBITDA increasing by 86% to £17.1
million (FY 2022: £9.2 million) as the businesses were integrated and the
platform scaled, thereby delivering improved margins.
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.
D9's share of Arqiva's revenue increased by 9% to £358.6 million (FY 2022:
£328.2 million) due to strong growth in the Group's smart water metering
business, whilst the media business generated higher revenues on account of
the indexation of inflation-linked revenue contracts in addition to higher
passthrough power charges. In line with management's expectations, EBITDA
declined by 5% to £166.9 million (31 December 2022: £175.7 million) as a
result of an increased mix of utility device sales, higher power costs, and TV
channel revenue reductions.
Elio Networks
Elio Networks is a high-speed wireless connectivity provider in Ireland.
Revenue increased by 6% to £8.2 million (FY 2022: £7.7 million) and EBITDA
increased by 2% to £4.2 million (FY 2022: £4.1 million). Financial
performance was driven by growth in high-quality wireless connectivity
operations in 2023, with unique customer connections of c.2,700 in December
2023. Furthermore, Elio Networks extended its services to Cork City in early
2023.
Sea Edge UK1
Sea Edge UK1 is the UK's only landing station for the North Sea Connect subsea
cable.
In FY 2023, Sea Edge's EBITDA increased by 13% to £1.0 million (FY 2022:
£0.9 million) due to positive revenue indexation and reduced expenses.
Liquidity position
Including pro-forma balances at 31 March 2024 to reflect the sale of the Verne
Global Group, and substantial repayments of RCF post period end (excluding the
£47 million repayment expected on 3 May 2024), the Group's total unrestricted
cash amounted to £27.1 million (31 December 2023: £17.6 million). Further
information on unaudited pro-forma figures can be found in the unaudited
non-statutory information section in the Company's Annual Report.
Group financial leverage
31 Dec. 2022 31 Dec. 2023 Adjustments 31 Mar. 2024
Pro-forma
£'m £'m £'m £'m
Drawn RCF inc. Letters of Credit ("LoC") 331.2 375.0 (274.7) 100.3
Vendor Loan Note ("VLN")* 163.0 169.8 - 169.8
Group Cash & Equivalents (inc. restricted cash) (73.6) (49.4) 16.5 (32.9)
Net Debt 420.6 495.4 (258.2) 237.2
Consolidated Portfolio EBITDA 202.4 197.7 (17.2) 180.5
Net Debt / EBITDA 2.1x 2.5x (1.2x) 1.3x
Arqiva debt (pro-rated for D9 ownership)** 754.0 744.4 - 744.4
Verne Global debt - 78.6 (78.6) -
Adjusted Net Debt 1,174.6 1,318.4 (336.8) 981.6
Adjusted Net Debt / EBITDA 5.8x 6.7x (1.2x) 5.5x
* £6.8 million of additional notes issued in June 2023 as PIK interest.
** This is D9's share of Arqiva gross debt. It is not an Arqiva net debt
figure and as a result does not include cash held by Arqiva; it is a more
conservative approach and is in line with previously reported figures.
· The Group held unrestricted cash of £17.6 million as of 31 December
2023 (31 December 2022: £55.5 million) of which £2.8 million was held in
unconsolidated subsidiaries.
· Aggregate Group Debt increased by 10% to £544.8 million (31
December 2022: £494.2m), comprising Revolving Credit Facility ("RCF")
drawings and Letters of Credit of £373.8 million and £1.2 million
respectively, and the Arqiva Group VLN of £169.8 million; the latter
including accrued payment‐in-kind ("PIK") interest of £6.8 million.
Post-balance sheet activity
Sale of Verne Global
As announced on 15 March 2024, the Company completed the Verne Transaction for
an equity purchase price of up to US$575 million (approximately £450
million*). The Verne Transaction included initial cash proceeds of £325.8
million* (US$415 million), a deferred cash consideration of approximately £20
million** (US$25 million) which has now been received, and a potential
earn-out payment of up to approximately £108 million** (US$135 million) (the
"Earn-Out") payable subject to Verne Global achieving run-rate EBITDA targets
for the year ending on 31 December 2026. As of 29 April 2024, the only
remaining outstanding element of the Verne Transaction is therefore the
potential Earn-Out, which remains an asset of the Company.
Of the initial proceeds from the Verne Transaction, £273.5 million was used
to pay down the Company's RCF, with the remaining proceeds agreed with RCF
lenders to be set aside to finance additional expenses, including:
· Approximately £17 million to cover professional fees incurred in
relation to the Verne Transaction. The level of costs due to advisory fees
incurred for the Verne Transaction reflects the transaction's complexity in
contemplating different transaction structures and executing the sale of three
separate legal entities in three different jurisdictions. This included:
o £1.0 million for financing arrangement costs related to the accordion
facility for Verne Global and legal fees to implement the amendments to the
RCF facility;
o £14.4 million for transaction advisory services, including £5.8 million
for financial advice, £5.8 million for legal advice, and £2.8 million for
vendor due diligence, tax, and other advice and expenses in relation to the
Verne Transaction; and
o the remaining £1.6 million representing a contingency which has not yet
been utilised. £9.2 million of the aforementioned £17 million was incurred
in the period-ended 31 December 2023, and £6.2 million was incurred
post-period end in 2024.
· Approximately £12 million was retained to cover future
operational expenses of the Company if and when required; and
· Approximately £23 million was retained for prudent capital
management to cover possible future liabilities arising from certain
indemnification provisions made in connection with the Verne Transaction. As
announced on 29 April 2024, these provisions have now ceased to apply and the
c.£23 million will be used to further deleverage the Company's balance sheet
via a further repayment and part-cancellation of the RCF.
* GBP amounts based on a 1.28 USD/GBP exchange rate as of 13 March 2024.
** GBP amounts based on a 1.25 USD/GBP exchange rate as of 25 April 2024.
Balance sheet deleveraging
Through the Verne Transaction, the Company has substantially deleveraged its
balance sheet by paying down more than 70% of its RCF, or £273.5 million,
with a further reduction of 13% of the RCF (£47 million) expected to be paid
on 3 May 2024. The resulting outstanding drawn amount of c.£53 million after
3 May 2024 compares with £373.8 million in March 2024. Based on the latest
interest rate charged on the RCF, this combined c.£321 million deleveraging
is expected to result in a Group net interest expense saving of c.£28 million
to the end of the term of the facility in March 2025.
As of 31 March 2024 on a pro-forma basis, the Company reduced Group net debt
by 52% to £237.2 million (31 December 2023: £495.4 million). Total leverage
on a pro-forma basis was 36% as of 31 March 2024.
Going concern
Notwithstanding the Managed Wind-Down detailed below, the Board determined
that given associated timelines for realising both the Earn-Out payment from
the Verne Transaction and a potential sale of the Company's stake in Arqiva,
it is appropriate to have prepared the Financial Statements included within
the Annual Report on a Going Concern basis.
Despite the significant balance sheet deleveraging related to the repayment of
over 85% of the Group's RCF as expected by 3 May 2024, c.£53 million is
expected to remain outstanding, with the balance due in March 2025. No
provision has been made for the costs of winding up the Company as these will
be charged to the Income Statement on an accruals basis as they are incurred
or as the Company becomes obligated to make such payments in the future.
As included within the Company's Strategic Report in the Going Concern and
Viability section, the Company continues to disclose a material uncertainty,
which may cast significant doubt over the Company's ability to continue as a
going concern. The Board does believe that the Company and the Group have
adequate resources to continue in operational existence for a period of at
least 12 months since the reporting date.
Investment management arrangements
The Company has given notice to the Investment Manager, Triple Point
Investment Management LLP ("Triple Point"), to terminate the Investment
Management Agreement ("IMA"). In line with the contractual terms of the IMA,
the termination is expected to take effect on 31 March 2025 as the Investment
Management Agreement cannot be terminated before this date.
The Board believes that undertaking an independent review of the investment
management arrangements is in shareholders' interests to objectively determine
the optimal course for an orderly execution of the Managed Wind-Down that will
maximise shareholder value.
This review is ongoing and includes evaluating the following options for the
Company (i) continuing to be managed by Triple Point on different fee
arrangements were the termination not to take effect in March 2025; (ii)
becoming managed by a new investment manager; or (iii) becoming a self-managed
alternative investment fund. The Board is being supported by an independent
financial adviser in this process, which is expected to be largely complete by
the time of the Company's AGM.
Capital allocation
As announced on 25 March 2024, 99.9% of shareholders who voted at the General
Meeting held on the same day approved the resolution to adopt a new Investment
Objective and Policy, which will enable an orderly Managed Wind-Down of the
Company's portfolio of five remaining wholly-owned assets.
Through a Managed Wind-Down, the Board will seek to realise all of the
Company's investments in a manner that achieves a balance between maximising
the net value from these assets and making timely capital returns to
shareholders.
Sale preparations for wholly-owned assets, which include Aqua Comms, EMIC-1,
Sea Edge UK1 and Elio Networks, are being progressed following shareholder
approval of the Company's Managed Wind-Down. Investor outreach for the sale of
Aqua Comms, EMIC-1 and Elio Networks commenced in April 2024.
As stated above, the drawn amount of the RCF is expected to reduce to c.£53
million on 3 May 2024. Following this, the Board expects to use initial
proceeds from the Managed Wind-Down to repay the RCF's outstanding balance,
thereby addressing the Group's residual financial uncertainty.
Once the RCF is fully repaid and cancelled, and subject to Group liquidity,
the Board intends to prioritise distribution of sale proceeds from the Managed
Wind-Down to shareholders in the form of returns of capital. The Board does
not anticipate the Company repaying the Arqiva VLN in the short-term given its
cost and long maturity to 2029.
The Board firmly believes that the corporate actions undertaken in 2023 and
post-period end have enabled the Company to accelerate its balance sheet
deleveraging which, in turn, will enable the Company to maximise the value of
its remaining wholly-owned assets from a position of improved financial
strength.
Directorate changes
As announced on 25 March 2024, the Board was informed by Brett Miller and
Richard Boléat on 23 March 2024 of their intentions to stand down as
Independent Non-Executive Directors of the Company, with immediate effect.
Since then, Aaron Le Cornu has assumed the role of Independent Chair of the
Valuation Committee and Gailina Liew the role of Independent Chair of the
Management Engagement Committee.
The Board is in advanced stages of recruiting a permanent Chair and at least
one new Non-Executive Director to support the execution of the Managed
Wind-Down.
ENDS.
Notes to Editors
Annual Report
The Annual Report is available for download at
www.d9infrastructure.com/investors (http://www.d9infrastructure.com/investors)
.
Webcast for Analysts
A webinar will be held at 9am BST today by the Investment Manager. The analyst
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 in due course.
Contacts
Triple Point Investment Management LLP (Investment Manager) D9contact@triplepoint.co.uk (mailto:D9contact@triplepoint.co.uk)
Diego Massidda +44 (0)20 7201 8989
Ben Beaton
Arnaud Jaguin
Liberum Capital Limited (Financial Adviser) +44 (0)203 100 2000
Chris Clarke
Darren Vickers
Owen Matthews
J.P. Morgan Cazenove (Corporate Broker) +44 (0)20 7742 4000
William Simmonds
Jérémie Birnbaum
FTI Consulting (Communications Adviser) d (mailto:dgi9@fticonsulting.com) gi9@fticonsulting.com
(mailto:dgi9@fticonsulting.com)
Mitch Barltrop
+44 (0) 7807 296 032
Maxime Lopes
+44 (0) 7890 896 777
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. DGI9's shareholders
unanimously approved a managed wind-down of the Company's portfolio in March
2024 and subsequently, the Company is undergoing an orderly realisation of its
assets to maximise shareholder value. For more information on DGI9, please
visit www.d9infrastructure.com
(https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Furldefense.com%2Fv3%2F__http%3A%2Fwww.d9infrastructure.com__%3B!!O2kDR7mm-zSJ!q-IhiRmOFrs2QYD7gmr9EcM8ukutg1_xde5Fce9GgBpHkvhSc3nlYhW7glbEiZG--1yRCrGc2K4WArD5RA1-%24&data=05%7C01%7CHelen.Richardson%40triplepoint.co.uk%7C736257c2b4244d9b148e08dbce910edc%7Ccde8812e0dbd4dc3b4463655beb81efb%7C0%7C0%7C638330894771285360%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=%2Fd%2FuhyGQHTb%2Ft4t2e4NW5UNYk%2FYmW1xyb%2B%2BalYftf5I%3D&reserved=0)
.
The Investment Manager is Triple Point Investment Management LLP ("Triple
Point") 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)
.
INTERIM CHAIR'S STATEMENT
2023 was an extremely challenging year for the Company and our shareholders.
The Board engaged extensively with shareholders and undertook several actions
to improve D9's prospects by strengthening the Company's balance sheet. The
Board believes these actions have and will enable the Company to maximise
shareholder value going forward.
The Company owns high-quality and best-in-class businesses and assets
operating in digital infrastructure sectors which benefit from attractive
structural dynamics, whether it be subsea fibre or an incumbent competitive
advantage in wireless networks.
The underlying financial and operating Investee Company performance was
broadly in line with expectations during 2023, as consolidated portfolio
company revenue grew 10% year-on-year, underpinned by robust trading
performance across the portfolio. As anticipated in business plans, margins
have remained under pressure for some of the portfolio companies, particularly
Arqiva and Aqua Comms.
Balance sheet deleveraging
To a certain extent, structural dynamics have caused complex challenges for
the Company. The Investment Manager identified growth capital expenditure of
approximately £610 million over the next four years required to fully meet
the growth ambitions of D9's portfolio companies.
More importantly, over the period, a higher-than-expected and more prolonged
rise in interest rates and inflation increased the interest expense burden on
the Group and prevented the upstreaming of dividends from Arqiva. These
factors contributed to the poor share price performance which, relative to the
NAV of the Company, fundamentally undervalues the assets which the Company
owns.
Accordingly, the Board sought to improve D9's financial resilience, in order
to enable the Company to maximise shareholder value from the portfolio. The
Board and the Investment Manager believed a more conservative approach to
capital allocation was required and the Board elected not to declare the
Company's Q2 2023 dividend. This came with the decision to withdraw the
Company's target dividend of 6.0 pence per Ordinary Share for the full year
2023 and not to make any further dividend distributions during 2023.
Through the sale of Verne Global to Ardian, the Company has substantially
deleveraged its balance sheet by paying down more than 70% of its RCF, or
£274 million, with a further reduction of 13% of its RCF, or c.£47 million,
expected to be paid on 3 May 2024. The resulting outstanding drawn amount of
c.£53 million after 3 May 2024 compares with £373.8 million in March 2024,
and this reduction of the RCF is expected to result in a Group net interest
expense saving of c.£28 million to the end of the term of the RCF based on
the latest interest rate charged.
Portfolio valuation
The portfolio's valuation process for the December 2023 year end has
concluded. The review by the auditors, PwC, has led to the agreement of two
revisions to the unaudited valuations published in March, bringing the audited
portfolio NAV to £686.3 million at year end (2022: £949.6 million).
The decrease was driven largely by the recognition of $34 million (25%) of the
potential $135 million Verne Global earn-out. This is lower than the unaudited
valuation of $67 million which was disclosed in March 2024, as a result of a
more conservative treatment of the risk parameters which had been utilised in
the initial independent valuation. This prudent approach recognises the
inherent uncertainty and perceived risk around Verne Global's ability to meet
future run-rate EBITDA targets, which in turn will determine the amount of the
Earn-Out to be received by the Company in early 2027. Alongside the change
to the Verne Global Earn-Out, it was also agreed as part of the final review
to increase the discount rate for Aqua Comms to reflect the nascent nature of
the business' expansion into the Asia region alongside its well-established
transatlantic business, which resulted in an £15.5 million decrease from the
unaudited valuations published in March. Further details on the changes to
unaudited valuations published on 28 March 2024 and audited valuations are set
out in the Financial Overview of the Investment Manager's Report below, in
addition to changes in valuation from 31 December 2022.
Shareholder returns
A change of the Company's Investment Objective and Investment Policy to enable
a Managed Wind-Down was approved by shareholders on 25 March 2024, from which
the Board will now seek to realise all of the Company's investments in a
manner that achieves a balance between maximising the net value from these
assets and making timely capital returns to shareholders.
Ultimately, following the full repayment and cancellation of the RCF, the
Board intends to use proceeds to prioritise returns of capital to shareholders
over the Group's longer-term obligations, including the VLN related to the
acquisition of the Company's stake in the Arqiva Group.
Any cash distributions to shareholders will likely take the form of returns of
capital but with final allocation amounts to be determined at the time by the
Board in conjunction with the Investment Manager and taking into consideration
the Company's liquidity. No further dividend distributions are planned or
foreseen in the medium-term. The Company will also cease to make any new
investments except where there may be a legal or contractual imperative to do
so, or if new investments may facilitate a sale process and in turn deliver
superior shareholder value.
Company governance
2023 was a period of significant board change. Gailina Liew was appointed to
the Board in July 2023. Having overseen the sale process for Verne Global,
Phil Jordan and Lisa Harrington resigned as Independent Chair and Senior
Independent Director, respectively, in December 2023, to allow the appointment
of new Non-Executive Directors with experience relevant to the expected
changes to the Company. Since then, Charlotte Valeur has acted as Interim
Independent Chair and Gailina Liew as Senior Independent Director.
Following the Board's shareholder consultation and the initiation of a
Strategic Review, Richard Boléat and Brett Miller were appointed as
Independent Non-Executive Directors of the Company in December 2023.
Post-period end, Aaron Le Cornu was appointed as Independent chair of the
Audit Committee following the resignation of Keith Mansfield in January 2024,
while Brett Miller and Richard Boléat informed the Board in March 2024 they
would also step down, with immediate effect.
The Board is in advanced stages of recruiting a permanent Chair and at least
one new Non-Executive Director to lead and support, respectively, the
execution of the Managed Wind-Down.
We look forward to welcoming shareholders at our 2024 Annual General Meeting
("AGM"), and the Notice of AGM will follow in due course.
Investment management review
Post-period end, the Board served the Investment Manager notice with
termination to take effect on 31 March 2025. As detailed in the Management
Engagement Committee Report on pages 66 to 67 of the 2023 Annual Report, the
Investment Management Agreement cannot be terminated before this date.
The Company is actively exploring revised commercial terms with the Investment
Manager prior to the termination taking effect, alongside a broader review of
alternative investment management arrangements. The Board is being supported
by an independent financial adviser in this process, which is ongoing as of 29
April 2024 and is expected to be concluded before the Company's AGM.
Irrespective of the outcome of this review, the Board aims to ensure that the
investment management arrangements are more closely aligned to shareholders'
interests through the course of the Managed Wind-Down.
The Managed Wind-Down
Sale preparations for the Company's wholly owned assets, which include Aqua
Comms, EMIC-1, SeaEdge UK1 and Elio Networks, are being progressed following
shareholder approval of the Company's Managed Wind-Down. Investor outreach for
the sale of Aqua Comms, EMIC-1 and Elio Networks commenced in April 2024.
The Board is committed to executing an orderly wind-down to maximise
shareholder value over time. The Company owns attractive assets with strong
prospects, and the benefit of dedicated management teams and talented
employees. Considering future market conditions, it may be in shareholders'
best interests to delay or accelerate the outcome of any sale to achieve a
balance between maximising the net value from these assets and making timely
capital returns to shareholders. The Board is, of course, committed to
maximising shareholder returns at the earliest possible opportunity.
The launch of a sale process for D9's stake in Arqiva is expected to take more
consideration due to the complexity of the business and the co-shareholding
structure. The Board continues to explore various options for Arqiva, in
consultation with a collaborative shareholder group. Further detail is set out
in the Company's circular dated 28 February 2024.
As part of the Verne Transaction, the Company can benefit from a potential
Earn-Out payment of up to $135 million (approximately £108 million) subject
to Verne Global achieving run-rate EBITDA targets for 2026. This target is as
set in the business plan provided to all potential bidders at the time of the
sale process. The Company also benefits from customary protections to ensure
Verne Global continues operating and reporting substantially in line with
existing practices, including quarterly updates on its run-rate EBITDA.
The Board notes that at completion, Ardian disclosed its intention to support
the expansion of Verne Global with up to $1.2 billion of committed investment
through equity and debt, multiplying the business' existing sold capacity of
29 MW for 2023 by close to four times in the medium term ii (#_edn2) .
As the wind-down is likely to progress over several years, the Board will
carefully manage D9's operating costs and seek to reduce them on an ongoing
basis, whilst containing additional advisory and transaction costs.
During the Managed Wind-down, the Company intends to maintain its investment
trust status and listing with due consideration for the regulatory
requirements and costs of doing so following the sale of the Company's wholly
owned assets.
I would like to thank my fellow shareholders for their continued engagement
with the Company and the Board through what has clearly been a challenging
period.
Charlotte Valeur
Interim Independent Chair
29 April 2024
INVESTMENT OBJECTIVE AND INVESTMENT POLICY
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 Company's current Investment Objective and Investment Policy, as approved
by shareholders at the 25 March 2024 General Meeting receiving 99.89% of votes
in favour, are published below.
Investment Objective
The Company will be managed, either by a third-party investment manager or
internally by the Company's board of directors, with the intention of
realising all the remaining assets in the Portfolio, in an orderly manner with
a view to ultimately returning available cash to Shareholders following the
repayment and cancellation of the Company's revolving credit facility ("RCF")
from the proceeds of the assets realised pursuant to the Investment Policy.
Investment Policy
The assets of the Company will be realised in an orderly manner, returning
cash to Shareholders at such times and in such manner (which may be by way of
direct buybacks, tender offers, dividends or any other form of return) as the
Board may, in its absolute discretion, determine. The Board intends that the
proceeds of any asset realisations will be used to repay and cancel the RCF
before any such proceeds are distributed to shareholders or used to meet other
outstanding indebtedness of the Company (including the non-recourse
indebtedness to the vendors of the Company's Arqiva asset, issued by way of a
vendor loan note which the Company may repay or transfer to a future buyer of
the Arqiva asset). The Board will endeavour to realise all of the Company's
investments in a manner that achieves a balance between maximising the net
value received from those investments and making timely returns to
Shareholders. The Company will cease to make any new investments (including
any follow-on investments) or to undertake capital expenditure, except with
the prior written consent of the Board and where, in the opinion of the Board,
in its absolute discretion:
a) failure to make the investment or capital expenditure would result in
a breach of contract or applicable law or regulation by the Company, any
member of its group or any vehicle through which it holds its investments; or
b) the investment or capital expenditure is considered necessary to protect
or enhance the value of any existing investment or to facilitate an orderly
disposal, any such investment or capital expenditure being a "Permitted
Investment".
Subject to the ability of the Company to make Permitted Investments, any cash
received by the Company as part of the realisation process prior to its
distribution to Shareholders will be held by the Company as cash in Sterling
on deposit and/or as cash equivalents.
Borrowing and hedging
The Company may utilise borrowings for short term liquidity purposes. The
Company may also, from time to time, use borrowing for investment purposes on
a short-term basis where it expects to repay those borrowings from realisation
of investments. Gearing represented by borrowings will not exceed 20% of Net
Asset Value calculated at the time of drawdown.
The Company may use derivatives for hedging as well as for efficient portfolio
management. Any such hedging transactions will not be undertaken for
speculative purposes.
KEY PERFORMANCE INDICATORS
In order to track the Company and/or Group's progress, the key performance
indicators ("KPIs") monitored are set out below. Sustainability KPIs can be
found in the Company's separate Sustainability Report which is available here:
https://www.d9infrastructure.com/digital-9-infrastructure-plc-sustainability-report-2023/
(https://www.d9infrastructure.com/digital-9-infrastructure-plc-sustainability-report-2023/)
.
KPI AND DEFINITION RELEVANCE TO STRATEGY PERFORMANCE COMMENT
1. Total return (%)(1)
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 (23.1%) year to 31 December 2023 ((6.8%) period from IPO to 31 December 2023). The negative total return is due to the decreases in the fair value of the
investment valuations, including dividends paid. Company's Investment Portfolio, and interest and expenses incurred in the
year. The valuation of the Company's Investments was impacted by the reduction
in value of the Verne Global group of companies as only c.25% of the potential
$135 million Earn-Out is being recognised on the balance sheet.
2. Total shareholder return (%)(1)
The change in share price and dividends paid per share. The total shareholder return highlights the share price movements, including (64.1%) in respect of the year to 31 December 2023 (66.2% for the period from The decrease was primarily driven by a significant fall in the share price
re-investment of dividends. IPO to 31 December 2023). during 2023. During the period, shareholders did receive the Q4 2022 dividend
(paid in March 2023) and the Q1 2024 dividend (paid in June 2023), but no
further dividends were declared for 2023, which also contributed to the share
price decline.
3. Earnings per share (pence)
The post-tax earnings attributable to shareholders divided by weighted average The EPS reflects the Company's ability to generate earnings from its Loss of 27.4 pence per share for the year to 31 December 2023 (see Note 23) The main driver in the loss per share for the year were the movement in fair
number of shares in issue over the period. investments, including valuation increases. (11.1 pence per share period to 31 December 2022). value of the Company's Investment Portfolio, and costs incurred during the
period. The fall in valuation was predominantly driven by the Earn-Out element
of the Verne Global Sale which led to a write-down of the Verne Global
Companies. Other key drivers were financing costs incurred for the Group's RCF
and VLN.
4. 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 79.33 pence per share (109.76 pence per share as at 31 December 2022) (see The NAV per share fell as a result of the negative valuation movement in the
to it throughout the life cycle of our assets. Note 24). period and costs incurred. The fall in NAV was predominantly driven by the
Earn-Out element of the Verne Global Sale which led to a write down of the
Verne Global Companies. Other key drivers were financing costs incurred for
the Group's RCF and VLN.
5. Ongoing Charges Ratio(1)
Annualised ongoing charges are the Company's management fee and all other Ongoing charges show the drag on performance caused by the operational 1.33% for the period to 31 December 2023 (31 December 2022: 1.10%). A key measure of Operational performance.
operating expenses (i.e. excluding acquisition costs and other non-recurring expenses incurred by the Company.
items) expressed as a percentage of the average published undiluted NAV in the As the Company has acquired more investments, the Group structure has become
period, calculated in accordance with Association of Investment Companies more complex. As a result, audit costs and professional fees have increased.
guidelines.
This is calculated in line with AIC guidance. Ongoing charges are those
expenses of a type which are likely to recur in the foreseeable future,
whether charged to capital or revenue, and which relate to the operation of
the Company excluding the costs of acquisition and disposal of investments,
financing charges and gains/losses arising on investments.
For the avoidance of doubt, the calculation does not include costs associated
with the sale of investments nor with the Strategic Review.
Notes:
1 Alternative Performance Measure, further information on APMs can be found
below.
INVESTMENT MANAGER'S REPORT
Review of the Year
Introduction
Portfolio companies performed broadly in line with expectations during the
course of the year. However, macroeconomic factors impacted fund-level
liquidity, necessitating several steps to protect the Company's balance sheet.
This began with the sale of the Verne Global platform and the suspension of
D9's dividend with the aim of freeing up cash to repay the Group's RCF and
reduce interest costs. Following an extensive shareholder consultation, the
Board initiated a Strategic Review of the Company, the outcome of which has
been to begin a Managed Wind-Down of the Company as approved by shareholders
on 25 March 2024, with sale processes for D9's wholly-owned assets having
commenced as of April 2024. Key Investee Company activities during the year
included Arqiva's senior debt refinancing and inflation collar implementation
and the signing of Verne Global Iceland's green term loan.
Company and Portfolio Performance
The Company reported a pre-tax loss of £237.3 million (2022: £92.1 million
pre-tax profit) for the year, equal to a 27.43 pence loss per share (2022:
11.09 pence earnings per share). This was the net result of income received
from investments and revaluation losses arising on the investments held at
fair value through profit or loss as at 31 December 2023. Revaluation losses
were driven mainly by a devaluation of Verne Global, financing and operational
costs as described in more detail in the Financial Review Section. During the
period, the Company's NAV decreased from £949.6 million (109.76 pence per
share) at 31 December 2022 to £686.3 million at 31 December 2023 (79.33 pence
per share). The key components driving the drop in NAV are explained below in
the Financial Review section.
Portfolio company performance was broadly in line with management
expectations. Aggregate revenues for the Investee Companies during the period
amounted to £446.6 million, 10% higher than the prior year with the increase
largely attributable to inflation-indexed contracts, power pass-through and
organic growth. Verne Global Iceland accelerated its top line growth to 24%
year-on-year on the back of continued strong customer demand, whilst Arqiva
and Aqua Comms grew by 9% and 4% respectively. In line with business plans,
margins have remained under pressure for some of the businesses, particularly
Arqiva and Aqua Comms. Portfolio company debt at year end consisted of £79
million at Verne Global and £744 million at Arqiva, with the Arqiva balance
calculated pro rata based on D9's 51.76% economic interest.
Since July 2022, the Company had invested £4.3 million seed capital into
Giggle, a development opportunity that would have provided affordable
broadband to social housing through a Fibre to the Home ("FTTH") network
across the city of Glasgow. As set out in our Interim Report, due to the
significant identified capex pipeline of £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 the full
value of Giggle. The Company sold its 100% stake in Giggle to its senior
management in Q4 2023 for £1.
Balance sheet stabilisation
Notwithstanding solid operating performance of Investee Companies broadly in
line with management expectations, liquidity at a fund level was adversely
impacted by persistently high interest rates and inflation, coupled with large
growth capital expenditure opportunities. This led the Company to decide on
and execute the following key steps to stabilise D9's balance sheet:
1. Sale of the Verne Global group of companies
2. Suspension of the Company's dividend
3. Use of sale proceeds to repay and cancel part of the RCF and reduce
interest payments.
Sale of Verne Global
During the period, the Company ran a competitive sale process for the Verne
Global group of companies (which has operations in Iceland, Finland and the
United Kingdom). As announced on 28 September 2023, the Company received
several non-binding offers for a majority stake in Verne Global. The Company,
with the support of Goldman Sachs International (financial adviser for the
transaction), assessed the merits of the non-binding offers for a majority
stake to maximise shareholder value. The Company concluded that a sale of the
Company's entire stake in Verne Global was in shareholders' best interests
because, amongst other considerations, it provided an opportunity for the
Company to substantially deleverage its balance sheet and provide the cash
resources necessary for the Company to strengthen its financial position,
particularly in light of Verne Global's significantly increased capital
expenditure pipeline that the Company was unable to fund.
As announced on 15 March 2024, the Company completed the Verne Transaction for
an equity purchase price of up to $575 million (approximately £450 million*).
Following completion of the Verne Transaction, the Company received $415
million (£325.8 million) (the "Initial Purchase Price"). The completion
followed receipt of all applicable regulatory approvals and the satisfaction
of all conditions in line with the previously communicated timetable. A
further deferred consideration of US$25 million (approximately £20 million**)
which formed part of the purchase price has now been received.
The purchase price also comprised a potential Earn-Out payment of up to $135
million (approximately £108 million**), which is payable subject to Verne
Global achieving run-rate EBITDA targets for the financial year ending
December 2026 (the "Performance Target"). The total Earn-Out will be payable
if 100% of the Performance Target is met and will be reduced on a sliding
scale with no Earn-Out being payable if Verne Global does not achieve 80% of
the Performance Target. This target is as set in the business plan provided to
all potential purchasers at the time of the sale process.
The Investment Manager believes that Ardian's own value creation objectives
are aligned with deploying the requisite capital expenditures to enable Verne
Global to deliver in line with or close to the Performance Target. The
Company also benefits from customary protections to ensure Verne Global
continues operating and reporting substantially in line with existing
practices, including the provision of quarterly updates on its run-rate
EBITDA.
Following the completion of the Verne Transaction as announced on 15 March
2024, the Initial Purchase Price proceeds were used as follows:
· £273.5* million was used for partial repayment of the RCF (more
details on this below);
· c.£17 million to pay costs incurred in relation to the Verne
Transaction, including a contingency of £1.6 million***;
· Around £12 million was retained to cover future operational
expenses of the Company if and when required; and
· Around £23 million was retained for prudent capital management
to cover possible future liabilities arising from certain indemnification
provisions made in connection with the Verne Transaction.
* GBP amounts based on a 1.28 USD/GBP exchange rate as of 13 March 2024.
** GBP amounts based on a 1.25 USD/GBP exchange rate as of 25 April 2024.
*** It was agreed with the RCF lenders that £17 million would be set aside to
pay costs arising from the Verne Transaction. This included:
· £1.0 million for financing arrangement costs related to the accordion
facility for Verne Global and legal fees to implement the amendments to the
RCF facility;
· £14.4 million for transaction advisory services, including £5.8
million for financial advice, £5.8 million for legal advice, and £2.8
million for vendor due diligence, tax, and other advice and expenses in
relation to the Verne Transaction; and
· The remaining £1.6 million represents a contingency which has not
yet been utilised and may be further used to pay down the RCF.
£9.2 million of the above mentioned £17 million was incurred in the
period-ended 31 December 2023, and £6.2 million was incurred post-period end
in 2024.
The level of costs due to advisory fees incurred for the Verne Transaction
reflects the transaction's complexity in contemplating different transaction
structures and executing the sale of three separate legal entities in three
different jurisdictions.
Suspension of the Company's dividend
In September 2023, at the time of considering the Q2 2023 dividend, the Board
and Investment Manager were mindful of the uncertainty around the timing of
the completion of the sale of Verne Global and were conscious, that the
persistence of a high interest rate environment continued to weigh on the
Company's liquidity position. Therefore it was agreed that a more conservative
approach to capital allocation was required in the interest of the Company and
its shareholders, and, on 28 September 2023 the Board elected not to declare
the Q2 2023 dividend and withdrew its target dividend of 6.0 pence per
Ordinary Share for the year ending 31 December 2023. During the year, the
Company paid a total dividend of 3.0 pence per share: 1.5 pence was paid in
March 2023 relating to the period to 31 December 2022, and a further 1.5 pence
per share in June 2023 in relation to the period to 31 March 2023. No
further dividends have been declared for 2023.
It is the company's intention to retain its Investment Company status during
the managed wind down process. To maintain this status, under s1158 of the
provisions the Company may be required to pay further distributions. The Board
will continue to monitor this requirement.
RCF partial repayments and cancellation
Following completion of the Verne Transaction, and receipt of the Initial
Purchase Price, as announced on 15 March 2024, the Company has been able to
substantially deleverage its balance sheet through the partial repayment and
cancellation of its RCF. Following receipt of the Deferred Consideration and
the cessation of certain indemnification provisions for which the Company had
ringfenced £23 million for prudent capital management, the Company intends to
further reduce its drawn RCF to c.£53 million by 3 May 2024, thus completing
the execution of the 3-step plan to substantially deleverage its balance sheet
and reinforce its financial position.
At the time of the partial RCF repayment and cancellation effected in March
2024, the RCF documentation was amended to set revised financial covenants to
make it more bespoke for the reduced portfolio size going forward until the
RCF is fully repaid. The new set of covenants include:
· The LTV test threshold at the Digital 9 HoldCo Limited level (being
the ratio of total financial indebtedness of each obligor under the RCF
documentation to adjusted portfolio investment value) is 20%;
· The global LTV test threshold (being the ratio of total financial
indebtedness of Digital 9 Infrastructure plc, Digital 9 HoldCo Limited and all
subsidiaries to enterprise value) is 62.5%; and
· An interest reserve based on any applicable residual RCF size must
be maintained in the interest reserve account at all times to legal maturity
(March 2025).
In addition to the final bullet point above, the Company also negotiated and
agreed with its RCF Lenders that from 1 January 2024, the cash reserves locked
up in the RCF's interest reserve account can be used for interest payments,
which will enable the Company to pay interest for the residual RCF without
using any unrestricted cash until the RCF's legal maturity in March 2025.
As at 29 April 2024, the balance of the interest reserve account was £9.9
million, which is sufficient to cover future outstanding interest payments due
to the legal maturity. Part of these funds will also be used for the further
partial repayment and cancellation planned at the beginning of May, as
explained above.
Finally, the Minimum Aggregate Approved Investment Value threshold has changed
from £700 million previously to 500% of the total commitments under the
residual RCF.
The RCF in an important consideration for the Company, even though it is not
held on the Company's balance sheet. The RCF is held by its main subsidiary D9
Holdco, but the Company is a guarantor of the facility.
Strategic Review
Following the conclusion of the Strategic Review and the subsequent
shareholder approval for the revised Investment Objective and Policy, the
Company has entered into a Managed Wind-Down and has started to work to
realise all of the Company's assets in a manner that maximises value to
shareholders. The next steps for the Investee Companies are set out below.
Next steps for the wholly-owned assets (Aqua Comms, EMIC-1, Elio Networks and
SeaEdge UK1)
The Board and Investment Manager have commenced sale preparations and mandated
advisers for the sale of the Company's wholly owned assets. Investor outreach
for the sale of Aqua Comms, EMIC-1 and Elio Networks was launched in April
2024. Preparations for sales processes are ongoing and advisers have been
appointed. The Company expects good progress to be achieved for the orderly
sale of the wholly-owned assets in 2024 and will continue to update
shareholders. The Company will continue to prioritise the achievement of best
value for shareholders over speed of execution.
Next steps for Arqiva
As part of the Strategic Review, various options for realising the stake in
Arqiva were considered on a preliminary basis by the Board. In consideration
of Arqiva's complexity as a business and its co-shareholding structure, the
Investment Manager and the Board believe that the maximisation of the value of
D9's stake in Arqiva is likely to take longer to realise than the other
investments held by the Company. As such, the Board has decided to defer
launching a formal sale process for D9's stake in Arqiva for the time being
but remains open to all value-accretive options, including in collaboration
with Arqiva's co-shareholders.
Financial
Review
Net Asset Value
The following charts show the movement in the Company's NAV on a pence per
share basis, for the twelve-month period from 1 January 2023 to 31 December
2023.
In the 12 months to 31 December 2023, the portfolio's fair value movement
including foreign exchange ("FX") was a reduction of £179 million or 20.7
pence per share, this is split between fair value movement and FX in the chart
below with adverse FX movements comprising of 3.8 pence per share.
The total fall in value of the portfolio of 20.7 pence per share, was driven
largely by a reduction in value of Verne Global platform, which contributed
14.8 pence of this reduction, whose NAV was rebased in line with the price
realised in the Verne Transaction (further information on this is below). Of
the 14.8 pence per share fall attributable to Verne Global, 9.2 pence was as a
result of recognition of the Earn-out at £26.8 million ($34.1 million out of
a total contingent consideration of $135 million), 2.3 pence was due to
adverse FX movements with the balance being other valuation movement,
including additional contributions to and repayments from, the Verne Group in
the 12 month period to 31 December 2023.
NAV per share movement - twelve months to 31 December 2023
(pence per share)
Reconciliation to IFRS Valuation
The below chart shows the build-up of the IFRS Investment Valuation held on
the Balance Sheet of the Company. £639.9 million is the valuation of the
Company's wholly-owned subsidiary Digital 9 HoldCo Limited which holds the
investments in the underlying Investee Companies. There is also a £36.2
million shareholder loan the Company has made to Digital 9 HoldCo Limited;
this is shown separately. The total valuation on the Balance Sheet of the
Company is £676.1 million.
The chart below includes the gross equity valuation of the Company's share of
Arqiva (£503.6 million) and shows deductions for the VLN principal (£163.0
million), for the additional VLN notes issued in June 2023 (£6.8 million) and
for VLN interest accrued to 31 December 2023 (£5.1 million). This yields a
proforma valuation of £328.7 million net of all VLN deductions. Deductions
are also made for the RCF, which, for the avoidance of doubt, do not sit on
the Company's Balance Sheet, but are held in underlying unconsolidated
subsidiaries of the Company, being Digital 9 Wireless OpCo 2 Limited and
Digital 9 HoldCo Limited respectively.
A pro-forma consolidation Group position, is provided below in the Company's
Annual Report in the unaudited non-statutory information section.
HoldCo valuation reconciliation as of 31 December 2023
(£ million)
Valuations
The independent valuation process of the Company's portfolio of assets and the
audit have now concluded for the December 2023 year end. During the audit
process, the key inputs and assumptions for all operating models used in the
valuation process were revisited and challenged to arrive at the audited fair
value figures. As a result, the unaudited valuations for two of the Company's
assets, Aqua Comms and the Verne Earn-out, have been revised to reflect a more
conservative valuation than had been previously announced.
For Aqua Comms, the discount rate utilised was increased to reflect the
nascent nature of the business' expansion into the Asia region alongside its
well-established transatlantic business. This more conservative approach has
resulted in a reduction of the Aqua Comm valuation of 7% relative to the
unaudited NAV published on 28 March 2024.
For the Verne Earn-Out, measuring the fair value of contingent consideration
presented a number of valuation challenges. In pricing the Earn-Out, a
scenario-based technique (Monte Carlo Simulation) was used by the independent
valuer. This technique involved considering discrete scenario-specific cash
flow estimates around Verne Global achieving its run-rate EBITDA targets.
These amounts were then probability weighted and discounted using an
appropriate discount rate.
After consultation with the auditor and the independent valuer the Board took
a more conservative approach to the risk parameters which had been utilised in
the initial independent valuation. This prudent approach recognises the
inherent uncertainty and perceived risk around Verne Global's ability to meet
future run-rate EBITDA targets, which in turn will determine the amount of the
Earn-Out to be received by the Company in early 2027. This approach reflects
the most recent update to the AICPA (American Institute of Certified Public
Accountants) guidelines for valuing contingent consideration. When considering
the above, the calculations were adjusted accordingly which reduced the
Earn-Out valuation by £25.9 million from the unaudited number previously
announced, a 49% reduction when compared to the unaudited NAV published on 28
March 2024.
Going forward, the fair value of the Earn-Out will be updated each reporting
period to reflect the actual progress made by Verne Global in achieving the
run-rate EBITDA target.
Valuations for the remainder of the Company's Investee Companies are unchanged
from the unaudited figures published on 28 March 2024.
The total portfolio valuation stands at £1,029 million and this comprises the
reduction for the VLN including additional notes issued in June 2023 and
accrued interest on the VLN as at 31 December 2023 reflecting a 6% reduction
to the unaudited figures published in March 2024.
The decrease was driven largely by the recognition of only $34 million (25%)
of the potential $135 million Verne Global Earn-Out, reflecting the
uncertainty and perceived risk around Verne Global's ability to meet future
run-rate EBITDA targets.
Summary of Portfolio Valuation methodology
The cash flows used in the valuations are from Investee Company operating
models, which are reviewed and signed off by the respective Investee Company
boards. These models are used to evaluate Investee Company performance and
assess the performance of Investee Company management.
Valuation
Investment valuations are calculated at the financial half-year (30 June) and
the financial year-end (31 December) periods. For the current period ended 31
December 2023, in arriving at their fair value conclusions the Board obtained
an independent valuation of Aqua Comms, Elio Networks, Arqiva Group and the
Verne Earn-Out whose sale completion was announced on 15 March 2024
(the "Verne Transaction"). EMIC-1 continues to be held at cost and reflects
cash contributed by the Company while SeaEdge remains consistent with prior
years.
The fair valuation of the portfolio has also been reviewed by the Company's
auditors, PwC, as at 31 December 2023 and further details are set out in the
Independent Auditors' Report on pages 90 to 97 of the 2023 Annual Report.
Discount rates
As described in Note 4, investments are typically valued on a discounted cash
flow ("DCF") basis. The discounted cash flow from revenue is forecasted over
an 8-to-10-year period followed by a terminal value based on a long-term
growth rate. Discount rates are arrived at via a bottom-up analysis of the
weighted average cost of capital, using both observable and unobservable
inputs, and calculation of the appropriate beta based on comparable listed
companies. Where appropriate, a sense-check to the DCF analysis is done by
comparison to market multiples.
In respect of the portfolio of data centres where the disposals were completed
after the year end, the fair value of these investments at the year-end equals
the agreed disposal value plus an amount for the valuation of the Earn-Out as
per the terms of the share purchase agreement ("SPA").
As a result of the above, discount rates are only relevant to Arqiva, Aqua
Comms, Elio Networks and the Verne Global Earn-Out, which was valued utilising
a Monte Carlo Simulation. The weighted average discount rate used in these
valuations was 13.62%.
Liquidity
The chart below shows the unrestricted cash movements for the Group in the
six-month period to 31 December 2023. For the avoidance of doubt, this chart
includes all unrestricted cash across the D9 subsidiaries to 31 December 2023
and is on a cash basis and not an accruals basis.
A second chart showing the cash flow movements across the Group from 1 January
2024 to 31 March 2024 has also been added in the unaudited non-statutory
information section.
As at the period end, the Group held total cash of £49.4 million iii
(#_edn3) . Of this, unrestricted cash available for use was £17.6 million,
shown in the chart below. Restricted cash consisted of an escrow account in
relation to the EMIC-1 project, which in 2024 is being unwound as project
milestones are hit.
At 31 December 2023, the Group had cash of £24.4 million in a restricted
interest reserve account, under the terms of its RCF. In agreement with its
RCF lenders, the Company negotiated and agreed that from 1 January 2024 the
cash reserves in the RCF's interest reserve account can be used for interest
payments which enables the Company to pay interest for the residual RCF
without using any unrestricted cash until the RCF's legal maturity in March
2025.
Unaudited Unrestricted Cash Group Waterfall - 1 July 2023 to 31 December 2023
(£ million)
Restricted cash of £31.9 million included a Restricted Interest Reserve
Account in relation to the RCF of £24.4 million and an amount in a restricted
escrow account in relation to the construction of EMIC-1 of £7.5
million.
Unrestricted cash includes £14.8m held at the Company level, with the balance
being held in unconsolidated subsidiaries.
The Company had fully drawn the RCF as at the reporting date in the form of
£373.8 iv (#_edn4) million drawn and £1.2 million committed through a
Letter of Credit in favour of Verne Global Iceland.
As described in both the Interim Chair's Statement and Investment Manager's
Review, the Group closed the sale of the Verne Global group of companies as
announced on 15 March 2024. Subsequent to this, the cash position of the Group
has strengthened.
A cash waterfall for the 3 months to 31 March 2024 is included within the
unaudited non-statutory information section below.
Inflation
The 12 months to 31 December 2023 saw some of the highest inflation in recent
years, which had both positive and adverse effects on the Investee Companies.
The Investment Manager and Board monitored developments closely and took steps
to reduce forward macroeconomic exposure through hedging instruments and
forward agreements.
High RPI in March 2023 (13.5%) had a direct short-term cash flow impact on
Arqiva due to its inflation-linked swaps, with Arqiva paying £147 million in
accretion payments (equating to c.£76 million prorated for D9's 51.76%
economic interest in Arqiva). For the avoidance of doubt, accretion is paid by
Arqiva, not D9. The long-term net impact of inflation on Arqiva is positive,
increasing EBITDA due to the compounding effect of Arqiva's long-term
inflation-linked contracts. RPI has fallen substantially from the Q1 2023
peak, dropping to 4.3% in March 2024, which will result in an accretion
payment of c.£53 million in June 2024 (equating to c.£28 million prorated
for D9's 51.76% economic interest in Arqiva). Furthermore, Arqiva's inflation
collar implemented in June 2023 limits future downside inflationary exposure
by capping accretion payments at an effective RPI of c.6.0% for the remaining
life of the swaps, which expire in 2027. More information on Arqiva can be
found below.
Debt financing
As at 31 December 2023, the Group had unrestricted cash of £17.6 million and
the RCF was fully drawn at £375 million (divided into a £373.8 v (#_edn5)
million cash draw and a £1.2 million non-cash draw for a Letter of Credit
provided under the RCF in favour of Verne Global Iceland). In aggregate,
excluding Investee Companies, D9 had gross debt of £544.8 million, comprising
the VLN and RCF (including the Letters of Credit described above) as of 31
December 2023, which is 51% of Adjusted GAV. For the avoidance of doubt, the
VLN balance also includes the additional PIK notes issued in June 2023, but
does not include the accrued interest of £5.1m to 31 December 2023.
Debt metrics
The below table shows the Group's leverage position as at 31 December 2023.
Included within the unaudited non-statutory information section below is a
pro-forma position as at 31 March 2024, which shows the position following the
Company's partial RCF repayment in March 2024.
31 December 2023
£'million
Aqua Comms 222.5
Verne Global 372.2
SeaEdge 14.0
EMIC-1 36.0
Elio Networks 55.4
Arqiva 503.6
Arqiva Principal VLN (163.0)
Arqiva Additional VLN (6.8)
Arqiva Accrued VLN Interest (5.1)
Total Portfolio Value 1,028.8
Subsidiary Cash & Equivalents 34.6
RCF (373.8)
Net Subsidiary Other Liabilities (49.8)
D9 Shareholder loan 36.2
Reconciled IFRS Valuation 676.1
PLC Other Current Assets 1.5
PLC Receivables & Cash 14.8
Total Assets 692.3
RCF* 375.0
Adjusted GAV 1,067.3
£'million
RCF* 375.0
VLN (including £6.8m additional notes) 169.8
Total Group Leverage 544.8
Leverage / Adjusted GAV 51.0%
*As at 31 December 2023, the RCF was fully utilised at £375 million, which
comprised £373.8 vi (#_edn6) million drawn and the £1.2 million non-cash
draw Letter of Credit. In Q1 2024, the Letter of Credit was cancelled and did
not require a cash repayment.
As at 31 December 2023, the Company's net debt / EBITDA position has
marginally increased since December 2022 as a result of the PIK loan notes on
the VLN being capitalised on 30 June 2023 and a slight decline in portfolio
EBITDA.
Net Debt / EBITDA At 31 December 2023 (£'million)
Drawn RCF inc. Letter of Credit 375.0
VLN* 169.8
Group Cash & Equivalents (inc. restricted cash) (49.4)
Net Debt 495.4
2023 Portfolio EBITDA 197.7
Net Debt / EBITDA 2.5x
Arqiva debt (prorated for D9 ownership)** 744.4
Verne Global debt 78.6
Adjusted Net Debt 1,318.4
Adjusted Net Debt / EBITDA 6.7x
*Includes the additional notes of £6.8 million issued in June 2023.
**This is D9's share of Arqiva gross debt. It is not an Arqiva net debt figure
and as a result does not include cash held by Arqiva; it is a more
conservative approach and is in line with previously reported figures.
Revolving Credit Facility
As at the reporting date, the Group had a £375 million bespoke RCF in place
with an international syndicate of four banks. The Group has fully drawn the
facility as at the reporting date in the form of £373.8 million drawn and
£1.2 million committed through a Letter of Credit in favour of Verne Global
Iceland. As set out above, the RCF has been partly repaid and cancelled
following the completion of the Verne Transaction.
As previously disclosed and given the current economic landscape in the UK,
characterised by high interest rates with SONIA trading around the 5% mark,
the Group's RCF will reduce to c.£53 million on 3 May 2024 in order to reduce
its financing costs and preserve shareholder value.
VLN
Details of the Arqiva VLN are set out below.
Investee Company leverage
As at 31 December 2023, only two of the Investee Companies had asset-level
debt: Arqiva and Verne Global Iceland.
Arqiva:
As at 31 December 2023, Arqiva's debt balance was £1,438 million (including
project debt), of which the Company's share was £744 million.
Verne Global Iceland:
During the year, the Company sought asset-level financing into selected
Investee Companies in the form of long-term structured debt. In June 2023, the
Company achieved this through Verne Global Iceland which agreed a $100
(c.£80) million green term-loan facility (the "Green Term Loan").
The Facility is structured as a syndicated facility, fully underwritten by
Natixis and with a fixed term of five years, maturing in June 2028. The
interest rate payable in the first three years of the facility is 3% per annum
over the Secured Overnight Financing Rate ("SOFR"), stepping up to 3.25% per
annum and 3.5% per annum, in fourth and fifth year, respectively. Verne Global
Iceland has also put in place an interest rate swap for the first three years
of the facility to manage longer-term fluctuations in interest rates. The
fixed rate for the tenor of the swap is 4.14% per annum and the all-in fixed
rate, including the applicable margin, is 7.14% per annum.
As announced on 15 February 2024, Verne Global Iceland signed a $17 million
increase (the "Accordion Facility") under the terms of the Green Term Loan to
help fund growth capital expenditure and strengthen cash position ahead of
closing the Verne Transaction, bringing the total indebtedness under the
facility to $117 million.
The Green Term Loan debt liability has been transferred in whole as part of
the Verne Global sale.
Portfolio Summary and Key Value Drivers
As at 29 April 2024, the Company's portfolio consists of 5 attractive and
complementary investments.
The below table shows the portfolio's asset and sector concentration levels
comprising valuations as at 31 December 2023.
A pro forma basis as at 31 March 2024 following the completion of sale of the
Verne Global group of companies is set out in the 'Unaudited Non-Statutory
Information' section at the end of this report.
Portfolio Concentration at 31 December 2023
Sector Concentration at 31 December 2023
Review of Portfolio as of 31 December 2023
In 2023, aggregate Investee Company revenue grew by 10% year-on-year, driven
mainly by the performances 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.
The sale of the Verne Global group of companies, which completed in March
2024, removed the majority of D9's exposure to the data centre subsector.
Adjusting for the sale, the pro-forma subsector exposure at year-end was
predominantly subsea and wireless, with Aqua Comms and Arqiva being the
largest contributors.
Portfolio Financial Performance (including Verne Global)
2023 2022
Revenue £446.6 million £405.5 million
% growth 10% 4%
EBITDA £197.7 million £202.4 million
% growth (2%) 0%
% margin 44% 50%
Pro-forma Portfolio Financial Performance (excluding Verne Global)
2023 2022
Revenue £395.9 million £363.9 million
% growth 9% 1%
EBITDA £180.6 million £193.2 million
% growth (7%) (0%)
% margin 46% 53%
Aqua Comms (excluding EMIC-1)
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.
Sector Subsea Initial investment £170 million
Currency USD Total capex funded to date £18 million
Date invested April 2021 Total investment to date £188 million
Ownership 100% Closing value (31 December 2023) £223 million
SDG9 alignment Connectivity Valuation movement (from 30 June 2023) (2%)
Revenue (2023) £28.1 million EBITDA (2023) £8.5 million
Compared to 2022, revenue increased by 4% in 2023 mainly driven by increased
sales in Aqua Comms' lease business. EBITDA decreased by 33% 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 had a successful year in 2023 in its core transatlantic market,
growing its lease business by 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. Aqua Comms also launched AEC-3 onto its network in
August 2023, adding a third high-capacity system to their transatlantic
footprint offering enhanced diversity in both the US and Europe and delivering
the latest technology to its customers.
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. Chair Alan Harper is providing enhanced
commercial and strategic assistance to Andy Hudson 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.
2023 2022
Revenue £28.1 million £27.1 million
% growth 4% 5%
EBITDA £8.5 million £12.6 million
% growth (33%) 0%
% margin 30% 47%
EMIC-1
Aqua Comms is also managing the EMIC-1 system with its development continuing
through 2023 before expected launch in 2025. EMIC-1 has the potential to be
delayed based on the geopolitical situation in the Red Sea and Middle East,
which is impacting the ability of all new cable systems to be deployed in the
region. Despite the geopolitical situation and potential for delay, the Aqua
Comms team achieved a large pre-sale on EMIC-1 in Q4 of this year.
Sector Subsea Initial investment -
Currency USD Total capex funded to date £38 million *
Date invested August 2021 Ownership 100%
Closing value (31 December 2023) £36 million
* Includes £2 million of capex funded post balance sheet.
Verne Global Iceland
Verne Global Iceland is a leading data centre platform which 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").
Sector Data centre Initial investment £231 million
Currency USD Total capex funded to date £14 million
Date invested September 2021 Total investment to date £245 million
Ownership 100% Revenue (2023) £24.7 million
SDG9 alignment Decarbonisation EBITDA (2023) £9.9 million
In light of increased global temperatures, increasing ESG reporting
requirements, and 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 which bring stability,
availability and scalability to support their rapidly increasing high
performance compute needs.
During the period, Verne Global generated sustained and accelerated demand for
its facilities from both new and existing customers. Revenue increased by 24%
in 2023, driven by new colocation contracts coming online along with the
continued ramp-up of existing colocation contracts. EBITDA grew by 41% in the
period, with EBITDA margin increasing to 40% as the business continued to
scale.
At 31 December 2023, Verne Global had 99% of recurring revenue benefitting
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 across a variety of sectors, including automotive,
artificial intelligence and financial services.
As previously noted, Verne Global drew a $100 million (c.£80 million) green
term-loan debt facility in June 2023 and subsequently put in place an interest
rate swap for the first three years of the facility, applying an all-in fixed
interest rate of 7.14% to the facility. The proceeds were used to:
· Fund additional capacity under construction and development in
2023
· Refinance Verne Global's existing bridge loan facility for $26
million (£21 million)
· Repay $50 million (£40 million) of the $62 million (c.£49
million) shareholder loan owed to the Company by Verne Global
During the period in which the Company held Verne Global in its portfolio, the
Investment Policy included a restriction that the Company could 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). Therefore, due to Verne Global's large contribution to the
portfolio's Adjusted Gross Asset Value, prior to the Verne Transaction, the
Group could not have materially increased its exposure to Verne Global through
further capital expenditure without breaching the Investment Policy.
2023 2022
Revenue £24.7 million £19.9 million
% growth 24% 9%
EBITDA £9.9 million £7.0 million
% growth 41% 17%
% margin 40% 35%
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.
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% Revenue (2023) £13.4 million
SDG9 alignment Decarbonisation EBITDA (2023) £4.4 million
Although capital expenditure plans had 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.
In 2023, Verne Global Finland achieved revenue growth of 6% and EBITDA growth
of 52% year-on-year as new customer contracts were secured, increasing
utilisation on its sites. EBITDA growth also reflected year-end adjustments
for one-off items relating to intergroup recharges and severance payments.
2023 2022
Revenue £13.4 million £12.7 million
% growth 6% 14%
EBITDA £4.4 million £2.9 million
% growth 52% 21%
% margin 33% 23%
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's 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.
Sector Data centre Initial investment £45 million
Currency GBP Total capex funded to date £21 million
Date invested April 2022 Total investment to date £66 million
Ownership 100% Revenue (2023) £12.6 million
SDG9 alignment Connectivity EBITDA (2023) £2.9 million
2023 saw revenue growth of 40% as a result of power passthrough, 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 23%.
Since acquisition, the data centre has been integrated into the Verne Global
platform. The business has benefitted from this and a hedged power procurement
policy, turning a loss-generating operation into a profit-making one. During
the Company's ownership, we have continued to reinvest into the facility to
maintain and improve its critical infrastructure and expand capacity towards 6
MW.
2023 2022
Revenue £12.6 million £9.0 million
% growth 40% 30%
EBITDA £2.9 million (£0.7 million)
% growth N/M* N/A
% margin 23% (8%)
* Not material as previous year negative
SeaEdge UK1
D9 owns the underlying real estate of the SeaEdge UK1 data centre asset and
subsea fibre landing station, which is located in Newcastle on the UK's
largest purpose-built data centre campus. D9 leases the facility to data
centre operator, Stellium Data Centres Ltd, on a 25-year occupational lease.
Sector Data centre Initial investment £16 million
Currency GBP Total capex funded to date -
Date invested December 2021 Total investment to date £16 million
Ownership 100% Closing value (31 December 2023) £14 million
SDG9 alignment Connectivity & Decarbonisation Valuation movement (from 31 December 2022) (21%)
Revenue (2023) £1.0 million EBITDA (FY) £1.0 million
SeaEdge UK1 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 Aqua Comms' AEC-1 and AEC-2
cables.
Revenue growth of 11% and EBITDA growth of 13% were achieved in 2023 due to
positive revenue indexation and reduced expenses.
The asset is leased on fully repairing and insuring terms to the tenant and
operator, Stellium Data Centres Ltd, via a 25-year occupational lease with
over 21 years remaining. Stellium continues to meet its payment obligations
under the lease, delivering on the Company's target yield at acquisition.
2023 2022
Revenue £1.0m £0.9m
% growth 11% N/A
EBITDA £1.0m £0.9m
% growth 13% N/A
% margin 94% 93%
Elio Networks
Elio Networks is an enterprise high-speed 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 over 50 base stations.
Sector Wireless Initial investment £51 million
Currency EUR Total capex funded to date -
Date invested April 2022 Total investment to date £51 million
Ownership 100% Closing value (31 December 2023) £55 million
SDG9 alignment Connectivity Valuation movement (from 30 June 2023) (4%)
Revenue (2023) £8.2 million EBITDA (2023) £4.2 million
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. Elio Networks achieved £8.2 million
revenue in 2023, a 6% increase on 2022.
The provider 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, it has grown to become the largest wireless internet
service provider ("ISP") in the greater Dublin region, with the 2023 expansion
into Cork city reaffirming its position as a leading connectivity player in
Ireland.
2023 2022
Revenue £8.2 million £7.7 million
% growth 6% 6%
EBITDA £4.2 million £4.1 million
% growth 2% (14%)
% margin 51% 53%
Arqiva
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.
Sector Wireless Initial investment £300 million
Currency GBP Total capex funded to date -
Date invested October 2022 Total investment to date £300 million
Ownership 48.02% Closing value (31 December 2023) £341 million*
SDG9 alignment Connectivity Valuation movement (from 30 June 2023) (1%)
Revenue (2023) £358.6 million EBITDA (2023) £166.9 million
Note: Figures presented are prorated based on D9's 51.76% economic interest in
Arqiva.
* To enable comparison in line with previous valuations, NAV is presented as
equity value (£504 million as of 31 December 2023) less VLN principal (£163
million). A proforma NAV is presented as £329 million, and this is net of £7
million PIK notes issued in June 2023 and £5 million further interest accrued
to 31 December 2023.
Arqiva is a large, robust business with c.1,300 employees and predictable
earnings underpinned by long-term contracts with blue-chip customers,
including the BBC, ITV, Channel 4, Sky, Discovery, the DCC and Thames Water.
Arqiva's utilities business continues to represent an exciting growth
opportunity grounded in a quality product offering and enabling clear cost
savings and environmental benefits.
Arqiva sustained good business momentum in 2023, with revenue up 9%
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 5% year-on-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. The Arqiva
business plan 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 2023,
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 macroeconomic factors impacted some customers during the year, Arqiva
continued to see positive commercial momentum in both media and smart
utilities. Several major Digital Audio Broadcasting ("DAB") contracts were
extended to 2035, with DAB remaining the UK's dominant listening platform,
delivering 42% of all listening hours. Arqiva also 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.
Clarification on capital structure at Arqiva and at HoldCo level
In October 2022, D9 acquired a 51.76% economic interest (48.02% equity stake)
in Arqiva for £463 million, which consisted of £300 million paid in cash and
£163 million owed to the vendor in the form of a vendor loan note (VLN). For
further details on the VLN, see below. Per the valuation conducted by the
independent valuation adviser, Arqiva is held at a NAV of £341 million as of
31 December 2023, representing a 13.5% increase on the £300 million D9 paid
initially. For comparative purposes, NAV is presented as equity value (£504
million as of 31 December 2023) less VLN principal (£163 million). As of 31
December 2023, D9 still owes the £163 million VLN principal to the vendor
along with £6.8 million of PIK interest (PIKed on 30 June 2023) as well as
£5.1 million interest accrued from 01 July 2023 to 31 December 2023. Arqiva
also holds a large balance of shareholder loans owed to its own shareholders.
For the avoidance of doubt, these do not represent an external debt obligation
and should be stripped out when examining Arqiva's leverage. Arqiva's total
external debt as of 31 December 2023 was £1,438 million, which corresponds to
£744 million attributable to D9 pro rata based on its 51.76% economic
interest.
Collar on Arqiva's inflation-linked swaps
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
prorated 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 by the
collar's cap of c.6.0%. If RPI is lower than c.6.0%, the accretion payment
will be proportionally lower as well, down to an RPI floor of 2.5%. Driven by
4.3% RPI in March 2024, the June 2024 accretion payment will be c.£53
million, c.£28 million of which is attributed to D9 based on its 51.76%
economic interest. For the avoidance of doubt, accretion payments are made by
Arqiva out of its operational cash flows, not paid by D9. The swaps expire in
April 2027.
Arqiva senior debt refinancing
Through late June and early July, Arqiva Group raised £345 million of new
debt, the proceeds of which were used to repay £262 million of existing debt
which was approaching maturity, whilst providing Arqiva Group with an
additional £83 million for general corporate purposes. This followed £45
million of senior debt amortisations over the previous 12 months, as well as
the net £175 million deleveraging of Arqiva Group's junior debt in Q3 2022.
Arqiva Group's interest rate swap portfolio was also rebalanced to maintain
compliance with hedging covenants, such that changes in gilt yields continue
to have no material impact on Arqiva Group's interest costs net of the
pre-existing swaps portfolio.
Vendor loan note interest accrual
D9's 2022 acquisition of a 48.02% equity stake in Arqiva consisted of £300
million paid in cash and a £163 million vendor loan note issued by the
vendor. The VLN, which matures in 2029, is non-recourse to the Company. In the
event of a default, recourse is limited to the Company's shares in Arqiva
Group Limited, and this charge is registered at Companies House against D9
Wireless Midco 1 Limited, a subsidiary of the Company.
The VLN is due to mature on 18 October 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 on the VLN is due annually in arrears on 30 June, and D9 has the
choice either to settle each payment in cash or to accrue it. For the period
ending 30 June 2023, the Company elected to accrue the interest, increasing
the VLN's outstanding balance from £163.0 million to £169.8 million. The
proforma VLN balance stood at £174.9 million as of 31 December 2023, which
consisted of the £169.8 million of notes issued as of 30 June 2023 plus £5.1
million of interest accrued to 31 December 2023. PIK interest is capitalised
into the balance of the VLN annually in June each year, and all interest on
the Arqiva VLN was PIK at 30 June 2023. No interest on the VLN has been
settled in cash.
Accrued interest must be repaid in full before distributions can be made to
the Group. After the fourth anniversary of the VLN (18 October 2026), the
Group can only receive distributions if the entirety of the VLN principal and
any rolled up interest have been repaid in full. The Company expects Arqiva's
future cashflows to cover D9's VLN interest payments.
2023 2022
Revenue £358.6 million £328.2 million
% growth 9% 0%
EBITDA £166.9 million £175.7 million
% growth (5%) 1%
% margin 47% 54%
Note: Figures presented are pro-rated based on D9's 51.76% economic interest
in Arqiva.
Diego Massidda
Head of Digital Infrastructure
Triple Point Investment Management LLP
29 April 2024
SECTION 172(1) STATEMENT
The Board is committed to promoting the 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 Key topics through the year related to the Investment Manager Personnel, the The Board considered that the feedback from shareholders, especially that
existence of the business and delivery of our long-term strategy. shareholders throughout the period. Verne Global syndication and sale, the Company's dividend policy, the material received during the consultation, has been invaluable this year, through
uncertainty around going concern and future direction of the Company. enhanced understanding of shareholder expectations.
During the period, the Company and Investment Manager have hosted a number of
events, including webinars following key Company Updates and the Capital Following the shareholder consultation, the Board initiated a Strategic Review
Markets Day held on 20 March 2023, in addition to direct engagement. of the Company on 27 November 2023.
The Board initiated a formal consultation with shareholders and in October
2023 met with shareholders representing c.74% of the Company's issued share
capital, in conjunction with the Investment Manager and the Company's Joint
Corporate Brokers, J.P. Morgan Cazenove and Peel Hunt (Joint Corporate Broker
from 12 April 2023 to 3 April 2024), and in addition to hosting a retail
shareholder-only webinar.
The Board has maintained continuous dialogue with shareholders and the
Directors have made themselves available to meet to discuss a wide range of
topics.
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 have engaged with the Investment Manager throughout the year on the 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 most strategic topics for the Company, including on the syndication and sale the Group has been able to enter into a definitive agreement for the sale of
outside of meetings. of Verne Global, the decision to suspend the Company's dividend, the Verne Global during the period.
shareholder consultation, during the period of change of personnel of the
Investment Manager; and reporting processes.
Post year end, the Board has served notice to the Investment Manager with the
12 months' notice period set to end on 31 March 2025, in line with the expiry
of the lock-in period.
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. The key topic of engagement with Verne has been in relation to its sale and
ongoing matters between signing and completion.
The Board has frequently engaged with Verne management during the sale
process.
Suppliers The Company's suppliers include third-party service providers, and the RCF The Board maintains close working relationships with all its key advisers and 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
lenders, each of which is essential in ensuring the ongoing operational with the RCF lenders. review of the performance of the service providers and agreed feedback to providers to make clear their expectations, following the Management
performance of the Company.
provide to the service providers to enhance performance moving forward or Engagement Committee process and, where appropriate, on an ad hoc basis.
The Management Engagement Committee has responsibility for overseeing and assist in the process of changing service providers where this was considered
The Company relies on the performance of third-party service providers to monitoring the performance of each supplier. A detailed annual assessment is appropriate. The relationship with the RCF lenders has been key to ensuring that the
undertake all its main activities. undertaken of each supplier to ensure they continue to fulfil their duties to
Company can carry out the actions necessary for its strategic actions.
a high standard. The Board and Investment Manager has directly engaged with the RCF lenders in
respect to the partial repayment and cancellation, as well as the covenants
amendments.
Regulators Engagement with the regulator is imperative to the Company's ability to During the year, the Company has had to engage with various regulators The key topics of engagement with regulators during the year have been in Engagement with the regulator has been important to ensure that the Company
operate. (including the Financial Conduct Authority and Jersey Financial Services relation to the change of Directors and receipt of shareholder complaints. can carry out strategically important actions, including change of Directors,
Commission) on a number of different matters.
and following year-end the change of Investment Policy. In respect of the
Following year-end, the Company engaged with the FCA and JFSC in relation to shareholder complaints, this has been important in respect of the Company's
the change of Investment Policy. regulatory requirements.
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.
Verne Global sale
In November 2023, the Company announced the sale of its entire stake in the
Verne Global group of companies which completed following the year end in
March 2024. The Board concluded that a sale of the Company's entire stake in
Verne Global was in shareholders' best interests because it provided an
opportunity for the Company to deleverage its balance sheet and provide the
cash resources necessary for the Company to strengthen its financial position.
Decision to suspend the Company's dividend target
The Board elected to not declare the Q2 2023 dividend and withdrew its target
dividend of 6.0 pence per Ordinary Share for the year ended 31 December 2023.
The Board carried out a formal consultation with shareholders to discuss the
future direction of the Company which included gathering feedback with regard
to dividend policy. The Board met with shareholders representing c.74% of the
Company's issued share capital, in conjunction with the Investment Manager and
the Company's Joint Corporate Brokers, J.P. Morgan Cazenove and Peel Hunt
(Joint Corporate Broker from 12 April 2023 to 3 April 2024), and in addition
to hosting a retail shareholder-only webinar.
Initiation of a Strategic Review
In November 2023, following the announcement of the Verne Global sale and
shareholder consultation, the Board initiated a Strategic Review to develop a
set of actions with a view to maximising shareholder value going forward.
The Company announced the conclusion of the Strategic Review on 29 January
2024 following year end. Further information in relation to the Strategic
Review can be found in the Investment Manager's Report.
Change of Directors
During the year, the Company undertook a formal recruitment process led by the
Nomination Committee, with the support of an independent search consultancy,
for the appointment of a new Board member. This process actively encouraged a
diverse pool of candidates who could contribute specific skills and experience
identified by the Board and would support the Board's commitment to diversity,
in line with the FCA's targets under the Listing Rules. The Board was pleased
to announce the appointment of Gailina Liew on 1 July 2023 as an Independent
Non-Executive Director.
During the period, Phil Jordan and Lisa Harrington stepped down as Directors
of the Company effective 14 December 2023, and Richard Boléat and Brett
Miller were appointed as Independent Non-Executive Directors of the Company
with effect from 19 December 2023 and 21 December 2023 respectively. Following
the period end on 3 January 2024, Keith Mansfield stepped down as a Director
of the Company, and on 23 March 2024 Brett Miller and Richard Boléat stepped
down as Directors 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 on pages 72 to 73 of the 2023 Annual
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. Post year end, this is being re-assessed to
align to the revised strategy of being in a Managed Wind-Down.
The Board is responsible for setting the Company's risk appetite and ensuring
that the Company operates within these parameters. The Board defines 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.
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 Board will review and monitor the Company's risk appetite at least on an
annual basis or when there is a material change in the internal or external
environment, 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 the risks that
the Group may face. The Board defines the Group's risk appetite, enabling the
Group 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 29 April 2024 may also have an
adverse effect on the Group.
Risk Risk Impact/Context Risk Mitigation Impact Likelihood Risk Exposure Change-in-Year
1. PERSISTENT, NEGATIVE MARKET SENTIMENT, LEADING TO INCREASED ACTIVISM The fund has suffered as a result of a lengthy period where share price has The Board has continued to maintain an open dialogue with shareholders and High High Increase
traded at a discount to NAV. provided regular market updates on the execution of its strategy.
There are a number of legacy drivers behind the market sentiment, which At the end of 2023, the Board instigated a formal consultation with
include: wider macroeconomic and market conditions, Group's leverage shareholders to determine the forward-looking strategy, including the
position*, Investment Manager and Board personnel changes. management of the fund; which sought to address shareholder concerns.
Combined, these have led to a reduced level of shareholder confidence which Ongoing, the Board and Investment Manager have sought appropriate corporate
has manifested itself in increased activism. Post year end, the fund has been and legal advice to ensure the fund conducts itself appropriately and informed
subject to an increased volume of complaints and Board engagements. decisions and actions have been taken to deliver the best possible outcome to
shareholders.
Specifically, the Board have experienced several changes to its constitution
with both a number of longer-standing and newer Board members voluntarily Further appointments to the Board are expected to be made in the near term,
resigning their position. This has in part caused disruption to the ongoing which will add depth, capacity and ensure all Committees can operate
governance and oversight of the fund and is seen as a contributor to the appropriately and enable the Board to fulfil its obligations.
increased level of activism.
There is a risk that changes to, and/or further loss of the existing Directors
from the fund would lead to further knowledge loss, adversely impacting the
credibility and suitability of governance.
*The Group leverage position has reduced considerably following the successful
completion of the Verne transaction.
2. INFORMATION SECURITY BREACH Given the nature of the industry and type of services being provided by the All Investee Companies have a core suite of controls for the mitigation of Moderate to High Moderate to High Stable
Investee Companies, the risk of cyber security breach is significant. information security risks and, where possible, companies are working to
comply with ISO 27001.
Depending on the nature of the breach, this could lead to significant business
disruption, data loss and/or fraud. Any which revolves around data loss and/or Cyber security is a regular feature in Risk and Audit Committee
business disruption would materially impact reputation of the individual monitoring/discussions.
portfolio company resulting in possible going concern issues.
It is recognised that cyber security is a constantly changing landscape and,
accordingly, each Investee Company has a commitment to continue enhancements
to ensure that controls keep pace with the changing profile of the risk.
3. TRANSACTION / EXECUTION RISK The execution of the wind-down strategy will be completed in an appropriate Each transaction will be supported by a carefully selected team of advisers, Moderate to High Moderate New
and timely manner and one that achieves best outcomes for investors. The which together with the experience of the Investment Management team are best
underlying quality and performance of the Investee Companies are considered placed to navigate the inherent risks in selecting the most appropriate deal
robust both financially and operationally; notwithstanding that access to and respectively concluding; with the priority of delivering best investor
capital for further investment would enhance value in certain instances. outcomes.
Where appropriate and available, this will still be explored, subject to there
being no detriment to overarching achievement of strategy.
The closure of transactions may prove materially more complex than anticipated
given the geography and regulatory bias of the Investee Companies.
4. LIQUIDITY AND SOLVENCY RISK The Company has an agreed repayment profile with the RCF lenders and has a The Company has several management actions in place to manage the debt Moderate to High Moderate Decrease
suite of management actions in place to manage this obligation. Other obligations of the Company, most notably the sale of Verne which will see the
obligations such as the VLN are considered appropriate in size and nature and majority of the RCF repaid.
have been structure accordingly and will be fulfilled through successful
execution of the overall strategy.
General liquidity is managed via regular cashflow monitoring, supplier
negotiations, and regular visibility at Board level through ongoing reporting.
Quality and performance of the underlying asset is considered strong.
5. DEPENDENCE ON INVESTMENT MANAGER The Company is heavily reliant on the full range of an Investment Manager's The selection of a new and/or continuation of engagement with the Investment Moderate to High Moderate Increase
services, their expertise and specific knowledge pursuant to the strategic Manager, forms part of the Strategic Review, which is being facilitated by
direction of the fund. independent advisers. The decision will be based upon who can achieve the best
outcome for investors.
Successful execution of the strategy to manage a wind-down of the fund,
maximising shareholder value, is dependent upon the appointment of an Post year end, the Board has served notice to the Investment Manager with the
Investment Manager who has knowledge and experience of the individual dynamics 12 months' notice period set to end on 31 March 2025, in line with the expiry
of each individual Investee Companies, the markets that they operate in, which of the lock-in period.
can be leveraged to developed an approach which achieves the maximum for
shareholders.
Any changes to the Investment Manager will see new fee arrangements entered
into and the Board will ensure that return and reward are aligned with
delivery of strategy.
It is acknowledged that a change of Investment Manager at a critical point in
its strategy carries a risk.
Key personnel within the current Investment Management team have suitable
retention packages to ensure continuity of service and delivery of objective.
Knowledge is shared across the wider business to mitigate reliance on any
single individual.
Support functions that deliver wider services are sufficiently resourced and
have experience and competency to ensure deliverables are met.
6. INTERUPTIONS TO OPERATIONS INCLUDING INFRASTRUCTURE AND TECHNOLOGY 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 Moderate Increase
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 because of numerous factors. applicable machinery and equipment.
This could result in the breach of performance conditions in customer Investee Companies hire experts with the technical knowledge and seek
contracts, resulting in financial or regulatory implications. third-party advice where required.
Where appropriate, there are insurances in place to cover issues such as
accidental damage and power issues.
7. REGULATORY RISK There are several regulatory stakeholders involved both at a Fund but also Compliance with regulatory expectations is a key focus of the Board. Moderate Moderate Increase
individual Portfolio Company level.
Relationships with FCA and JFSC are supported through engagement with the
The Board operates in an open and transparent manner and have external Investment Manager Triple Point Investment Management LLP and corporate
advisers appointed to support and ensure obligations are met. service providers such as Ocorian Fund Services (Jersey) Ltd and INDOS
Financial Limited.
Breach of obligation and/or failure to maintain adequate engagement can lead
to increased scrutiny, resulting in financial and/or reputational impacts. Individual Investee Companies have direct engagement with their regulators and
recruit staff that have experience and deep understanding of the obligations
in which they operate under.
Emerging Risks
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,
particularly in light of various climate-related events across the globe.
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.
The Investment Manager has a strong pedigree in understanding the current and
future expectations with regards to climate change and all strategic decisions
are assessed against a backdrop of understanding the impacts on compliance
with these obligations and commitments made.
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. The Investment Manager constantly
monitor, the emerging technology trends with digital infrastructure to ensure
Investee Companies evolve their business models where required to mitigate
impact.
GOING CONCERN AND VIABILITY
Going Concern
Following the recent shareholder vote at the General Meeting, the Company is
now in a Managed Wind-Down. The audited Financial Statements for the year
ended 31 December 2023 continue to be prepared on a going concern basis.
As part of the Strategic Review, various options for realising the stake in
Arqiva were considered by the Board and after careful consideration of
Arqiva's plans and current market conditions, the Board believes that the
maximisation of the value of the Company's stake in Arqiva is likely to take
longer to realise than the other investments held by the Company. As such,
whilst the Company will continue to consider and be open to all options for
Arqiva which are value-accretive to shareholders, the Board has decided to
defer launching a sale process for the Company's stake in Arqiva.
As part of the recent sale of Verne Global, the Company has the potential to
receive an Earn-Out payment of up to $135 million, subject to Verne Global
achieving run-rate EBITDA targets for the financial year ending December 2026.
At the year end, the Earn-Out was valued at $34 million (£26.8 million).
Given the time frame involved for both the sale of Arqiva and the receipt of
any potential Earn-Out payment, the Board believes that the Going Concern
approach to the preparation of the Financial Statements remains appropriate.
No provision has been made for the costs of winding up the company as these
will be charged to the Income Statement on an accruals basis as they are
incurred or as the Company becomes obligated to make such payments in the
future.
The Directors believe that the Company and the Group have adequate resources
to continue in operational existence for a period of at least 12 months since
the reporting date. However, given that a degree of uncertainty exists in the
timing of ongoing strategic initiatives which includes management's ability to
refinance or repay the Group's existing RCF (of which c.£100 million remains
at 29 April 2024) due in the next 12 months (March 2025), there exists a
material uncertainty which may cast significant doubt over the Company's
ability to continue as a going concern.
The Company intends to make a total additional repayment and partial
cancellation of its Group's RCF in the amount of c.£47 million in May 2024.
The RCF in an important consideration for the Company, even though it is not
held on the Company's balance sheet. The RCF is held by its main subsidiary D9
Holdco, but the Company is a guarantor of the facility.
Viability Statement
At least once a year the Directors are required to carry out a robust
assessment of the principal and emerging risks and make a statement which
explains how they have assessed the prospects of the Company, over what period
they have done so and why they consider that period to be appropriate,
considering the Company's current position.
The principal and emerging risks faced by the Company are described above. As
detailed above, the Company is preparing the audited Financial Statements on a
going concern basis despite the recent announcement that the Company is in a
Managed Wind-Down. Accordingly, the Directors have not assessed the
longer-term viability of the Company other than for a period of three years to
the end of the Earn-Out period, relevant to the sale of Verne Global, which is
noted above.
The Directors have assessed the Managed Wind-Down of the Company to be within
24 to 36 months of the date of the approval of these audited Financial
Statements (being 29 April 2024), although there is no guarantee that it will
be possible to realise maximum value for the assets within that timeframe and
therefore the Managed Wind-Down could potentially take longer.
BOARD APPROVAL OF STRATEGIC REPORT
The Strategic Report has been approved by the Board of Directors and signed on
its behalf by the Chair.
Charlotte Valeur
Interim Independent Chair
29 April 2024
SUSTAINABILITY
Throughout the reporting period, the Company continued to uphold its
sustainability-related commitments. During the reporting period the Investment
Manager, on behalf of the Company, continued to uphold the commitment to
consider environmental, social and governance issues in interactions with
Investee Companies. For example, during this reporting period there has been a
focus on working with Investee Companies on their net zero actions and
diversity and inclusion.
Details of the sustainability-related commitments and activities of the
Company and the Investee Companies are captured in a separate Sustainability
Report. This separate report aims to make it easier for investors to locate
sustainability-related information. The report includes all required Company
sustainability reporting elements, including, but not limited to, SFDR
indicators and the Task Force on Climate Related Disclosure (TCFD).
We direct readers to this report, which is available here:
https://www.d9infrastructure.com/digital-9-infrastructure-plc-sustainability-report-2023/
(https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.d9infrastructure.com%2Fdigital-9-infrastructure-plc-sustainability-report-2023%2F&data=05%7C02%7CHelen.Richardson%40hanwayadvisory.com%7Ca9f8a9a3f3714824e7c008dc6826301f%7Ccde8812e0dbd4dc3b4463655beb81efb%7C0%7C0%7C638499760433961079%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&sdata=LeSz2clhYieC03DvLsg%2FHOzeq3KUFG9%2FHjF6L%2FP6MyQ%3D&reserved=0)
.
Greenhouse gas emissions (please refer to page 31 of the Sustainability
Report)
Impact 2022(1) Impact 2023
Greenhouse gas emissions GHG emissions Scope 1 GHG emissions 92 637
Scope 2 GHG emissions (location-based) 5,502 13,195
Scope 2 GHG emissions (market-based) 1,397 6,709
Scope 3 GHG emissions N/A 7,8312
Total GHG emissions 1,489 15,1773
Carbon footprint Carbon footprint 1.25 14
GHG intensity of investee companies GHG intensity of investee companies4 23 86
Exposure to companies active in the fossil fuel sector Share of investments in companies active in the fossil fuel sector 0 0
Share of non-renewable energy consumption and production Share of non-renewable energy consumption and non-renewable energy production 1.34 13
of investee companies from non-renewable energy sources compared to renewable
energy sources, expressed as a percentage
Energy consumption intensity per high impact climate sector Energy consumption in GWh per million GBP5 of revenue of investee companies, N/A N/A
per high impact climate sector
1. 2022 figures do not include Arqiva data.
2. Scope 3 emissions have been disclosed on a best endeavours
basis. The methodology and information pertaining to Scope 3 data can be found
on page 45 of the Sustainability Report. This data encompasses a part of Scope
3 emissions for Arqiva for the fiscal year ending on 30 June 2023, and for
Verne Global, Aqua Comms, and Elio Networks for the fiscal year ending on 31
December 2022. This follows PCAF recommendations, with their latest guidance
stating "PCAF recognises that there is often a lag between financial reporting
and the reporting of required emissions-related data for the borrower or
investee. In these instances, financial institutions should use the most
recent data available even if it is representative of different years, with
the intention of aligning as much as possible. For example, it would be
expected and appropriate that a financial institution's reporting in 2020 for
its 2019 financial year would use 2019 financial data alongside 2018 (or other
most recent) emissions data." page 42:
https://carbonaccountingfinancials.com/files/downloads/PCAF-Global-GHG-Standard.pdf).
We are committed to collaborating with portfolio companies to actively enhance
Scope 3 emission reporting in future reports.
3. Total GHG emissions for 2022 only include Scope 1 and 2, no
Scope 3 emissions were disclosed in 2022.
4. Weighted Average Carbon Intensity (tCO(2)e/£M). This
includes Scope 1, 2 and 3 for 2023 (previously only included Scope 1 and 2).
AUDITED ANNUAL FINANCIAL STATEMENTS
For the year ended 31 December 2023
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2023
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Income
Income from investments held at fair value 5 27,972 - 27,972 4,129 - 4,129
(Losses) / gains on investments held at fair value 10 - (252,014) (252,014) - 97,228 97,228
Other income 5 3,471 - 3,471 773 - 773
Total income 31,443 (252,014) (220,571) 4,902 97,228 102,130
Expenses
Investment management fees 6 (6,501) (2,167) (8,668) (5,802) (1,934) (7,736)
Other operating expenses 7 (4,615) - (4,615) (2,323) - (2,323)
Total operating expenses (11,116) (2,167) (13,283) (8,125) (1,934) (10,059)
Exceptional item 8 - (3,478) (3,478) - - -
Operating (loss)/profit 20,327 (257,659) (237,332) (3,223) 95,294 92,071
Finance expense (1) - (1) (2) - (2)
(Loss)/profit on ordinary activities before taxation 20,326 (257,659) (237,333) (3,225) 95,294 92,069
Taxation 9 - - - - - -
(Loss)/profit and total comprehensive (expense)/income attributable to 20,326 (257,659) (237,333) (3,225) 95,294 92,069
shareholders
(Loss)/earnings per Ordinary Share - basic and diluted 23 2.35p (29.78p) (27.43p) (0.39p) 11.48p 11.09p
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 below form part of these Financial Statements.
STATEMENT OF FINANCIAL POSITION
As at 31 December 2023
Note 31 December 2023 31 December 2022
£'000 £'000
Non-current assets
Investments at fair value through profit or loss 10 676,060 920,971
Total non-current assets 676,060 920,971
Current assets
Trade and other receivables 11 1,471 1,417
Cash and cash equivalents 12 14,809 30,001
Total current assets 16,280 31,418
Total assets 692,340 952,389
Current liabilities
Trade and other payables 13 (6,009) (2,769)
Total current liabilities (6,009) (2,769)
Total net assets 686,331 949,620
Equity attributable to equity holders
Stated capital 14 793,286 819,242
Capital reserve (123,765) 133,894
Revenue reserve 16,810 (3,516)
Total Equity 686,331 949,620
Net asset value per Ordinary Share - basic and diluted 24 79.33p 109.76p
The Financial Statements were approved and authorised for issue by the Board
on 29 April 2024 and signed on its behalf by:
Charlotte Valeur
Independent Interim
Chair
29 April 2024
The accompanying notes below form part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2023
Note Stated capital £'000 Capital reserve Revenue reserve £'000 Total equity £'000
£'000
Balance as at 31 December 2021 717,547 38,600 (291) 755,856
Transactions with owners
Ordinary Shares issued 14 155,201 - - 155,201
Share issue costs (3,232) - - (3,232)
Dividends paid 15 (50,274) - - (50,274)
Profit /(loss) and total comprehensive income/(expense) for the period - 95,294 (3,225) 92,069
Balance as at 31 December 2022 819,242 133,894 (3,516) 949,620
Note Stated capital £'000 Capital reserve Revenue reserve £'000 Total equity £'000
£'000
Balance as at 31 December 2022 819,242 133,894 (3,516) 949,620
Transactions with owners
Dividends paid 15 (25,956) - - (25,956)
(Loss)/profit and total comprehensive (expense)/income for the period - (257,659) 20,326 (237,333)
Balance as at 31 December 2023 793,286 (123,765) 16,810 686,331
The accompanying notes below form part of these Financial Statements.
STATEMENT OF CASH FLOWS
For the year ended 31 December 2023
Note Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
Cash flows from operating activities
(Loss)/profit on ordinary activities before taxation (237,333) 92,069
Adjustments for:
(Losses)/gains on investments held at fair value 10 252,014 (97,228)
Cash flow used in operations 14,681 (5,159)
Increase in trade and other receivables 11 (55) (1,189)
Increase in trade and other payables 13 3,241 871
Net cash outflow from operating activities 17,867 (5,477)
Cash flows from investing activities
Loans to subsidiaries (7,103) (29,105)
Purchase of investments at fair value through profit or loss 10 - (48,409)
Net cash flow used in investing activities (7,103) (77,514)
Cash flows from financing activities
Proceeds from issue of Ordinary Shares 14 - 155,201
Dividends paid 15 (25,956) (50,274)
Cost of issue of shares 14 - (3,246)
Net cash flow generated from financing activities (25,956) 101,681
Net (decrease)/increase in cash and cash equivalents (15,192) 18,690
Reconciliation of net cash flow to movements in cash and cash equivalents
Cash and cash equivalents at the beginning of the year 30,001 11,311
Net (decrease)/increase in cash and cash equivalents (15,192) 18,690
Cash and cash equivalents at end of the year 12 14,809 30,001
The accompanying notes below form part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2023
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
These financial statements for the year ended 31 December 2023 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")
as adopted by the EU, 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
Material Uncertainty
The Directors believe that the Company and the Group have adequate resources
to continue in operational existence until the conclusion of the Managed
Wind-Down of the Company. However, the Company's going concern assessment is
dependent on the Group either completing the sale of assets to fund the
repayment of the remaining balance of the Group's Revolving Credit Facility
due by March 2025 or alternatively refinancing this debt. Given that a degree
of uncertainty exists in the timing of ongoing strategic initiatives, the
Board believes that there continues to be a material uncertainty which may
cast significant doubt over the Company's ability to continue as 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 and the conflict in the middle east, 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.
Following the recent shareholder vote at the General Meeting, the Company is
now in a Managed Wind-Down. The audited financial statements for the year
ended 31 December 2023 continue to be prepared on a going concern basis.
As part of the Strategic Review, various options for realising the stake in
Arqiva were considered by the Board and after careful consideration of
Arqiva's plans and current market conditions, the Board believes that the
maximisation of the value of the Company's stake in Arqiva is likely to take
longer to realise than the other investments held by the Company and therefore
no certainty as to when the wind down of the Company's business will conclude
and whether this will occur within the foreseeable future.
As such, whilst the Company will continue to consider and be open to all
options for Arqiva which are value-accretive to Shareholders, the Board has
decided to defer launching a sale process for the Company's stake in Arqiva.
As part of the recent sale of Verne Global, the Company may receive a
potential Earn-Out payment of up to $135 million, which is subject to Verne
Global achieving run-rate EBITDA targets for the financial year ending
December 2026. Given the time frame involved, for both the sale of Arqiva and
the receipt of any Earn-Out payment, which are expected to be well in excess
of 12 months, the Board believes that the Going Concern approach to the
preparation of the financial statements remains appropriate.
No provision has been made for the costs of winding up the Company as these
will be charged to the Income Statement on an accruals basis as they are
incurred or as the Company become obligated to make such payments in the
future.
The Directors believe that the Company and the Group have adequate resources
to continue in operational existence for a period of at least 12 months since
the reporting date. However, given that a degree of uncertainty exists in the
timing of ongoing strategic initiatives which includes management's ability to
refinance or repay the Group's existing RCF (of which c.£100 million remains
at 29 April 2024) due in the next 12 months (March 2025), there exists a
material uncertainty which may cast significant doubt over the Company's
ability to continue as a going concern.
The Company intends to make a total additional repayment and partial
cancellation of its Group's RCF in the amount of c.£47 million in May 2024.
The RCF in an important consideration for the Company, even though it is not
held on the Company's balance sheet. The RCF is held by its main subsidiary D9
Holdco, but the Company is a guarantor of the facility.
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 2023, the Company had a cash balance of £14.8 million. The Company
has considered at least two years when assessing its going concern position.
The base case assumption in this scenario, include disposing of the Company's
portfolio of investments excluding Arqiva and the use of proceeds to repay the
RCF.
Numerous scenarios have been prepared which includes downside scenarios,
including disposing of assets with up to a 40% discount to NAV.
(b) Investment entities
Following the recent shareholder vote at the General Meeting, the Company is
now in a Managed Wind-Down and as a result the objective of the Company is no
longer to acquire digital infrastructure projects, it is to ensure an orderly
wind down and return proceeds to Shareholders. The Company, via D9 Holdco has
begun the process to start selling select Investee Companies.
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:
· It obtains funds from one or more investors for the purpose of
providing these investors with professional investment management services;
· 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
· 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-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.
Post year end the Company sold 100% of its ownership in the Verne Global Group
of Companies, reinforcing the exit strategy point described above. As the
Company enters into its wind-down phase, it will continue to realise its exit
strategy across its portfolio.
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 Company entering into a Managed Wind-Down, a decision which was made and
voted on by shareholders following the year end, and the changes in the Group
structure following the sale of Verne Global 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 2023
(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
FORTHCOMING REQUIREMENTS
The following standards and interpretations had been issued but were not
mandatory for annual reporting periods ending on 31 December 2023.
(a) Amendments to IAS 1 Presentation of Financial Statements
· Non-current liabilities with covenants
· Deferral of Effective Date Amendment (published 15 July
2020)
· Classification of liabilities as Current or Non-current
(Amendment to IAS1)
(b) Lease liability in a Sale and Leaseback (Amendment to IFRS
16)
(c) IAS 7 "Statement of Cash Flows" and IFRS 7 "Financial
Instruments: Disclosures (Amendment - Supplier Finance Arrangements)"
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
accruals 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
December 2022 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 a 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. SIGNIFICANT 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. During the year, an Independent Valuer was appointed
to carry out the fair valuation of financial assets for financial reporting
purposes, including level 3 fair valuations.
Estimates such as the forecasted cash flows from investments form the basis of
making judgements about the fair value of assets, which is not readily
available from other sources. The discounted cash flows from earnings are
forecasted over an 8-to-10-year period followed by a terminal value based on a
long-term growth rate or exit multiple. Discount rates are arrived at via a
bottom-up analysis of the weighted average cost of capital, using both
observable and unobservable inputs, and calculation of the appropriate beta
based on comparable listed companies where appropriate, a sense-check to the
DCF analysis is compared to market multiples.
The discounted cash flow from earning is forecasted over an 8-to-10-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.
Where appropriate, a sense-check to the DCF analysis is compared to market
multiples.
To do this, implied multiples from the DCF analysis are calculated and
considered against the multiples available for reasonably comparable quoted
companies and any relevant recent sector transactions. It should be noted that
finding directly comparable companies to Aqua Comms, Arqiva and Elio Networks
is challenging and as a result no directly comparable companies have been
identified. Similarly, there have been few recent transactions with publicly
available information where the target is directly comparable to the
businesses. As a result, whilst the market multiples approach is a useful
crosscheck to the DCF analysis, less reliance should be placed upon it.
Finally, the last round of funding in each of the business is somewhat dated
as at the Valuation Date and so no reliance was placed on this approach.
In respect of portfolio of data centres where the disposals were completed
after the year-end, the fair value of these investments at the year-end equal
the agreed disposal value, plus an amount for the valuation of the Earn-Out as
per the terms of the SPA.
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, cash
flows, terminal value and discount rates. The key area where estimates are
significant to the financial statements and have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year is in the valuation of the investment portfolio. The
portfolio is diversified by sector, geography and underlying risk exposures.
The key risks to the portfolio are discussed in further detail in the Risk
report.
The majority of assets in the investment portfolio are typically valued on a
discounted cash flow basis which requires assumptions to be made regarding
future cash flows, terminal value and the discount rate to be applied to these
cash flows. For this reporting period, the Company had a signed SPA for its
data centre assets, including Verne Global Iceland, London and Finland. At the
reporting date, these assets were held at the value of proceeds to be received
under the SPA, with an allocation of the valuation of the Earn-Out ascribed to
each on a pro rata basis. The Earn-Out valuation methodology is described in
more detail below.
The discount rate applied to the cash flows in each investment portfolio
company is a key source of estimation uncertainty. The acquisition discount
rate is adjusted to reflect changes in company-specific risks to the
deliverability of future cash flows and is calibrated against secondary market
information and other available data points, including comparable
transactions. The weighted average discount rate used in these valuations was
13.62%.
The cash flows on which the discounted cash flow valuations are based are
derived from detailed financial models. These incorporate a number of
assumptions with respect to individual portfolio companies, including:
forecast new business wins or new orders; cost-cutting initiatives; liquidity
and timing of debtor payments; timing of non-committed capital expenditure and
construction activity; the terms of future debt refinancing; and macroeconomic
assumptions such as inflation and energy prices.
The terminal value attributes a residual value to the portfolio company at the
end of the projected discrete cash flow period based on market comparables.
The valuation of each asset has significant estimation in relation to
asset-specific items but there is also consideration given to the impact of
wider megatrends such as the transition to a lower-carbon economy and climate
change. The effects of climate change, including extreme weather patterns or
rising sea levels in the longer term, could impact the valuation of the assets
in the portfolio in different ways. The weighted average long-term growth rate
used in the valuation was 0.85%.
The fair value of the Earn-Out, attributable to the Verne Global transaction
was computed by way of a Monte Carlo analysis. In this approach a random value
is selected for each of the simulations, based on a range of estimates. The
model is calculated based on this random value. The result of the model is
recorded, and the process is repeated. A typical Monte Carlo simulation
calculates the model hundreds or thousands of times, each time using different
randomly selected values. The results are used to describe the likelihood, or
probability, of reaching various results in the model.
5. INVESTMENT INCOME
Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
UK dividends 27,972 3,226
Loan interest income 2,617 903
Other Income 854 772
31,443 4,901
Other Income comprises Management Services Fees charged to the Company's
subsidiaries.
6. INVESTMENT MANAGEMENT FEES
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Management fees 6,501 2,167 8,668 5,802 1,934 7,736
Total management fees 6,501 2,167 8,668 5,802 1,934 7,736
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
served notice of termination to the Investment Manager before 31 March 2024
following the completion of the Verne Global sale, with the Investment
Management Agreement to terminate on 31 March 2025.
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 £4.2
million (2022: £2.2 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 Year ended
31 December 2023 31 December 2022
£'000 £'000
Legal and professional fees 539 344
Auditors' fees - audit services(1) 389 257
Auditors' fees - non-audit services(2) 145 120
Directors' fees 271 261
Administration and company secretarial fees 208 207
Premium segment admission costs - 677
Strategic review costs(3) 2,423 -
Other administrative expenses 640 457
4,615 2,323
1 - Fees excludes audit fees on the financial statements of subsidiaries
totalling £616,000 (2022 - £429,000).
2 - Fees for non-audit services relate to the review of interim financial
statements and limited assurance on environmental, social and corporate
governance.
3 - Strategic Review Costs also include technical advisory fees to develop
contingency planning to address the Company's historical residual financial
uncertainty prior to the completion of the Verne Transaction.
8. EXCEPTIONAL ITEM
During the year, the Company incurred exceptional costs of £3.5 million in
connection with the disposal of its data centre subsidiaries. The break fee
incurred by the Company was under a previous transaction structure for the
sale of Verne Global, which was under consideration by the Board prior to the
definitive agreement reached on 27 November 2023.
9. 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 25% (2022: 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 25% (2022: 19%). The differences are explained below.
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net (loss)/profit before tax 20,326 (257,659) (237,333) (3,225) 95,294 92,069
Tax at UK corporation tax standard rate of 25% (2022 -19%) 5,082 (64,415) (59,333) (613) 18,106 17,493
Effects of:
Loss/(Gain) on financial assets not taxable - 63,004 63,004 - (18,473) (18,473)
Exempt UK dividend income (6,993) - (6,993) (613) - (613)
Expenses not deductible for tax purposes 660 660 - - -
Excess of allowable expenses 1,911 751 2,662 1,226 367 1,593
Total tax charge - - - - - -
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 £18 million (2022:
£8 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 £4.5 million (2022: £2 million).
10. 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
Period Ending 31 December 2023:
Opening balance 1 January 2023 920,971
Equity investments addition in D9 Holdco -
Debt investments addition in D9 Holdco 7,103
Change in fair value of investments (252,014)
As at 31 December 2023 676,060
Period Ending 31 December 2022:
Opening balance 1 January 2022 746,229
Equity investments addition in D9 Holdco 48,409
Debt investments addition in D9 Holdco 29,105
Change in fair value of investments 97,228
As at 31 December 2022 920,971
The Company views 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 investments 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 £36.2 million
(2022: £29.1 million) 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 £2.6 million (2022: £0.9 million) was charged during the year on the
loan. The debt instrument is measured at fair value as at 31 December 2023.
Breakdown of investments in D9 Holdco between equities and debts:
31 December 2023 31 December 2022
£'000 £'000
Equity investments 639,852 891,866
Debt investments 36,208 29,105
676,060 920,971
During the period the Company, through its subsidiary companies, made further
investments in existing subsidiaries as follows:
Date D9 Subsidiaries vii (#_edn7) Investments Amount
Jan-Dec 2023 Digital 9 Subsea Limited EMIC 1 - progress payments for the construction of subsea cables $16.7m (£13.2m)
Jan-Dec 2023 Digital 9 Holdco Limited Provided capex loans to GSS Propco for the construction of data centre £7.9m
Jul 2023 Digital 9 Holdco Limited Provided capex loan to Aqua Comms for undersea cables construction. $14.7m (£11.6)
Jan-Dec 2023 Digital 9 Holdco Limited Provided loans to Volta Data Centres £4m
As at the year end, the breakdown of fair valued investments held by D9 Holdco
were as follows:
Subsidiary company Investments Equity Debt Total
£ '000 £ '000 £ '000
Digital 9 DC Limited Data centres 343,638 35,938 379,576
Digital 9 Wireless Limited Wireless networks 83,838 299,744 383,582
Digital 9 Subsea Holdco Limited Subsea fibre optic 244,507 18,336 262,843
Digital 9 Fibre Limited Fibre optic networks 35 - 35
TOTAL £672,018 £354,018 £1,026,036
The subsidiary valuations also include any net current assets or liabilities
across the holding company structure. Included in the above subsidiary
valuations, is the valuation of the underlying Investee Company as presented
below.
Portfolio Company Investments 31 December 23 31 December 22
£ '000 £ '000
Aqua Comms Subsea fibre optic 222,509 234,778
EMIC-1 Subsea fibre optic 35,981 22,617
SeaEdge Data centres 14,042 17,550
Elio Networks Wireless networks 55,444 59,385
Verne Global Data centres 372,221 517,255
Arqiva Group Wireless networks 503,598 518,266
Arqiva Group VLN and interests (174,939) (162,998)
Giggle Fibre optic networks - 3,000
Total 1,028,856 1,209,853
Valuation process
During the year, an independent valuer was appointed to carry out the fair
valuation of financial assets for financial reporting purposes, including
level 3 fair valuations. In respect of the Verne Global entities, the fair
value of these investments equals their agreed disposal value; completed post
year end. 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 Board has carried out fair market valuations of Arqiva, Aqua Comms, Elio
Networks and the Verne Global Earn-Out as at 31 December 2023 and the
Directors have considered the valuation of SeaEdge and 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 valuer uses its judgement 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. Investments are valued using a discounted cash flow approach, being
valued on a Free Cash Flow to Equity ("FCFE") basis. The portfolio weighted
average discount rate for investments valued under the FCFE discounted cash
flows approach was 13.62%.
· To calculate portfolio NAV, 62% of total NAV from Investment
companies is valued using the FCFE discounted cash flows approach, 35% of
total NAV is valued using evidence of post year end disposal value either
agreed or indicative offer and the remaining 3% 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. The portfolio weighted long-term growth rate for
investments valued under the FCFE discounted cash flows approach was 0.85%.
· Future Foreign exchange rates of GBP against USD and EUR.
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 2023 and 31
December 2022:
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 2023 639,852 - - 639,852
Debt investment in D9 31 December 2023 36,208 - - 36,208
Holdco
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
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 0.25% for long-term growth rate
and 1% for discount rate:
Unobservable inputs Valuation if rate increases Movement in valuation Valuation if rate decreases Movement in valuation
£'000 £'000 £'000 £'000
Long-term growth rate (+/- by 0.25%) 683,030 6,970 669,307 (6,753)
Discount rates (+/- by 1%) 605,682 (70,378) 758,302 82,242
The movement in valuation column is the movement in the value of D9 Holdco
which is held on the Company's balance sheet.
11. TRADE AND OTHER RECEIVABLES
31 December 2023 31 December 2022
£'000 £'000
Amounts due from subsidiary undertakings 385 601
Other receivables 1,086 816
1,471 1,417
The Directors consider that the carrying value of trade and other
receivables approximate their fair value.
12. CASH AND CASH EQUIVALENTS
31 December 2023 31 December 2022
£'000 £'000
Cash at bank 14,809 30,001
14,809 30,001
The Directors consider that the carrying value of cash and cash equivalents
approximate their fair value.
13. TRADE AND OTHER PAYABLES
31 December 2023 31 December 2022
£'000 £'000
Trade payables 421 216
Accruals 5,588 2,553
6,009 2,769
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. £4.1 million (2022: £2.2 million)
of the above accruals figure relates to fees payable to the Investment
Manager, which were settled following the year end.
14. STATED CAPITAL
Ordinary shares of no par value 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
28 January 2022 88,148,880 108.0p 95,201
8 July 2022 54,545,454 110.0p 60,000
Ordinary Shares at 31 December 2022 865,174,954 872,748
Dividends paid (Note 15) (50,274)
Share issue costs (3,232)
Stated capital at 31 December 2022 819,242
31 December 2023
Allotted, issued and fully paid: No of shares Price £'000
As at 1 January 2023 865,174,954 819,242
Ordinary Shares at 31 December 2023 865,174,954 819,242
Dividends paid (Note 15) (25,956)
Stated capital at 31 December 2023 793,286
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.
15. DIVIDENDS PAID
Dividend per share Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
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
Dividends period 1 October 2022 to 31 December 2022 1.5 pence 12,978 -
Dividend period 1 January 2023 to 31 March 2023 1.5 pence 12,978 -
Total dividends paid 25,956 50,274
16. 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% Lease holding 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
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
Verne Global DC Holdco Limited(2) UK 100% Intermediate holding company 1 King William Street, London EC4N 7AF
Aqua Comms Ireland 2 Limited(18) Ireland 100% Subsea fibre optic network The Exchange Building, 4 Foster Place, Dublin 2
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 18 - Held by Digital 9 Subsea Limited
The Investee Companies above are restricted in transferring cash to the
Company due to the need to fulfil their capex and operational cash
requirements first.
The Company is committed to fund capex totalling £11.3 million for Aqua Comms
Ireland 2 Limited in respect of EMIC-1 project.
17. TRANSACTIONS WITH THE 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 entitled to an additional £5,000 and the Chair of the
Company who is entitled to receive an annual fee of £75,000. Directors are
entitled to recover all reasonable expenses properly incurred in connection
with performing their duties as a director.
Director Number of Ordinary shares held *Dividends received *Dividends received 31 December 2022
31 December 2023
Jack Waters (resigned 23 May 2022) 70,000 - £1,050
Philip Jordan (resigned 13 December 2023) 94,611 £2,528 £1,518
Aaron Le Cornu (appointed 1 April 2022) 107,024 £2,693 £2,437
Lisa Harrington (resigned 14 December 2023) 38,604 £1,158 £2,316
Keith Mansfield (resigned 3 January 2024) 294,819 £3,218 £3,934
Monique O'Keefe (resigned 23 May 2022) 10,000 - £150
Charlotte Valeur 10,000 £300 £600
Gailina Liew (appointed 1 July 2023) - - -
Richard Boléat (appointed 14 December 2023) 65,000 - -
Brett Miller (appointed 14 December 2023) 400,000 - -
* - 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 to be 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 £Nil (2022: £48.4 million).
During the period, the Company received dividend income of £28 million (2022:
£3.2 million) from Digital 9 Holdco Limited.
As per Note 19, the Company, through its subsidiary undertakings has capital
expenditure commitments totalling £11.3 million (2022: £46 million).
Loan to subsidiary undertaking
As at the year-end, the Company had provided a total loan of £36.2 million
(2022: £29.5 million) to Digital 9 Holdco Limited. The total loan outstanding
at the year-end was £36.2 million (2022: £29.5 million). During the period
an additional £7m was provided. This was used to assist the underlying
Investee Companies with their capital expenditure requirements. Interest of
£2.6 million (2022: £0.9 million) were charged on the loan during the year.
Amounts due from subsidiary undertakings
Included within Note 11 is an amount due from subsidiary undertakings:
31 December 2023 31 December 2022
Subsidiary undertakings: £'000 £'000
Aqua Comms DAC 120 160
D9 DC Opco 1 Limited 27 32
D9 DC Opco 3 Limited 51 34
D9 Wireless Opco 1 Limited 22 30
D9 Wireless Opco 2 Limited 129 -
Digital 9 Seaedge Limited 7 15
Digital 9 Subsea Limited 11 42
Verne Holdings Limited - 288
Digital 9 Holdco Limited 18 -
385 601
18. EVENTS AFTER THE REPORTING PERIOD
Completion of Verne disposal
On 14 March 2024, the Company completed the sale of its entire stake in the
Verne Global group of companies to funds managed or advised by Ardian France
SA for an equity purchase price of up to $575 million (approximately £450
million). Following the Verne Transaction's completion the Company received
$415 million (£325.8 million). The completion follows receipt of all
applicable regulatory approvals and the satisfaction of all conditions in line
with the previously communicated timetable.
Managed Wind-Down
The Board published a circular to shareholders on 28 February 2024 to convene
a general meeting and seek approval from shareholders to amend the Company's
Investment Objective and Policy. The appropriate resolution was subsequently
approved on 25 March 2024 with 99.9% of the votes cast in favour. The revised
Investment Objective and Policy is set out above.
The Company will not make any new investments save that investments may be
made in existing Investee Companies when considered appropriate to maximise
value for shareholders.
Independent Review of Investment Management Arrangements
The Company served notice of termination to the Investment Manager before 31
March 2024 following the completion of the Verne Global sale, with the
Investment Management Agreement to terminate on 31 March 2025.
Liberum Capital Limited ("Liberum") has been engaged as financial advisor to
support the proposed wind-down process and to provide the Board with an
independent review of the investment management arrangements. It will include
evaluating the following options for the Company (i) continuing to be managed
by Triple Point on different fee arrangements; (ii) managed by a new
investment manager, or (iii) becoming a self-managed alternative investment
fund, a proposal for which Brett Miller and Richard Boléat had indicated
would be provided to the Company.
19. COMMITMENTS AND CONTINGENT LIABILITIES
The Company, through its subsidiary undertakings has committed £11.3 million
for capital expenditures at 31 December 2023 (2022: £46.3 million). This
future capex is related to the Company's investment in EMIC-1.
At the year end, the Company had entered into an SPA to sell its entire equity
stake in the Verne Global Group of companies. An element of the fees
applicable to this transaction were contingent on the transaction being
successful. As a result, at the year end the Company had not accrued £5.6
million of fees, as there was still sufficient uncertainty surrounding the
closure of the deal. Following the year end, the deal was successfully
completed, and these fees were paid.
20. 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 Company, being Digital 9 Infrastructure PLC
does not hold any cash balances in different currencies, however its
subsidiaries do as detailed below.
As a result, the Company is exposed to changes in fair value in its
investments, as a result of foreign currency changes. The below tables present
the Company's exposure to currency risk through its subsidiaries with foreign
currency cash balances.
The Group had the following foreign currency and their GBP equivalent balances
at the end of the reporting period:
USD EUR GBP
$'000 €'000 £'000
Bank balances 11,675 562 9,659
Investment at fair value 779,753 105,362 704,491
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 (Elio Networks) and Verne
Finland 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 10% 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 10% (65,446) (65,446)
USD/GBP and EUR/GBP exchange rates - decrease by 10% 65,446 65,446
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 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 into 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
ongoing 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 recognised any loss allowance
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.
Total 1-3 months 3-12 months 1-2 years 2-5 years More than 5 years
31 December 2023 £'000 £'000 £'000 £'000 £'000 £'000
Trade payables 421 421 - - - -
Accruals 5,588 - 5,588 - - -
6,009 421 5,588 - - -
Total 1-3 months 3-12 months 1-2 years 2-5 years More than 5 years
31 December 2022 £'000 £'000 £'000 £'000 £'000 £'000
Trade payables 216 216 - - - -
Accruals 2,553 - 2,553 - - -
2,769 216 2,553 - - -
21. FINANCIAL INSTRUMENTS
Cash at bank Financial assets at amortised cost Financial liabilities at amortised cost Financial assets at fair value through profit or loss Total value
balances at
amortised cost
£'000 £'000 £'000 £'000 £'000
Year ended 31 December 2023
Non-current assets:
Equity investments held at fair value through profit or loss - - - 639,852 639,852
Debt investment held at fair value through profit or loss - - - 36,208 36,208
Current assets:
Trade and other receivables - 1,471 - - 1,471
Cash and cash equivalents 14,809 - - - 14,809
Total Assets 14,809 1,471 - 676,060 692,340
Current liabilities:
Trade and other payables - - (6,009) - (6,009)
Total liabilities - - (6,009) - (6,009)
Net assets 14,809 1,471 (6009) 676,060 686,331
Year 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
22. 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.
23. 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 2023:
Revenue Capital Total
Calculation of Basic Earnings per share
Net (loss)/profit attributable to ordinary shareholders (£'000) 20,326 (257,659) (237,333)
Weighted average number of Ordinary Shares 865,174,954 865,174,954 865,174,954
Earnings per share - basic and diluted 2.35p (29.78p) (27.43p)
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
1-Jan-23 31-Dec-23
No of days 365 365
Ordinary Shares
No. of shares
Opening Balance 865,174,954 865,174,954
New Issues - -
Closing Balance 865,174,954 865,174,954
Weighted Average 865,174,954 865,174,954
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
24. 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 2023 31 December 2022
Net assets at end of period (£'000) 686,331 949,620
Shares in issue at end of period 865,174,954 865,174,954
IFRS NAV per share - basic and dilutive 79.33p 109.76p
25. 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
1. ONGOING CHARGES RATIO
31 December 2023 31 December 2022
£'000 £'000
Management fee 8,668 7,736
Other operating expenses 2,192 1,645
Total management fee and other operating expenses (a) 10,860 9,381
Average undiluted net assets (b) 817,975 852,738
Ongoing charges ratio % (c = a/b) (c) 1.33% 1.10%
Average undiluted net assets is calculated as the average of net assets at 31
December 2022 and 31 December 2023.
2. TOTAL RETURN
31 December 2023 31 December 2022
Closing NAV per share (pence) 79.33p 109.76p
Add back dividends paid* (pence) 12.00p 9.00p
Adjusted closing NAV (pence) 91.33p 118.76p
Adjusted NAV per share as at the period end less NAV per share at 31 December (a) (91.33p-118.76p) (118.76p - 107.62p)
2022 (31 December 2021)
NAV per share at 31 December 2022 (31 December 2021) (b) 118.76p 107.62p
Total return % (c = a/b) (c) (23.10%) 10.40%
*total cumulative dividends paid since IPO.
3. MARKET CAPITALISATION
31 December 2023 31 December 2022
Closing share price at period end (a) 29.75p 86.40p
Number of shares in issue at period end (b) 865,174,954 865,174,954
Market capitalisation (c) = (a) x (b) (c) £257,389,549 £747,511,160
4. CAPITAL DEPLOYED
Deployment including committed funding
31 December 2023 31 December 2022
Deployed Committed fund £'000 £'000
Aqua Comms DAC 187,508 - 187,508 189,564
EMIC-1 35,981 11,281 47,262 47,374
Verne Holdings Limited 256,595 - 256,595 292,441
SeaEdge UK1 16,355 - 16,355 16,355
Leeson Telecom 50,807 - 50,807 50,807
Volta Data Centres 65,456 - 65,456 61,418
Ficolo Oy 118,927 - 118,927 118,927
Arqiva* 469,830 - 469,830 462,998
Giggle** - - - 3,000
Total deployment 1,201,459 11,281 1,212,740 1,242,884
* - Includes £170 million Vendor Loan Notes issued by D9 Wireless Opco 2
Limited.
** - Giggle was disposed during the year.
5. TOTAL SHAREHOLDER RETURN
A measure of the return based upon share price movements over the period and
assuming reinvestment of dividends.
31 December 2023 31 December 2022
Closing share price (pence) 29.75 86.40
Add back effect of dividend reinvestment (pence) 1.29 5.14
Adjusted closing share price (pence) (a) 31.04 91.54
Opening share price at beginning of the year (pence) (b) 86.40 113.80
Total shareholder return (c) (64.08) % (19.56) %
(c = (a-b)/b)
6. INVESTEE COMPANY FINANCIAL INFORMATION FOR THE YEAR ENDING
31 DECEMBER 2023
Financial Period 31 December 2023 31 December 2022
Revenue £446.6m £405.5m
% growth year on year 10% 4%
EBITDA £197.7m £202.4m
% growth year on year (2%) 0%
% margin 44% 50%
Cash Flow from Operations £162.0m £174.3m
Capital Expenditure ("Capex") £109.5m £95.5m
7. DIGITAL 9 HOLD CO REVOLVING CREDIT FACILITY
The Company has fully drawn the facility as at the reporting date in the form
of £373.8 million drawn and £1.2 million committed through a Letter of
Credit in favour of Verne Global Iceland. The Letter of Credit restricted the
amount available to draw.
This Letter of Credit was cancelled post period end, resulting in a drawn
balance of £373.8 million.
31 March 2024
£'000
Revolving Credit Facility Closing Balance (Excl. LoC) 373,800
Repayment (18 March 2024) (273,512)
Revolving Credit Facility Balance (29 April 2024) 100,288
8. LIQUIDITY
The Group cash position comprised of the following at December 2023 and 31
March 2024:
Total Group Cash at 31 December 2023 £'000
D9 PLC Unrestricted Cash Balance 14,809
Subsidiary Cash Balances 34,621
Total Group Cash 49,430
Restricted Cash
RCF Interest Reserve (24,445)
EMIC-1 Escrow (7,371)
Total Unrestricted Cash 17,614
Total Group Cash at 31 March 2024 £'000
D9 PLC Unrestricted Cash Balance 22,054
Subsidiary Cash Balances 43,951
Total Group Cash 66,005
Restricted Cash
RCF Interest Reserve (9,855)
EMIC-1 Escrow (5,459)
Indemnification provision (held back by the Company) (23,548)
Total Unrestricted Cash 27,143
Unaudited Non-Statutory Information
As the Company completed its disposal of Verne Global following the period
end, it falls outside the scope of these financial statements. To provide
additional information to shareholders, additional unaudited pro-forma
information has been provided to the period ending 31 March 2024.
Unaudited pro forma consolidated Balance Sheet at 31 March 2024
In accordance with IFRS 10, and in line with the criteria presented in Note 2,
the Company meets the definition of an investment entity. 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.
To assist the reader, we have presented below a pro forma consolidated Balance
Sheet for the Group as at both 31 December 2023 and 31 March 2024. This is
following the successful disposal of the Verne Global group of companies and
shows the total debt of the Group (including D9's share of debt at the Arqiva
company level).
31 March 2024 31 December 2023
£'m £'m £'m £'m
Non-current assets
Investments 1,559.7 1,945.7
Verne Earn-Out 26.8 26.8
Loans to portfolio companies 17.8 54.3
1,604.3 2,026.8
Total non-current assets 1,604.3 2,026.8
Current assets
Trade and other receivables 3.6 4.0
Cash - Unrestricted 27.1 17.6
Cash - Restricted 38.8 31.8
Total current assets 69.5 53.4
Total assets 1,673.8 2,080.2
Current liabilities
Other creditors (13.7)* (29.8)
Total current liabilities (13.7) (29.8)
Non-current liabilities
RCF loan (100.3) (373.8)
Capitalised set-up costs 2.5 2.5
Vendor loan notes 2029 (163.0) (163.0)
Additional notes issued (6.8) (6.8)
Verne Iceland debt - (78.6)
Arqiva (D9 share of debt) (744.4) ** (744.4)
Total non-current liabilities (1,012.0) (1,364.1)
Total liabilities (1,025.7) (1,393.9)
Total net assets 648.1 686.3
* Includes accrued VLN interest for the period to 31 March 2024.
* *As of 31 December 2023
Liquidity
The below chart shows the cash movements for the Group from 1 January 2024 to
31 March 2024, on a cash basis and not an accruals basis. At 29 April 2024,
the Group had total cash of £84.0 million. Of this, unrestricted cash
available for use was £25.2 million. The EMIC-1 escrow account has reduced by
£1.9 million, since December as further payments have been made to EMIC-1 to
enable continued fulfilment of its contractual obligations.
Unrestricted Cash Waterfall - 1 January 2024 to 31 March 2024
(£'million)
Restricted cash of £38.9 million includes a Restricted Interest Reserve
Account in relation to the RCF of £9.9 million, and an amount in a restricted
escrow account in relation to the construction of EMIC-1 of £5.5 million. It
also includes the £23.5 million the Company has set aside for an
indemnification provision in relation to the Verne Global Sale, which will be
utilised to make a further RCF repayment in May 2024.
In agreement with its RCF lenders, the Company has negotiated and agreed that
from 1 January 2024 the cash reserves locked up in the RCF's interest reserve
account can be used for interest payments which enables the Company to pay
interest for the residual RCF without using any unrestricted cash until the
RCF's legal maturity in March 2025.
Unrestricted cash of £27.1 million includes £22.0 million held at the
Company level, with the balance being held in unconsolidated subsidiaries.
Debt Financing
The below table shows the Company's leverage position at 31 December 2023 and
also on a pro-forma basis as at 31 March 2024, following the completion of the
Verne Global sale and the repayment and part cancellation of the RCF.
The RCF adjustment of £274.7 million includes the cancellation of the £1.2m
Letter of Credit and the cash repayment of £273.5 million. For the avoidance
of doubt an adjustment has not been made in the below table in respect of the
c.£47 million repayment to be made in May 2024.
The impact of the Verne Global transaction and the repayment and cancellation
of the RCF is to reduce Group Leverage from 51% at 31 December 2023 to 36% on
a pro forma basis at 31 March 2024.
31 December 2023 Adjustments Pro forma 31 March 2024
£'m £'m £'m
Aqua Comms 222.5 - 222.5
Verne Global 372.2 (345.4) 26.8
SeaEdge 14.0 - 14.0
EMIC-1 36.0 2.1 38.1
Elio Networks 55.4 - 55.4
Arqiva 503.6 - 503.6
Arqiva Principal VLN (163.0) - (163.0)
Arqiva Additional VLN (6.8) - (6.8)
Arqiva Accrued VLN Interest (5.1) (2.5) (7.6)
Total Portfolio Value 1,028.8 (345.8) 683.0
Subsidiary Cash & Equivalents 34.6 9.3 43.9
RCF (373.8) 273.5 (100.3)
Net Subsidiary Other Liabilities (49.8) 26.5 (23.3)
D9 Shareholder loan 36.2 (12.3) 23.9
Reconciled IFRS Valuation 676.1 (48.8) 627.2
PLC Other Current Assets 1.5 (0.3) 1.2
PLC Receivables & Cash 14.8 7.2 22.0
Total Assets 692.3 (41.9) 650.4
RCF* 375.0 (274.7) 100.3
Adjusted GAV 1,067.3 (316.6) 750.7
£'m £'m £'m
RCF* 375.0 (274.7) 100.3
VLN (including £6.8m additional notes) 169.8 - 169.8
Total Group Leverage 544.8 (274.7) 270.1
Leverage / Adjusted GAV 51.0% 36.0%
*As at 31 December 2023, the RCF was fully utilised at £375 million,
comprised of £373.8 viii (#_edn8) million drawn and the £1.2 million
non-cash draw Letter of Credit. In Q1 2024, the Letter of Credit was cancelled
and did not require a cash repayment.
As at 31 December 2023, the Company's net debt / EBITDA position has
marginally increased since December 2022 as a result of the PIK loan notes on
the VLN being capitalised on 30 June 2023 and a slight decline in portfolio
EBITDA. Looking forward and on a pro forma basis, the Group's net debt and
adjusted net debt to EBITDA metrics have reduced following the disposal of
Verne Global.
Net Debt / EBITDA At 31 December 2023 Adjustments Pro forma at 31 March 2024
£'m £'m £'m
Drawn RCF inc. Letter of Credit 375.0 (274.7) 100.3
VLN* 169.8 - 169.8
Group Cash & Equivalents (inc. restricted cash) (49.4) 16.5 (32.9)
Net Debt 495.4 (258.2) 237.2
2023 Portfolio EBITDA 197.7 (17.2) 180.5
Net Debt / EBITDA 2.5x (1.2x) 1.3x
Arqiva debt (prorated for D9 ownership)** 744.4 - 744.4
Verne Global debt 78.6 (78.6) -
Adjusted Net Debt 1,318.4 (336.8) 981.6
Adjusted Net Debt / EBITDA 6.7x (1.2x) 5.5x
*Includes the additional notes of £6.8m issued in June 2023.
**This is D9's share of Arqiva gross debt. It is not an Arqiva net debt figure
and as a result does not include cash held by Arqiva; it is a more
conservative approach and is in line with previously reported figures.
Portfolio Concentration Summary
As at 29 April 2024, the Company's portfolio consists of 5 attractive and
complementary investments.
The below table shows the portfolio's asset and sector concentration levels
comprising valuations as at 31 March 2024 on a pro forma basis following the
completion of sale of the Verne Global group of companies.
Pro forma Portfolio Concentration
Pro forma Sector Concentration
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;
"CTA 2010" Corporation Tax Act 2010 and any statutory modification or re-enactment
thereof for the time being in force;
"D9" or the "Company" Digital 9 Infrastructure plc, incorporated and registered in Jersey (company
number 133380);
"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;
"EU or European Union" The European Union first established by the treaty made at Maastricht on 7
February 1992;
"EPS" Earnings per share;
"ESG" Environmental, Social and Governance;
"FCA" The Financial Conduct Authority
"FTTH" Fibre to the home;
"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;
"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 approved by shareholders on 25 March
2023 and set out above;
"Investment Policy" The Company's investment policy as set out in the Prospectus approved by
shareholders on 25 March 2023 and set out above;
"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;
"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
"SDG9" The UN's Sustainable Development Goal 9;
"Total Shareholder Return" The increase in Net Asset Value in the period plus distributions paid in the
period.
i Alternative Performance Measure. Further information on APMs can be
found in the Annual Report. N/M: not meaningful
ii
https://www.ardian.com/news-insights/press-releases/ardian-completes-acquisition-leading-green-data-center-platform-verne
(https://www.ardian.com/news-insights/press-releases/ardian-completes-acquisition-leading-green-data-center-platform-verne)
iii Alternative Performance Measure, further information on APMs can be
found above.
iv Alternative Performance Measure, further information on APMs can be
found above.
v Alternative Performance Measure, further information on APMs can be
found above.
vi Alternative Performance Measure, further information on APMs can be
found above.
vii Subsidiaries of Digital 9 Holdco Limited are the companies that make
investments.
viii Alternative Performance Measure, further information on APMs can be
found above.
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. END FR QKKBQKBKKAQNRecent news on Digital 9 Infrastructure
See all newsREG - Digital 9 Infrastr. - Annual Financial Report
AnnouncementREG - Digital 9 Infrastr. - Directorate Changes
AnnouncementREG - Digital 9 Infrastr. - Results for the year ended 31 December 2023
AnnouncementREG - Digital 9 Infrastr. - Unaudited Portfolio Valuation and Unaudited NAV
AnnouncementREG - Digital 9 Infrastr. - Result of General Meeting
Announcement