TIDMDGI9
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
GBP1.3 billion at 30 September 2022. For the 12-months to 30
September 2022, consolidated Investee Company Revenue of c.GBP418
million achieved Company and management expectations and
consolidated Investee Company EBITDA of c.GBP221 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.GBP264 million for the year ending 31 December 2023
and c.GBP639 million in respect of the subsequent four years ending
31 December 2027. At 31 December 2022, the Group had committed to
fund c.GBP46 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.GBP74 million of cash
available and GBP43.8 million remaining undrawn of the GBP375
million RCF, excluding the accordion tranche of up to GBP125
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 .
The presentation will also be accessible on-demand later in the
day via the Company website: 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 GBP300 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 GBP163 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 % equity ownership
Adjusted Gross by Company
Asset Value[4]
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 GBP1.3 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 Period ended
30 September 30 September
2022 2021
Consolidated Investee Company Revenue c.GBP418 million c.GBP415 million
----------------- -----------------
Consolidated Investee Company EBITDA c.GBP221 million c.GBP210 million
----------------- -----------------
Consolidated Investee Company Operating c.GBP55 million c.GBP92 million
Cash Flow[6]
----------------- -----------------
Consolidated Investee Company run c.GBP224 million c.GBP212 million
rate EBITDA
----------------- -----------------
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 52%
* RPI/CPI/PPI linked with no cap 12%
2%
66%
* Fixed uplift of 2% to 5% (2.6% weighted average)
* CPI/RPI/PPI linked with cap of 2% to 3%
Total
--------------
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.GBP264 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.GBP46 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.GBP639
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 Growth capital
expenditure pipeline expenditure pipeline
(2023) (2024-27)
Data Centres Verne Global c.GBP95 million c.GBP296 million
--------------------- ---------------------- ----------------------
Verne London c.GBP12 million c.GBP10 million
--------------------- ---------------------- ----------------------
Verne Global Finland c.GBP51 million c.GBP49 million
--------------------- ---------------------- ----------------------
SeaEdge UK-1* GBPNil GBPNil
--------------------- ---------------------- ----------------------
Subsea Aqua Comms c.GBP20 million c.GBP40 million
Fibre
--------------------- ---------------------- ----------------------
EMIC-1 c.GBP27 million c.GBP13 million
--------------------- ---------------------- ----------------------
Wireless Arqiva** c.GBP37 million c.GBP133 million
networks
--------------------- ---------------------- ----------------------
Host Ireland c.GBP1 million c.GBP6 million
--------------------- ---------------------- ----------------------
Terrestrial Giggle c.GBP22 million c.GBP91 million
Fibre
--------------------- ---------------------- ----------------------
Total c.GBP264 million c.GBP639 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 (GBP95 million). Furthermore, its capital
expenditure pipeline for the five years to 31 December 2027
increased from $208 million (GBP172 million) in its 2021 plan to c.
$472 million (GBP391 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.GBP49.5 million), of capital expenditure in Verne Global since
its acquisition for GBP231 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 GBP1.0
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.GBP22 million
for the 5-year period to 31 December 2027, including GBP12 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 GBP8 million of this expansion
in Verne London since its acquisition for GBP45 million in April
2022 and is committed to a further GBP8 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 GBP100 million
for the 5-year period to 31 December 2027, including GBP51 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 GBP5.1 million in growth capital
expenditure in Verne Global Finland, since its acquisition for
c.GBP114 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 GBP60 million
for the period to 2027, including GBP20 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.GBP6 million of growth capital expenditure in Aqua Comms
since its acquisition for c.GBP170 million in April 2021 and has
committed to a further c.GBP13 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 GBP50 million over a three-year period, potentially
rising to over GBP60 million dependent on additional capacity and
connectivity requirements. At 30 September 2022, the Group had
committed GBP46 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 GBP15 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 GBP625m of
junior notes with cash and a GBP450m 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.GBP170 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. EUR8 million (c. GBP7
million) for the period to 2027, including EUR1.3 million (GBP1.1
million) in 2023. At 31 December 2022, the Group had not funded any
growth capital expenditure in Host Ireland since its acquisition
for GBP51 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 GBP1 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.GBP112 million for the 5-year period to 31 December 2027,
including c.GBP21 million in 2023. Following the Group's further
investment of GBP2 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.GBP74 million of cash
available and also has GBP43.8 million remaining undrawn of the
GBP375 million RCF, excluding the accordion tranche of up to GBP125
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.GBP264 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 (GBP95 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.GBP46 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.GBP5 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.GBP639
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 GBP463 million,
following the granting of regulatory approval. GBP300 million of
the acquisition was funded by a drawdown on the Group's RCF and
GBP163 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
GBPm GBPm GBPm GBPm GBPm
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 GBP450 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 GBP625 million 6.75% coupon
junior notes, which were due in September 2023. Alongside the term
facility, the Arqiva Group also entered into a GBP50 million
working capital facility providing additional liquidity support,
which was subsequently increased to GBP70 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.GBP10 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/.
3.4. Leverage and RCF Margin Reduction
The Company, through its main subsidiary D9 Holdco, has in place
an RCF of GBP375 million, with an uncommitted accordion tranche of
up to GBP125 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, GBP331.2 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 GBP300 million, the funding of Investee
Company capital expenditure commitments with the amount of GBP30
million and one letter of credit with the amount of GBP1.2
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 35% Ratio (expressed as a percentage) of the
test total Financial Indebtedness of each Group
Company excluding Investee Companies.
------ --------------------------------------------
Global LTV 65% Ratio (expressed as a percentage) of the
test 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 (GBP331.2m) 26.0%
---------------------------------------------------
Total RCF (excluding accordion)
(GBP375m) 29.4%
---------------------------------------------------
RCF and VLN (GBP375m and GBP163m) 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 GBP3 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 GBP50 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.GBP400 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 GBP905 million and a revolving credit
facility of GBP375 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. For more information, please visit
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
[8]
https://blog.telegeography.com/internet-traffic-and-capacity-remain-brisk
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END
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