Annual Report 2022
14
Chair’s Statement
20
Strategy and Business Model
26
The Strategy in Practice: Arqiva
30
Key Performance Indicators
34
Investment Manager’s Report
62
The Investment Manager
66
Sustainability Report
116
Section 172(1) Statement
122
Risk Management
130
Going Concern and Viability
133
Board Approval of the Strategic Report
6
Who We Are
6
What We Do
10
Key Highlights
COMPANY
OVERVIEW
STRATEGIC
REPORT
Company Overview
Strategic
Report
Financial Statements
Governance
Information
136
Chair’s Introduction
138
Board of Directors
142
Corporate Governance
150
Audit Committee Report
156
Management Engagement Committee Report
158
Nomination Committee Report
162
Risk Committee Report
164
Directors’ Remuneration Report
172
Directors’ Report
178
Directors’ Responsibilities Statement
180
Independent Auditor’s Report
189
PwC Limited Assurance Report
GOVERNANCE
224
Glossary and Definitions
227
Shareholder Information
228
Forward Looking Statements
229
Annex 1 - Reporting Principles and Methodologies
INFORMATION
194
Statement of Comprehensive Income
195
Statement of Financial Position
196
Statement of Changes in Equity
197
Statement of Cash Flows
198
Notes to the Financial Statements
219
Unaudited Alternative Performance Measures
FINANCIAL
STATEMENTS
Company Overview
Strategic
Report
Financial Statements
Governance
Information
Company
Overview
At a
Glance
/ WHO WE ARE
Digital 9 Infrastructure plc (Ticker: DGI9) (“D9” of
the “Company” or, together with its subsidiaries,
the “Group”) is an investment trust listed on the
London Stock Exchange. The Company invests in
the infrastructure of the internet that underpins the
world’s digital economy: digital infrastructure.
D9 is bringing people closer together by meeting
the global demand for improved speed, reliability,
accessibility and learning from data. By investing in
critical Digital Infrastructure, including subsea cables
and data centres, D9 drives our interconnected
world, promoting economic growth and sustainable
development – all whilst targeting recurring income
and capital growth for investors.
Our purpose-driven investment strategy targets
the provision of key infrastructure for data transfer
and data storage around the world, helping to
address burgeoning demand for global digital
communications.
Our focus is to provide Digital Infrastructure that
leverages greener, cleaner power in line with the
UN’s Sustainable Development Goal 9 (“SDG9”):
“Build resilient infrastructure, promote inclusive and
sustainable industrialization and foster innovation”.
SDG9 encourages nations and firms alike to reduce
the global digital divide by increasing access to
information and communications technology, while
at the same time decarbonising Digital Infrastructure
energy usage.
Our ambition is to become a leading investor across
the Digital Infrastructure ecosystem, building a
global, vertically-integrated platform that leverages
our existing relationships with leading multinational
and technology companies, ensuring we achieve
an attractive, long-term total return for our
shareholders.
Levelling up all
stakeholders:
Our team shares one core
ambition; to empower
societies, unleash economies,
and connect investors to
cutting edge opportunities
that deliver stable income and
capital growth.
Closing the digital divide:
The internet is the lifeblood
of the future. We are leading
the way in carrier neutral
connectivity globally and
democratising access to critical
digital infrastructure.
/ WHAT WE DO
The Investment Manager is Triple Point Investment
Management LLP (“Triple Point” or “Investment
Manager”) 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.
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Digital 9 Infrastructure plc
Connecting the world:
As a major partner to the
world’s most connected
companies, we’re creating
a unique, interconnected
ecosystem that is bringing
people together and helping to
change lives on a global scale.
Accelerating progress:
We are engaging global
stakeholders on the urgent
need for a cleaner solution,
spearheading change in one
of the world’s most energy
intensive industries.
Fuelling a better,
cleaner future:
Our open-access, clean-
connectivity data centre
platforms harness renewable
energy to provide a more
sustainable solution to
exponential growth in global
data demand.
We seek to improve the accessibility of reliable,
functional internet to billions of people worldwide
– including developing countries. The assets we
invest in typically comprise of future proofed,
scalable platforms and technologies that facilitate
communications, data transfer, interconnectivity and
data storage. These assets come from the following
sectors:
•
Data centres;
•
Subsea fibre optic networks;
•
Terrestrial fibre optic networks; and
•
Wireless networks.
Our primary focus is Digital
Infrastructure investments that
are already operational. These
investments typically have secured
medium to long-term contracts that
are underpinned by investment
grade counterparties or from a
diversified portfolio of shorter-
term contracts providing essential
underlying services. We expect target
acquisitions to have high cash flow
visibility and resilience embedded in
their business models.
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SUBSEA FIBRE
Backbone of
the internet:
global connectivity
98%
of the world’s
data is carried by
subsea cables
40%
shortfall in
transatlantic
subsea
capacity
by 2026
DATA CENTRES
Brain of the
internet:
processing
& storage
Only
10%
of
enterprise IT spending
has moved to the
cloud with $600 billion
a year still to move
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Digital 9 Infrastructure plc
TERRESTRIAL FIBRE
Only 45%
of
households in the UK
currently benefit from
Fibre To The
Home
(FTTH) capability
The
government
is targeting
85% of
households to
have fibre access
by 2025,
providing
the foundations for
substantial growth
WIRELESS NETWORKS
The number of IoT devices is
forecast to reach
25 billion
by 2030
, an increase from
10 billion in 2021
•
Fitting one million smart water meters in
the UK each year for the next 15 years
could save one billion litres of water a day
by the mid-2030s
•
Broadcast media remains the UK’s
preferred means of consuming video
content, with
the average person
watching 2 hours and 24 minutes of
live TV per day in 2022
. As of December
2022, 88% of BBC audience engagement
time is through traditional broadcasting
•
Globally, there were 107
million FWA subscriptions in
2022, of which 18% were 5G.
The number of subscriptions is
expected to grow to 196 million
by 2025, with c.51%
being 5G
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Key
Highlights
-
5%
10%
15%
20%
2021
2022
Target
13.1%
10.4%
10.0%
Annualised Total Return*
2021
2022
-
£200m
£400m
£600m
£800m
£1,000m
921
746
-
£200m
£400m
£600m
£800m
£1,000m
£1,200m
2021
2022
462
1,243
£1,400m
2021
2022
-
20
40
60
80
100
120
104.62
109.76
IFRS NAV
Capital Deployed*
NAV (pence per share)
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Digital 9 Infrastructure plc
-
1p
2p
3p
4p
5p
6p
7p
2021**
2022
Target
6.00
6.00
6.00
2021
2022
11.09
-
5.00
10.00
15.00
9.77
Dividend (pence per share)
Earnings (pence per share)
*
Alternative Performance Measure, further information on APMs can be found on
pages 219 to 221.
**
Dividend per share for 2021 is an annualised figure.
/ POST BALANCE SHEET ACTIVITY
In February 2023 the Company drew an additional £25 million of the RCF post-period end to fund
additional capital expenditure at Verne Global London and Aqua Comms.
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Strategic
Report
PHIL JORDAN,
Chair
Chair’s
Statement
/ INTRODUCTION
I am pleased to present the
Company’s 2022 Annual Report.
The period since our IPO was
characterised by accretive
portfolio growth through targeted
acquisitions. The Company faced
several challenges last year, but
the portfolio is well positioned
heading into 2023 to deliver
sustainable and growing
income and capital growth
for our shareholders.
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As well as the challenging macro-economic environment
characterised by rising inflation and interest rates, the
Company’s Investment Manager also experienced
change, following the departure of investment team
personnel in November 2022. The remainder of the
Triple Point Digital Infrastructure team has continued
in place and is supported by an excellent Operating
Partner panel and the management teams at the
respective investee companies to deliver on respective
business plans.
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 a constituent of the FTSE 250 since December 2022,
the Company is proud to own and actively manage
a £1.2 billion portfolio of nine high-quality Digital
Infrastructure investments. These investments create a
global growth platform of carrier-neutral, interconnected
data centre, subsea fibre, wireless, and fibre assets; all
with a common purpose to reduce the digital divide and
help decarbonise the sub-sectors in which they operate.
/ SHAREHOLDER RETURNS
The Company generated a total return for shareholders
of 10.4%, 0.4% in excess of the Company’s target.
Owing to the quality and organic growth of the assets
within the portfolio, the Company’s NAV increased
to £950 million or a NAV per share increase of 4.9%
to 109.76 pence (2021: 104.62 pence), providing
shareholders with a compelling opportunity for capital
growth.
The Company has paid or declared dividends totalling
6 pence per share for the twelve-month period, in line
with our target set at IPO. The Board has maintained its
target annual dividend of 6 pence per share for the year
ending 31 December 2023, payable quarterly.
1
D9 reported a profit before tax of £92.0 million (2021:
£38.3 million) for the year, equal to 11.09 pence per
share (2021: 9.77 pence per share) calculated on the
weighted average number of shares in issue during the
year. This was the net result of income received from
investments acquired and revaluation gain arising on
the investments held at fair value through profit or loss
as at 31 December 2022.
The Company’s annualised ongoing charges ratio
(“OCR”)
2
was 1.10% (2021: 1.04%). As the Company
has now largely deployed its available capital, we
expect the OCR to decrease as economies of scale
and operating efficiencies are achieved. The Board will
continue to monitor the OCR closely as we seek to grow
D9 and continue delivering value to our shareholders.
1.
This is a target only and not a forecast. There can be no assurance that this target will be met and it should not be taken as an indication of the Company’s expected
future results.
2.
Alternative Performance Measure further information on APMs can be found on pages 219 to 221.
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/ PORTFOLIO PERFORMANCE
During the year the Company deployed £768 million,
including a £163 million vendor loan note into new
investments, and we are delighted to welcome
Arqiva, Verne Global Finland (previously Ficolo Oy),
Verne Global London (previously Volta Data Centres),
Elio Networks (previously Host Ireland) and Giggle
Broadband to the Company’s portfolio.
Our diversified portfolio performed strongly during
the year in line with management expectations.
Consolidated Investee Company revenue was £409
million and consolidated Investee Company EBITDA
was £206 million for the year 31 December 2022
3,4
,
increasing to £226 million on a contracted run rate
basis.
Our Investee Companies are led by high-quality
management and operational teams, who complement
the experience of the Investment Manager. Among the
Investee Company management teams, the Board was
delighted to welcome the expansion of Verne Global’s
senior leadership team with three key appointments:
Mike Allen as Chief Operating Officer; Kate Hennessy
as Chief Financial Officer
; and Hildegard van Zyl as
General Counsel. They bring with them considerable
experience and diverse skills and demonstrate the
ability of D9’s platform to attracting the highest calibre
individuals within the sector. We are also delighted
to welcome Jim Fagan as the CEO of Aqua Comms,
effective from 1 May 2023, who brings 25 years’ industry
leading
experience in Asia-Pacific, North America and
EMEA, including executive roles with Global Cloud
Xchange, Rackspace, and Pacnet (later acquired by
Telstra).
/ GROWTH CAPITAL
EXPENDITURE PIPELINE
The Board maintains conviction that it is in the best
interests of shareholders to continue funding the
Investee Companies long-term growth both through
growth capital expenditure and the reinvestment of
operating cash flow by the Investee Companies due to
the long-term opportunities for enhanced returns and
ultimately capital growth.
The Board and Investment Manager have evaluated
options and commenced processes seeking
complementary sources of growth capital to support
our Investee Companies alongside the capital
expenditure already committed by the Company. These
processes include a syndication through a competitive
process of a minority stake in existing Investee
Companies to a strategic capital partner in conjunction
with a leading investment bank and the arrangement of
appropriate debt financing at Investee Company level.
The syndication would provide proceeds which could
be used to pay down the RCF and/or fund growth
capital expenditure and provide valuable follow-on
capital to Investee Companies. In relation to Investee
Company level debt, a term sheet has been agreed for
a $100 million facility to be provided to one of the high
growth Investee Companies, the proceeds of which will
be used to finance accretive growth opportunities, and
to repay a Company shareholder loan, which will be
used to reduce the drawings of the Group RCF. Further
updates on these processes will be announced to
shareholders following their completion.
As our Investee Companies mature, we expect them
to begin to optimise their capital structure and take
on appropriate levels of longer-term structural debt
finance in the future to facilitate growth. With the
exception of Arqiva, the Investee Companies had no
financial gearing in place at 31 December 2022.
The utilisation of debt financing at Investee Company
level or complementary sources of capital will only
be approved by the Board when it is accretive to
shareholder value. This value could be achieved
when the incremental return on a new investment
significantly exceeds the cost of debt or to fund growth
capital expenditure and provide valuable follow-on
capital to Investee Companies.
3
The revenue and EBITDA figures are for the full, actual year to 31 December 2022 and are not pro-rated for the period of ownership. EBITDA excludes
Infrastructure as a Service (“IaaS”) revenue for Verne Global Iceland .
4
The Company is now presenting EBITDA excluding Infrastructure as a Service (“IaaS”) revenue at the data centre level for Verne Global Iceland , which passes
through the profit & loss statement as a cost after EBITDA. This is a more prudent measure when looking at the Investee Companies’ financial performance. The
Company previously reported EBITDA on a reported EBITDA basis, including IaaS revenue. The comparable figure for 2022 would be £225 million, and
£216 million for 2021.
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/ DIVIDEND COVER
We have paid or declared dividends totalling 6 pence
per share for the 12-month period from 1 January 2022
to 31 December 2022, in line with our target set at IPO.
We remain committed to implementing a progressive
dividend policy; however, in the current environment
the Board has decided that it is appropriate to maintain
a target annual dividend of 6 pence per share for the
year ending 31 December 2023, payable quarterly
1
.
The Company’s dividends are underpinned by the
Operating Cash Flows of our Investee Companies, with
an operating cash dividend cover of 0.4x as at
31 December 2022 (0.4x at 31 December 2021; 0.5x at
30 June 2022). Cash dividend cover was broadly in line
with 31 December 2021, with a decline over the second
half of 2022 reflecting
the impact of the Arqiva accretion
payment during this period of high inflation, and as the
customer contracts secured by the growth platforms
are yet to fully ramp. As these investments continue
to mature, we expect this to translate progressively
into cash cover at the Company level. For illustrative
purposes only, if all sold contract capacity of the data
centre platform assets was at maximum capacity,
portfolio cash flow cover would be 80% at 31 December
2022.
Further information can be found in the Investment
Manager’s Report on page 34.
/ SHARE PRICE
The Board and Investment Manager are disappointed
that the share price closed the year out at a 21%
discount to NAV at 86.40 pence per share (closing
share price as at 31 December 2021 was at an 8.8%
premium to the NAV as at the same date). This followed
a period of high market volatility for global equity
markets, and particularly UK investment trusts, at the
end of the year, following an increase in interest rates
in the UK, European and North American markets. Like
many other investment trusts, the share price has been
particularly suppressed following the UK Government’s
mini-budget announcement on 23 September 2022
driving a further increase in gilt yields, and prior to that
the Company had traded at a healthy premium to NAV
for the first nine months of the year. The Board and
Investment Manager closely monitor the share price
and are focussed on narrowing the discount to NAV. We
have confidence in the actions the Company is taking to
enhance shareholder value that we believe will, in turn,
support a recovery of the share price.
Following the departure of investment team personnel
in November 2022, we saw further downward
pressure on the share price; however, we believe this
is unjustifiable and does not reflect the inherent value
and capital appreciation potential of the portfolio,
particularly the Nordic data centres. We remain
confident in the growth potential of the underlying
investment portfolio and expect a positive impact on
the share price when economic uncertainty reduces and
as significant demand for infrastructure that underpins
the digital economy continues to increase. We have
continued to update the market on progress with
shareholders, for example through our Trading Update
released in January 2023, to demonstrate the significant
customer demand of the Investee Companies. The
Company will continue to seek shareholder approval
at its annual general meeting, as a matter of course,
to allow it to undertake share buybacks to reduce the
discount to NAV where it has uncommitted cash, or
cash in excess of scheduled dividend payments, taking
into account the Company’s working capital position
and other relevant economic factors.
/ ENVIRONMENTAL, SOCIAL
AND GOVERNANCE
The Board recognises that Digital Infrastructure is critical
to a future sustainable economy but to ensure it fulfils
its role, the infrastructure developed must have ESG
considerations at its core. The Company is focused
on investment opportunities that are aligned with the
Sustainable Development Goal 9. Ensuring alignment to
this theme and wider ESG factors is an important part of
the investment decision making process and on-going
asset ownership.
Progress continues with each Investee
Company to enhance their understanding and approach
to ESG, with 2022 seeing a focus on data capture with
all Investee Companies making progress on their carbon
footprint. A continued focus on the decarbonisation
theme of sustainable digital infrastructure is reflected in
D9’s data centre platform reporting a carbon footprint
which is estimated to be 86% lower than the average
UK data centre and 93% lower than the average US
data centre. The ESG metrics each Investee Company
now tracks and reports continues to extend. Targets
have now been implemented for SDG9 alignment (e.g.,
energy efficiency tracked through an aggregated PUE
of 1.3 and connectivity through a growth in network
capacity of 10% year-on-year) and operational ESG
action (e.g., net zero roadmaps to be implemented by
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all Investee Companies by 31 December 2024 and the
implementation of enhanced cyber security standards
across all). These aim to ensure ongoing alignment to
the Company’s commitment to SDG9 and to ensure
each Investee Company continues to improve across a
range of operational ESG-related activities to protect
the wider value of each business. Reporting and
outcomes are provided in the Sustainability Report on
pages 66 to 115.
/ THE INVESTMENT MANAGER’S
TEAM
As previously announced, Ben Beaton currently leads
the Digital Infrastructure team supported by the
existing and established Digital Infrastructure team
within Triple Point, which includes Investment Director,
Arnaud Jaguin. Further biographical details of Ben and
Arnaud, the Operating Partners supporting the portfolio
businesses, and the Investee Company CEOs can be
found on pages 62 to 64.
As disclosed on 1 December 2022, the Investment
Manager initiated a formal recruitment and selection
process for the Head of Digital Infrastructure with a
leading executive search firm led by consultants with
specialist Digital Infrastructure expertise, focusing on
senior asset management/value creation individuals
and industry professionals, to complement the
existing skillset of the team and Investee Company
management; this process is being overseen by
the Board. The Board and the Investment Manager
have thoroughly evaluated the skills and experience
D9 would benefit from and expect to announce the
selected candidate in Q2 2023.
/ OUTLOOK
In the year ahead, the Board and the Investment
Manager are focused on portfolio optimisation and
value creation, as well as leveraging the synergies
between the platform investments within the portfolio.
We intend to continue reinvesting in our subsea and
data centre platforms to fulfil the accelerated customer
demand and create long-term opportunities for
sustainable income and capital growth for the portfolio.
The Investment Manager, with the support of the Board,
continue to dedicate extensive resource to managing
the portfolio’s growth, operational performance, and
liquidity position.
In doing so, the Investment Manager will continue
to execute the Company’s 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.
On behalf of the Board, I remain confident in the
Company’s future ability to continue generating
sustainable and growing income and capital growth for
our shareholders, and we thank our shareholders for
their support during the year.
We look forward to welcoming shareholders to our
Capital Markets Day on 20 March 2023.
Phil Jordan
Chair
8 March 2023
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Strategy and
Business Model
The Board is responsible for the Company’s Investment Objective
and Investment Policy and has overall responsibility for ensuring the
Company’s activities are in line with such overall strategy.
The Investment Policy was amended on 27 February
2022 as approved by shareholders at a General
Meeting, and further non-material amendments to the
Investment Policy were announced on 24 August 2022.
The Group’s current Investment Policy and Investment
Objective are published below.
/ INVESTMENT OBJECTIVE
The Company’s investment objective is to generate a
total return for investors comprising sustainable and
growing income and capital growth through investing
in a diversified portfolio of resilient Digital Infrastructure
Investments.
/ INVESTMENT POLICY
The Company intends to achieve its investment
objective by investing in a diversified portfolio of
Digital Infrastructure Investments which provide key
infrastructure for global data transfer (subsea fibre-optic
networks, wireless networks and terrestrial fibres) and
data storage (data centres), all of which contribute to
facilitating global digital communication.
The Company is focused on the provision of Digital
Infrastructure integrated with green and cleaner power
in line with UN Sustainable Development Goal 9:
“Build resilient infrastructure, promote inclusive and
sustainable industrialization and foster innovation”.
The Company seeks to invest in assets or Investee
Companies which typically have secured medium
to long term contracts underpinned by high quality
counterparties.
The Company invests (directly or via subsidiary
companies) in a range of Digital Infrastructure assets
which deliver a reliable, functioning internet. The
portfolio will typically comprise future proofed, non-
legacy, scalable platforms and technologies including
(but not limited to) subsea fibre, data centres, terrestrial
fibre, tower infrastructure and small cell networks which
meet the following criteria:
•
assets and Investee Companies which deliver
communications, data transfer, interconnectivity and
data storage;
•
assets and Investee Companies which derive a
significant proportion of their revenues from high
quality counterparties (meaning, for these purposes,
companies (or their parent companies) which
are included in the FTSE 350 (or equivalent) or
which are investment-grade rated by a recognised
grading agency) and/or a diversified portfolio of
counterparties that, by reason of its diversity, is
resilient and well placed to weather economic
downturns;
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•
assets and Investee Companies with high cash flow
visibility and resilience, specifically from medium to
long term contracts or from a diversified portfolio
of shorter term contracts providing essential
underlying services.
The Group focuses, primarily, on Digital Infrastructure
Investments where the assets (or Investee Companies
which own the assets) are operational and, where
appropriate, there is a contract in place with the end
user and/or off-taker. Where suitable opportunities
arise, however, the Group may provide limited funding
during the Construction Phase or Development Phase of
a Digital Infrastructure asset, in particular, on a forward
funding basis where development risk for the Company
is limited, subject to the restrictions set out below.
/ INVESTMENT RESTRICTIONS
The Company invests and manages its assets with
the objective of spreading risk and, in doing so, will
maintain the following investment restrictions:
•
the Company will not invest more than 25 per cent.
of Adjusted Gross Asset Value in any single asset
or Investee Company. When the Gross Asset Value
reaches £2 billion (as notified by the Company in
its annual or half year financial results report), this
restriction will change to 20 per cent. of Adjusted
Gross Asset Value;
•
investments will be focused on acquiring a
controlling interest (meaning more than a 50 per
cent. interest) in the relevant investment assets or
Investee Companies being acquired or invested
in but can also comprise minority interests (where
appropriate minority protections are in place);
•
at least 50 per cent. of Adjusted Gross Asset Value
will be invested in developed markets, in particular
(but not limited to), the UK, EU and US;
•
neither the Company nor any of its subsidiaries will
invest in any assets or Investee Companies located
in or with co-investment exposure to any Restricted
Territories;
•
neither the Company nor any of its subsidiaries
will invest in any assets or Investee companies
using technologies or equipment under any
current prohibition ruling by relevant UK, EU, or US
authorities, unless such equipment is in the process
of being removed in line with the guidelines of such
UK, EU or US authorities;
•
the Company may invest a limited amount in assets
(or Investee Companies which own assets) which are
predominantly in construction, which typically will
be undertaken via a forward funding arrangement
which pays a return during the Construction Phase,
with any investments which expose the Company to
development risk limited to, in aggregate, no more
than 5 per cent. of Adjusted Gross Asset Value,
and the aggregate value of assets in construction
or development being no more than 20 per cent.
of Adjusted Gross Asset Value (such amount to be
calculated as the aggregate value of all material
construction or development activities, including
forward funded developments, within Investee
Companies);
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•
neither the Company nor any of its subsidiaries will
invest in any listed entities, or in private closed-
ended investment companies or any funds of any
kind; and
•
the Company itself will not conduct any trading
activities which are significant in the context of the
Group as a whole.
Compliance with the above investment limits will
be measured at the time of investment and non-
compliance resulting from changes in the price or value
of assets following investment will not be considered as
a breach of the investment limits.
For the purposes of the foregoing, the term
“Adjusted
Gross Asset Value”
shall mean 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).
/ BORROWING POLICY
The Directors do not intend to use gearing at the
Company level, other than utilising short-term credit
facilities for financing acquisitions (which could be
at the level of the Company or a Group company
(which, for the avoidance of doubt, excludes Investee
Companies)), such borrowings to be at a Conservative
level. Intragroup debt between the Company and its
subsidiaries, and the debt of Investee Companies, will
not be included in the definition of borrowings for these
purposes.
Long term gearing is likely to be applied at an Investee
Company level in order to enhance returns but will be at
a prudent level, appropriate for the particular Investee
Company and sub-sector.
/ HEDGING AND DERIVATIVES
The Company will not employ derivatives for investment
purposes. Derivatives may however be used for efficient
portfolio management. In particular, the Company may
engage in interest rate or currency hedging or otherwise
seek to mitigate the risk of interest rate increases and
currency movements.
The Group will only enter into hedging contracts and
other derivative contracts when they are available
in a timely manner and on acceptable terms. The
Company reserves the right to terminate any hedging
arrangement in its absolute discretion. Any such
hedging transactions will not be undertaken for
speculative purposes.
/ CASH MANAGEMENT
The Company may hold cash on deposit for working
capital purposes and awaiting investment and, as
well as cash deposits, may invest in cash equivalent
investments, which may include government issued
treasury bills, money market collective investment
schemes, other money market instruments and short-
term investments in money market type funds (
“Cash
and Cash Equivalents”
). There is no restriction on
the amount of Cash and Cash Equivalents that the
Company may hold and there may be times when it is
appropriate for the Company to have a significant Cash
and Cash Equivalents position.
22
Company Overview
Strategic Report
Digital 9 Infrastructure plc
Financial Statements
Governance
Information
/ OUR BUSINESS MODEL
D9 is an investment entity and therefore does
not produce consolidated accounts.
D9 creates shareholder value by investing in
companies and assets that provide the critical
Digital Infrastructure required to deliver equal,
ubiquitous internet access to people and
organisations across the globe. Furthermore,
our open-access, low-carbon connectivity
platform provides a sustainable solution to
exponential growth in global data demand,
fuelling a greener future.
We are leading the way in carrier-neutral
connectivity globally and are committed
to democratising access to critical digital
infrastructure. By building a diversified portfolio
of investments across the key sectors, we aim
to offer our customers access to a resilient and
uniquely interconnected ecosystem.
We aim to create shareholder value through
three primary approaches:
1.
Significant opportunity for accretive
investment in growth platforms.
2.
Portfolio convergence and global customer
relationships: Portfolio synergies through
a value chain focus and relationships with
the biggest purchasers across the digital
infrastructure value chain (global carriers
and global tech).
3.
SDG9 purpose driven initiatives: United
Nations Sustainable Development
Goal 9, focusing us on connectivity and
environmentally sustainable investments.
The business model for each target sector
depends on the sector’s characteristics and
location, but they each exhibit a fundamental
commonality that is critical for our wider
business model, being the interconnectedness
of our assets delivering a resilient ecosystem
to our customers. Through this we target a
robust customer base delivering a creditworthy,
inflation-linked income stream to deliver returns
to our shareholders.
BACKBONE OF THE INTERNET
98% of international internet traffic
flows through undersea cables
SUBSEA FIBRE LINK
LANDING STATION (DATA CENTRE)
LANDING STATION
DATA CENTRE
TERRESTRIAL FIBRE
CELL TOWERS & SMALL CELLS
END USER
23
2022 Annual Report
Company Overview
Strategic Report
Financial Statements
Governance
Information
/ INVESTMENT PROCESS
The Investment Manager’s Digital Infrastructure team employs a rigorous investment process when
appraising new opportunities presented to it for consideration. The Company makes its investments via
its sole direct subsidiary and main investment vehicle, Digital 9 Holdco Limited (“Holdco”).
Quarterly risk and portfolio monitoring
report presented.
Investment Committee paper presented
for review and comment.
Discuss top Risks to Investors.
Valuations presented for approval.
AIFM report presented for approval.
Triple Point Valuation Committee
Board and Board Committees
Opportunity thesis development.
Target identification and ultimately iterative review of selected targets.
SDG9/ESG scorecard.
Investment Team Review
1
2
3
4
5
6
Portfolio Monitoring
and Risk Review
Quarterly updates, risk review
with Triple
Point Portfolio Monitoring Group
(includes Investment Committee).
Quarterly reports to D9 Board.
Risk register review.
Active Portfolio Monitoring
Weekly engagement with management
Bi-weekly Team Partner review of
portfolio.
Monthly management account updates
Bi-monthly Investee Company Board
meetings (include Partners and NEDs).
SDG9/ESG scorecard tracking.
Triple Point
Investment Committee
Meetings to analyse proposed
deals, pre-approve expenditure,
and final sign off on investment
after full Investment Team
due diligence.
24
Company Overview
Strategic Report
Digital 9 Infrastructure plc
Financial Statements
Governance
Information
25
2022 Annual Report
Company Overview
Strategic Report
Financial Statements
Governance
Information
The Strategy
in Practice:
Arqiva
/ ALWAYS-ON
Increasing digital connectivity has both mirrored
and facilitated changes in the way consumers
behave. We are always ”switched-on”, with
seeming limitless content, information, and
data now at our fingertips – and consumers and
businesses are hungry for more.
For example, the average person in the UK spent
five hours and 16 minutes per day watching TV
and video content across all devices in 2022,
which included two hours and 24 minutes of
live TV. As of December 2022, 88% of BBC
audience engagement time is through traditional
broadcasting.
The Board believes there is a significant opportunity
for more investment in the digital infrastructure
that delivers this data and content. D9 is exploring
new frontiers in wireless via a landmark investment
in Arqiva, an established wireless ”national
champion”.
5
26
Company Overview
Strategic Report
Digital 9 Infrastructure plc
Financial Statements
Governance
Information
/ PIONEERING NEW
TECHNOLOGIES
Arqiva plays a central role in keeping people
connected and has done so for the past 100 years.
With a tradition of innovation, alongside its well-
established licensed customer base and reputation
for excellent service, Arqiva has strong roots in
leading the development of Internet Protocol
television (“IPTV”) or delivering content to
consumers via the internet.
Arqiva works with customers to meet new
challenges and has helped to develop cloud
solutions to help the UK’s transition to IPTV
consumption. It has integrated over 50 platforms
through its Video on Demand processing platform
and has launched Arqade and Arqplex in recent
years to take advantage of the benefits of cloud
processing for content owners and broadcasters.
This was possible because of Arqiva’s heritage in
broadcasting. Having delivered the world’s first TV
broadcast for the BBC in 1936, Arqiva remains at
the heart of TV and radio and enables household
names like the BBC, ITV, Discovery, BT Sport, and
Sky to distribute their content to UK consumers.
27
2022 Annual Report
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/ RELIABLE INVESTMENT
RETURNS
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”). Around 80% of Arqiva’s revenues are
contracted, with a weighted average unexpired contract
term of c.eight years. 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 with cash flows increasing over our original
investment case and driving a higher valuation, the
overall effect in the short-to-medium term will be
a negative impact on cash flows from Arqiva to the
Company.
The Company is working closely with Arqiva to consider
the optimisation of its capital structure.
/ NO ONE LEFT BEHIND
One of D9’s investment objectives is ensuring that
global connectivity is accessible to all. Digital Terrestrial
Television (“DTT”) is a complementary technology to
Internet Protocol Television (“IPTV”) which continues to
play a crucial role in the daily lives of millions of people
across the UK.
DTT, which many consumers know better as Freeview,
provides near universal access to channels that keep
the UK informed and entertained. Superfast broadband
connection or a subscription fee is not required, instead
ensuring communities are not cut off from what many
perceive to be an essential service. DTT provides access
to free-to-air standard channels and radio services,
reaching 98.5% of UK households.
6
Its infrastructure is the only means by which just under
eight million adults are able to access television
content. These people are some of the most vulnerable
in UK society, with three million living alone, four million
belonging to the C2DE
7
socio-economic group, and
nearly 1.8 million who have a disability.
8
The digital
skills gap prevents around one in 10 people across
the UK from accessing broadcast alternatives due to
their inability to set up internet services or access TV
online, while a similar number (7%) do not have a strong
enough internet connection to support alternative
services.
9
The role that Arqiva plays in supporting essential
broadcasting and transmission services has extremely
high barriers to entry, given the significant investment
that would be required to replicate existing
infrastructure.
/ SUSTAINABLE GROWTH
The next phase of Arqiva’s growth is unlocking the
potential in its digital connectivity platform, which
revolves around Internet of Things (“IoT”). The
Investment Manager views this part of Arqiva’s strategy
as a huge NAV accretion opportunity and expects it
to be a key driver of value in the future. Smart Utilities
already contributes around a quarter of Arqiva’s
revenues and it is expected to continue to grow.
We have seen a rising number of IoT devices, ranging
from our cars and smart watches to smart TVs over the
past few years, and there is potential for the market for
industrial application to grow exponentially.
6
com/group-financial-results/2022/Arqiva-GroupLimited/Arqiva%20Group%20Ltd%20financial%20statements%202022.pdf
7
8
Hind, G., Harrington, T. and Standen-Jewell, T., 2022. BBC and subscription. Impractical and not inclusive. Enders | Analysis, p.2.; C2DE as defined in the NRS
social grades classification.
9
28
Company Overview
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Digital 9 Infrastructure plc
Financial Statements
Governance
Information
Having first applied IoT solutions to gas and electricity
metering in 2013, Arqiva has since developed a national
IoT utilities connectivity platform. It is one of the
preeminent UK Critical National Infrastructure Providers,
having deployed the largest smart water metering
network in the world. Now over 12 million premises can
connect to Arqiva’s smart meter networks.
Smart meters offer a number of benefits to consumers,
from providing transparency of usage and more
accurate bills, to enabling consumers to switch energy
suppliers with greater ease. Arqiva also owns one of
the largest contracts with the Data Communications
Company (“DCC”), which operates the network
connecting smart meters to energy suppliers. This
enables Britain to make the fullest use of its energy by
helping to digitise the UK’s energy system, tracking and
monitoring supply in real-time.
/ ONE-PORTFOLIO APPROACH
As IoT usage increases, there will be a significant rise
in the amount of data generated by IoT devices. As a
result, data centres will be expected to store, process,
and analyse more data than ever before.
D9’s portfolio is structured in the way that supports
data transfer and storage at all stages of its journey.
By building a diversified portfolio of investments
across key sectors, Investee Company customers, and,
ultimately D9’s shareholders, benefit from a uniquely
interconnected ecosystem: from IoT where data is
generated, to terrestrial fibre, wireless networks, subsea
cables and landing stations where data is transported;
to data centres, where data is processed and stored.
This is the critical global infrastructure chain that
underpins connectivity and communications.
10
Arqiva+Waterwise+Net+Zero+Report+FINAL.pdf
11
rollout-could-deliver-19-billion-net-benefit-to-society
https://www.
arqiva.com/news-views/news/smart-water-metering-rollout-could-
deliver-19-billion-net-benefit-to-society
CASE STUDY:
SMART WATER METERING
Today, less than 10% of UK premises have a
smart water meter, and less than 30% have a
smart energy meter. The rollout of smart meters
would deliver huge benefits for households,
the environment and the water industry. Smart
metering of water has been shown to reduce
house consumption by 17-18%, ensuring the
security of future water supplies and protecting
local environments.
10
Fitting one million smart
water meters in the UK each year for the next
15 years could save one billion litres of water
a day by the mid-2030s and reduce the UK’s
current greenhouse gas emissions by up to
0.5%.
11
Arqiva has one of the largest smart water
networks in the world. Its IoT technology
can help aid the UK’s water resilience and
combat water scarcity through the more
efficient operation and management of UK
water utility networks. This is because Arqiva’s
smart metering networks deliver around 50
million data points every day, meaning leaks
and pollution incidents can be detected more
quickly.
29
2022 Annual Report
Company Overview
Strategic Report
Financial Statements
Governance
Information
In order to track the Company and/or Group’s progress, the following key performance indicators
are monitored:
KPI AND DEFINITION
RELEVANCE TO STRATEGY
PERFORMANCE
COMMENT
1. DIVIDENDS PER SHARE (PENCE)
Dividends paid and
declared on every
ordinary outstanding share
in relation to the year.
The dividend reflects the
Company’s ability to deliver
a growing income stream
from the portfolio.
The Company has paid or
declared dividends of 6
pence per share in respect
of the year to 31 December
2022 (4.5 pence per share
in 2021, or 6 pence on an
annualised basis).
The Company met its target for the
year ended 31 December 2022, and
is targeting a dividend of 6 pence per
share for the year ending
31 December 2023.
1
2. TOTAL RETURN (%)
2
The change in NAV in the
period and dividends paid
per share in the period.
The total return highlights
the underlying performance
of the portfolio’s investment
valuations, including
dividends paid.
10.4% year to 31 December
2022 (13.1% period from
IPO to 31 December 2021).
A medium-term total return target
of 10% per annum was set during
the IPO process. The Company
exceeded this target in the current
financial year by 0.4%.
3. TOTAL SHAREHOLDER RETURN (%)
2
The change in share price
and dividends paid per
share.
The total shareholder
return highlights the gross
return to investors including
dividends paid.
-19.56% in respect of the
year to 31 December 2022
(+16.94% for the period
from IPO to 31 December
2021).
This decrease was driven by a fall in
the share price from 113.8 pence per
share on 31 December 2021
to 86.4 pence per share on
31 December 2022.
Key Performance
Indicators
30
Company Overview
Strategic Report
Digital 9 Infrastructure plc
Financial Statements
Governance
Information
5. NAV PER SHARE (PENCE)
NAV divided by number
of shares outstanding as
at the period end.
The NAV per share reflects
our ability to grow the
portfolio and to add value
to it throughout the life
cycle of our assets.
109.76 pence per share
(104.62 pence per share as
at 31 December 2021) (see
Note 23).
This is an increase of 4.9% during
the year driven by growth in
the underlying valuation of the
Company’s investments and income
paid to the Group during the period.
6. OPERATING CASH DIVIDEND COVER
2
Operational cash flow of
the Investee Companies
divided by dividends paid
to shareholders during the
year.
The operating cashflow
dividend cover reflects
the Company’s ability to
cover its dividends from
the operational cash flow
generated by its Investee
Companies, after deducting
Investee Companies’
maintenance capex and
interest costs.
Operating cashflow dividend
cover for the year to 31
December 2022 was 40%
(39.6% for the period from
IPO to 31 December 2021).
Operating cash dividend
cover is measured as total
dividends paid and payable
at 31 December 2022,
as a percentage of total
operating cashflows for the
Investee Companies.
As these investments continue to
mature, it is expected to translate
progressively into cash cover at the
Company level.
For more detail on dividends and
dividend cover please see the
Investment Manager’s report.
KPI AND DEFINITION
RELEVANCE TO STRATEGY
PERFORMANCE
COMMENT
4. EARNINGS PER SHARE (PENCE)
The post-tax earnings
attributable to
shareholders divided by
weighted average number
of shares in issue over the
period.
The EPS reflects our ability
to generate earnings from
our investments including
valuation increases.
11.09 pence per share for
the year to 31 December
2022 (see Note 22) (9.77
pence per share from IPO to
31 December 2021).
EPS increased by 13.5%. The main
driver for which, was the increase
in the underlying valuation of the
Company’s investments during the
period.
31
2022 Annual Report
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KPI AND DEFINITION
RELEVANCE TO STRATEGY
PERFORMANCE
COMMENT
7. ONGOING CHARGES RATIO
2
Annualised ongoing
charges are the Company’s
management fee and all
other operating expenses
(i.e. excluding acquisition
costs and other non-
recurring items) expressed as
a percentage of the average
published undiluted NAV
in the period, calculated in
accordance with Association
of Investment Companies
guidelines.
Ongoing charges show the
drag on performance caused
by the operational expenses
incurred by the Company.
1.10% for the year to
31 December 2022
(1.04% from IPO to
31 December 2021).
A key measure of our
operational performance.
Keeping costs low supports
our ability to pay dividends.
As the Group has acquired
more Investments during the
period, the Group structure
has become more complex.
As a result, audit costs
and professional fees have
increased. Additional costs
were also incurred as a result
of the Company’s move to the
premium segment.
8. POINTS OF PRESENCE (POPS)
A Point of Presence is a
discrete geographic location
within the Investee Company
network, containing Investee
Company owned exchange
equipment and allows for
connection into the wider
network.
Points of presence represent a
physical demonstration of the
fibre networks distribution to
a wider set of customers. We
seek growth in this value over
time.
58
(17 at 31 December 2021).
POPs, with kilometres of
fibre and growth in network
capacity provide a picture of
the connectivity provided by
the Company. These KPIs are
intended to be tracked over time
and their growth demonstrate
an increase in connectivity
as a result of the Company’s
investments. The number
of Points of Presence grew
significantly during the reporting
year due to the acquisition of
Elio Networks, a fixed wireless
provider with a large network.
9. KILOMETRES OF FIBRE
The total length of fibre
(operational and in
development) owned or
part-owned by Investee
Companies
3
.
Kilometres of fibre represent
a physical demonstration of
the fibre networks presence.
We seek growth in this value
over time.
32,000 at 31 December 2022
(32,000 at 31 December
2021).
Kilometres of fibre, with
POPs and growth in network
capacity provide a picture of
the connectivity provided by
the Company. These KPIs are
intended to be tracked over time
and their growth demonstrate
an increase in connectivity
as a result of the Company’s
investments.
10. GROWTH IN NETWORK CAPACITY
The increase in sold capacity
across fibre networks,
between two points in time.
This metric is relevant to our
Investee Companies.
Growth in network capacity
represents the network’s
ability to respond to and
deliver on demand for more
connectivity. We seek a
positive percentage growth
year-on-year.
13%
(7% at 31 December 2021).
Growth in network capacity,
with kilometres of fibre and
POPs provide a picture of
the connectivity provided by
the Company. These KPIs are
intended to be tracked over time
and their growth demonstrate
an increase in connectivity
as a result of the Company’s
investments.
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Company Overview
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Governance
Information
NOTES:
1.
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.
2.
Alternative Performance Measure. See Unaudited Performance Measures for further information.
3.
Total kilometres of fibre owned or part-owned 32,000km (14,250km operational; 17,750km in development (including EMIC-1)).
KPI AND DEFINITION
RELEVANCE TO STRATEGY
PERFORMANCE
COMMENT
11. POWER USAGE EFFECTIVENESS (PUE)
PUE is the total energy
entering a data centre divided
by the energy used by IT
equipment inside the data
centre.
PUE is a measure of our energy
efficiency and represents
the decarbonisation of our
investments either through
targeting assets with the
most advanced energy
efficiency practices, or through
improvements of existing
systems. The decarbonisation
measure reflects the
Company’s success in aligning
to SDG9, target 9.4.
1.33
(1.22 at 31 December 2021).
PUE is applicable to Data
Centre assets and represents
an important measure in the
environmental sustainability of
an asset. Efficiency and increases
in efficiency can contribute to a
lower carbon emission and better
use of natural resource. Industry
average is commonly reported
to be 1.3 in cold air temperature
locations and 1.4 in warm air
temperature locations. PUE
showed a slight increase this year,
mostly due to the acquisition of
additional data centres in Finland
and the UK, with a variety of ages
and efficiency credentials, as well
as a slight decrease in efficiency
at Verne Global Iceland due
to changes in customer usage.
Work is undergoing to improve
the PUE of each data centre over
time.
33
2022 Annual Report
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/ REVIEW OF THE PERIOD
BEN BEATON,
Fund Manager
Investment
Manager’s Report
We are pleased that during the year,
all available capital raised since IPO
has been substantially invested or
committed. Further, the Investee
Companies benefit from high-
quality management teams, who
continue to add key hires with a
comprehensive understanding
of their respective sectors.
They have the potential to be
platforms for significant future
growth through providing
attractive and compelling
opportunities to deploy
additional capital.
34
Company Overview
Strategic Report
Digital 9 Infrastructure plc
Financial Statements
Governance
Information
The Company has now moved into a period of
consolidation and focus on the operational performance
and optimisation of each of the assets acquired
to date. The Board and Investment Manager have
evaluated options and commenced processes seeking
complementary sources of growth capital to support our
Investee Companies alongside the capital expenditure
already committed by the Company. These sources
include the syndication through a competitive process
of a minority stake in existing Investee Companies to
a strategic capital partner and/or appropriate debt
financing at Investee Company level. Further detail on
these processes can be found on page 43.
The Investment Manager includes a strong team
of investment professionals which have been
involved with the Investee Companies since their
acquisition, who work with the operating partners
and management of the Investee Companies. As
disclosed on 1 December 2022, Triple Point initiated
a formal recruitment and selection process with a
leading executive search firm led by consultants
specialising in Digital Infrastructure for senior asset
management/value creation and industry professionals
who complement the existing skillset of the team
and Investee Company management. The Board and
Triple Point have thoroughly evaluated the skills and
experience D9 would benefit from and look forward
to updating shareholders on the outcome as soon as
practicable. Triple Point are encouraged by the high
quality candidates in the process, and expect to select a
candidate in Q2 2023.
/ INVESTMENT ACTIVITY
During the year, the Company, through its subsidiaries
invested or committed c.£768 million into the target
digital infrastructure sectors , including a £163 million
vendor loan note to fund the acquisition of Arqiva.
This is split between c.£693 million into acquiring
five new Investee Companies,
c.£20 million fees and
c.£58 million as reinvestments into the portfolio. The
investments were funded by a combination of cash
held by the Group and utilising the RCF. The Company
invested £77.5 million into D9 HoldCo, with the
remainder of investments made with existing cash on
hand and by drawing on the RCF.
April:
Elio Networks (previously Host Ireland), £51 million. A
leading enterprise broadband provider which owns and
operates the highest capacity licensed Fixed Wireless
Access network in Greater Dublin.
April:
Verne Global London (previously Volta Data Centres),
£45 million. A 6MW data centre offering robust
connectivity to customers requiring low latency
solutions in Central London.
July:
Verne Global Finland (previously Ficolo Oy),
£114 million. A leading Finnish data centre and cloud
services platform, with ultra-modern infrastructure
spread across three campuses, with 23MW existing
capacity and further development potential up to
90MW
July:
Giggle Broadband, £1 million. A development
opportunity providing affordable broadband to social
housing through a revolutionary FTTH network across
the city of Glasgow.
October:
Arqiva, £300 million (£463 million including vendor
loan note): The only UK provider of national terrestrial
TV and Radio broadcasting and a leading national IoT
utilities connectivity platform.
Throughout the year we have reinvested c.£75 million
of RCF and cash proceeds into existing Investee
Companies to fund capex projects.
Due to accelerated customer demand, the Investee
Companies, in aggregate, have a significantly increased
growth capital expenditure pipeline of c.£223 million
for the year ending 31 December 2023. Notably, Verne
Global Iceland
identified a substantially increased
growth capital expenditure pipeline in its latest five-
year business plan, with capital expenditure pipeline in
2023 increasing to $115 million (£95 million). Over the
five-year period, the Investee Companies have capital
expenditure opportunities of over £900 million.
35
2022 Annual Report
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Governance
Information
AEC-1
AEC-3
Developed alongside:
Labrador Sea
Hudson Bay
North
Atlantic
Ocean
Investment: £170 million
Location: Ireland
IPO pipeline asset?: Yes
AQUA
COMMS
Investment: £231 million
Location: Nordics
IPO pipeline asset?: Yes
VERNE GLOBAL
ICELAND
Investment: £51 million
Location: Ireland
IPO pipeline asset?: No
ELIO
NETWORKS
SUBSEA FIBRE
TERRESTRIAL FIBRE
DATA CENTRES
WIRELESS NETWORKS
Investment: £300 million
Location: UK
IPO pipeline asset?: No
ARQIVA
36
Company Overview
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Digital 9 Infrastructure plc
Financial Statements
Governance
Information
CC-2
NSC
AEC-2
Developed in
partnership with:
CC-1
North Sea
EMIC-1
Part of the 2Africa Pearls
system developed by
META
Tyrrhenian
Sea
Mediterranean
Sea
Black Sea
Caspian
Sea
Arabian Sea
Gulf of Aden
Red Sea
Egypt
India
Oman
Ireland
United
Kingdom
Norway
France
Spain
Investment: £15 million
Location: UK
IPO pipeline asset?: Yes
SEAEDGE UK1
Investment: £45 million
Location: UK
IPO pipeline asset?: Yes
VERNE GLOBAL
LONDON
Investment: £50m
Location: Global
IPO pipeline asset?: Yes
EMIC-1
Investment: £114 million
Location: Finland
IPO pipeline asset?: No
VERNE GLOBAL
FINLAND
Investment: £3 million
Location: UK
IPO pipeline asset?: Yes
GIGGLE
37
2022 Annual Report
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Information
12
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.
/ SHAREHOLDER RETURNS
At IPO, the Company committed to a 10% total return
target comprising sustainable and growing income and
capital growth. At 31 December 2022, the Company
generated a total return for shareholders of 10.4%, 0.4%
in excess of the Company’s target. The total return was
comprised of a 6 pence dividend per share, and NAV
growth of 5% per share, from 1 January to 109.76 pence
per share.
Since IPO, the Company has continued to deliver
income for shareholders in meeting the target
annualised dividend of 6 pence per Ordinary Share.
12
Dividend outlook
The Group’s portfolio is comprised of market-leading
companies which generate sustainable inflation-link
cash flows, and companies that have exceptional growth
opportunities. Together, the portfolio is designed to
produce income and capital growth, thereby achieving
the Company’s total return target. The Company’s
dividend target is unchanged for the year ended
31 December 2023.
The Company’s methodology to bridge from EBITDA to
OCF is described in the illustrative table below.
The table is presented on a full-year basis assuming
ownership of Investee Companies and £300 million
being drawn of the RCF for the full financial period.
In the full year ended 31 December 2022, the
Company’s dividend cover was 0.4x, a decrease of 25%
from the six-month period ended 30 June 2022. This
decline was primarily attributable to the impact of the
Arqiva accretion payment, which was paid in June 2022.
The Company has committed capital towards several
projects including completion of the build out of the
remaining capacity at Verne Global London bringing
it to 6MW. Capital committed to Aqua Comms will
see the launch of the AEC-3 subsea cable, its third
transatlantic submarine cable system, adding further
resilience to its existing transatlantic AEC-1 and AEC-2
fibre network links and continue the development of
EMIC-1, launching in 2024.
The Company, through its subsidiary undertakings, has
committed to fund c.£46 million of the total pipeline
which will be funded by a combination of cash and the
available RCF (c.£5 million is expected to fall due in
2024 as EMIC-1 approaches being operational).
The Company’s intercontinental reach is illustrated in
the map on the previous page.
/ LIQUIDITY
The Group held unrestricted cash of £55.5 million as at
31 December 2022. During the period, the Company
successfully raised £155 million in gross equity proceeds
from existing and new shareholders, supported by a
£375 million RCF.
At period-end, the RCF was £331.2 million drawn, with
a further £43.8 million available to draw. The Company
drew an additional £25 million of the RCF post-period
end to fund additional capital expenditure at Verne
Global London and Aqua Comms.
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EBITDA TO OCF BRIDGE
£’000
EBITDA
206,294
(-) Cash tax
(428)
(-) Working Capital
(13,825)
(-) Maintenance Capex
(20,813)
(+) Adjustment for exeptional transaction expenses
1,208
(-) IFRS 16 Adjustment
(18,645)
Gross Operating Cash Flow
153,792
(-) VLN Interest
(9,780)
(-) Arqiva Interest Costs
(51,419)
(-) Accretion Payments*
(46,584)
Adjusted cash flow
46,009
D9 Financing Costs
(16,954)
Fund Operating expenses
(10,360)
Net cash flow
18,695
Dividends
50,274
Operating cash flow cover
0.4x
*
D9’s share of Arqiva’s accretion payments. 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.
For further information see below.
Path to Dividend Cover
There exist two principal factors which are expected to significantly improve dividend cover generated from the
existing portfolio over the coming years, notably; the ramp up of existing customer contracts in Verne Global
Iceland
, and the anticipated fall in inflation over the coming year, which will reduce accretion payments due from
Arqiva under their inflation linked swaps. Further detail can be found below.
Verne Global
Verne Global Iceland, Verne Global London, and Verne Global Finland have presold existing data centre capacity,
the take up of which will ramp up over time. It is expected that of the 13.1MWs remaining contracted capacity to be
ramped, 4.2MW will be fully ramped by December 2023, 8.6MW by December 2024 with all MW fully ramped by
December 2027.
Once fully ramped, the Investment Manager expect this fulfilment of contracted capacity will add c.£21.2 million to
OCF. This figure excludes future OCF contribution from capacity that has not yet been sold.
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Arqiva
The Company defines Arqiva’s OCF as EBITDA less
interest, cash taxes, changes in working capital,
maintenance capital expenditure and accretion
payments.
As previously disclosed, Arqiva 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 in June. 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.
65-70% of Arqiva’s revenues remain linked to inflation,
and therefore a high inflationary environment is
beneficial to the long-term profitability and value of
the Company’s investment in Arqiva. A 1% increase
in inflation versus the inflation curve assumed for
the current valuation model results in a c.£22 million
valuation gain for the Company’s investment as of
31 December 2022, which is reflected in the NAV.
However, a 1% increase in inflation against the current
assumed curve also results in a c.£5 million reduction in
the OCF attributable to D9 for the financial year ending
June 2023, due to the cash settlement of the accretion
payments mentioned above.
As a result of the current higher inflationary
environment, operating cash flow generated by Arqiva
in 2022, since D9’s period of ownership, was negatively
impacted by the June 2022 cash settlement of inflation-
linked swap accretion payment, which amounted to
£46.6 million on a D9 pro rata basis.
Inflation continues to be high, which has a positive
impact on the long-term value of the business, and
a negative impact on short-term OCF generation.
However, if inflation falls back to more typical levels, as
is expected at the end of 2023, there will be a positive
impact on OCF generation.
Illustratively, assuming inflation fell to 4%, the Company
would benefit from an additional £24.1 million of
OCF on a pro rata basis as a direct result of a reduced
accretion payment. The Company anticipates the
portfolio will benefit materially from the sustainable cash
flows Arqiva generates following the expiry of inflation-
linked swaps in 2027. However, in the short term it is
expected that dividend cover will be impacted by the
accretion payment in June 2023 that is based on the
prevailing RPI index at the end of March.
This £24.1 million increase in OCF, taken with the
Verne Global Iceland and Verne Global London ramp-
up benefit of £21.2 million, would have the impact of
increasing OCF dividend cover to c.1.3x on a like-for-
like basis.
Re-investment of OCF and
Complementary Capital
The Company believes the free cash flow generated
by the portfolio’s growth platforms will, over time,
grow as accelerated demand is fulfilled by ramping up
customers’ workloads and moving construction assets
into full operation – particularly in the case of Verne
Global, Aqua Comms, and EMIC-1.
Until the point of the growth platforms’ maturity, the
Company expects these Investee Companies will require
utilising their operating cash flow to support their
respective growth plans alongside capital expenditure
as identified by the Company’s growth capital
expenditure pipeline.
In the Trading Update published on 11 January
2023, the Company announced that it was exploring
complementary sources of capital, including debt at
an Investee Company level and a potential syndication
of a minority stake in existing Investee Companies to a
strategic partner, a process which has since commenced
in conjunction with a leading investment bank, to fund
the significantly increased growth capital expenditure
pipeline of the Investee Companies and provide
valuable follow-on capital to Investee Companies.
In relation to Investee Company level debt, a term
sheet has been agreed for a $100 million facility
to be provided to one of the high growth Investee
Companies, the proceeds of which will be used to
finance accretive growth opportunities, and to repay a
Company shareholder loan, with the intention this will
be used to reduce the drawings of the Group RCF.
Further updates on these processes will be announced
to shareholders following their completion.
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/ PORTFOLIO SUMMARY
AND KEY VALUE DRIVERS
The Company’s portfolio now consists of nine
attractive and complementary investments, with
four high-quality platforms comprising best in sector
operators, benefitting from accretive convergence
value throughout the portfolio. With our most recent
investment in Giggle Broadband, we have now invested
across the four target sub-sectors: Data Centres, Subsea
Fibre, Terrestrial Fibre and Wireless networks. The
tables below shows the portfolio’s asset and sector
concentration levels comprising valuations as at
31 December 2022.
High revenue visibility with balanced
and stable currency mix:
We have invested in businesses with high revenue
visibility, with a weighted average remaining contract
term for recurring revenue of 7.1 years across the
Investee Companies. This is reflective of our investment
approach, with investments underpinned by a
combination of diversified and long-term contract stacks
with high quality counterparties.
Balanced and stable currency mix:
Currency markets have fluctuated as central banks
respond to rising inflation by increasing interest rates
and adopting a contractionary monetary policy. The
Company has over 99% exposure to major currencies
(GBP, USD, EUR), offering a balanced currency mix to
major economies.
7.1 years
Portfolio asset and sector concentration (% of GAV)
0%
Terrestrial Fibre
6%
Cash
27%
Arqiva
3%
RCF proceeds
18%
Aqua Comms
2%
EMIC-1
25%
Verne Global
Iceland
1%
SeaEdge UK-1
4%
Elio Networks
4%
Verne Global London
10%
Verne Global Finland
41%
Data Centre
19%
Subsea Fibre
9%
Cash & Equivalents
31%
Wireless
0%
Giggle Fibre
20%
30%
40%
50%
60%
70%
0-3 years
3-5 years
5-10 years
10-20+ years
10%
-
8%
22%
10%
60%
0%
ISK
79%
GBP
11%
USD
10%
EUR
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34%
No protection
52%
CPI / RPI / PPI
linked with no cap
12%
Fixed uplift of 2% to 5%
2%
CPI / RPI / PPI
linked with cap
of 2% to 3%
Inflation protection
13
:
Amidst an economic backdrop
of record inflation levels not seen
in decades, we believe D9 is
well positioned to cope with the
risks arising from rising inflation
with 66% of recurring revenues
benefitting from a form of inflation
protection at underlying contract
level.
13
A portion of the inflation protection from Arqiva is subject to swaps. Note, Arqiva has predominantly uncapped, 0% floor, RPI-linked escalators within its core
customer contracts. Taking advantage of the favourable and high proportion of inflation-linked revenue in the underlying business, Arqiva has inflation-linked
swaps whose payments are financed by the inflation-linked customer contracts that run beyond 2027.
For further information see below.
Diversified customer stack offering resilient income streams
The Group
’s portfolio consists of an increasingly diversified contract stack, both by the number of customers and
the sectors in which they operate contributing to a resilient income stream across the Investee Companies.
As shown in the table below, the portfolio concentration to the highest revenue generating customers has reduced
as a result of this increased diversification, meaning there is a lower dependency on any one customer across the
portfolio.
Customer Concentration by Annual Recurring Revenue (“ARR”)
ARR is a metric of predictable and recurring revenue generated by Investee Company customers during a year, not
adjusted for period of ownership.
2021
2022
Customer by Revenue
ARR GBP m
% of total ARR
ARR GBP m
% of total ARR
Top 5
22.4
52%
171.5
51%
Top 10
30.3
71%
217.4
65%
Top 20
35.9
84%
254.2
76%
% investee company recurring revenue with inflation protection
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Growth capital requirements and value creation
The sub-sectors in which the Company invests are
typically growth sectors where extensive capital
expenditure can be deployed, for example, to 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.
For the period between 2023 and 2027 the Investee
Companies, in aggregate, have a growth capital
expenditure pipeline of c.£903 million.
Besides driving returns through platform reinvestment,
the Company is also able to create value through a
combination of complementary acquisitions and organic
growth. This has been demonstrated through the
acquisitions, and subsequent restructuring, of Verne
Global Finland and Verne Global London into a single
Northern European data centre platform under a single
brand. The platform is able to benefit from shared
resources and cross-selling of capacity to customers,
whilst accessing a wider customer base in itself.
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 Board and Investment Manager have evaluated
options and commenced processes seeking
complementary sources of growth capital to support our
Investee Companies alongside the capital expenditure
already committed by the Company. These processes
include a syndication through a competitive process
of a minority stake in existing Investee Companies to a
strategic capital partner in conjunction with a leading
investment bank and the arrangement of appropriate
debt financing at Investee Company level. The
syndication would provide proceeds which could be
used to pay down the RCF and/or fund growth capital
expenditure and provide valuable follow-on capital to
Investee Companies. In relation to Investee Company
level debt, a term sheet has been agreed for a $100
million facility to be provided to one of the high growth
Investee Companies, the proceeds of which will be used
to finance accretive growth opportunities, and to repay
a Company shareholder loan, which will be used to
reduce the drawings of the Group RCF. The Company
will update shareholders as further progress is made.
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.
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\ REVIEW OF PORTFOLIO
Aqua Comms has established itself as a leading subsea
fibre operator in the transatlantic market with two of the
most modern systems in AEC-1 and AEC-2. In 2023 we
expect to launch the AEC-3 system, providing further
network connectivity between the US and UK. The cable
will provide up to 20TB of capacity bringing Aqua Comms’
total capacity to c.60TB across its operational subsea
cables.
Aqua Comms is also managing the EMIC-1 system with its
development continuing through 2023 before launch in
2024. Construction on the cable system and negotiations
with the various stakeholders along the route are on time
and on budget.
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’ industry leading
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”). The acquisition was funded from existing
cash in Aqua Comms. Openbyte is an India-based licensed
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.
(including EMIC-1)
Sector
Currency
USD
Date invested
April 2021
Ownership
100%
SDG9 alignment
Connectivity
Initial investment
£170 million
Total capex funded to date
£29 million
Total investment to date
£199 million
Closing value (31 Dec 2022)
£257 million
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Verne Global Iceland 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 ten-year fixed-
price supply contract, enabling customers to reduce their
carbon footprint significantly.
Verne Global Iceland'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.
At 31 December 2022, Verne Global Iceland had 99%
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.
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 Iceland 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 Iceland
has identified a substantially increased growth capital
expenditure pipeline in its latest five-year business plan, with
capital expenditure pipeline in 2023 increasing to $115 million
(£95 million). Furthermore, its capital expenditure pipeline for
the five years to 31 December 2027 increased from
$208 million (£172 million) in its 2021 plan to c. $472 million
(£391 million).
This capital expenditure will fund the expansion of capacity
from an existing 40 Mega Watts (“
MW
”) in operation or
development to a total of 94MW out of a potential of
more than 100MW on the site. At 31 December 2022, the
Group had funded c.$60 million, (c.£49.5 million), of capital
expenditure in Verne Global Iceland since its acquisition
for £231 million in September 2021. The Group has not
currently committed to any further capital expenditure for
2023 onwards.
The Company’s Investment Policy includes a restriction that
the Company will not invest more than 25% of Adjusted
Gross Asset Value in any single asset or Investee Company
(measured at the time of any investment into such asset
or Investee Company) and therefore the Group cannot
currently materially increase its exposure to Verne Global
Iceland.
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.
Verne Global Iceland
Sector
Currency
USD
Date invested
September 2021
Ownership
100%
SDG9 alignment
Decarbonisation
Initial investment
£231 million
Total capex funded to date
£50 million
Total investment to date
£281 million
Closing value (31 Dec 2022)
£329 million
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Verne Global Finland is a leading Finnish data centre
and cloud services platform. It has ultra-modern
infrastructure, spread across three campuses (The
Air, The Rock and The Deck) with industry-leading
sustainability credentials and surplus heat distribution,
offering a full suite of cloud infrastructure, connectivity
and cybersecurity services. Verne Global Finland has
existing buildings capable of providing up to 23MW of
capacity of which 7.4MW is currently developed.
Verne Global Finland was acquired in July 2022. This
acquisition expands D9’s Nordic data centre portfolio
and continues to deliver on our strategy of sustainable
data storage.
As part of the five-year business plan, Verne Global
Finland identified a growth capital expenditure pipeline
of £92 million for the five-year period to 31 December
2027. This is to realise the potential to expand existing
resilient fit out capacity of 7.4MW to 17MW; the
Group has not yet committed to underwrite any of this
expenditure. At 31 December 2022, the Group had
funded £5.1 million in growth capital expenditure in
Verne Global Finland, since its acquisition for
c.£114 million in July 2022
In order to capitalise on the benefits of a multi-campus,
consolidated data centre offering, the rebranding to
Verne Global Finland is expected to support the growth
and consolidation of the Group’s Nordic data centre
platform. The Company and the Investment Manager
believe further synergies can be derived through
offering the combined Verne Global data centres’
customers with a choice of Nordic data centre locations
through a common platform and therefore drive greater
convergence value across the portfolio.
Verne Global Finland (Previously Ficolo Oy)
Sector
Currency
EUR
Date invested
July 2022
Ownership
100%
SDG9 alignment
Decarbonisation
Initial investment
£114 million
Total capex funded to date
£5 million
Total investment to date
£119 million
Closing value (31 Dec 2022)
£132 million
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Since its acquisition, the Verne Global team has taken
on the day-to-day operations within the facility. This
includes negotiating new and existing customer
contracts, implementing a hedged power procurement
strategy, and designing the expansion within the
facility as it builds towards full capacity of 6MW, with
development expected to be completed in 2023. This
will include a new 2.1MW contract with a key financial
services customer, bringing total utilisation to 4.3MW
out of a total available 6MW.
We will continue to promote convergence value
across our various data centre strategies, including our
broader Nordic data centre platform, as we educate UK
customers on the benefits of shifting energy-intensive,
latency insensitive data workloads into the Nordics.
Verne Global London (previously Volta Data Centres)
Sector
Currency
GBP
Date invested
April 2022
Ownership
100%
SDG9 alignment
Connectivity
Initial investment
£45 million
Total capex funded to date
£8 million
Total investment to date
£54 million
Closing value (31 Dec 2022)
£56 million
Verne Global London (previously Volta) wholly owns
and operates a premier data centre with state-of-the-art
facilities based in Farringdon, central London, providing
6MW of retail co-location services. It has over 40
networks available in its carrier-neutral facility, making it
one of the most connected central London data centres
(first among independents), offering ultra-low latency
and high-performance connectivity. It also has a PUE
of 1.5 making it one of the most energy efficient data
centres in London, which we are looking to improve
further, and procures its power from renewable sources,
delivering on our ambition to decarbonise digital
infrastructure.
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D9 owns the underlying real estate of the SeaEdge
UK1 (also known as Stellium DC1) data centre asset and
subsea fibre landing station, located on the UK’s largest
purpose-built data centre campus in Newcastle. It is
the UK’s only landing station for the North Sea Connect
subsea cable, which improves connectivity in northern
England and forms part of the North Atlantic Loop
subsea network, which includes D9’s Aqua Comms’
AEC-1 and AEC-2 cables.
The asset is leased on fully repairing and insuring terms
to the tenant and operator, Stellium Data Centres
Limited, via a 25-year occupational lease with over
23 years remaining. Stellium continues to meet its
payment obligations under the lease, delivering on the
Company’s target yield at acquisition.
Sector
Currency
GBP
Date invested
December 2021
Ownership
100%
SDG9 alignment
Connectivity &
Decarbonisation
Initial investment
£16 million
Total capex funded to date
Nil
Total investment to date
£16 million
Closing value (31 Dec 2022)
£18 million
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Elio Networks 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.
Elio Networks 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.2,800 in December 2022.
The Company has a diverse client base including larger
multinationals, government bodies, global technology
companies, small professional service firms, retail and
hospitality companies. Elio Networks was launched to
address the growing requirement for affordable high speed
broadband in the greater Dublin area. Since then, they
have grown to become the largest wireless Internet Service
Provider (“ISP”) in the greater Dublin region.
This was
D9’s first investment into wireless infrastructure and is in
line with the Company’s focus on supporting the SDG9, by
providing lower cost and lower latency connectivity to Irish
businesses.
As part of its five-year business plan, Elio Networks has
identified a growth capital expenditure pipeline of c. €8
million (c. £7 million) for the period to 2027, including €1.3
million (£1.1 million) in 2023. At 31 December 2022, the
Group had not funded any growth capital expenditure in Elio
Networks since its acquisition for £51 million in April 2022.
In line with its strategic growth plans, Elio Networks has
recently undergone a re-branding exercise and launched
under its new name in February 2023. Furthermore, the
network is launching in Cork city in early 2023, reaffirming its
position as a leading connectivity player.
D9 believe Elio Networks 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.
Elio Networks (formerly Host Ireland)
Sector
Currency
EUR
Date invested
April 2022
Ownership
100%
SDG9 alignment
Connectivity
Initial investment
£51 million
Total capex funded to date
£0 million
Total investment to date
£51 million
Closing value (31 Dec 2022)
£59 million
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Arqiva is the sole provider of national terrestrial TV and
radio broadcasting infrastructure in the UK. It serves
as a key strategic asset for the nation, owning c.1,450
broadcast transmission sites and reaching 98.5% of UK
households. The breadth of its broadcasting network
aligns Arqiva well with D9’s goal to improve connectivity
for consumers. Arqiva also operates a state-of-the-art
smart metering platform, which covers c.12 million
premises and delivers c.50 million data points every day.
Arqiva is a large, robust business with c.1,300
employees and predictable earnings underpinned by
long-term, inflation-linked contracts, strong market
positions, diverse revenue streams and long-life assets.
Arqiva has a healthy balance sheet consisting of long-
term senior and junior debt, which is supported by
interest rate swaps and inflation-linked swaps to hedge
and manage its exposure to interest rates.
Arqiva’s revenue is supported 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 or the retail price index. 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.
The Group completed the acquisition of a 48.02%
equity stake in Arqiva on 18 October 2022 for
approximately £463 million, following the granting of
regulatory approval. £300 million of the acquisition was
funded by a drawdown on the Group’s RCF and
£163 million through a non-recourse vendor loan note
(VLN) issued by the vendor, which is listed on the
International Stock Exchange. It should be noted that
D9 holds a 51.76% economic interest in Arqiva, but
that this corresponds only to a non-controlling 48.02%
equity stake.
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.
In Q3 2022, after the Company had signed the SPA,
Arqiva successfully deleveraged its capital structure
through the refinancing of £625 million of junior
Sector
Currency
GBP
Date invested
October 2022
Ownership
48.02%
SDG9 alignment
Connectivity
Initial investment
£300 million
Total capex funded to date
£0 million
Total investment to date
£300 million
Closing value (31 Dec 2022)
£355 million
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Financial Statements
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Information
notes with a £450 million term loan and residual cash
proceeds from the 2019 sale of Arqiva’s telecoms
business to Cellnex.
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 Arqiva’s financial year ending 30 June
2023, a 1% increase in inflation is expected
to cost
Arqiva an additonal £10million, 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.
Arqiva’s large contracts typically run past the expiry of
the swaps.
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.
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Information
In July 2022 the Group invested £1 million seed capital
into Giggle, a development opportunity that provides
affordable broadband to social housing through a
revolutionary Fibre to the Home (“FTTH”) network
across the city of Glasgow. Giggle represents a truly
affordable broadband solution for social housing,
allowing families on social benefits to access top quality
broadband without having to enter into long-term
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 alt-net.
Giggle has identified a growth capital expenditure
pipeline of c.£113 million for the five-year period to
31 December 2027, including c.£22 million in 2023.
Following the Group’s further investment of £2 million
in the project in December 2022, no further capital
expenditure has been committed by the Group,
however alternative funding options are being explored.
Sector
Currency
GBP
Date invested
July 2022
Ownership
100%
SDG9 alignment
Connectivity
Initial investment
£0 million
Total capex funded to date
£3 million
Total investment to date
£3 million
Closing value (31 Dec 2022)
£3 million
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Financial Statements
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Information
\ PORTFOLIO FINANCIAL PERFORMANCE
Per the table below, the Company's Investee Companies generated £409 million in revenue in 2022 and £206
million in EBITDA, both growing slightly compared to the previous year. On a run-rate basis, where data centre
contracted revenue is assumed to have fully ramped, the portfolio generated EBITDA of £226 million, a £20 million
uplift on actual EBITDA and an increase of 6% on the previous year. Consolidated Investee Company revenue
and EBITDA disclosed in the Company’s Trading Update published in January 2023 included revenues from
infrastructure as a service (“IaaS”) which were not included in the Company’s consolidated revenues for the year.
IaaS is a service which Verne Global Iceland provides to one of its largest customers, whereby Verne Global Iceland
purchases the equipment required and holds this on its Balance Sheet. The customer pays for the equipment, as a
result there is no negative cash impact for Verne Global Iceland.
2022 (12 months)
2022 (pro rata)
2021
% change
Revenue
£409 million
£152 million
£401 million
2%
EBITDA
14
£206 million
£71 million
£204 million
1%
Run-rate EBITDA
£226 million
£88 million
£214 million
5%
\ PORTFOLIO VALUATION PERFORMANCE
The portfolio comprises a diversified portfolio of
Digital Infrastructure assets providing critical network
connectivity and data storage services. The portfolio
has demonstrated resilience throughout the year, and
we are confident that it is well positioned to deliver our
target returns through a combination of capital growth
and income.
At the reporting date, the Group’s portfolio, consisting
of nine investments held via the Company’s subsidiaries,
was valued at £1.2 billion, excluding cash, after
factoring for the Group’s RCF. The Company and
its subsidiaries held unrestricted cash of £55 million
(£74 million total cash proceeds). The Group drew an
additional £25 million of the RCF following the period
end to fund additional capital expenditure at Verne
Global London and Aqua Comms. Including this post
period draw, the RCF was £356.2 million drawn, with a
further £18.8 million available to draw. The party to the
RCF is D9 HoldCo.
14
The Company is now presenting EBITDA excluding Infrastructure as a Service (“IaaS”) revenue at the data centre level for Verne Global Iceland, which passes
through the profit & loss statement as a cost after EBITDA. This is a more prudent measure when looking at the Investee Companies’ financial performance. The
Company previously reported EBITDA on a reported EBITDA basis, including IaaS revenue. The comparable figure for 2022 would be £225 million, and £216
million for 2021.
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\ NET ASSET VALUE
The Company’s net assets were valued at £950 million (£756 million at 31 December 2021, £852 million at
30 June 2022), reflecting an increase of 26% year-on-year. This includes £152 million of net proceeds through equity
raises and £127 million through net revaluation gains, which includes FX movement after reinvested capex.
The bridge below shows the movement in NAV during the period.
£756m
£152m
£7m
(£19m)
£127m
(£9m)
(£2m)
(£4m)
(£8m)
(£50m)
£950m
Opening NAV | 1
-
Jan22
(+) Equity Issue
(+) Income
(-) Acquisition costs
(+) Revaluation gains
(-) RCF Financing Costs
(-) VLN Financing Costs
(-) Group Opex
(-) Management fee
(-) Dividends
Closing NAV | 31
Dec 22
£600m
£650m
£700m
£750m
£800m
£850m
£900m
£950m
£1,000m
£1,050m
£1,100m
104.62
0.49
0.82
(2.24)
14.66
(1.08)
(0.19)
(0.43)
(0.89)
(6.00)
109.76
Opening NAV | 1
-
Jan 22
(+) Equity Issue
(+) Income
(-) Acquisition costs
(+) Revaluation gains
(-) RCF Financing Costs
(-) VLN Financing Costs
(-) Group Opex
(-) Management fee
(-) Dividends
Closing NAV | 31 Dec 22
95.00
00.00
05.00
110.00
115.00
20.00
25.00
The NAV per share was 109.76 pence at 31 December 2022 (104.62 pence at 31 December 2021, 105.13 pence at
30 June 2022), resulting in a Total Return for the financial year of 10.4% above the 10% target return.
The bridge below shows the movement in NAV during the period and their effect on a pence per share basis.
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\ VALUATION PERFORMANCE
In accordance with accounting standards, ”Investments
at fair value through profit or loss” as reported in the
Balance sheet include, in addition to the portfolio asset
valuation, the cash and other net assets held within
intermediate unconsolidated holding companies.
The revaluation gain delivered 14.66 pence per share
uplift to the Company’s audited NAV per share. There
are several key drivers in the valuation uplift during the
period:
•
First-time valuations: the introduction of the new
investments in Elio Networks, Verne Global London,
Verne Global Finland and Arqiva saw these assets
being revalued for the first time since acquisition
(Elio Networks and Verne Global London were held
at cost in June 2022). The investments were made
on competitive terms and the revaluation gains are
reflective of the investments now being held at Fair
Value rather than at cost.
•
Discount rate: there is more detail in the Discount
Rates section on page 57, but material valuation
changes are seen in Aqua Comms, in particular,
due to the appropriate application of the company
size premium when deriving its discount rate. As
previously disclosed, the interim valuation at
30 June 2022 involved a refresh of the previous
year-end model and hadn’t factored this change.
•
FX movements: the Company’s portfolio is
valued in Pound Sterling, however this involves
converting certain Investee Company valuations
from their host currency into Pound Sterling at the
spot rate at the valuation date. Given the relative
strengthening of the US Dollar and Euro relative to
British Pound during the year, particularly during
the first six months, the value of those investments
had additional FX appreciation. The following
companies are valued in their host currency:
a.
Aqua Comms: US Dollar
b.
Verne Global Iceland: US Dollar
c.
Verne Global Finland: Euro
d.
Elio Networks: Euro
During the year, the USD:GBP spot rate moved from
1.3477 at 31 December 2021 to 1.2103 at 31 December
2022, representing a 10% increase in US Dollar valued
entities. The EUR:GBP spot rate has moved from 1.1907
to 1.1273 reflecting an increase of 5%.
The chart below outlines the NAV movement for the
Company on a pence per share basis for each asset.
3.92
1.33
0.14
0.00
0.27
1.00
1.54
6.46
0.00
14.66
Aqua Comms
Verne Global
Iceland
SeaEdge
EMIC
Verne Global
London
Elio Networks
Verne Global
Finland
Arqiva
Giggle
Total
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
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Commentary on portfolio performance
The chart below shows the net total return during the year for each asset as a percentage of the aggregate of the
opening value of the asset and investments in the asset in the year. The total return includes the income return
as dividends and interest paid or accrued to the Company. Note that this measure does not time-weight for
investments in the year as indicated.
18%
8%
13%
21%
7%
7%
18%
-
13%
-
(5%)
5%
10%
15%
20%
25%
Aqua
Comms
EMIC-1
Verne Global
Iceland
SeaEdge
UK1
Elio Networks
Verne Global
London
Verne Global
Finland
Arqiva
Giggle Fibre
Portfolio
return
Acquired during the year. Performance not annualised
(0%)
Portfolio Total Return by Asset (year to 31 December 2022)
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\ SUMMARY OF PORTFOLIO
VALUATION METHODOLOGY
Investment valuations are calculated at the financial half-
year (30 June) and the financial year-end (31 December)
periods by the Investment Manager and then reviewed
by the Board.
Independent Valuation Adviser
For this period, as a result of the increasing size and
complexity of the Company’s portfolio, the Board
has sought an independent review of the Company’s
valuations prepared by the Investment Manager. This
review, provided by a market leading adviser, gives an
additional layer of scrutiny to the Investee Company
valuations and the inputs which underpin the discount
rates used.
Further information on the Company’s approach to
valuation can be seen in Note 9 on pages 206 to 209.
In determining a DCF valuation, we consider and
reflect changes to two principal inputs, being forecast
cash flows from the investment and discount rates.
We consider both the macro-economic environment
and investment-specific value drivers when deriving
a balanced base case of cash flows and selecting an
appropriate discount rate. The discount rate is built-up
annually during the cash flow forecast period on first
principles applying the capital asset pricing model.
Discount rates
Over the course of the year, the weighted average
discount rate increased very slightly from 12.56% to
12.64%, as shown in the chart below. In the mid-to-
long term, we expect discount rates to reduce as the
Investee Companies mature and risk premiums reduce.
During the year, we witnessed an increase to risk-free
rates across North America and Europe as central banks
started to take action in response to higher inflation.
For example, the ten-year UK bond yield increase from
0.97% on 1 January 2022 to 2.24% on 30 June 2022
and 3.67% on 31 December 2022. Higher risk-free rates
translate into an increase in the discount rates applied
to Investee Company cashflows. This can be seen when
comparing the 2021 Q4 and 2022 Q2 discount rates
applied in the chart below, where Aqua Comms and
Verne Global Iceland were both revalued.
For the second part of the year, the combined impact
of higher risk-free rates and the introduction of the new
investments in Elio Networks, Verne Global London and
Verne Global Finland to the portfolio at a higher-than-
average discount rate added further upward pressure
to the weighted average discount rate. However, this
was offset by reductions in the discount rates applied
for Aqua Comms (due to appropriate application of the
company size premium) as well as the introduction of
Arqiva at a significantly lower-than-average discount
rate. The net impact in the latter half of the year
resulted in a reduction in the portfolio weighted
average discount rate from 13.8% to 12.6%.
Weighted average discount rate by valuation period,
(%)
12.6%
12.6%
12
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
2021
2022
Weighted average cost of equity
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\ INFLATION
A prevalent theme this year has been inflationary
pressures to power prices, supply chain costs and
employee costs. The ability to pass cost inflation to
customers varies by Investee Company so a granular
approach was taken to model the effects of inflation.
The Company has used inflation forecasts provided by
an independent provider. CPI is forecast at an average
of 7.3% in 2023 and 3.2% for the first half of 2024,
before returning to its long-term target of 2.0%. For RPI,
we have applied 10% in 2023, 4.8% for the first half of
2024, and reducing gradually by 50bps year-on-year
from 4.0% at the end of 2024 to 2.0% by 2028.
As mentioned earlier, on page 40 Arqiva has been
negatively impacted from a cash flow perspective due
to the recent increased levels of inflation and the impact
this has on their existing inflation linked swaps held
on their balance sheet. While these have a negative
impact on cash outflows over the short-term, it should
be highlighted that over the longer-term this is positive
for Arqiva’s enterprise value. This plays out in two
ways, higher revenues in the future as a result of the
compounding effect of inflation on their revenues and a
larger EBITDA used in any exit assumptions.
The Investment Manager aims to construct and maintain
a portfolio that generates year-on-year revenue growth
on a progressive basis. The Investment Manager
does not aim to construct and maintain a portfolio of
investments purely with direct inflation-linked returns;
however it targets any potential portfolio downside
inflation impact to be broadly offset through revenue
growth over the medium to long-term.
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\ DEBT FINANCING
In March 2022, the Group raised £300m through a
bespoke RCF with an international syndicate of four
banks. In August, the RCF was increased by £75 million
via an accordion facility, bringing the total capital
commitments by the bank syndicate under the RCF to
£375 million. Following the increase by £75 million,
there is capacity for a further £125 million of financing
in the accordion facility which the Company can draw
from, if and when appropriate and agreed with the
syndicate.
At the time of the RCF’s inception, competitive terms
were achieved given the Company’s size and relatively
limited portfolio diversification. The interest rate for
the RCF is an agreed margin over SONIA, whereby the
starting margin of 3.75% will ratchet down to 3.25%
once certain criteria are met. These criteria include
achieving increased portfolio diversification and a lower
gearing ratio at the Company level. As at 31 December
2022, the Company has met one of the agreed criteria
through underlying portfolio investment diversification,
achieved by the four acquisitions during the year,
bringing total portfolio investments to eight. Therefore,
the Group is now benefitting from the first margin
ratchet of 3.50% instead of 3.75% previously. As at
31 December 2022, the Group has drawn £331.2 million
under the RCF which includes one non-cash draw in the
amount of £1.2 million for a letter of credit. The drawn
funds have enabled the Company to acquire Arqiva
and make further investments into existing Investee
Companies through growth capital expenditure. An
additional £25 million of the RCF was drawn post-
period end to fund additional capital expenditure at
Verne Global London and Aqua Comms.
Given the combination of rising interest rates and
the Company’s added maturity and diversification
compared to when the RCF was agreed, the existing
debt structure is under permanent review by the Board
and the Investment Manager, to explore market driven
optimisation aspects for the benefit of the Company’s
shareholders. One aspect under review is bringing
forward the deployment of asset level financing into
selected Investee Companies, helping to repay the
drawn RCF. Asset level debt would be in the form of
structured term debt together with an appropriate
interest rate structure so that the Company is not
exposed to interest rates fluctuations. Once specific
asset level financing propositions have been identified
in Q1 2023, the RCF will likely be downsized to adjust
for the revised debt structure and not to exceed target
gearing ratios.
The Group completed the acquisition of a 48.02%
equity stake in Arqiva on 18 October 2022 for
approximately £463 million, following the granting of
regulatory approval. £300 million of the acquisition
was funded by a drawdown on the Group’s RCF and
£163 million through a non-recourse VLN issued by
the vendor, which is listed on the International Stock
Exchange (“TISE”).
15
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.
15
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As at 31 December 2022, the only Investee Company
with asset level debt was Arqiva, In August 2022, Arqiva
secured a 5.5-year £450 million term loan facility at an
interest rate of c.10.3% per annum. Proceeds of the
loan, together with cash held on the balance sheet,
were used on 30 September 2022 to redeem the £625
million 6.75% coupon junior notes, which were due in
September 2023. Alongside the term facility, the Arqiva
Group also entered into a £50 million working capital
facility providing additional liquidity support, which was
subsequently increased to £70 million in December
2022.
Further details of its capital structure are outlined in the
“The Strategy in Practice – Arqiva” section on page 26.
As set out in the Prospectus, gearing will only be used
by the Company to finance acquisitions and growth
capital expenditure on a short-term basis, with longer-
term gearing likely to be applied at an asset level.
As at 31 December 2022, D9 and D9 HoldCo had
unrestricted cash of £55 million and an undrawn RCF
of £45 million, giving £90 million in potential liquidity.
In aggregate, excluding Investee Companies and
including undrawn RCF, D9 had gross debt of £538
million, comprising of the VLN and RCF as at
31 December 2022 which is 40.6% of Adjusted GAV and
below the 50% maximum permitted in the Company’s
Investment Policy.
£’000
Leverage as a % of Adjusted GAV
Leverage as a % of GAV
Drawn RCF
331,200
25.0%
25.8%
Total RCF (excluding accordion)
375,000
28.3%
29.2%
RCF and VLN
538,000
40.5%
41.9%
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Information
This gives the Company headroom under this restriction
of £124.5 million. This level of debt is equivalent to 3.3x
EBITDA including the Company’s own and VLN interest
costs as a deduction in the calculation of EBITDA. The
Company’s Net Debt / EBITDA ratio is disclosed below.
/ OUTLOOK
Over the next 12 months we expect a shift in our
approach from one of growth through M&A activity to
one of portfolio optimisation and value creation as our
Investee Companies look to execute their respective
business plans. We are confident that the portfolio we
have built since IPO is well positioned to deliver on the
Investment Policy and deliver value to the Company’s
shareholders.
The underlying fundamentals driving the fourth
industrial revolution, one of technological progress and
adoption, are accelerating. Digitalisation has taken hold
of our everyday lives and interaction with appliances,
driving endless demand for the digital infrastructure
supporting this unstoppable transformation.
We are playing our part in solving the world’s biggest
problems by helping to close the digital divide and
creating greener, more sustainable connectivity.
An investment in our portfolio seeks to accelerate
economic growth, social development and critical
climate action.
We believe big problems create strong demand,
strong demand drives good investments, and good
investments solve big problems. The internet is the
lifeblood of progress, and we’re making sure its
progress benefits people and
the planet alike.
Ben Beaton
Fund Manager
Triple Point Investment Management LLP
8 March 2023
NET DEBT / EBITDA
£million
Drawn RCF
331,2
VLN
163,0
Cash & Cash Equivalents (inc restricted)
(73,6)
Net Debt
420.6
Portfolio EBITDA
206,3
Net Debt / EBITDA
2.04x
Arqiva debt (pro-rated for D9 ownership)
754.0
Adjusted net debt / EBITDA
5.69x
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Key
Representatives
of the
Investment
Manager
\ BEN BEATON,
Managing Partner and Fund Manager
Ben is the Co-Managing Partner of Triple Point and Fund Manager for D9. He was
instrumental in establishing D9 and has taken an active role in the development of
Triple Point’s digital infrastructure team. Ben joined Triple Point in 2007 and was
appointed Co-Managing Partner of Triple Point in 2016.
\ ARNAUD JAGUIN,
Investment Director
Arnaud joined Triple Point in January 2021 and has over 15 years’ experience in
telecoms and digital infrastructure. He began his career in telecoms M&A advisory at
UBS Investment Bank, advising on £50 billion of transactions. He then had a varied
career in the industry with Level3 Communications (corporate development and
strategy), CenturyLink (marketing), RETN (sales operations) and Ontix (finance).
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ALAN HARPER
•
D9 positions held: Chair of Aqua Comms.
•
Background: Alan spent 12 years at Vodafone Plc, as Group Strategy Director, he
led c.$200 billion of acquisitions. Alan co-founded and was CEO at Eaton Towers,
a leading tower company, which was acquired by American Tower for c.$1.9 billion
in 2019.
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.$2 billion, 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.
STEVE ANDREWS
•
D9 positions held: Chair of Verne Global, Board Observer to Verne Global Finland
and Verne Global London and Non-Executive Director for Elio Networks.
•
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 Chair of PE backed Azzurri Communications until its successful
exit in 2016.
Operating Partner Panel
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DAVID RUSSELL,
CEO of Elio Networks
David is Chief Executive for Elio Networks, joining as Head of Sales in 2016 before
becoming Chief Executive in 2018. He led the sale of Elio Networks to Digital 9 in
2022. Previously, David held positions in The Dixons Group and started a bonded
logistics company in his native Northern Ireland.
DOMINIC WARD,
CEO of Verne Global Iceland and Verne Global
London, 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 Global'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.
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.
Investee Company CEOs
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Financial Statements
Governance
Information
65
2022 Annual Report
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Information
Sustainability
Report
/ INTRODUCTION
This report provides a summary of the Company’s
sustainability outcomes, approach and ambition
(as implemented by the Investment Manager).
The report includes Environmental, Social and
Governance performance, including reporting
aligned with TCFD (voluntary), SFDR and planning
for the pending SDR. Refer to section 3 for
regulated reporting results, and reporting aligned
with a range of best practice frameworks.
D9’s approach to sustainability is predicated on
the belief that digital infrastructure is essential to a
thriving society, and that access to digital services is
becoming a new human right.
How such a vital and global service is delivered
could have significant environmental and social
implications. Digital access needs to be open and
inclusive, reaching those who have previously been
excluded. Implementation needs to take account
of the wider possible negative impacts (in particular
environmental impacts such as carbon intensity and
resource use) such infrastructure can have.
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For Digital Infrastructure to provide a real social
service it must be developed as sustainably
as possible. In seeking to build a network of
sustainable digital infrastructure, D9’s approach is
to consider:
i.
Does this asset align to the theme of
sustainable digital infrastructure?
We use
Sustainable Development Goal 9 to ascertain
this, focusing on targets relating to reduction in
digital divide and environmental quality (SDG
targets 9.4 and 9.c). For outcomes and targets
refer to section 2.i.
ii.
Does this asset have sound business
practices that reassure us it conducts itself
in a way which is aligned to sustainable
business practice and long-term success,
allowing it to achieve the implementation
of sustainable digital infrastructure whilst
managing wider ESG operational risks and
opportunities. For outcomes and targets refer
to section 2.ii.
iii. How can this asset improve over time, and
what can D9 do to help facilitate this?
For
outcomes and targets refer to section 2.iii.
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Milestones: action demonstrating commitment to align D9 to sustainability
Investment
Manager
becomes B
Corp certified
D9 commits to
align to SDG9
and select assets
aligned with
one or both of
decarbonisation
of digital
infrastructure
and reducing the
digital divide.
ESG
Integration
approach
captured and
reported in
dedicated
ESG
Integration
Policy
Investment
Manager, on
behalf of D9,
becomes a
member of the
Sustainable
Digital
Infrastructure
Alliance (SDIA)
Investment
Manager
publishes first
Sustainable
Financial
Disclosure
Regulation
(SFDR) Article
8 disclosure
for D9
Baseline of
Scope 1 and
2 emissions
across the
portfolio, with
process to
ensure roll out
for each new
asset
Update and
strengthen
Article 8
disclosure,
publish first
voluntary
TCFD report
Investment Manager
engages Carbon Trust
to develop Net Zero
Roadmap, including
targets dedicated
to D9 (submission
of net zero targets
and transition plan
is intended to be
submitted to the SBT
Initiative for approval
in September 2023,
this submission will
include a D9 reduction
pathway)
Investment
manager
joins PCAF
Sustainability
Targets set
across D9
portfolio (see
Section 2.i and
2.ii)
Investment
Manager joins
the Net Zero
Asset Managers
initiative (NZAM)
JAN
JUN
JAN
AUG
NOV
MAR
JUL
MAR
SEP
DEC
2022
2021
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\ SECTION 1: SUSTAINABILITY
COMMITMENT FROM D9
2022 Highlights
•
Sustainability training provided to all Board
members
•
Appointment of a Board apprentice
•
Triple Point Net Zero Roadmap project to develop
a net zero target and transition plan initiated with a
dedicated plan for D9’s contribution to this pathway
incorporated (the plan is intended to be submitted
to the Science Based Targets Initiative for approval,
in September 2023)
Goals for the year ahead
•
Dedicated Investment Manager resource to be
allocated to D9 Investee Companies to support
improved ESG performance in relation to our stated
targets, data capture and reporting requirements,
with a particular focus on Scope 3
•
Developing data collection to assess avoided
emissions as a result of clients of the Nordic data
centre platform having the option to select between
locations to achieve the best data transmission
results for the lowest carbon footprint
\ NET ZERO ROADMAP
ACTIVITIES
The Company recognises the need to take action
in the production of net zero targets and a net zero
transition plan in line with the Paris Agreement. Real
carbon emission reduction outcomes are best achieved
at the individual Investee Company level. Companies
need support in this process (particularly in Scope 3
data collection and then the subsequent changes to
business practice). It is also relevant for the Company,
with support from the Investment Manager, to make
progress on developing commitments which align with
industry frameworks, such as Science Based Targets
(SBTs) – which help to ensure a credible and detailed
understanding of what needs to be achieved.
The Company:
In April 2023, D9 representatives will participate in a
workshop with specialist external carbon consultants
to establish net zero targets for the Company. These
targets will contribute to the Investment Manager’s
net zero target and transition plan which will be
submitted to the Science Based Target Initiative (SBTi)
for approval, whilst also providing important and
useful guidance to support each Investee Company
as they begin preparing individual net zero roadmaps.
It is recognised that this approach has limitations as
it would predominantly focus on Investee Company
Scope 1 and 2 emissions, and an incomplete Scope
3 data set. Scope 3 data collection being a key area
of engagement with Investee Companies in 2023.
The Company’s targets will be adjusted as progress is
made in Scope 3 data collection, and in time will reflect
the individual net zero roadmaps of each Investee
Company.
The Company has committed that all wholly-owned
Investee Companies implement their own net zero
roadmap with targets and a transition plan within
the next 24 months. Arqiva is the only company that
the Group is invested in, in which it does not own
greater than 50% of the equity and hence does not
have operational control. It is noted, Arqiva have
embarked on the collection and reporting of their
carbon footprint, including scope 3 and the Investment
Manager will work collaboratively with Arqiva to make
progress on their net zero planning.
The Investment Manager:
Target setting has been split between near and long-
term setting in order to accommodate the publication
of SBTi’s “Guide to net zero for financial institutions”;
upon publication of this guidance Triple Point will be
in a position to integrate the guidance and set long-
term targets in line with it. The Investment Manager
intends to set near-term Science-Based Targets for
2030 across all of its eligible assets as a first step
towards reaching Net Zero emissions by 2050, and as
part of their obligations as signatories of the Net Zero
Asset Managers initiative. A bottom-up approach is
being taken whereby targets for D9 will be developed,
alongside those for each Triple Point strategy to inform
an Investment Manager-wide initiative. Data for the
baseline year of 2021 has already been collected and
ratified by external specialists the Carbon Trust and the
Investment Manager intends to submit targets and a
transition pathway to the SBTi in September 2023.
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\ SECTION 2: SUSTAINABILITY
VISION FOR D9 AND APPROACH
IN ACTION
The sustainability vision of the Company is to build a
portfolio of sustainable digital infrastructure assets, and
to demonstrate these credentials through alignment to
Sustainable Development Goal 9:
Build Resilient Infrastructure,
promote inclusive and sustainable
industrialisation and foster innovation.
Digital infrastructure is recognised as essential for a
modern thriving economy, crisis resilience and human
wellbeing. Those without access to good connectivity
or infrastructure are economically disadvantaged
16
.
D9 is a thematic investment opportunity, investing in
the theme of sustainable digital infrastructure. The
investment team commits to developing a digital
infrastructure network whose sum is greater than their
parts by contributing to the societal need for greater
connectivity with a lower environmental footprint, than
digital infrastructure built without sustainability as a
consideration.
2.i “Does this asset align to the theme
of sustainable digital infrastructure?”
This intended contribution to the societal need for
greater digital connectivity with a low environmental
footprint, aligns to two Sustainable Development Goal
9 targets. To manage Company’s alignment, when
selecting an asset for inclusion in the portfolio we
require one or both of these targets to be addressed by
the asset.
•
Target 9.4: By 2030, upgrade infrastructure and
retrofit industries to make them sustainable, with
increased resource-use efficiency and greater
adoption of clean and environmentally sound
technologies and industrial processes, with all
countries taking action in accordance with their
respective capabilities
•
Target 9.c: Significantly increase access to
information and communications technology and
strive to provide universal and affordable access to
the Internet in least developed countries by 2020
The Investment Manager identifies an appropriate KPI
to demonstrate alignment to one or more of the SDG9
targets, and these are monitored and reported. This
year the Company has set targets, where appropriate,
and will report against achieving these targets year-on-
year. The table below shows the KPIs identified and
how these align to SDG9 with associated targets, with
results for each portfolio company. Noting, Arqiva and
Giggle performance has not been included but the
KPIs identified for tracking SDG9 alignment
in future
reporting are shown.
16
OECD, “Digital Transformation in the Age of COVID19, Building Resilience and Bridging Divides. Digital Economy Outlook, 2020
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SDG 9 alignment
Metric
Units
Target (2023)
2021
2022
Wireless
networks
Wireless
networks
Data Centres
Elio
Networks
Aqua Comms
Verne Global
Iceland
London
The Rock
The Deck
The Air -
Phase 0
The Air -
Phase 1
Decarbonisation and Energy Security
Scope 1 and 2
(market-based)
emissions intensity
tCO2e/£M
revenue
–
19
23
40
20
24
3
29
tCO2e/GWh
–
8
10
564
213
4
1
22
Renewable energy
consumption
%
–
98.66%
A
98.66%
A
23%
64%
100%
99%
94%
Power Usage
Effectiveness (PUE)
-
1.3
1.22
A
1.33
A
1.30
1.54
1.33
1.36
1.26
1.54
Carbon Usage
Effectiveness (CUE)
kgCO2e/
kWh
0
–
0.04
0.01
0.30
0.08
0.08
0.09
0.08
Water Usage
Effectiveness (WUE)
litres/kWh
0.002
–
0.03
–
–
0.026
0.003
0.051
0.051
Increased
technology to
improve energy and
water efficiency
1
Growth in
smart meter
business
10
Increasing connectivity and reducing the digital divide
Growth in network
capacity (% increase
in sold TB/s)
%
10
7%
A
13%
A
6%
13%
Percentage of
customers by
revenue also
deployed in Nordic
Data Centres
%
10
n/a
Average speed
increase for
customers
compared to
previous quickest
provider operating
in the area
2
%
n/a
Number of
customers
2
#
n/a
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Sustainability Table 1: Per Investee Company alignment to the chosen SDG9 targets. 2021 data is aggregated.
2022 data is aggregated and provided per company. Independent limited assurance has only been provided over
aggregated D9 data marked with the ‘A’ symbol. PwC’s assurance statement for the 2022 data can be found in the
Annual Report on pages 189-191. PwC’s assurance statement for the 2021 data can be found in the 2021 Annual
Report.
n/a reflects where information is not yet available, but the KPI is relevant to the Company and is being
tracked for future reporting.
SeaEdge is excluded as an asset where D9 acts as landlord, not owner, and has limited
influence on behaviours.. As recent acquisitions data on Arqiva and Giggle are not yet included. Outcomes will be
tracked and reported in the 2023 annual report, the metrics which will be tracked are shown in the table (for Arqiva
see metric labelled 1; for Giggle see metric labelled 2).
The following information provides contextualisation of how the carbon footprint of D9’s companies compare to the
wider global economy. It should be noted there are few digital infrastructure strategies which report their carbon
intensity, and therefore providing a comparison to an aggregated digital infrastructure footprint is not possible.
The first table provides comparison to indices which show footprints indicative of certain economic activities.
The second comparison is provided as a chart to demonstrate context for the emissions of our data centres. As a
particularly emission-intensive activity, it is appropriate to draw out the D9 data centre footprint and compare to
market.
Strategy
Descriptor
tCO2e/£million
17
Digital 9 Infrastructure
Digital infrastructure, selected with existing
or future sustainable credentials a strategic
requirement
23
iShares US Technology ETF
Large technology companies e.g. Microsoft,
Meta, Apple, Alphabet
25
iShares Core S&P 500 ETF
An example of US economy snapshot
171
iShares North American Natural
Resources ETF
Oil & Gas
605
Sustainability Table 2: comparison of D9’s carbon footprint to alternative relevant technology, natural resource and
broad economic indices. Footprint data represents Scope 1 and 2 (market-based) emissions.
17
ETF information is sourced from MSCI. ETFs are reported in USD and have been converted using Bank of England spot rate for 30 December 2022. D9 data is
based on £million revenue; ETF data is based on $million sales.
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Sustainability Chart 3: emissions comparison. Aggregated D9 data centre energy use compared to the
average UK Data Centre and the average US Data Centre. Total location-based emissions of D9’s data centre
portfolio compared to a data centre portfolio with an average PUE, consuming grid electricity in the UK and US
respectively.
18
2.ii “Does this asset have sound business practices that reassure us it conducts itself in a way
which is aligned to sustainable business practice and long-term success?”
It is essential that the broader ESG quality of an Investee Company is assessed. An asset may align with the theme
of offering a contribution to the creation of a sustainable digital infrastructure network, but the quality of the assets
contribution may be compromised as a result of poor management of unintended impacts and externalities.
The following non-subsector specific metrics are now tracked to gauge the ongoing management of ESG risks and
opportunities for the Investee Companies of D9.
GHG Emissions (tCO2)
4,419
33,156
63,646
D9 Platform
UK Average
US Average
18
An average PUE of 1.55 is used (https://uptimeinstitute.com/about-ui/press-releases/2022-global-data-center-survey-reveals-strong-industry-growth), with
location-based emissions data from UK Government GHG Conversion Factors for Company Reporting and the US Environmental Protection Agency (US Average).
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Category
Metric
AquaComms
Verne G Iceland
Verne G London
Verne G Finland
Elio Networks
Arqiva**
Giggle**
E
Emissions
Scope 1 emissions
10
46
19
15
2
n/a
n/a
E
Emissions
Scope 2 emissions
(location-based)
783
1,289
2,696
591
142
n/a
n/a
E
Emissions
Scope 2 emissions
(market-based)
552
449
-
162
234
n/a
n/a
E
Energy
Renewable energy
consumption (%)
64%
100%
99%
94%
23%
n/a
n/a
E
Net Zero roadmap in place
yes/no
no
no
4
no
8
no
no
10
no
no
E
Biodiversity management plan
in place
yes/no
no
yes
5
no
9
no
no
no
no
S
Living wage employer
% of employees
receiving a living wage
100
100
100
n/a
100
98.9
13
100
S
Uphold employee right to
collective bargaining
yes/no
yes
yes
yes
yes
yes
yes
yes
S
D&I approach
policy implemented:
yes/no
yes
yes
yes
no
yes
yes
yes
S/G
Board Gender diversity
% self-identifying female
0
0
0
0
0
n/a
n/a
S/G
Board Ethnic diversity
% ethnic minorities
67
1
0
0
33
50
11
n/a
n/a
S/G
Company gender diversity
% self-identifying female
26
17
6
44
8.3
14
8
14
23
S/G
Company ethnic diversity
% ethnic minorities
53
2
0
33
8.3
0
n/a
15
3.8
S/G
Serious health and safety
incidents*
#
0
0
0
0
0
0
0
G
Customer complaints
#
0
0
0
0
0
0
0
G
Cyber Essentials Plus certificate
achieved (for in-house IT), or
valid alternate
yes/no
no
3
yes
7
yes
7
yes
7
n/a
12
no
no
16
G
Is CEO remuneration linked to
ESG?
yes/no
no
no
no
no
no
no
no
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Sustainability Table 4. Operational ESG metrics tracked
to provide overview of sustainability-related business
behaviours across the Investee Companies. Only
companies where we hold an equity stake are included.
NOTES
Data as at 31 December 2022 unless stated otherwise
*
All Health and Safety data is report according to RIDDOR definitions: https://
**
Emissions data on Giggle and Arqiva excluded from reporting.
1
Based on “White British” only.
If it was “white” then answer would be 0%.
This detail is unconfirmed as Aqua Comms does not formally collect this
data.
2
Based on “White British” only.
If it was “white” then answer would be 2.6%
not including Board and 2.3% if Board is included. This detail is unconfirmed
as Aqua Comms does not formally collect this data.
3
The company are in the process of acquiring this certification
.
4
No formal net zero roadmap however the company has implemented some
action such as a feasibility study on hydrogen backup power as a solution for
existing diesel engines.
5
Verne Global Iceland carbon offset is implemented for 2022 emissions via
local Icelandic Wetland fund, whose goal is, in addition to offset emissions,
to increase and/or restore biodiversity.
6
Verne Global
7
ISO 27001
8
Via purchasing renewable sources of energy to lower market-based
emissions.
9
To date biodiversity action is linked to action by Verne Global Iceland.
10 Currently offsetting carbon with Climate Partners.
11 Based on “White Irish” only.
12 Company IT is outsourced.
13 1.2% of employees (12) are on salaries between National Living Wage and
Real Living Wage. These 12 employees are a combination of apprentices and
some administrative roles.
14 Disclosure of gender data is optional for employees. Currently only 23% of
Arqiva employees report this information. Statistic is based on the disclosing
23%.
15 Sufficient diversity data is not yet available for Arqiva, this information set is
still being developed by the company.
16 Currently working to achieve cyber essentials in Q1 23, with plans to achieve
Cyber Essentials Plus later in 2023.
Targets (for the coming two years – we will
monitor for progress year-on-year); all D9
companies will be engaged to act, the following
will be required by wholly-owned D9 companies:
•
prepare a net zero roadmap with targets and a
transition pathway by end of 2024
•
develop an action plan on biodiversity, mapping
the potential and actual negative impacts of their
business model on biodiversity, with mitigation
plans to reduce negative impacts and innovations to
create quantified biodiversity net gain
•
develop further diversity & inclusion measures,
including, but not limited to training for all
staff, improved understanding of the divergent
demographics of their existing workforce (e.g.
race and ethnicity, gender, LGBTQ+, disability,
menopause, mental health, neuro diversity,
returners, working families) with action plans to
support, and non-discriminatory hiring policy with
conscious inclusion hiring training
•
implement a minimum of Cyber Essentials
Certification plus where IT management is in-house
•
CEO executive remuneration linked to clear ESG
behaviours or actions
The operational metrics detailed in table 4 will be
tracked and reported along with progress against the
targets listed above. As plans by Investee Companies
are developed to meet these targets further detail on
the commitments and action for each Investee Company
will be provided.
Throughout the due diligence and onboarding process,
an asset is assessed for a wide range of ESG qualities,
through a bespoke set of analysis tailored to each D9
subsector and drawing on best practice frameworks,
including UN Global Compact, Sustainable Accounting
Standards Board (SASB) and SDIA. The chart below
depicts topic analysis per subsector.
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DATA CENTRES
Ecological impacts of processes & physical assets
(biodiversity impact from site construction; monitoring of
biodiversity; on-going water-way impacts, through use and
discharge)
Energy efficiency
(implementation of physical (e.g. hot and cold aisles) and
technological solutions (e.g. power usage effectiveness) to
improve use of energy)
Employee Health & Safety
(evidence of understanding prolonged server exposure on
worker health; mitigation steps)
Stakeholder relations
(engaging with local communities; seeking to create local
employment)
Systemic Risk Management
(management of service disruption; tracking of numbers
affected and downtime; disputes over technology; changes to
regulation)
Data Security
(approach to identifying and addressing risk; use of 3rd party
standards; number of breaches; number of users affected;
personal identifiable data involved)
Climate Risk Management
Physical:
Flood risk to sites; changes in natural cooling
scenarios
Transitional:
carbon taxes
ENVIRONMENTAL
•
Environmental approach
(GHG, energy efficiency,
water, renewables)
•
Ecological impacts of
processes & assets
•
Materials sourcing &
efficiency
•
Waste & hazardous
materials management
•
Climate risk management
(physical & transitional)
SOCIAL
•
Employee engagement,
diversity & inclusion
•
Employee health &
safety
•
Human Rights
•
Modern Slavery
prevention
•
Systemic risk
management
•
Stakeholder relations
GOVERNANCE
•
Product design & lifecycle
management
•
Supply chain management
•
Fair treatment of
customers
•
Competitive behaviours
•
Prevention of corruption
•
Privacy & data security
•
Overall strength of
governance (inc pay, tax,
systems & structures)
Typically, there is some customisation in all analysis
An “Engagement Flag” or area of improvement can emerge from any question
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SUBSEA FIBRE
Ecological impacts of processes & physical assets
(biodiversity impact of cable laying, cables in situ, any required
removal; monitoring of biodiversity)
Employee Health & Safety
(vessel operator policies and approaches; incidents and near
misses tracking and mitigation)
Stakeholder relations
(ensuring best practice beyond regulatory requirement to
minimise impact on cables e.g. engaging with fishermen on
cable location)
Systemic Risk Management
(service disruption and management; exposure to political risks
through disputes over access; changes to regulations)
Data Security
(protection of landing sites through obscuring; approach to
service suspension requests from licensing authority)
Climate Risk Management
Physical:
Flood risk to landing sites; use of new arctic routes
Transitional:
Tighter regulation on raw material mining,
requiring increased cable recovery
TERRESTRIAL FIBRE
Ecological impacts of processes & physical assets
(biodiversity impact of cable laying, cables in situ, any required
removal; monitoring of biodiversity)
Employee Health & Safety
(operator policies and approaches; incidents and near misses
tracking and mitigation);
Stakeholder relations
(ensuring best practice beyond regulatory requirement to
minimise impact on local communities and environment and
protect future operations)
Systemic Risk Management
(service disruption and management; exposure to political risks
through disputes over access; changes to regulations)
Data Security
(protection of landing sites through obscuring; approach to
service suspension requests from licensing authority)
Climate Risk Management
Physical:
Flood risk to lines and exit sites
Transitional:
Tighter regulation on raw material mining,
requiring increased cable recovery
WIRELESS
Ecological impacts of processes & physical assets
(biodiversity impacts from tower construction; monitoring of
biodiversity)
Energy efficiency
(implementation of physical and technological solutions to
improve use of energy)
Employee Health & Safety
(evidence of understanding prolonged wireless exposure on
worker health; mitigation steps);
Stakeholder relations
(engaging with local communities in construction; seeking to
create local employment; addressing perceived health risks of 5G)
Systemic Risk Management
(management of service disruption; tracking of numbers
affected and downtime; disputes over technology; changes to
regulation)
Data Security
(approach to identifying and addressing risk; use of 3rd party
standards; number of breaches; number of users affected;
personal identifiable data involved)
Climate Risk Management
Physical:
Flood risk to existing and planned tower sites
Transitional:
Carbon taxes
Sustainability graphic 5: D9 ESG analysis sub sector materiality
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The outcomes of this assessment not only help inform
an understanding of the quality of the business and
future ESG metric monitoring but also allow for the
identification of future areas of improvement or
innovation.
Environmental
Social
Governance
Arqiva
•
Solar panels installed at 4 sites in the UK.
•
EV charging points at two corporate
sites.
•
Second place in the large
company category for
Britain’s Healthiest Workplace
competition 2022.
•
n/a
Aqua Comms
•
Completed the transition to renewable
energy on targeted sites of key suppliers.
•
Commenced a programme to power
down any unused locations and to
remove any unused equipment in
operational locations from the energy
network. This has had an estimated
saving of 200 kW per card (based on
Ciena specification).
•
All products purchased by the marketing
team have been analysed for their
sustainability credentials (e.g., move to
electronic business cards). The review will
now be rolled out to other parts of the
organisation.
•
Voluntary surrender by certain team
members of their company car parking
spaces in favour of public transport.
•
For any new sites, analysis of power
supply by provider is a critical due
diligence element in the procurement
approach.
•
Provided funding to Clew Bay Oyster
Co-op Limited in Co Mayo to support the
biodiversity with focus on their Oyster
morbidity and seagrass regeneration
studies.
•
Participation in the University
of Limerick Cooperative
Education Programme (one
student for nine months) and
have launched a new graduate
programme with three new
graduates hired.
•
Replaced all corporate gifting
at conferences this year with
community contributions (i)
pledging a tree through DC for
Bees Program (300 in total) for
each participant at CCT 2022
in Dublin; (ii) making donations
to RNLI at Capacity Europe;
and (iii) making a donation to
Ocean Conservancy at PTC.
•
Held the first Comms Team
CSR activity held on
28 September 2022 – Beach
Clean-up at Bull Island Beach
(landing point for CC-1 cable).
•
Provided funding to Flossie
and the Beach Cleaners
to support their education
of schoolchildren on the
importance of protecting our
marine life.
•
Inclusion of sustainability
on to Board agenda.
2.iii
“How can this asset improve over time”
D9 is committed to managing Investee Companies for
improved sustainability behaviours over time. During
2022 the following actions by Investee Companies
improved their Sustainability credentials.
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Environmental
Social
Governance
Verne Global
Finland
(previously
Ficolo Oy)
•
Use of South Pole to offset emissions
from non-renewable energy sources.
•
Monetary support for
employees embarking on
additional studies (fixed term
contract of employment) and
as well as data for projects.
•
Donations to Save the
Children/Pelastakaa Lapset in
2022 of €900.
•
Donation through Kesko Oy,
Refugees coming from Ukraine
of €131,620.
•
n/a
Giggle
•
Procurement and process in place to use
hybrid and EV vehicles.
•
Initiated a programme to assess
environmental credentials of supply chain
and select those with strongest (e.g., sub
duct supplier using recycled plastics).
•
Developing a programme of
local community support to
promote digital inclusion.
•
Begun donations to the
Wheatly Foundation in
Glasgow, for every home
passed. A potential for a £1
million total donation.
•
Promote local. employment
and encourage local applicants
(e.g. of the existing 27 FTE, 17
are Glasgow-based).
•
n/a
Verne Global
Iceland
•
Initiated programme of Scope 3 data
collection.
•
Supporters of the Wetland Fund a carbon
offsite and habitat protection project in
Iceland.
•
Implementation of EV charging on site.
•
Inclusion of sustainability
on to board agenda.
Verne Global
London
(previously
Volta)
•
Initiated
programme of Scope 3 data
collection.
•
n/a
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D9 is working with each Investee Company to identify further areas of improvement for the year ahead. The table
below outlines company specific activities which will be supported to drive improved sustainability outcomes.
Portfolio
company
Project
Planned activities
Target
outcomes
Benefits to
Investee
Company
KPI
Current
Target
Aqua Comms
Scope 3
emissions
Tracking business
sScope 3; engaging
counterparties to
gather and report
A Scope
3 carbon
footprint
Proactive
implementation
of data collection
which will be a
requirement as the
business grows;
positioning as a
leader
% of data in
scope assets
0
>50% (some
data may
still remain
estimated)
ESG-linked
remuneration
Support AC in
design of an ESG-
linked remuneration
scheme for all
employees
Improved
overall ESG
performance
Incentivising
behaviours which
create strong
culture and long-
term value
# employees
with links
0
>80%
Verne Global
Iceland
Health & safety
tracking
Review of H&S
policy, and
procedures,
to ensure best
practices is in place
and effective
Safer and
better working
conditions for
employees
Reduce reputational
and legal risk;
more appealing
workplace
# of health
and safety
incidents/near
misses
1
0
Wellbeing
thought
leadership
Looking to
collaborate with
partners to analyse
the effects of heat
and noise and lack
of natural light
on workers, with
mitigation measures
identified
Production
of a thought
leadership
paper
Continuing to
strengthen Verne
Global Iceland's
position as a
thought leader and
drive best practice
–
–
–
Verne Global
Finland
Renewable
energy sourcing
Support VG Finland
in improved
energy position
through clearer
context relating to
renewable energy
claims
Appropriate
positioning of
energy use
Reduction in
reputational
risk; increased
opportunity for
innovation and
possible efficiencies
–
–
–
Verne Global
London
Scope 3
emissions
Tracking business
Scope 3; engaging
counterparties to
gather and report
A Scope
3 carbon
footprint
Proactive
implementation
of data collection
which will be a
requirement as the
business grows;
positioning as a
leader
% of data in
scope assets
0
>50% (some
data may
still remain
estimated)
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Portfolio
company
Project
Planned activities
Target
outcomes
Benefits to
Investee
Company
KPI
Current
Target
Nordic strategy
Metro-edge centres
such as VG London
have worse PUEs
and less renewable
energy than Iceland/
Nordic DCs. Look
to identify customer
use-cases within
VG London that
could be migrated
to alternate DCs on
platform and hence
avoid emissions
Lower overall
platform
emissions
resulting
from transfer
of some
client data
processing
from London to
location-based
renewables in
Iceland/Finland
Smart solutions for
clients seeking to
reduce their own
footprint; business
development
opportunity
% customers
by revenue
also deployed
in Nordic data
centres
n/a
>10%
Elio
Networks
Scope 3
emissions
Tracking business
Scope 3; engaging
counterparties to
gather and report
A Scope
3 carbon
footprint
Proactive
implementation
of data collection
which will be a
requirement as the
business grows;
positioning as a
leader
% of data in
scope assets
0
>50% (some
data may
still remain
estimated)
Cyber security
Elio to undertake
cyber security
accreditation. More
comprehensive
certification
requirements
to be reviewed.
Penetration testing
to be completed
Cyber security
certification in
place
Reduced cyber and
reputational risk
as business grows;
stronger market
offer
# security
breaches
0
0
Sustainability Table 6. Detail on the per Investee Company sustainability activity for action throughout 2023. Planning
and improvements for the two newest acquisitions (Arqiva and Giggle) are in development.
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/ SECTION 3: FRAMEWORK-
BASED REPORTING
Respecting latest reporting requirements and to
demonstrate clearly how the D9 and the Investment
Manager align with relevant frameworks, this section
provides reporting according to the following:
i.
PRI
ii.
UN Global Compact
iii.
UN SDGs
iv.
Impact Management Project
v.
SFDR
vi.
TCFD
vii.
Planned approach to SDR
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Signatory of PRI:
Principles for Responsible
Investment
PRI Principle
How Triple Point adopts the
principles for D9
PRI is recognised as
the leading global
network for investors
who are committed to
integrating environmental,
social and governance
(ESG) considerations
into their investment
practices and ownership
policies. The Principles
demonstrate best practice
in ESG integration,
guide signatories in
improvements and
promote closer alignment
between the objectives of
institutional investors and
those of society at large.
Triple Point became a
member of PRI in 2019.
The first Assessment
Report period of 2020-
2021 was a fallow
reporting year for PRI to
accommodate the launch
of a new reporting and
scoring system. Triple
Point’s first Assessment
Report will be published in
2023.
1
We will incorporate ESG issues into
investment analysis and decision-
making processes.
ESG analysis is considered by the
investment team alongside financial,
and shared in Investment Committee
papers to inform the final investment
decision.
2
We will be active owners and
incorporate ESG issues into our
ownership policies and practices.
Investments made by D9 are
frequently majority or fully owned.
Triple Point acts as asset manager
on behalf of the Company and uses
initial ESG analysis to implement
operational ESG improvements with
Investee Companies. These are
reported in our annual report.
3
We will seek appropriate disclosure
on ESG issues by the entities in
which we invest.
ESG topics are investigated in all due
diligence of acquisitions/investments.
ESG topics are monitored
through Board meetings and ESG
improvements and reported on
annually.
4
We will promote acceptance and
implementation of the principles
within the investment community.
The value of the principles and
importance of the role of ESG
factors in good decision making are
proactively promoted.
5
We will work together to enhance the
effectiveness in implementing the
principles.
D9 raises awareness of the
importance of good ESG practice
within the Investee Companies and
others in our investment network
(where possible) to encourage best
practice and seek change.
6
We will each report on our activities
towards implementing the principles.
Triple Point completes the PRI
signatory assessment and D9 reports
annually on ESG activities.
PRI signatories are required to report
on their responsible investments
activities annually. The next and first
published Assessment Report for
Triple Point will be in 2023.
Sustainability Table 7. Triple Point’s adoption of the six Principles for Responsible Investment for D9
i. PRI
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ii.
UN Global Compact
The Compact is a global initiative to align corporate strategy and operations with universal principles on human
rights, labour, environment and anti-corruption, and to take action to advance societal goals. D9 is committed to
uphold the ten principles of the Compact.
D9 supports UN Global Compact
Principle
How D9 supports the Principle
The 10 Principles of the UN Global
Compact
The United Nations Global
Compact is a United Nations
initiative to encourage businesses
worldwide to adopt sustainable and
socially responsible policies, and to
report on their implementation.
The UN Global Compact is a
principle-based framework for
businesses, stating ten principles
in the areas of human rights,
labour, the environment, and
anti-corruption. These principles
are derived from the Universal
Declaration of Human Rights, the
International Labour Organisation’s
Declaration of Fundamental
Principles and Rights at Work, the
Rio Declaration on Environment
and Development, and the UN
Convention Against Corruption.
D9 references these Principles
within the ESG analysis process,
to ensure all companies meet a
strong baseline of sustainable
behaviours. Where weaknesses
are identified, the Investment
Manager’s engagement programme
is designed to improve behaviours.
1
Businesses should support
and respect the protection of
internationally proclaimed human
rights.
All Investee Companies are asked
to explain their approach to human
rights and equal opportunities during
due diligence.
2
Businesses should make sure they are
not complicit in human rights abuses.
All Investee Companies are
monitored for their health and safety
outcomes, employee complaints,
whistleblowing incidents and gender
pay gap, in addition to being required
to explain during due diligence their
approach to oversight and influence
on supply chain.
3
Businesses should uphold the
freedom of association and the
effective recognition of the right to
collective bargaining.
All Investee Companies are assessed
for their respect for an employee’s
right to join a trade union and
representative organisations of their
own choosing.
4
Businesses should uphold the
elimination of forced and compulsory
labour.
All Investee Companies are requested
to explain in due diligence their
approach to managing modern
slavery risk within their own workforce
and those they are exposed to
through suppliers and counterparties.
5
Businesses should uphold the
effective abolition of child labour.
All Investee Companies are requested
to explain in due diligence their
modern slavery risk approach and
management.
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D9 supports UN Global Compact
Principle
How D9 supports the Principle
6
Businesses should uphold the
elimination of discrimination
in respect of employment and
occupation.
All Investee Companies are requested
to explain in due diligence their
approach to equal opportunities and
worker health and safety.
7
Businesses should support
a precautionary approach to
environmental challenges.
All Investee Companies are
requested to explain at due diligence
their approach to environmental
management and climate risk
management. Carbon emissions are
collected annually at a minimum.
8
Businesses should undertake
initiatives to promote greater
environmental responsibility.
On behalf of D9, Triple Point are
members of the Sustainable Digital
Infrastructure Alliance an independent
alliance of stakeholders working
across the digital sectors to execute
a roadmap for sustainable digital
infrastructure.
All Investee Companies are actively
encouraged to join relevant initiatives.
9
Businesses should encourage the
development and diffusion of
environmentally friendly technologies.
D9 has been structured to drive the
deployment of sustainable digital
infrastructure assets, with a focus
on environmental sustainability and
decarbonisation.
10
Businesses should work against
corruption in all its forms, including
extortion and bribery.
All Investee Companies are assessed
for their approach to prevention of
corruption, appropriate corporate
governance, ability to demonstrate
fair treatment of customers and
avoidance of anti-competitive
behaviours.
Sustainability Table 8: Triple Point’s adoption of the UN Global Compact 10 principles for D9
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iii.
UN SDGs
The UN Sustainable Development Goals provide the
framework for the thematic alignment of the strategy:
build resilient infrastructure (Goal 9), and also provides
a framework through which other environmental
and social outcomes associated with activities of the
Investee Companies can be considered. Strategic
sustainability engagement with each Investee Company
will take account of this analysis when determining areas
of action. The primary focus being for SDG9 alignment
and consideration of areas of potential negative
harm. The ESG due diligence analysis carried out for
D9 also takes account of potential negative impacts
against SDGs. As the Company matures we will look to
address an increased number of the potential positive
alignments to a wider set of Goals, and how we can
maximise our related outcomes. The seventeen goals
adopted in 2015 by 193 nations present a roadmap to
end poverty, promote prosperity and well-being for all
and protect the planet.
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UN
SDG
UN SDG
target
D9’s thematic
alignment
Investee
Companies
9
Build resilient
infrastructure,
promote inclusive
and sustainable
industrialisation
and foster
innovation
9.c.1
Significantly increase
access to information and
communications technology,
and strive to provide universal
and affordable access to the
Internet in least developed
countries
Investing in subsea and
terrestrial fibre networks
that are managed in a
responsible and sustainable
way and can provide
connectivity growth and a
reduction in digital shortfall.
Aquacomms
EMIC 1
Elio Networks
Arqiva
Giggle
9.4
By 2030, upgrade
infrastructure and retrofit
industries to make them
sustainable, with increased
resource-use efficiency and
greater adoption of clean
and environmentally sound
technologies and industrial
processes, with all countries
taking action in accordance
with their respective
capabilities
Investing in infrastructure
which considers
environmental impact and
efficiency in its construction
and processes, and in
particular ensuring that data
centre investments (the most
energy intensive in our sub
sectors) are working to or
already offer a low carbon
service.
Verne Global Iceland
SeaEdge
Verne Global London
Verne Global Finland
D9’s potential wider contribution (Positive contribution
represents ongoing areas of opportunity for D9 to create
positive outcomes, which will be pursued as the strategy
matures; negative contribution is managed through ESG
due diligence as detailed in Section 2.ii).
Positive
Negative
1
End poverty
in all its forms
everywhere
1.1
By 2030, eradicate extreme
poverty for all people
everywhere, currently
measured as people living on
less than $1.25 a day
Failure to influence
counterparties on
good employee and
community behaviours,
particularly in supply
chain
1.4
By 2030, ensure that all men
and women, in particular the
poor and the vulnerable, have
equal rights to economic
resources, as well as access to
basic services, ownership and
control over land and other
forms of property, inheritance,
natural resources, appropriate
new technology and
financial services, including
microfinance
Decreasing the digital divide
is a route to ensuring access
to all to economic resources
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UN
SDG
UN SDG
target
D9’s thematic
alignment
Investee
Companies
Positive
Negative
1.5
By 2030, build the resilience
of the poor and those in
vulnerable situations and
reduce their exposure and
vulnerability to climate-
related extreme events and
other economic, social and
environmental shocks and
disasters
Using subsea cable
technology to contribute to
protection of people from
extreme weather events
2
End hunger,
achieve food
security and
improved nutrition
and promote
sustainable
agriculture
2.4
By 2030, ensure sustainable
food production systems
and implement resilient
agricultural practices that
increase productivity and
production, that help maintain
ecosystems, that strengthen
capacity for adaptation to
climate change, extreme
weather, drought, flooding
and other disasters and that
progressively improve land
and soil quality
Using subsea cable
technology to contribute to
protection of people from
extreme weather events
2.c
Adopt measures to ensure
the proper functioning of
food commodity markets and
their derivatives and facilitate
timely access to market
information, including on food
reserves, in order to help limit
extreme food price volatility
Closing the digital divide can
contribute to information
equality
3
Ensure healthy
lives and promote
well-being for all
at all ages
3.5
Strengthen the prevention and
treatment of substance abuse,
including narcotic drug abuse
and harmful use of alcohol
Increased digital access
increasing exposure and
appetite for harmful
addictive behaviours
3.9
By 2030, substantially reduce
the number of deaths and
illnesses from hazardous
chemicals and air, water
and soil pollution and
contamination
Digital infrastructure and
associated hardware
requires mined minerals
which can result in
negative health impacts
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UN
SDG
UN SDG
target
D9’s thematic
alignment
Investee
Companies
Positive
Negative
4
Ensure inclusive
and equitable
quality education
and promote
lifelong learning
opportunities for
all
4.3
By 2030, ensure equal access
for all women and men
to affordable and quality
technical, vocational and
tertiary education, including
university
D9 Investee Companies, as
they grow, have the potential
to develop internship/trainee
and other programmes
to support more diverse
employment opportunities
in to critical and growing
infrastructure
4.4
By 2030, substantially increase
the number of youth and
adults who have relevant
skills, including technical
and vocational skills, for
employment, decent jobs and
entrepreneurship
4.b
By 2020, substantially
expand globally the number
of scholarships available
to developing countries, in
particular least developed
countries, small island
developing States and African
countries, for enrolment
in higher education,
including vocational training
and information and
communications technology,
technical, engineering and
scientific programmes, in
developed countries and
other developing countries
5
Achieve gender
equality and
empower all
women and girls
5.2
Eliminate all forms of violence
against all women and girls
in the public and private
spheres, including trafficking
and sexual and other types of
exploitation
Digital content has the
potential to increase
violent action towards
women and girls if poorly
regulated
5.5
Ensure women’s full and
effective participation and
equal opportunities for
leadership at all levels of
decision-making in political,
economic and public life
The digital infrastructure
industry has room for
improvement in employee
diversity; D9 companies have
an opportunity to act
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SDG
UN SDG
target
D9’s thematic
alignment
Investee
Companies
Positive
Negative
5.b
Enhance the use of
enabling technology, in
particular information and
communications technology,
to promote the empowerment
of women
D9 companies have an
opportunity to explore
how they could influence
empowerment of women
through digital technology
6
Ensure availability
and sustainable
management
of water and
sanitation for all
6.3
By 2030, improve water
quality by reducing pollution,
eliminating dumping
and minimizing release
of hazardous chemicals
and materials, halving the
proportion of untreated
wastewater and substantially
increasing recycling and safe
reuse globally
Digital infrastructure and
its supply chains require
water and may result
in polluted wastewater
reaching systems if
processes are not well
managed
6.4
By 2030, substantially increase
water-use efficiency across all
sectors and ensure sustainable
withdrawals and supply of
freshwater to address water
scarcity and substantially
reduce the number of people
suffering from water scarcity
Cooling requirements for
data centres in particular
may be water dependent,
and increased efficiencies
should be prioritised
6.6
By 2020, protect and restore
water-related ecosystems,
including mountains, forests,
wetlands, rivers, aquifers and
lakes
Infrastructure location
may impact ecosystems
and any construction,
operations and
maintenance must be
sensitive to this
7
Ensure access
to affordable,
reliable,
sustainable and
modern energy
for all
8
Promote
sustained, inclusive
and sustainable
economic growth,
full and productive
employment and
decent work for all
8.2
Achieve higher levels of
economic productivity through
diversification, technological
upgrading and innovation,
including through a focus on
high-value added and labour-
intensive sectors
Digital infrastructure can
increase access to economic
opportunity for a wider set of
citizens
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SDG
UN SDG
target
D9’s thematic
alignment
Investee
Companies
Positive
Negative
8.4
Improve progressively,
through 2030, global resource
efficiency in consumption and
production and endeavour
to decouple economic
growth from environmental
degradation, in accordance
with the 10-Year Framework of
Programmes on Sustainable
Consumption and Production,
with developed countries
taking the lead
Sustainable digital
infrastructure can promote
economic activity with a
lower carbon footprint
8.5
By 2030, achieve full and
productive employment and
decent work for all women
and men, including for young
people and persons with
disabilities, and equal pay for
work of equal value
Through the adoption of
responsible and inclusive
working practices D9
Investee Companies can
support equal and quality
employment opportunity
8.7
Take immediate and effective
measures to eradicate forced
labour, end modern slavery
and human trafficking and
secure the prohibition and
elimination of the worst forms
of child labour, including
recruitment and use of child
soldiers, and by 2025 end
child labour in all its forms
In addition to the normal
potential exposure to
modern slavery through
economic activity, digital
infrastructure has a global
supply chain exposed
to metals and mineral
mining thus requiring
careful oversight to
avoid exposure to and
contribution to modern
slavery
8.b
By 2020, develop and
operationalize a global
strategy for youth
employment and implement
the Global Jobs Pact of
the International Labour
Organization
All D9 Investee Companies
have an opportunity to
develop programmes which
offer greater opportunity
for employment of young
people
10
Reduce inequality
within and among
countries
10.2
By 2030, empower and
promote the social, economic
and political inclusion of
all, irrespective of age, sex,
disability, race, ethnicity,
origin, religion or economic or
other status
All D9 Investee Companies
have an opportunity to offer
inclusive employment
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SDG
UN SDG
target
D9’s thematic
alignment
Investee
Companies
Positive
Negative
10.4
Adopt policies, especially
fiscal, wage and social
protection policies, and
progressively achieve greater
equality
All D9 investee companies
should offer employment in
line with best practice for
employees
11
Make cities and
human settlements
inclusive, safe,
resilient and
sustainable
11.3
By 2030, enhance inclusive
and sustainable urbanization
and capacity for participatory,
integrated and sustainable
human settlement planning
and management in all
countries
Investing in responsibly
managed and sustainable
digital infrastructure
which can contribute
to connectivity across
developed and developing
jurisdictions promotes
capacity for participatory
and sustainable human
settlement
12
Ensure sustainable
consumption
and production
patterns
12.2
By 2030, achieve the
sustainable management
and efficient use of natural
resources
Investing in responsibly
managed and sustainable
digital infrastructure which
influences supply chain
behaviours and looks to
implement low energy
solutions, and in particular
ensuring that data centre
investments (potentially the
most energy intensive in our
sub sectors) are working to
or already offer high energy
efficiency.
12.4
By 2020, achieve the
environmentally sound
management of chemicals
and all wastes throughout
their life cycle, in accordance
with agreed international
frameworks, and significantly
reduce their release to
air, water and soil in order
to minimize their adverse
impacts on human health and
the environment
Digital infrastructure
supply chains have
exposure to mineral and
metals mining which
must be responsibly
managed
13
Take urgent action
to combat climate
change and its
impacts
13.3
Improve education,
awareness-raising and human
and institutional capacity on
climate change mitigation,
adaptation, impact reduction
and early warning
Subsea cables have the
potential to contribute
to improving predictive
capacity of climate-related
natural disasters
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SDG
UN SDG
target
D9’s thematic
alignment
Investee
Companies
Positive
Negative
14
Conserve and
sustainably use the
oceans, sea and
marine resources
for sustainable
development
14.1
By 2025, prevent and
significantly reduce marine
pollution of all kinds, in
particular from land-based
activities, including marine
debris and nutrient pollution
Investing in data centres with
sustainable and responsible
cooling systems contributes
to reduction in marine
pollution from land-based
activities.
14.2
Sustainably manage and
protect marine and coastal
ecosystems to avoid
significant adverse impacts,
including by strengthening
their resilience, and take
action for their restoration in
order to achieve healthy and
productive oceans
Ensuring the responsible
construction, deployment
and management of subsea
fibre contributes to reduction
in marine and coastal
ecosystem pollution and
damage.
15
Protect, restore
and promote
sustainable use
of terrestrial
ecosystems,
sustainably
manage
forests, combat
desertification,
and halt and
reverse land
degradation and
halt biodiversity
loss
15.1
By 2020, ensure the
conservation, restoration and
sustainable use of terrestrial
and inland freshwater
ecosystems and their services,
in particular forests, wetlands,
mountains and drylands, in
line with obligations under
international agreements
Development of any
infrastructure, including
digital, must be sensitive
to the potential impact
on ecosystems through
construction and supply
chain
15.5
Take urgent and significant
action to reduce the
degradation of natural
habitats, halt the loss of
biodiversity and, by 2020,
protect and prevent the
extinction of threatened
species
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UN
SDG
UN SDG
target
D9’s thematic
alignment
Investee
Companies
Positive
Negative
16
Promote peaceful
and inclusive
societies for
sustainable
development,
provide access to
justice for all and
build effective,
accountable
and inclusive
institutions at all
levels
16.10
Ensure public access to
information and protect
fundamental freedoms, in
accordance with national
legislation and international
agreements
Developing a digital
infrastructure network
which seeks to decrease the
digital divide by offering
neutral service provision on
subsea cables contributes to
increased public access to
information
17
Strengthen
the means of
implementation
and revitalize the
Global Partnership
for Sustainable
Development
17.8
Fully operationalize the
technology bank and science,
technology and innovation
capacity-building mechanism
for least developed countries
by 2017 and enhance the
use of enabling technology,
in particular information and
communications technology
Digital infrastructure is part
of the critical infrastructure
necessary to support global
partnerships
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iv.
Impact Management Project
(IMP), ABC Classification
The IMP offers a method to map the impact of an asset,
or portfolio of assets, to an investor’s specific intentions.
It should be noted, we do not use this method to claim
Digital 9 Infrastructure plc is an impact investment, but
to show it contributes to a solution, in this case the need
for sustainable digital infrastructure as described by the
UN Sustainable Development Goals. Where an asset is
able to answer yes to the following three attributes we
have labelled as a C: Contributes to solutions.
1.
1.
Is the enterprise acting to avoid harm to its
stakeholders?
2.
Are some of the enterprise’s effects generating
positive effects for stakeholders?
3.
Are any of the enterprise’s effects contributing to
solutions to social or environmental challenges?
The rationale for each classification focuses on positive
outcome creation. It is important to note that we
consider all D9 Investee Companies to act to avoid
harm through business behaviours that take into
account how the companies’ operations may have
negative outcomes for people and planet. Please refer
to Sustainability table 4; page 74 for the operational
ESG metrics tracked to provide an overview of
sustainability-related business behaviours across the
Investee Companies and to Sustainability Table 6; page
81 for detail on the per Investee Company sustainability
activity planned for 2023 to continue to improve the
behaviours and outcomes across D9. The table below
details a mapping of each D9 Investee Company to the
IMP. Independent limited assurance has been provided
over data marked with the ‘
A
’ symbol. PwC’s assurance
statement can be found on pages 189 to 191.
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Enterprise
Sub-
sector
Classification
Rationale
Metric
Outcome
Verne Global
Iceland
Data
Centres
C
Data Centres are essential to our digital world
but resource intensive. D9 seeks to create a
network of digital infrastructure that considers
environmental implications, is energy efficient,
and working towards lowest possible carbon
footprint. Our network approach invests in data
centres located in countries with access to low
carbon power and best available EE technology.
Verne Global Iceland and Verne Global Finland
all increase D9’s ability to offer high efficiency low
carbon data solutions.
CUE
(kgCO2e/
kWh)
0.01
Verne Global
Finland
C
0.08
Verne Global
London
C
Verne Global London is key to the D9 data centre
network enabling clients to have inner city data
centre exposure (determined by latency needs)
while being able to offer the opportunity to link
to lower carbon options for areas of a customer’s
portfolio where a higher latency can be tolerated.
To demonstrate this benefit we look to measure
the % of customers deployed across the network
enabling a reduction in overall carbon emissions
from a client’s data needs.
% of
customers
by revenue
deployed in
Nordic data
centres
n/a
19
AquaComms
Subsea
fibre
C
Our fibre and wireless investments specifically
create an opportunity to contribute to connectivity
and reducing digital shortfall. Over time we expect
to see the growth in network capacity increase and
demonstrate a positive contribution to a reduction
in digital shortfall.
For AquaComms, we expect beneficiaries to be
large in number and a mixture of underserved
(e.g. EMIC1 participation) and served (with served
benefiting from improved service), as to reach the
underserved the technology inevitably reaches
a wider network, and in cable provision it is very
difficult to pinpoint the exact circumstances of
individual end users. The connectivity created is
expected to provide long-term positive outcomes,
in line with the expectations of the benefits of
increased and reliable digital service access.
% growth
in network
capacity
A
13%
19.
This is a new metric identified for Verne Global London; data will be included in the 2023 annual report.
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Enterprise
Sub-
sector
Classification
Rationale
Metric
Outcome
Elio Networks
Wireless
C
For Elio Networks, we expect beneficiaries to be
a mixture of underserved and served, but in the
main they are SMEs.
The quality of digital access
provided creates a long-term positive change for
customers enabling improved business outcomes
and economic growth for small businesses that
may not otherwise have been able to operate as
effectively. This creates an important outcome
linked to the specific benefit of digital services.
6%
Arqiva
Wireless
B/C
Terrestrial TV supports social inclusion and
prevention of isolation and is currently
more energy efficient and reliable for the
consumption of content compared to satellite
or internet-based information. Arqiva provides
comprehensive UK coverage which is free at the
point of access connecting 17 million households.
Such an expansive network means both served
and underserved are reached, often in remote
areas where wireless content is not yet available.
Arqiva is also a smart meter network provider.
This technology is an important enabler for more
transparent supply and demand of electricity
(which allows for greater renewables penetration)
and less wastage of water.
Increasing access to
this technology is considered to provide a useful
social contribution; as this part of the business
grows we see the growth in contribution.
% Growth in
smart meter
business
n/a
20
Giggle
Terrestrial
fibre
C
Introducing fibre to the home in areas where it has
previously been considered non-commercial by
developing novel and flexible pricing structures
(inc. pay as you go and no minimum contract) has
the potential to directly contribute to reducing the
digital divide in underserved communities.
Number of
customers
Average
speed
increase
compared
to previous
quickest
provider
n/a
20
20.
As a new asset to the D9 portfolio, data on this metric will be compared from acquisition to December, 2023 and reported in the 2023 annual
report
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IMP Classification options
A
B
C
Acts to avoid Harm
Benefits Stakeholders
Contributes to solutions
The enterprise prevents or reduces
significant effects on important
negative outcomes for people and
planet.
The enterprise not only acts to avoid
harm, but also generates various effects
on positive outcomes for people and
the planet.
The enterprise not only acts to avoid
harm, but also generates one or
more significant effect(s) on positive
outcomes for otherwise underserved
people and the planet.
v.
SFDR
The EU Taxonomy and Sustainable Disclosure Regulation seek to provide consistency and comparability
in sustainability related reporting. D9 discloses as an Article 8 fund “a Fund which promotes, among other
characteristics, environmental and social characteristics, alongside following good governance practices”. The
following table aligns with the reporting requirements of an Article 8 Fund. Giggle and Arqiva will be reported in
2023, but are excluded from 2022 reporting given their recent acquisition. There is no restatement of 2021 data.
It should be noted that in accordance with the SFDR disclosure guidance we report SeaEdge according to the
SFDR Real Estate reporting requirements and all data is reported for the calendar year to 31 December 2022.
For further details on D9’s Article 6 and Article 8 alignment, the disclosure is publicly available on the Company’s
website. Independent limited assurance has been provided over data marked with the ‘
A
’ symbol. PwC’s assurance
statement can be found on pages 189 to 191.
Indicators applicable to investments in Investee Companies
Adverse sustainability indicator
Metric
Impact
2021
Impact
2022
CLIMATE AND OTHER ENVIRONMENT-RELATED INDICATORS
Greenhouse gas
emissions
1.
GHG emissions
A
Scope 1 GHG emissions
A
33
92
Scope 2 GHG emissions
(location-based)
A
2,087
5,502
Scope 2 GHG emissions (market-
based)
A
962
1,397
Total GHG emissions (Scope 1
& 2)
A
995
1,489
2.
Carbon footprint
Carbon footprint
2.14
1.25
3.
GHG intensity of Investee
Companies
GHG intensity of Investee
Companies
21
19
23
4.
Exposure to companies
active in the fossil fuel
sector
Share of investments in
companies active in the fossil
fuel sector
0%
0%
21.
Weighted Average Carbon Intensity (tCO2e/£M).
Table 1
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Adverse sustainability indicator
Metric
Impact
2021
Impact
2022
5.
Share of non-renewable
energy consumption and
production
A
Share of non-renewable energy
consumption and non-renewable
energy production of Investee
Companies from non-renewable
energy sources compared to
renewable energy sources,
expressed as a percentage
A
1.34%
1.34%
6.
Energy consumption
intensity per high impact
climate sector
Energy consumption in GWh
per million GBP
22
of revenue of
Investee Companies, per high
impact climate sector
N/A
N/A
Biodiversity
7.
Activities negatively
affecting biodiversity-
sensitive areas
Share of investments in
Investee Companies with
sites/operations location in or
near to biodiversity-sensitive
areas where activities of those
Investee Companies negatively
affect those areas
0%
0%
Water
8.
Emissions to water
Tonnes of emissions to
water generated by Investee
Companies per million GBP
invested, expressed as a
weighted average
0
0
Waste
9.
Hazardous waste ratio
Tonnes of hazardous waste
generated by Investee
Companies per million GBP
invested, expressed as a
weighted average
–
–
22.
GBP used throughout.
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Social And Employee, Respect For Human Rights, Anti-Corruption And Anti-Bribery Matters
Adverse sustainability indicator
Metric
Impact
2021
Impact
2022
Social and employee
matters
10.
Violations of UN Global
Compact principles
and Organisation for
Economic Cooperation
and Development
(OECD) Guidelines for
Multinational Enterprises
Share of investments in Investee
Companies that have been
involved in violations of the
UNGC principles or OECD
Guidelines for Multinational
Enterprises
0%
0%
11.
Lack of processes and
compliance mechanisms
to monitor compliance
with UN Global
Compact principles
and Organisation for
Economic Cooperation
and Development
(OECD) Guidelines for
Multinational Enterprises
Share of investments in Investee
Companies without policies
to monitor compliance with
the UNGC principles or OECD
guidelines for Multinational
Enterprises or grievance/
complaints handling mechanisms
to address violations of the
UNGC principles or OECD
Guidelines for Multinational
Enterprises
0%
0%
12.
Unadjusted gender pay
gap
23
Median unadjusted gender pay
gap of Investee Companies
14%
20%
Mean unadjusted gender pay
gap of investee companies
8%
28%
13.
Board gender diversity
Average ratio of female to male
board members in Investee
Companies
A
0%
0%
14.
Exposure to controversial
weapons (anti-personnel
mines, cluster munitions,
chemical weapons and
biological weapons)
Share of investments in
Investee Companies involved
in the manufacture or selling of
controversial weapons
0%
0%
23.
For further details on assumptions associated with these calculations please refer to Reporting Principles and Methodologies detail in Annex 1.
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Indicators applicable to investments in real estate assets
Adverse sustainability indicator
Metric
Impact
2021
Impact
2021
Fossil fuels
17.
Exposure to fossil fuels
through real estate assets
Share of investments in real
estate assets involved in the
extraction, storage, transport or
manufacture of fossil fuels
0%
0%
Energy efficiency
18.
Exposure to energy-
inefficient real estate
assets
Share of investments in energy-
inefficient real estate assets
100%
100%
Indicators applicable to investments in real estate assets
Adverse sustainability indicator
Metric
Impact
2021
Impact
2022
Greenhouse gas
emissions
18.
GHG emissions
Scope 1 GHG emissions
generated by real estate
assets
14
2
Scope 2 GHG emission
generated by real estate
assets
0
0
Total GHG emissions
generated by real estate
assets
14
2
Energy consumption
19.
Energy consumption
intensity
Energy consumption in
kWh
24
of owned real estate
assets per square metre
457
611
Table 2
Additional climate and other environment-related indicators
24.
kWh used over GWh.
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Adverse sustainability indicator
Metric
Impact
2021
Impact
2022
Social and employee
matters
1.
Investments in companies
without workplace accident
prevention policies
Share of investments in
Investee Companies without
a workplace accident
prevention policy
0%
0%
Human rights
14.
Number of identified cases
of severe human rights
issues and incidents
Number of cases of severe
human rights issues and
incidents connected to
Investee Companies on a
weighted average basis
0
0
Anti-corruption and
anti-bribery
15.
Lack of anti-corruption and
anti-bribery policies
Share of investments in
entities without policies on
anti-corruption and anti-
bribery consistent with the
United Nations Convention
against Corruption
0
0
Table 3
Additional indicators for social and employee, respect for human rights, anti-corruption and anti-bribery
matters
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vi.
TCFD
The Task Force on Climate Related Financial
Disclosure (TCFD) is the global standard for reporting
on climate risk management. D9 has committed to
disclosing annually on its climate risk and opportunity
management, using this framework.
Introduction
This is D9’s second Disclosure according to the
framework of the Task Force on Climate Related
Financial Disclosure (TCFD). The report outlines the
Investment Manager’s assessment of climate related
risks and opportunities with respect to D9’s operations,
against the four key areas of governance, strategy, risk
management as well as metrics and targets. It highlights
how the Investment Manager is managing these risks
and opportunities and their short, medium or long-
term impact on the Company, and reflects both the
Investment Managers and the Company’s perspective
that climate risks and financial risks need to be assessed
on the same scale.
The report has been prepared with reference to TCFD
All Sector Guidance and Supplemental Guidance for
the Financial sector. In addition to UK government
requirements, the FCA has made it a requirement for
many regulated firms to publish TCFD-aligned climate
disclosures on their website, with effect from 1 January
2023 and with the first reports due by 30 June 2024,
under ESG 2.1 in the FCA Rules. While not in scope of
this requirement, the Company has decided to produce
its second TCFD report to demonstrate its support for
the disclosures.
Except where noted, the Company considers its
disclosure to be consistent with all of the Task Force
on Climate-related Financial Disclosures (TCFD)
Recommendations and Recommended Disclosures
as detailed in “Recommendations of the Task Force
on Climate-related Financial Disclosures”, 2017, with
use of additional guidance from “Implementing the
Recommendations of the Task Force on Climate-related
Financial Disclosures”, 2021, with scenario analysis.
The Company has identified two current areas of non-
compliance with the TCFD recommendations, Scope 3
emissions reporting and target disclosure, and is in the
process of gathering data and formalising targets to
address both of these areas, which will be disclosed in
subsequent reporting. This report covers all companies
over which D9 has operational control.
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Recommendation
Recommended Disclosures
Pages
Governance
Disclose the organization’s
governance around climate-
related risks and opportunities.
a. Describe the board’s oversight of climate-related risks and opportunities.
107
b. Describe management’s role in assessing and managing climate-related risks
and opportunities.
107
Strategy
Disclose the actual and
potential impacts of climate-
related risks and opportunities
on the organization’s
businesses, strategy, and
financial planning where such
information is material.
a. Describe the climate-related risks and opportunities the organization has
identified over the short, medium, and long term.
106 - 107
b. Describe the impact of climate-related risks and opportunities on the
organization’s businesses, strategy, and financial planning.
106 - 107
c. Describe the resilience of the organization’s strategy, taking into consideration
different climate-related scenarios, including a 2°C or lower scenario.
113 - 115
Risk Management
Disclose how the organization
identifies, assesses, and
manages climate-related risks.
a. Describe the organization’s processes for identifying and assessing climate-
related risks.
107
b. Describe the organization’s processes for managing climate-related risks.
107
c. Describe how processes for identifying, assessing, and managing climate-
related risks are integrated into the organization’s overall risk management.
107 - 108
Metrics and Targets
Disclose the metrics and
targets used to assess and
manage relevant climate-
related risks and opportunities
where such information is
material.
a. Disclose the metrics used by the organization to assess climate-related risks
and opportunities in line with its strategy and risk management process.
114 - 115
b. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas
(GHG) emissions and the related risks.
115
c. Describe the targets used by the organization to manage climate-related risks
and opportunities and performance against targets.
115
Governance
•
Describe the board’s oversight of climate-related risks and opportunities.
•
Describe management’s role in assessing and managing climate-related risks and opportunities.
The Board has ultimate responsibility for managing the climate risks faced by the Company and are kept informed
of material climate risks (this process utilises the structure of Triple Point’s risk appetite framework to provide a
consistent approach to the ranking of risks) facing Investee Companies through updates provided by Triple Point’s
risk team and sustainability team. Climate risks are formally captured in D9’s Risk Register which is reviewed by
the Risk Committee on a quarterly basis and reported to the Board. A Risk Report is provided to the Board on a
quarterly basis which includes climate risks and those of individual Investee Companies. Investee Company boards
also maintain key risk registers, which include climate-related matters to the extent they appear.
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The Investment Manager’s assessment and management
of climate-related risks and opportunities is shared with
D9 and the wider Triple Point business through the
Company’s Risk Committee and dedicated investment
team meetings. Triple Point’s Sustainability Team and Risk
Team, co-ordinate these processes.
During pre-acquisition due diligence, Triple Point’s
central Sustainability Team works with the D9 investment
team to identify any material climate risks when screening
potential investments. Key climate-related risks are
presented in the materials provided to Triple Point’s
Investment Committee as part of the standard process
for assessing deals. These risks are discussed in the
committee meetings to assess the extent to which they
affect the quality of the deal. The time horizon over
which the risks are material is assessed, their potential
mitigations, and opportunities that an individual risk may
present for other parts of the portfolio, are also assessed.
Triple Point has a central Sustainable Investment
Subgroup, meeting every second month, which
provides an additional forum for the discussion of
any potentially material ESG issues within potential
investments, including climate risks and opportunities.
Senior investment team members and partners from
all Triple Point investment strategies sit on this Group,
bringing their diverse experience and perspectives to a
constructive discussion. Ben Beaton currently represents
D9 in this group.
Each Investee Company has an assigned point of
contact within the D9 team, who is supported by Triple
Point’s Sustainability Team in climate risk analysis for
each Investee Company. Any material climate risks
identified through pre-investment due diligence, or
later engagements which we believe are not already
considered or accounted for, are highlighted to the board
of directors of the Investee Company, on which at least
one member of the D9 investment team sits. The relevant
board oversees any necessary mitigation actions.
Board members have received training on sustainability,
with an explanation of the net zero strategy applied. In
March 2022, the Board were consulted on the net zero
approach and timeline and provided sign off to the
approach. Updates papers on the net zero roadmap
activity were subsequently provided to the Board for their
review on a quarterly basis.
Risk Management
•
Describe the organisation’s processes for identifying
and assessing climate-related risks.
•
Describe the organisation’s processes for managing
climate-related risks.
•
Describe how processes for identifying, assessing,
and managing climate-related risks are integrated
into the organisation’s overall risk management.
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Outside of the due diligence and ongoing risk
identification processes, climate-related risks to the
portfolio are formally identified in an annual workshop
between the investment team and the sustainability team
within the Investment Manager. During this workshop,
risks across physical and transitional categories are
considered for the four subsectors that the Company has
exposure to, to determine the likelihood and impact of
each identified risk. The subject-matter expertise of the
investment team is utilised to map out the wider value
chain of the asset-types that the Company has exposure
to and identify risks outside the direct control of the
Investee Companies.
The process for assessing the significance of each climate
risk facing the Company is aligned to the Company’s
overall risk management framework, on a matrix with a
5-point scale for both likelihood and impact:
•
Likelihood:
unlikely, low, possible, high, imminent
•
Impact:
minor, moderate, serious, severe,
catastrophic. Indicative financial impacts resulting
from the risk occurring are shown in the matrix below
Minor
Moderate
Serious
Severe
Catastrophic
Indicative financial ranges
<£100K
>£100K
>£250K
>£1m
>£5m
1
2
3
4
5
Imminent
5
High
4
Possible
3
Low
2
Unlikely
1
Financial impact if risk happens
Likelihood of risk happening
This alignment allows for integration of the risks into
wider risk management and mitigation processes.
Climate-related risks are reported into the strategy’s risk
register which is reviewed during a quarterly Portfolio
Risk Review meeting. This meeting involves members of
the D9, sustainability and risk teams and the resulting risk
register is reviewed by the Risk Committee twice a year.
The period over which each risk first becomes material is
defined as:
•
Short-term:
0-2 years
•
Medium-term:
2-5 years
•
Long-term:
over 5 years
These time-scales are aligned to the Company’s overall
risk management framework, considering the nature of
the Group’s assets and liabilities.
The Investment Manager also works with an external data
provider, Climate X, to model the physical climate risk
to its core infrastructure assets under different climate
scenarios. This modelling exercise utilises a ”Digital Twin”
approach to simulate the potential future damage to a
physical asset caused by modelled risks such as sea level
rise, flooding, storms, and subsidence. Potential damage
is expressed as a value-at-risk metric, a percentage of
building replacement cost per annum.
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Strategy
•
Describe the climate-related risks and opportunities
the organisation has identified over the short,
medium and long term.
•
Describe the impact of climate-related risks and
opportunities on the organisation’s businesses,
strategy and financial planning.
•
Describe the resilience of the organisation’s strategy,
taking into consideration different climate-related
scenarios, including a 2°C or lower scenario.
The Company recognises the potential impacts of
climate change throughout its business, presenting
physical risks from more extreme weather patterns,
and transitional risks as governments and businesses
work limit carbon emissions. Whilst the Company’s core
focus on the decarbonisation of digital infrastructure
ultimately bolsters its resiliency, significant risks do exist
within its assets and their wider value chains, which are
considered below.
•
Delays/interruptions to subsea fibre laying and
repairs from extreme weather
•
Increase in cooling costs
•
Difficulty accessing wireless sites in extreme
weather
•
Delays to fibre laying operations due to surface
flooding
•
Damage to cable landing stations from rising sea
levels
•
Storm damage to wireless towers
•
Carbon pricing in the supply chain
•
Grid capacity constraints
•
Increased renewable penetration and grid volatility
•
Data centre efficiency regulations
1
1
2
2
3
3
4
4
5
6
Physical
Transition
1
2
3
4
5
5
4
3
2
1
2
1
3
3
4
6
2
5
4
1
Financial impact if risk happens
Likelihood of risk happening
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Physical Risks
Risk
1. Increase in
cooling costs
due to higher
temperatures and
more frequent
heatwaves
2. Damage to
cable landing
stations from
rising sea levels
3. Delays to fibre
laying operations
due to surface
flooding
4. Delays and
interruptions to
subsea fibre cable
laying and repairs
from extreme
weather
5. Difficulty
accessing wireless
sites in extreme
weather
6. Storm
damage to
wireless towers
Subsector
Data centres
Subsea Fibre
Terrestrial fibre
Subsea fibre
Wireless
Wireless
Description
When outside
temperatures
increase, more
energy is required
to cool data halls.
Under extended
periods of extreme
temperatures,
current cooling
equipment may not
be able to maintain
an operable
temperature,
leading to
equipment failure
and downtime.
Cable landing
stations are
necessarily located
close to sea level.
As sea levels rise,
cable landing
stations could
become flooded,
or access could
become restricted.
Open trench
cable laying
is particularly
weather-
dependent and
vulnerable to
surface flooding
in heavy rain.
Increased
frequency of
rain storms, or
increased flash-
flood events
could reduce the
number of days
on which cable
laying can take
place.
Subsea cable
laying operations
require extended
”weather
windows” in which
it is unlikely for
wave heights
to exceed a
narrow threshold.
Under more
extreme weather
conditions, these
windows may
narrow and cable
laying could
be significantly
delayed.
Wireless
infrastructure is
concentrated in
high-elevation,
exposed locations.
During extreme
weather events,
when outages or
disruptions are most
likely to occur, these
locations are difficult
to access.
Wireless
infrastructure is
concentrated in
high-elevation,
exposed
locations.
Financial
Impact
•
Increased energy
costs
•
Financial losses
as a result of
breach of SLA
conditions
•
For owned and
operated sites:
capital cost of
relocating cable
landing station
sites
•
For leased sites:
costs associated
with relocating
equipment or
diverting routes
•
Delayed
revenues
•
Delayed
revenues
•
Financial losses as
a result of breach
of SLA conditions
•
Financial losses
due to customer
compensation
•
Cost to
increase
resiliency of
infrastructure
•
Financial
losses as
a result of
breach of SLA
in the event
of failure
Likelihood
Imminent
Unlikely
Possible
Possible
High
Low
Impact
Minor
Serious
Minor
Moderate
Minor
Minor
Time
Horizon
Short
Long
Medium
Long
Short
Medium
Mitigation
and
resiliency
•
This risk has
been modelled
in detail in the
scenario analysis
section. Overall
impacts are
demonstrated
to be minimal,
with the Nordic
strategy
providing
resilience.
•
Core cable
landing stations
are considered
in the Climate
X climate
modelling.
•
Much of the
fibre laying
activities
occur within
Openreach
infrastructure.
The risks to this
infrastructure
are mostly
owned by
Openreach
and would
likely affect all
fibre operators
equally.
•
Cable laying
is funded and
operated by
large consortia
of companies
and risk is
spread between
them. Given the
concentration
of cable laying
operators, risks
are assumed
to affect all
competitors
equally.
•
More robust
vehicles and
equipment
to allow for
access under
more weather
conditions.
•
Developing
capacity to
perform remote
fixes to common
issues, reducing
the need to be
physically present.
•
Renegotiation
of SLAs with
customers is an
option in the long-
term.
•
Across at-
risk assets,
engineering
resiliency
assessments
are
accounting
for more
extreme
future
weather.
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Information
Transition Risks
Risk
1. Grid capacity constraints
2. Increased renewable
penetration and grid volatility
3. Carbon pricing in the
supply chain
4. Data centre efficiency
regulations
Subsector
Data centres
Data centres
All
Data centres
Type
Market
Technology
Policy and Legal
Policy and Legal
Description
Continued electrification
of traditionally fossil-
fuelled sectors, such as
transportation, may mean
that demand for electricity
outstrips supply.
As data centres are
large energy consumers,
constraining construction or
expansion due to limitations
in grid capacity, especially in
more urban areas.
As the proportion of renewable
and non-dispatchable
generation in the grid grows,
the frequency may become
more unstable. In the worst
case, blackouts could occur.
Imposition of carbon pricing
in the supply chain of carbon-
intensive materials such as
cement and steel could be
passed through.
A focus of future
government climate
regulation may be to
reduce energy use
in buildings. As data
centres are large energy
consumers, minimum
efficiency standards may
be introduced.
Financial
Impact
•
Lack of construction or
expansion opportunities
limits future revenues
•
Financial losses as a result of
breach of SLA conditions
•
Financial losses as a result of
breach of SLA conditions
•
Costs to upgrade UPS and
generator systems to improve
resiliency
•
Higher construction costs
•
Costs associated with
upgrading existing data
centres to meet new
efficiency standards
Likelihood
Low
Unlikely
High
Possible
Impact
Moderate
Serious
Minor
Minor
Time
Horizon
Short
Medium
Short
Medium
Mitigation
and
resiliency
•
The Company typically
targets data centre assets
in locations with abundant,
cheap renewable energy.
In the near term, the
Company will assess the
risk of grid constraints for
all data centre acquisitions
with planned or potential
expansion.
•
The majority of the Company’s
data centre capacity is located
in markets with a highly
renewable, but dispatchable
generation mix. Iceland and
Finland produce a large
amount of power through
large-scale hydropower and/
or geothermal, which are not
as volatile as other forms of
renewable generation.
•
Typically, costs are passed
on to the customer. An
expansion project will be
planned and costed, but
if costs inflate then the
customer ultimately pays
for these increased costs.
•
Overall, the Company
maintains a high efficient
portfolio of data centres,
with an aggregate PUE
of 1.33 and is unlikely to
be significantly affected.
•
Data collection is being
refined to allow for
real-time monitoring of
PUE, allowing trends and
improvement actions to
be identified, which will
be implemented over
the medium term.
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Opportunities
Opportunity
1. Increased
demand for Nordic
data centres
2. Increased
demand for
subsea fibre
links to areas
with abundant
renewable energy
3. Ability to sell
waste heat to
heat networks
4. On-site
renewable energy
5. Increased
demand for smart
metering
6. Increased
efficiency of
wireless assets
Subsector
Data centres
Subsea Fibre
Data centres
Subsea fibre
Wireless
Wireless
Type
Markets
Markets
Products and
Services
Energy Source
Products and
Services
Resource
Efficiency
Description
Corporate net
zero targets
and pressures
on the grid in
urban areas due
to electrification
may combine to
increase demand
for Nordic data
centres, on grids
with abundant,
renewable energy.
This opportunity
is particularly
pronounced given
the growth of
latency-insensitive
intensive computing
requirements, such
as for artificial
intelligence. The
Company is well
placed to capitalise
on this demand,
expanding its
Nordic data centre
platform.
Offshoring of
computing power
away from metro
areas to regions
with abundant
renewable power
requires subsea
fibre infrastructure,
increasing
demands and
making new routes
economically
viable.
Building emissions
are a significant
contributor to
national emissions
budgets, and
governments are
under pressure
to decarbonise
the building
sector. Green
heat networks
may expand in
response to this,
presenting further
opportunities for
the Company’s
data centre assets
to sell waste heat
to heat networks.
Renewable power
generation could
be installed at
the Company’s
owned and
operated assets for
onsite renewable
generation,
decreasing energy
expenditure and
presenting an
additional revenue
stream.
As the length and
severity of droughts
increase, water utility
companies will be
under increasing
pressure to monitor
usage and identify
leaks.
As requirements
for grid flexibility
increase, smart
energy metering
will become more
important.
Re-engineering
of AM radio
services, or
a phase-out
of services
would result
in a significant
reduction
in energy
consumption.
Broadcast TV
remains the
most energy
efficient media
distribution
channel, per
device hour.
Likelihood
High
Possible
High
Imminent
Possible
High
Magnitude
High
Medium
Low
Low
Medium
Medium
Time Horizon
Short
Medium
Short
Short
Medium
Medium
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Scenario Analysis
Quantitative scenario analysis was utilised to understand
the impact of each of the most significant risks and
opportunities identified under different potential climate
outcomes, where relevant data was available. Climate
scenarios represent possible futures with varying level of
responses to, and impacts from, climate change. As part
of the annual climate risk workshop, a range of possible
scenarios was discussed and two were ultimately
selected:
•
Net Zero:
in which warming is limited to 1.5°C
by 2050, limiting physical risks but creating high
transitional risk due to the introduction of strict
climate policies and rapid technology change.
•
Hot House World:
in which warming reaches 4°C,
as no new climate policies are introduced and
technological progress is slow, limiting transitional
risks but presenting significant physical risks.
A trade-off between the comparability of scenarios and
the availability of quantitative, sector- or geography-
specific data for modelling financial impacts was noted
during the selection process. For this reason, the
scenarios used draw on a number of different sources:
•
Net Zero:
NGFS Net Zero 2050, IPCC RCP 2.6, UK
Met Office 1.5°C.
•
Hot House World:
NGFS Current Policies, IPCC
RCP 8.5, UK Met Office 4°C.
The table below shows the change in the climate
metrics utilised under both scenarios by 2050, as
well as the potential financial impacts of each risk.
These impacts are then aggregated together to give
an indicative impact on Net Asset Value under each
scenario. These risks are explored in turn below.
Risk
Relevant
climate metrics
Net
Zero
2050
Hot House
World
2050
Relevant financial
metric
Net
Zero
2050
Hot House
World
2050
1. Increase in
cooling costs
due to higher
temperatures
and more
frequent
heatwaves
Annual average
temperature
increase (°C)
relative to 2020
Iceland
Slightly
Warmer
Slightly Warmer
Increased
operational
expenditure in
data centres
Negligible
Negligible
Finland
Slightly
Warmer
Significantly
Warmer
UK
Slightly
Warmer
Slightly Warmer
Days exceeding
25°C, relative to
2020
England
Low
High
2. Carbon pricing
in the supply
chain
Carbon price ($/
tonne)
Europe
High
Negligible
Increased capital
expenditure
for data centre
expansion projects
Notable
Increase
Negligible
3. Smart
Metering
business growth
Increase in
12-month
drought severity
UK
Negligible
High
Growth in
revenues from
smart metering
business
Strong
Stronger
4. Physical
damage to
infrastructure
14 modelled
climate hazards
Global
Range of variables
Annual losses due
to climate change
Negligible
Negligible
Total impact on
NAV
Negligible
Negligible
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1. Increase in data centre cooling costs due to
higher temperatures and more frequent heatwaves
Data centres generate significant amounts of heat and
require cooling to remain functional. Increasing external
temperatures reduces overall cooling efficiency,
meaning that more energy is required to maintain
an operable temperature within the data centre. At
extreme temperatures, current cooling equipment
may not be able to maintain temperatures, resulting in
downtime and equipment failures.
To assess the impact of increased temperatures on
cooling costs for the Company’s data centres, the
relationship between average temperature and
power usage effectiveness (PUE) was assessed in the
historical data for each data centre. This relationship
was used to model the increase in PUE under each
future temperature scenario, and the resultant increase
in energy consumption required. Overall, there
was a negligible increase in future PUE and energy
consumption.
The Company’s data centres are concentrated in Nordic
regions and are mostly free-air cooled. Historical data
demonstrated that increasing temperatures have little
effect on data centre efficiency in these locations. The
Nordic strategy provides resiliency to future climate
change, as data centres in cooler climates are less
vulnerable to rising temperatures.
2. Carbon pricing in the supply chain
The Company invests in infrastructure businesses
with clear growth trajectories and multiple planned
expansion projects. Whilst direct emissions are limited,
the embodied emissions of its assets are significant.
The imposition of a carbon price in the supply chain of
key components and construction materials, particularly
steel or concrete, could be passed through to D9’s
Investee Companies.
To assess the potential financial impact of supply chain
carbon pricing, the total capital expenditure of data
centre expansion was assessed under both scenarios.
The carbon intensity of data centre capital expenditure
(tCO2e/$) was calculated from previous expansion
projects and assumed to remain constant.
25
This was
used to calculate the total emissions expected from
each future expansion, which were priced at the relevant
carbon price under each scenario.
Overall, carbon pricing had a noticeable effect on
capital expenditure under the Net Zero scenario, but
limited impact under the Hot House World scenario.
The Company considers the increase in capital
expenditure to be manageable. Construction costs
for expansion projects are usually passed through
to the end customer. Demand for data centre space
outpaces supply, and carbon costs will similarly affect
competitors. To further mitigate the risk, the Company
is progressing with a project to assess the Scope 3
emissions of its assets on an ongoing basis, to identify
potential risk areas under carbon pricing regimes.
3. Smart metering business growth
Water utilities are a major customer for Arqiva’s smart
metering solutions, which provide the ability to more
accurately monitor water usage and detect leaks and
inefficiencies. Take up of smart-metering solutions has
been driven in part by ambitious leakage reduction
targets from the water regulator, Ofwat. Under the
Hot House World scenario considered, droughts are
expected to become more frequent and severe, putting
severe strain on water supply and increasing demand.
Under this scenario, it is expected that solutions for
monitoring usage and reducing system leaks will
increase. Growth assumptions were flexed up in the Hot
House World scenario and kept at their conservative
current basis in the Net Zero scenario.
Overall, the smart metering business shows strong
growth in both scenarios, with a boost in the upside
under the Hot House World scenario. The Company
values the smart metering business under conservative
growth assumptions, and considers the overall strategy
resilient under both scenarios.
25.
The embodied emissions of previous expansion at the Verne Global Iceland site were assessed by a third party consultant.
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4. Physical damage to infrastructure
During the risk identification process, a subset of critical
assets within the portfolio was identified. These sites
include large data centres and subsea cable landing
stations, which serve as highly connected nodes in the
”backbone of the internet”. Damage to these sites
could cause widespread downtime and significant
financial losses. The Company partnered with an
external provider, Climate X, to assessing the physical
climate risks to these assets in detail.
The distribution of assets considered is as follows:
Climate X utilises a “Digital Twin” approach, utilising
remote sensing data to create a geophysical model
of the earth, considering features such as geology,
vegetation, and the built environment. The impact of
climate change on future weather patterns is modelled,
and the interaction between these future weather
patterns and the earth determines the risk to assets
in each location. The risk to an asset is expressed as
expected climate-related losses per annum – physical
damage to the assets caused directly by climate
change.
Under both scenarios, the climate losses to every asset
assessed were shown to be negligible and the core
assets are not considered to be significantly at-risk from
the physical impact of climate change. Additionally,
many of the core cable landing station sites are leased,
further minimising potential downside risk.
Summary
Overall, the total impact to NAV resulting from the
risks modelled through partial scenario analysis is
negligible. Whilst analysis has been limited to a subset
of the most prominent risks and opportunities that
it was possible to quantify, the Investment Manager
considers the resiliency of the Company’s strategy that
it demonstrates more broadly applicable. In the long-
term, the Company is well placed to take advantage
of the opportunities presented by climate change and
continues to monitor and mitigate the potential risks.
Metrics and Targets
•
Disclose the metrics used by the organisation to
assess climate-related risks and opportunities in line
with its strategy and risk management process.
•
Disclose Scope 1, Scope 2, and, if appropriate,
Scope 3 greenhouse gas (GHG) emissions, and the
related risks.
•
Describe the targets used by the organisation to
manage climate-related risks and opportunities and
performance against targets.
As risks are identified through pre- and post-investment
analysis, data requirements that will allow them to be
monitored and assessed are determined and included
in our requests to the Investee Company. This process
is completed on an asset-by-asset basis, depending on
the nature of the particular risk. Emissions and energy
data is collected from all of our Investee Companies.
The energy and emission data collected from Investee
Companies is used to monitor exposure to the key risks
identified within the Strategy section. PUE monitoring,
for example, determines exposure to data centre
efficiency regulations, and the potential effects of
increasing temperatures on cooling costs. Renewable
energy consumption metrics are indicator of exposure
to future grid volatility.
The Company targets year-on-year reduction in the
GHG emissions intensity per Investee Company, for
fully owned companies. The Investment Manager is in
the process of setting Net Zero targets across its entire
portfolio, which will cover the Company’s assets. This
target will follow the most up to date guidance from
the Science Based Targets Initiative (SBTi), which at the
time of publication will result in a short-term emissions
reduction target, up to 2030. Additional longer-term
targets will be set following the release of the relevant
guidance, or prior if perceived possible. As the direct
emissions of the Company’s assets are low, the biggest
emissions risk is present in the value chain of the assets.
For this reason, the Company has begun to track Scope
3 emissions in 2022 and will report on these for a subset
of subsidiaries in the following reporting year, with an
indication of the operations covered, by revenue. Scope
3 emissions tracking will allow the potential exposure to
value chain carbon pricing to be more comprehensively
assessed. The Company continues to develop its data
collection processes to enhance visibility of future risks.
In support of this, Company-level targets identified
UK & Ireland
9
Nordics
6
North America
2
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Information
by the Investment Manager have also been accompanied by a commitment that the fully-owned assets of the
Company will be required to implement their own net zero roadmaps with targets within the next 24 months (as
detailed on page 69 of the sustainability report).
2021
2022
Wireless
Subsea Fibre
Data Centres
Verne Global
Elio Networks
Aqua Comms
Iceland
London
Finland
Scope 1 (tCO2e)
12
92
2
10
46
19
15
Scope 2 (tCO2e) location-based
1,004
5,502
142
783
1,289
2,696
591
Scope 2 (tCO2e)
market-based
545
1,397
234
552
449
–
162
Data Centre Power Usage
Effectiveness (PUE)
1.22
1.33
1.30
1.54
1.38
Renewable energy consumption
and production (MWh)
41,205
151,252
98
1,683
128,002
13,939
7,530
Non-renewable energy
consumption (MWh)
1.
1,271
2,056
319
957
196
79
505
The energy and emission data collected from Investee Companies is used to monitor exposure to the key risks
identified within the Strategy section. PUE monitoring, for example, determines exposure to data centre efficiency
regulations, and the potential effects of increasing temperatures on cooling costs. Renewable energy consumption
metrics are indicator of exposure to future grid volatility.
The Company targets year-on-year reduction in the GHG emissions intensity per Investee Company, for fully owned
companies. The Investment Manager is in the process of setting Net Zero targets across its entire portfolio, which
will cover the Company’s assets. This target will follow the most up to date guidance from the Science Based
Targets Initiative (SBTi), which at the time of publication will result in a short-term emissions reduction target, up to
2030. Additional longer-term targets will be set following the release of the relevant guidance, or prior if perceived
possible. As the direct emissions of the Company’s assets are low, the biggest emissions risk is present in the value
chain of the assets. For this reason, the Company has begun to track Scope 3 emissions in 2022 and will report
on these for a subset of subsidiaries in the following reporting year, with an indication of the operations covered,
by revenue. Scope 3 emissions tracking will allow the potential exposure to value chain carbon pricing to be more
comprehensively assessed. The Company continues to develop its data collection processes to enhance visibility
of future risks. In support of this, Company-level targets identified by the Investment Manager have also been
accompanied by a commitment that the fully-owned assets of the Company will be required to implement their own
net zero roadmaps with targets within the next 24 months (as detailed on page 69 of the sustainability report).
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Section 172(1)
Statement
The Board is committed to promoting the long-term success of
the Company whilst conducting business in a fair, ethical, and
transparent manner.
The Board makes every effort to understand the views
of the Company’s key stakeholders and to take into
consideration these views as part of its decision-making
process.
As an investment company, the Company does not have
any employees and conducts its core activities through
third-party service providers. The Board seeks to ensure
each service provider has an established track record,
has in place suitable policies and procedures to ensure
they maintain high standards of business conduct, treat
shareholders fairly, and employ corporate governance
best practice.
As a Jersey incorporated entity, the Company
voluntarily discloses how the Directors have had regard
to the matters set out in section 172(1)(a) to (f) and fulfils
the reporting requirements under section 414CZA of
the Companies Act 2002 (the “Act”).
The following disclosure describes how the directors
have had regard to the matters set out in section 172(1)
(a) to (f) when performing their duty under s172 and
forms the directors’ statement required under section
414CZA of the Act.
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/ STAKEHOLDER ENGAGEMENT
Stakeholder
Why is it
important to
engage?
How have the Investment
Manager/Directors engaged?
What were the
key topics of
engagement?
What was the
feedback obtained
and the outcome of
the engagement?
Shareholders
Shareholders and
their continued
support is critical
to the continuing
existence of
the business
and delivery of
our long-term
strategy.
The Investment Manager and
Board have been continuously
engaged with shareholders
throughout the period.
Directors and representatives
of the Investment Manager met
with shareholders following
the release of the Interim and
Annual Results, as well as
engaging directly following
announcements to the London
Stock Exchange, including the
Trading Update on 11 January
2023.
The Board remain cognisant of
shareholder views and during
decision making. The Board’s
shareholder engagement
programme is kept under
review and evolved to ensure
appropriate engagement.
An important topic
of engagement with
shareholders has been
on the acquisitions
undertaken during
the year, the short-
term strategy and
capital allocation
for the Company
following committing
substantially all of
the equity and debt
capital raised since
IPO, and the changes
to the departure of
Investment Manager
personnel.
Engagement also
took place during the
equity fundraising
earlier in 2022.
The Board considered
that the feedback from
shareholders has been
invaluable this year,
through enhanced
understanding
of shareholder
expectations, and has
assisted in enhancing
the level of disclosure,
highlighted by the
Trading Update
released in January
2023.
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Stakeholder
Why is it
important to
engage?
How have the Investment
Manager/Directors engaged?
What were the
key topics of
engagement?
What was the
feedback obtained
and the outcome of
the engagement?
Investment
Manager
The Investment
Manager is
responsible
for executing
the Investment
Objective within
the Investment
Policy of the
Company.
The Board maintains regular
and open dialogue with the
Investment Manager at Board
meetings and has regular contact
on operational and investment
matters outside of meetings.
The Board has
provided constructive
feedback to the
Investment Manager
throughout the
acquisition process of
the assets acquired
during the year; equity
fundraising; transition
to the premium
segment of the main
market of the London
Stock Exchange;
during the period of
change of personnel
of the Investment
Manager in November
2022; and reporting
process.
As a result of the
engagement between
the Board and the
Investment Manager,
the Group has been
able to substantially
commit all of the
available capital into
a portfolio of assets
with strong underlying
performance.
More recently,
engagement between
the Board and
Investment Manager
has been enhanced, in
particular in exploring
the options to address
the higher capital
requirements of the
Investee Companies.
Investee
Companies
The performance
and long-term
success of the
Company is
linked to the
performance of
the companies
in which the
Company invests.
The Investment Manager has
held regular meetings with the
Board and management of
each of the Investee Companies
and received regular reporting
including financial.
The Board has directly engaged
with the Investee Company
CEOs and operating partners
during the year, including
inviting key members of
management to present at Board
Meetings with the opportunity to
ask questions directly.
On an ongoing
basis the Investment
Manager engages
with the Investee
Companies on matters
including finance,
capex requirements,
sustainability and
strategy.
During the year, the
Board has engaged
with the Investee
Companies on their
strategy, and other key
matters relevant to the
Investee Companies.
Through this
engagement,
particularly between the
Investment Manager
and the Investee
Companies, the
Investment Manager
has enhanced the
sustainability practices
and reporting of the
Investee Companies,
explored opportunities
for synergies
and optimisation
between the Investee
Companies.
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Stakeholder
Why is it
important to
engage?
How have the Investment
Manager/Directors engaged?
What were the
key topics of
engagement?
What was the
feedback obtained
and the outcome of
the engagement?
Suppliers
The Company’s
suppliers include
third-party service
providers, each of
which is essential
in ensuring
the ongoing
operational
performance of
the Company. The
Company relies on
the performance
of third-party
service providers
to undertake all its
main activities.
The Board maintains close
working relationships with all its
key advisers.
The Management Engagement
Committee has responsibility for
overseeing and monitoring the
performance of each supplier.
A detailed annual assessment
is undertaken of each supplier
to ensure they continue to fulfil
their duties to a high standard.
The Management
Engagement
Committee met in the
year and undertook
a thorough review of
the performance of
the service providers
and agreed feedback
to provide to the
service providers to
enhance performance
moving forward, or
assist in the process
of changing service
providers where
this was considered
appropriate.
The Board has
continued to be open
in providing feedback
to its service providers
to make clear their
expectations, following
the Management
Engagement
Committee process
and, where appropriate,
on an ad hoc basis.
Regulators
Engagement with
the regulator is
imperative to the
Company’s ability
to operate.
During the period the Company
has had to engage with various
regulators (including the
Financial Conduct Authority
and Jersey Financial Services
Commission) on a number of
different matters.
The key topics of
engagement with
regulators during the
year have been in
relation to the change
of Directors, change
of Investment Policy,
and transition to the
premium segment
of the Main Market
of the London Stock
Exchange.
Without engagement
with the regulator the
Company would not
have been able to
complete additional
equity raises,
acquisitions, transition
to the premium
segment of the Main
Market of the London
Stock Exchange or its
change of investment
policy.
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/ PRINCIPAL DECISIONS
Principal decisions have been defined as those that
have a material impact to the Group and its key
stakeholders. In taking these decisions, the Directors
considered their duties under section 172 of the Act.
Deployment of capital
During the year, deployment of the IPO proceeds
and subsequent fundraises has been a focus for the
Company which has now committed substantially all
available capital. The Board considered each investment
in the context of the Company’s Investment Policy,
potential returns to investors and from a sustainability
perspective.
Equity Raises
Two equity raises were completed in January and July
2022 raising total gross proceeds of £155.2 million. The
additional equity enabled the Company to complete
acquisitions of attractive assets and capital expenditure,
ultimately aiding in the achievement of the Company’s
investment objective.
Transition to the premium segment of the Main
Market of the London Stock Exchange
During the year, the Company transitioned from the
specialist fund segment to the premium segment of the
Main Market of the London Stock Exchange. The Board
considered that there were a number of benefits to
being a constituent of the premium segment, including
increasing the profile of the
Company, unlocking further
attractive investment opportunities and also may
result in a more diversified shareholder register with
improved liquidity, all of which would be to the benefit
of shareholders.
Revolving Credit Facility of £375 million
In March 2022, the Group signed its first debt facility
of a £300 million RCF with an international syndicate of
four banks, with an initial term of three years expiring on
14 March 2025, which can be extended for a further 12
months. The RCF was obtained to assist the Company
in acting quickly on potential investment opportunities,
helping to finance the acquisition of further investments
in its near-term pipeline. The RCF was increased to £375
million in August 2022 under the accordion provision,
to assist in funding existing commitments across the
portfolio and supporting the near-term pipeline. The
RCF has supported Investee Companies with their
capex requirements, alongside allowing the Investment
Manager to deliver on executing the Investment
Objective of the Company.
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As an externally managed investment
company, the Company outsources
key services to the Investment Manager
and other service providers and rely on
their systems and controls. The Board has
ultimate responsibility for risk management
and internal controls within the Company
and has convened a Risk Committee to
assist it in these responsibilities. The Risk
Committee undertakes a formal risk review
twice a year to assess and challenge the
effectiveness of our risk management and
to help define risk appetite and controls to
manage risks within that appetite, particularly
those which would threaten its business
model, future performance, solvency, valuation,
liquidity or reputation. Further details of the Risk
Committee’s activities can be found in the Risk
Committee Report on pages 162 to 163.
Risk Management
/ FRAMEWORK
The Board and the Investment Manager recognise that risk is
inherent in the operation of the Company and are committed
to effective risk management to ensure that shareholder value is
protected and maximised.
/
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The Investment Manager has responsibility for
identifying potential risks at an early stage, escalating
risks or changes to risk and relevant considerations
and implementing appropriate mitigations which are
recorded in the Group’s risk register. Where relevant the
financial model is stress tested to assess the potential
impact of recorded risks against the likelihood of
occurrence and graded suitably. In assessing risks, both
internal controls and external factors that could mitigate
the risk are considered. A post mitigation risk score
is then determined for each principal risk. The Board
regularly reviews the risk register to ensure gradings and
mitigating actions remain appropriate.
/ RISK APPETITE STATEMENT
Managing risk is fundamental to the delivery of the
Company’s strategy, and this is achieved by defining
risk appetite and managing risks within that appetite.
Risk appetite is the level of risk the Company is willing
to take to achieve its strategic objectives. The Board
is responsible for setting the Company’s risk appetite
and ensuring that the Company operates within these
parameters. The Board has defined its risk appetite
using a category of risks inherent to the environment
in which the Company operates. Risk appetite is set for
each category of risk enabling the actual risks which
are identified by Management to be compared to
the defined appetite, to identify where any additional
mitigation activity is required. The Company manages
its risks within the tolerance set, particularly those which
would threaten its business model, future performance,
solvency, valuation, liquidity, or reputation. Any risks
outside of tolerance are subject to additional oversight
and action planning.
The Board has reviewed the Company’s appetite for
each of the principal risks set out below. The Company
seeks to take risk in executing its strategy and in
line with its Investment Policy. The Company’s risk
management framework is designed to manage rather
than eliminate the risk of failure to achieve objectives
and breaches of risk appetite.
The Board will review and monitor the Company’s risk
appetite on an annual basis to ensure that it remains
appropriate and consistent with the Investment Policy.
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Risk
1
Lack of capital may limit our ability to grow and pay a progressive dividend.
2
Persistent, negative market sentiment in relation to our Arqiva acquisition (specifically high inflation compounding
liquidity challenges).
3
Competitive markets, including where a well funded competitor enters the market or aggressively acquires market
share across the respective markets and segments of D9's Investee Companies.
4
Dependence on key Investment Manager personnel.
5
Interruptions or poor-quality services to our customers as a result of failure of infrastructure, equipment and/or third-
party networks.
6
Risk of supply-chain vulnerabilities and disruptions.
7
D9 acquires Digital Infrastructure Investments which operate in a highly regulated sector and which will be subject to
the different regulatory regimes of all the countries in which they operate.
8
Reliance on the Investment Manager.
9
An Investee Company counterparty may become insolvent, be unable to make contractual payments or terminate a
contract early.
High
Moderate
to High
5
7
6
2
4
1
Moderate
9
3
8
Low to
Moderate
Low
Low
Low to
Moderate
Moderate
Moderate
to High
High
/ PRINCIPAL RISKS AND UNCERTAINTIES
The table below sets out what we believe to be the principal risks and uncertainties facing the Group. The table
does not cover all of the risks that the Group may face. The Board defines the Group’s risk appetite, enabling the
Group, in both quantitative and qualitative terms, to judge the level of risk it is prepared to take in achieving its
overall objectives. Additional risks and uncertainties not presently known to management or deemed to be less
material at the date of this report may also have an adverse effect on the Group.
Risk Impact
Likelihood
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1. LACK OF CAPITAL MAY LIMIT OUR ABILITY TO GROW AND PAY A PROGRESSIVE DIVIDEND
Risk Impact
Risk Mitigation
Impact
Without sufficient capital at sustainable rates,
we will be unable to pursue suitable investments
in line with our Investment Policy. This would
significantly impair our ability to pay dividends to
shareholders at the targeted rate.
Management continues to review the sources
of funding available for its working capital
requirements and dividends.
Capital expenditure allocations are carefully
reviewed and optimised.
The Board and Investment Manager have
evaluated options and commenced processes
seeking complementary sources of growth
capital to support our Investee Companies
alongside the capital expenditure already
committed by the Company. These processes
include a syndication of a minority stake in
existing Investee Companies to a strategic
capital partner in conjunction with a leading
investment bank and the arrangement of
appropriate debt financing at Investee
Company level. The syndication would
provide proceeds which could be used to pay
down the RCF and/or fund growth capital
expenditure and provide valuable follow-on
capital to Investee Companies. In relation to
Investee Company level debt, a term sheet has
been agreed for a $100 million facility to be
provided to one of the high growth Investee
Companies, the proceeds of which will be used
to finance accretive growth opportunities, and
to repay a Company shareholder loan, which
will be used to reduce the drawings of the
Group RCF.
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 has a RCF in place to support
portfolio investments and growth capital
expenditure requirements.
Moderate-to-High
Likelihood
High
Change in Year
Increase
This risk has increased
due to the current
macroeconomic
environment and the
ability of the Company to
raise further capital in the
equity markets given the
Company’s share price
trading at a discount to its
NAV.
2. PERSISTENT, NEGATIVE MARKET SENTIMENT IN RELATION TO OUR ARQIVA ACQUISITION
(SPECIFICALLY PERSISTENT, HIGH INFLATION COMPOUNDING LIQUIDITY CHALLENGES)
Risk Impact
Risk Mitigation
Impact
The impact of Arqiva’s interest rate swaps are
currently attracting negative market sentiment. We
view this to be likely to change as inflation reduces.
Sentiment impacts the share price.
A detailed Arqiva case study can be found on
pages 26 to 29.
The timing of the cashflows is likely to be
impacted by higher inflation in the short term
but greater long-term benefit.
We will continue to provide transparent
analysis of the swap instruments at investor
days and also reinforce our view of the long-
term value of Arqiva within the portfolio.
Moderate-to-High
Likelihood
Moderate-to-High
Change in Year
New Risk
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3. COMPETITIVE MARKETS, INCLUDING WHERE A WELL-FUNDED COMPETITOR ENTERS THE
MARKET OR AGGRESSIVELY ACQUIRES MARKET SHARE ACROSS THE RESPECTIVE MARKETS
AND SEGMENTS OF D9’S INVESTEE COMPANIES, WHICH MAY ADVERSELY AFFECT THE
REVENUE AND MARGINS OF D9’S INVESTMENTS
Risk Impact
Risk Mitigation
Impact
D9 invests in an increasingly competitive environment,
as new investors seek to invest into the sector from
traditional infrastructure or other sectors. Global content
companies, such as the FAANGs, may choose to invest in
the infrastructure directly, rather than as a customer. This
increased competition could make it harder to find new
assets, access to good pricing and gain market share.
Such competition creates pricing risk when bidding on
target acquisitions, potentially driving higher pricing. This
could result in the Company being outbid on a particular
asset or paying a premium. This competition can also, in
certain markets, lead to a decline in prices the operators
of such assets are able to charge for the services provided
once acquired.
As a result, this could impair D9’s ability to deploy funds
therefore affecting the NAV, the Company’s earnings and
returns to Shareholders.
Before acquiring assets, the Investment
Manager carries out thorough
due diligence and applies realistic
assumptions to ensure the total return
target can be met.
Where possible, the Investment Manager
seeks to secure off-market assets with
strategic benefits through an alignment
with D9’s other investee companies, thus
avoiding competitive bidding situations.
Frequent communication between D9
and its investee companies will lead
to innovative and proactive thinking
regarding its services to remain
competitive and adapt to emerging
technologies and customer preferences.
Moderate
Likelihood
Moderate
Change in Year
Decrease
This risk has decreased
given the Company has
now moved from an
acquisitive period to a
period of consolidation and
focus on the operational
performance and
optimisation of each of the
assets acquired to date.
4. DEPENDENCE ON KEY INVESTMENT MANAGER PERSONNEL
Risk Impact
Risk Mitigation
Impact
The loss of key personnel in the Investment Team could
impact the performance of the Investee Company
therefore adversely impacting the NAV of the Company.
The Company is seeking to appoint
an Investment Director imminently.
Within the broader team it ensures
that there are retention and succession
plans in place for all key individuals,
with incentive schemes and market
compensation packages for key
personnel.
Moderate-to-High
Likelihood
Moderate-to-High
Change in Year
Increase
This risk has increased
due to the departure of
investment team personnel
during the year.
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5. INTERRUPTIONS OR POOR-QUALITY SERVICES TO OUR CUSTOMERS AS A RESULT OF
FAILURE OF INFRASTRUCTURE, EQUIPMENT AND/OR THIRD-PARTY NETWORKS
Risk Impact
Risk Mitigation
Impact
D9’s Investee Companies rely on infrastructure
and technology to provide their customers with a
highly reliable service. There may be a failure to
deliver this level of service as a result of numerous
factors. Failure to deliver may breach performance
conditions in contracts with customers and
therefore affect revenue streams, which in turn
could impact the performance of D9 and therefore
adversely impact the NAV.
The Digital Infrastructure Investments in which
the Group invests use proven technologies,
typically backed by manufacturer warranties,
when installing applicable machinery and
equipment.
D9’s Investee Companies hire experts with
the technical knowledge, and seek third party
advice where required.
Where appropriate, there are insurances
in place to cover issues such as accidental
damage and power issues.
Moderate-to-High
Likelihood
Low to Moderate
Change in Year
Stable
6. RISK OF SUPPLY-CHAIN VULNERABILITIES AND DISRUPTIONS
Risk Impact
Risk Mitigation
Impact
D9’s Investee Companies need to maintain and
develop their assets to deliver to customers.
Significant supply chain pressure could lead to an
inability to meet customer contracts and/or delay
in business development projects.
As part of the procurement process, due
diligence is conducted on third parties and
SLAs are put in place to ensure the delivery
of service. All Investee Companies are now
considering longer lead times in their planning
and their boards continue to scrutinise
planning.
Inventory and accelerated capital growth
investments have increased. In addition, they
are managing supply chains more closely for a
better understanding of vulnerabilities.
Moderate-to-High
Likelihood
Moderate
Change in Year
Stable
7. D9 ACQUIRES DIGITAL INFRASTRUCTURE INVESTMENTS WHICH OPERATE IN A HIGHLY
REGULATED SECTOR, AND WHICH WILL BE SUBJECT TO THE DIFFERENT REGULATORY
REGIMES OF ALL THE COUNTRIES IN WHICH THEY OPERATE
Risk Impact
Risk Mitigation
Impact
Failure of D9’s Investee Companies to comply
with their regulatory obligations and/or maintain a
relevant permit or licence may result in sanctions
from the applicable regulator including fines
and/or the revocation of its authorisation to
provide services. This could result in the relevant
infrastructure ceasing to be operable and possibly
subject to decommissioning requirements which
may in turn, have a material adverse effect on
the performance of the Company, the NAV, the
Company’s earnings and returns to Shareholders.
Experts are engaged to ensure compliance
with all relevant regulations.
Thorough due diligence is carried out prior
to completing on investments to assess the
regulatory environment and how compliance is
maintained.
After completion, the Investment Manager and
Investee Companies maintain a frequent and
ongoing dialogue on the subject to ensure
compliance and preparedness for any change.
This includes a number of compliance KPIs
which form part of regular portfolio monitoring
meetings.
Moderate-to-High
Likelihood
Low-to-Moderate
Change in Year
Stable
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8. RELIANCE ON THE INVESTMENT MANAGER
Risk Impact
Risk Mitigation
Impact
We rely on the Investment Manager’s services and its
reputation in the Digital Infrastructure market. As a result,
our performance will, to a large extent, depend on the
Investment Manager’s abilities in the market. Termination
of the Investment Management Agreement would severely
affect our ability to effectively manage our operations
and may have a negative impact on the share price of the
Company.
Unless there is a default, either
party may terminate the Investment
Management Agreement by giving not
less than 12 months’ written notice,
with such notice not to expire before
the fourth anniversary of the date of
admission.
The Board will regularly review and
monitor the Investment Manager’s
performance. In addition, the Board
meets regularly with the Investment
Manager to ensure that we maintain a
positive working relationship.
Moderate
Likelihood
Moderate-to-High
Change in Year
Increase
This risk has increased as
the Investment Manager
is engaged in several
processes on behalf of
the Company seeking
complementary sources
of capital to help fulfil the
growth capital expenditure
pipeline of the Investee
Companies.
9. AN INVESTEE COMPANY COUNTERPARTY MAY BECOME INSOLVENT, BE UNABLE TO MAKE
CONTRACTUAL PAYMENTS OR TERMINATE A CONTRACT EARLY
Risk Impact
Risk Mitigation
Impact
Issues may arise with counterparties that could affect
their ability to make contractual payments or result in the
early termination of such projects due to counterparty
insolvency.
This could result in a material effect on the Group’s
revenue stream, resulting in a material adverse effect on
the performance of the Company, the NAV, the Company’s
earnings and returns to Shareholders.
Prior to investing in a Digital
Infrastructure Investment, the Investment
Manager will undertake due diligence
to assess the material contracts in place,
including termination provisions and
whether any such contracts are close
to termination. Where possible, the
Investment Manager will seek to build
in suitable mechanisms to protect the
Group’s income stream, including the
diversification of its investments.
Further, the number of Counterparties
in respect of a particular Digital
Infrastructure Investment may be
significantly diversified so as to
reduce the impact of a Counterparty
terminating an agreement at will or
deciding not to renew such contract on
expiry.
Moderate
Likelihood
Low
Change in Year
Stable
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Emerging Risks
Emerging risks are characterised by a degree of
uncertainty, having been highlighted at the periodic
risk review meetings. The Board receive a quarterly risk
report highlighting such risks, with the best insights
available. These may later be added to the main risk
register and assessed in the usual way or be deemed no
longer relevant.
Introduction of, or amendment to laws, regulations,
or technology (especially in relation to climate
change)
The global ambition for a more sustainable future has
never been greater. There is increasing pressure for
governments and authorities to enforce green-related
legislation. This could materially affect organisations
which are not set up to deal with such changes in the
form of financial penalties, operational and capital
expenditure to restructure operations and infrastructure,
or even ceasing of certain activities.
As part of our purpose-driven investment strategy
and thorough ESG due diligence process, we will
continue to actively seek acquisitions that deliver on
sustainability targets and are aligned with our ambition
to decarbonise Digital Infrastructure.
Development of disruptive technology
The digital infrastructure sector is constantly evolving.
As a result, there is a risk that disruptive technology
emerges which results in current digital infrastructure
assets becoming obsolete. We constantly monitor the
emerging technology trends with digital infrastructure
to ensure Investee Companies evolve their business
models where required and new investment
opportunities are accurately assessed.
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/ GOING CONCERN
The Company’s business activities, together with
the factors likely to affect its investments its future
development, performance and position are set out in
the Strategic report and in the financial statements and
related Notes to our Annual Report and Accounts to
31 December 2022. The financial position of the
Company, its cash flows, liquidity position and
borrowing facilities are described in the financial
statements and related Notes to the accounts. In
addition, Note 19 to the accounts includes the
Company’s policies and processes for managing its
capital, its financial risk management objectives, details
of its financial instruments and hedging activities, and
its exposures to credit risk and liquidity risk.
The Board have made an assessment of going concern,
taking into account a wide range of information
relating to present and future conditions, including
the Company’s cash and liquidity position, current
performance and outlook, which has considered the
ongoing geopolitical uncertainties arising from the war
in Ukraine, the volatile macro landscape and existing
inflationary pressures and current and expected financial
commitments using information available to the date of
issue of these Financial statements.
The Group has targeted high-quality digital
infrastructure investments and will continue to analyse
investment opportunities to ensure that they are
the right fit for the Group. The Company has liquid
resources and a strong investment portfolio with an
expectation of medium-term capital growth.
During the year the Company has invested £605 million
of cash (£768 million including the VLN) including
transaction costs. At 31 December 2022, liquidity
remained positive at £55 million, the cash balance
of the Company at year end was £30 million, the
remaining uninvested cash of £25 million is held by its
wholly owned subsidiary Digital 9 Holdco Limited for
investment purposes. Including the undrawn element
of the RCF, restricted and unrestricted cash throughout
the Group (not including Investee Companies), the
Company had £117 million at 31 December 2022.
The Company, through its subsidiary undertakings, had
an expected investment commitment of £46 million,
relating to growth capital expenditure requirements
at Aqua Comms, Verne Global London and EMIC-1.
The Company had ongoing charges of £10 million and
Going Concern
and Viability
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an OCR of 1.10% in the year to 31 December 2022,
detailed in Note 7 to the financial statements, which are
indicative of the ongoing charges run rate for the
short-term.
Although not a commitment, the Company has
announced a continued dividend target for the financial
year ending 31 December 2023 of 6.0 pence per
share. Income and non-income cash is expected to
be received from the portfolio investments during the
coming year, some of which will be required to support
the payment of this dividend target and the Company’s
other financial commitments. As mentioned on page
16 the Company continues to explore complementary
sources of capital to help fulfil the growth capital
expenditure pipeline of the Investee Companies. Any
proceeds raised, may also be used to underpin the
Company’s dividend and expenses in the financial year
ending 31 December 2023.
The Board believes that there are currently no material
uncertainties in relation to the Company’s ability to
continue for a period of at least 12 months from the date
of the approval of the Company’s financial statements and,
therefore, has adopted the going concern basis in the
preparation of the financial statements, please see Note 2
of the financial statements for more information.
/ VIABILITY STATEMENT
In accordance with Principle 21 of the AIC Code, the Board
has assessed the prospects of the Group over a period
longer than 12 months required by the relevant ”Going
Concern” provisions. The Board has considered the nature
of the Group’s assets and liabilities, and associated cash
flows, and has determined that five years, up to
31 December 2027, is the maximum timescale over
which the performance of the Group can be forecast
with a material degree of accuracy and therefore is the
appropriate period over which to consider the viability.
In determining this timescale, the Board has considered the
following:
•
That the business model of the Group assumes the
future growth in its investment portfolio through
the acquisition of a diversified portfolio of digital
infrastructure investments which are intended to be
held for the duration of the viability period.
•
On 9 March 2022 the Company secured a floating rate
RCF with an initial term of three years which may be
extended by a further year to March 2026.
•
Market Comparisons have been considered to similar
funds in the infrastructure space who apply a five-year
forecast in their viability statements. It would seem
appropriate to benchmark to similar funds.
•
In assessing the Company’s viability, we carried out a
robust assessment of the emerging risks and principal
risks facing the Group, including those that would
threaten its business model, future performance,
solvency, liquidity and dividend cover for a five-year
period.
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In assessing the Company’s viability, the Board has
carried out a robust assessment of the emerging
risks and principal risks facing the Group, including
those that would threaten its business model, future
performance, solvency, liquidity and dividend cover for
a five-year period. The Board considered the potential
impact on the Company of a number of scenarios in
addition to the Company’s business plan and recent
Investee Company forecasts, which quantify the
financial impact of the principal risks occurring. The
Directors’ assessment has been made with reference to
the principal risks and uncertainties and emerging risks
summarised on pages 124 to 129 and how they could
impact the prospects of the Company both individually
and in aggregate.
The business model was subject to a sensitivity analysis,
which involved flexing a number of key assumptions
underlying the forecasts. The sensitivities performed
were designed to provide the Directors with an
understanding of the Company’s performance in the
event of a severe but plausible downturn scenario,
taking full account of mitigating actions that could be
taken to avoid or reduce the impact or occurrence of
the underlying risks outlined below:
•
Inflation: 8% for 2023, 4% for 2024, 2025 and return
to long-term target of 2% thereafter.
•
Interest rates: increase the margin by 1.00% in
response to the current economic climate.
•
Distributions from investments: apply a discount
of 16% to all portfolio investments. This figure is
arrived at by removing each investment’s largest
revenue contributor indefinitely from the revenue
stream. We have then weighted the Net Operating
Profit After Tax (“NOPAT”) margin to the revenues
generated from those customers to arrive at a
D9 weighted NOPAT margin from its revenue-
generating investments.
•
Portfolio valuations: apply a discount of 16% to the
portfolio valuations, in line with the loss in dividends
paid up to D9.
The outcome in the downturn scenario on the
Company’s covenant testing is that there are no
breaches, and the Company can maintain a covenant
headroom on the existing facility.
In the downturn scenario mitigating actions would be to
reduce variable costs to enable the Group to meet its
future liabilities.
The remaining principal risks and uncertainties, whilst
having an impact on the Company’s business, are
not considered by the Directors to have a reasonable
likelihood of impacting the Company’s viability over the
five-year period.
The long-term resilience of the Company, beyond the
Viability statement period, comes from the effective
implementation of our business model, continuing to
support our Investee Companies growth ambitions and
the consistent delivery of our strategic objectives. As
the Investee Companies move into their stabilisation
phase, we expect them to generate long-term
sustainable revenues which will underpin the Company’s
dividends.
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Board Approval of the
Strategic Report
The Strategic Report has been approved by the Board of Directors
and signed on its behalf by the Chair.
Phil Jordan
Chair
8 March 2023
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Governance
Chair’s
Introduction
I am pleased to present the Company’s Corporate
Governance Report which covers the year ended 31
December 2022. The Board acknowledges that strong
corporate governance is integral to the achievement of
the Company’s objectives and provides the foundation
for open, informed and transparent communication
with our shareholders. The Board continue to work
together effectively to deliver long-term success for the
Company.
During the year I was appointed as Chair of the Board
and Aaron Le Cornu joined the Board as a Non-
Executive Director and Chair of the Management
Engagement Committee.
A detailed induction process
was undertaken by us both to ensure a streamlined
transition and succession.
This section of the Annual Report sets out the corporate
governance principles the Board has adopted, how
these have been applied and highlights the key
governance events which have taken place during the
period.
/ STATEMENT OF COMPLIANCE
The Board of Digital 9 Infrastructure plc has considered
the Principles and Provisions of the AIC Code of
Corporate Governance (AIC Code). The AIC Code
addresses the Principles and Provisions set out in the
UK Corporate Governance Code (the UK Code), as well
as setting out additional Provisions on issues that are of
specific relevance to Digital 9 Infrastructure plc.
The Board considers that reporting against the
Principles and Provisions of the AIC Code, which
has been supported by the Jersey Financial Services
Commission provides more relevant information to
shareholders.
The Company has complied with the Principles and
Provisions of the AIC Code or otherwise explained non-
compliance below.
The AIC Code is available on the AIC website (www.
theaic.co.uk). It includes an explanation of how the
AIC Code adapts the Principles and Provisions set out
in the UK Code to make them relevant for investment
companies.
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Provision
Explanation
37, 38, 41, 42.
Establishment and reporting of a remuneration
committee
The Group does not have any executive Directors or
employees, and, as a result, operates a simple and
transparent remuneration policy with no variable
element; the Board does not consider it necessary
to establish a separate remuneration committee and
those functions are undertaken by the Board as a
whole.
On behalf of the Board:
Phil Jordan
Chair
8 March 2023
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Board of
Directors
Appointed:
23 May 2022
Skills and experience:
Phil Jordan has a successful
track record in the digital infrastructure and technology
sectors, both in an executive and non-executive
capacity. Phil’s executive career includes country,
regional and group Chief Information Officer roles,
including spending over 10 years at Vodafone, over
seven years with Telefonica, where in addition to
the Group CIO role, he was CEO and then Chair of
Telefonica Global Technology. He retired as Group CIO
of Sainsbury’s on 3 March 2023, a role he has held for
over four years.
He has also acted as a Non-Executive industry adviser
to HSBC and was a Non-Executive director of Talk Talk
Telecom Group PLC until it was taken private in 2021.
\ PHIL JORDAN
Independent Chair
Committee memberships:
Nomination Committee
Risk Committee
Management Engagement Committee.
Principal external appointments:
J Sainsbury plc (Group Chief Information Officer)
(retired 3 March 2023)
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Appointed:
5 March 2021
Skills and experience:
Lisa Harrington is a tech
executive and has spent 25 years growing and
transforming business across a range of sectors
including telecommunications, technology and utilities.
Joining British Telecom (“BT”) in 2007, Lisa spent 10
years in a range of leadership positions with her final
role being Chief Customer Officer BT Group, reporting
to the CEO. In 2021, Lisa held the interim Managing
Director role at Hyperoptic Ltd, a private equity
backed fibre alternative network. Lisa is currently a
Non-Executive Director of Post Office Limited, a Non-
Executive Director of SEG Ltd, and a Non-Executive
Director of Truespeed Communications Ltd. Lisa is also
a Trustee of the Children’s Book Project and an Advisory
to the Cabinet Office.
Lisa has previously held Non-
Executive posts on the boards of Southern Water, West
London NHS Mental Health Trust and Calisen plc (FTSE
250). She started her career at Accenture in Ireland and
the UK and, more recently, was managing director Tech
Learning Division of QA Limited, one of the biggest
tech and cyber skills providers in the UK.
\ LISA HARRINGTON
Independent Non-Executive Director,
Senior Independent Director (effective 13 February 2023)
Committee memberships:
Audit Committee
Management Engagement Committee
Nomination Committee (Chair)
Principal external appointments:
Post Office Ltd (Director)
Truespeed Communications Ltd (Director)
Supporting Education Group Ltd (Director)
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Appointed:
5 March 2021
Skills and experience:
Keith Mansfield is a
Chartered Accountant by background and brings
extensive accountancy experience, having worked at
PricewaterhouseCoopers LLP (“PwC”) for over 30 years,
during which time he served as Chair of PwC in London
responsible for assurance, tax and advisory services.
As a partner for 22 years, he advised many public and
private companies across a range of industry sectors.
Keith is a Non-Executive Director (and Chair of the
Audit Committee) of Tritax EuroBox plc and Motorpoint
Group plc. He is also Chair of the board of Albermarle
Fairoaks Airport Limited
\ CHARLOTTE VALEUR
Independent Non-Executive Director
Appointed:
5 March 2021
Skills and experience:
Charlotte Valeur has over
40 years’ experience in finance, primarily in Denmark
and UK. Charlotte’s previous non-executive roles
include Chairing Kennedy Wilson Europe Real Estate
Plc (FTSE 250) and DW Catalyst Fund Ltd, and Non-
Executive Director on the boards of 3i Infrastructure
Plc (FTSE 250), NTR Plc, Renewable Energy Generation
Limited and JPMorgan Convertibles Income Fund Ltd.
She was also the former Chair of the UK Institute of
Directors. She is currently Non-Executive Director of
The Bankers Investment Trust plc, Chair of Blackstone/
GSO Loan Financing Ltd, a Non-Executive Director
of Laing O’Rourke Ltd, and a member of the Primary
Markets Group of the London Stock Exchange.
Committee memberships:
Audit Committee (Chair)
Management Engagement Committee
Principal external appointments:
Tritax EuroBox plc (Director)
Motorpoint Group Plc (Director)
\ KEITH MANSFIELD
Non-Executive Director,
Senior Independent Director (up to 13 February 2023)
Committee memberships:
Nomination Committee
Risk Committee (Chair)
Principal external appointments:
The Bankers Investment Trust plc
Blackstone GSO Loan Financing Ltd (Chair)
Laing O’Rourke Corporation Ltd (Director)
Global Governance Group (Director)
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Appointed:
1 April 2022
Skills and experience:
Aaron Le Cornu comes from a
financial background, having qualified as a Chartered
Accountant with Arthur Andersen and worked for HSBC
for over 10 years. During his time with HSBC, he held
several board positions for HSBC subsidiaries, including
as Deputy CEO for HSBC International and was also
involved in acquisitions such as the purchase of Marks
& Spencer Money. He has since held a number of
senior executive roles including at Ogier (offshore legal
and fiduciary services provider), Elian (a fiduciary firm
headquartered in Jersey) and, latterly, at GLI Finance,
an alternative finance provider and strategic investor
in numerous fintech platforms. Aaron is currently the
Chair of the abrdn Capital Offshore Strategy Fund Ltd.
He also served as a Non-Executive Director for Jersey
Electricity plc, having stepped down in 2021 after
10 years on the board.
\ AARON LE CORNU
Independent Non-Executive Director
Committee memberships:
Audit Committee
Risk Committee
Management Engagement Committee (Chair)
Principal external appointments:
abrdn Capital Offshore Strategy Fund Ltd (Chair)
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Corporate
Governance
\ RESPONSIBILITIES
The Board is responsible for leading and controlling
the Company and has oversight over the management
and conduct of the Company’s business, strategy and
development. The Board determines the Investment
Objectives and Investment Policy and risk appetite.
Any matters that have had a material impact upon the
Company or any of its subsidiaries will be referred to
the Board of Directors of the Company.
The Board is responsible for the control and supervision
of the Investment Manager (also the Company’s
AIFM) and for compliance with the principles and
recommendations of the AIC Code. The Board
ensures the maintenance of a sound system of internal
controls and risk management (including financial,
operational and compliance controls), and reviews the
overall effectiveness of systems in place. The Board
is responsible for the approval of any changes to the
capital, corporate and/or management structure of the
Company.
The Board’s main focus is to promote the long-term
sustainable success of the Company, to deliver value
for shareholders and contribute to wider society. The
Board does not routinely involve itself in day-to-day
business decisions but there is a formal schedule of
matters that requires the Board’s specific approval, as
well as decisions that can be delegated to the Board
Committees or the Investment Manager.
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The key matters reserved to the Board, include but are
not limited to:
•
Board membership and powers including the
appointment and removal of Board members;
•
Review of the structure, size and composition of the
Board, taking account of the recommendations of
the Nomination Committee;
•
Ensuring an adequate Board succession planning,
taking into account the recommendations of the
Nomination Committee;
•
The appointment or removal of the Company’s
alternative investment fund manager, reporting
accountants, financial advisers, auditor (following
appropriate recommendation by the Audit
Committee), brokers, company secretary, registrar,
receiving agent, depositary and legal counsel;
•
Undertaking of a formal and rigorous annual
review of its own performance and that of Board
Committees and individual Directors;
•
Managing conflict of interests of Directors;
•
Overall leadership of the Company and setting of its
purpose, culture, values and standards;
•
Setting the Company’s investment/business strategy,
including the ongoing review of the Company’s
investment objective and investment policy and
recommending to Shareholders the approval of
alterations thereto (if any);
•
Annual assessment of significant risks and
effectiveness of internal controls following
recommendations from the Risk Committee;
•
Approval of contracts not in the ordinary course of
business including entry into/variation/termination
of agreements with the Company’s alternative
investment fund manager, company secretary/
administrator, registrar, depositary and any other
material advisers or service providers;
•
Approval and issue of the half yearly results, half
yearly report, annual results and annual report;
•
Ensuring the maintenance of a system of internal
controls and risk management;
•
Review of the Company’s corporate governance
arrangements and annual review of continuing
compliance with the AIC Code of Corporate
Governance published by the AIC from time to
time;
•
Periodic review and continued approval of the
agreements of, or changes to, the Investment
Manager and other service providers; and
•
Material changes relating to the strategic capital
structure of the Group.
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\ BOARD MEMBERSHIP AND ATTENDANCE
During the period to 31 December 2022, the number of meetings attended by each Director was as follows:
Director
Board*
Audit
Committee*
Risk
Committee*
Nomination
Committee*
Management
Engagement
Committee*
Jack Waters**
5/5
n/a
1/1
n/a
n/a
Keith Mansfield
13/13
3/3
n/a
n/a
2/2
Lisa Harrington
13/13
3/3
n/a
2/2
2/2
Charlotte Valeur
13/13
n/a
2/2
2/2
2/2
Monique O’Keefe**
4/5
1/1
1/1
n/a
n/a
Phil Jordan***
8/8
n/a
1/1
2/2
1/1
Aaron Le Cornu***
8/8
2/2
1/1
n/a
1/1
*Number of scheduled meetings attended/maximum number of meetings that the Director could have attended.
**Jack Waters resigned as Chair and Non-Executive Director and Monique O’Keefe resigned as Non-Executive Director on 23 May 2022.
***Aaron Le Cornu was appointed as Non-Executive Director with effect from 1 April 2022 and Phil Jordan was appointed as Chair and Non-
Executive Director with effect from 23 May 2022, immediately following the 2022 AGM.
Of the 13 Board meetings held in the period, four were scheduled quarterly Board Meetings, there was one
strategy day and the additional Board meetings were convened to discuss various matters including, but not limited
to, potential acquisitions, debt and equity raising, and the transition to the premium segment of the Main Market of
the London Stock Exchange.
\ COMPOSITION
The Company has a Non-Executive Chair and four
other Non-Executive Directors, including a Senior
Independent Director, all of whom were considered
independent on and since their appointment. All the
Directors are independent of the Investment Manager.
Phil Jordan is the Chair of the Board and is responsible
for the Board’s overall effectiveness in directing the
Company. The Chair, in conjunction with the Company
Secretary, ensures that accurate, timely and clear
information is circulated to the Directors, and that
sufficient time is given in meetings to consider and
discuss all agenda items thoroughly. He promotes a
culture of openness and constructive debate to ensure
the effective contribution of all Directors, facilitating
a co-operative environment between the Investment
Manager and the Directors, and encourages Directors
to critically examine information and reports to
constructively challenge the Investment Manager and
hold third party service providers to account where
appropriate.
The Chair has put mechanisms in place to ensure
effective communication between shareholders and
the Board, to ensure that their views, issues and
concerns are considered as part of the decision-making
process. Keith Mansfield was the Senior Independent
Director during the period, and was succeeded by
Lisa Harrington with effect from 13 February 2023. If
required, the Senior Independent Director will act as a
sounding board and intermediary for the other Directors
and shareholders.
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\ DISCUSSIONS OF THE BOARD
During the period, the following were the key matters
considered by the Board:
•
Approval of various Company policies;
•
Appointments of Phil Jordan and Aaron Le Cornu;
•
Review of the Investment Management Agreement
and other service provider agreements;
•
Consideration of five acquisitions during the year,
including the acquisition of Arqiva;
•
Oversight of Investee Company performance and
asset management initiatives;
•
Consideration of the path to dividend coverage;
•
Liquidity and growth capital expenditure pipeline.
•
Pipeline review and monitoring;
•
Input into investment opportunities being reviewed
by the Investment Manager in its role as the AIFM;
•
Review and approval for processes to seek
complementary sources of growth capital;
•
Review and approval of the annual expense budget;
•
Review of the Company’s risk appetite;
•
Declaration of the Company’s interim dividends;
•
Review and consideration of the proposed
amendments to the Company’s Investment Policy,
that following the consultation with shareholders,
were approved at the General Meeting on
14 February 2022;
•
Review and approval of the revolving credit facility
entered into by the Group;
•
Departure of Investment Manager personnel;
•
The Investment Manager’s process to replace the
personnel who left during the year and discussions
of criteria for new Head of Digital Infrastructure;
•
Approval of various matters in connection with an
additional fundraise carried out by the Company
during the period; and
•
Various matters in connection with the Company’s
admission to the Premium Segment of the London
Stock Exchange and FTSE 250.
The Directors hold or have held senior positions in
industry and commerce and contribute a wide range
of skills, experience and objective perspective to the
Board. The Board committees allow the Directors to
focus in greater detail and depth on key matters such
as strategy, governance, internal controls and risk
management.
The Directors’ other principal commitments are listed
on pages 138 to 141. During the year, the Board
satisfied itself that all Directors were and remain able to
commit sufficient time to discharge their responsibilities
effectively having given due consideration to their other
significant commitments. Changes in any Director’s
commitments outside the Group are required to
be, and have been, disclosed and approved prior
to the acceptance of any such appointment. No
external appointments accepted during the year were
considered to be significant for the relevant directors,
taking into account the expected time commitment and
nature of these roles.
\ BOARD COMMITTEES
The Board has established a Management Engagement
Committee, an Audit Committee, a Nomination
Committee and a Risk Committee. Given that
the Company has no executive Directors or other
employees, the Board does not consider it necessary
to establish a separate remuneration committee and
those functions are undertaken by the whole Board. The
functions and activities of each of the committees are
described in their respective reports.
\ BOARD MEETINGS
The Board meets formally on, at least, a quarterly basis
with additional meetings as required from time to time.
The Chair, in conjunction with the Company Secretary,
sets the agenda for meetings and ensures that Directors
receive accurate, clear and timely information to help
them to discharge their duties. The Board receives
periodic reports from the Investment Manager detailing
the performance of the Group. The Meetings focus
on discussing reports from the Investment Manager,
review of portfolio performance, pipeline and regulatory
matters.
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\ PERFORMANCE EVALUATION
The Directors recognise that an evaluation process is
a significant opportunity to review the practices and
performance of the Board, its Committees and its
individual directors to implement action to improve the
Board’s effectiveness and contribute to the Company’s
success. The Board conducts a formal annual evaluation
process and, recognising the importance of this process,
intends to conduct an externally facilitated evaluation
once every three years. The first externally facilitated
evaluation will be undertaken in respect of the year
ending 31 December 2023.
The Directors were asked to complete a questionnaire,
that considered amongst other areas, the Board
and Committees, Board composition and diversity,
leadership, efficiency of Board processes and
stakeholder engagement.
Having conducted its performance evaluation, the
Board believes that it has been effective in carrying out
its objectives and that each individual Director has been
effective and demonstrated commitment to the role.
The Board discussed the challenges and opportunities
identified through the evaluation and agreed
appropriate development points on which progress will
be assessed in the next financial year.
The Board discussed the key challenges and
opportunities that were identified through the
performance evaluation and agreed appropriate
development points on which progress will be assessed
in the next financial period.
Challenges and Opportunities
2023 Development Points
Key Performance Indicators
The Board could spend more time further analysing
performance against an enhanced set of KPIs that reflect
the genuine metrics by which the Company assesses
progress. KPIs should include robust targets and should
be appropriately monitored, tracked and used for forward-
planning.
Communication and quality of information
More frequent reporting on an informal basis should be
implemented to ensure the Board is provided with up-to-
date information and is aware and able to oversee emerging
risks.
ESG development
The Company can continue to develop its sustainability
approach and targets to ensure they are clearly defined
and sufficiently embedded into the Company’s investment
process.
Board diversity
Whilst the Board has the right mix of skills, experience and
expertise, diversity could be increased to further enhance the
composition and balance of the Board.
Consistency of service provider performance
The performance of service providers should be
monitored periodically with greater scrutiny to address
underperformance.
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\ CONFLICTS OF INTEREST
The Company operates a conflict of interest policy
that has been approved by the Board and sets out the
approach to be adopted and procedures to be followed
where an individual who is, or is to be appointed as,
a Director of the Company and such other persons to
whom the Board has from time to time determined
that this policy shall apply, or a person connected with
any such a person, has an interest which conflicts,
or potentially may conflict, with the interests of the
Company or his or her duties in respect of the Company.
It is the responsibility of each individual Director to
avoid an unauthorised conflict of interest situation
arising. All Directors must inform the Board as soon
as they become aware of the possibility of an interest
that conflicts with, or might possibly conflict, with the
interests of the Company. A register of conflicts is
maintained by the Company Secretary and is reviewed
at Board meetings to ensure that any authorised
conflicts remain appropriate. The Directors are required
to confirm at these meetings whether there has been
any change to their position.
The Company reserves the right to withhold information
relating, or relevant, to a conflict matter from the
Director concerned and/or to exclude the Director from
any Board information, discussions or decisions which
may or will relate to that conflict matter where the Chair
or the Board considers that it would be inappropriate
or prejudicial to the interests of the Company for him or
her to take part in such discussion or decision or receive
such information. Procedures have been established
to monitor actual and potential conflicts of interest on
a regular basis and the Board is satisfied that these
procedures are working effectively.
The Investment Manager maintains conflict of interest
policies to avoid and manage any conflicts of interest
that may arise between themselves and the Group. The
Investment Manager has established a clear and robust
framework to ensure that any conflicts of interest are
appropriately managed.
2022 Development Points
Progress made
To put in place a shareholder engagement programme for
the financial year ending 31 December 2022 and coordinate
further opportunities for the Board to engage with its
shareholders directly and proactively.
A shareholder engagement programme was developed
during the year and comprehensive shareholder engagement
was undertaken.
To dedicate more time to considering and refreshing
the Company’s strategy, in particular taking into account
developments in the external environment.
Dedicated strategy days were held on 7 and 8 February
2023, with a focus on Company and Group Strategy.
To dedicate more time to enhance the professional
development of the Directors to continuously improve
knowledge and skills.
The Directors undertook training during the year including on
Takeover Defence and ESG.
To re-examine information flow and timing to allow for
greater scrutiny.
Where possible, earlier drafts of documentation and
information have been provided, and monthly meetings
have been scheduled to allow for a more orderly flow
of information. Regularly consider how to improve
communications further.
To regularly review Director remuneration to ensure that it
is set at a level to retain high calibre Directors with the skills
and experience necessary for their role.
During the year, Directors’ remuneration was considered with
reference to a remuneraton benchmarking analysis.
The progress the Board has made against its 2022 development points is set out below.
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\ PROFESSIONAL DEVELOPMENT
The Directors received a comprehensive induction
programme on joining the Board that covered
the Group’s investment activities, the role and
responsibilities of a Director and guidance on
corporate governance and the applicable regulatory
and legislative landscape. An induction process was
undertaken for Phil Jordan and Aaron Le Cornu during
the year.
The Directors’ training and development will ordinarily
be considered as part of the annual Board performance
evaluation and, in any event, the Chair regularly reviews
and discusses any development needs with each
Director. Each Director is aware that they should take
responsibility for their own individual development
needs and take the necessary steps to ensure they are
fully informed of regulatory and business developments.
During the period, the Directors received periodic
guidance on regulatory and compliance changes at
quarterly Board meetings.
\ SHAREHOLDER ENGAGEMENT
The Board seeks to attract long-term investors in
the Company and acknowledges the importance
of building and maintaining strong relationships to
achieve this. The Board and the Investment Manager
regularly discuss, amongst other things, the views of
the Company’s shareholders. The Company’s Corporate
Broker also speaks to shareholders regularly and ensures
shareholder views are clearly communicated to the
Board. The Board take responsibility for, and have a
direct involvement in, the content of communications
regarding major corporate matters.
Since the departure of Investment Manager personnel
in November 2022, and following the Trading Update in
January 2023, the Chair, with other Directors and/or the
Investment Manager as appropriate, have met with a
number of shareholders to understand their views; which
have been fed back to the Board.
The Company will be hosting a Capital Markets Day on
Monday 20 March. Further details of the event can be
found in the announcement released on 13 February
2023.
The Company’s next Annual General Meeting will
be held on 18 May 2023, at which shareholders
are encouraged to attend and vote, along with any
other shareholder meetings, so they can discuss
governance and strategy and the Board can enhance
its understanding of shareholder views. The Board
will attend the Company’s shareholder meetings to
answer any shareholder questions and the Chair will
make himself available, as necessary, outside of these
meetings to speak to shareholders.
The Board is committed to providing investors with
regular announcements of significant events affecting
the Group.
In addition, the Board will also seek to communicate
with shareholders regularly through the following:
annual and interim accounts; quarterly factsheets,
investor presentations and capital markets day.
The Board welcomes feedback from all shareholders
because understanding the views of its shareholders is
a fundamental principle of good corporate governance.
Strong engagement with shareholders and stakeholders
is vital to achieving this.
All investor documentation is available to download
from the Company’s website
\ WHISTLEBLOWING
The Board has considered the AIC Code
recommendations in respect of arrangements by which
staff of the Investment Manager or Administrator
may, in confidence, raise concerns within their
organisations about possible improprieties in matters
of financial reporting or other matters. It has concluded
that adequate arrangements are in place for the
proportionate and independent investigation of such
matters and, where necessary, for appropriate follow-up
action to be taken within their organisations.
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Audit
Committee
Report
The following pages set out the Audit Committee’s report on
how it has discharged its duties in accordance with the AIC
Code and its activities in respect of the period ended
31 December 2022.
The Audit Committee has been in operation throughout the
period and operates within clearly defined terms of reference.
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\ RESPONSIBILITIES
The Audit Committee has the primary responsibility for
reviewing the financial statements and the accounting
principles and practices underlying them, liaising with
the external auditors and reviewing the effectiveness of
internal controls.
The main role of the Audit Committee is to:
•
monitor the integrity of the financial statements
of the Company and any formal announcements
relating to the financial performance and reviewing
significant financial reporting judgements contained
in them;
•
provide formal and transparent arrangements for
considering how to apply the financial reporting and
internal control principles set out in the AIC Code
and to maintain an appropriate relationship with the
external auditors;
•
review the investment valuations and underlying
assumptions and provide advice to the Board;
•
provide advice to the Board on whether the annual
report and accounts, taken as a whole, is fair,
balanced and understandable and provides the
information necessary for shareholders to assess the
Group’s position and performance, business model
and strategy;
•
monitor the integrity of the financial statements
of the Company and any formal announcements
relating to the financial performance and reviewing
significant financial reporting judgements contained
in them;
•
review the internal financial controls and the internal
control and risk management systems of the
Company;
•
review the adequacy of the Company’s
arrangements as they relate to compliance,
whistleblowing and fraud;
•
make recommendations to the Board to put to the
shareholders for their approval in general meeting
in relation to the appointment, re-appointment and
removal of the external auditor and to approve
the remuneration and terms of engagement of the
external auditor;
•
review and monitor the external auditor’s
independence and objectivity and the effectiveness
of the audit process, taking into consideration
relevant UK professional and regulatory
requirements;
•
develop and implement policy on the engagement
of the external auditor to supply non-audit services,
taking into account relevant ethical guidance
regarding the provision of non-audit services by the
external audit firm;
•
report to the Board on significant issues relating
to the financial statements and how they were
addressed; its assessment of the effectiveness of the
audit process; any key matters raised by the external
auditor and any other issues on which the Board has
requested the Committee’s opinion;
•
consider the need for the Company to establish an
internal audit function at Company level; and
•
report to the Board on how it has discharged its
responsibilities.
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\ COMMITTEE MEMBERSHIP
The Audit Committee comprises the Chair of the
Committee Keith Mansfield, Lisa Harrington and Aaron
Le Cornu.
The Board is satisfied that at least one member of the
Audit Committee has recent and relevant financial
experience. Keith Mansfield is a Chartered Accountant
by background and brings extensive accountancy
experience, having worked at PricewaterhouseCoopers
LLP (“PwC”) for over 30 years, during which time he
served as Chair of PwC in London responsible for
assurance, tax and advisory services.
Furthermore,
Aaron Le Cornu has a financial background, having
qualified as a Chartered Accountant with Arthur
Andersen, worked for HSBC for over ten years and
previously held Chief Financial Officers positions. The
Board is also satisfied that the Committee as a whole
has competence relevant to the sector in which the
Group operates.
\ MEETING ATTENDANCE
The Committee met three times in the financial year,
and the meetings were attended by each member as
follows:
Director
Attendance
K
eith Mansfield
3/3
Lisa Harrington
3/3
Monique O’Keefe*
1/1
Aaron Le Cornu**
2/2
* Monique O’Keefe resigned as Non-Executive Director on
23 May 2022
** Aaron Le Cornu was appointed as Non-Executive Director and
member of the Audit Committee with effect from 1 April 2022
\ ACTIVITIES
The Audit Committee meets at least three times a year
to consider the annual report, interim report, any other
formal financial performance announcements, and
any other matters as specified under the Committee’s
terms of reference and reports to the Board on how it
discharged its responsibilities.
During the period, amongst other matters, the
Committee reviewed and recommended to the Board
for approval, the interim report for the period ended
30 June 2022, reviewed the non-audit services policy,
reviewed internal control reports from key service
providers, and met with PricewaterhouseCoopers LLP
(PwC), the external auditors, to discuss and agree audit
plans.
\ PERFORMANCE EVALUATION
Refer to the above Corporate Governance section on
pages 146 to 147 detailing how the review of the audit
committee’s performance was conducted, and the
results of such an evaluation.
\ INTERNAL CONTROL AND RISK
MANAGEMENT
The Company has put in place a process for identifying,
evaluating and managing the principal and emerging
risks faced by the Company. The Board has satisfied
itself that the procedures for identifying the information
needed to monitor the business and manage risks
are robust. The adequacy and effectiveness of the
Company’s internal control and risk management
systems, and the implementation of such controls
are monitored by the Audit Committee and the Risk
Committee. The Company has the following internal
controls.
•
Internal control reports of the Investment Manager,
Administrator and Depository are reviewed by the
Audit Committee;
•
There is an agreed and defined Investment Policy,
with specified exposure limits; and
•
Compliance reporting is reviewed at each Board
meeting.
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\ INTERNAL AUDIT
Company
The Audit Committee has considered the
appropriateness of establishing an internal audit
function at the Company level and, having regard to the
size and nature of the Company and have continued
to conclude that the function is not necessary at a
Company level at this time. The Audit Committee will
continue to review on an annual basis the need for this
function and make appropriate recommendations to the
Board.
Investee Companies
The Audit Committee have undertaken a review of
the Company’s Investee Companies to establish if
an internal audit function at Investee Company level
would be appropriate to provide assurance that
risk management, governance and internal control
processes are operating effectively at an operating
investment level. Following consideration, the Audit
Committee have concluded that an internal audit of the
Investee Companies should be undertaken, and a plan
has been agreed to initiate this process.
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\ SIGNIFICANT AREAS OF
FOCUS
The following details the key areas of focus by the Audit
Committee in relation to the financial statements for
the period, which were discussed and debated with the
Investment Manager and PwC.
SIGNIFICANT ISSUES
CONSIDERED BY THE
AUDIT COMMITTEE
Application of Investment Entity Accounting
Standard
Under IFRS 10, investment entities are required
to hold subsidiaries at Fair Value through the
Statement of Comprehensive Income rather
than consolidate them on a line-by-line basis.
There are three key conditions to be met by
the Company for it to meet the definition of an
investment entity. Further detail on this can be
found in Note 2(b) to the Financial Statements.
The Directors have reviewed the criteria
and satisfied that the Company meets the
criteria of an Investment Entity under IFRS
10. As explained in Note 2(b) to the financial
statements, the Directors are of the opinion
that the Company meets the requirements
of an “Investment Entity”. Assessing whether
the Company and certain subsidiaries met the
criteria of Investment Entities, in accordance
with the definition set out in IFRS 10 was seen
as a key judgement.
The Audit Committee debated the
appropriateness of the current application of
the standard with the Investment Manager and
independent auditor. The Audit Committee
concluded that applying the investment entity
exemption to IFRS 10 will improve stakeholders’
understanding of the financial performance and
position of the Company.
Valuation of Investments
The Fair Value for an investment is derived from
the present value of the investments’ expected
future cash flows, using reasonable assumptions
and forecasts, and an appropriate discount rate.
During the period, after consultation with its
advisers, the Company decided to make a
slight change to its valuation methodology.
Its investments are still being valued using a
discounted cash flow approach, but they are
now being valued on a Free Cash Flow to
Equity (“FCFE”) basis rather than Free Cash
Flow to the Firm (“FCFF”). A cost of equity
has been used as the discount rate, replacing
a cost of capital. Going forward, the Company
will continue to value its investments on a FCFE
basis, incorporating the Investee Companies’
debt structuring ambitions when confirmed by
the respective Boards of those companies.
The main Level 3 inputs used by the Group are
derived and evaluated as follows:
•
The Investment Manager uses its judgment
in arriving at the appropriate cost of equity
to use a discount rate that reflects the
current market assessment. This considers
specific risks associated with the Company,
which may be differentiated by the phase
of the investment’s life (e.g. in construction
or in operation) and evolve over time. The
applied cost of equity range from 9.1% to
15.2%.
•
Expected cash inflows are estimated
based on terms of the contracts and the
Company’s knowledge of the business and
how the current economic environment is
likely to impact it, taking growth rate and
inflation assumptions into consideration
.
•
Risk free rate of 3.9%, reflecting the long-
term rate for the US economy, with the US
dollar being the base currency for Aqua
Comms and Verne Global Iceland.
•
Pre-tax cost of debt between 8.2% and
8.5%.
The Audit Committee and the Independent
Valuation Adviser have considered the value
of investments and discount rates applied
and consider that the valuations derived are
appropriate.
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\ EXTERNAL AUDITORS,
AUDIT FEES AND NON-AUDIT
SERVICES
PwC were appointed as the external auditors of the
Company on 5 March 2021 with Kevin Rollo as the audit
partner. It is the Audit Committee’s responsibility to
monitor the performance, objectivity, and independence
of the external auditors and this is assessed by the Audit
Committee each year. In evaluating PwC’s performance,
the Committee examines the robustness of the audit
process, independence, objectivity and the quality of
delivery.
On an annual basis the Audit Committee will review
the external auditors’ performance, objectivity, and
independence.
The Audit Committee has approved a non-audit
services policy that determines the services that PwC
can provide and the maximum fee that may be raised
for non-audit services in comparison to the statutory
audit fee. The Audit Committee reviewed the policy
during the financial year and will continue to monitor
the policy on a regular basis to ensure that the external
auditor remains objective and independent. The policy
will also be reviewed annually to ensure it continues to
be in line with best practice. Any proposed changes to
the policy are recommended to the Board for approval.
Going concern and viability statement
The Board is required to consider and report on the longer-term viability of the business as
well as assess the appropriateness of applying the going concern assumption. More detail
can be found on pages 130 to 132.
The Audit Committee has considered and had in-depth discussion regarding the solvency
and liquidity position of the Company from the financial statements and the information
provided by the Investment Manager on the forecasted cashflow for the Company and
expected pipeline.
As a result, the Audit Committee consider that it is appropriate to
adopt the going concern basis of preparation of the financial statements.
Any arrangement with the auditor that includes
contingent fee arrangements is not permitted. In
addition, the total fees for non-audit services provided
by the auditor to the Group shall be limited to no more
than 70% of the average of the statutory audit fee for
the Company, of its controlled undertakings and of the
financial statements paid to the auditor in the last three
consecutive financial years. Total average fees paid to
PwC during the last two periods totalled £389,910 of
which £111,270 was received for non-audit services,
being 29% of the audit services fee. The nature of the
non-audit services included the half year review and
ESG assurance service. PwC were selected to undertake
these services due to the efficiencies attained from
their in-depth knowledge of the Company’s financial
information and business models.
Keith Mansfield
Audit Committee Chair
8 March 2023
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Management
Engagement
Committee
Report
\ RESPONSIBILITIES
The main function of the Management Engagement
Committee is to keep under review the performance
of the Investment Manager (which is the Company’s
AIFM) and to make recommendations on any
proposed amendment to the Investment Management
Agreement.
The Committee also regularly reviews the composition
of the key executives performing the services on behalf
of the Investment Manager.
The Committee also monitors and evaluates the
performance of other key service providers to the
Company.
The Management Engagement Committee has been in
operation throughout the period and operates within
clearly defined terms of reference.
\ COMMITTEE MEMBERSHIP
The Management Engagement Committee comprises
Aaron Le Cornu who Chairs the Committee, Keith
Mansfield and Lisa Harrington.
\ MEETING ATTENDANCE
The Committee met twice during the financial year,
and the meetings were attended by each member as
follows:
Director
Attendance
Aaron Le Cornu*
1/1
Keith Mansfield
2/2
Lisa Harrington
2/2
* Aaron Le Cornu was appointed as Non-Executive Director with effect from 1
April 2022
\ ACTIVITIES
During the year, the Committee monitored and
reviewed the performance of the Investment Manager
against the Company’s strategy and general market
conditions, and considered the Investment Manager’s
performance against the Investment Management
Agreement. The Committee also reviewed the
performance of the key service providers to the
Company to ensure that the services provided are in
accordance with each supplier’s terms of engagement,
are high quality and represent fair value for money.
The Management Engagement Committee recommend
the appointment of new service providers to the
Board. These appointments follow a tender process
in which the experience and capabilities of relevant
providers were assessed against the requirements of
the Company, taking into account the results of the
annual service provider evaluation. Since 31 December
2021, following recommendation by the Management
Engagement Committee, the Board has appointed:
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The annual fee paid to the Investment Manager under
the Investment Management Agreement for the period
ended 31 December 2022 was £2.2 million. There is no
performance fee payable to the Investment Manager.
The Investment Management Agreement may be
terminated by the Investment Manager or the Company
by not less than 12 months’ written notice, with such
notice not being served before the fourth anniversary of
the date of Initial Admission, being 31 March 2025.
On 16 March 2022, the Board approved a side letter to
the Investment Management Agreement that clarified
certain provisions in connection with the calculation
of the Annual Management Fee, principally to remove
the potential for double counting of deployed capital.
The amendments do not result in any benefit to the
Investment Manager and were considered appropriate
to remove ambiguity from the Investment Management
Agreement.
\ CONTINUING APPOINTMENT
OF THE INVESTMENT MANAGER
Following the Committee’s review of the performance of
the Investment Manager during the year, the Committee
recommended to the Board, and the Board agreed, to
the continuing appointment of the Investment Manager.
The Committee will continue to review the performance
of the Investment Manager and the other key service
providers, to ensure that their appointment remains in
the best interests of shareholders as a whole.
Aaron Le Cornu
Management Engagement Committee Chair
•
FTI Consulting as Communications Adviser to the
Company;
•
Deloitte UK LLP as Tax Adviser to the Company; and
•
INDOS Financial Limited as Depositary to the
Company.
Where appropriate, feedback was provided to the
Investment Manager and key service providers to
enhance the level of service provided by the Company.
\ PERFORMANCE EVALUATION
Refer to the above Corporate Governance section
on pages 146 to 147 detailing how the review of the
Management Engagement Committee’s performance
was conducted, and the results of such an evaluation.
\ MANAGEMENT
ARRANGEMENTS
The Company operates an externally managed
alternative investment fund for the purposes of the
AIFMD. In its role as AIFM, the Investment Manager
is responsible for the portfolio management and risk
management of the Company pursuant to the AIFMD
subject to the overall control and supervision of the
Board.
Under the Investment Management Agreement, the
Investment Manager is entitled to receive an annual
management fee on the following basis:
Adjusted Net
asset value
Annual
Management Fee
(percentage of Net
Asset Value)
On such part of the Adjusted
Net Asset Value that is up to
and including GBP 500 million
1.0%
On such part of the Adjusted
Net Asset Value that is above
GBP 500million and up to and
including GBP 1 billion
0.9%
On such part of the Adjusted
Net Asset Value that exceeds
GBP 1 billion
0.8%
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Nomination
Committee
Report
\ RESPONSIBILITIES
The Nomination Committee’s main function is to
evaluate the performance of the Board, ensure the
Board composition, skills and experience are optimal,
lead the process for appointments, ensure plans are in
place for orderly succession to the Board, oversee the
development of a diverse pipeline for succession and
any other matters as specified under the Committee’s
terms of reference. This includes ensuring that any
appointments and succession plans are based on merit
and objective criteria, and, within this context, promotes
diversity of gender, social and ethnic backgrounds,
cognitive and personal strengths.
The Nomination Committee has been in operation
throughout the year and operates within clearly defined
terms of reference.
\ COMMITTEE MEMBERSHIP
The Nomination Committee comprises Lisa Harrington
Chair of the Committee, Phil Jordan and Charlotte
Valeur.
The Nomination Committee met twice during the year,
both meetings were attended by all members.
Director
Attendance
Lisa Harrington
2/2
Charlotte Valeur
2/2
Phil Jordan
2/2
\ ACTIVITIES
The Nomination Committee met twice in the year
during which it discussed matters including but
not limited to: tenure policy, diversity policy, board
composition, board skills, board experience, succession
planning, time commitments, and the Listing Rule
requirements on Board diversity.
\ APPOINTMENT AND
REPLACEMENT OF DIRECTORS
As a result of having been offered the Chief Executive
Officer role at a new US based digital infrastructure
operating company, Jack Waters stepped down from
the Board at the Company’s AGM on 23 May 2022.
Similarly, Monique O’Keefe also did not stand for re-
election at the Company’s AGM on 23 May 2022, to
pursue a senior executive role limiting her ability to hold
non-executive positions.
On 1 April 2022, Aaron Le Cornu was appointed as
Non-Executive Director and on 23 May 2022 Phil Jordan
replaced Jack Waters as Chair of the Company.
Details of the succession planning and recruitment
process was set out on pages 97-98 of the Annual
Report for the year ended 31 December 2021.
\ PERFORMANCE EVALUATION
Refer to the above Corporate Governance section
on pages 146 to 147 detailing how the review of the
Nomination Committee’s performance was conducted,
and the results of such an evaluation.
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\ RE-ELECTION OF DIRECTORS
The Board considers that the performance of each
Director continues to be effective and demonstrates
the commitment required to continue in their present
roles, and that each Director’s contribution continues to
be important to the Company’s long-term sustainable
success. This consideration is based on, amongst other
things, the business skills and industry experience
of each of the Directors (refer to the biographical
details of each Director as set out below), as well as
their knowledge and understanding of the Company’s
business model.
The Board has also considered the other contributions
which individual Directors may make to the work of the
Board, with a view to ensuring that:
i.
the Board maintains a diverse balance of skills,
knowledge, backgrounds and capabilities leading to
effective decision-making;
ii.
each Director is able to commit the appropriate
time necessary to fulfilling their roles; and
iii. each Director provides constructive challenge,
strategic guidance, offers specialist advice and
holds third party service providers to account.
All Directors will submit themselves for re-election on an
annual basis.
\ TENURE POLICY AND
SUCCESSION POLICY
In accordance with best practice, the Board considers
that the length of time each Director, including the
Chair, serves on the Board should be between six and
nine years. To facilitate effective succession planning,
this period can be extended for a limited time if
necessary.
Continuity, self-examination and ability to do the job
are the relevant criteria on which the Board assesses a
Director’s independence. Length of service of current
Directors, succession planning and independence will
be reviewed each year as part of the Board evaluation
process.
\ DIVERSITY
Diversity and Inclusion Policy
The Board has established and maintains a formal
written diversity policy.
The Board recognises the benefits of all types of
diversity and supports the recommendations of the
Hampton-Alexander Review and the Parker Review.
All Board appointments will be made on merit, and
promote diversity of all kinds, including: gender,
social and ethnic backgrounds, cognitive and personal
strengths. This will ensure that any such appointment
will develop and enhance the operation of the Board to
best serve the Company’s strategy.
The importance of diversity in the boardroom, which
introduces different perspectives to the Board debate, is
a key focus of the Nomination Committee and diversity
criteria is taken into active considered when appointing
a new individual to the Board. When undertaking
the appointment of a new Director, the Nomination
Committee will generally instruct an external search
consultancy to undertake an open and transparent
process that includes potential candidates from a variety
of backgrounds.
Members of the Board should collectively possess a
diverse range of skills, expertise, industry and business
knowledge. The Board will continue to monitor diversity,
taking such steps as it considers appropriate to maintain
its position as a meritocratic and diverse business.
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26.
Senior positions include Chair and Senior Independent Director
FCA Listing Rule diversity targets
The Board is committed to maintaining that the Board, as a whole, will have at least 40% representation of either
gender. At the period end, the Board comprised of the Chair and four Non-Executive Directors; three male and
two female.
As required by the Listing Rules, a senior Board position should be held by a woman, and with effect
from 13 February 2023 Lisa Harrington was appointed the Senior Independent Director therefore fulfilling this
requirement.
Each of the Board’s Committees, with the exception of the Management Engagement Committee, has three
members and the Board is committed to maintaining that there is at least one female member on each of its
Committees.
FCA Listing Rule requirements
The Company is not required to report against the FCA’s Listing Rule requirements until the year ending
31 December 2023, however due to the Company’s commitment to transparency and increasing diversity, the
Company has decided to voluntarily report. The following table sets out the gender and ethnic diversity of the
Board as at 31 December 2022 in accordance with the FCA’s Listing Rules, the disclosure of which in this report
having been approved by each of the Directors:
Gender Diversity
Number of
Board members
Percentage of the
Board
Number of senior
positions on the Board
26
Men
3
60
1
Women
2
40
1
Not specified / prefer not to say
-
-
-
Ethnic Diversity
White British or other White
(including minority white groups)
5
100
2
Mixed/Multiple Ethnic Groups
-
-
-
Asian/Asian British
-
-
-
Black/African/Caribbean/Black British
-
-
-
Other ethnic group, including Arab
-
-
-
Not specified/prefer not to say
-
-
-
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The Company has reported against the Listing Rules on
diversity and has complied with the targets or otherwise
explained non-compliance below.
Requirement
Explanation
A minimum
of one board
member
is from a
minority ethnic
background
Given the Company’s recent
admission to the FTSE 250,
the Company is committed to
progressing towards meeting the
recommended targets as soon as
possible. A recruitment process,
with the assistance of an external
search consultancy, is in progress
for the recruitment of a sixth Board
member; the search is actively
encouraging a diverse pool of
candidates. For further information
on this process, please see below.
During the period, the Board engaged with Board
Apprentice, a not-for-profit organisation, which aims
to increase diversity on boards globally. Effective
9 November 2022 the Board appointed a board
apprentice, Maana Ruia, with the aim for her to gain
first-hand experience, through observation, of the
working and dynamics of boards. The objective in taking
a board apprentice is to grow and widen the pool of
board-ready individuals.
As an investment company with solely independent,
Non-Executive Directors, the Group does not have a
Chief Executive or a Chief Financial Officer and has
no employees. Accordingly, no disclosures regarding
executive management positions have been included.
\ EXTERNAL SEARCH
CONSULTANCY
In identifying suitable candidates for an appointment
to the Board, the Nomination Committee will use
open advertising or the services of external advisers to
facilitate the search.
Alma Mater Resourcing Ltd was engaged for the
recruitment of the Chair role, due to their extensive
experience in the Digital Infrastructure industry, with
Phil Jordan appointed during the year. Maven Partners
were appointed for the appointment of a Jersey-based
Non-Executive Director due to their extensive network
of Jersey candidates with Aaron Le Cornu appointed
during the year.*
An external search consultancy, Green Park*, is being
used for the recruitment of a sixth Board Director
the search is actively encouraging a diverse pool of
candidates.
*
The Board confirms that there is no connection between the Company or any
individual Directors and the external search consultancies used for Director
appointments during the period, or to facilitate the candidate search for the
role of Non-Executive Director.
\ COMPANY’S SUCCESSION
PLANS
The Nomination Committee will give full consideration
to the succession planning of the Board as part of the
Board’s formal annual evaluation to ensure progressive
refreshing of the Board, taking into account the
challenges and opportunities facing the Board and the
balance of skills and expertise that are required in the
future.
Lisa Harrington
Nomination Committee Chair
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\ KEY OBJECTIVES
The Risk Committee has been established to assist
the Board in its oversight of risk through ensuring
the Company maintains a high standard of risk
identification, monitoring and management to minimise
investment risks and any other risks not covered by the
Audit Committee.
\ RESPONSIBILITIES
The Risk Committee’s key responsibilities are:
•
ensuring the Company’s compliance with its
investment objectives, policies, restrictions and
borrowing limits;
•
oversee and advise the Board on the current risk
exposures of the Company and future risk strategy,
including identifying and monitoring the key risks
that the Company faces;
•
establish the Company’s risk appetite, review
performance against risk appetite and monitor key
trends and concentrations;
•
review the Company’s procedures for managing and
mitigating principal risks; and
•
reviewing the Company’s systems and controls for
the prevention and detection of fraud, bribery, tax
evasion and anti-money laundering and any other
matters as specified under the Committee’s terms of
reference.
The Risk Committee has been in operation throughout
the period and operates within clearly defined terms of
reference.
Risk
Committee
Report
\
COMMITTEE MEMBERSHIP
The Risk Committee comprises Chair of the Committee
Charlotte Valeur, Aaron Le Cornu and Phil Jordan.
\ MEETING ATTENDANCE
The Committee met twice in the financial year, and the
meetings were attended by each member as follows:
Director
Attendance
Charlotte Valeur
2/2
Jack Waters*
1/1
Monique O’Keefe*
1/1
Phil Jordan**
1/1
Aaron Le Cornu**
1/1
*
Jack Waters resigned as Chair and Non-Executive Director and Monique
O’Keefe resigned as Non-Executive Director on 23 May 2022.
**
Phil Jordan was appointed as Chair and Non-Executive Director with effect
from 23 May 2022, immediately following the AGM, and Aaron Le Cornu
was appointed as Non-Executive Director with effect from 1 April 2022.
\ PERFORMANCE EVALUATION
Refer to the above Corporate Governance section on
pages 146 to 147 detailing how the review of the Risk
Committee’s performance was conducted, and the
results of such an evaluation.
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\ INTERNAL CONTROL AND RISK
MANAGEMENT
The Company has put in place an ongoing process for
identifying, evaluating and managing the principal and
emerging risks faced by the Company. The adequacy
and effectiveness of the Company’s internal control and
risk management systems, and the implementation of
such controls are monitored by the Audit Committee
and the Risk Committee. The Company has the
following internal controls, which are monitored by the
Risk Committee.
•
The risk appetite was agreed by the Risk
Committee, which is designed to supplement the
Investment Objectives, Policy and restrictions;
•
A risk register identifying risks and controls to
mitigate their potential impact/likelihood was
maintained by the Investment Manager and
reviewed by the Risk Committee; and
•
On a bi-annual basis the Risk Committee is provided
with an internal control report of its key service
providers, including the Investment Manager to
review their effectiveness.
\ ACTIVITIES
During the period the Risk Committee carried out the
following activities:
•
Received reports from the Investment Manager
on how the risk management process was being
undertaken;
•
Reviewed the Company’s risk appetite for risks
including regulatory risk, concentration risk,
reputational risk and key personnel risk;
•
Reviewed the Company’s risk register; and
•
Assessed the Company’s principal risks, which are
outlined on pages 124 to 128.
Charlotte Valeur
Risk Committee Chair
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\ ANNUAL STATEMENT
Dear shareholder,
I am pleased to present the Directors’ Remuneration
Report on behalf of the Board for the year ended
31 December 2022. It is set out in two sections in line
with legislative reporting regulations:
1.
Directors’ Remuneration Policy – This sets out our
Remuneration Policy for directors of the Company,
which was approved by shareholders at the
Company’s 2022 AGM.
2.
Annual Report on Directors’ Remuneration – This
sets out how our directors were paid for the period
ended 31 December 2022 and how we intend to
apply our Policy for the year ending 31 December
2023. There will be an advisory shareholder vote
on the Directors’ Remuneration Report at our 2023
AGM.
Prior to our IPO in March 2021, the Company
introduced a remuneration framework to ensure that
remuneration was aligned with best market practice
whilst attracting and securing the right non-executive
directors to deliver our investment objectives. The
scale and structure of the Directors’ remuneration was
determined by the Company in consultation with the
sponsor and other advisers having been benchmarked
against companies of a similar size in the sector and
having regard to the time commitment and expected
contribution to the role.
The Group does not have any executive directors or
employees, and, as a result, operates a simple and
transparent remuneration policy with no variable
element, that reflects the Non-Executive Directors’
duties, responsibilities and time spent.
There have been no major decisions or changes related
to the Directors’ remuneration during the period.
\ DISCRETION EXERCISED
UNDER THE DIRECTORS’
REMUNERATION POLICY
At the date of this report, no discretion is intended to
be exercised under the Directors’ Remuneration Policy.
We value engagement with our shareholders and for the
constructive feedback we receive and look forward to
your support at the forthcoming AGM.
Phil Jordan
Chair
8 March 2023
Directors’
Remuneration
Report
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\ APPROVAL OF REMUNERATION
POLICY
Our Directors’ Remuneration Policy was last approved
by shareholders at the Annual General Meeting of the
Group held on 23 May 2022 and became effective
from the conclusion of that meeting. As consistent with
section 439A of the Companies Act 2006, with which
the Company voluntarily complies, the provisions of the
policy, will apply until they are next put to shareholders
for renewal of that approval, which must be at intervals
of not more than three years, or if the Remuneration
Policy is varied, in which event shareholder approval
for the new Remuneration Policy will be sought. The
approved Remuneration Policy can be found in the
2021 Annual Report on the Company’s website, and is
also set out below.
The Remuneration Policy has been prepared in
accordance with the Schedule 8 of The Large and
Medium-sized Companies and Group’s (Accounts and
Reports) Regulations 2008. The policy applies to the
Non-Executive directors; the Company has no executive
directors or employees. There are no planned changes
to the policy in the upcoming financial year.
\ REMUNERATION POLICY
OVERVIEW
The Company’s objective is to have a simple and
transparent remuneration structure, aligned with the
strategy. The Company aims to provide remuneration
packages with no variable element which will retain
non-executive directors with the skills and experience
necessary to maximise shareholder value on a long-term
basis. The remuneration packages for Non-Executive
Directors will be set with reference to the remuneration
packages of comparable businesses.
The Board will assess the appropriateness of the
Remuneration Policy on an annual basis and shareholder
approval will be sought in the event of any changes
being proposed.
Directors’
Remuneration
Policy
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Company Overview
Strategic Report
Financial Statements
Governance
Information
Component
How it Operates
Maximum Fee
Link to Strategy
Annual fee
Each Director received a
basic fee which is paid on a
quarterly basis.
The Audit Committee Chair
and Risk Committee Chair is
entitled to an additional fee
over and above their normal
Director fee, reflecting
their additional duties and
responsibilities in those
roles.
The total aggregate fees
that can be paid to the
Directors is as set out in
the Company’s articles of
association.
The level of the annual fee
has been set to attract and
retain high calibre Directors
with the skills and experience
necessary for the role. The
fee has been benchmarked
against companies of a
similar size.
Additional fees
Where a Director performs
services, which in the opinion
of the Board, are outside the
ordinary duties of a Director,
they will be entitled to an
additional fee.
A daily rate of £1,500
for attending additional
meetings or time spent on
the performance of other
duties which result in a
Director spending more
than five days a month on
work for the Company. Any
such additional fees will be
subject to discussion and
approval by the Board.
The additional fee for
services outside the scope
of ordinary duties offers
flexibility
for a Director
to be awarded additional
remuneration to adequately
compensate a Director
where this is considered
appropriate for the
effective functioning of,
or in furtherance of, the
Company’s aims.
Other benefits
The Directors shall be
entitled to be repaid
expenses.
All reasonable travelling,
hotel and other expenses
properly incurred in the
performance of their duties
as Director.
In line with market practice,
the Company will reimburse
the Directors for expenses
to ensure that they are able
to carry out their duties
effectively.
Policy Table
The Directors are entitled only to the fees as set out in the table below from the date of their appointment. No
element of Directors’ remuneration is subject to performance factors.
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\ SERVICE CONTRACTS
The Directors are engaged under letters of appointment
and do not have service contracts with the Company.
\ DIRECTORS’ TERM OF OFFICE
Under the terms of the Directors’ letters of appointment,
each directorship is terminable on three months’
written notice by either the Director or the Company.
Each Director will be subject to annual re-election by
shareholders at the Company’s Annual General Meeting
in each financial year.
\ POLICY ON PAYMENT FOR
LOSS OF OFFICE
Upon termination, a Director shall only be entitled to
accrued fees as at the date of termination together with
reimbursement of any expenses properly incurred to
that date.
\ CONSIDERATION OF
SHAREHOLDER VIEWS
The Company is committed to establishing ongoing
shareholder dialogue and takes an active interest
in voting outcomes. Where there are substantial
votes against resolutions in relation to Directors’
remuneration, the Company will seek the reasons for
any such vote and will detail any resulting actions in the
Directors’ Remuneration Report.
\ ANNUAL REPORT ON
DIRECTORS’ REMUNERATION
Consideration of Remuneration Matters
The Board does not consider it necessary to establish
a separate remuneration committee as it has no
executive Directors. The Board as a whole considers the
remuneration of the Directors.
Directors’ Fees
The Directors are each paid an annual fee of £40,000
other than the Chair of the Audit Committee and Chair
of the Risk Committee who is entitled to an additional
£5,000 and the Chair of the Company who is entitled
to receive an annual fee of £75,000. The annual fee for
Jack Waters, the previous Chair of the Company, was
£50,000.
Directors are entitled to recover all reasonable expenses
properly incurred in connection with performing their
duties as a Director.
Per the terms of the Director appointment letter,
Directors are entitled to receive a daily rate of £1,500
for attending additional meetings or time spent on
the performance of other duties which result in them
spending more than five days a month on work for the
Company. During the period, no additional fees were
incurred.
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2022
2021
Director
Total fixed
remuneration
(£)
Total
expenses
(£)
Total
(£)
Total fixed
remuneration
(£)
Total
expenses
(£)
Total
(£)
Annual change
in Directors’
Fees (excluding
expenses)
(%)*
Phil Jordan
(appointed 23 May
2022)
45,769
1,467
47,236
0
0
0
n/a
Keith Mansfield
45,000
1,481
59,981
37,039
75
37,114
25.24%
Lisa Harrington
40,000**
54
46,054**
32,923
–
32,923
39.88%
Charlotte Valeur
43,051
1,432
44,483
32,923
–
32,923
35.11%
Aaron Le Cornu
(appointed 1 April
2022)
30,000
1,549
31,549
0
–
0
n/a
Jack Waters (Chair)
(resigned 23 May
2022)
34,957
0
34,957
45,269
3,481
48,750
n/a
Monique O’Keefe
(resigned 23 May
2022)
15,795
0
15,795
32,923
–
32,923
n/a
Total
260,572
5,983
266,555
181,077
3,556
184,633
* The percentage change from prior year takes into account that the Directors did not receive a full year’s remuneration. Their annual fee year-
on-year for the individual Directors has not changed.
** An additional fee of £6,000 was paid to Lisa Harrington in recognition of the significant time spent in the year in relation to succession
planning for the replacement of Jack Waters and Monique O’Keefe. The extraordinary additional work in managing two current recruitment
processes were outside of the ordinary duties of a Director and therefore Lisa Harrington was entitled to an additional fee in line with the
Company’s Remuneration Policy. The Company does not provide bonuses, pension benefits, share options, long-term incentive schemes or
other benefits in respect of their services as Non-Executive Directors of the Company.
Single Total Figure (audited information)
The fees paid to Directors in respect of the period ended 31 December 2022 are shown below.
Information required on executive Directors and employees has been omitted because the Company has neither
and therefore it is not relevant.
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Statement of Directors’ Shareholding and Share Interests (Audited table)
Detailed in the table below are details of the Directors’ shareholdings as at 31 December 2022.
The Directors are not required to hold any shares of the Company by way of qualification. A Director who is not a
shareholder of the Company shall nevertheless be entitled to attend and speak at shareholders’ meetings.
At 31 December
2022
At 31 December
2022
At 31 December
2021
At 31 December
2021
Number of
Shares***
% of share
capital
Number of Shares
% of share
capital
Phil Jordan**
73,909
0.009
n/a
n/a
Keith Mansfield
86,429
0.010
58,604
0.0081
Lisa Harrington
38,604
0.004
38,604
0.0053
Aaron Le Cornu**
72,500
0.008
n/a
n/a
Charlotte Valeur
10,000
0.001
10,000
0.0014
Jack Waters*
n/a
n/a
70,000
0.0097
Monique O’Keefe*
n/a
n/a
10,000
0.0014
*Jack Waters and Monique O’Keefe resigned as Directors on 23 May 2022.
**Phil Jordan was appointed as Chair and Non-Executive Director with effect from 23 May 2022, immediately following the AGM, and Aaron Le
Cornu was appointed as Non-Executive Director with effect from 1 April 2022.
***The shareholdings of the current Directors of the Company have not changed since 31 December 2022.
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Total Shareholder Return
As required under regulation, the graph below illustrates the total shareholder return of the Company from
Admission to the end of the financial period. This is mapped against the total shareholder return on a hypothetical
holding over the same period in the FTSE 250 index. This index has been chosen as it is considered to be the most
appropriate benchmark against which to assess the relative performance of the Company as the Company is a
constituent of the FTSE 250, effective 16 December 2022.
Relative Importance of Spend on Pay
The table below shows the total spend on remuneration
compared to the distributions to shareholders by way
of dividends, share buybacks and the management
fees incurred by the Company. As the Group has no
employees the total spend on remuneration comprises
only the Directors’ fees.
31 December
2022
£’000
31 December
2021
£’000
Dividends paid
50,274
17,837
Share buybacks
–
–
Management fee
7,736
2,952
Directors’
emoluments
261
181
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
31/3/2021
30/4/2021
31/5/2021
30/6/2021
31/7/2021
31/8/2021
30/9/2021
31/10/2021
30/11/2021
31/12/2021
31/1/2022
28/2/2022
31/3/2022
30/4/2022
31/5/2022
30/6/2022
31/7/2022
31/8/2022
30/9/2022
31/10/2022
30/11/2022
31/12/2022
D9 - Total Return
FTSE 250 - Total return index
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Consideration of Shareholder Views
The Company is committed to ongoing shareholder
dialogue and takes an active interest in voting
outcomes. Where there are substantial votes against
resolutions in relation to directors’ remuneration,
the Company will seek the reasons for any such vote
and will detail any resulting actions in the Directors’
Remuneration Report.
During the period the Group did not receive any
communications from shareholders specifically
regarding Directors’ pay.
The resolutions to approve the Directors’ Remuneration
Report (excluding the Directors’ Remuneration Policy)
and the Directors’ Remuneration Policy were passed on
a poll at the Annual General Meeting on 23 May 2022.
Votes
for
Votes
against
Votes
withheld
Remuneration
Report
97.58%
2.42%
31,206
Remuneration
Policy
97.58%
2.42%
28,349
On behalf of the Board:
Phil Jordan
Chair
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Directors’
Report
The Directors are pleased to present the Annual Report,
including the Company’s audited financial statements
as at, and for the year ended, 31 December 2022.
The information that fulfils the requirements of the
Corporate Governance statement in accordance with
rule 7.2 of the DTR can be found in this Directors’
Report and in the Governance section on pages 136
to 192 all of which is incorporated into this Directors’
Report by reference.
Details of significant events since the balance sheet
date are contained in Note 17 to the financial
statements.
An indication of likely future developments of the
Company and details of the outlook and pipeline are
included in the Strategic Report. Information about
the use of financial instruments by the Company and
its subsidiaries is given in Note 14 to the financial
statements.
\ PRINCIPAL ACTIVITY
The Company is a close-ended UK investment trust that
invests in Digital Infrastructure assets. The Company is
domiciled in Jersey and is UK tax resident. The Directors
do not anticipate any change in the principal activity of
the Company in the foreseeable future.
During the year, the Company transitioned from the
specialist fund segment to the premium segment of the
Main Market of the London Stock Exchange.
\ DIRECTORS
The names of the Company’s current Directors are set
out in the Board of Directors section on pages 138
to 141 together with their biographical details and
principal external appointments.
The names of of Directors who served from 1 January
2022 to 31 December 2022 are set out on page 144.
\ INVESTMENT MANAGER AND
AIFM
A summary of the principal contents of the
Investment Management Agreement are set out in
the Management Engagement Committee report on
pages page 157.
\ INVESTMENT TRUST STATUS
The Company has been approved as an Investment
Trust Company (“ITC”) under sections 1158 and 1159 of
the Corporation Taxes Act 2010. The Company had to
meet relevant eligibility conditions to obtain approval
as an ITC and must adhere to ongoing requirements
to maintain its ITC status, including, but not limited
to, retaining no more than 15% of its annual revenue
profits. The Company derives the majority of its
returns via capital profits, through the revaluation of its
Investee Companies. As a result, the Company has paid
dividends from its stated capital, which it is entitled to
do under Jersey Companies Law.
During the period, the Company has continued to
conduct its affairs to ensure it complies with these
requirements. The Board continues to monitor
compliance with the ITC conditions.
\ FINANCIAL RESULTS AND
DIVIDENDS
The financial results for the year can be found in the
Company Statement of Comprehensive Income on
page 194. The Company declared the following interim
dividends in respect of the year to 31 December 2022
totalling 6 pence per share, in line with the Company’s
annualised dividend target of 6 pence per share per
annum.
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Information
Relevant period
Dividend per share
(p)
Ex-dividend date
Record date
Payment date
1 January 2022 to
31 March 2022
1.5
1 June 2022
2 June 2022
30 June 2022
1 April 2022 to
30 June 2022
1.5
15 September 2022
16 September 2022
30 September 2022
1 July 2022 to
30 September 2022
1.5
9 December 2022
10 December 2022
23 December 2022
1 October 2022 to
31 December 2022
1.5
16 March 2023
17 March 2023
31 March 2023
\ POWERS OF THE DIRECTORS
The powers given to the Directors are contained within
the current articles of association of the Company (the
“Articles”), are subject to relevant legislation and, in
certain circumstances (including in relation to the issuing
or buying back by the Company of its shares), are
subject to the authority being given to the Directors by
shareholders in general meetings.
The Articles govern the appointment and replacements
of Directors.
\ DIRECTORS’ INDEMNITY
Subject to the provisions of any relevant legislation, the
Company has agreed to indemnify each Director against
all liabilities which any Director may suffer or incur
arising out of or in connection with any claim made, or
proceedings taken against him/her, or any application
made by him/her, on the grounds of his/her negligence,
default, breach of duty or breach of trust in relation to
the Company or any associated Company.
This policy remained in force during the financial
period and also at the date of approval of the financial
statements.
The Company maintains appropriate Directors’ and
Officers’ liability insurance in respect of legal action
against its Directors on an ongoing basis.
\ FINANCIAL RISK
MANAGEMENT
The information relating to the Company’s financial risk
management and policies can be found in Note 19 of
the financial statements.
\ POST-BALANCE SHEET EVENTS
Important events that have occurred since the end of
the financial year can be found in Note 17 of the notes
to the financial statements.
\ AMENDMENT TO THE
ARTICLES
The Articles may only be amended with shareholders’
approval in accordance with the relevant legislation.
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\ SHARE CAPITAL
On 28 January 2022, the Company issued 88,148,880
Ordinary Shares at a price of £1.08 per Share. On
12 July 2022, the Company issued a further 54,545,454
Ordinary Shares at a price of £1.10 per Share.
As at 31 December 2022 the Company had
865,174,954 Ordinary Shares in issue. All of the
Ordinary Shares are fully paid and carry one vote per
share.
There are no restrictions on the transfer of securities
in the Company other than certain restrictions which
may be impaired by law, for example, Market Abuse
Regulations, and the Company’s Share Dealing Code.
The Company is not aware of any agreements between
shareholders that restrict the transfer of Ordinary Shares.
The Directors are generally and unconditionally
authorised, in accordance with the Articles and the
Companies (Jersey) Law 1991 (as amended), to exercise
all powers of the Company to allot Ordinary Shares up
Number of Ordinary
shares held
% of voting
rights at time of
notification
Schroders plc
106,999,579
12.37%
Rathbone Investment Management Ltd
100,102,090
11.57%
Brewin Dolphin Limited
43,356,694
5.01%
Cannacord Genuity Group INC
41,313,204
4.78%
Jupiter Fund Management plc
14,350,000
4.78%
Insight Investment Management (Global) Ltd
29,315,482
4.06%
South Yorkshire Pensions Authority
10,000,000
3.74%
J M Finn & Co
26,471,050
3.66%
The Company has been informed of the following changes to notifiable interests between 31 December 2022 and
the date of this report:
Number of Ordinary
shares held
% of voting
rights at time of
notification
Rathbone Investment Management Ltd
95,012,122
10.98%
up to a maximum number of 5,000,000,000 in respect
of any further share issuances with the authority expiring
on 7 March 2026.
\ PURCHASE OF OWN ORDINARY
SHARES
A special resolution was passed at the Company’s
2022 Annual General Meeting, granting the Directors
authority to repurchase up to a maximum of 81,062,950
Ordinary Shares (representing 10% of the Company’s
ordinary share capital as at 16 March 2022), which will
expire immediately following the conclusion of the
Company’s 2023 general meeting or on 23 August
2023, whichever is earlier. A resolution to renew the
Company’s authority to purchase shares in accordance
with the Notice of AGM will be put to shareholders at
the Annual General Meeting on 18 May 2023.
The Company did not purchase any of its own shares
during the period.
\ MAJOR SHAREHOLDINGS
In accordance with DTR 5, the Company was advised of the following significant direct and indirect interests in the
issued ordinary share capital of the Company as at 31 December 2022:
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\ DISCLOSURE OF
INFORMATION TO THE
AUDITORS
So far as the Directors are aware, there is no relevant
audit information of which the auditor is unaware.
The Directors have taken all the steps that they ought
to have taken as Directors to make themselves aware of
any relevant audit information and to establish that the
auditor is aware of that information.
\ RELATED PARTY
TRANSACTIONS
Related Party transactions for the period to
31 December 2022 can be found in Note 16 of the
financial statements.
\ RESEARCH AND DEVELOPMENT
No expenditure on research and development was
made during the period.
\ DONATIONS AND
CONTRIBUTIONS
No political or charitable donations were made during
the period.
\ BRANCHES OUTSIDE THE UK
There are no branches of the business located outside
the United Kingdom.
\ ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be
held on 18 May 2023 at 9:30am at the offices of Taylor
Wessing LLP, 5 New Street Square, London EC4A 3TW.
\ BUSINESS RELATIONSHIPS
The Company has a set of corporate providers that
ensure the smooth running of the Group’s activities.
The Group’s key service providers are listed on page
227 and the Management Engagement Committee
annually reviews the effectiveness and performance
of these service providers, taking into account any
feedback received. Each of these relationships is critical
to the long-term success of the business. Therefore,
the Company and the Investment Manager maintain
high standards of business conduct by acting in a
collaborative and responsible manner with all its
business partners that protects the reputation of the
Group as a whole.
\ SIGNIFICANT AGREEMENTS
There are no significant agreements that take effect,
alter or terminate on change of control of the Company
following a takeover. Additionally, there are no
agreements with the Company or a subsidiary in which
a Director is or was materially interested or to which a
controlling shareholder was a party.
\ EMPLOYEES
The Company has no employees and accordingly there
is no requirement to separately report on this area.
The Investment Manager is an equal opportunities
employer who respects and seeks to empower each
individual and the diverse cultures, perspectives, skills
and experiences within its workforce. The Investment
Manager places great importance on company culture
and the wellbeing of its employees and considers
various initiatives and events to ensure a positive
working environment.
\ ANTI-BRIBERY POLICY
The Company has a zero-tolerance policy towards
bribery and is committed to carrying out its business
fairly, honestly and openly. The anti-bribery policies and
procedures apply to all its officers and to those who
represent the Company.
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\ HUMAN RIGHTS ISSUES
The Company is not within the scope of the Modern
Slavery Act 2015 because it has not exceeded the
turnover threshold and is therefore not obliged to make
a slavery and human trafficking statement.
The majority of services supplied to or on behalf of
D9 are from the financial services industries and other
services associated with those industries.
Given what D9 understands to be a low risk profile of
anyone supplying it with services being involved in
slavery and/or human trafficking, the Board believes
the Company’s current procedures and ability to rely on
regulatory oversight in relation to professional services
are sufficient in this regard.
\ INFORMATION INCLUDED IN
THE STRATEGIC REPORT
The information that fulfils the reporting requirements
relating to the following matters can be found on the
pages identified.
Subject Matter
Page
Reference
Likely future developments
14 - 18
Greenhouse gas emissions
66 - 115
Employee engagement
161
Employment of disabled persons
161
On behalf of the Board:
Phil Jordan
Chair
8 March 2023
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Directors’
Responsibility
Statement
The Directors are responsible for preparing the
Strategic Report, the Directors’ Report, the Directors’
Remuneration Report and the Financial Statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law
the Directors have elected to prepare the Financial
Statements in accordance with IAS in conformity with
the requirements of any relevant legislation and in
accordance with International Financing Reporting
Standards (IFRSs) as adopted, issued by the European
Union. Under company law the Directors must not
approve the Financial Statements unless they are
satisfied that they give a true and fair view of the state
of affairs and profit or loss of the Company for that year.
In preparing these Financial Statements, the Directors
are required to:
•
Select suitable accounting policies and then apply
them consistently;
•
Make judgments and accounting estimates that are
reasonable and prudent;
•
State whether applicable IFRS have been followed,
subject to any material departures disclosed and
explained in the Financial Statements; and
•
Prepare the Financial Statements on the going
concern basis unless it is inappropriate to presume
that the Company will continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial
position of the Company and enable them to ensure
that the Financial Statements and the Remuneration
Report comply with any relevant legislation. They
are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for preparing the
Annual Report in accordance with applicable law and
regulations. The Directors consider the Annual Report
and the Financial Statements, taken as a whole, provide
the information necessary to assess the Company’s
position, performance, business model and strategy and
are fair, balanced and understandable.
The Company’s Financial Statements are published on
the Company’s website,
To the best of our knowledge:
•
The Financial Statements, prepared in accordance
with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and
profit or loss of the Company; and
•
The Strategic Report includes a fair review of the
development and performance of the business
and the position of the Company, together with a
description of the principal risks and uncertainties
that it faces.
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Governance
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We consider the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders
to assess the Company’s position and performance,
business model and strategy.
Approval
This Directors’ responsibilities statement was approved
by the Board of Directors and signed on its behalf by:
Phil Jordan
Chair
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Independent
Auditor’s
Report
\ REPORT ON THE AUDIT OF THE
FINANCIAL STATEMENTS
Opinion
In our opinion, Digital 9 Infrastructure plc’s financial
statements:
•
give a true and fair view of the state of the
company’s affairs as at 31 December 2022 and of its
profit and cash flows for the year then ended;
•
have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs)
as adopted
in the European Union; and
•
have been prepared in accordance with the
requirements of the Companies (Jersey) Law 1991.
We have audited the financial statements, included
within the Annual Report, which comprise: the
Statement of Financial Position as at 31 December
2022; the Statement of Comprehensive Income, the
Statement of Cash Flows and the Statement of Changes
in Equity for the year then ended; and the notes to the
financial statements, which include a description of the
significant accounting policies.
Our opinion is consistent with our reporting to the Audit
Committee.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (“ISAs (UK)”)
and applicable law. Our responsibilities under ISAs (UK)
are further described in the Auditors’ responsibilities
for the audit of the financial statements section of our
report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis
for our opinion.
Independence
We remained independent of the company in
accordance with the ethical requirements that are
relevant to our audit of the financial statements in
the UK, which includes the FRC’s Ethical Standard, as
applicable to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance
with these requirements.
To the best of our knowledge and belief, we declare
that non-audit services prohibited by the FRC’s Ethical
Standard were not provided.
Other than those disclosed in the Audit Committee
Report, we have provided no non-audit services to the
company or its controlled undertakings in the period
under audit.
to the members of Digital 9 Infrastructure plc
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Our audit approach
Context
Digital 9 Infrastructure plc is incorporated in Jersey and
listed company on the Main Market of the London Stock
Exchange. During the year, the Company transitioned
from the specialist fund segment to the premium
segment of the Main Market of the London Stock
Exchange. The Company invests in a range of digital
infrastructure assets.
Overview
Audit scope
•
The Company invests in digital infrastructure
investments through its investment in its wholly-
owned subsidiary, Digital 9 Holdco Limited.
•
The Company is a closed-ended investment
company and has appointed Triple Point Investment
Management LLP (the “Investment Adviser”) to
manage its assets.
•
We conducted our audit of the financial statements
using information from Triple Point Investment
Management LLP, and Ocorian Fund Services
(Jersey) Limited (the “Administrator”) to whom
the directors delegated the provision of certain
administrative functions.
•
We tailored the scope of our audit taking into
account the types of investments within the
Company, the involvement of the third parties
referred to above, the accounting processes and
controls, and the industry in which the Company
operates.
Key audit matters
•
Valuation of investments held at fair value through
profit or loss
•
Assessment of going concern
•
Materiality
•
Overall materiality: £9,450,000 (2021: £7,560,000)
based on 1% of Net Assets.
•
Performance materiality: £7,000,000 (2021:
£5,670,000).
The scope of our audit
As part of designing our audit, we determined
materiality and assessed the risks of material
misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance
in the audit of the financial statements of the current
period and include the most significant assessed risks
of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had
the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the
efforts of the engagement team. These matters, and any
comments we make on the results of our procedures
thereon, were addressed in the context of our audit
of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate
opinion on these matters.
This is not a complete list of all risks identified by our
audit.
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Assessment of going concern is a new key audit matter this year. Otherwise, the key audit matters below are
consistent with last year.
Key audit matter
How our audit addressed the key audit matter
Valuation of investments held at fair value through
profit or loss
Refer to Report of the Audit and Risk Committee,
Note 3: Significant accounting policies, Note 4:
Significant accounting judgements, estimates and
assumptions and Note 9: Financial assets at fair value
through profit and loss.
The Company has £920m of investments held at
fair through profit or loss. The fair value of the
Company’s investments in Digital 9 Holdco Limited
(“the HoldCo”) is determined based on the fair value
of the net assets of the HoldCo and, accordingly, the
fair value of the underlying investments within the
Holdco, for which there is no liquid market. The fair
value of the underlying investments has principally
been valued on a discounted cash flow basis, which
necessitates significant estimates in respect of the
forecasted cash flows and discount rates applied.
Determining the valuation methodology and
determining the inputs and assumptions within the
valuation is subjective and complex. This, combined
with the significance of the investments balance in
the statement of financial position, meant that this
was a key audit matter for our current year audit.
We obtained and reviewed management’s key
accounting papers and assessed for compliance with
IFRS, including the assumptions therein.
•
We obtained an understanding of the Company’s
processes for determining the fair value of level 3
investments. We documented and assessed the
design and implementation of the investment
valuation processes and controls.
•
We planned our audit to critically assess
management’s assumptions and the investment
valuation models in which they are applied.
•
We have assessed whether the valuation
methodology adopted for the underlying
investments within the HoldCo was appropriate
and in line with accounting standards and industry
guidelines.
•
We tested the mathematical accuracy of the
valuation models
•
We tested a sample of inputs into the fair value
models to supporting documentation and assessed
the reasonableness of the assumptions used in
determining the fair value of investments.
•
We used our internal valuation experts to provide
audit support in reviewing and concluding on the
fair valuation of the underlying investment portfolio.
Our experts (a) reviewed the appropriateness of
the valuation methodology and approach and (b)
reviewed the computation of the discounted cash
flow valuation models, including comparing the
discount rate against those used by comparable
market participants and other macroeconomic data,
where appropriate.
•
We challenged the extent to which the impact of
climate change risks identified by management are
consistent with the assumptions used in the fair
valuation of the investments held at fair value.
•
Where underlying investments were purchased
during the year we have tested the acquisition
amounts to supporting documentation and
we compared the investment valuations to the
acquisition costs.
•
We also assessed the adequacy of the disclosures
related to investments held at fair value through
profit and loss in the financial statements.
No material issues were identified in our testing.
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Key audit matter
How our audit addressed the key audit matter
Assessment of going concern
Refer to the Going Concern and Viability, Note 2:
Basis of Preparation.
The going concern assessment of the Company is
dependent on a number of key factors
relating to
present and future conditions.
Including, but not limited to;
•
The level of commitment to capital expenditure
in the investee companies and the Company’s
ability and liability to fund this.
•
The finalisation of the $100m debt facility in one
Investee Company
•
Success in syndicating a minority stake in existing
Investee Companies
•
The Company’s ability to take mitigating action if
the debt facility and/or the equity syndication do
not complete.
Additionally, it is dependent on the Company
successfully funding its own direct liabilities while
maintaining an adequate level of capital.
The Directors’ going concern assessment was
considered a matter of significance to our current
year audit as a result of the fact that the Investee
Company debt facility and proposed syndication
of the Investee Company equity have not yet
completed.
As these are significant cashflows
underpinning the Company’s base case going
concern assessment we focused on the ability of the
Company to take mitigating actions should these not
complete.
Audit procedures and our findings in respect of going
concern are set out in the “Conclusions relating to
Going Concern” section below
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial statements as a whole, taking into account the structure of the company, the accounting processes and
controls, and the industry in which it operates.
The Company’s accounting is delegated to the Administrator who maintains the Company’s accounting records and
who has implemented controls over those accounting records.
We obtained our audit evidence from substantive tests. However, as part of our risk assessment, we understood
and assessed the internal controls in place at both the Investment Manager and the Administrator to the extent
relevant to our audit.
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As part of designing our audit, we determined
materiality and assessed the risks of material
misstatement in the financial statements. In particular,
we looked at where the Directors made subjective
judgements, for example in respect of significant
accounting estimates that involved making assumptions
and considering future events that are inherently
uncertain.As part of this work we planned for the
appropriate use of our internal valuation experts.
The impact of climate risk on our audit
As part of our audit, we inquired of management to
understand and evaluate D9 Group’s risk assessment
process in relation to climate change. We used our
own knowledge and understanding of the Group to
evaluate the impact of climate risk on the performance
of the Company’s digital infrastructure investments.
The Investment Manager has set out its commitments
to require all fully-owned portfolio companies to
implement its own net zero roadmap within the next
24 months and to reach Net Zero emissions by 2050.
Further information and the risks identified is provided
in the Sustainability Report which has been incorporated
into the 2022 Annual Report.
We specifically considered how climate change risk
would impact the assumptions made in the forecast
prepared by management used in their fair valuation
of the investments held at fair value. Our procedures in
relation to the audit of the fair value of the investments
held at fair value are described in the key audit matters
section above. We read disclosures in relation to climate
change made in other financial information within the
Annual Report to ascertain whether the disclosures are
materially consistent with the financial statements and
our knowledge from our audit. Our responsibility over
other information is further described in the reporting
on other information section of our report.
Materiality
The scope of our audit was influenced by our
application of materiality. We set certain quantitative
thresholds for materiality. These, together with
qualitative considerations, helped us to determine the
scope of our audit and the nature, timing and extent
of our audit procedures on the individual financial
statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
Based on our professional judgement, we determined
materiality for the financial statements as a whole as
follows:
Overall company
materiality
£9,450,000 (2021:
£7,560,000).
How we determined it
1% of Net Assets
Rationale for benchmark
applied
We believe that Net Assets
is the primary measure
used by the shareholders in
assessing the performance
of the entity, and is a
generally accepted auditing
benchmark.
We use performance materiality to reduce to
an appropriately low level the probability that
the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically,
we use performance materiality in determining the
scope of our audit and the nature and extent of our
testing of account balances, classes of transactions and
disclosures, for example in determining sample sizes.
Our performance materiality was 75% (2021: 75%) of
overall materiality, amounting to £7,000,000
(2021: £5,670,000) for the company financial statements.
In determining the performance materiality, we
considered a number of factors - the history of
misstatements, risk assessment and aggregation risk
and the effectiveness of controls - and concluded that
an amount at the upper end of our normal range was
appropriate.
We agreed with the Audit Committee that we would
report to them misstatements identified during our
audit above £470,000 (2021: £377,500) as well as
misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
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Conclusions relating to going concern
Our evaluation of the directors’ assessment of the
company’s ability to continue to adopt the going
concern basis of accounting included:
•
We obtained management’s latest forecasts that
support the Board’s assessment and conclusions with
respect to the going concern basis of preparation of
the financial statements;
•
We checked the mathematical accuracy of
management’s forecasts;
•
We corroborated management’s base case to
appropriate supporting documentation;
•
We evaluated the directors’ assessment of
potential operational impacts, considering their
consistency with other available information
including assumptions made in the valuation models
for the subsidiary investments and our broader
understanding of the business and assessed the
potential impact on the financial statements;
•
We evaluated management’s base case forecast
and downside scenarios, challenging the underlying
data and adequacy and appropriateness of
the underlying assumptions used to make the
assessment, particularly in relation to the inclusion
or otherwise of the Investee Company debt facility
and proceeds from any equity syndication. We
then critically evaluated the directors’ plans for
future actions in relation to their going concern
assessment, should these be required; and
•
We assessed any impact on covenant compliance
in the Revolving Credit Facility in the downside
scenarios presented by management.
•
We reviewed the directors’ assessment of the
Company’s financial position in the context of its
ability to meet future expected operating expenses.
Based on the work we have performed, we have not
identified any material uncertainties relating to events
or conditions that, individually or collectively, may cast
significant doubt on the company’s ability to continue as
a going concern for a period of at least twelve months
from when the financial statements are authorised for
issue.
In auditing the financial statements, we have concluded
that the directors’ use of the going concern basis of
accounting in the preparation of the financial statements
is appropriate.
However, because not all future events or conditions can
be predicted, this conclusion is not a guarantee as to
the company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have
applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation
to the directors’ statement in the financial statements
about whether the directors considered it appropriate to
adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the
directors with respect to going concern are described in
the relevant sections of this report.
Reporting on other information
The other information comprises all of the information
in the Annual Report other than the financial statements
and our auditors’ report thereon. The directors are
responsible for the other information. Our opinion
on the financial statements does not cover the other
information and, accordingly, we do not express
an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance
thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information
is materially inconsistent with the financial statements
or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If we identify
an apparent material inconsistency or material
misstatement, we are required to perform procedures
to conclude whether there is a material misstatement
of the financial statements or a material misstatement
of the other information. If, based on the work we
have performed, we conclude that there is a material
misstatement of this other information, we are required
to report that fact. We have nothing to report based on
these responsibilities.
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Corporate governance statement
The Listing Rules require us to review the directors’
statements in relation to going concern, longer-term
viability and that part of the corporate governance
statement relating to the company’s compliance with
the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities
with respect to the corporate governance statement
as other information are described in the Reporting on
other information section of this report.
Based on the work undertaken as part of our audit, we
have concluded that each of the following elements
of the corporate governance statement is materially
consistent with the financial statements and our
knowledge obtained during the audit, and we have
nothing material to add or draw attention to in relation
to:
•
The directors’ confirmation that they have carried
out a robust assessment of the emerging and
principal risks;
•
The disclosures in the Annual Report that describe
those principal risks, what procedures are in place to
identify emerging risks and an explanation of how
these are being managed or mitigated;
•
The directors’ statement in the financial statements
about whether they considered it appropriate to
adopt the going concern basis of accounting in
preparing them, and their identification of any
material uncertainties to the company’s ability to
continue to do so over a period of at least twelve
months from the date of approval of the financial
statements;
•
The directors’ explanation as to their assessment of
the company’s prospects, the period this assessment
covers and why the period is appropriate; and
•
The directors’ statement as to whether they have
a reasonable expectation that the company will be
able to continue in operation and meet its liabilities
as they fall due over the period of its assessment,
including any related disclosures drawing attention
to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the
longer-term viability of the company was substantially
less in scope than an audit and only consisted of
making inquiries and considering the directors’ process
supporting their statement; checking that the statement
is in alignment with the relevant provisions of the UK
Corporate Governance Code; and considering whether
the statement is consistent with the financial statements
and our knowledge and understanding of the company
and its environment obtained in the course of the audit.
In addition, based on the work undertaken as part of
our audit, we have concluded that each of the following
elements of the corporate governance statement is
materially consistent with the financial statements and
our knowledge obtained during the audit:
•
The directors’ statement that they consider the
Annual Report, taken as a whole, is fair, balanced
and understandable, and provides the information
necessary for the members to assess the company’s
position, performance, business model and strategy;
•
The section of the Annual Report that describes
the review of effectiveness of risk management and
internal control systems; and
•
The section of the Annual Report describing the
work of the Audit Committee.
We have nothing to report in respect of our
responsibility to report when the directors’ statement
relating to the company’s compliance with the Code
does not properly disclose a departure from a relevant
provision of the Code specified under the Listing Rules
for review by the auditors.
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Responsibilities for the financial
statements and the audit
Responsibilities of the directors for the financial
statements
As explained more fully in the Directors’ Responsibilities
Statement, the directors are responsible for the
preparation of the financial statements in accordance
with the applicable framework and for being satisfied
that they give a true and fair view. The directors are also
responsible for such internal control as they determine
is necessary to enable the preparation of financial
statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors
are responsible for assessing the company’s ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going
concern basis of accounting unless the directors either
intend to liquidate the company or to cease operations,
or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole
are free from material misstatement, whether due
to fraud or error, and to issue an auditors’ report
that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
financial statements.
Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect
of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities,
including fraud, is detailed below.
Based on our understanding of the company and
industry, we identified that the principal risks of
non-compliance with laws and regulations related
to breaches of section 1158 of the Corporation Tax
Act 2010, and we considered the extent to which
non-compliance might have a material effect on the
financial statements. We also considered those laws
and regulations that have a direct impact on the
financial statements such as the Companies (Jersey)
Law. We evaluated management’s incentives and
opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls),
and determined that the principal risks were related
to posting inappropriate journals, and management
bias in accounting estimates and judgements applied
by management in valuation of investments held at
fair value through profit or loss, as described in our
key audit matter. Audit procedures performed by the
engagement team included:
•
Discussions with management, risk and compliance,
including consideration of known or suspected
instances of non-compliance with laws and
regulations and fraud impacting the Company;
•
Reviewing relevant meeting minutes, including those
of the Board of Directors, Risk Committee and the
Audit Committee;
•
Designing audit procedures to incorporate
unpredictability around the nature, timing or extent
of our testing;
•
Procedures relating to judgemental areas of
accounting and significant estimation, including as
described in the related key audit matter;
•
Identifying and testing journal entries, in particular
any journal entries posted with unusual account
combinations and words; and
•
Reviewing of financial statement disclosures to
underlying supporting documentation
There are inherent limitations in the audit procedures
described above. We are less likely to become aware of
instances of non-compliance with laws and regulations
that are not closely related to events and transactions
reflected in the financial statements. Also, the risk of not
detecting a material misstatement due to fraud is higher
than the risk of not detecting one resulting from error,
as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or
through collusion.
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Our audit testing might include testing complete
populations of certain transactions and balances,
possibly using data auditing techniques. However, it
typically involves selecting a limited number of items
for testing, rather than testing complete populations.
We will often seek to target particular items for testing
based on their size or risk characteristics. In other cases,
we will use audit sampling to enable us to draw a
conclusion about the population from which the sample
is selected.
A further description of our responsibilities for the
audit of the financial statements is located on the FRC’s
website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared
for and only for the company’s members as a body in
accordance with Chapter Article 113A of the Companies
(Jersey) Law 1991 and for no other purpose. We do not,
in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom
this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in
writing.
\ OTHER REQUIRED REPORTING
Companies (Jersey) Law 1991
exception reporting
Under the Companies (Jersey) Law 1991 we are required
to report to you if, in our opinion:
•
we have not obtained all the information and
explanations we require for our audit; or
•
proper accounting records have not been kept by
the company, or proper returns for our audit have
not been received from branches not visited by us;
or
•
the financial statements are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this
responsibility.
Appointment
Following the recommendation of the Audit Committee,
we were appointed by the director on 6 March 2021
to audit the financial statements for the year ended 31
December 2021 and subsequent financial periods. The
period of total uninterrupted engagement is 2 years,
covering the years ended 31 December 2021 to 31
December 2022.
\ OTHER VOLUNTARY
REPORTING
Directors’ remuneration
The company voluntarily prepares a Directors’
Remuneration Report in accordance with the provisions
of the Companies Act 2006. The directors requested
that we audit the part of the Directors’ Remuneration
Report specified by the Companies Act 2006 to be
audited as if the company were a quoted company.
In our opinion, the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
Kevin Rollo
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Recognised Auditor
London
8 March 2023
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Information
Independent Limited
Assurance Report
to the Directors of Digital 9 Infrastructure plc (“the Company”) on
selected key performance indicators (KPIs) included in the Company’s
Annual Report for the year ended 31 December 2022
The Board of Directors of Digital 9 Infrastructure
plc (“the Company”) engaged us to obtain limited
assurance on the selected KPIs (together the “Subject
Matter Information”) as defined below and marked
with the symbol “
A
” on pages 66 to 115 in Digital 9
Infrastructure plc’s Annual Report for the year ended 31
December 2022 (the “Annual Report”).
Our assurance conclusion does not extend to
information in respect of earlier periods or to any other
information included in,
or linked from, the Annual
Report.
\ OUR LIMITED ASSURANCE
CONCLUSION
Based on the procedures we have performed, as
described under the ‘Summary of work performed as
the basis for our assurance conclusion’ and the evidence
we have obtained, nothing has come to our attention
that causes us to believe that the Subject Matter
Information marked with the symbol “
A
” on pages 66 to
115 in Digital 9 Infrastructure plc’s Annual Report for the
year ended 31 December 2022, has not been prepared,
in all material respects, in accordance with the Reporting
Criteria set out in Annex 1 on pages 229 - 230 of the
Annual Report and referenced in the ‘Subject Matter
Information and Reporting Criteria’ section below.
\ SUBJECT MATTER
INFORMATION AND REPORTING
CRITERIA
The Subject Matter Information needs to be read
and understood together with the Reporting Criteria,
which the Company is solely responsible for selecting
and applying. The Subject Matter Information and the
Reporting Criteria are as set out in the table below:
Subject Matter Information
Reported unit
Reported value
Reporting Criteria
Scope 1 GHG emissions
Tonnes CO2e
92
The Reporting Principles and
Methodologies as found in
Annex 1 on pages 229 - 230 of
the Annual Report.
Scope 2 GHG emissions (location-based)
Tonnes CO2e
5,502
Scope 2 GHG emissions (market-based)
Tonnes CO2e
1,397
Total GHG Emissions (Scope 1 & 2)
Tonnes CO2e
1,489
Renewable energy consumption
%
98.66%
Share of non-renewable energy
consumption and production
%
1.34%
Board gender diversity
%
0%
Growth in network capacity
%
13%
Power Usage Effectiveness (PUE)
1.33
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\ INHERENT LIMITATIONS
The absence of a significant body of established
practice on which to draw to evaluate and measure non-
financial information allows for different, but acceptable,
evaluation and measurement techniques that can affect
comparability between entities and over time.
Non-financial performance information is subject to
more inherent limitations than financial information,
given the characteristics of the underlying subject
matter and the methods used for determining such
information. The precision of different measurement
techniques may also vary.
\ RESPONSIBILITIES OF THE
COMPANY’S DIRECTORS
The Directors of the Company are responsible for:
•
determining appropriate reporting topics and
selecting or establishing suitable criteria for measuring
or evaluating the underlying subject matter;
•
ensuring that those criteria are relevant and
appropriate to the Company and the intended users of
the Annual Report;
•
the preparation of the Subject Matter Information
in accordance with the Reporting Criteria including
designing, implementing and maintaining systems,
processes and internal controls over information
relevant to the evaluation or measurement of the
Subject Matter Information, which is free from material
misstatement, whether due to fraud or error, against the
Reporting Criteria; and
•
producing the Annual Report, including underlying
information and a statement of Directors’ responsibility,
which provides accurate, balanced reflection of the
Company’s performance in this area and discloses, with
supporting rationale, matters relevant to the intended
users of the Annual Report.
\ OUR RESPONSIBILITIES
We are responsible for:
•
planning and performing the engagement to obtain
limited assurance about whether the Subject Matter
Information is free from material misstatement, whether
due to fraud or error;
•
forming an independent conclusion, based on the
procedures we have performed and the evidence we
have obtained; and
•
reporting our conclusion to the Directors of the
Company.
\ PROFESSIONAL STANDARDS
APPLIED
We performed a limited assurance engagement in
accordance with International Standard on Assurance
Engagements 3000 (Revised) ‘Assurance Engagements
other than Audits or Reviews of Historical Financial
Information’ and, in respect of the greenhouse gas
emissions, in accordance with International Standard on
Assurance Engagements 3410 ‘Assurance engagements
on greenhouse gas statements’, issued by the
International Auditing and Assurance Standards Board.
\ OUR INDEPENDENCE AND
QUALITY CONTROL
We have complied with the Institute of Chartered
Accountants in England and Wales Code of Ethics,
which includes independence and other requirements
founded on fundamental principles of integrity,
objectivity, professional competence and due care,
confidentiality and professional behaviour, that are at
least as demanding as the applicable provisions of the
International Ethics Standards Board for Accountants
International Code of Ethics for Professional
Accountants (including International Independence
Standards).
We apply the International Standard on Quality Control
(UK) 1 and accordingly maintain a comprehensive
system of quality control including documented policies
and procedures regarding compliance with ethical
requirements, professional standards and applicable
legal and regulatory requirements.
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\ SUMMARY OF WORK
PERFORMED AS THE BASIS FOR
OUR ASSURANCE CONCLUSION
In carrying out our limited assurance engagement we:
•
made enquiries of management at TriplePoint
Investment Management Limited (the Investment
Manager) and of the subsidiary investments of the
Company;
•
evaluated the design of the key structures, systems,
processes and controls for managing, recording and
reporting the Subject Matter Information;
•
performed limited substantive testing of the Subject
Matter Information at the subsidiary investments
of the company to check that data had been
appropriately measured, recorded, collated and
reported;
•
tested the aggregation of the subsidiary investment
data by the Investment Manager; and
•
considered the disclosure and presentation of the
Subject Matter Information.
Our procedures did not include evaluating the suitability
of design or operating effectiveness of control activities,
testing the data on which the estimates are based or
separately developing our own estimates against which
to evaluate the Company’s estimates.
The procedures performed in a limited assurance
engagement vary in nature and timing from, and are less
in extent than for, a reasonable assurance engagement.
Consequently, the level of assurance obtained in a
limited assurance engagement is substantially lower
than the assurance that would have been obtained had
a reasonable assurance engagement been performed.
\ OTHER INFORMATION
The other information comprises all of the information
in the Annual Report other than the Subject Matter
Information and our assurance report. The directors
are responsible for the other information. As explained
above, our assurance conclusion does not extend to
the other information and, accordingly, we do not
express any form of assurance thereon. In connection
with our assurance of the Subject Matter Information,
our responsibility is to read the other information and,
in doing so, consider whether the other information
is materially inconsistent with the Subject Matter
Information or our knowledge obtained during the
assurance engagement, or otherwise appears to
contain a material misstatement of fact. If we identify
an apparent material inconsistency or material
misstatement of fact, we are required to perform
procedures to conclude whether there is a material
misstatement of the Subject Matter Information or a
material misstatement of the other information, and to
take appropriate actions in the circumstances.
\ USE AND DISTRIBUTION OF
OUR REPORT
This report, including our conclusion, has been prepared
solely for the Board of Directors of the Company in
accordance with the agreement between us dated 22
December 2022 (the “agreement”) Our report must not
be made available to any other party save as set out in
the agreement. To the fullest extent permitted by law,
we do not accept or assume responsibility or liability
to anyone other than the Board of Directors and the
Company for our work or this report except where terms
are expressly agreed between us in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
8 March 2023
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Information
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Statements
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Financial Statements
Information
Digital 9 Infrastructure plc
194
Financial Statements
Statement of Comprehensive Income
For the year ended 31 December 2022
Year ended 31 December 2022
Year ended 31 December 2022
8 January to 31 December 2021
Note
Revenue
Revenue
£’000
£’000
Capital
Capital
£’000
£’000
Total
Total
£’000
£’000
Revenue
Revenue
£’000
£’000
Capital
Capital
£’000
£’000
Total
£’000
Income
Income from investments held at fair value
5
Gains on investments held at fair value
9
Other income
Interest receivable
Total income
Expenses
Acquisition expenses
(5,516 )
(5,516 )
Investment management fees
6
(5,802 )
(1,934 )
(7,736 )
(2,214 )
(738 )
(2,952 )
Other operating expenses
7
(2,323 )
(2,323 )
(1,012 )
(648 )
(1,660 )
Total operating expenses
(8,125 )
(1,934 )
(10,059 )
(3,226 )
(6,902 )
(10,128 )
Operating (loss)/profit
(3,223 )
(289 )
Finance expense
(2 )
(2 )
(2 )
(2 )
(Loss)/profit on ordinary
activities before taxation
(3,225 )
(291 )
Taxation
8
(Loss)/profit and total comprehensive
(expense)/income attributable to
shareholders
(3,225 )
(291 )
(Loss)/earnings per ordinary share –
basic and diluted (pence)
22
(0.39
(0.07
The total column of this statement is the Statement of Comprehensive Income of Digital 9 Infrastructure Plc (“the Company”) prepared
in accordance with International Financial Reporting Standards, as adopted by the European Union (“EU”). The supplementary revenue
return and capital columns have been prepared in accordance with the Association of Investment Companies Statement of
Recommended Practice (AIC SORP).
All revenue and capital items in the above statement derive from continuing operations. The Company does not have any other income
or expenses that are not included in the net profit for the year. The net profit for the year disclosed above represents the Company’s
total comprehensive income.
This Statement of Comprehensive Income includes all recognised gains and losses.
The accompanying notes on pages 198 to 218 form part of these Financial Statements.
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195
Financial Statements
Statement of Financial Position
as at 31 December 2022
31 December 2022
31 December 2022
31 December 2021
Note
£’000
£’000
£’000
Non-current assets
Investments at fair value through profit or loss
9
Total non-current assets
Current assets
Trade and other receivables
10
Cash and cash equivalents
11
Total current assets
Total assets
Current liabilities
Trade and other payables
12
(2,769 )
(1,912 )
Total current liabilities
(2,769 )
(1,912 )
Total net assets
Equity attributable to equity holders
Stated capital
13
Capital reserve
Revenue reserve
(3,516 )
(291 )
Total Equity
Net asset value per ordinary share – basic and diluted
23
The Financial Statements were approved and authorised for issue by the Board on 8 March 2023 and signed on its behalf by:
Philip Jordan
Chair
8 March 2023
The accompanying notes on pages 198 - 218 form part of these Financial Statements.
Financial Statements
Statement of Changes in Shareholders’ Equity
For the year ended 31 December 2022
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Stated
Stated
capital
capital
£’000
£’000
Capital
Capital
reserve
reserve
£’000
£’000
Revenue
Revenue
reserve
reserve
£’000
£’000
Total
Total
equity
equity
£’000
£’000
Note
Note
Balance at 8 January 2021
Transactions with owners
Ordinary shares issued
13
Share issue costs
(14,616 )
(14,616 )
Dividends paid
14
(17,837 )
(17,837 )
Profit/(loss) and total comprehensive income/(expense) for the period
(291 )
Balance as at 31 December 2021
(291 )
Stated
Stated
capital
capital
£’000
£’000
Capital
Capital
reserve
reserve
£’000
£’000
Revenue
Revenue
reserve
reserve
£’000
£’000
Total
Total
equity
equity
£’000
£’000
Note
Note
Balance as at 31 December 2021
(291 )
Transactions with owners
Ordinary shares issued
13
Share issue costs
(3,232 )
(3,232 )
Dividends paid
14
(50,274 )
(50,274 )
Profit/(loss) and total comprehensive income/(expense) for the period
(3,225 )
Balance as at 31 December 2022
(3,516 )
The accompanying notes on pages 198 to 218 form part of these Financial Statements.
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Financial Statements
Statement of Cash Flows
For the year ended 31 December 2022
Year ended
Year ended
31 December 2022
31 December 2022
8 January to
31 December 2021
Note
£’000
£’000
£’000
Cash flows from operating activities
Profit on ordinary activities before taxation
Adjustments for:
Gains on investments held at fair value
9
(97,228 )
(45,502 )
Cash flow used in operations
(5,159 )
(7,193 )
Increase in trade and other receivables
10
(1,189 )
(228 )
Increase in trade and other payables
12
Net cash outflow from operating activities
(5,477 )
(5,523 )
Cash flows from investing activities
Loans to subsidiaries
(29,105 )
Purchase of investments at fair value through profit or loss
9
(48,409 )
(667,739 )
Net cash flow used in investing activities
(77,514 )
(667,739 )
Cash flows from financing activities
Proceeds from issue of Ordinary Shares
13
Dividends paid
14
(50,274 )
(17,837 )
Cost of issue of shares
13
(3,246 )
(14,602 )
Net cash flow generated from financing activities
Net increase in cash and cash equivalents
Reconciliation of net cash flow to movements in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Net increase in cash and cash equivalents
Cash and cash equivalents at end of the year
11
The accompanying notes are an integral part of these Financial Statements.
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2022
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Digital 9 Infrastructure plc
198
1. CORPORATE INFORMATION
registered alternative investment fund, and it is regulated by the
Jersey Financial Services Commission as a ”listed fund” under the
Collective Investment Funds (Jersey) Law 1988 (the “Funds Law”)
and the Jersey Listed Fund Guide published by the Jersey
Financial Services Commission. The Company is registered with
number 133380 under the Companies (Jersey) Law 1991.
The Company is domiciled in Jersey
registered office, which is also its principal place of business, is
domiciled in the United Kingdom.
The Company was incorporated on 8 January 2021 and is a Public
Company. The Company’s Ordinary Shares were admitted to
trading on the Specialist Fund Segment of the Main Market of the
London Stock Exchange under the ticker DGI9 on 31 March 2021.
It was admitted to the premium listing segment of the Official List
of the Financial Conduct Authority and migrated to trading on the
premium segment of the Main Market on 30 August 2022.
The Company’s principal activity is investing in a diversified
portfolio of critical digital infrastructure assets which contribute to
improving global digital communications whilst targeting
sustainable income and capital growth for investors.
These financial statements comprise only the results of the
Company, as its investment in Digital 9 Holdco Limited (“D9
Holdco”) is measured at fair value through profit or loss.
2. BASIS OF PREPARATION
These financial statements for the year ended 31 December 2022
have been prepared in accordance with International Financial
Reporting Standards as adopted by the European Union.
Where presentational guidance set out in the Association of
Investment Companies Statement of Recommended Practice (the
“AIC SORP”) is consistent with the requirements of International
Financial Reporting Standards (“IFRS”) the Directors have sought
to prepare the financial statements on a basis compliant with the
recommendations of the AIC SORP. In particular, supplementary
information which analyses the Statement of Comprehensive
Income between items of a revenue and capital nature has been
presented alongside the total Statement of Comprehensive
Income.
The functional and reporting currency is sterling, reflecting the
primary economic environment in which the Company operates.
Transactions in foreign currencies are translated into sterling at the
rates of exchange ruling on the date of the transaction. Foreign
currency monetary assets and liabilities are translated into sterling
at the rates of exchange ruling at the balance sheet date.
The financial statements have been prepared on a historical cost
basis, except for the following:
•
Investments at fair value through profit or loss
The accounting policies adopted are consistent with those of the
previous financial year.
A.
GOING CONCERN
The Financial statements are prepared on a going concern basis
as disclosed on pages 130 to 132 of the Strategic report, as the
Directors are satisfied that the Company has the resources to
continue in business for the foreseeable future. The Directors
have made an assessment of going concern, taking into account
a wide range of information relating to present and future
conditions, including the Company’s cash and liquidity position,
current performance and outlook, which has considered the
ongoing geopolitical uncertainties arising from the war in Ukraine,
the volatile macro landscape and existing inflationary pressures
and
current
and
expected
financial
commitments
using
information available to the date of issue of these Financial
statements.
As part of this assessment the Directors considered an analysis of
the adequacy of the Company’s liquidity, solvency and capital
adequacy. As at 31 December 2022, the Group had a total cash
balance of £73.6 million and the Company had a cash balance of
£30 million. Of this balance, restricted cash was £18.1 million and
unrestricted cash was £55.5 million. The Company also had £43.8
million remaining undrawn on its RCF, plus a further uncommitted
accordion of £125 million. Following the period end, the Group
drew a further £25 million on its available RCF balance. The
Company is well progressed in the arrangement of repayment of
one of its existing shareholder loans from its investee companies,
this repayment will add to the Company’s cash on hand and
provide additional unrestricted cash for the Company.
Uncertainty around the valuation of the Company’s assets as set
out in the Key estimation uncertainties section was considered.
The valuation policy and process was consistent with the
Company’s Interim Results, which saw a change to methodology.
The Company takes a Free Cash Flow to Equity approach,
applying the cost of equity as the discount rate to the relevant
equity cash flows, rather than a blended WACC including the cost
of debt.
This year, a key focus of the portfolio valuations at 31 December
2022 was an assessment of the impact of the macroeconomic
environment on the operational and financial performance of
each portfolio company. In particular this focused on increasing
inflationary pressures, volatility in power prices, and ongoing
geopolitical uncertainties. We have incorporated into our cash
flow forecasts a balanced view of future income receipts and
expenses and also considered future syndication opportunities
for the portfolio.
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In relation to Investee Company level debt, a term sheet has been
agreed for a $100 million facility to be provided to one of the high
growth Investee Companies, the proceeds of which will be used
to finance accretive growth opportunities, and to repay a
Company shareholder loan, increasing liquidity at the Company.
The Company may use the proceeds to reduce the drawings of
the Group’s RCF.
The Directors also considered the Company’s existing financial
commitments. The Company had follow on investment
commitments at 31 December 2022 totalling c.£46 million in
Aqua Comms, Verne Global London and EMIC-1. The Company
had ongoing charges of £10 million in the year to 31 December
2022, these are indicative of the ongoing run rate in the short-
term. In addition, while not a commitment at 31 December 2022,
the Company has a dividend target for the financial year ending
31 December 2023 of 6.0 pence per share.
27
The major cash outflows of the Company are the payment of fees
and costs relating to the acquisition of new assets, both of which
are discretionary. The Directors have reviewed Company forecasts
and pipeline projections which cover a period of at least 12
months from the date of approval of this report, considering
foreseeable changes in investment and the wider pipeline. In
addition to the considerations listed above there are a number of
mitigating actions within management control to enhance
available liquidity. These include seeking to extend the maturity
of available credit facilities, the timing of certain income receipts
from the portfolio, in extreme downside scenarios the removal of
dividend payments and the level and timing of new investments
or realisations.
On the basis of this review, the Directors have a reasonable
expectation that the Company has adequate resources to
continue in operational existence for at least 12 months from the
date of approval of this report. Accordingly, the going concern
basis continues to be adopted in preparing these financial
statements.
The Company has assessed its position on the significant
implications of Russia’s invasion of Ukraine to its business. The
most significant implication for the Group is the increase in power
prices which affect the data centre operators given their power
consumption.
Verne Global Iceland is isolated from wider European power price
movements as it has a long-term contract with an Icelandic power
provider with fixed uplifts. Meanwhile, Verne Global Finland’s
(previously Ficolo Oy) performance is impacted given the market
instability and Finland’s proximity to Russia which did result in
delays to customer decisions and growth during 2022 would have
been higher without these factors. Verne Global London
(previously Volta) is most affected by power price given it is on UK
grid, which although does not get much of its power from Russia
unlike other European countries, is not isolated from wider market
movements. There are secondary impacts as a result of spiking
Nord Pool prices. Verne Global London has re-negotiated some
of the contracts to pass on the increased costs to its customers.
B. INVESTMENT ENTITIES
The sole objective of the Company and through its subsidiary D9
Holdco is to acquire Digital Infrastructure Projects, via individual
corporate entities. D9 Holdco will issue equity and loans to
finance its investments in the Digital Infrastructure Projects.
The Directors have concluded that in accordance with IFRS 10,
the Company meets the definition of an investment entity having
evaluated against the criteria presented below that needs to be
met. Under IFRS 10, investment entities are required to hold
financial investments at fair value through profit or loss rather than
consolidate them on a line-by-line basis. There are three key
conditions to be met by the Company for it to meet the definition
of an investment entity.
For each reporting period, the Directors will continue to assess
whether the Company continues to meet these conditions:
1.
It obtains funds from one or more investors for the purpose of
providing these investors with professional investment
management services;
2.
It commits to its investors that its business purpose is to invest its
funds solely for returns (including having an exit strategy for
investments) from capital appreciation, investment income or
both; and
3.
It measures and evaluates the performance of
substantially all its investments on a fair value basis.
The Company satisfies the first criteria as it has multiple investors
and has obtained funds from a diverse group of shareholders for
the purpose of providing them with investment opportunities to
invest in a large pool of digital infrastructure assets.
In satisfying the second criteria, the notion of an investment
timeframe is critical. An investment entity should not hold its
investments indefinitely but should have an exit strategy for their
realisation. The intention of the Company is to seek equity
interests in digital infrastructure projects that have an indefinite
life; the underlying assets that it invests in will have a medium to
long term expected life. The exit strategy for each asset will
depend on the characteristics of the assets, transaction structure,
exit price potentially achievable, suitability and availability of
alternative investments, balance of the portfolio and lot size of
the assets as compared to the value of the portfolio. Whilst the
Company intends to hold the investments on a medium to long-
term basis, the Company may also dispose of the investments
should an appropriate opportunity arise where, in the Investment
Manager’s opinion, the value that could be realised from such
disposal would represent a satisfactory return on the investment
and enhance the value of the Company as a whole.
27.
This is a target only and not a forecast. There can be no assurance that this target will be met and it should not be taken as an indication of the
Company’s expected future results.
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2022
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The Company’s Investment Manager, and the Company’s Board
will regularly review the market and consider whether any
disposals should be made.
The Company satisfies the third criteria as it measures and
evaluates the performance of all of its investments on a fair value
basis which is the most relevant for investors in the Company.
Management use fair value information as a primary measurement
to evaluate the performance of all of the investments and in
decision making.
In assessing whether it meets the definition, the Company shall
also consider whether it has the following typical characteristics of
an investment entity:
a)
it has more than one investment
b)
it has more than one investor
c)
it has investors that are not related parties of the entity
d)
it has ownership interests in the form of equity or similar
interests.
As per IFRS 10 a parent investment entity is required to consolidate
subsidiaries that are not themselves investment entities and
whose main purpose is to provide services relating to the entity’s
investment activities.
The Directors have assessed whether D9 Holdco satisfies those
conditions set above by considering the characteristics of the
whole group structure, rather than individual entities. The
Directors have concluded that the Company and D9 Holdco are
formed in connection with each other for business structure
purposes. When considered together, both entities display the
typical characteristics of an investment entity.
The acquisitions made during the period and changes in the
group structure have not impacted the management’s judgement
and conclusion over the IFRS 10 investment entity application and
the Company has applied the same accounting policies described.
The Directors are therefore of the opinion that the Company
meets the criteria and characteristics of an investment entity and
therefore, subsidiaries are measured at fair value through profit or
loss, in accordance with IFRS 13 “Fair Value Measurement”, IFRS
10 “Consolidated Financial Statements” and IFRS 9 “Financial
Instruments”.
C.
NEW AND AMENDED STANDARDS
ADOPTED BY THE COMPANY
A number of amended standards became applicable for the
current reporting period. The Group did not have to change its
accounting policies or make retrospective adjustments as a result
of adopting these amended standards. Management do not
expect the new or amended standards will have a material impact
on the Company’s financial statements. The most significant of
these standards are set out below:
New standards and amendments – applicable 1 January 2022
(a)
Amendments to IAS 16
Property, Plant and Equipment:
Proceeds before Intended Use.
(b)
Amendments to IAS 37
Provisions, Contingent Liabilities
and Contingent Assets: Onerous Contracts – Cost of
Fulfilling a Contract.
(c)
Amendments to IFRS 3
Business Combination: Reference
to the Conceptual Framework.
(d)
Annual Improvements to IFRS Standards 2018-2020.
FORTHCOMING REQUIREMENTS
The following standards and interpretations had been issued but
were not mandatory for annual reporting periods ending on
December 2022.
(a)
IFRS 17
Insurance Contracts
(b)
Classification of Liabilities as Current or Non-current –
Amendments to IAS 1
(c)
Disclosure of Accounting Policies – Amendments to IAS 1
and IFRS Practice Statement 2
(d)
Definition of Accounting Estimates – Amendments to IAS 8
(e)
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction – Amendments to IAS 12
(f)
Sale or contribution of assets between an investor and its
associate or joint venture – Amendments to IFRS 10 and
IAS 28
3.
SIGNIFICANT ACCOUNTING
POLICIES
A.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the
Company’s Statement of Financial Position when the Company
becomes a party to the contractual provisions of the instrument.
Financial assets are to be derecognised when the contractual
rights to the cash flows from the instrument expire or the asset is
transferred, and the transfer qualifies for de-recognition in
accordance with IFRS 9 Financial Instruments.
The Company did not use any derivative financial instruments
during the period.
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(I)
FINANCIAL ASSETS
The Company’s investment in D9 Holdco comprises both equity
and debt. The Company classifies its financial assets as either
investments at fair value through profit or loss or financial assets
at amortised cost (e.g. cash and cash equivalents and trade and
other receivables). The classification depends on the purpose for
which the financial assets are acquired. Management determines
the classification of its financial assets at initial recognition.
(II)
FINANCIAL ASSET AT FAIR VALUE THROUGH
PROFIT OR LOSS
At initial recognition, the Company measures its investments
through its investment in D9 Holdco, at fair value through profit or
loss and any transaction costs are expensed to the Statement of
Comprehensive Income. The Company will subsequently
continue to measure all investments at fair value and any changes
in the fair value are to be recognised as unrealised gains or losses
through profit or loss within the capital column of the Statement
of Comprehensive Income.
IFRS 13 defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (an exit
price). When measuring fair value, the Company takes into
consideration the characteristics of the asset or liability if market
participants would take those characteristics into account when
pricing the asset or liability at the measurement date, including
assumptions about risk.
(III)
FINANCIAL LIABILITIES AND EQUITY
Debt and equity instruments are measured at amortised cost and
are classified as either financial liabilities or as equity in accordance
with the substance of the contractual arrangement.
All financial liabilities are classified as at amortised cost. These
liabilities are initially measured at fair value less transaction costs
and subsequently using the effective interest method.
(IV)
EQUITY INSTRUMENTS
The Company’s Ordinary Shares are classified as equity under
stated capital and are not redeemable. Costs associated or
directly attributable to the issue of new equity shares, including
the costs incurred in relation to the Company’s IPO on 31 March
2021 and its subsequent equity raises, are recognised as a
deduction in equity and are charged against stated capital.
(B)
FINANCE INCOME
Finance income is recognised using the effective interest method.
This is calculated by applying the effective interest rate to the
gross carrying amount of a financial asset unless the assets
subsequently became credit impaired. In the latter case, the
effective interest rate is applied to the amortised cost of the
financial asset. Finance income is recognised on an accrual basis.
(C)
FINANCE EXPENSES
Borrowing costs are recognised in the Statement of Comprehensive
Income in the period to which they relate on an accruals basis.
(D)
FAIR VALUE ESTIMATION FOR
INVESTMENTS AT FAIR VALUE
The fair value of financial investments at fair value through profit
or loss is based on the valuation models adjusted in accordance
with the IPEV (International Private Equity and Venture Capital)
valuation guidelines where appropriate to comply with IFRS 13.
The Company records the fair value of D9 Holdco by calculating
and aggregating the fair value of each of the individual investments
in which the Company holds an indirect investment. The total
change in the fair value of the investment in D9 Holdco is recorded
through profit and loss within the capital column of the Statement
of Comprehensive Income.
(E)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash balances and deposits
held on call with banks.
Deposits to be held with original
maturities of greater than three months are included in other
financial assets.
Cash and cash equivalents are measured at
amortised cost using the effective interest method and assessed
for expected credit losses at each reporting date.
There are no material expected credit losses as the bank institution
has high credit ratings assigned by international credit rating
agencies.
(F)
TRADE AND OTHER RECEIVABLES
Trade and other receivables are measured at amortised cost using
the effective interest method, less any impairment. They are
included in current assets, except where maturities are greater
than 12 months after the reporting date, in which case they are to
be classified as non-current assets.
The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts through the expected
life of the financial instrument to the relevant asset’s carrying
amount.
Impairment provisions for all receivables are recognised based on
a forward-looking expected credit loss model using the simplified
approach. The methodology used to determine the amount of
the provision is based on whether there has been a significant
increase in credit risk since initial recognition of the financial asset.
For those where the credit risk has not increased significantly
since initial recognition of the financial asset, 12 month expected
credit losses along with gross interest income are recognised. For
those for which credit risk has increased significantly, lifetime
expected credit losses along with the gross interest income are
recognised. For those that are determined to be credit impaired,
lifetime expected credit losses along with interest income on a
net basis are recognised.
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2022
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(G)
AMORTISED COSTS
Assets that are held for collection of contractual cash flows, where
those cash flows represent solely payments of principal and
interest, are measured at amortised cost. Interest income from
these financial assets is included in finance income using the
effective interest rate method. Any gain or loss arising on
derecognition is recognised directly in profit or loss and presented
in other gains/(losses) together with foreign exchange gains and
losses. Impairment losses are presented as separate line item in
the statement of profit or loss.
(H)
TRADE AND OTHER PAYABLES
Trade and other payables are classified as current liabilities if
payment is due within one year or less from the end of the current
accounting period. If not, they are presented as non-current
liabilities. Trade and other payables are recognised initially at their
fair value and subsequently measured at amortised cost using the
effective interest method until settled.
(I)
SEGMENTAL REPORTING
The Chief Operating Decision Maker (the “CODM”) being the
Board of Directors, is of the opinion that the Company is engaged
in a single segment of business, being investment in Digital
Infrastructure Projects.
The internal financial information to be used by the CODM on a
quarterly basis to allocate resources, assess performance and
manage the Company will present the business as a single
segment comprising the portfolio of investments in digital
infrastructure assets.
(J)
FOREIGN CURRENCY TRANSACTIONS
AND BALANCES
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
reporting date are translated at the foreign exchange rate ruling
at that date. Foreign exchange differences arising on translation
are recognised in the Statement of Comprehensive Income as a
revenue or capital item depending on the income or expense to
which they relate.
All exchange differences recognised in income or expenses,
except for those arising on financial instruments measured at fair
value through profit or loss in accordance with IFRS 9, is on an
aggregate net basis. The total amount of exchange differences
recognised in income or expenses includes exchange differences
recognised on subsequent settlement and re-translation to the
closing rate on balances arising from foreign currency transactions.
(K)
REVENUE RECOGNITION
Gains and losses on fair value of investments in the Statement of
Comprehensive Income will represent gains or losses that arise
from the movement in the fair value of the Company’s investment
in D9 Holdco.
Investment income comprises dividend income received from the
Company’s subsidiary. Interest income is recognised in the
Statement of Comprehensive Income using the effective interest
method.
Other income is recognised to the extent that the economic
benefits will flow to the Company and the income can be reliably
measured. Income is measured as the fair value of consideration
received or receivable, excluding discounts, rebates and value
added tax. Other Income comprises fees charged to Investee
Companies under a Management Services Agreement. Other
Income is recognised 100% through revenue.
Dividend income receivable on equity shares is recognised on the
ex-dividend date. Dividend income on equity shares where no
ex-dividend date is quoted is brought into account when the
Company’s right to receive payment is established.
(L)
DIVIDENDS
Dividends payable are recognised as distribution in the financial
statements in the period in which they are paid or when the
Company’s obligation to make payment has been established.
(M)
FUND EXPENSES
Expenses are accounted for on an accruals basis. Share issue
costs of the Company directly attributable to the issue and listing
of shares are charged to stated capital. The Company’s investment
management fee, administration fees and all other expenses are
charged through the Statement of Comprehensive Income.
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC
SORP, supplementary information which analyses the Statement
of Comprehensive Income between items of a revenue and a
capital nature has been presented alongside the Statement of
Comprehensive Income.
Expenses have been charged wholly to the revenue column of the
Statement of Comprehensive Income, except as follows:
•
expenses which are incidental to the acquisition or disposal of
an investment are treated as capital;
•
expenses are treated as capital where a connection with the
maintenance or enhancement of the value of the investments
can be demonstrated; and
•
the investment management fee has been allocated 75% to
revenue and 25% to capital on the Statement of Comprehensive
Income in line with the Board’s expected long-term split of
returns, in the form of income and capital gains respectively,
from the investment portfolio.
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(N)
ACQUISITION COSTS AND DISPOSALS
In line with SORP, acquisition costs and disposals are expensed to
the capital column of the Statement of Comprehensive Income as
they are incurred for investments which are held at fair value
through profit or loss.
(O)
TAXATION
The tax expense represents the sum of the tax currently payable
and deferred tax. The tax currently payable is based on the
taxable profit for the year. Taxable profit differs from net profit as
reported in the Statement of Comprehensive Income because it
excludes items of income or expenses that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible. The Company’s liability for current
tax is calculated using tax rates that were applicable at the balance
sheet date.
Where expenses are allocated between the capital and revenue
accounts, any tax relief in respect of expenses is allocated
between capital and revenue returns on the marginal basis using
the Company’s effective rate of corporation tax for the accounting
period.
Deferred taxation is recognised in respect of all temporary
differences that have originated but not reversed at the financial
reporting date, where transactions or events that result in an
obligation to pay more taxation in the future or right to pay less
taxation in the future have occurred at the financial reporting
date. This is subject to deferred tax assets only being recognised
if it is considered more likely than not that there will be suitable
profits from which the future reversal of the temporary differences
can be deducted. Deferred tax is measured on a non-discounted
basis, at the average tax rates that are expected to apply in the
periods in which the timing differences are expected to reverse
based on tax rates and laws that have been enacted or
substantively enacted by the balance sheet date.
(P)
EARNINGS PER SHARE
The Company presents basic and diluted earnings per share
(“EPS”).
(I)
BASIC EARNINGS PER SHARE
Basic earnings per share is calculated by dividing:
•
the profit attributable to owners of the company, excluding
any costs of servicing equity other than ordinary shares
•
by the weighted average number of ordinary shares
outstanding during the financial year, adjusted for bonus
elements in ordinary shares issued during the year and
excluding treasury shares
(II)
DILUTED EARNINGS PER SHARE
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into account:
•
the after-income tax effect of interest and other financing costs
associated with dilutive potential ordinary shares, and
•
the weighted average number of additional ordinary shares
that would have been outstanding assuming the conversion of
all dilutive potential ordinary shares.
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2022
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Digital 9 Infrastructure plc
204
4.
SIGNIFICANT ACCOUNTING
JUDGEMENTS, ESTIMATES
AND ASSUMPTIONS
In the application of the Company’s accounting policies, the
Directors are required to make judgements, estimates and
assumptions that affect the reported amounts of assets, liabilities,
income and expenses. It is possible that actual results may differ
from these estimates.
(A)
SIGNIFICANT ACCOUNTING
JUDGEMENTS
(I)
INVESTMENT ENTITY
As discussed above in Note 2(b), the Company meets the
definition of an investment entity as defined in IFRS 10 and
therefore its subsidiary entities have not been consolidated in
these financial statements.
(B)
KEY SOURCES OF ESTIMATION
UNCERTAINTY
The estimates and underlying assumptions underpinning our
investments are reviewed on an ongoing basis by both the Board
and the Investment Manager. Revisions to any accounting
estimates are recognised in the period in which the estimate is
revised if the revision affects only that period, or in the period of
the revision and future periods if the revision affects both current
and future periods.
(I)
FAIR VALUE MEASUREMENT OF INVESTMENTS
AT FAIR VALUE THROUGH PROFIT OR LOSS
The fair value of investments in Digital Infrastructure Projects is
calculated by discounting at an appropriate discount rate future
cash flows expected to be generated by the trading subsidiary
companies and received by D9 Holdco, through dividend income,
equity redemptions and Shareholder loan repayments or
restructurings and adjusted in accordance with the IPEV
(International Private Equity and Venture Capital) valuation
guidelines where appropriate to comply with IFRS 13 and IFRS 9.
Estimates such as the forecasted cash flow of the investments, are
believed to be reasonable, the results of which form the basis of
making judgements about the fair value of assets not readily
available from other sources. Discount rates used in the valuation
represent the Investment Manager’s and the Board’s assessment
of the rate of return in the market for assets with similar
characteristics and risk profile.
The discounted cash flow from revenue is forecasted over
an
eight to 15 year period followed by a terminal value based on a
long-term growth rate or exit multiples. The discounted cash flow
comprises a bottom-up analysis of the weighted average cost of
capital over time, using unobservable inputs; and calculation of
the appropriate beta based on comparable listed companies.
A broad range of assumptions are used in the Company’s valuation
models, which are arrived at by reviewing and challenging the
business plans of the Investee Companies with their management.
The Investment Manager exercises its judgement and uses its
experience in assessing the expected future cash flows from each
investment and long-term growth rates. The impact of changes in
the key drivers of the valuation are set out below.
The following significant unobservable inputs were used in the
model:
INFLATION
A long-term inflation sensitivity of plus and minus 1% is presented
above.
INTEREST RATES
The valuations are sensitive to changes in interest rates, a
sensitivity of 1% has been applied to interest rates applicable to
the floating rate debt across the Company’s portfolio.
DISCOUNT RATES
The Investment Manager considers a variance of plus or minus 1%
is to be a reasonable range of alternative assumptions for discount
rates.
The Company has also carried out sensitivity analysis of these
unobservable inputs and the results are disclosed in Note 9.
5. INVESTMENT INCOME
Year ended
Year ended
31 December
31 December
2022
2022
8 January to
31 December
2021
£’000
£’000
£’000
UK dividends
3,226
2,923
Loan interest income
903
–
4,129
2,923
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2022 Annual Report
205
6.
INVESTMENT MANAGEMENT
FEES
Year ended
Year ended
31 December 2022
31 December 2022
Revenue
Revenue
£’000
£’000
Capital
Capital
£’000
£’000
Total
Total
£’000
£’000
Management fees
5,802
1,934
7,736
Total management fees
5,802
1,934
7,736
8 January to 31 December 2021
8 January to 31 December 2021
Revenue
Revenue
£’000
£’000
Capital
Capital
£’000
£’000
Total
Total
£’000
£’000
Management fees
2,214
738
2,952
Total management fees
2,214
738
2,952
The Company and the Investment Manager entered into an
Investment Management Agreement on 8 March 2021 and a Side
Letter dated 17 March 2021.
The Company and Triple Point Investment Management LLP (the
“Investment Manager”) have entered into the Investment
Management Agreement pursuant to which the Investment
Manager has been given responsibility, subject to the overall
supervision of the Board, for active discretionary investment
management of the Company’s Portfolio in accordance with the
Company’s Investment Objective and Policy.
The Investment Manager is appointed to be responsible for risk
management and portfolio management and is the Company’s
AIFM. The Investment Manager has full discretion under the
Investment Management Agreement to make investments in
accordance with the Company’s Investment Policy from time to
time.
This discretion is, however, subject to: (i) the Board’s ability to give
instructions to the Investment Manager from time to time; and (ii)
the requirement of the Board to approve certain investments
where the Investment Manager has a conflict of interest in
accordance with the terms of the Investment Management
Agreement.
With effect from 31 March 2021, the date of admission of the
Ordinary Shares to trading on the Specialist Fund Segment of the
Main Market of the London Stock Exchange, the Company shall
pay the Investment Manager a management fee (the “Annual
Management Fee”) calculated, invoiced and payable quarterly in
arrears based on the Adjusted Net Asset Value which is based on
funds deployed and committed at the relevant quarter date.
The total amount accrued and due to Triple Point at the year-end
was £2.2 million (2021: £1.3 million).
The management fee is calculated at the rates set out below:
Adjusted Net asset value
Annual
Annual
Management
Management
Fee
Fee
(percentage of
(percentage of
Adjusted
Adjusted
Net
Net
Asset Value)
Asset Value)
On such part of the Adjusted Net Asset Value that is up
to and including GBP 500 million
1.0%
On such part of the Adjusted Net Asset Value that is
above GBP 500 million and up to and including
GBP 1 billion
0.9%
On such part of the Adjusted Net Asset Value that
exceeds GBP 1 billion
0.8%
7. OTHER OPERATING EXPENSES
Year ended
Year ended
31 December
31 December
2022
2022
Year ended
31 December
2021
£’000
£’000
£’000
Legal and professional fees
344
153
Auditors’ fees – audit services
1
257
180
Auditors’ fees – non-audit services
2
120
111
Directors’ fees
261
181
Administration and company
secretarial fees
207
163
Premium segment admission costs
677
–
Other administrative expenses
457
224
2,323
1,012
Allocated to Capital
Aborted deals costs
–
648
2,323
1,660
1
Fees excludes audit fees on the financial statements of subsidiaries
totaling
£429,000 (2021 – £271,000).
2
Fees for non-audit services relate to the review of interim financial statements
and limited assurance on environmental, social and corporate governance.
Total fees for non-audit services performed by the Company’s auditors for the
subsidiary companies was £Nil (2021 – £166,000).
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2022
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Digital 9 Infrastructure plc
206
8. TAXATION
The Company is registered in Jersey, Channel Islands but resident
in the United Kingdom for taxation. The standard rate of corporate
income tax currently applicable to the Company is 19% (2021 –
19%).
The financial statements do not directly include the tax charges
for the Company’s intermediate holding company, as D9 Holdco
is held at fair value. D9 Holdco is subject to taxation in the United
Kingdom.
The tax charge for the period is less than the standard rate of
corporation tax in the UK of 19% (2021 – 19%). The differences
are explained below.
Year ended
Year ended
31 December 2022
31 December 2022
Revenue
Revenue
£’000
£’000
Capital
Capital
£’000
£’000
Total
Total
£’000
£’000
Net (loss)/profit before tax
(3,225)
95,294
92,069
Tax at UK corporation tax
standard rate of 19%
(613)
18,106
17,493
Effects of
Gain on financial assets
not taxable
–
(18,473)
(18,473)
Exempt UK dividend
income
(613)
–
(613)
Acquisition expenses
not allowable
–
–
–
Other disallowed
expenses
–
–
–
Excess of allowable
expenses
1,226
367
1,593
Total tax charge
–
–
–
8 January 2021 to 31 December 2021
8 January 2021 to 31 December 2021
Revenue
Revenue
£’000
£’000
Capital
Capital
£’000
£’000
Total
Total
£’000
£’000
Net (loss)/profit before tax
(291)
38,600
38,309
Tax at UK corporation tax
standard rate of 19%
(55)
7,334
7,279
Effects of
Gain on financial assets
not taxable
–
(8,645)
(8,645)
Exempt UK dividend
income
(555)
–
(555)
Acquisition expenses
not allowable
–
1,048
1,048
Other disallowed
expenses
–
123
123
Excess of allowable
expenses
610
140
750
Total tax charge
–
–
–
Investment companies which have been approved by HM
Revenue & Customs under section 1158 of the Corporation Tax
Act 2010 are exempt from tax on capital gains. The Directors are
of the opinion that the Company has complied with the
requirements for maintaining investment trust status for the
purposes of section 1158 of the Corporation Tax Act 2010. The
Company has not provided for deferred tax on any capital gains
or losses arising on the revaluation of investments.
The Company has unrelieved excess management expenses of
£8 million (2021
–
£4 million). It is unlikely that the Company will
generate sufficient taxable profits in the future to utilise these
expenses and therefore no deferred tax asset has been
recognised.
The unrecognised deferred tax asset calculated using a tax rate of
25% amounts to £2 million (2021 – £1 million). The Finance Act
2021 received Royal Assent on 10 June 2021 and the rate of
Corporation Tax of 25% effective from 1 April 2023 has been used
to calculate the potential deferred tax asset.
9.
FINANCIAL ASSET AT FAIR
VALUE THROUGH PROFIT
OR LOSS
As set out in Note 2, the Company designates its interest in its
wholly owned direct subsidiary as a financial asset at fair value
through profit or loss.
Summary of the Company’s valuation:
As at
As at
31 December
31 December
2022
2022
£’000
£’000
Opening balance 1 January 2022
746,229
Equity investments in D9 Holdco
1
48,409
Debt investments in D9 Holdco
29,105
Change in fair value of investments
97,228
920,971
As at
31 December
2021
£’000
Opening balance on incorporation
–
Equity investments in D9 Holdco
1
700,727
Change in fair value of investments
45,502
746,229
1
D9 Holdco was incorporated as a 100% subsidiary undertaking and the amount
reflects the Company’s investments through D9 Holdco.
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2022 Annual Report
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As outlined above, the Company made both equity and debt investments during the period. The Company views the equity and debt
instruments as one investment and measures the performance of these investments together. Therefore, the Company’s equity and
debt investments are presented as investment at fair value through profit or loss in the
Statement of Financial Position.
Included in debt investments as at the year-end is a loan of £29.1 million (2021 - £Nil) due from D9 Holdco upon which interest is
charged at a rate of Sterling Overnight Index Average (SONIA) plus a 3.75% margin. Interest of £0.9 million was charged during the
year on the loan. The debt instrument is measured at fair value as at 31 December 2022.
During the period, the Company through its subsidiary companies, made further investments and acquisitions as follows:
Date
Date
D9
D9
Subsidiaries
Subsidiaries
Investments
Investments
Acquisition
Acquisition
cost
cost
Apr 2022
D9 DC Opco 1 Limited
28
Verne Global London
– Owns a long leasehold property
and data centre operator in Central London
£45.5m
Apr 2022
D9 Wireless Opco 1 Limited
Elio Networks
– Operates fixed wireless access network in Dublin
€60.6m
Apr-Dec 2022
Digital 9 Holdco Limited
Provided Capex
loans to Verne Global Iceland for
the construction of data centres
£38.5m
Jan-Dec 2022
Digital 9 Subsea Limited
EMIC-1 – progress payments for
the construction of Subsea cables
$18.9m
Sep-Dec 2022
Digital 9 Holdco Limited
Provided Capex loans to
Verne Global London
for the construction of data centre
£4.4m
Nov 2022
Digital 9 Holdco Limited
Provided Capex loan to Aqua
Comms for undersea cables construction
$5m
Aug-Dec 2022
Digital 9 Holdco Limited
Provided loans
to Verne Global London
£3.7m
Jul 2022
D9 DC Opco 3 Limited
Verne Global Finland – Operates
data centres in Finland
€135m
Oct 2022
D9 Wireless Opco 2 Limited
Acquired 48.02% voting stake in Arqiva Group Limited – network
and communications service provider, the sole operator of digital
terrestrial television and radio infrastructure in the United Kingdom.
£300m
28.
Subsidiaries of Digital 9 Holdco Limited are the companies that make acquisitions.
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2022
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Digital 9 Infrastructure plc
208
VALUATION PROCESS
The Investment Manager includes a team that is responsible for
carrying out the fair valuation of financial assets for financial
reporting purposes, including Level 3 fair valuations. This valuation
is presented to the Board for its approval and adoption. The
valuation is carried out on a six-monthly basis as at 30 June and
31 December each year and is reported to Shareholders in the
Annual Report and Financial Statements.
VALUATION METHODOLOGY
The Company owns 100% of its subsidiary D9 Holdco. The
Company meets the definition of an investment entity as
described by IFRS 10, as such the Company’s investment in D9
Holdco is valued at fair value. D9 Holdco’s cash, working capital
balances and fair value of investments are included in calculating
fair value of D9 Holdco. The Company acquires underlying
investments in special purpose vehicles (“SPV”) through its
investment in D9 Holdco.
The Investment Manager has carried out fair market valuations of
the SPV investments as at 31 December 2022 and the Directors
have satisfied themselves as to the methodology used, the
discount rates and key assumptions applied, and the valuations.
All SPV investments are at fair value through profit or loss and are
valued using the IFRS 13 framework for fair value measurement.
The following economic assumptions were used in the valuation
of the SPVs.
The main Level 3 inputs used by the Group are derived and
evaluated as follows:
•
The Investment Manager uses its judgment in arriving at the
appropriate discount rate using a capital asset pricing model
to calculate a pre-tax rate that reflects current market
assessment. This is based on its knowledge of the market,
considering intelligence gained from its bidding activities,
discussions with financial advisers in the appropriate market
and publicly available information on relevant transactions.
The bottom-up analysis of the discount rate and the appropriate
beta is based on comparable listed companies. For the Interim
Report, after consultation with its advisers, the Company
decided to make a slight change to its valuation methodology.
Its investments are still being valued using a discounted cash
flow approach, but they are now being valued on a Free Cash
Flow to Equity (“FCFE”) basis rather than Free Cash Flow to
the Firm (“FCFF”). Where Investee Companies do not have
leverage, for the FCFE model, the Investment Manager has
used its knowledge of the market; combined with the ability of
the Investee Companies’ cash flows to support leverage on
their balance sheets to apply an appropriate level of debt over
the period. A cost of equity has been used as the discount rate,
replacing a cost of capital. In theory, there should be no
difference between the FCFE and FCFF approaches, but in
practice there are minor variations. Going forward, the
Company will continue to value its investments on a FCFE
basis,
incorporating
the
investment
companies’
debt
structuring ambitions when confirmed by the respective
Boards of those companies. The portfolio weighted average
cost of equity for investments valued under the FCFE
discounted cash flows approach is 12.64%. The cost of equity
could decline further in the future as the portfolio companies
benefit from lower operational risk as they execute on their
growth plans.
•
To calculate portfolio NAV, 98% of total NAV from investment
companies is valued using the FCFE discounted cash flows
approach with the remaining 2% of investments being valued
at cost.
•
Expected cash inflows are estimated based on terms of the
contracts and the Company’s knowledge of the business and
how the current economic environment is likely to impact it
taking into consideration of growth rate factors.
•
Foreign exchange rates of GBP against USD, EUR and ISK
FAIR VALUE MEASUREMENTS
As set out above, the Company accounts for its interest in its
wholly owned direct subsidiary as a financial asset at fair value
through profit or loss.
IFRS 13 requires disclosure of fair value measurement by level.
The level of fair value hierarchy within the financial assets or
financial liabilities is determined on the basis of the lowest level
input that is significant to the fair value measurement. Financial
assets and financial liabilities are classified in their entirety into
only one of the following 3 levels:
Level 1 – quoted prices (unadjusted) in active markets for identical
assets or liabilities;
Level 2 – inputs other than quoted prices included within Level 1
that are observable for the assets or liabilities, either directly (i.e.,
as prices) or indirectly (i.e. derived from prices); and
Level 3 – inputs for assets or liabilities that are not based on
observable market data (unobservable inputs).
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2022 Annual Report
209
The following table presents the Company’s financial assets and
financial liabilities measured and recognised at fair value at
December 2022 and 31 December 2021:
Date of
Date of
valuation
valuation
Total
Total
£’000
£’000
Quoted
Quoted
prices in
prices in
active
active
markets
markets
(Level 1)
(Level 1)
£’000
£’000
Significant
Significant
observable
observable
inputs
inputs
(Level 2)
(Level 2)
£’000
£’000
Significant
Significant
unobservable
unobservable
inputs
inputs
(Level 3)
(Level 3)
£’000
£’000
Assets measured
at fair value:
Equity
investment in
D9 Holdco
31 December
2022
891,866
–
–
891,866
Debt
investment in
D9 Holdco
31 December
2022
29,105
–
–
29,105
Assets measured
at fair value:
Equity
investment in
D9 Holdco
31 December
2021
746,229
–
–
746,229
There have been no transfers between Level 1 and Level 2 during
the period, nor have there been any transfers between Level 2
and Level 3 during the year.
The Company’s investments are reported as Level 3 in accordance
with IFRS 13 where external inputs are “unobservable” and value
is the Directors’ best estimate, based upon advice from relevant
knowledgeable experts.
FAIR VALUE MEASUREMENTS USING
SIGNIFICANT UNOBSERVABLE INPUTS
(LEVEL 3)
As set out within the significant accounting estimates and
judgements in Note 3(b), the valuation of the Company’s financial
asset is an estimation uncertainty. The sensitivity analysis was
performed based on the current capital structure and expected
performance of the Company’s investment in D9 Holdco. For
each of the sensitivities, it is assumed that potential changes
occur independently of each other with no effect on any other
base case assumption, and that the number of investments in the
SPVs remains static throughout the modelled life. The following
table summarises the quantitative information about the
significant unobservable inputs used in Level 3 fair value
measurement and the changes to the fair value of the financial
asset if these inputs change upwards or downwards by 1%:
Unobservable inputs
Unobservable inputs
Valuation if
Valuation if
rate
rate
increases
increases
£’000
£’000
Movement
Movement
in valuation
in valuation
£’000
£’000
Valuation
Valuation
if rate
if rate
decreases
decreases
£’000
£’000
Movement
Movement
in valuation
in valuation
£’000
£’000
Inflation
954,328
33,357
890,539
(30,432)
Interest rates
869,808
(51,163)
972,411
51,440
Discount rates
763,774
(157,197)
1,111,450
190,479
10.
TRADE AND OTHER
RECEIVABLES
31 December
31 December
2022
2022
31 December
2021
£’000
£’000
£’000
Amounts due from subsidiary
undertakings
601
209
Subsidiary audit fees
816
19
1,417
228
The Directors consider that the carrying value of trade and other
receivables approximate their fair value.
11. CASH AND CASH EQUIVALENT
31 December
31 December
2022
2022
31 December
2021
£’000
£’000
£’000
Foreign currencies account
–
27
Cash at bank
30,001
11,284
30,001
11,311
Foreign currency accounts refer to funds held in USD and Euro
currencies. Foreign currency balances are subject to foreign
currency exchange risks, but the risk is considered insignificant.
The Directors consider that the carrying value of cash and cash
equivalents approximate their fair value.
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2022
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Financial Statements
Information
Digital 9 Infrastructure plc
210
12. TRADE AND OTHER PAYABLES
31 December
31 December
2022
2022
31 December
2021
£’000
£’000
£’000
Trade payables
216
–
Accruals
2,553
1,912
2,769
1,912
The Directors consider that the carrying value of trade and other
payables approximate their fair value. All amounts are unsecured
and due for payment within one year from the reporting date.
£2.2 million (2021: £1.3 million) of the above accruals figure
relates to fees payable to the Investment Manager.
13. STATED CAPITAL
Ordinary shares of no par value
Ordinary shares of no par value
Allotted, issued
and fully paid:
No of shares
Price
31 December
2021
£000’s
Allotted following
admission to London
Stock Exchange
31 March 2021
300,000,000
100.0p
300,000
10 June 2021
166,666,667
105.0p
175,000
1 October 2021
255,813,953
107.5p
275,000
Ordinary Shares
at 31 December 2021
722,480,620
750,000
Dividends paid (Note 14)
(17,837)
Share issue costs
(14,616)
Stated capital
at 31 December 2021
717,547
Allotted, issued
and fully paid:
No of shares
Price
31 December
2022
£000’s
As at 1 January 2022
722,480,620
717,547
Allotted during
the period
28 January 2022
88,148,880
108.0p
95,201
8 July 2022
54,545,454
110.0p
60,000
Ordinary Shares
at 31 December 2022
865,174,954
872,748
Dividends paid (Note 14)
(50,274)
Share issue costs
(3,232)
Stated capital
at 31 December 2022
819,242
Shareholders are entitled to all dividends paid by the Company
and, on a winding up, provided the Company has satisfied all its
liabilities, the shareholders are entitled to all of the residual assets
of the Company.
On 28 January 2022, the Company raised gross proceeds of
£95.2 million via the Placing of new Ordinary Shares at a price of
108.0p. Further 88,148,880 Ordinary Shares were admitted to
trading on the London Stock Exchange.
On 8 July 2022, the Company announced it raised £60 million via
a placing and offer for subscription of new ordinary shares at a
price of 110.0p. Subsequently, 54,545,454 new ordinary shares
were issued and admitted to trading on the London Stock
Exchange.
14. DIVIDENDS
Dividend
Dividend
per share
per share
Year ended
Year ended
31 December
31 December
2022
2022
£’000
£’000
8 January
2021 to 31
December
2021
£’000
Dividends period 31 March 2021
to 30 June 2021
1.5 pence
–
7,000
Dividend period 1 July 2021
to 30 September 2021
1.5 pence
–
10,837
Dividends period 1 October 2021
to 31 December 2021
1.5 pence
12,159
–
Dividend period
1 January 2022
to 31 March 2022
1.5 pence
12,159
–
Dividend period 1 April 2022
to 30 June 2022
1.5 pence
12,978
–
Dividend period 1 July 2022
to 30 September 2022
1.5 pence
12,978
–
Total dividends paid
50,274
17,837
In addition to the above dividends, since year end the Directors
have recommended the payment of an interim dividend of
£12,977,624 equivalent to 1.50 pence per fully paid ordinary
share. The aggregate amount of the proposed dividend expected
to be paid on or around 31 March 2023 out of reserves at 31
December 2022, but not recognised as a liability at year end.
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2022 Annual Report
211
15.
SUBSIDIARIES
At the reporting date, the Company had one wholly owned subsidiary, being its 100% investment in Digital 9 Holdco Limited. The
following table shows subsidiaries of the Company. As the Company is regarded as an Investment Entity as referred to in Note 2, these
subsidiaries have not been consolidated in the preparation of the financial statements.
Name
Name
Place
Place
of business
of business
% Interest
% Interest
Principal activity
Principal activity
Registered office
Registered office
Digital 9 Holdco Limited
UK
100%
Holding company
1 King William Street, London EC4N 7AF
The following companies are held by D9 Holdco Limited and its underlying subsidiaries:
Digital 9 DC Limited
UK
100%
Intermediate holding company
1 King William Street, London EC4N 7AF
Digital 9 Fibre Limited
UK
100%
Intermediate holding company
1 King William Street, London EC4N 7AF
Digital 9 Wireless Limited
UK
100%
Intermediate holding company
1 King William Street, London EC4N 7AF
Digital 9 Subsea Holdco Limited
UK
100%
Intermediate holding company
1 King William Street, London EC4N 7AF
Digital 9 Subsea Limited
1
UK
100%
Subsea fibre optic network
1 King William Street, London EC4N 7AF
Digital 9 Seaedge Limited
2
UK
100%
Leaseholding company
1 King William Street, London EC4N 7AF
D9 DC Opco 1 Limited
2
UK
100%
Intermediate holding company
1 King William Street, London EC4N 7AF
D9 DC Opco 2 Limited
2
UK
100%
Intermediate holding company
1 King William Street, London EC4N 7AF
D9 DC Opco CAN 1
Limited
14
Canada
100%
Dormant
44 Chipman Hill Suite 1000 Saint John
NB E2L 2A9 Canada
D9 DC Opco 3 Limited
2
UK
100%
Intermediate holding company
1 King William Street, London EC4N 7AF
D9 Wireless Opco 1 Limited
3
UK
100%
Intermediate holding company
1 King William Street, London EC4N 7AF
D9 Wireless Midco 1 Limited
3
UK
100%
Intermediate holding company
1 King William Street, London EC4N 7AF
D9 Wireless Opco 2 Limited
4
UK
100%
Intermediate holding company
1 King William Street, London EC4N 7AF
D9 Wireless Opco 3 Limited
3
UK
100%
Dormant
1 King William Street, London EC4N 7AF
D9 Fibre Opco 1 Limited
13
UK
100%
Dormant
1 King William Street, London EC4N 7AF
D9 Fibre Opco 2 Limited
13
UK
100%
Intermediate holding company
1 King William Street, London EC4N 7AF
Giggle Fibre Limited
16
UK
100%
Intermediate holding company
1 King William Street, London EC4N 7AF
Giggle Broadband
Limited
15
Scotland
100%
Fibre broadband services
Floor 2, Framework Building, 124 St Vincent
Street,
Glasgow Scotland G2 5HF
Aqua Comms Designated Activity
Company
1
Ireland
100%
Holding company
The Exchange Building, 4 Foster Place, Dublin 2
Aqua Comms Connect Limited
5
Ireland
100%
Intermediate holding company
The Exchange Building, 4 Foster Place, Dublin 2
America Europe Connect 2
Limited
5
Ireland
100%
Subsea fibre optic network
The Exchange Building, 4 Foster Place, Dublin 2
America Europe Connect 2
Denmark ApS
5
Denmark
100%
Subsea fibre optic network
c/o Bech-Bruun Langeline Alle 35, Copenhagen
North Sea Connect Denmark ApS
5
Denmark
100%
Subsea fibre optic network
c/o Bech-Bruun Langeline Alle 35, Copenhagen
Aqua Comms Management (UK)
Limited
5
UK
100%
Management company
85 Great Portland Street, London W1W 7LT
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2022
Company Overview
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Digital 9 Infrastructure plc
212
Name
Name
Place
Place
of business
of business
% Interest
% Interest
Principal activity
Principal activity
Registered office
Registered office
Aqua Comms Denmark ApS
5
Denmark
100%
Subsea fibre optic network
c/o Bech-Bruun Langeline Alle 35, Copenhagen
Aqua Comms (Ireland) Limited
5
Ireland
100%
Subsea fibre optic network
The Exchange Building, 4 Foster Place, Dublin 2
America Europe Connect Limited
5
Ireland
100%
Subsea fibre optic network
The Exchange Building, 4 Foster Place, Dublin 2
Celtix Connect Limited
5
Ireland
100%
Subsea fibre optic network
The Exchange Building, 4 Foster Place, Dublin 2
Aqua Comms Management
Limited
5
Ireland
100%
Management company
The Exchange Building, 4 Foster Place, Dublin 2
Sea Fibre Networks Limited
5
Ireland
100%
Subsea fibre optic network
The Exchange Building, 4 Foster Place, Dublin 2
Aqua Comms (IOM) Limited
5
Isle of Man
100%
Subsea fibre optic network
c/o PCS Limited, Ground Floor, Murdoch
Chambers, South Quay, Douglas, IOM IM1 5AS
Aqua Comms (UK) Limited
5
UK
100%
Subsea fibre optic network
85 Great Portland Street, London W1W 7LT
Aqua Comms Services Limited
5
Ireland
100%
Subsea fibre optic network
The Exchange Building, 4 Foster Place, Dublin 2
America Europe Connect (UK)
Limited
5
UK
100%
Subsea fibre optic network
85 Great Portland Street, London W1W 7LT
America Europe Connect 2
USA Inc
5
USA
49%
Subsea fibre optic network
251 Little Falls Drive, Wilmington, Delaware,
19808 USA
Aqua Comms (Americas) Inc
5
USA
49%
Subsea fibre optic network
3500 South Dupont Highway, Dover, Delaware
19901 Kent, United States
Verne Holdings Limited
2
UK
100%
Holding company
1 King William Street, London EC4N 7AF
Verne Global GmbH
17
Germany
100%
Data centre solutions
Äußere Sulzbacher Straße 118, 90491 Nürnberg
Verne Global hf.
6
Iceland
100%
Data centre operation
Valhallarbraut 868, 262 Reykjanesbaer, Iceland
Verne Global Ltd
17
UK
100%
Data centre solutions
1 King William Street, London EC4N 7AF
Verne Global Inc.
17
USA
100%
Data centre solutions
1825 Washington Street, Canton MA 02021 USA
GAData Holdings Limited
7
Jersey
100%
Holding company
28 Esplanade, St Helier, Jersey JE3 3QA
Volta Data Centres Limited
8
UK
100%
Data centre operator
36-43 Great Sutton Street London EC1V 0AB
GSS Propco Limited
8
Jersey
100%
Property investment
28 Esplanade, St Helier, Jersey JE3 3QA
Leeson Telecom Limited
9
Ireland
100%
Enterprise broadband
6-9 Trinity St, Dublin, D02 EY47, Ireland
Leeson Telecom One Limited
9
Ireland
100%
Enterprise broadband
6-9 Trinity St, Dublin, D02 EY47, Ireland
Leeson Telecom Holdings
Limited
10
Ireland
100%
Enterprise broadband
6-9 Trinity St, Dublin, D02 EY47, Ireland
W R Computer Network Limited
10
Ireland
100%
Enterprise broadband
6-9 Trinity St, Dublin, D02 EY47, Ireland
Ficolo Oy
11
Finland
100%
Data centre operator
Konepajanranta 4, 28100 Pori, Finland
Arqiva Group Limited
12
UK
48.02%
Holding Company
Crawley Court, Winchester, Hampshire SO21 2QA
1
Held by Digital 9 Subsea Holdco
2
Held by Digital 9 DC Limited
3
Held by Digital 9 Wireless Limited
4
Held by D9 Wireless Midco 1 Limited
5
Held by Aqua Comms Designed Activity
Company and its intermediate holding companies
6
Held by Verne Holdings Limited
7
Held by D9 DC Opco 1 Limited
8
Held by GAData Holdings Limited
9
Held by D9 Wireless Opco 1 Limited
10
Held by Leeson Telecom Limited
11
Held by D9 DC Opco 3 Limited
12
Held by D9 Wireless Opco 2 Limited
13
Held by Digital 9 Fibre Limited
14
Held by D9 Opco 2 Limited
15
Held by Giggle Fibre Limited
16
Held by D9 Fibre Opco 2 Limited
17
Held by Verne Global hf
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2022 Annual Report
213
16.
TRANSACTIONS WITH THE
INVESTMENT ADVISERS AND
RELATED PARTY DISCLOSURE
DIRECTORS
Directors are remunerated for their services at such rate as the
directors shall from time to time determine. The Directors are
each paid an annual fee of £40,000 other than the Chair of the
Audit Committee and Chair of the Risk Committee who are each
entitled to an additional £5,000 and the Chair of the Company
who is entitled to receive an annual fee of £75,000.
Director
Director
Number
Number
of Ordinary
of Ordinary
shares held
shares held
*Dividends paid
*Dividends paid
31 December
31 December
2022
2022
*Dividends
*Dividends
paid 31
paid 31
December
December
2021
2021
Jack Waters
(resigned 23 May 2022)
70,000
£1,050
£1,800
Philip Jordan
(from 23 May 2022)
73,909
£1,518
–
Aaron Le Cornu
(from 1 April 2022)
72,500
£2,437
–
Lisa Harrington
38,604
£2,316
£879
Keith Mansfield
86,429
£3,934
£1,479
Monique O’Keefe
(resigned 23 May 2022)
10,000
£150
£300
Charlotte Valeur
10,000
£600
£300
* - Dividends disclosed for the period from the date of appointment and up to the
date of resignation.
INVESTMENT MANAGER
The Company considers Triple Point as the Investment Manager
as a key management personnel and therefore a related party.
Further details of the investment management contract and
transactions with the Investment Manager are disclosed in Note 6.
TRANSACTION WITH SUBSIDIARY
UNDERTAKINGS
During the period, the Company made equity investments in
Digital 9 Holdco Limited totalling £48.4 million (2021 - £700.7
million).
During the period, the Company received dividend income of
£3.2 million (2021 – £2.9 million) from Digital 9 Holdco Limited.
As per Note 18, the Company, through its subsidiary undertakings
has capital expenditure commitments totalling £46 million
(2021 - £Nil).
LOAN TO SUBSIDIARY UNDERTAKING
As at the year end the Company provided a loan of £29.5 million
(2021 - £Nil) to Digital 9 Holdco Limited. Interests of £0.9 million
(2021 - £Nil) were charged on the loan.
AMOUNTS DUE FROM SUBSIDIARY
UNDERTAKINGS
Included within Note 10 is an amount due from subsidiary
undertakings:
Subsidiary undertakings:
Subsidiary undertakings:
31 December
31 December
2022
2022
£’000
£’000
31 December
2021
£’000
Aqua Comms DAC
160
–
D9 DC Opco 1 Limited
32
–
D9 DC Opco 3 Limited
34
–
D9 Wireless Opco 1 Limited
30
–
Digital 9 Seaedge Limited
15
–
Digital 9 Subsea Limited
42
–
Verne Holdings Limited
288
–
Digital 9 DC Limited
–
193
Digital 9 Fibre Limited
–
16
601
209
17.
EVENTS AFTER THE REPORTING
PERIOD
DIVIDENDS
The Company announced a dividend of 1.5 pence per share
equivalent to £12,977,624 with respect to the period from 1
October 2022 to 31 December 2022 to be paid on 31 March
2023 to shareholders on the register on 17 March 2023.
An additional £25m of the RCF was drawn post-period end to
fund additional capital expenditure at Verne Global London and
Aqua Comms.
The Directors have determined that there have been no other
significant events after the reporting date requiring recognition or
disclosure in these financial statements.
18.
COMMITMENTS AND
CONTINGENT LIABILITIES
The Company, through its subsidiary undertakings has committed
£46.3 million for capital expenditures at 31 December 2022 (2021
- £Nil). Please see page 220 for a breakdown of committed
expenditures.
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2022
Company Overview
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Financial Statements
Information
Digital 9 Infrastructure plc
214
19.
FINANCIAL RISK
MANAGEMENT
The Company is exposed to market risk, interest rate risk, credit
risk and liquidity risk in the current and future periods. The Board
oversees the management of these risks. The Board’s policies for
managing each of these risks are summarised below.
MARKET RISK
The Company’s activities are exposed to a potential reduction in
demand for internet, data centre or cell network service and
competition for assets and services. Whilst the Company seeks to
invest in a diverse portfolio of digital infrastructure, demand for
the Company’s digital infrastructure assets is dependent on
demand for internet, data, network or other telecom services and
the continued development of the internet. Furthermore, the
ongoing use of the infrastructure services D9 is providing requires
competitive prices which are cost-effective to the end users.
Some factors that could impact the volume of demand or the
ability to provide competitive pricing includes:
•
continued development and expansion of the internet as a
secure communications medium and marketplace for the
distribution and consumption of data and video
•
continued growth in cloud hosted services as a delivery
platform
•
ongoing growth in demand for access to high-capacity
broadband
•
continued focus on technologies, assets and services which
can offer competitive pricing and high-quality reliable services
•
continued partnership with suppliers and hyperscalers to
maintain and provide the most cost-effective access
Variations in any of the above factors can affect the valuation of
assets held by the Company and as a result impact the financial
performance of the Company.
MARKET RISK ARISING FROM FOREIGN
CURRENCY RISK
Foreign currency risk is the risk that the fair value or future cash
flows of a financial instrument translated into GBP will fluctuate
because of changes in foreign exchange rates.
The Group had the following foreign currency balances and their
GBP equivalents at the end of the reporting period:
USD
USD
$’000
$’000
EUR
EUR
€’000
€’000
GBP
GBP
£’000
£’000
Bank balances
12,344
1,192
62,339
Investment at fair value
642,932
215,781
404,923
The Company is primarily exposed to changes in USD/GBP and
EUR/GBP exchange rates as its investments in Aqua Comms DAC
and Verne Holdings Limited held by D9 Holdco and its subsidiary
are primarily in USD and to changes in EUR/GBP exchange rates
as its investments in Leeson Telecom and Ficolo Oy are primarily
in EUR. The sensitivity of profit or loss to changes in the exchange
rates arises mainly on the fair value of investment. To demonstrate
the impact of foreign currency risk (in GBP), a 5% increase/
decrease in USD/GBP and EUR/GBP rates are measured as this is
in line with the relevant change in the rate during the last six
months.
Impact on post
Impact on post
tax profit
tax profit
£’000
£’000
Impact on other
Impact on other
components of
components of
equity
equity
£’000
£’000
USD/GBP and EUR/GBP exchange rates
– increase by 5%
34,947
34,947
USD/GBP and EUR/GBP exchange rates
– decrease by 5%
(34,947)
(34,947)
The above figures represent impacts of changes in USD/GBP and
EUR/GBP exchange rates. The Company’s exposure to other
foreign exchange movements is not material.
INTEREST RATE RISK
Interest rate risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market interest rates.
The Company’s main interest rate risk arises in the valuation of the
financial asset and loan to Digital 9 Holdco where interest rate is
one of the key assumptions of the Weighted Average Cost of
Capital. Exposure to interest rate risk on the financial asset
valuation is included in Note 9 above.
The Company’s interest rate risk on interest bearing financial
assets is limited to interest earned on cash deposit. Exposure to
interest rate risk on the liquidity funds is immaterial to the
Company.
CREDIT RISK
Credit risk is the risk that a counterparty of the Company will be
unable or unwilling to meet a commitment that it has entered with
the Company. It is a key part of the pre-investment due diligence.
The credit standing of the companies which we intend to lend or
invest is reviewed, and the risk of default estimated for each
significant counterparty position. monitoring is ongoing and
period end positions are reported to the Board.
Credit risk arises on the debt investments held at fair value
through profit or loss, this includes loan provided to Digital 9
Holdco Limited. The Company’s debt investments at fair value
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2022 Annual Report
215
through profit or loss is considered to have low credit risk, and
management have not recognized any loss allowance recognised
during the year.
Credit risk also arises from cash and cash equivalents, derivative
financial instruments and deposits with banks and financial
institutions. The Company and its subsidiaries may mitigate their
risk on cash investments and derivative transactions by only
transacting with major international financial institutions with high
credit ratings assigned by international credit rating agencies.
The Company’s cash and cash equivalents are all deposited with
Barclays Bank plc which has a Fitch rating of A+.
The Company had no derivatives during the period.
The carrying value of the investments, trade and other receivables
and cash represent the Company’s maximum exposure to credit
risk.
LIQUIDITY RISK
Liquidity risk is the risk that the Company may not be able to meet
its financial obligations as they fall due. Prudent liquidity risk
management implies maintaining sufficient cash and marketable
securities and the availability of funding through an adequate
amount of committed credit facilities to meet obligations when
due and to close out market positions.
The Investment Manager and the Board continuously monitor
forecast and actual cash flows from operating, financing, and
investing activities to consider payment of dividends, repayment
of trade and other payables or funding further investing activities.
The Company ensures it maintains adequate reserves and will put
in place banking facilities and it will continuously monitor forecast
and actual cash flows to seek to match the maturity profiles of
financial assets and liabilities. Further analysis on the Company’s
liquidity is included within the Basis of Preparation – Going
Concern assessment.
31 December 2022
31 December 2022
Total
Total
£’000
£’000
1-3
1-3
months
months
£’000
£’000
3-12
3-12
months
months
£’000
£’000
1 -2
1 -2
years
years
£’000
£’000
2- 5
2- 5
years
years
£’000
£’000
More than
More than
5 years
5 years
£’000
£’000
Trade
payables
216
216
–
–
–
–
Accruals
2,553
–
2,553
–
–
–
2,769
216
2,553
–
–
–
31 December 2021
31 December 2021
Total
Total
£’000
£’000
1-3
1-3
months
months
£’000
£’000
3-12
3-12
months
months
£’000
£’000
1 -2
1 -2
years
years
£’000
£’000
2- 5
2- 5
years
years
£’000
£’000
More than
More than
5 years
5 years
£’000
£’000
Accruals
1,912
–
1,912
–
–
–
1,912
–
1,912
–
–
–
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2022
Company Overview
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Governance
Financial Statements
Information
Digital 9 Infrastructure plc
216
20. FINANCIAL INSTRUMENTS
Cash at
bank balances
at amortised
cost
£’000
Financial
assets at
amortised
cost
£’000
Financial
liabilities at
amortised
cost
£’000
Financial
assets at fair
value through
profit or loss
£’000
Total
value
£’000
Year ended 31 December 2022
Non-current assets:
Equity investments held at fair value through profit or loss
–
–
–
891,866
891,866
Debt investment held at fair value through profit or loss
–
–
–
29,105
29,105
Current assets:
Trade and other receivables
–
1,417
–
–
1,417
Cash and cash equivalents
30,001
–
–
–
30,001
Total Assets
30,001
1,417
–
920,971
952,389
Current liabilities:
Trade and other payables
–
–
(2,769)
–
(2,769)
Total liabilities
–
–
(2,769)
–
(2,769)
Net assets
30,001
1,417
(2,769)
920,971
949,620
Period ended 31 December 2021
Non-current assets:
Equity investments held at fair value through profit or loss
–
–
–
746,229
746,229
Current assets:
Trade and other receivables
–
228
–
–
228
Cash and cash equivalents
11,311
–
–
–
11,311
Total Assets
11,311
228
–
746,229
757,768
Current liabilities:
Trade and other payables
–
–
(1,912)
–
(1,912)
Total liabilities
–
–
(1,912)
–
(1,912)
Net assets
11,311
228
(1,912)
746,229
755,856
21. CAPITAL MANAGEMENT
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to
provide returns for shareholders and to maintain an optimal capital structure to minimise the cost of capital.
In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return
capital to shareholders or issue new shares.
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2022 Annual Report
217
22. EARNINGS PER SHARE
Earnings per share (“EPS”) amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the
Company by the weighted average number of Ordinary Shares in issue during the period. As there are no dilutive instruments
outstanding, both basic and diluted earnings per share are the same.
The calculation of basic and diluted earnings per share is based on the following:
Calculation of Basic
Calculation of Basic
Earnings per share
Earnings per share
Year ended 31 December 2022
Year ended 31 December 2022
Revenue
Revenue
Capital
Capital
Total
Total
Net (loss)/profit attributable to ordinary shareholders (£’000)
(3,225)
95,294
92,069
Weighted average number of ordinary shares
829,961,949
829,961,949
829,961,949
Earnings per share
– basic and diluted
(0.39p)
11.48p
11.09p
There is no difference between basic or diluted Loss per Ordinary Share as there are no convertible securities.
There is no difference between the weighted average Ordinary or diluted number of Shares.
Calculation of Weighted Average
Calculation of Weighted Average
Number of Shares in Issue
Number of Shares in Issue
01-Jan-22
01-Jan-22
28-Jan-22
28-Jan-22
12-Jul-22
12-Jul-22
31-Dec-22
31-Dec-22
No of days
365
338
173
365
Ordinary Shares
No. of shares
Opening Balance
722,480,620
722,480,620
810,629,500
865,174,954
New Issues
–
88,148,880
54,545,454
–
Closing Balance
722,480,620
810,629,500
865,174,954
865,174,954
Weighted Average
722,480,620
81,628,278
25,853,051
829,961,949
Calculation of Basic Earnings per share
Calculation of Basic Earnings per share
Period ended 31 December 2021:
Period ended 31 December 2021:
Revenue
Revenue
Capital
Capital
Total
Total
Net profit attributable to ordinary shareholders (£’000)
(291)
38,600
38,309
Weighted average number of ordinary shares
392,462,432
392,462,432
392,462,432
Earnings per share – basic and diluted
(0.07p)
9.84p
9.77p
There is no difference between basic or diluted Loss per Ordinary Share as there are no convertible securities.
There is no difference between the weighted average Ordinary or diluted number of Shares.
Calculation of Weighted Average
Calculation of Weighted Average
Number of Shares in Issue
Number of Shares in Issue
08-Jan-21
08-Jan-21
31-Mar-21
31-Mar-21
10-Jun-21
10-Jun-21
01-Oct-21
01-Oct-21
31-Dec-21
31-Dec-21
No of days
358
276
205
92
358
Ordinary Shares
No. of shares
Opening Balance
–
2
300,000,000
466,666,667
722,480,620
New Issues
2
299,999,998
166,666,667
255,813,953
–
Closing Balance
2
300,000,000
466,666,667
722,480,620
722,480,620
Weighted Average
2
231,284,915
95,437,617
65,739,899
392,462,433
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2022
Company Overview
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Financial Statements
Information
Digital 9 Infrastructure plc
218
23.
NET ASSET VALUE PER SHARE
Net Asset Value per share is calculated by dividing net assets in the Statement of Financial Position attributable to Ordinary equity
holders of the parent by the number of Ordinary Shares outstanding at the end of the period. Although there are no dilutive instruments
outstanding, both basic and diluted NAV per share are disclosed below.
Net asset values have been calculated as follows:
31 December 2022
31 December 2022
31 December 2021
31 December 2021
Net assets at end of period (£’000)
£949,620
£755,856
Shares in issue at end of period
865,174,954
722,480,620
IFRS NAV per share
– basic and dilutive
109.76p
104.62p
24.
ULTIMATE CONTROLLING PARTY
In the opinion of the Board, on the basis of the shareholdings advised to them, the Company has no ultimate controlling party.
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2022 Annual Report
219
We assess our performance using a variety of measures that are not specifically defined under IFRS. These alternative performance
measures are termed “APMs”. The APMs that we use may not be directly comparable with those used by other companies.
These APMs are used to present an alternative view of how the Company has performed over the year and are all financial measures
of historical performance.
The Sections below define our APMs and how they relate to the Company and its subsidiaries.
1. ONGOING CHARGES RATIO
Ongoing Charges Ratio is a figure published annually by an investment company which shows the drag on performance caused by
operational expenses.
Annualised
Annualised
to 31 Dec
to 31 Dec
2022
2022
£’000
£’000
Period
Period
to 31 Dec
to 31 Dec
2021
2021
£’000
£’000
Annualised
Annualised
to 31 Dec
to 31 Dec
2021
2021
£’000
£’000
Management fee
7,736
2,952
4,209
Other operating expenses
1,645
1,012
1,253
Total management fee and other operating expenses
(a)
9,381
3,964
5,462
Average undiluted net assets
(b)
852,738
–
524,904
Ongoing charges ratio % (c = a/b)(%)
(c)
1.10%
1.04%
2.
TOTAL RETURN
Total NAV return is a way to measure the performance of an investment company. A fund’s NAV return is the percentage change
between its net asset value at the beginning and end of a particular period plus dividends paid. This is relevant to the Company, as D9
targets a 10% return through a combination of dividends and capital growth.
31 December
31 December
2022
2022
31 December
31 December
2021
2021
Closing NAV per share (pence)
109.76p
104.62p
Add back dividends paid (pence)
9.00p
3.00p
Adjusted closing NAV (pence)
118.76p
107.62p
Adjusted NAV per share as at the period end less NAV per share at
31 December
2021 (31 March 2021)
(118.76p –
107.62p)
(a)
(107.62p – 98.00p)
NAV per share at 31 December 2021 (31 March 2021)
107.62p
(b)
98.00p
Total return % (c = a/b)(%)
10.40% (c)
9.82%
The above return is for the period from IPO to 31 December 2022 (31 December 2021 – 13.09% annualised).
Financial Statements
Unaudited Alternative Performance Measures
For the year ended 31 December 2022
Financial Statements
Unaudited Alternative Performance Measures
For the year ended 31 December 2022
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Digital 9 Infrastructure plc
220
3.
DIVIDEND COVER
The Company’s explanation of Dividend cover and how it is calculated is included in the Investment Managers Report. Dividend cover
reflects how the cashflows from investee companies before reinvestment can cover the Company’s dividends.
Year to
Year to
31 December
31 December
2022
2022
£’000
£’000
Period to
Period to
31 December
31 December
2021
2021
£’000
£’000
Operating cash flows
18,695
11,882
Dividends paid and declared for the period
51,092
29,996
Dividends covered by operating cash flows
40.00%
39.61%
Dividend cover is measured as total dividends paid and payable at 31 December 2022, as a percentage of total operating cash flows
for the Company and its subsidiaries.
4.
MARKET CAPITALISATION
Market capitalisation refers to the market value of a company’s equity. It is a simple but important measure that is calculated by
multiplying a company’s shares outstanding by its price per share.
31 December
31 December
2022
2022
£’000
£’000
31 December
31 December
2021
2021
£’000
£’000
Closing share price at period end
(a)
86.4p
113.8p
Number of shares in issue at period end
(b)
865,174,954
722,480,620
Market capitalisation (c) = (a) x (b)
(c)
£747,511,160
£822,182,946
5.
CAPITAL DEPLOYED
This is a measure of amounts invested into the portfolio of investments less any amounts relating to refinance proceeds or sell-downs.
Deployment including committed fund
Deployment including committed fund
Deployed
Deployed
Committed fund
Committed fund
31 December 2022
31 December 2022
£’000
£’000
31 December 2021
31 December 2021
£’000
£’000
Aqua Comms DAC
£176,077
£13,487
£189,564
£175,615
EMIC-1
£22,617
£24,757
£47,374
£22,796
Verne Global Iceland
£292,441
–
£292,441
£247,190
SeaEdge UK1
£16,335
–
£16,355
£16,292
Elio Networks
£50,807
–
£50,807
–
Verne Global London
£53,642
£7,776
£61,418
–
Verne Global Finland
£118,927
–
£118,927
–
Arqiva
£462,998
–
£462,998*
–
Giggle
£3,000
–
£3,000
–
Total deployment
£1,196,864
£46,020
£1,242,884
£461,893
* – Includes £163 million Vendor Loan Notes issued by D9 Wireless Opco 2 Limited
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221
6.
TOTAL SHAREHOLDER RETURN
A measure of the return based upon share price movements over the period and assuming reinvestment of dividends. This APM, allows
shareholders to establish their return by using share price as a metric rather than NAV.
31 December
31 December
2022
2022
31 December
31 December
2021
2021
Closing share price (pence)
86.40
113.80
Add back effect of dividend reinvestment (pence)
5.14
3.14
Adjusted closing share price (pence)
(a)
91.54
116.94
Opening share price at beginning of the year (2021 at IPO) (pence)
(b)
113.80
100.00
Total shareholder return (c = ((a-b)/(b)) (%)
(c)
(19.56)%
16.94%
The above return is for the year to 31 December 2022 (31 December 2021 – from IPO to 31 December 2021 equates to 23.08%
annualised).
Information
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Financial Statements
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224
Information
Glossary and Definitions
“Adjusted Gross Asset
Value”
the aggregate value of the total assets of the Company as determined with the accounting principles
adopted by the Company from time to time as adjusted to include any third-party debt funding
drawn by, or available to, any Group company (which, for the avoidance of doubt, excludes Investee
Companies);
“Admission”
the admission of the Company’s ordinary share capital to trading on the Premium Segment of the
Main Market of the London Stock Exchange;
“Aqua Comms”
Aqua Comms Designation Activity Company, a private company limited by shares incorporated and
registered in Ireland;
“AIC Code”
AIC Code of Corporate Governance produced by the Association of Investment Companies;
“AIC Guide”
AIC Corporate Governance Guide for Investment Companies produced by the Association of
Investment Companies;
“AIFM”
the alternative investment fund manager of the Company being Triple Point Investment Management
LLP;
“AIFMD”
the EU Alternative Investment Fund Managers Directive 2011/61/EU;
“Board”
the Directors of the Company from time to time;
“CAGR”
compound annual growth rate;
“Conservative”
in respect of the Company’s borrowing policy, the level of any short term revolving credit facility put
in place by the Company will be determined by the quality of the investments to be made, including
the covenant strength of counterparties within the proposed Investee Company, the terms available
to the Company and the timeframe for which such short-term borrowings are expected to be
required. In any event, the aggregate level of borrowings will be expected to be no more than a
maximum of 50 per cent. of Adjusted Gross Asset Value;
“Construction Phase”
in respect of a new development project, the phase where contracts have been agreed and relevant
permits are in place;
“CTA 2010”
Corporation Tax Act 2010 and any statutory modification or re-enactment thereof for the time being
in force;
“D9” or “Company”
Digital 9 Infrastructure plc, incorporated and registered in Jersey (company number 133380);
“Development Phase”
in respect of a new development project, the initial phase before relevant contracts or permits are
in place;
“Digital Infrastructure”
Key services and technologies that enable methods, systems and processes for the provision of
reliable and resilient data storage and transfer;
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2022 Annual Report
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225
“Digital Infrastructure
Investments”
an investment which falls within the parameters of the Company’s investment policy and which may
include (but is not limited to) an investment into or acquisition of an Investee Company or a direct
investment in Digital Infrastructure assets or projects via an Investment SPV or a forward funding
arrangement;
“DTR”
the Disclosure Guidance and Transparency Rules sourcebook containing the Disclosure Guidance,
Transparency Rules, corporate governance rules and the rules relating to primary information
providers;
“EBITDA”
earnings before interest, taxes, depreciation and amortisation;
“EPS”
earnings per share;
“ESG”
environmental, Social and Governance;
“EU or “European Union”
the European Union first established by the treaty made at Maastricht on 7 February 1992;
“FAANGs”
global content providers such as Meta
, Amazon, Apple, Netflix, Google;
“FCA”
the Financial Conduct Authority;
“FTTH”
Fibre to the Home;
“FTTP”
Fibre to the Premises;
“GAV”
the gross assets of the Company in accordance with applicable accounting rules from time to time;
“Group”
the Company and any other companies in the Company’s Group for the purposes of Section 606 of
the Corporation Tax Act 2010 from time to time but excluding Investee Companies;
“Internet of Things” or
“IoT”
the network of physical objects (things) that are embedded with technologies such as sensors or
software for the purpose of connecting and exchanging data with other devices and systems via the
internet;
“Investee Company”
a company or special purpose vehicle which owns and/or operates Digital Infrastructure assets or
projects in which the Group invests or acquires;
“Investment Manager”
Triple Point Investment Management LLP (partnership number OC321250);
“Investment Objective”
the Company’s investment objective as set out in the Prospectus dated 8 March 2021;
“Investment Policy”
the Company’s investment policy as set out in the announcement dated 24 August 2022;
“Investment SPV”
a special purpose vehicle used to acquire or own one or more Digital Infrastructure Investments;
“IPO”
the Company’s initial public offering launched on 8 March 2021 which resulted in the admission of,
in aggregate, 300 million Ordinary Shares to trading on the Specialist Fund Segment of the Main
Market on 31 March 2021;
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Information
Glossary and Definitions
“LTM”
Last Twelve Months;
“LTM Contracted Run-Rate
EBITDA”
accounts for the portfolio EBITDA including signed, but not yet fully ramped up contracts. The
Company’s EBITDA margin is applied to total annual revenue expected to be delivered by a contract
to estimate the EBITDA generated from contracts which are yet to fully ramp;
“MRR”
monthly recurring revenue;
“NAV”
Net Asset Value being the net assets of the Company in accordance with applicable accounting
rules from time to time;
“Ongoing Charges Ratio”
a measure of all operating costs incurred in the reporting period, calculated as a percentage of
average net assets in that year. Operating costs exclude costs of buying and selling investments,
interest costs, taxation, non-recurring costs and the costs of buying back or issuing ordinary shares;
“Ordinary Shares”
ordinary shares of no-par value in the capital of the Company;
“RCF”
Revolving Credit Facility
“Restricted Territories”
the Republic of China, Democratic People’s Republic of Korea (North Korea), Russia, Iran and Syria.
“SDG9”
the UN’s Sustainable Development Goal 9;
“SASB”
Sustainability Accounting Standards Board;
“SDIA”
Sustainable Digital Infrastructure Alliance;
“SFDR”
Sustainable Finance Disclosure Regulation;
“SDR”
Sustainability Disclosure Requirements;
“TCFD”
Taskforce for Climate-related Financial Disclosures;
“Total Shareholder Return”
the increase in Net Asset Value in the period plus distributions paid in the period;
“
Verne Global Iceland
”
Verne Holdings Limited, a private limited company incorporated in England and Wales;
“Verne Global Finland”
Ficolo Oy, a company incorporated in Finland;
“Verne Global London”
Volta Data Centres Limited, a private limited company incorporated in England and Wales; and
“Verne Global”
Verne Global Iceland, Verne Global London, Verne Global Finland collectively.
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227
NON-EXECUTIVE DIRECTORS
REGISTERED OFFICE
Phil Jordan
Keith Mansfield
Lisa Harrington
Aaron Le Cornu
Charlotte Valeur
26 New Street
St Helier
Jersey
JE2 3RA
Channel Islands
INVESTMENT MANAGER
FINANCIAL ADVISER
Triple Point Investment Management LLP
1 King William Street
London
EC4N 7AF
Akur Limited
66 St James’s Street
London
SW1A 1NE
CORPORATE BROKER
UK LEGAL ADVISER
J.P. Morgan Cazenove
25 Bank Street
Canary Wharf
London
E14 5JP
Taylor Wessing LLP
5 New Street Square
London
EC4A 3TW
JERSEY LEGAL ADVISER
TAX ADVISER
Carey Olsen Jersey LLP
47 Esplanade
St Helier
Jersey
JE1 0BD
Channel Islands
Deloitte LLP
1 New Street Square
London
EC4A 3BZ
ADMINISTRATOR
COMPANY SECRETARY
Ocorian Fund Services (Jersey) Limited
26 New Street
St Helier
Jersey JE2 3RA
Channel Islands
Ocorian Secretaries (Jersey) Limited
26 New Street
St Helier
Jersey
JE2 3RA
Channel Islands
DELEGATED COMPANY SECRETARY
REGISTRAR
Hanway Advisory Limited
1 King William Street
London
EC4N 7AF
Computershare Investor Services (Jersey) Limited
13 Castle Street
St Helier
Jersey
JE1 1ES
Channel Islands
AUDITOR
DEPOSITARY
PricewaterhouseCoopers LLP
7 More Riverside
London
SE1 2RT
INDOS Financial Limited
The Scalpel
52 Lime Street
London
EC3M 7AF
COMMUNICATIONS ADVISER
FTI Consulting
200 Aldersgate
Aldersgate Street
London
EC1A4HD
Shareholder Information
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228
Information
FORWARD LOOKING STATEMENTS
The Front Section of this report (including but not limited to the Chair’s Statement, Strategic Report, Investment Manager’s Review
and Directors’ Report) has been prepared to provide additional information to Shareholders to assess the Company’s strategies and
the potential for those strategies to succeed. These should not be relied on by any other party or for any other purpose.
The Review Section may include statements that are, or may be deemed to be, “forward looking statements”. These forward-looking
statements can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “anticipates”,
“expects”, “intends”, “may”, “will” or “should” or, in each case, their negative or other variations or comparable terminology.
These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this
document and include statements regarding the intentions, beliefs or current expectations of the Directors and the Investment Manager
concerning, amongst other things, the Investment Objectives and Investment Policy, financing strategies, investment performance,
results of operations, financial condition, liquidity, prospects, and NAV total return and dividend targets of the Company and the
markets in which it invests.
By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances
that may or may not occur in the future. Forward looking statements are not guarantees of future performance. The Company’s actual
investment performance, results of operations, financial condition, liquidity, distribution policy and the development of its financing
strategies may differ materially from the impression created by the forward-looking statements contained in this document.
Subject to their legal and regulatory obligations, the Directors expressly disclaim any obligations to update or revise any forward-
looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based.
In addition, the Review Section may include target figures for future financial periods. Any such figures are targets only and are not
forecasts. This Annual Report has been prepared for the Company as a whole and therefore gives greater emphasis to those matters
which are significant in respect of Digital 9 Infrastructure Plc.
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2022 Annual Report
ANNEX 1 - REPORTING PRINCIPLES AND METHODOLOGIES
The below reporting principles and methodologies apply to all portfolio companies.
REPORTING PERIOD
All data is presented from the point of acquisition to 31 December 2022. Where a company has been owned for the full reporting year,
data for the full year is presented. Where necessary, some full-year data has been pro-rated down to the ownership period.
ENERGY AND CARBON EMISSIONS
Carbon emissions are calculated by multiplying energy consumption data by emissions factors. Emissions factors are derived from
various sources, according to geography and energy supply specifics. For each investee company within our portfolio, our reporting
methodology and boundaries follow the GHG Protocol’s Corporate Accounting and Reporting Standard. Emissions are attributed to
D9 using PCAF’s Global GHG Accounting and Reporting Standard for the Financial Industry.
The main source of Scope 1 emissions within the portfolio is fuel used in on-site electricity generation and company-owned vehicles,
and fugitive emissions. On-site generation is required by data centres to guarantee up-time, and by subsea network operators to
ensure the continuous running of this critical infrastructure. For all locations, emissions were determined from fuel use using UK
Government GHG Factors. Fugitive emissions were estimated from the amount of refrigerant gases refilled into cooling systems during
the period. UK Government GHG Factors were used to convert these into tCO2e figures. In some instances, a mixture of water and
glycol is used in cooling systems. Emissions factors were not available for this mixture and, based on preliminary research, this was
assumed to have no Global Warming Potential.
Marke and location-based emissions figures are presented for Scope 2, reported in line with the GHG Protocol’s Scope 2 guidance. To
calculate market-based emissions, emissions factors supplied by the electricity company and derived from contractual instruments are
used in the first instance. In the absence of these specific factors, residual mix factors are applied from Green-e in the United States and
the Association of Issuing Bodies (AIB) in Europe, or location-based emissions factors where these aren’t available. In all cases, the most
recent available emissions factor is used.
Renewable Energy is defined on a market-based basis, including energy backed by Energy Attribute Certificates (such as RECs, REGOs,
GOs), power-purchase agreements, as well as on-site generation. If no market-based instruments are purchased, the default grid
percentages of renewable energy are used from the relevant national authority.
Emissions resulting from electric vehicles are included in Scope 2 as these vehicles are exclusively charged on-site.
District Heating use for Verne Global
Finland’s Pori site was estimated from floor area using a kWh/m2 average from the Swedish Energy
Agency
29
. District Heating emissions for Finland were estimated from national fuel consumption and heat generation statistics.
Across the portfolio, some fuel usage was estimated from distance travelled in vehicles, amount spent on fuel, or based on partial data
that was extrapolated out to the full reporting year. Electricity consumption within Elio Networks’ network is not metered and was
estimated using equipment specifications.
Aggregated carbon intensity metrics are a weighted average based on the value of the investment within the portfolio, as of
31st December 2022.
VERNE GLOBAL ICELAND EMISSIONS
Verne Global Iceland has a higher carbon intensity than might be assumed, given its sourcing of 100% renewable energy. This is due
to the energy supplier, Landsvirkjun, including a broader scope of emissions in their calculations
30
than is typical for energy providers
in other markets such as the United Kingdom or United States. Carbon emissions from geothermal energy, and biogenic carbon and
methane emissions from hydropower reservoirs, are both included in scope.
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29.
30.
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Digital 9 Infrastructure plc
POWER USAGE EFFECTIVENESS AND RELATED METRICS
Power usage effectiveness (PUE) is a measure of the energy efficiency of a data centre, with reference only to the electricity usage
onsite. It is a ratio of the total facility energy compared to the equipment used in the computing equipment:
IT Equipment Energy:
includes the energy associated with all of the IT equipment involved in computation, storage and networking,
as well as supplemental equipment such as switches.
Total Facility Energy:
includes all energy associated with IT equipment, plus everything that supports the IT equipment energy usage,
including power delivery components, cooling systems and other miscellaneous energy uses, such as data centre lighting. A more
detailed explanation can be found in the guidance from the Green Grid
31
.
Carbon Usage Effectiveness and Water Usage Effectiveness replace the numerator of the above equation with Scope 2 (location-based)
emissions (kgCO2e) and water usage (litres), respectively, to give an indication of the carbon and water efficiency of a data centre.
These metrics were calculated
following guidance from the Green Grid
32,33
.
xUE measures are aggregated to the portfolio level by taking the sum total of all of the relevant data to calculate an xUE figure, avoiding
averages which can be skewed by the differing capacities of each individual data centre.
GROWTH IN NETWORK CAPACITY
Capacity on the Aqua Comms network is provisioned to customers as blocks of a defined capacity (GB/s) between two individual points
of presence on the network. The sum of all of these blocks, as provisioned to customers, is taken as at the start and end of the reporting
year to determine the increase in sold capacity.
For Elio Networks, the total of sold capacity was determined as at the date of acquisition, with total new sales and cancellations added
to this value to determine the growth in the network capacity.
SFDR-ALIGNED INDICATORS
Reporting principles and methodologies for the SFDR-aligned indicators are the same as those outlined in the principal adverse
sustainability impacts statement of the April 2022 SFDR RTS
34
, with any exceptions noted in footnotes.
Gender pay gap calculations are based on a snapshot of the data for the calendar month of August 2022. We have followed UK
Government guidance
35
in calculating the gender pay gap. This sample represents the pay that employees would have seen on their
pay slip for August, excluding overtime and bonus payments. This includes salary (or basic pay and hours worked, for employees paid
hourly), pay for leave, pay for being on call, car allowances, and pay for recruitment and retention. Benefits in kind, such as healthcare
and pension contributions have been excluded. Bonuses were excluded as consistent bonus data for all employees was not available
for the month of August.
Employees who started or terminated their employment during the month of August have been excluded from the sample, as have
those currently on parental leave. Salaried non-executive directors and chairpersons have also been removed from the sample as their
remuneration approach is not comparable to FTEs and their hours worked are less well-defined. Including them in the calculations
would skew the data. For salaried employees, we have assumed that 2,080 hours are worked across the year.
Employee data from all portfolio companies were consolidated into a single data set, and the overall gender pay gap of this data set
was calculated. Elio Networks was not included due to data availability, but given the small number of employees, this was not deemed
to make a material difference.
BOARD GENDER DIVERSITY
Board gender diversity is based on the identified genders of the board members of underlying portfolio companies as at
31 December 2022.
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Information
PUE=
Total Facility Energy
IT Equipment Energy
31.
32.
33.
34.
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.196.01.0001.01.ENG&toc=OJ%3AL%3A2022%3A196%3ATOC
35.
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For further information about Triple Point
please call
020 7201 8990
or send an email to
contact@triplepoint.co.uk
Triple Point is the trading name for the Triple Point Group which includes the following companies and associated entities: Triple
Point Investment Management LLP registered in England & Wales no. OC321250, authorised and regulated by the Financial
Conduct Authority no. 456597, Triple Point Administration LLP registered in England & Wales no. OC391352 and authorised and
regulated by the Financial Conduct Authority no. 618187, and TP Nominees Limited registered in England & Wales no.07839571,
all of 1 King William Street, London, EC4N 7AF, UK.
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