REG - Digital 9 Infrastr. - Trading Update
11/01/2023 07:00
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RNS Number : 3290M Digital 9 Infrastructure PLC 11 January 2023
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS DEFINED UNDER THE MARKET
ABUSE REGULATION (EU) NO. 596/2014, AS IT FORMS PART OF DOMESTIC LAW IN THE
UNITED KINGDOM BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018.
11 January 2023
DIGITAL 9 INFRASTRUCTURE PLC
("D9", the "Company" or, together with its subsidiaries, the "Group")
TRADING UPDATE
Following the Company Update on 1 December 2022, the Board of Directors of
Digital 9 Infrastructure plc, a leading investor in the infrastructure of the
internet, and the Company's Investment Manager, Triple Point Investment
Management LLP ("Triple Point"), today provide a Trading Update to the period
ended 30 September 2022.
This Trading Update provides information regarding:
1. Investee Company Performance
2. Portfolio Valuation Methodology
3. Balance Sheet and Liquidity Position
4. Dividend Cover
5. Investment Approach and Investment Manager
6. Outlook
The Company intends to issue its audited annual results for the year ended 31
December 2022 in March 2023. Therefore, the figures disclosed in this Trading
Update reflect the valuations of the portfolio at 30 June 2022 being the date
of latest published net asset value plus subsequent acquisitions (at cost) and
a fully drawn Revolving Credit Facility ("RCF") (together making up the
"Pro-forma Adjusted Gross Asset Value").
The Company's Net Asset Value at 31 December 2022 will be published with the
2022 Annual Report in March 2023.
The Company intends to host a Capital Markets Day for shareholders and
analysts shortly following the release of the Company's annual results.
Key Highlights
· The Group's diversified portfolio of eight high-quality data centre,
subsea fibre, and wireless network assets (together, the "Investee Companies")
has performed strongly during the period.
· The Company had a Pro-forma Adjusted Gross Asset Value of £1.3
billion at 30 September 2022. For the 12-months to 30 September 2022,
consolidated Investee Company Revenue of c.£418 million achieved Company and
management expectations and consolidated Investee Company EBITDA of c.£221
million exceeded expectations by c.10%.
· The Investee Companies recently updated their 5-year business plans to
2027 as part of a customary annual re-forecasting exercise 1 . The Company and
the Investment Manager note the significant increase in customer demand for
the Investee Companies' services - particularly for the Group's data centre
platform and following the commercial integration of Ficolo Oy and Volta Data
Centres with Verne Global.
· The Company and the Investment Manager believe the portfolio provides
a compelling opportunity for capital growth via reinvestment of Investee
Companies' respective operating cash flow and the funding of incremental
growth capital expenditure to increase data capacity and fibre connectivity,
strengthen portfolio returns and continue to enhance shareholder value.
· Given the significant growth opportunities, the Company continues to
focus on the operational performance and optimisation of each of the assets
acquired to date.
· To help pursue Investee Companies' growth ambitions, which are driven
by accelerated customer demand, the Company has identified a significantly
increased growth capital expenditure pipeline of c.£264 million for the year
ending 31 December 2023 and c.£639 million in respect of the subsequent four
years ending 31 December 2027. At 31 December 2022, the Group had committed to
fund c.£46 million of this pipeline in Aqua Comms, EMIC-1 and Volta.
· The Company and the Investment Manager are evaluating complementary
sources of growth capital to support the significantly increased growth
capital expenditure pipeline. The Company will consider the most suitable use
of any additional capital at the time, taking account of efficient management
of its costs (including reducing RCF interest payments through the repayment
of the RCF) as well as the financing of accretive portfolio growth
opportunities.
· The Company is targeting an aggregate dividend of 6.0 pence per
ordinary share in the capital of the Company ("Ordinary Share") for the year
ended 31 December 2022 2 .
· At 1 January 2023, the Group had c.£74 million of cash available and
£43.8 million remaining undrawn of the £375 million RCF, excluding the
accordion tranche of up to £125 million. RCF's annual interest rate margin
reduced from 3.75% to 3.5% from 9 December 2022 to reflect the diversified
nature of the Group's portfolio.
· On 19 December 2022, the Company successfully became a constituent of
the FTSE 250 Index, potentially unlocking further diversification of the share
register with access to blue chip UK and international investors and enhanced
liquidity in its shares.
Phil Jordan, Chair, Digital 9 Infrastructure plc, commented:
"Since IPO, the Company has selectively acquired high-quality businesses with
an established market presence in data centres, subsea fibre, and wireless
networks. These form a diversified and integrated portfolio now well-placed to
grow organically.
The business performance and our latest forecasts demonstrate the strength of
our portfolio's revenues and profitability. The majority of D9's portfolio
comprises capital intensive businesses, underpinned by an exponential demand
for data, and the growth opportunities for each can be supported by a visible
pipeline of investment which is already part-funded by the Group. Through our
active asset management approach, we expect these investments to deliver both
income and capital growth which will underpin our 10% total return target and
6 pence per share dividend per annum target 3 .
We will continue to engage openly with our shareholders and look forward to
presenting our results for the year ended 31 December 2022 in due course."
Arnaud Jaguin, Investment Director at Triple Point, commented:
"In pursuing future growth, we expect the portfolio will achieve higher
returns due to the arbitrage between making investment in our existing asset
base compared to making new acquisitions.
Our Investee Companies have identified significant growth opportunities,
reflected in their recent forecasting and growth capital planning. As we aim
to strike the right balance between growth, financial leverage and total
return, we will remain disciplined in our capital management approach. As such
we are evaluating complementary sources of growth capital and considering the
most suitable use of any additional capital.
Our best-in-class growth platforms align to the UN SDG9 and allow us to drive
breadth and depth of customer relationships, lead the way in promoting
carrier-neutral connectivity globally, and democratise access to critical
digital infrastructure, with an emphasis on de-carbonisation."
Meeting for analysts and audio recording of the Trading Update available
The Company will be hosting a live webcast presentation for analysts
at 9.45am GMT today, which will be available at:
https://secure.emincote.com/client/digital9/tradingupdate2023
(https://secure.emincote.com/client/digital9/tradingupdate2023) .
The presentation will also be accessible on-demand later in the day via the
Company website: www.d9infrastructure.com (http://www.d9infrastructure.com/)
.
FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:
Triple Point Investment Management LLP (Investment Manager) +44 (0)20 7201 8989
Ben Beaton / Arnaud Jaguin
J.P. Morgan Cazenove (Corporate Broker) +44 (0)207 742 4000
William Simmonds / Jérémie Birnbaum (Corporate Finance)
James Bouverat / Liam MacDonald-Raggett (Sales)
Akur Capital (Financial Adviser) +44 (0)207 493 3631
Tom Frost / Anthony Richardson / Siobhan Sergeant
FTI Consulting (Communications Adviser)
Ed Berry +44 (0)7703 330 199
Gina Magnin +44 (0)7815 585 751
Maxime Lopes +44 (0)7890 896 777
dgi9@fticonsulting.com
LEI: 213800OQLX64UNS38U92
COMPANY AND INVESTMENT MANAGER COMMENTARY
1. Investee Company Performance
Since its initial public offering ("IPO") in March 2021, the Company has
acquired eight high-quality portfolio assets in three of the Company's four
target sub-sectors: data centres, subsea fibre and wireless networks.
Following the acquisitions, the Company has focused on driving portfolio
synergies across the platforms, particularly in data centres and subsea fibre.
During 2022, the Verne Global brand has demonstrated its unique value as a
market consolidator through the streamlining of the brand and commercial
integration with Volta Data Centres (now known as "Verne London"), and Ficolo
Oy (now known as "Verne Global Finland").
1.1. Asset Breakdown
The below table uses the previously disclosed valuations for Verne Global,
Aqua Comms DAC ("Aqua Comms"), Host Ireland, Verne London, Europe Middle-East
India Connect 1 ("EMIC-1") and Sea Edge UK1 ("SeaEdge") at 30 June 2022 and on
a pro-forma basis including the subsequent acquisitions of Verne Global
Finland, Arqiva Group ("Arqiva") and seed investment into Giggle Broadband
("Giggle") to show the asset allocation at 31 December 2022.
Arqiva is included at a cost of £300 million and does not include the Vendor
Loan Note ("VLN") as, under the Company's definition of Adjusted Gross Asset
Value ("GAV"), non-recourse loans are excluded. For reference, the VLN
represents a non-recourse loan to the Company of £163 million. Verne Global
Finland and Giggle are also included at cost. Net working capital includes
cash and current assets across the Group (excluding the Investee Companies) at
30 September 2022.
Platform % of pro-forma Adjusted Gross Asset Value 4 % equity ownership by Company
Arqiva 24% 48.02% 5
Verne Global 24% 100%
Aqua Comms 17% 100%
Verne Global Finland 9% 100%
Host Ireland 4% 100%
Verne London 4% 100%
EMIC-1 1% 100%
SeaEdge UK1 1% 100%
Giggle <1% 100%
Net working capital 10% N/A
Remaining undrawn RCF 6% N/A
Total 100%
Note: Pro-forma Adjusted Gross Asset Value of £1.3 billion at 31 December
2022 (based on asset valuations at 30 June 2022) including the acquisitions of
Verne Global Finland and Arqiva, and seed investment into Giggle, at cost. The
Company's Investment Policy includes, inter alia, a current restriction that
that the Company will not invest more than 25% of Adjusted Gross Asset Value
in any single asset or Investee Company, measured at the time of any
investment into such asset or Investee Company.
1.2. Portfolio Operating Highlights
The Investee Companies' aggregate revenues, for the 12-months to 30 September
2022 have achieved Company and management expectations and the portfolio's
aggregate EBITDA has exceeded expectations by 10%. More details on underlying
business performance follows in this section.
Period ended 30 September 2022 Period ended 30 September 2021
Consolidated Investee Company Revenue c.£418 million c.£415 million
Consolidated Investee Company EBITDA c.£221 million c.£210 million
Consolidated Investee Company Operating Cash Flow 6 c.£55 million c.£92 million
Consolidated Investee Company run rate EBITDA c.£224 million c.£212 million
Note: With the exception of Arqiva, all revenue and EBITDA figures included in
the above table are for the full, actual 12-month period to 30 September 2022
and are not pro-rated for the period of ownership. Arqiva's figures are for
the 12-month period to 30 June 2022 and are adjusted for the Company's
economic ownership of 51.76%. All other Investee Companies are 100% owned.
Period ended 30 September 2022
Weighted Average Remaining Contract Term 7.3 years
% Investee Company revenue with inflation protection
- RPI/CPI/PPI linked with no cap
- Fixed uplift of 2% to 5% (2.6% weighted average) 52%
- CPI/RPI/PPI linked with cap of 2% to 3%
Total 12%
2%
66%
52%
12%
2%
66%
In December 2022, the Group's Investee Companies completed their customary
annual re-forecasting exercise to update their 5-year business plans, except
for Arqiva which reports on a June-to-June annual cycle. Arqiva's latest
business plan was signed off by the Arqiva board in May 2022, with plans for
an updated plan to be finalised by the end of April 2023.
Due to strong customer demand, the Investee Companies in aggregate have
significantly increased their growth capital expenditure pipeline with a total
of c.£264 million now expected for the year ending 31 December 2023. The
Company expects that pursuing its capital expenditure pipeline will achieve
enhanced returns from the benefits associated with investing in the existing
asset base compared to paying market valuations for new acquisitions.
The Company has to date committed to fund c.£46 million of this pipeline, to
be financed from a combination of existing cash and further drawdowns on the
Group's remaining RCF balance. In the case of Arqiva and Host Ireland, all
future capital expenditure is forecast to be funded by cash from their
respective balance sheets.
The longer-term growth capital expenditure pipeline identified by the Investee
Companies between 2024 and 2027 amounts to c.£639 million. The Company and
the Investment Manager are reviewing appropriate potential funding options to
support the capital requirements of the strong and well positioned businesses
within the portfolio. Further detail can be found in section 3.2.
Sector Platform Growth capital expenditure pipeline (2023) Growth capital expenditure pipeline (2024-27)
Data Centres Verne Global c.£95 million c.£296 million
Verne London c.£12 million c.£10 million
Verne Global Finland c.£51 million c.£49 million
SeaEdge UK-1* £Nil £Nil
Subsea Fibre Aqua Comms c.£20 million c.£40 million
EMIC-1 c.£27 million c.£13 million
Wireless networks Arqiva** c.£37 million c.£133 million
Host Ireland c.£1 million c.£6 million
Terrestrial Fibre Giggle c.£22 million c.£91 million
Total c.£264 million c.£639 million
(*) SeaEdge receives rental income under a fully repairing and insuring lease
in place with their tenant that covers any future capital expenditure.
** Proportional capital expenditure based on the Group's 51.76% economic
interest in Arqiva.
1.2.1. Verne Global
Verne Global is a leading data centre platform based in Iceland. It provides
highly scalable data centre capacity to its enterprise customers in a
geographically optimal environment, powered by 100% baseload renewable energy.
Energy is sourced exclusively from local, stable and predictable hydroelectric
and geothermal power generation which is secured with a 10-year fixed-price
supply contract, enabling customers to reduce their carbon footprint
significantly. Verne Global's year-round, free-air cooling capabilities make
it one of the most energy-efficient data centres in the world and reaffirms
the Company's ambition to decarbonise digital infrastructure in line with UN
SDG9.
Verne Global has experienced sustained high, double-digit growth momentum
since its acquisition by the Group in 2021. Compared to the same 12-month
period in 2021, revenue has increased by 34% and EBITDA increased by 59% due
to growth in enterprise colocation for the 12-month period to 30 September
2022.
At 30 September 2022, Verne Global had 98.8% of recurring revenue benefiting
from fixed annual uplifts ranging from 2% to 5% offering strong revenue
inflation protection generated from c.40 leading global High-Performance
Computing, supercomputing and enterprise customers. This delivers long-term,
inflation-protected income in a variety of sectors including automotive,
artificial intelligence and financial services.
Verne Global has no gearing in place.
In light of increased global temperatures, increasing ESG reporting
requirements, along with the recent power pricing and availability crisis in
Northern Europe, enterprises are focused on sustainable data centre solutions,
which benefit from low-cost, long-term, renewable power, and that bring
stability, availability and scalability to support their rapidly increasing
high performance compute needs.
As a result, Verne Global is experiencing accelerated customer demand for its
facilities from both new and existing customers and has booked and sold all of
its remaining capacity. Due to this level of demand, Verne Global has
identified a substantially increased growth capital expenditure pipeline in
its latest 5-year business plan, with capital expenditure pipeline in 2023
increasing to $115 million (£95 million). Furthermore, its capital
expenditure pipeline for the five years to 31 December 2027 increased from
$208 million (£172 million) in its 2021 plan to c. $472 million (£391
million).
This capital expenditure will fund the expansion of capacity from an existing
40 Mega Watts ("MW") in operation or development to a total of 94MW out of a
potential of more than 100MW on the site. At 31 December 2022, the Group had
funded c.$60 million, (c.£49.5 million), of capital expenditure in Verne
Global since its acquisition for £231 million in September 2021. The Group
has not currently committed to any further capital expenditure for 2023
onwards.
The Company's Investment Policy includes a restriction that the Company will
not invest more than 25% of Adjusted Gross Asset Value in any single asset or
Investee Company (measured at the time of any investment into such asset or
Investee Company) and therefore the Group cannot currently materially increase
its exposure to Verne Global.
The Company and the Investment Manager continue to believe in Nordic data
centres as a significant differentiator for the Company's investment
proposition, giving exposure to the fastest growing market for low-carbon,
low-cost data centre services.
1.2.2. Verne London (previously Volta Data Centres)
Verne London is a premier 6MW data centre facility located in central London,
providing over 40 carrier-neutral networks. This makes Verne London one of the
most connected central London data centres, offering ultra-low latency and
high-performance connectivity to a diversified enterprise customer base.
In September 2022, the Company streamlined the operations and branding of
Verne London, bringing it under full operational and management control of the
Verne Global team so as to create a complementary platform of a
latency-sensitive data location which is essential for enterprise customers in
London, together with the high-intensity compute offering which requires
significantly higher power inputs which is ideally located in Iceland. The
Company and the Investment Manager believe there remains considerable
opportunity to educate enterprises about the economic and environmental
benefits of shifting energy-intensive, latency-insensitive data workloads to
the Nordics to realise the benefits of 100% renewable powered data capacity
and reduced costs. The complementary nature of the Group's data centre asset
locations also enables the Group to drive convergence across the portfolio's
campuses.
Compared to the same 12-month period in 2021, Verne London's revenue increased
by 17% and EBITDA decreased to negative £1.0 million for the 12-month period
to 30 September 2022. The decrease in EBITDA was caused by a significant
increase in UK power prices due to the ongoing war in Ukraine. Unlike Verne
Global, Verne London's power costs are not immediately passed onto the
customer, but instead pricing is reviewed annually based on a power price
index, resulting in a lag between when power prices increase, and when
contracts can be adjusted accordingly. A decrease in EBITDA had been
anticipated and priced into the acquisition of Verne London by the Company,
but actual performance during the year represents an improvement compared to
initial forecasts. The outperformance was driven both by the team's
responsiveness and ability to navigate the volatile power market experienced
in the UK, and by adjusting customer contracts accordingly either to reflect
recent power prices or to pass through power costs to customers. Following the
revised long term business plan, Verne London is expected to generate positive
EBITDA in 2023. Verne London has recently completed negotiations on a 2.1MW
contract with an established financial services customer and are currently
carrying out the construction works.
Verne London has 115 customers with 97% of recurring revenue providing fixed
annual revenue escalation of 3.5%, although retail customer contracts where
the power price is paid by Verne London can be escalated in accordance with
the appropriate power price index (instead of a defined percentage escalation
or typical inflation index such as CPI). This protects Verne London from
volatility in the power markets.
Verne London has no gearing in place.
As part of the annual 5-year business plan, Verne London has identified a
growth capital expenditure pipeline of c.£22 million for the 5-year period to
31 December 2027, including £12 million in 2023. This includes funding for
the expansion of both the first and second floors at the existing premises,
which was anticipated at acquisition and will increase capacity from an
existing 2.5MW to 6MW, at which point the facility will be fully built out. At
31 December 2022, the Group had funded £8 million of this expansion in Verne
London since its acquisition for £45 million in April 2022 and is committed
to a further £8 million.
1.2.3. Verne Global Finland (Previously Ficolo Oy)
Verne Global Finland is a leading Finnish data centre with existing buildings
capable of providing up to 23MW of capacity of which 7.4MW is currently
developed. Verne Global Finland also supplies heat distribution networks
locally with excess heat generated from operations.
Compared to the same 12-month period in 2021, revenue increased by 9% and
EBITDA increased by 51% due to new customer wins, for the 12-month period to
30 September 2022. The Company is pleased with this performance particularly
given market instability and Finland's proximity to Russia which did result in
delays to customer decisions; growth during 2022 would have been higher
without these factors.
Verne Global Finland has 31% of recurring revenue having an element of
inflation protection generated from over 130 large enterprise customers at 30
September 2022. Customer contracts are linked to CPI and capped at 2 - 3%
per annum.
Verne Global Finland has no gearing in place.
As part of the 5-year business plan, Verne Global Finland identified a growth
capital expenditure pipeline of £100 million for the 5-year period to 31
December 2027, including £51 million for 2023. This is to realise the
potential to expand existing resilient fit out capacity of 7.4MW to 17MW; the
Group has not yet committed to underwrite any of this expenditure. At 31
December 2022, the Group had funded £5.1 million in growth capital
expenditure in Verne Global Finland, since its acquisition for c.£114 million
in July 2022.
In order to capitalise on the benefits of a multi-campus, consolidated data
centre offering, the rebranding to Verne Global Finland is expected to support
the growth and consolidation of the Group's Nordic data centre platform. The
Company and the Investment Manager believe further synergies can be derived
through offering the combined Verne data centres' customers with a choice of
Nordic data centre locations through a common platform and therefore drive
greater convergence value across the portfolio.
1.2.4. Aqua Comms
Aqua Comms is a leading carrier-neutral owner and operator of subsea fibre,
providing essential connectivity through 20,000km of transatlantic, North Sea
and Atlantic, and Irish sea routes. Aqua Comms serves hyperscalers and global
carriers who have an exponential data demand.
Compared to the same 12-month period in 2021, revenue increased by 6% and
EBITDA decreased by 7.5% due to a shunt fault repair on AEC-1, plus smaller
impacts due to restarting travel post covid and investment in growth to scale
up the business. Aqua Comms expects customer demand to remain strong in the
foreseeable future while capacity demand continues to grow at very high rates.
Aqua Comms has 29% of recurring revenue with inflation protection generated
from large global tech customers at 30 September 2022. Customer contracts are
linked to both CPI and RPI and approximately half are uncapped, and half
capped to between 2-3%.
Aqua Comms has no gearing in place.
As part of the recent 5-year business plan, Aqua Comms identified a growth
capital expenditure pipeline of £60 million for the period to 2027, including
£20 million in 2023. This is to fund increasing capacity and redundancy
through new transatlantic subsea cables, including AEC-3, along with system
investment to drive scalability in operations. At 31 December 2022, the Group
had funded c.£6 million of growth capital expenditure in Aqua Comms since its
acquisition for c.£170 million in April 2021 and has committed to a further
c.£13 million.
In December 2022, Aqua Comms announced the appointment of Jim Fagan as CEO
effective from 1 May 2023, following Nigel Bayliff standing down from the
role. Jim's appointment follows a competitive recruitment and selection
process, and the Investment Manager continues to support the leadership
transition period closely. Jim brings 25 years' leading industry experience in
Asia-Pacific, North America and EMEA, including executive roles with Global
Cloud Xchange, Rackspace, and Pacnet (later acquired by Telstra).
In September 2022, Aqua Comms completed the acquisition of Openbyte
Infrastructure Private Limited ("Openbyte"). Openbyte is an India-based
licenced telecom consultancy company focused on providing neutral, open access
landing solutions for submarine cables. The acquisition complements Aqua Comms
investment in EMIC-1 and is key to supporting Aqua Comms' global connectivity
expansion plans, providing a carrier-neutral platform in India for Aqua Comms
services.
Aqua Comms remains one of the Company's cornerstone investment platforms since
IPO and the Investment Manager is very confident of the ability to create
accretive organic growth as well as seeking out potential additional pipeline
acquisitions in subsea fibre.
1.2.5. Europe Middle-East India Connect 1
EMIC-1 is a carrier-neutral network platform comprising subsea and terrestrial
fibre assets which is expected to connect Europe, the Middle East and India by
2024. In partnership with a consortium of investors, including Meta, the Group
will fund the development of the new 10,000km intercontinental fibre system,
which will be managed by Aqua Comms following completion. It is the Company's
only asset which is fully under construction, notwithstanding the Group's seed
capital investment into Giggle for which further information can be found in
section 1.2.9.
To fund the construction of EMIC-1, the Group committed to underwrite £50
million over a three-year period, potentially rising to over £60 million
dependent on additional capacity and connectivity requirements. At 30
September 2022, the Group had committed £46 million for equipment orders and
milestone payments. The remaining funding for the project construction
programme is expected to be provided throughout 2023 and 2024.
As identified at IPO, the Company and the Investment Manager believe EMIC-1
demonstrates the convergence value of the Group's subsea fibre platform. Once
EMIC-1's cable becomes ready for sale it is expected to become part of Aqua
Comms' subsea fibre platform. EMIC-1 will be Aqua Comms' first subsea cable in
the Asian market through its network in India, extending its reach for global
content providers and independent telecoms service providers.
1.2.6. SeaEdge UK1
SeaEdge is a data centre asset and landing station for several subsea fibre
systems located on the UK's largest purpose-built data centre campuses in
Newcastle. The Group owns the underlying real estate and leases the asset to a
high-quality data centre operator on a 25-year term occupational lease,
expiring in 2046 with 100% of contracts linked to RPI capped at 3%. Total
capacity at the facility is 11MW.
The Group acquired SeaEdge for £15 million in December 2021.
SeaEdge has no gearing in place and has a fully repairing and insuring lease
in place with their tenant that covers any future capital expenditure.
1.2.7. Arqiva Group
Arqiva is an established wireless 'national champion' providing essential
licensed data, network and communications services to UK homes, businesses,
and critical utility networks. Arqiva is the sole operator of digital
terrestrial television and radio infrastructure in the UK, serving c.98.5% of
the UK's population.
In the 12-month period to 30 June 2022, Arqiva's revenue decreased by 3.6% and
EBITDA increased by 1.9%, ahead of EBITDA budgeted in D9's acquisition model.
The revenue decrease was anticipated at the time of investment and reflects
(i) the planned wind down of discontinued operations following the sale of its
telecoms infrastructure to Cellnex in July 2020, (ii) the completion of
Arqiva's 700MHz clearance programme, (iii) the planned end of Arqiva's
Transition Service Agreement ("TSA") revenues established for an interim
period following the sale of Arqiva's telecoms business in 2020, and (iv)
expected lower renewal pricing following the end of legacy contracts on the
main Digital Terrestrial Television multiplexes, UK Direct-to-Home and managed
broadcast service products. The increase in EBITDA margin was driven by cost
savings including satellite capacity savings and headcount reductions.
Following the sale of Arqiva's telecoms business to Cellnex, the residual
proceeds enabled the September 2022 deleveraging of Arqiva's capital structure
through the refinancing of £625m of junior notes with cash and a £450m term
loan. For further information please refer to section 3.3.
Arqiva is the only Investee Company to use long-term debt instruments in its
capital structure (further information available in section 3.3). Arqiva plans
to work with the Company and its other shareholders over the coming months to
complete a new long-term forecast by the end of April 2023. Arqiva is expected
to self-fund any of its future capital expenditure requirements either via
existing cash resources or by utilising existing borrowing facilities.
Arqiva's revenue is underpinned by long-term contracts with blue-chip
customers including the BBC, ITV, Channel 4, Sky, Discovery and Thames Water.
Revenue contracts benefit from inflation protection, with an estimated 65-70%
of forecast recurring revenue for the financial year ending 30 June 2023
linked to the consumer price index ("CPI") or the retail price index ("RPI").
Arqiva's operational cash flow will generally benefit from an inflationary
environment, however inflation-linked swaps currently in place (until April
2027), offset the positive inflationary effect on operational cash flow.
Therefore, while Arqiva will benefit from an inflationary environment in the
longer term, the overall effect in the short-to-medium term is negative.
Further details can be found in section 3.3. The Company is working closely
with Arqiva to consider the optimisation of its capital structure.
As part of its May 2022 business plan, Arqiva identified a growth capital
expenditure pipeline of c.£170 million for the 5-year period to 31 December
2027 (on a proportional basis per the Company's 51.76% economic interest in
Arqiva). All capital expenditure is expected to be funded from Arqiva's
balance sheet.
The Company and the Investment Manager believe Arqiva is a mature network
business with strong, contracted, inflation-linked revenues. There is also a
compelling opportunity for capital growth to be realised through active
ownership of Arqiva's Internet of Things ("IoT") connectivity platform, which
helps deliver smarter and more efficient management of essential water and
energy utility networks.
1.2.8. Host Ireland
Host Ireland is a leading enterprise broadband provider that owns and operates
the highest capacity licensed Fixed Wireless Access ("FWA") network in Greater
Dublin, connecting c.1,600 enterprise customers with high-quality wireless
access across c.50 base stations.
Host Ireland continued its growth in high-quality wireless connectivity
operations in 2022, with unique customer connections growing from c.2,650 in
December 2021 to c.2,750 in September 2022. The company has a diverse client
base including larger multinationals, government bodies, global technology
companies, small professional service firms, retail and hospitality companies.
Compared to the same 12-month period in 2021, revenue has increased by 7% with
EBITDA increasing by 2% for the 12-month period to 30 September 2022. Host
Ireland has 45% recurring revenue inflation protection with price growth
linked to CPI on an uncapped basis at 30 September 2022. Host Ireland has no
gearing in place.
As part of its 5-year business plan, Host Ireland has identified a growth
capital expenditure pipeline of c. €8 million (c. £7 million) for the
period to 2027, including €1.3 million (£1.1 million) in 2023. At 31
December 2022, the Group had not funded any growth capital expenditure in Host
Ireland since its acquisition for £51 million in April 2022.
The Company and the Investment Manager believe Host Ireland continues to
provide an attractive entry point to Ireland's extensive FWA network and
represents a growth platform for further geographical expansion throughout
Ireland and internationally.
1.2.9. Giggle Broadband
In July 2022 the Group invested £1 million seed capital into Giggle, a
development opportunity that provides affordable broadband to social housing
through a revolutionary Fibre to the Home ("FTTH") network across the city of
Glasgow. Giggle represents a truly affordable broadband solution for social
housing, allowing families on social benefits to access top quality broadband
without having to enter into annual contracts, contributing positively towards
breaking the digital divide.
Due to its attractive proposition, Giggle has attracted a best-in-class senior
executive team led by experienced executive Dave Axam and supported by a CFO,
CTIO and CCO each with extensive experience in building FTTH networks. Dave
has a proven track record in delivering strategic transformation projects and
has previously held roles at BT and most recently as COO of LightSpeed
Broadband, a fibre altnet.
Giggle has identified a growth capital expenditure pipeline of c.£112 million
for the 5-year period to 31 December 2027, including c.£21 million in 2023.
Following the Group's further investment of £2 million in the project in
December 2022, no further capital expenditure has been committed by the Group.
2. Portfolio Valuation Methodology
The Investment Manager has an internal team that is responsible for carrying
out the fair valuation of financial assets for financial reporting purposes.
This valuation is presented to the Investment Manager's Valuation Committee
before the Board for its approval and adoption. These valuations are audited
by the Company's auditors at 31 December each year, and reviewed by the
auditors at 30 June annually. The Directors satisfy themselves as to the
methodology used, the discount rates and key assumptions applied, in addition
to the valuations being audited by the external auditors. All investments are
held at fair value in accordance with the IPEV (International Private Equity
and Venture Capital) valuation guidelines where appropriate to comply with
IFRS 13 and IFRS 9.
For the 2022 Interim Results valuation at 30 June 2022, the Company adopted a
Free cash flow to Equity ("FCFE") valuation methodology, applying the cost of
equity as the discount rate to the relevant equity cash flows, rather than a
blended Weighted Average Cost of Capital including the cost of debt. This is
considered by the Company to be the most appropriate methodology and is
consistent with other investment companies.
The valuation is carried out on a six-monthly basis at 30 June and 31 December
each year and is reported on to shareholders in the annual report and
financial statements. The Company's Net Asset Value at 31 December 2022 will
be published in the 2022 Annual Report expected to be released in March 2023.
The valuations will be prepared using the methodology described above.
The Company owns 100% of its subsidiary Digital 9 Holdco Limited ("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 through its
investment in D9 Holdco.
The Investment Manager 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 subsectors 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.
At 30 June 2022, the weighted average cost of equity across the portfolio
considered by the Investment Manager was 13.7%; the applied discount rates
ranged from 12% to 15.2%.
3. Balance Sheet and Liquidity Position
3.1. Cash Balance
At 1 January 2023, the Group had c.£74 million of cash available and also has
£43.8 million remaining undrawn of the £375 million RCF, excluding the
accordion tranche of up to £125 million.
3.2. Growth Capital Expenditure Pipeline
Due to accelerated customer demand, the Investee Companies, in aggregate, have
a significantly increased growth capital expenditure pipeline of c.£264
million for the year ending 31 December 2023. Notably, Verne Global identified
a substantially increased growth capital expenditure pipeline in its latest
5-year business plan, with capital expenditure pipeline in 2023 increasing to
$115 million (£95 million). The Group has not currently committed to any
further capital expenditure for 2023 onwards. The Company Investment Policy
includes a restriction that the Company will not invest more than 25% of
Adjusted Gross Asset Value in any single asset or Investee Company (measured
at the time of any investment into such asset or Investee Company) and
therefore the Group cannot currently materially increase its exposure to Verne
Global.
The Company has to date committed to fund c.£46 million of the total pipeline
(summarised in section 1 of this Trading Update) which will be funded by a
combination of cash and the available RCF (c.£5 million is expected to fall
due in 2024 as EMIC-1 approaches ready for sale).
For the period between 2024 and 2027 the Investee Companies, in aggregate,
have a growth capital expenditure pipeline of c.£639 million.
The sub-sectors in which the Company invests are typically growth sectors
where extensive capital expenditure can be deployed to, for example, increase
data capacity and fibre connectivity. Through the 'power of the platform',
accretive incremental growth capital expenditure can drive enhanced portfolio
returns and strong opportunities for valuation uplifts.
The Board and the Investment Manager recognise the importance of balancing the
possibility of raising additional equity in the current capital markets, with
a prudent approach to short and long-term borrowings within the Company's
capital structure - to sustainably finance growth capital expenditure.
The Company and the Investment Manager are evaluating complementary sources of
growth capital to support the Investee Companies' significantly increased
growth capital expenditure pipeline. This includes, inter alia, a potential
syndication of a minority stake in existing Investee Companies to a strategic
capital partner and/or appropriate debt financing at Investee Company level.
Such complementary sources of growth capital will only be considered where the
Board and the Investment Manager believe that this would be the most
appropriate way to create shareholder value.
The Company will consider the most suitable use of any additional capital at
the time, taking account of efficient management of its costs (including
reducing RCF interest payments through the repayment of the RCF) as well as
the financing of accretive portfolio growth opportunities.
3.3. Arqiva Capital Structure and Financing
Arqiva generates predictable earnings, supported by strong market positions,
diverse revenue streams, long-life assets and long-term inflation-linked
contracts. Arqiva has in place a long-term junior and senior debt programme.
Given the variable-rate debt on its balance sheet, Arqiva uses interest rate
swaps and inflation-linked swaps to hedge and manage its exposure to interest
rates.
The Group completed the acquisition of a 48.02% equity stake in Arqiva on 18
October 2022 for approximately £463 million, following the granting of
regulatory approval. £300 million of the acquisition was funded by a drawdown
on the Group's RCF and £163 million through a non-recourse VLN issued by the
vendor, which is listed on the International Stock Exchange ("TISE") 7 .
3.3.1 VLN
The VLN is due to mature in 2029 and has the following stepped interest rate
profile:
· 6% per annum up to and including 30 June 2025;
· 7% per annum from 1 July 2025 up to 30 June 2026;
· 8% per annum from 1 July 2026 up to 30 June 2027; and
· 9% per annum from 1 July 2027 to maturity.
Interest payments on the VLN are due annually in arrears on 30 June. Interest
can be rolled up but accrued interest must be paid in full before
distributions can be made to the Group. After the fourth anniversary of the
VLN, the Group can only receive distributions if the entirety of the VLN
principal and any rolled up interest has been repaid in full. The VLN becomes
repayable in full if the Group's equity position in Arqiva is reduced by more
than 50%. The Company expects Arqiva's future cashflows to cover D9's VLN
interest payments. The Investment Manager expects that the VLN will be
refinanced prior to its fourth anniversary in October 2026, as was anticipated
at acquisition.
3.3.2 Debt
At 30 September 2022 the Arqiva Group's debt finance comprised:
< 1 year 1-2 years 2-5 years >5 years Total
£m £m £m £m £m
Facilities drawn 22.2 - - - 22.2
Finance lease obligations* - - - - 78.7
Senior term debt - 262.0 - - 262.0
Senior bonds and notes 50.3 45.2 178.6 433.2 707.4
Junior Term Loan - - - 450.2 450.2
Total 72.5 307.2 178.6 883.4 1520.5
Shareholder loan notes - - - 5,161.9 5,161.9
* The ageing for the lease obligations was unavailable at the time of this
announcement.
During the financial year ending 30 June 2022, S&P upgraded the Arqiva
Group's senior debt rating to BBB+ from BBB reflecting the revised business
plan as well as the significant deleveraging from the residual proceeds of the
sale of Arqiva's telecoms business; it continues to be rated BBB by Fitch.
In August 2022, Arqiva secured a 5.5-year £450 million term loan facility at
an interest rate of c.10.3% per annum. Proceeds of the loan, together with
cash held on the balance sheet, were used on 30 September 2022 to redeem the
£625 million 6.75% coupon junior notes, which were due in September 2023.
Alongside the term facility, the Arqiva Group also entered into a £50 million
working capital facility providing additional liquidity support, which was
subsequently increased to £70 million in December 2022.
The Arqiva Group uses interest rate swaps (including inflation-linked interest
rate swaps) to hedge interest rate exposures. Inflation-linked swaps convert
existing interest costs to RPI-linked costs, which fluctuate in line with the
RPI index, as do a significant portion of Arqiva's revenues. The notional
amounts of these swaps accrete with RPI, and these accretion amounts require
cash settlement annually. These swaps are entered into on terms (including
maturity) that mirror the debt instrument that they hedge, and act as an
effective hedge against rising interest rates.
Arqiva's cash flows are sensitive to inflation: an increase in inflation
generally results in (i) incremental EBITDA growth due to inflation-linked
customer contracts and (ii) accretion payments on the inflation-linked swaps.
In the short term, inflation has a net negative cash impact on Arqiva: for the
financial year ending 30 June 2023, a 1% increase in inflation costs the
business an additional c.£10 million, owing mainly to the accretion payments.
However, each year of inflation will drive incremental revenue growth flowing
into all years thereafter. The inflation-linked swaps are due to expire in
2027, after which point Arqiva will benefit from the incremental revenue
growth from the inflationary period without the added cost of the accretion
payments.
As a result of the current macro-economic environment, inflation is currently
higher than at the point the Group agreed to acquire its stake in Arqiva in
June 2022; it is expected that this will have a negative impact on short-term
cash flows due to the inflation-linked swaps. The key upside of a short-term,
high-inflationary period is the incremental revenue increase received across
the years that follow. Inflation in 2022 and 2023 is therefore expected to
have a material positive impact on cash flows from 2027 onwards once the
inflation-linked swaps expire. Arqiva is expected to self-fund any of its
future capital expenditure requirements either via existing cash resources or
by utilising existing borrowing facilities.
Arqiva Group publishes quarterly updates to credit investors via its website
and issues covenant reporting and guidance to note holders. Further
information can be found at:
https://www.arqiva.com/about/financial-reporting/credit-investors/
(https://www.arqiva.com/about/financial-reporting/credit-investors/) .
3.4. Leverage and RCF Margin Reduction
The Company, through its main subsidiary D9 Holdco, has in place an RCF of
£375 million, with an uncommitted accordion tranche of up to £125 million.
Other than the debt acquired as a result of the Arqiva transaction, there is
currently no other leverage in any Investee Company. The Company is committed
to the prudent use of the RCF, which can be used for acquisitions, letter of
credits and to help fund the growth capital expenditure pipeline of Investee
Companies.
At 31 December 2022, £331.2 million were drawn under the Group's RCF which
includes also one letter of credit which the Company has issued for one of its
Investee Companies in May 2022. This drawn position follows the completion of
the acquisition of Arqiva with the amount of £300 million, the funding of
Investee Company capital expenditure commitments with the amount of £30
million and one letter of credit with the amount of £1.2 million.
The margin payable under the terms of the RCF is subject to the
diversification of the portfolio and the Group meeting certain financial
covenant thresholds and can range between 3.25% and 3.75% per annum over
Sterling Overnight Index Average ("SONIA"). The threshold to reach the first
margin ratchet is for the Company having reached eight standalone investee
companies ("Approved Investments"). On 9 December 2022, the RCF's starting
margin has decreased from 3.75% to 3.5% with the acquisition of Arqiva as the
Company had reached the threshold of eight Approved Investments. The Margin
will reduce further to 3.25% should the D9 Holdco loan-to-value ("LTV") test
fall below 20%. More information on this test is set out below.
The RCF is a 3-year facility, maturing in March 2025. The RCF's financial
covenants include both LTV and interest coverage ratios, a summary of which is
provided below. D9 Holdco must also maintain a 9-month interest reserve in a
restricted bank account of D9 Holdco, to cover future interest payments. A
commitment fee of 40% of the applicable margin is payable quarterly on the
remaining undrawn facility amount.
Covenant Limit Description
Holdco LTV test 35% Ratio (expressed as a percentage) of the total Financial Indebtedness of each
Group Company excluding Investee Companies.
Global LTV test 65% Ratio (expressed as a percentage) of the total Financial Indebtedness of the
Group including any wholly owned Subsidiaries and any Non-Wholly Owned
Holdings of the Group.
The Holdco LTV excludes any intra-Group and uncommitted accordion tranche but
includes any negative marked to market derivative transactions. This metric
excludes Investee Company leverage. The Holdco LTV is a covenant for RCF
purposes only and is not an investment restriction within the Company's
Investment Policy. At 31 December 2022, D9 Holdco's LTV was 26.9% following
the drawing of the RCF for the acquisition of an equity stake in Arqiva and
for growth capital expenditure for the wider portfolio.
The Global LTV excludes any intra-Group and uncommitted accordion tranche but
includes any negative marked to market derivative transactions. Arqiva is the
only Investee Company with leverage. The Global LTV is a covenant for RCF
purposes only and is not an investment restriction within the Company's
Investment Policy. The Company's Global LTV is currently 50% following the
drawing of the RCF for the acquisition of an equity stake in Arqiva and for
growth capital expenditure for the wider portfolio, of which 36% is
attributable to Arqiva which is non-recourse to the Company. The leverage
assumed in the Global LTV calculation includes, (i) drawn amounts under the
RCF, (ii) VLN (iii) Arqiva Group debt. The Company is working closely with
Arqiva to consider the optimisation of its capital structure.
The Company's aggregate level of borrowings is expected to be no more than a
maximum of 50% of Adjusted Gross Asset Value(4). Intra-group debt between the
Company and its subsidiaries, and the debt of Investee Companies, are not
included in this borrowing policy. At 31 December 2022, the Group's leverage
position was as follows:
Leverage as a percentage of pro-forma Adjusted GAV
Drawn RCF (£331.2m) 26.0%
Total RCF (excluding accordion) (£375m) 29.4%
RCF and VLN (£375m and £163m) 42.2%
With the exception of the Group's shareholding in Arqiva, the Group's
portfolio investments do not include gearing. In line with the Company's
Investment Policy, the Board expects to consider the appropriateness of
long-term gearing applied at the Investee Company level in order to enhance
returns and liquidity at a prudent level, appropriate for the particular
Investee Company and the dynamics of the sub-sector.
4. Dividend Cover
4.1.1 Actual Operating Cash Flow Cover
On 14 September 2022, for the interim results ending 30 June 2022, the Company
reported that its existing assets were generating an operating cash flow
dividend cover of 0.53x. This figure excluded the acquisitions of Arqiva and
Verne Global Finland, which completed in July and October 2022, respectively.
To arrive at this figure, the Company took actual operating cash flow for the
Investee Companies for the six months to June 2022 and deducted the operating
expenditure of the Company and D9 Holdco. This was then divided by the
dividends paid in the period to arrive at the dividend cover figure.
4.1.2 Pro-forma Illustrative Portfolio Cash Flow Cover
In the Company's interim results presentation for the same period, the Company
also disclosed a pro-forma illustrative portfolio cash flow per share
including the acquisition of Arqiva and Verne Global Finland. The Investee
Company operating cash flow figures used to present Investee Company operating
cash flow dividend cover used a combination of run rate EBITDA less interest
figures and the last 12-months EBITDA less interest figures. A full breakdown
is shown below.
Including the Arqiva and Verne Global Finland acquisitions on a pro-forma
basis, this had the impact of increasing the operating cash flow cover to
c.1.9x the Company's target 6.0 pence per share dividend.
The run rate EBITDA applied to the data centre platform assets assumes that
all current sold contract capacity has fully ramped up to maximum capacity.
For the avoidance of doubt, the run rate EBITDA figures used assumed no future
capacity has been added.
Platform Operating Cash Flow Methodology
Arqiva Annual Report June 21 (EBITDA less interest paid)
Verne Global Run rate EBITDA less interest at 30 June 22
Aqua Comms Last 12-months EBITDA
Verne Global Finland Run rate EBITDA at 30 June 22
Host Ireland Last 12-months EBITDA less interest to 30 June 22
Verne London Run rate EBITDA at 31 March 22
SeaEdge UK1 Fixed Rental income figure
The Company is targeting an aggregate dividend of 6.0 pence per Ordinary Share
for the year ended 31 December 2022(2).
5. Investment Approach and Investment Manager
5.1. Investment Approach
The Company is a digital infrastructure specialist focusing solely on
investing and managing the critical infrastructure for the connected world,
including assets in four sub-sectors: data centres, subsea fibre, terrestrial
fibre and wireless networks. Its strategy is underpinned by a deep sector
expertise within its investment team, Investee Companies' management, a panel
of operating partners (see operating partner biographies in section 5.4), and
wider ecosystem.
Underpinning the investment approach is D9's collective digital expertise and
extensive industry network, which has seen the team successfully source and
execute nine transactions in 18-months, many of which were proprietary and
exclusive. This has afforded the Company attractive valuation multiples in a
competitive primary and secondary market.
The Company's investment thesis focuses on the 'platform first' approach. The
Group invests in quality assets supported by high-calibre management teams,
who can be further leveraged to drive accretive investment, either organically
or through M&A. After acquiring Verne Global in September 2021, the Group
acquired two further data centre assets (Verne London and Verne Global
Finland), which have both been integrated commercially into the Group's data
centre platform and rebranded under the Verne Global brand. The attractiveness
of the platform approach is demonstrated by the Group's ability to generate
c.$1 million of incremental EBITDA in its Nordic data centre platform by
investing an average of c.$6.5 million in capital expenditure for every MW
constructed. This reflects an EBITDA multiple of c.6.5x, significantly below
comparable transactions that are trading at c.20x.
Through the Investment Manager's deep sector expertise, the Company implements
an active asset management and optimisation approach. This entails very close
collaboration between the investment team and Investee Companies' management
teams (see Investee Company CEO biographies in section 5.3 below). The
Company's operating partners help shape and drive the Company's investment
strategy, contributing additional operational expertise to drive asset
management and, where relevant, provide transactional support through the
Investee Companies' boards. In addition, this collaboration across platforms
focuses the Company's approach on driving portfolio convergence and synergies
between the Group's assets by leveraging its relationships with the biggest
purchasers across the digital infrastructure value chain, including global
carriers and big tech.
5.2. Investment Manager
Triple Point is an experienced institutional investment manager with over £3
billion in assets under management. Triple Point's digital infrastructure
investment team comprises 6 sector experts who have industry experience
operating, investing in, and managing companies within D9's four target
sub-sectors. In addition, the Investment Manager has a wider team supporting
the Company of 14 professionals with experience across finance, debt capital
markets, risk, sustainability and legal. D9's investment team also includes a
panel of 4 highly experienced operating partners that are well placed to
support the Investment Manager with additional industry expertise and provide
in-depth analysis of the sector.
The Company benefits from Triple Point's expertise, led by Ben Beaton and
Arnaud Jaguin.
Ben Beaton, Co-Managing Partner and Fund Manager
Ben was instrumental in establishing D9 and in the development and operations
of Triple Point's digital infrastructure team. Ben joined Triple Point in 2007
and was appointed Head of Investment in 2014. He became Co-Managing Partner of
Triple Point in 2016 and has led the sourcing and negotiating of a broad range
of investments for the Investment Manager.
Arnaud Jaguin, Investment Director
Arnaud joined Triple Point in January 2021 and has over 15 years' experience
in telecoms and digital infrastructure. He began his career in telecoms
M&A advisory at UBS Investment Bank, advising on £50 billion of
transactions. At Level3 Communications, CenturyLink, and RETN, he was
responsible for corporate development, corporate strategy, marketing, and
sales operations. Arnaud is the Company's board representative on Arqiva, Aqua
Comms, Verne Global and Giggle.
5.3. Investee Company CEOs
Dominic Ward, CEO of Verne Global and Verne London Data Centres, and Chair of
Verne Global Finland
- Dominic joined Verne Global's management team in 2015. Prior to that
he ran direct investments at the Wellcome Trust, one of Verne's previous
shareholders. He began his career at Jones Lang LaSalle Corporate Finance and
later co-founded Lepe Partners, a technology investment and advisory firm.
Seppo Ihalainen, CEO of Verne Global Finland
- Seppo is CEO and co-founder of Verne Global Finland Ltd. Seppo has
built Verne Global Finland into an internationally acclaimed data centre
partner. He has more than 20 years' experience in the ICT-sector. He worked as
Head of Technology at TDC Finland and has wide international experience
working for UNDP and Seven Networks.
Jim Fagan, CEO of Aqua Comms from 1 May 2023
- Jim is a technology executive with 25 years of experience in telecom
and IT spanning private and public companies across the US, Asia Pacific and
EMEA. Jim had been with GCX since 2020, and he has also worked at Pacnet from
2012 to 2015 as president of managed services. Jim also went on to work for
Telstra after it acquired Pacnet.
Shuja Khan, CEO of Arqiva
- Shuja joined Arqiva in January 2020 as Chief Commercial Officer
where he played an integral part in establishing the new strategic direction
for the business. Shuja has 20 years' leadership experience in the technology,
media, and communications sector. Prior to joining Arqiva he was Chief
Commercial Officer for Cable & Wireless and has also held a number of
leadership positions at both Virgin Media and Liberty Global Europe.
David Russell, CEO of Host Ireland
- David is Chief Executive for Host Ireland, joining as Head of Sales
in 2016 before becoming Chief Executive in 2018. He led the sale of Host
Ireland to Digital 9 in 2022. Previously, David held positions in The Dixons
Group and started a bonded logistics company in his native Northern Ireland.
5.4. Operating Partner Panel
Alan Harper
- D9 positions held: Chairman of Aqua Comms
- Background: Alan spent 12 years at Vodafone Plc, as Group Strategy
Director, he led c.$200bn of acquisitions. Alan co-founded and was CEO at
Eaton Towers, a leading tower company, which was acquired by American Tower
for c.$1.9bn in 2019.
Ed McCormack
- D9 positions held: Non-Executive Director of Aqua Comms
- Background: Ed spent 8 years at FLAG Telecom, as COO and Executive
Director, he led the development of c.52,000km global portfolio of subsea
fibre. He is a senior adviser to Ciena, a telecoms equipment supplier with a
market capitalisation of over $8bn.
Steve Andrews
- D9 positions held: Chairman of Verne Global, Board Observer to Verne
Global Finland and Verne London and Non-Executive Director for Host Ireland
- Background: Steve was an Executive at BT plc for 25 years, including
as President of the Global Carrier business where he was responsible for
managing BT's Network Operations across 125 countries, MD Fixed and
Wireless/Mobile Products, and was a member of BT Group Capital Investment
Committee. Previously he was Chairman of PE backed Azzurri Communications
until its successful exit in 2016.
Simon Beresford-Wylie
- D9 positions held: Operating Partner
- Background: Simon was the CEO of Arqiva and led the sale of Arqiva's
telecoms division for c.$2bn, as well as the Indoor Networks portfolio sale to
Wireless Infrastructure Group (WIG), a 3i Infrastructure company. Simon was
previously VP at Network's Business Unit of Samsung Electronics and founding
CEO of Nokia Siemens Networks.
6. Outlook
As disclosed on 1 December 2022, Triple Point initiated a formal recruitment
and selection process for senior asset management and industry professionals
who complement the existing skillset of the team and Investee Company
management. The Board and Triple Point are encouraged by the high-quality
candidates in the process and look forward to updating shareholders on its
outcome as soon as practicable.
Following the inclusion of the Company's shares in the Official List of the
FCA and the transfer of trading to the Premium Segment of the Main Market of
the London Stock Exchange, announced in August 2022, the Company was pleased
to note that D9 became a constituent of the FTSE250 index effective from the
start of trading on Monday, 19 December 2022. The Company believes that these
events are important milestones for the Company with the benefits of: an
increased profile as an investor; further diversification of the share
register, with access to blue chip UK and international investors; and
enhanced liquidity in its shares, in particular, from inclusion in the FTSE250
and greater retail investor participation. In turn, as markets normalise, we
expect this to provide further access to Digital Infrastructure investment
opportunities, providing further portfolio diversification and economies of
scale.
The Group has substantially committed all available capital raised since IPO.
The Investee Companies benefit from high-quality management teams with a
comprehensive understanding of their relevant sector and have the potential to
be platforms for significant future growth through providing attractive and
compelling opportunities to deploy additional capital. This has resulted in a
period of consolidation and focus on the operational performance and
optimisation of each of the assets acquired to date.
The Company and the Investment Manager are evaluating complementary sources of
growth capital to support this significantly increased growth capital
expenditure pipeline and pursue these compelling growth opportunities. In
conjunction, the Company will continue to execute its accretive convergence
strategy by driving the breadth and depth of customer relationships across
global tech and telecom operators. Through this investment approach, we aim to
build a global platform that promotes scalability, flexibility, reliability,
and neutrality across the digital infrastructure value chain.
Despite the challenging macro-environment, digital infrastructure remains a
resilient asset class. Global data traffic continued to grow c.30% in 2022 8 ,
fuelling demand for new digital infrastructure assets.
Subsea connectivity has seen $2.5 billion of announced investment in 2022 and
a further $4.5 billion in 2023. Despite some highly publicised rescoping,
demand for data centre services has continued to see substantial growth, with
enterprise customers displaying a growing interest in sustainable solutions,
such as that provided by Verne Global. The Investment Manager expects those
trends to remain unchanged in 2023.
After a strong 2021, the negative economic sentiment and rising interest rate
environment have softened sector valuations. However, trading valuations have
demonstrated resilience in recent months and remain at healthy levels,
especially for data centres and macro towers. Despite a slowdown in
transactions in the sector, due to adverse market conditions, digital
infrastructure remains an attractive asset class that requires c.£400 billion
of annual invested capital and the sector continues to grow as demand and
dependency on it continues to increase.
ENDS.
NOTES TO EDITORS
Digital 9 Infrastructure plc (DGI9) is an investment trust listed on the
London Stock Exchange with ticker DGI9. The Company invests in the
infrastructure of the internet that underpins the world's digital economy:
digital infrastructure.
The Investment Manager is Triple Point Investment Management LLP ("Triple
Point") which is authorised and regulated by the Financial Conduct Authority,
with extensive experience in infrastructure, real estate and private credit,
while keeping ESG principles central to its business mission. Triple Point's
Digital Infrastructure team has over $300 billion in digital infrastructure
transaction experience and in-depth relationships across global tech and
global telecoms companies.
The number 9 in Digital 9 Infrastructure comes from the UN Sustainable
Development Goal 9, which focuses the fund on investments that increase
connectivity globally and improve the sustainability of digital
infrastructure. The assets DGI9 invests in typically comprise scalable
platforms and technologies including (but not limited to) subsea fibre, data
centres, terrestrial fibre and wireless networks.
From its IPO in March 2021 and subsequent capital raises, DGI9 has raised
total equity of £905 million and a revolving credit facility of £375
million, invested into the following data centres, subsea fibre, terrestrial
fibre and wireless networks:
· Aqua Comms, a leading owner and operator of 20,000km of the most modern
subsea fibre systems - the backbone of the internet - with a customer base
comprising global tech and global telecommunications carriers (April 2021);
· Verne Global, the leading Icelandic data centre platform, with 40MW of
high intensity computing solutions in operation or development, powered by
100% baseload renewable power (September 2021);
· EMIC-1, a partnership with Meta on a 10,000km fibre system from Europe
to India (July 2021);
· SeaEdge UK1, a data centre and landing station for the North Sea
Connect subsea cable, part of the North Atlantic Loop subsea network,
improving connectivity between the UK, Ireland, Scandinavia and North America
(December 2021);
· Host Ireland, a leading enterprise broadband provider that owns and
operates Fixed Wireless Access networks (April 2022);
· Verne London, a premier data centre based in central London, providing
6MW retail co-location services (April 2022);
· Verne Global Finland, a leading Finnish data centre and cloud
infrastructure platform, with c.23MW of data centre capacity, powered by 100%
renewable power and distributing surplus heat to district heating networks
(July 2022).
· Giggle, a revolutionary Fibre to the Home network providing
affordable broadband to social housing in Glasgow (July 2022); and
· Arqiva, the only UK national terrestrial television and radio
broadcasting network in the United Kingdom - providing data, network and
communications services, as well as a national IoT connectivity platform
(October 2022).
The Company's Ordinary Shares were admitted to trading on the Specialist Fund
Segment of the Main Market of the London Stock Exchange on 31 March
2021. It was admitted to the premium listing segment of the Official List of
the Financial Conduct Authority and migrated to trading on the premium segment
of the Main Market on 30 August 2022.
For more information on the Investment Manager please visit
www.triplepoint.co.uk (http://www.triplepoint.co.uk) . For more information,
please visit www.d9infrastructure.com (http://www.d9infrastructure.com) .
1 The Investee Companies customary annual re-forecasting exercise excluded
Arqiva Group which reports using a June-to-June annual cycle. Arqiva Group's
business plan was signed off by the Arqiva Group board in May 2022.
2 The target dividend is a target only and not a forecast. There can be no
assurance that the target will be met and it should not be taken as an
indication of the Company's expected or actual future results.
3 The total return and the dividend are targets only and not a forecast.
There can be no assurance that the targets will be met and it should not be
taken as an indication of the Company's expected or actual future results.
4 Adjusted Gross Asset Value means 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.) These adjustments are made: (a) to
replicate the gross assets of the Group as if its accounts were prepared on a
consolidated basis; and (b) in respect of the inclusion of undrawn debt
available to the Group, to account for debt that could be drawn down without
having to draw the debt (and, hence, incur interest costs) ahead of, or if not
required for, completion of a transaction.
5 The Group owns a 48.02% equity stake in Arqiva, with a 51.76% economic
interest.
6 Operating cash flow is operating cash flow from the Investee Companies
less maintenance capital expenditure and interest expenses of the Investee
Companies, if applicable. The reduction in OCF for the 12-months to September
2022 against the 12-months to September 2021, is largely due to an increase in
accretion payments at Arqiva. The 12-months to September 2021 also included
increased IRU sales at Aqua Comms.
7 https://tisegroup.com/market/securities/14809
(https://tisegroup.com/market/securities/14809)
8 https://blog.telegeography.com/internet-traffic-and-capacity-remain-brisk
(https://blog.telegeography.com/internet-traffic-and-capacity-remain-brisk)
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