REG - Digital 9 Infrastr. - Unaudited Portfolio Valuation and Unaudited NAV

Digital 9 InfrastructureAnnouncement

28/03/2024 07:15

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RNS Number : 6071I  Digital 9 Infrastructure PLC  28 March 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.

 

 

28 March 2024

 

DIGITAL 9 INFRASTRUCTURE PLC

 

("D9" or the "Company" and, together with its subsidiaries, the "Group")

 

Unaudited Portfolio Valuation and Unaudited Net Asset Value

 

 

Following the Company's announcements on 29 January 2024 and 25 March 2024,
the Board of D9 (the "Board") today publishes its unaudited valuation of the
Company's portfolio of assets and a corresponding unaudited preliminary Net
Asset Value ("NAV") as at 31 December 2023.

 

As part of the outcome of the Strategic Review, the Board committed to assess
the fair value of the Company's portfolio of assets under International
Financial Reporting Standards. In arriving at their fair value conclusions,
for which the Board is solely responsible, the Board has obtained an
independent valuation of Aqua Comms, Elio Networks, Arqiva Group and the
potential earn-out payment of up to US $135 million (the "Earn-out") from the
sale of the Verne Global Group of Companies ("Verne Global") that completed on
15 March 2024 (the "Verne Transaction").

 

Unaudited Portfolio Valuation

 

The Board has now completed its assessment and has determined that the
aggregate indicative valuation of the Company's portfolio of assets as at 31
December 2023, including 100% of Verne Global, is estimated to be c.£1.08
billion. This represents:

·      a 5.6% reduction compared to £1.15 billion as at 30 June 2023;
and,

·      a 10.5% reduction compared to £1.21 billion as at 31 December
2022.

 

The value ascribed to the Verne Global Group of Companies is based on the
gross proceeds received and the Deferred Consideration, as referred to in the
Company's announcement on 15 March 2024, plus the Earn-out which has been
indicatively valued at US $67.2 million (c.£52.7 million). Excluding Verne
Global (and the Earn-out), the aggregate indicative valuation of the Company's
portfolio companies is estimated to be £684 million. This represents:

·      a 1.6% increase compared to £674 million as at 30 June 2023;
and,

·      a 1.2% decrease compared to £693 million as at 31 December 2022.

 

The below table shows the valuation of each portfolio company determined by
the Board compared to audited valuations as at 31 December 2022 and unaudited
interim valuations as at 30 June 2023.

 

 Portfolio Company             Dec-22     Jun-23     Dec-23     % Change vs Dec-22  % Change vs Jun-23

                               (£'000)    (£'000)    (£'000)
 Aqua Comms                    234,778    226,973    238,060    1.4%                4.9%
 EMIC-1                        22,617     26,186     35,981     59.1%               37.4%
 Sea Edge                      17,550     17,813     14,042     -20.0%              -21.2%
 Elio Networks                 59,385     57,911     55,444     -6.6%               -4.3%
 Verne Global                  517,255    473,062    398,153    -23.0%              -15.8%
 Arqiva Group                  355,268    344,622    340,600    -4.1%               -1.2%
 Giggle                        3,000      -          -          -100.0%             0.0%
 Total                         1,209,853  1,146,567  1,082,279  -10.5%              -5.6%
 Total excluding Verne Global  692,598    673,505    684,126    -1.2%               1.6%

 

 

Methodology

 

The Board's assessment of the unaudited portfolio valuation was informed by an
assessment of portfolio companies' operating models and cash flows provided by
the Investment Manager, based on the five-year business plans prepared by the
portfolio company management teams and approved by their respective Boards.
The valuation of the Earn-out was derived using a Monte Carlo Simulation. In
this approach, a random value was selected for each of the simulations, based
on the range of estimates within Verne Global's business plan for the future
run rate EBITDA for the year to 31 December 2026 to be generated, in line with
the Earn-out terms. EMIC-1 continues to be held at cost while the project is
in development. The value of SeaEdge has been provided by a real estate
adviser as part of the sale preparation processes disclosed by the Company on
29 January 2024. The value of Arqiva Group is net of the Vendor Loan Note
("VLN") of £169.8 million.

 

The Board's assessment of the unaudited portfolio valuation is on the basis of
fair value, defined by the International Financial Reporting Standard 13 "Fair
Value Measurement" ("IFRS 13") 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", commonly known as the 'willing buyer,
willing seller' basis. In the context of the now approved and forthcoming
Managed Wind-Down following the result of the General Meeting on 25 March
2024, the value realised in an actual sale (or 'market value') could be higher
or lower than the fair value disclosed in this announcement.

 

Preliminary Unaudited Net Asset Value

 

Following the unaudited portfolio valuation explained above, the Company also
provides a preliminary unaudited NAV as at 31 December 2023 of approximately
£728 million, representing a preliminary unaudited NAV per share of
approximately 84 pence per share. The preliminary unaudited NAV as at 31
December 2023 represents a decrease of 16%, or £138 million, since 30 June
2023 (£866 million, or 100.13 pence per share). This preliminary unaudited
NAV was provided by the Investment Manager and assessed by the Board. It
included Verne Global as per the unaudited portfolio valuation described
above, and the Revolving Credit Facility ("RCF") prior to the £273.5 million
repayment and partial cancellation mentioned below, as the completion of the
transaction is a post balance sheet event.

 

Fair Value Movement and Costs

 

The indicative movement in the preliminary unaudited NAV in the six months
from 30 June 2023 to 31 December 2023 includes:

·    a 12% (£104.5 million) decline due to the movement in fair value of
the portfolio, as determined by the unaudited portfolio valuation described
above. This movement was largely due to the 23.0% (£74.9 million) decline in
the fair value of Verne Global, as described above;

·      a 2% (£22.3 million) decline due to interest costs in respect of
the RCF and the Arqiva Group VLN;

·     a less than 1% (£5.7 million) decline due to financial, legal,
and other advisory fees incurred in the 2023 financial year to execute the
Verne Transaction - as part of the total Verne Transaction fees of up to £17
million (see below);

·     a less than 1% (£3.5 million) decline related to break fees
incurred by the Company 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; and

·      a less than 1% (£2.4 million) decline due to legal fees incurred
to undertake the Strategic Review and technical advisory fees to develop
contingency planning to address the Company's historical residual financial
uncertainty, as disclosed on 27 November 2023 and prior to the completion of
the Verne Transaction.

 

On 15 March 2024, the Company provided cost disclosure of up to £17 million
in respect of 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 were incurred in the
period-ending 31 December 2023, and £7.8 million were incurred post-period
end in 2024. The £9.2 million included the £5.7 million mentioned above
which contributed to the movement in the preliminary unaudited NAV in the six
months from 30 June 2023 to 31 December 2023, as described above.

 

The Board notes that 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.

 

Partial Repayment of the RCF

 

As announced by the Company on 25 March 2024, following completion of the
Verne Transaction on 15 March 2024, the Company has completed the previously
announced £273.5 million repayment and partial cancellation of the RCF.

 

As announced by the Company on 15 March 2024, around £23 million of the Verne
Global sale proceeds will be retained for prudent capital management to cover
for possible future liabilities arising from certain Value-Added Tax related
indemnification provisions. They will be available for additional RCF
repayment and cancellation if and when an insurance policy to cover these
potential future liabilities will be taken out. An additional RCF repayment
and cancellation will also be made upon receipt of the US$25 million
(approximately £19.5 million*) deferred consideration payment, which is
payable on the earlier of 15 business days after the date on which a new power
agreement is entered into and 26 April 2024.

 

Annual Report and Accounts

 

The indicative values included in the unaudited portfolio valuation and
unaudited NAV will be audited by the Company's auditor, PricewaterhouseCoopers
LLP ("PwC"), for inclusion in the Annual Report and Accounts for the year
ended 31 December 2023 which will be published prior to the end of April 2024.

 

* GBP amounts based on a 1.28 USD/GBP exchange rate as of 13 March 2024.

 

 

ENDS.

 

Contacts

 

   Liberum Capital Limited (Financial Adviser)     +44 (0)203 100 2000

   Chris Clarke

   Darren Vickers

   Owen Matthews
   J.P. Morgan Cazenove (Joint Corporate Broker)   +44 (0)20 7742 4000

   William Simmonds

   Jérémie Birnbaum
   Peel Hunt (Joint Corporate Broker)              +44 (0) 20 7418 8900

   Luke Simpson

   Huw Jeremy
   FTI Consulting (Communications Adviser)         dgi9@fticonsulting.com (mailto:dgi9@fticonsulting.com)

   Mitch Barltrop                                  +44 (0) 7807 296 032

   Maxime Lopes                                    +44 (0) 7890 896 777

 

The person responsible for arranging the release of this announcement on
behalf of the Company is Helen Richardson, Company Secretary.

 

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 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)
. For more information, 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)
.

 

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