28 September 2023

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

Key Updates

LEI: 213800OQLX64UNS38U92

For the purposes of UK MAR, the identity of the person making this notification is Luke Cheshire.

About Digital 9 Infrastructure plc:

Digital 9 Infrastructure plc (DGI9) is an investment trust listed on the London Stock Exchange and a constituent of the FTSE 250, with ticker DGI9. The Company invests in the infrastructure of the internet that underpins the world's digital economy: digital infrastructure.

The Investment Manager is Triple Point Investment Management LLP ("Triple Point") which is authorised and regulated by the Financial Conduct Authority, with extensive experience in infrastructure, real estate and private credit, while keeping ESG principles central to its business mission. Triple Point's Digital Infrastructure team has over $300 billion in digital infrastructure transaction experience and in-depth relationships across global tech and global telecoms companies.

The number 9 in Digital 9 Infrastructure comes from the UN Sustainable Development Goal 9, which focuses the fund on investments that increase connectivity globally and improve the sustainability of digital infrastructure. The assets DGI9 invests in typically comprise scalable platforms and technologies including (but not limited to) subsea fibre, data centres, terrestrial fibre and wireless networks.

From its IPO in March 2021 and subsequent capital raises, DGI9 has raised total equity of £905 million and a revolving credit facility of £375 million, invested into the following data centres, subsea fibre, terrestrial fibre and wireless networks:

The Company's Ordinary Shares were admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange on 31 March 2021. It was admitted to the premium listing segment of the Official List of the Financial Conduct Authority and migrated to trading on the premium segment of the Main Market on 30 August 2022.

For more information on the Investment Manager please visit www.triplepoint.co.uk. For more information, please visit www.d9infrastructure.com.

Introduction

I am pleased to present the Company's interim report for the six-month period to 30 June 2023. The period has been characterised by a continued challenging macroeconomic backdrop across major developed economies, with rising inflation and interest rates resulting in continued uncertainty for the capital markets. That same difficult macroeconomic environment has continued to impact the Company's liquidity and sustainable balance sheet management.

Despite these headwinds, the Company's underlying portfolio has continued to perform strongly overall and in line with management expectations, demonstrating the strength of the Investee Companies in which we have invested and the sectors in which they operate.

Notwithstanding the strong operating performance of the Investee Companies, the persistently higher interest rate and inflation environment in which the Company trades has led the Board not to declare the Q2 2023 dividend and withdraw its target dividend of 6.0 pence per Ordinary Share for the year ending 31 December 2023.

Whilst the forecast operating cash flow ("OCF") from Investee Companies remains materially unchanged since 31 December 2022, further increases in net interest costs, related to the RCF and the Group's reinvestment into its growth capital expenditure pipeline reduce actual cash available for distribution. Additionally, the Arqiva Group vendor loan note ("VLN"), and the Company's share of the Arqiva Group accretion payment on its inflation-linked swaps, which expire in 2027, continue to restrict the Company's access to OCF to support the Company's dividend policy in the medium-term.

Whilst cognisant of the dividend target set at IPO, the Board believes a more conservative approach to capital allocation is required in order to enhance the Company's medium-term liquidity and further accelerate the deleveraging of its balance sheet in the current high interest rate environment.

Share Price

In the 2022 Annual Report, released in March 2023, we outlined a series of key milestones to be executed over the course of the year. We are pleased to have successfully delivered on a number of these key milestones, alongside additional portfolio activity to further improve the positioning of the Company and deliver shareholder value.

Despite this progress, the Board acknowledge these milestones have not yet delivered the expected impact on the widened share price discount to NAV. We believe the current discount is unjustified and does not reflect the inherent value and capital appreciation potential of the portfolio.

The widening discount follows a continued period of high market volatility for global equity markets, and particularly UK investment trusts, following several increases in interest rates in the UK, European and North American markets. Interest rates in the UK particularly has escalated and remain high as inflation has proven more persistent than elsewhere. We expect inflation to fall in the UK over the rest of the year, and interest rates to remain stable and subsequently start to fall over the medium-term which will in turn improve the macroeconomic landscape.

In the meantime, we have mitigated our exposure to both elements through the introduction of the inflation collar on Arqiva's inflation-linked swaps, and the refinancing of Arqiva's senior debt structure, which were both announced in June and July 2023. While the inflation collar on its inflation-linked swaps significantly limits the downside risk exposure to RPI for Arqiva, the refinancing provides greater flexibility for liquidity management purposes with later maturity dates. Verne Global Iceland has also entered into an interest rate swap for its debt facility. After the period end, D9 Holdco made a repayment of £7.0 million against the RCF from the partial repayment of the shareholder loan from Verne Global Iceland following entering into the debt facility and withdrew a total of £14.5 million for capital expenditure purposes.

In addition, the Company announced in January 2023 it was exploring complementary sources of growth capital, including (i) structured long-term debt at an Investee Company level and (ii) a potential syndication of a stake in existing Investee Companies to strategic capital partners. We announced on 5 June 2023 the signing of a new $100 million (£80 million) green term-loan debt facility with an uncommitted $50 million (£40 million) accordion provision for Verne Global Iceland. This facility has been used to help fund Verne Global's growth capital expenditure pipeline, partly repay outstanding shareholder loans owed by Verne Global to the Company, and refinance Verne Global's pre-existing bridge loan facility.

Syndication Update

As announced on 9 March 2023, there is an ongoing competitive process to syndicate a stake in the Verne Global group of companies, including its operating sites in Iceland, Finland, and the United Kingdom to a strategic capital partner (the "Syndication").

The Company is pleased to announce it has significantly progressed the Syndication and is in receipt of several non-binding offers at or around the USD net asset value of Verne Global as at 31 December 2022. These offers, which are currently under review, comprise various proposed transaction structures, for both a co-controlling and majority stake sale, and funding solutions for the significant capital expenditure commitment for Verne Global's platform. Due to the sustained and accelerated customer demand for its facilities, from both new and existing customers, the growth capital expenditure pipeline for the Verne Global companies of £493 million reported in January 2023 has increased to £610 million.

Cash proceeds (net of costs) from the Syndication will enable D9 to pay down a significant portion of the Group's drawn RCF and cancel part of it, thereby reducing costs. As at 30 June 2023, £356 million was drawn under the Group's £375 million RCF.

In the medium term, upon Syndication completion, the incoming investor is expected to support Verne Global's growth capital expenditure pipeline which will help scale the platform's capacity to over 100 MW through pro-rata equity injections and an additional funding facility. By maintaining a direct interest in Verne Global, D9 will continue to benefit from the data centre platform's anticipated earnings growth.

Executed terms for the Syndication are now expected to be announced in Q4 2023.

Dividend Cover

OCF 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.

In the period ending 30 June 2023, there was no OCF coverage of the Company's dividend. As previously communicated, the spike in inflation resulted in the Arqiva accretion payment paid in June 2023 being significantly higher than anticipated at acquisition, which had a material adverse effect on the operating cash flow.  As illustrated below, D9's share of this accretion payment was £58.5m.  Since then, we have also taken out the collar on the inflation linked swaps which would effectively cap D9's share of the accretion payments at c.£40m out to 2026. The inflation-linked swaps, 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.

The forecast OCF from Investee Companies remains materially unchanged since 31 December 2022, save that the launch of EMIC-1, and therefore the receipt of cash, has been delayed by up to 6 months to Q2 2025 due to deployment restrictions in the Red Sea. The Board and Investment Manager expect operating cash flow dividend cover to be substantially achieved by 31 December 2024 as Investee Companies' operations mature. This is primarily due to:

While the Board and Investment Manager expect operating cash flow dividend cover to be substantially achieved by 31 December 2024, further increases in net interest costs, related to the RCF and the Group's reinvestment into its growth capital expenditure pipeline reduce actual cash available for distribution. Additionally, the Arqiva VLN, and the Company's share of the Arqiva Group accretion payment on its inflation-linked swaps, which expire in 2027, continue to restrict the Company's access to OCF to support the Company's dividend policy in the medium-term.

The Board continue to work with the Investment Manager to evaluate other strategic portfolio management initiatives and other complementary sources of growth capital including other partial disposals to accelerate the receipt of cash by D9 from the Investee Companies.

Initiation of Shareholder Consultation

In light of the above, the Board will start a formal consultation with its shareholders, starting on 2 October 2023, to determine the optimal future dividend policy and discuss the future direction of the Company, acknowledging the diverging views among the Company's shareholders regarding the Company's capital allocation policy. The Company will provide a further update following the conclusion of the shareholder consultation.

Shareholder Returns

The Company generated an annualised total return for shareholders for the period of (11.2)%, (5.6)% since 31 December 2022). The Company's NAV decreased to £866 million or a NAV per share decrease of 8.8% to 100.13 pence (2022: 109.76 pence). In addition, as indicated above, the Board has elected to not declare the Q2 2023 dividend, which had an adverse impact on total returns.

The key drivers for the reduction in NAV during the period were adverse foreign exchange movements, which contributed c.4 pence of the total NAV per share reduction. Furthermore, the continued escalation of interest rates resulted in elevated borrowing costs, which in turn had a negative impact on the overall financial performance of the Company.

D9 reported a loss before tax of £57 million (2022: profit of £27 million) for the period, equal to (6.63) pence per share (2022: 3.43 pence per share) calculated on the weighted average number of shares in issue during the period. This was primarily a result of the unrealised valuation movements incurred during the period on the Company's portfolio of investments held at fair value through profit or loss.

The Company's annualised ongoing charges ratio ("OCR") was 1.2% (December 2022: 1.1%). As the Company has largely deployed its available capital since the end of 2022, we expect the OCR to decrease as economies of scale and operating efficiencies are achieved. The Board will continue to monitor the OCR closely.

Review of the Period

We are pleased to have executed on a number of the key milestones outlined in the Company's annual report over the first half of this year.

In January 2023 we set out a strategic plan to further enhance the depth and experience of the Investment Manager's Digital Infrastructure team, improve disclosure and reporting transparency, optimise the capital structure at Investee Company level and ultimately drive shareholder value. With the exception of the Syndication for which terms are expected to be announced in Q4 2023, all of these initiatives have been delivered successfully.

$100 million green loan debt facility for Verne Global Iceland

In June, Verne Global Iceland completed a $100 million (c.£80 million) green term-loan debt facility, with a $50 million (c.£40 million) uncommitted accordion provision. The facility was the first successful step in our commitment to explore complementary sources of growth capital, including the prudent use of structured long-term debt at an Investee Company level, to create and enhance long-term shareholder value.

The facility was structured as a syndicated facility, fully underwritten by Natixis on a 5-year fixed term expiring in June 2028. Following execution, Verne Global entered into an interest rate swap for the first 3 years; the fixed rate for the tenor of the swap is 4.14% and the all-in fixed rate of 7.14%, to mitigate against continued interest rates rises. Verne Global has also signed up to a Green Financing Framework, which complies with the Green Bond Principles (International Capital Market Association) and the Green Loan Principles (Loan Market Association) and is highly aligned to the Company's UN SDG9 ambitions.

Further detail on the loan can be found in our announcements dated 5 June 2023 and 12 June 2023.

Inflation collar on Arqiva's inflation-linked swaps

In June, Arqiva Group agreed an inflation collar on its existing inflation-linked swaps in line with the Investment Manager's active asset management plan to optimise the Arqiva Group's capital structure.

Through annual accretion payments on these swaps, the Arqiva Group has historically been exposed to Retail Price Index ("RPI") fluctuations, with high RPI figures resulting in sizeable cash outflows. The recently implemented collar is a bespoke instrument that restricts the swaps' RPI exposure within a fixed range of 2.5% to c.6.0%. This means that if future RPI figures exceed expectations, effective RPI will be capped in each case at c.6.0%, in turn effectively capping the corresponding accretion payment at c.£40m out to 2026. This limits the downside exposure of Arqiva Group to inflation rising and improves visibility over cash flows available to D9 from Arqiva Group, and D9's future operating cash flow dividend cover.

Arqiva senior debt refinancing

Through late June and early July, Arqiva Group raised £345 million of new debt, the proceeds of which were used to repay £262 million of existing debt which was approaching maturity, whilst providing Arqiva Group with an additional £83 million for general corporate purposes. This followed £45 million of senior debt amortisations over the previous 12 months, as well as the net £175 million deleveraging of Arqiva Group's junior debt in Q3 2022. Arqiva Group's interest rate swap portfolio has also been rebalanced to maintain compliance with hedging covenants, such that increases in gilt yields continue to have no material impact on Arqiva Group's interest costs net of the pre-existing swaps portfolio.

Appointment of Investment Manager personnel

The Company announced on 13 June 2023 the appointment of additional personnel to the Investment Manager's digital infrastructure team. This included the appointment of Diego Massidda as new Head of Digital Infrastructure, the promotion of Arnaud Jaguin as Head of Investment, Digital Infrastructure, and the appointment to the Triple Point Digital Infrastructure team's Operating Partner panel of Laureen Cook.

Triple Point and the Board thoroughly evaluated the skills and experience D9 would benefit from to complement the skillset of the existing portfolio management team, including Investee Companies' executive management, and of the Operating Partner panel at Triple Point.

Diego Massidda, Head of Digital Infrastructure

We are thrilled to have Diego on board to lead the active management of D9's portfolio to further optimise its operating and financial performance and help drive the growth and convergence of D9's platforms. 

Diego is a seasoned industry veteran with over 20 years' operating experience in global telecommunications and digital infrastructure. Diego has spent 16 years with Vodafone Group plc ("Vodafone"), and was most recently CEO of Vodafone Partner Markets, responsible for all services provided by Vodafone to other mobile operators in c. 50 countries where Vodafone does not operate directly. In this role, he provided strategic guidance and operational expertise to partner market CEOs to grow revenue share, profitability, and drive operational excellence.

Until recently, Diego was also CEO of Vodafone Carrier Services, responsible for the commercial strategy and execution of Vodafone data and voice wholesale business globally, including sub-sea and terrestrial optical fibre assets.  Diego spent five years as CEO of Vodafone Hungary, taking the mobile operator from number three to number two in revenue share in the market, through sustained double-digit revenue and profit growth and best customer experience. His experience in Vodafone includes leading the development and launch of a satellite/cable/IPTV broadcasting and streaming service for Vodafone Germany, and the responsibility for the development of Vodafone's fixed broadband activities globally. He was previously the CEO of Telecom Italia France and Tiscali (South Africa and later France), during which time he was responsible for the B2B hosting and co-location business of these entities based on their data centre assets. Diego started his career as a civil engineer, and later worked for McKinsey & Company. He is a qualified civil engineer and holds an MBA from INSEAD Business School.

Arnaud Jaguin, Head of Investment - Digital Infrastructure

Arnaud Jaguin was promoted to Head of Investment - Digital Infrastructure. Arnaud has been integral to D9's development since IPO in 2021, leading the origination and execution of the Company's investments into Aqua Comms, Arqiva Group and Elio Networks (formerly, Host Ireland).

Laureen Cook, Operating Partner

Laureen Cook was appointed to the Triple Point digital infrastructure team's Operating Partner panel alongside Alan Harper, Simon Beresford-Wylie and Steve Andrews. Laureen now sits on Triple Point's Digital Infrastructure Investment Committee and, alongside an established panel of Operating Partners, will support Investee Companies' commercial development in partnership with the executive management teams.

Laureen has a leading track record of over 25 years in the wireless, fibre, subsea, towers and data centres sectors, in addition to investment expertise in emerging technologies including IoT, cloud convergence, and satellite. Laureen has deployed over $16 billion to telecoms infrastructure projects in these sectors globally on behalf of institutional investors and was most recently the former principal of the TMT private equity investment group at the World Bank's International Finance Corporation.

Syndication of Verne Global and complementary sources of growth capital

Today, as set out in the Chair's statement above, the Company announced that it has significantly progressed the Syndication and is in receipt of several non-binding offers at, or around the net asset value of Verne Global as at 31 December 2022. Executed terms for the Syndication are now expected to be announced in Q4 2023.

Further to the Syndication, the Board and the Investment Manager continue to evaluate other complementary sources of growth capital to reduce the Group's leverage position and support the significant growth capital expenditure pipeline of the Investee Companies. An update on these processes will follow their completion.

Net Asset Value

The Company's net assets were valued at £866 million at the period end (£950 million at 31 December 2022, £852 million at 30 June 2022), reflecting a decrease of 8.8% versus December 2022.

The key drivers for the reduction in NAV during the period were adverse foreign exchange movements, which contributed c.4 pence per share of the total 9 pence per share reduction. Furthermore, the continued escalation of interest rates resulted in elevated borrowing costs, which in turn had a negative impact on the overall financial performance of the Company.

The NAV per share was 100.13 pence per share at 30 June 2023 (109.76 pence at 31 December 2022, 105.13 pence at 30 June 2022), resulting in an annualised Total Return for the period of (11.2)% and 6.4% since IPO below the 10% target return. An update on the total return target will be provided following the shareholder consultation.

The bridge below shows the movement in NAV during the period and their effect on a pence per share basis.

Valuation Performance

In accordance with accounting standards, 'Investments at fair value through profit or loss' as reported in the Statement of Financial Position include, in addition to the portfolio asset valuation, the cash and other net assets held within intermediate unconsolidated holding companies. A reconciliation of the portfolio valuation to IFRS Investment Valuation is set out below.

The Company's investment portfolio remained broadly stable during the reporting period, influenced by a combination of market forces and strategic decisions. Across the Investee Companies, there was a total reinvestment of £12.7 million, reflecting a continued commitment to growth opportunities. Conversely, Investee Company distributions totalled £40.4 million, with the largest receipt in the period being a Shareholder loan repayment made by Verne Global Iceland.

The portfolio's rebased valuation, accounting for these changes, was £1.18 billion. Despite the positive Revenue and EBITDA growth generated by the portfolio, the overall value movement for the period was slightly negative. The primary factor contributing to the decline in valuation over the reporting period was the impact of foreign exchange movements. Fluctuations in currency exchange rates exerted significant pressure on the overall valuation of the investment portfolio, contributing c.4% to the overall reduction in the Company's NAV.

The below chart shows the movement in portfolio valuation for the period and the key drivers of the valuation movement. A reconciliation of the portfolio valuation to the IFRS Investment Valuation held on the Company's Balance Sheet is set out below.

The chart above bridges the combined portfolio valuation of £1,210m as at 31 December 2022 to the combined valuation of £1,153m as at 30 June 2023 (excluding IFRS movements related to the wider Company, these are reconciled to the IFRS Valuation below).

Following £12.8m of investment in the period, including EMIC-1 (£3.6m), Verne Global London (£7.9m) and Giggle Fibre (£1.3m), and distributions of £40.8m including Verne Global Iceland (£39.3m), SeaEdge (£0.6m) and Elio Networks (£0.9m), the rebased valuation of the portfolio totalled £1,187m as at 30 June 2023.

A discount rate movement of £5.8m encapsulates the combined movements in discount rates across the portfolio in light of current market conditions and our assumptions around risk free rates, betas and company specific risk premiums. In particular, Aqua Comms, Verne Global London and Elio Networks have contributed to positive movements as a result of lower company specific premiums whilst Verne Global Iceland and Verne Global Finland have contributed negative movements as a result of movements in higher company specific premiums.

Please see discount rate section below for further details.

As a result of the continued strengthening of Sterling against both the US Dollar and the Euro since January 2023, the translation of the US Dollar valuations of Aqua Comms and Verne Global Iceland, along with the translation of the Euro valuations of Elio Networks and Verne Global Finland, have resulted in a combined foreign exchange loss of £33m.

Summary of Portfolio Valuation methodology

Investment valuations are calculated at the financial half-year (30 June) and the financial year-end (31 December) periods. Investments are reported at the Directors' estimate of fair value at the relevant reporting date.

The valuation principles are based on International Private Equity and Venture Capital ('IPEV') guidelines, generally using a discounted cash flow ('DCF') approach, which the Investment Manager considers to be the most appropriate valuation methodology for unquoted infrastructure equity investments.

Where the DCF methodology is used, the resulting valuation is checked against other valuation benchmarks relevant to each investment, including EV / EBITDA trading multiples for publicly traded comparable and recent transactions.

In using a DCF, fair value is estimated by deriving the present value of the investment using reasonable assumptions for future cashflows and the appropriate terminal value and date. A risk-adjusted discount rate is applied to quantify the inherent risk of the investment, which is built up on first principles applying the capital asset pricing model.

Further information on the Company's approach to valuation can be seen in Note 7.

Discount rates

During the first half of the year, the weighted average discount rate decreased from 12.6% to 11.8%, as shown in the chart below. Higher risk-free rates have been offset over the course of the year by lower risk premiums applied in line with comparatives, whilst also adopting a static discount rate approach, compared to the previous approach to evolve the discount rate over time as the investee companies mature.

Across the portfolio, the beta used in the Capital Asset Pricing Model (CAPM), derived by looking at a basket of comparable companies, has reduced consequently lowering the implied cost of equity. It is important to highlight that this adjustment has effectively counterbalanced the impact of a 0.5% rise in risk-free rates on the UK 10-year gilt yield, resulting in a marginal net increase in the cost of equity.

Weighted average discount rate by valuation period, (%)

Inflation

Whilst power price inflationary pressures have subdued this year compared to last, high inflation rates, and particularly sticky inflation in the UK, remains a prevalent theme. 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 third party, and we expect to maintain this approach going forward.

In the UK, CPI is forecast to end the year at 4.4% and reduce further to 2.0% by the end of 2024.

For RPI, we expect a drop to 5.3% by March 2024, and a further drop to 3.5% by March 2025, thereafter reducing gradually by 50bps per year and stabilising at 2.0% in 2028.

As set out in the Chair's Statement, Arqiva has been negatively impacted from a cash flow perspective due to the recent increased levels of inflation and the impact this has on the 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, 1) higher revenues in the future as a result of the compounding effect of inflation on their revenues and 2) a larger EBITDA used in any exit assumptions. Furthermore, the RPI cap & collar entered into in June 2023 will cap accretion payments from June 2024 at 6.0%. More information on Arqiva can be found in the Arqiva section below.

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.

Debt Financing

As set out in the IPO 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 30 June 2023, the Group had unrestricted cash of £47.0 million and an undrawn RCF balance of £18.8m, providing £65.8 million in potential liquidity. In aggregate, excluding Investee Companies and including undrawn RCF, D9 had gross debt of £544.8 million, comprising of the VLN and RCF as at 30 June 2023 which is 44.0% of Adjusted GAV and below the 50% maximum permitted in the Company's Investment Policy. This gives the Company headroom under this restriction of £74.1 million.

The Company takes a conservative approach to monitoring its gearing ratio and the calculation of Adjusted GAV. In calculating Adjusted GAV the Company does not include the VLN in the calculation, which would have the impact of increasing the denominator and reducing the leverage percentage. If the VLN were included in the calculation, leverage would reduce from 44% to 39%.

Debt Metrics

As at 30 June 2023, the Company's Net Debt / EBITDA position has marginally increased since December 2022 as a result of the PIK loan notes on the VLN being capitalised at 30 June 2023 and the inclusion of the Verne Iceland $100 million loan facility which was completed during the period.

*The increase in the VLN balance includes PIK interest, which was capitalised into the balance of the loan on 30 June 2023.

The Arqiva figures have been adjusted for the impact of their refinancing which completed on 5 July 2023.

Revolving Credit Facility

As at the reporting date, the Company had a £375 million bespoke RCF in place with an international syndicate of four banks. As at the beginning of the year, the Company had drawn £331.2 million. During the first 6 months of the year the Company drew a further £25 million and £7.5 million in the post-balance sheet period bringing total drawn amounts to £364 million as at the date of signing this report.

The RCF has been instrumental to enable the Company to fund the acquisition of Arqiva, whilst also providing capital towards Aqua Comms and the Verne Global platform to meet their growth capital expenditure requirements. However, given the current landscape in the UK characterised by high interest rates with SONIA trading around the 5% mark, the Company has sought to de-lever its balance sheet in order to reduce its financing costs and preserve shareholder value. As set out in the Chair's statement, the Company has progressed the competitive process to sell a stake in the Verne Global group of companies, which will enable D9 to pay down and part-cancel a significant portion of the Group's RCF.

The Company's debt structure is under permanent review by the Board and the Investment Manager.

VLN

The Group part-financed the £463 million acquisition of a 48.02% equity stake in Arqiva with the use of a £163 million non-recourse VLN which is listed on the International Stock Exchange ("TISE"). The VLN is due to mature in 2029 and has the following stepped interest rate profile:

Interest on the VLN is due annually in arrears on 30 June, and D9 has the choice either to settle each payment in cash or to accrue it. For the period ending 30 June 2023, the Company elected to accrue the interest, increasing the VLN's outstanding balance from £163m to £170m.

Accrued interest must be repaid 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 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.

Investee Company Leverage

As at 30 June 2023, only two of the Investee Companies had asset level debt; Arqiva and Verne Global Iceland.

Arqiva:

As of 30 June 2023, Arqiva's pro forma debt balance is £1,487 million (including project debt), of which the Company's share is £770 million. The pro forma adjustment accounts for the senior refinancing, which completed in early July 2023.

Verne Global Iceland:

As previously outlined, the Company has explored the deployment of asset level financing into selected Investee Companies in the form of long-term structured debt. Earlier this year, the Company achieved this through Verne Global Iceland who agreed a $100 (c.£80) million green term-loan facility.

The Facility is structured as a syndicated facility, fully underwritten by Natixis and with a fixed term of 5 years maturing in June 2028. The interest rate payable in the first 3 years of the facility is 3% per annum over the Secured Overnight Financing Rate ("SOFR"), stepping up to 3.25% per annum and 3.5% per annum, in fourth and fifth year, respectively. Verne Global Iceland has also put in place an interest rate swap for the first three years of the facility to manage longer-term fluctuations in interest rates. The fixed rate for the tenor of the swap is 4.14% per annum and the all-in fixed rate including the applicable margin is 7.14% per annum.

Portfolio Summary and Key Value Drivers

The Company's portfolio now consists of eight[4] attractive and complimentary investments, with four high-quality platforms comprising best in sector operators, benefitting from accretive convergence value throughout the portfolio. We have invested across the four target sub-sectors: Data Centres, Subsea Fibre, Terrestrial Fibre and Wireless networks. The below table shows the portfolio's asset and sector concentration levels comprising valuations as at 30 June 2023.

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.

Inflation protection[5]:

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.

Review of Portfolio

Portfolio Financial Performance

On a consolidated basis, the Company's Investee Companies generated £222.6 million in revenue and £105.9 million in EBITDA, over the first half of the year. This reflects an increase of 10% and 5% respectively on the previous 6 months.

Aqua Comms (including EMIC-1)

Verne Global Iceland

Verne Global Finland

Verne Global London

SeaEdge UK1

Elio Networks

Arqiva

Giggle Broadband

An update on the Giggle fibre sale process can be found above.