Further to the announcement made on 29 January 2024, the board of Digital 9 Infrastructure (DGI9) has provided greater clarity around how it foresees its wind down taking shape, and has proposed a change of investment objective and policy to facilitate this. A change which shareholders will be able to vote on in the forthcoming general meeting, to be held on 25 March.
DGI9’s proposed new investment objective is: “The Company will be managed, either by a third party investment manager or internally by the Company’s board of directors, with the intention of realising all the remaining assets in the Portfolio, in an orderly manner with a view to ultimately returning available cash to Shareholders following the repayment and cancellation of the Company’s revolving credit facility (“RCF”) from the proceeds of the assets realised pursuant to the Investment Policy.”
In more practical terms:
- The board intends to commence sale preparations for each of DGI9’s wholly owned assets immediately following the passing of the resolution at the forthcoming general meeting, ahead of launching what it currently expects to be competitive sale processes later this year. The board has instructed advisers to assist with the sale process relating to Aqua Comms and is mandating advisers to assist with the preparation of the other sale processes. The board will seek to achieve a ‘managed wind down’ rather than rushing to seek an immediate sale of the portfolio, as it believes a slower but more controlled approach will be more conducive to maximising shareholder value.
- The board does note that DGI9’s stake in Arqiva, the British telecoms infrastructure company, will take longer than the rest of the portfolio to be realised. While DGI9 will continue to consider and be open to all options for Arqiva which are value-accretive to shareholders, the board has decided to defer launching a sale process of Arqiva for the time being. The board will remain open to exploring all options, including the possible start of a sale process once the plan intended to fully realise the embedded value in the asset is more advanced.
- The sale of DGI9’s assets is expected to be carried out by either a third-party manager or the board itself. The board has yet to outline a precise timeframe for the realisation, nor has it outlined the exact form in which it will return cash to shareholders (e.g. dividends, share buybacks, tender offers). The board will be unable to commence distributions to shareholders until its outstanding debt is repaid, though the majority of its RCF is expected to be funded by the sale of the Verne global group of companies. Once the RCF has been repaid, the board will review the potential allocation of any remaining proceeds between the remaining indebtedness and distributions to shareholders. No further dividend distributions are planned in respect of the year ended 31 December 2023 and none are foreseen in the medium term. To the extent possible, the board intends that any cash distributions to shareholders will take the form of returns of capital.
- The board intends to terminate its investment management agreement, invoking its right to give a 12 month notice of termination, which will be no the later than 31 March 2024 or the close of the Verne transaction. Pending the termination notice, the board is exploring the possibility of revising the agreement with the investment manager, to put it in terms that would be in the best interest of shareholders and fits the context of DGI9’s managed wind down.
- DGI9 will remain listed during its wind down, and the board does not foresee implementing a dividend policy during this period, nor does it foresee itself making any further investments unless they are necessary to facilitate the realisation of a current portfolio company.
Portfolio update-
Alongside its update to its investment policy, DGI9 has also provided an update on the 6-month performance of its holdings, for the period ending 31 December 2023.
- The aggregate revenues of the portfolio of were up 9% over the 6 months and was driven mainly by the performance of Arqiva, Aqua Comms and Verne Global. EBITDA however was down (6%), impacted by Arqiva and Aqua Comms.
- Verne Global Iceland saw growth in both revenues and EBITDA over the period, up 33% and 61%, the largest growth of any of DGI9’s portfolio companies.
- Margins have fallen for some of DIG9’s businesses, particularly Arqiva and Aqua Comms, though this is expected by DGI9 management, as it is part of their business plans. Arqiva Group was a particularly large drag on DGI9, as it makes up c.80% of its 6 month revenues. While Arqiva did see its revenues grow by 8% on the year, its EBIDTA fell by (11%) , with tis margin falling by 9%, to 43%. Its fall in EBITDA was due to an increased mix of utility device sales, higher power costs and TV channel revenue reductions, as well as some one-off costs, though this was expected by DGI9.
- Thanks to DGI9’s cash reserves and the operations cashflows of its holdings, it has accelerated capex investment to £61m (+31% vs. the same period in 2022) allowing commercial momentum and competitiveness to be maintained.
- There were limited changes to management teams of DGI9’s holdings during the period. However, in February 2024, Aqua Comms CEO Jim Fagan decided to leave the company to pursue another opportunity. Aqua Comms’ Chief Networks Officer Andy Hudson has been appointed acting CEO.