Unaudited Portfolio Valuation and Unaudited NAV

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 (£'000)	Jun-23 (£'000)	Dec-23 (£'000)	% Change vs Dec-22	% Change vs Jun-23
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)   Chris Clarke   Darren Vickers   Owen Matthews	[phone]
J.P. Morgan Cazenove (Joint Corporate Broker)   William Simmonds   Jérémie Birnbaum	[phone]
Peel Hunt (Joint Corporate Broker)   Luke Simpson   Huw Jeremy	[phone]
FTI Consulting (Communications Adviser)   Mitch Barltrop   Maxime Lopes	[e-mail] [phone] [phone]

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. For more information, please visit www.d9infrastructure.com.

 

END