20 June 2024
LEI: 213800T8RBBWZQ7FTF84
Cordiant Digital Infrastructure Limited
Full year results for the year ended 31 March 2024
Strength of the portfolio underpins good performance
Cordiant Digital Infrastructure Limited (the Company), the operationally focused, specialist digital infrastructure investor, is pleased to announce its full year results for the year to 31 March 2024.
Financial highlights:
| - | Total return for the year of 9.3%1, increasing NAV per share to 120.1p. |
| - | NAV total return since inception of 32.8% (2023: 21.1%), or 10.5% annualised, exceeding IPO expectations. |
| - | Total dividend for the year increased 5.0% to 4.2p, ahead of guidance; 4.4x covered by earnings and 1.6x covered by adjusted funds from operations (AFFO). |
| - | NAV increased to £920.7 million, underpinned by strong underlying EBITDA growth. |
| - | Equity raised at IPO and in subsequent capital raises now fully invested at an average EV/EBITDA multiple2 of c10.2x. |
| - | Continuation of share buybacks. Further purchases by Steven Marshall to make a total holding of 8.3 million shares. The Directors, Steven Marshall, the Investment Manager and its employees now own 1.45% of the Company's ordinary share capital. |
| Operational highlights: | |
| - | Buy, Build & Grow model proving successful at growing EBITDA and NAV. |
| - | Continued strong overall performance by portfolio companies, which generated aggregate EBITDA growth3 of 7.2% year on year to £139.3 million. |
| - | Portfolio diversification improved with Speed Fibre acquisition, contributing solid revenue and EBITDA growth4 of 3.8% and 5.0% respectively. The Norkring portfolio of 25 towers in Belgium was also acquired. |
| - | Four bolt-on transactions completed, including acquisition of American Tower's Polish portfolio of 60 towers by Emitel and CRA's acquisition of Cloud4com, a leading Czech cloud business. |
| - | Capital expenditure deployed by the portfolio of over £33 million in the year, to build assets that generate future income streams: build-out of CRA's data centres, construction of build-to-suit towers by Emitel for MNO customers, construction and operation of nationwide DAB radio networks by CRA and Emitel, build-out by Speed Fibre of Ireland's backbone fibre network. |
| - | New contracts won at CRA on DAB, T-Mobile and Ministry of Interior; Emitel signed two new ten-year broadcast contracts with Polsat and Red Carpet TV as well as a new DAB contract in Poland. |
| - | Hudson won new contracts and reduced its EBITDA losses after a management change. |
Commenting, Shonaid Jemmett-Page, Chairman of Cordiant Digital Infrastructure Limited, said:
"I am pleased to report a good overall performance by the Company, notwithstanding the headwinds from adverse foreign exchange movements during the year. The Company made a total NAV return for the year of 9.3% (11.0% excluding foreign exchange movements) ahead of the 9% annual target and the aggregate EBITDA of the portfolio companies for the year to 31 March 2024 grew 7.2% year on year to £139 million driven by contract wins or enhancements, cost control and the beneficial effects of inflation on revenues. During the year, significant achievements included; the refinancing of Emitel's loan facilities, new and extended long-term contracts at both companies and CRA's acquisitions of Cloud4com and DC Lužice.
"The portfolio we have constructed is high quality with strong potential for growth, with predominantly blue-chip customers, and it is generating robust cash flows through long-term, largely inflation-linked contracts. Our disciplined investment approach has resulted in a portfolio acquired for an EV/EBITDA multiple of approximately 10.2x. In light of this, the Board remains deeply disappointed with the performance of the share price and its continuing discount to NAV and believes the causes are macroeconomic rather than specific to the Company. The underlying strengths of the Company and our portfolio, the growth in the sector and the attractiveness of our core markets together lead the Board to look forward to the year ahead with confidence."
| 1 | Based on opening ex-dividend NAV at 1 April 2023 of 111.4p. |
| 2 | Based on enterprise value upon acquisition divided by EBITDA upon acquisition for each portfolio company, weighted for relative size. |
| 3 | On a pro forma, normalised, constant currency basis. |
| 4 | Speed Fibre has a 31 December year end; figures quoted are growth in revenue and EBITDA from the year ended 31 December 2022 to the year ended 31 December 2023. |
Annual report and results webcast for analysts
The 2024 Annual Report will be available to download at cordiantdigitaltrust.com/investors/results-centre/ from 20 June 2024 and will be posted to shareholders on 27 June 2024.
The Company will be hosting an analyst meeting at 10.00am BST at the offices of Investec, 30 Gresham Street, London, EC2V 7QN. For those wishing to attend, please contact Ali AlQahtani at Celicourt via CDI@celicourt.uk.
For further information, please visit www.cordiantdigitaltrust.com or contact:
| Cordiant Capital, Inc. | +44 (0) 20 7201 7546 |
| Investment Manager | |
| Stephen Foss, Managing Director | |
| Aztec Financial Services (Guernsey) Limited | +44 (0) 1481 749700 |
| Company Secretary and Administrator | |
| Chris Copperwaite / Laura Dunning | |
| Investec Bank plc | +44 (0) 20 7597 4000 |
| Joint Corporate Broker | |
| Tom Skinner (Corporate Broking) | |
| Lucy Lewis / Denis Flanagan (Corporate Finance) | |
| Jefferies International Limited | +44 (0) 20 7029 8000 |
| Joint Corporate Broker | |
| Stuart Klein / Gaudi Le Roux | |
| Celicourt | +44 (0)20 7770 6424 |
| Financial Communications Advisor | |
| Philip Dennis / Felicity Winkles / Ali AlQahtani | |
Notes to editors:
Cordiant Digital Infrastructure Limited
Cordiant Digital Infrastructure Limited (the "Company") primarily invests in the core infrastructure of the digital economy - data centres, fibre-optic networks and telecommunication and broadcast towers - in Europe and North America. Further details about the Company can be found on its website at www.cordiantdigitaltrust.com.
The Company is a sector-focused specialist owner and operator of Digital Infrastructure, listed on the London Stock Exchange under the ticker CORD. In total, the Company has successfully raised £795 million in equity, along with a further €200 million through a Eurobond with four European institutions; deploying the proceeds into five acquisitions: CRA, Hudson, Emitel, Speed Fibre and Norkring, which together offer stable, often index-linked income, and the opportunity for growth, in line with the Company's Buy, Build & Grow model.
Cordiant Capital Inc
Cordiant Capital Inc ("Cordiant") is a specialist global infrastructure and real assets manager with a sector-led approach to providing growth capital solutions to promising mid-sized companies in Europe, North America and selected global markets. Since the firm's relaunch in 2016, Cordiant, a partner-owned and partner-run firm, has developed a track record of exceeding mandated investment targets for its clients.
Cordiant focuses on the next generation of infrastructure and real assets: sectors (digital infrastructure, energy transition infrastructure and the agriculture value chain) characterised by growth tailwinds and technological dynamism. It also applies a strong sustainability and ESG overlay to its investment activities.
With a mix of managed funds offering both value-add and core strategies in equity and direct lending, Cordiant's sector investment teams (combining experienced industry executives with traditional private capital investors) work with investee companies to develop innovative, tailored financing solutions backed by a comprehensive understanding of the sector and demonstrated operating capabilities. In this way, Cordiant aims to provide value to investors seeking to complement existing infrastructure equity and infrastructure debt allocations.
Basis of preparation:
The information below is an extract from the 2024 Annual Report. The 2024 Annual Report will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism. It can also be obtained from the Administrator or from the Results Centre section of the Company's website, at https://www.cordiantdigitaltrust.com/.
Chairman's statement
I am pleased to present the full year results for Cordiant Digital Infrastructure Limited (the Company) for the year ended 31 March 2024.
Introduction
The Company achieved a good financial performance for the year to 31 March 2024, which resulted in a total return for the year of 9.3% of ex-dividend opening NAV, ahead of the 9% annual target and notwithstanding the adverse impact of foreign exchange during the year. NAV per share rose by 7.9% to 120.1p at 31 March 2024 (31 March 2023: 113.4p or 111.4p ex-dividend).
The profit for the year reflected the strong overall performance of the underlying portfolio companies, offset by adverse foreign exchange movements (totalling £14.2 million). Excluding foreign exchange movements in the period would have resulted in a total return of 11.0%.
Portfolio strategy
The Investment Manager has a Core Plus strategy that aims to generate a stable and reliable annual dividend while also continuing to invest in the asset base of the Company's portfolio companies to drive higher revenues and increase net asset values. The Company is implementing this approach through its Buy, Build & Grow model.
Since its IPO, the Company has prudently sought out high-quality, cash-generating mid-market assets that we viewed as attractive investment opportunities. We have continued to focus on capital efficient investment in existing portfolio companies, through disciplined capex spending across the portfolio coupled with bolt-on acquisitions where appropriate. In the last year, these included the acquisition of American Tower's Polish telecom towers business by Emitel, and the acquisition of Cloud4com, a major Czech cloud services provider, and DC Lužice, a data centre located in the 'Digital Danube' triangle between Vienna, Brno and Bratislava, by CRA. This has been alongside the acquisition during the year of new businesses in Speed Fibre, a leading fibre network provider in Ireland and Norkring, a provider of broadcast, colocation and site hosting services in Belgium, that reflect the current pricing environment and further diversify the portfolio geographically and by asset class.
Capex spending in the year has focused on the delivery of DAB radio networks at CRA and Emitel, continued data centre build-out at CRA and build-to-suit mobile towers at Emitel, together with Speed Fibre's continued construction of backbone fibre networks in Ireland.
Our disciplined approach has resulted in a portfolio acquired for an EV/EBITDA multiple of approximately 10.2x, which is predominantly supported by blue-chip customers and capable of generating strong cash flows through long-term contracts.
For the year to 31 March 2024, on a like-for-like, constant currency, pro forma basis, aggregate portfolio company EBITDA increased by 7.2% to £139.3 million, driven by contract wins or enhancements, cost control and the beneficial effects of inflation on revenues. Aggregate portfolio company revenue increased by 7.9% to £296.6 million.
Portfolio performance
The strong overall performance of our portfolio was again key to the Company's results for the year. This performance was achieved against the backdrop of levels of inflation and central bank interest rates not seen in many years.
The portfolio companies were able to benefit from significant levels of inflation protection through a combination of contractual revenue escalators, pass-through costs and hedging policies. Active management of long-term contracts also provided opportunities to renegotiate contractual terms with a number of customers. Together, these provided an offset to the adverse effects of inflation and interest rates on costs.
Emitel performed well during the year, with revenues increasing by 8.3% and EBITDA increasing by 4.4%. Performance was driven by the launch of a new sixth digital TV multiplex and the effect of inflation-linked price increases, offset by high energy costs and the delay in regulatory approval for a new channel until late in the year. In addition, Emitel won tenders for important broadcast contracts in TV and radio, including for the new channel from Polsat, the Polish TV broadcaster, on MUX 1 with a duration of ten years and inflation-linked revenues, which are expected to drive further future revenue and EBITDA growth. Alongside this, Emitel, working with the Investment Manager, successfully refinanced its loan facilities during the year, with a range of global, pan-European and local banks. The facilities were 1.6x oversubscribed and achieved an improved credit margin over the previous facilities.
CRA also performed strongly, with annual revenue and EBITDA growth of 10.7% and 8.8% respectively, driven by growth across all business areas. The company continues to make progress in diversifying its business, with its data centre and cloud activities now approaching 20% of revenues following the completion in January 2024 of the acquisitions of Cloud4com and DC Lužice, which are expected to provide substantial revenue and EBITDA growth opportunities. CRA also acquired Prague Digital in the Czech Republic, a regional broadcast company, which is expected to yield good synergy benefits. Telecom infrastructure was also boosted by a new 15-year contract with T-Mobile, which significantly expanded the scope of service previously provided. In January 2024, CRA successfully bid for and won the Czech spectrum tender which will enable it to launch one national commercial DAB network and seven regional networks, including Prague.
Speed Fibre's revenues for the year increased by 3.8% through sales growth, while EBITDA increased 5.0% over the same period. The increase in EBITDA was driven by higher than expected recurring service revenue and lower than expected customer churn in Speed Fibre's wholesale business. The business has performed in line with our acquisition assumptions following the completion of the transaction in October 2023.
Following a leadership change in 2023, Hudson's interim management is showing steady progress in growing revenues while managing costs and cashflow effectively. For the year to 31 March 2024, Hudson delivered revenue growth of 8.5%. While its EBITDA continued to be negative, the loss was 17.0% less than the prior comparable period, reflecting management's focus during the year.
Share price performance
In light of the progress made in constructing the portfolio and the positive financial performance achieved, the Board remains deeply disappointed with the performance of the share price and its continuing discount to NAV. We believe the causes of this are macroeconomic and are being felt market wide, leading to widespread redemptions across the sector, rather than being specific to the Company. At 31 March 2024, the discount to NAV was 46.7% (31 March 2023: 28.3%).
As a result, the Board and the Investment Manager have continued to focus on optimising portfolio performance, while also seeking greater engagement with shareholders to provide a deeper understanding of the drivers of value within the portfolio. The views of our shareholders are important. My Board colleagues and I met with a number of shareholders on a bilateral basis during the year to listen to those views, to discuss the capital market challenges facing the Company and the sector and to explain our approach to these challenges.
The Company and the Investment Manager have also engaged with the UK government and the FCA, both directly and through industry bodies such as the AIC and the London Stock Exchange, in relation to the UK cost disclosure regime, which is generally viewed as being more onerous than comparable EU legislation and potentially creating a misleading picture of investment company costs.
Dividends and share buybacks
The Company's dividend policy continues to be based on the underlying principles that, at the point the Company is fully invested, the dividend must be covered by free cash flow generated by the portfolio and be sustainable in future periods. The Company monitors dividend cover using an adjusted funds from operations (AFFO) metric calculated over a 12-month period. AFFO is calculated as normalised EBITDA less net finance costs, tax paid and maintenance capital expenditure.
In November 2023, the Board approved an interim dividend of 2.0p per share for the six months ended 30 September 2023. The Company also continues to remain committed to a progressive dividend policy. Reflecting that policy and the cash generative characteristics of its portfolio companies, the Board has approved an increase in the annual dividend with the payment of the second interim dividend of 2.2p per share on 19 July 2024.
For the 12 months to 31 March 2024, the 4.2p dividend was approximately 4.4x covered by EBITDA and 1.6x by AFFO.
In February 2023, the Company announced a discretionary programme of share buybacks of up to £20 million. Under this programme it has acquired 7.3 million ordinary shares for £5.4 million, at an average price per share of 74.9p, or an average discount to 31 March 2024 NAV of 37.6%. The NAV accretion of the Company buying back these shares at such a discount is to increase NAV per share by ca.0.4p. The programme is not subject to a set cut-off date.
Gearing and interest
The Company had total liquidity equivalent to £167.7 million at 31 March 2024, comprising £62.8 million held directly at the Company, £46.8 million held at portfolio company level and undrawn facilities at portfolio company level equal to £59.1 million. In aggregate, the Company and its portfolio companies had gross debt equivalent to £694.7 million at 31 March 2024, and therefore net debt of £585.1 million. This resulted in gearing as at 31 March 2024 of 4.5x measured as net debt divided by LTM EBITDA (including Company-level costs) or 38.9% measured as net debt divided by gross asset value (GAV).
Principal risks and uncertainties
In November 2023, we updated the principal risks identified by the Company. These changes were largely driven by macroeconomic factors. With inflation rates having fallen substantially in the UK and those countries where our portfolio companies operate, and with consequent reductions in interest rates either having been announced or being predicted, these factors are no longer considered to be principal risks. However, there have been lasting impacts on the financial markets, in particular on the Company's share price which, along with many others in the sector, has continued to trade well below NAV. This in turn has restricted the ability to raise additional equity capital and to take advantage of some of the opportunities to develop the portfolio. Accordingly, we have amended our principal risks to reflect this change in risk. Further details of the Company's risks are set out below.
Sustainability
We are a long-term investor with a clear focus on sustainability. The Board and Investment Manager continue to prioritise reducing the impact of the Company and its portfolio companies on our environment. It is pleasing to report the continued progress being made across a number of initiatives in the portfolio focused on our climate: Emitel's procurement of 91% of its electricity from renewable sources; CRA's progress towards its target of 100% electricity being from renewable sources, with an increase to 68%; and Speed Fibre's procurement of 89% of its electricity from renewable sources.
We consider the ESG approach as well as the risks and opportunities of potential targets in our pipeline as part of our pre-investment analysis, and following each acquisition we work with our portfolio companies to improve their ESG performance. For the first time this year, in order to improve transparency and provide greater granularity, we will be releasing a standalone Responsible Investment Report, which will be available on our website at www.cordiantdigitaltrust.com.
Board and governance
The Board receives regular updates on the Company's performance and that of the individual portfolio companies from the Investment Manager and provides objective oversight of the Investment Manager's activities. The Board continues to support the Investment Manager's active management of the portfolio's operations, whether through driving performance and thereby increasing revenues and earnings growth, its leadership of strategic financing activities and bolt-on acquisitions and its championing of the Company's ESG agenda. The management fee structure is closely aligned to shareholder returns, being based on the Company's market capitalisation and not NAV.
Outlook
We are seeing the demand for digital infrastructure continue unabated, a trend that we expect to be maintained, particularly with the pace of evolution of AI. Interest rates now appear to be to be on a downward trajectory in our key geographies and, more broadly, Poland, the Czech Republic and Ireland are all forecast to outperform the EU's overall economic growth rate in 2024. The underlying strengths of the Company and our portfolio, the growth in the sector and the attractiveness of our core markets together lead the Board to look forward to the year ahead with confidence.
Shonaid Jemmett-Page
Chairman
Investment Manager's report
Introduction
The Company delivered a good performance in the year to 31 March 2024, again driven by a strong operating performance by the portfolio. NAV per share increased from 111.4p (ex-dividend) at 31 March 2023 to 120.1p at 31 March 2024, reflecting a total return of 9.3% on ex-dividend opening NAV (31 March 2023: 10.0%).
NAV growth is driven by successful implementation of the Company's Buy, Build & Grow model: to buy good quality platforms and bolt-on acquisitions; to build new assets at construction cost from which new revenues can be earned; and to grow existing revenues using the operational expertise of the Investment Manager.
Headwinds from the Company's aggregate foreign exchange position caused an impact on total return for the year of -1.7%, meaning that the underlying performance before taking foreign exchange movements into account was a total return of 11.0%.
The Company paid two dividends in the period: the second interim dividend of 2.0p per share, relating to the year ended 31 March 2023, which was paid on 21 July 2023; and the interim dividend of 2.0p per share relating to the year ended 31 March 2024, which was paid on 22 December 2023. The Company also proposes a second interim dividend for the year of 2.2p, making a total dividend for the year to 31 March 2024 of 4.2p, an increase over the previous year of 5.0%. This is in line with the Company's progressive dividend policy announced at IPO, and this level of dividend remains well covered (1.6x) by adjusted funds from operations (AFFO), being EBITDA less net financing costs, maintenance capex, tax and other cash flows.
Capital allocation
The Investment Manager and Board have engaged with shareholders frequently over the past year to discuss the issue of capital allocation and the discount of the Company's share price to the NAV per share. In acknowledgment of the variety of opinions expressed, the Company has elected to take a multi-pronged approach to capital allocation. A buyback programme was initiated, with £20 million approved by the Board, of which £5.4 million has been deployed, at an average price of 74.9p, crystallising a NAV gain of 0.4p per share.
The Company remains committed to its progressive dividend policy and has allocated capital to a 5.0% increase in dividend from 4.0p per year to 4.2p per year, to take effect from the second interim dividend expected to be paid in July 2024. The increased dividend remains well covered by AFFO.
The Company has also sought to diversify the portfolio, acquiring Speed Fibre in Ireland for €190 million and Norkring in Belgium for €6 million. Accretive bolt-on acquisitions have also been completed by Emitel and CRA, leveraging the Company's existing high-quality platforms and adding assets that provide a measure of diversification to existing businesses. These include Emitel's acquisition of American Tower's Polish telecoms towers business and CRA's acquisitions of Cloud4com, a cloud business, DC Lužice, a data centre business and Prague Digital, a broadcast business. CRA has now built a data centre and cloud business accounting for almost 20% of revenues, from a minimal amount at the time of the Company's initial investment.
Finally, the Company, relying on the operational expertise of the Investment Manager, has made investments in accretive growth capital expenditure projects such as: the build-out of the DAB radio networks in the Czech Republic and Poland; build-to-suit tower portfolios in Poland; and the build-out of CRA's sixth edge data centre facility at Cukrák. Planning for Central Europe's largest and most modern data centre at Zbraslav in Prague, Czech Republic, on a decommissioned AM radio site owned by CRA, continues.
The Investment Manager believes that the portfolio, valued at 31 March 2024 at 10.6x LTM EBITDA, is undervalued compared to recent transaction multiples. Lower growth mobile tower assets have been valued in other countries at over 18x earnings, and data centre assets at over 20x. While broadcast assets typically attract a lower valuation multiple, the Company's broadcast assets are growing faster than most European mobile tower businesses and have higher escalation rates and a wider customer base.
The Investment Manager considers that there is no 'magic bullet' to resolve the Company's share price discount to NAV, but that continued strong operational performance, value-creating capital expenditure, acquisition price discipline, significant alignment of interests and continuing the buyback programme should all be recognised when macroeconomic issues affecting equity markets, and especially the investment trust sector, abate.
Since 31 March 2023, the Company's Directors, the Investment Manager and its staff have made further investments in the Company's shares, acquiring in total 5.0 million more shares to bring the combined total to 11.1 million shares. This included Steven Marshall, Chairman of Cordiant Digital Infrastructure Management, who acquired a further 3.9 million shares, bringing his total personal holding to 8.3 million shares. At the date of this report, the Directors, the Investment Manager and its staff owned 1.5% of the ordinary issued share capital of the Company.
In February 2023 the Company announced that, in light of the c.20% discount at which the Company's shares were then trading, and in consultation with the Company's brokers, the Board had approved a discretionary share buyback programme of up to £20 million. Shares acquired under the programme will either be held in treasury by the Company or cancelled. The buyback programme is not subject to a set cut-off date. To the date of this report, 7.3 million shares had been acquired by the Company at an average price of 74.9p and held in treasury.
Activity in the period
In June 2023, the Company announced that Emitel had acquired American Tower Corporation's subsidiary in Poland, whose portfolio comprises 65 modern lattice telecoms towers. The portfolio has a low tenancy ratio providing available load capacity for additional lease customers, which will be accretive to Emitel's revenue and is distributed across attractive locations that complement Emitel's existing telecoms network.
In July 2023, Emitel successfully refinanced its senior debt facilities. Emitel secured a debt package of PLN 1.57 billion (£312 million), which comprises a senior loan of PLN 1.27 billion, a capex facility of PLN 250 million and an RCF of PLN 50 million. As at 31 March 2024, PLN 187 million (£37 million) of the capex facility and the entirety of the RCF remain undrawn.
The new facilities were 1.6x oversubscribed and have a blended credit margin lower than the 2.9% of the previous senior debt facilities. The banking group included international banks Citi, BNP, Credit Agricole and DNB Bank ASA, as well as leading Polish banks and financial institutions. The capex facility and RCF will be applied to support Emitel's growth trajectory by financing its operational activities, new investments and acquisition plans.
In August 2023, the Company announced that it had agreed to acquire Speed Fibre, a leading open access fibre infrastructure provider in Ireland. Speed Fibre was acquired by the Company for an enterprise value of €190.5 million (£165 million), a multiple of 8.3x 2022 audited EBITDA. The acquisition was funded by a combination of cash on hand plus a vendor loan note of €29.6 million (£26 million) bearing initial interest of 6.0% and repayable in four years.
In November 2023, Emitel announced that it had won a nationwide tender to extend DAB coverage to 17 regional radio stations for state broadcaster, Polskie Radio. As a result of this, Emitel expects to extend DAB coverage across the country, from 67% to 88% of households. The contract is a renewal, and an expansion, of an existing contract held by Emitel and is also expected to result in incremental extra revenues. The contract runs to Q3 2027 and has a gross value of PLN 59.5 million (£12 million), with revenues linked to inflation. DAB is far more energy efficient than FM or AM radio, and so, as Emitel (and CRA) progressively decommission AM radio sites, there is a consequential reduction in carbon footprint.
In November 2023, the Company announced the acquisition of Norkring, which was completed in January 2024. The final consideration on completion after adjustments was €6.1 million (£5.2 million). Norkring operates 25 communication and broadcast towers in Belgium. Of particular interest to the Company are the 5G broadcast trials that Norkring is conducting as part of a consortium.
Emitel recently signed a new ten-year digital terrestrial television (DTT) broadcast contract expiring in 2034 with Polsat, the most watched free-to-air TV channel in Poland. The channel will be broadcast from MUX1, and revenues under the contract are inflation-linked. The Polish National Broadcast Council has extended Polsat's DTT MUX licence to 2034.
In January 2024, CRA successfully bid for and won the spectrum tender which will enable the launch of one national commercial DAB network and seven regional networks, including Prague. This DAB spectrum gives CRA the strongest DAB coverage in the country. The company will install DAB transmitters during 2024 and expects to conclude agreements with existing FM radio customers (representing additional incremental revenues), which are expected to commence in 2025.
In January 2024, CRA completed the acquisition of Cloud4com, a leading cloud services provider in the Czech Republic (acquired for CZK 870 million, £29.4 million), and DC Lužice, a Tier III data centre (acquired for CZK 130 million, £4.4 million). A further potential payment of up to CZK 485 million (£16.4 million) is payable subject to Cloud4com's EBITDA for 2024.
In addition, the highly synergistic acquisition of Prague Digital TV (a regional TV operator) by CRA at the beginning of 2024, has enabled the Company to consolidate transmissions from its sites and cease transmission from Prague Digital's three locations, reducing energy and other expense for the company.
Financial highlights
During the year to 31 March 2024, the Company achieved a NAV total return of £80.2 million (31 March 2023: £81.2 million), being 9.3% of opening ex-dividend NAV, or 10.4p per share. Net assets were £920.7 million (31 March 2023: £875.7 million, £860.3 million ex-dividend), representing a NAV per share of 120.1p (31 March 2023: 113.4p, 111.4p ex-dividend). This movement in NAV per share comprises a positive total return for the six-month period of 10.4p, plus a 0.4p gain arising from the share buyback programme, offset by the payment of the second interim dividend for 2023 of 2.0p in July 2023 and the first interim dividend of 2.0p for 2024 in December 2023.
The total return reflects strong underlying operating performance across the portfolio, offset by adverse foreign exchange movements in the period. The total return, excluding the adverse underlying foreign exchange movement in the period, would be 11.0%. The Company remains a net beneficiary of foreign exchange movements when measured from inception in February 2021 to 31 March 2024.
Application of IFRS
As disclosed in the Company's Annual Report 2023, the Company holds only Hudson directly. Emitel, CRA, Speed Fibre and Norkring are all held through its wholly-owned subsidiary, Cordiant Digital Holdings UK Limited. The Eurobond was issued by Cordiant Digital Holdings Two Limited, which is a wholly-owned subsidiary of Cordiant Digital Holdings UK Limited. Consequently, under the application of IFRS 10 and the classification of the Company as an investment entity, the Company's investment in Cordiant Digital Holdings UK Limited is recorded as a single investment that encompasses underlying exposure to Emitel, CRA, Speed Fibre, Norkring and the Eurobond. As in previous reports, the underlying elements of the overall value movement attributable to foreign exchange movements and value movement and income from each portfolio company are identified in Chart 1. The Company's profit and NAV under this approach are exactly the same as in the audited IFRS Statement of Comprehensive Income and the Statement of Financial Position.
Table 1 shows the reconciliation of Chart 1 to the IFRS Statement of Comprehensive Income.
| Table 1: Reconciliation of Statement of Comprehensive Income to Table 3 | | | |||||
| | Accrued income | Total unrealised value movement | Net FX movement | Intercompany balances | Fund | Interest expense | IFRS P&L |
| Movement in fair value of investments | 1.9 | 113.7 | (11.7) | 10.2 | (3.0) | (11.5) | 99.6 |
| Unrealised foreign exchange gains | - | - | (3.0) | | - | - | (3.0) |
| Management fee income | - | 1.4 | - | - | - | - | 1.4 |
| Interest income | - | - | - | 1.9 | - | - | 1.9 |
| Investment acquisition costs | - | - | - | - | (0.6) | - | (0.6) |
| Other expenses | - | - | - | - | (9.5) | - | (9.5) |
| Foreign exchange movements on working capital | - | - | 0.5 | - | - | - | 0.5 |
| Finance income | 2.1 | - | - | - | - | - | 2.1 |
| Finance expense | - | - | - | (12.1) | - | - | (12.1) |
|
| 4.0 | 115.1 | (14.2) | - | (13.1) | (11.5) | 80.3 |
Table 2 shows the underlying components of the IFRS Statement of Financial Position.
| Table 2: Underlying components of Statement of Financial Position | |||||||||||
| | Emitel | CRA | Speed Fibre | Hudson | Norkring | Cash | Inter-company balances | VLN | Other assets and liabilities | Eurobond | IFRS |
| Investments | 525.0 | 385.9 | 86.5 | 42.3 | 5.2 | 1.6 | 158.7 | (25.7) | (2.6) | (171.0) | 1,005.9 |
| Receivables | - | - | - | - | - | - | 2.8 | - | 14.5 | - | 17.3 |
| Cash | - | - | - | - | - | 60.1 | - | - | - | - | 60.1 |
| Payables | - | - | - | - | - | - | (3.9) | - | (1.1) | - | (5.0) |
| Loans and borrowings | - | - | - | - | - | - | (157.6) | - | | - | (157.6) |
|
| 525.0 | 385.9 | 86.5 | 42.3 | 5.2 | 61.7 | - | (25.7) | 10.8 | (171.0) | 920.7 |
Financial performance in the period
This section, including valuation, foreign exchange, costs and gearing, refers to the figures in Table 3 and Table 2 on the non-IFRS basis.
| Table 3 : NAV bridge for the year to 31 March 2024 |
|
| £m | |
| Opening NAV as at 1 April 2023 | 875.7 |
| Dividend paid July 2023 | (15.4) |
| Opening ex-dividend NAV | 860.3 |
| Accrued income | 3.8 |
| Value movement | 115.1 |
| FX movement | (14.2) |
| Fund expenses | (13.1) |
| Interest expense | (11.5) |
| Net change in shares | (4.5) |
| Interim dividend paid | (15.4) |
| Closing NAV as at 31 March 2024 | 920.7 |
Valuation
The Investment Manager prepares semi-annual valuations according to the IPEV Valuation Guidelines and IFRS13. These valuations are reviewed and challenged by the Board. The Board also commissions independent third party valuations at the half year and at year end from an expert valuations group at a Big 4 accounting firm. The Investment Manager reviews the key assumptions of the valuations and performs a sensitivity analysis on them as included in note 6 to the financial statements.
The Investment Manager and Board are keenly aware of the scepticism that some valuations of private assets elicit in certain sections of the market and so take great care to maintain a rigorous process, using market information from reputable third party sources wherever possible. Discounted cash flow (DCF) is the primary methodology of valuation, as noted in the Company's prospectus. The Investment Manager is confident that the quality of earnings included in the DCF models, and the actual cash accretion observed in the net debt figures for each asset included in the bridge from enterprise value to equity value show the qualities of the portfolio, notwithstanding volatility in the market-observable inputs used every six months to construct the weighted average cost of capital (WACC) used for each valuation as a discount rate.
Table 4 shows the movement in the Company's average WACC over time, weighted for the investments held at each reporting date. Since the low point for risk free rates at March 2022, the Investment Manager raised the WACC 173bps to the high point at September 2023. The WACC has decreased slightly between September 2023 and March 2024 by 18bps to 9.6%. This is substantially less than the decrease in risk free rates in the Company's two main markets, Poland and the Czech Republic, where risk free rates have decreased 100bps and 175bps respectively since September 2023 as it reflects the longer term view taken by the Investment Manager in reflecting market volatility in risk free rates.
| Table 4 : Weighted average discount rates over time |
|
| | |
| 31 Mar 2022 | 8.05% |
| 30 Sep 2022 | 8.52% |
| 31 Mar 2023 | 9.60% |
| 30 Sep 2023 | 9.78% |
| 31 Mar 2024 | 9.60% |
Table 5 shows the breakdown of the WACC at 31 March 2024, compared to the prior period.
| Table 5 : Weighted average cost of capital at 31 March 2024 | ||||
| | | Range | Range | Weighted average mid- point |
| Cost of equity | | 10.0% | 12.1% | 11.2% |
| Cost of debt | | 5.0% | 7.5% | 6.7% |
| WACC | | 8.5% | 10.8% | 9.6% |
|
| | | | |
| Weighted average cost of capital at 31 March 2023 | | | | |
| | | Range | Range | Weighted average mid- point |
| Cost of equity | | 9.6% | 12.9% | 11.0% |
| Cost of debt | | 5.0% | 7.0% | 6.5% |
| WACC | | 8.2% | 11.0% | 9.6% |
The largest value movements were observed on Emitel (+£78.0 million) and CRA (+£51.6 million), driven by calibration to actual inflation and new contract wins and a slightly reduced discount rate (in the case of Emitel). These reflected annual increases in underlying currency equity values of 15.9% and 9.9% respectively. Speed Fibre, the acquisition of which closed in October 2023, though the acquisition price was set in December 2022, saw an increase in equity value from cost of 5.2%. An increase in net debt since acquisition, arising from working capital timing and capex out flows, obscured an enterprise value increase of 10.8% since acquisition.
Hudson remains an asset that is not performing to expectations and the Investment Manager recognised a prudent write-down of £18.4 million in the year on a DCF basis. The carrying value at the year end was £42.3 million, or 4.2% of the value of the portfolio.
| Table 6: Bridge table breakdown of unrealised value movement | ||||
| Unrealised value movement |
| | | |
| Emitel | | | | 78.0 |
| CRA | | | | 51.6 |
| Speed Fibre | | | | 3.9 |
| Hudson | | | | (18.4) |
| Total unrealised value movement |
| | | 115.1 |
Foreign exchange
The Company has recognised an unrealised foreign exchange loss in the year of £14.2 million (since inception: gain of £50 million). This aggregate number comprises a gain of £24.0 million on Polish zloty, a loss of £37.3 million on Czech crowns and combined net losses of £0.9 million on US dollar and Euro. While the Investment Manager hedges individual cash flows between the Company and portfolio companies through forward contracts, no balance sheet hedging has been undertaken to date. The cost of doing so using forward contracts, considered to be the lowest cost approach, has been disproportionate to the benefit, such that the aggregate cost of hedging would, over several years, consume the gain being protected. Notwithstanding, the Investment Manager and Board have kept the Company's hedging strategy under regular review, given the volatility in foreign exchange rates and movement in forward points in the Company's respective currency pairs. The Company is a long-term investor in the portfolio and currently does not seek to manage balance sheet foreign exchange exposure from reporting period to reporting period.
| Table 7: Bridge table breakdown of unrealised foreign exchange movement | ||||
| Unrealised foreign exchange movement |
| | | |
| Emitel | | | | 24.0 |
| CRA | | | | (37.3) |
| Speed Fibre | | | | (0.8) |
| Hudson | | | | (1.2) |
| Working capital FX | | | | 1.1 |
| Total unrealised FX movement |
| | | (14.2) |
Costs
In the year, the Company incurred £24.6 million of costs. The largest component was £10.8 million of costs relating to the Eurobond debt facility, recorded within the Company's subsidiary, Cordiant Digital Holdings Two Limited. The Eurobond has been fully drawn since 5 June 2023, and the costs include interest, commitment fee, agency fees and amortised deal arrangement costs.
The management fee of £5.9 million (31 March 2024: £7.2 million) is greatly reduced from the prior year because management fees are calculated on the basis of the Company's market capitalisation, not its NAV, thus aligning the Investment Manager with shareholders. Deal costs of £3.0 million relate to the acquisitions of Speed Fibre and Norkring. Other costs of £4.8 million relate to transactions that did not proceed, interest paid on the vendor loan for the acquisition of Speed Fibre, administrative and other running costs and directors' fees. The ongoing costs ratio, calculated in accordance with the guidelines published by the AIC, is 0.9% per annum.
Gearing
The Investment Manager has taken a prudent approach to the levels of debt within the Company and its portfolio companies since inception. The Investment Manager has the expertise internally to arrange debt facilities, and so does not use banks or other intermediaries for this purpose.
At 31 March 2024, there were four debt facilities in the Company's group, at Emitel, CRA, Speed Fibre and the fund-level Eurobond. The €200 million Eurobond is a term loan, with a bullet repayment in September 2026. 83% of the interest is fixed in nature.
Aggregated together, gearing as measured by net debt (i.e. including cash balances held around the group) as a percentage of gross asset value was 38.9%. 50% is the maximum for this ratio, calculated at the time of drawdown, as required in the Company's IPO prospectus. As measured by net debt divided by aggregate EBITDA (including fund level costs such as management fee), the Company's gearing is 4.5x. Each of Emitel and CRA have individual net gearing on this basis of 3.0x. This is substantially lower than most tower companies which might be viewed as comparators of either business.
73% of all debt is on a fixed-interest basis, with the remainder floating, none of which is inflation linked. The Company has executed interest rate hedging for 50% of the new Emitel facilities and is assessing options for fixing the remainder. The average margin across all facilities remains at 2.9%, which the Investment Manager considers to represent good value.
CRA's debt package is due for renewal in mid 2025. The investment Manager and CRA have begun work on refinancing these facilities well in advance of the term date.
The Investment Manager believes that the quality of gearing is as important as the quantum and so has put in place long dated facilities (including the Eurobond term loan) with good quality groups of banks, with interest hedged at advantageous rates where possible.
Dividend coverage
The Company's progressive dividend policy is ahead of the schedule laid out in the prospectus at IPO. The dividend remains very well covered by AFFO, which seeks to track whether the portfolio generates sufficient earnings less fund level costs, finance costs, tax and maintenance capex to cover the dividend. AFFO remains stable at 1.6x. The dividend is covered 4.4x by aggregate portfolio company EBITDA.
As noted in the Chairman's statement, the Company has announced an increase in the second interim dividend from 2.0p to 2.2p, to be paid on 19 July 2024 following the Company's AGM. The annual dividend of 4.2p is an increase of 5.0% over the prior year, and a reflection of the Company's commitment to its progressive dividend policy, supported at all times by a strongly cash-generative portfolio, as measured by the AFFO. Table 8 shows the calculation of AFFO for the 12 months to 31 March 2024.
| Table 8 : Calculation of adjusted funds from operations (AFFO) |
| |||
| | | Twelve months to 31 March 20241 |
| |
| Portfolio company revenues | | | 304.7 | |
| Portfolio company normalised EBITDA |
| | 142.1 | |
| Dividend coverage, EBITDA basis |
| | 4.4x | |
| Net Company-specific costs | | | (13.1) | |
| Net finance costs | | | (38.2) | |
| Net taxation, other | | | (17.0) | |
| Free cash flow before all capital expenditure | | | 73.8 | |
| Maintenance capital expenditure2 | | | (20.9) | |
| Adjusted funds from operations |
| | 52.9 | |
| Dividend at 4.2p per share | | | (32.2) | |
| Dividend cover |
| | 1.6x | |
1. At average foreign exchange rates for the period.
2. Aggregate growth capital expenditure of £33.2 million was invested in the twelve months to 31 March 2024 across the portfolio.
Investee company performance
For the year to 31 March 2024, the portfolio companies generated combined revenue of £296.8 million, representing a 7.9% increase over the prior year, on a like-for-like pro forma, constant currency basis. Aggregate portfolio EBITDA increased 7.2% over the prior year, on a like-for-like pro forma, constant currency basis, to £139.3 million.
These increases in revenue and EBITDA reflect the impact of new contracts being entered into, including in the broadcasting and telecoms business units at Emitel and CRA, together with the effect of inflation-linked revenues feeding through, usually with a year's lag. During the year to 31 March 2024, across the portfolio companies £20.9 million was invested in maintenance capital expenditure and £33.2 million in growth capital expenditure. Maintenance capital expenditure included investment in IT systems and security at CRA and infrastructure modernisation at Emitel.
Growth capital expenditure included fibre backbone network build-out at Speed Fibre, investment related to the DAB+ contract win (previously announced by the Company on 8 November 2023) and construction of new telecoms towers at Emitel; and data centre investment at CRA.
Total gross debt at the Company, subsidiary and platform level was equivalent to £694.7 million, an increase of £229 million since 31 March 2023 reflecting the full drawdown of the Eurobond in June 2023 and the inclusion of Speed Fibre's senior debt facilities offset by a de-levering of Emitel's drawn facility by PLN 200 million (£39.8 million) as part of the refinance during the period. Aggregate cash balances at the Company, subsidiary and platform level were equivalent to £108.5 million. Including undrawn debt facilities at portfolio company level, total liquidity was equivalent to £167.7 million.
The Investment Manager's team
Building on the significant strength of the existing digital team reflects the Investment Manager's continued commitment to supporting platform companies in achieving their growth ambitions, along with being able to source and deliver investment opportunities that are in line with target returns. Unlike its peers in this market, the digital team at the Investment Manager possesses deep, senior-level experience of managing and operating world-class Digital Infrastructure businesses. This is combined with private equity executives having decades of experience advising and investing in the sector, making for a unique marriage of capabilities.
Environmental, social and governance highlights
The Investment Manager focuses its attention on reducing emissions and the climate impact of the Digital Infrastructure sector. The Investment Manager's Digital and ESG and Impact Teams engage with portfolio companies to integrate renewable energy and energy efficiency measures where appropriate. Despite growth in the asset base, the portfolio's emissions (Scope 1 and Scope 2) during the period decreased.
During the year, the Investment Manager became an official supporter of the Task Force on Climate-related Financial Disclosures (TCFD) and has begun the further integration of its recommendations. Additionally, the Investment Manager became an early adopter of the Task Force on Nature-related Financial Disclosures (TNFD) during the period.
Outlook
The Investment Manager is pleased with the overall quality of assets and underlying cash flows in the portfolio. These have been assembled at what the Investment Manager believes to be a highly attractive price without sacrificing growth potential. Internally generated cash flows and the remaining proceeds of the Eurobond facility will allow the Company to cover the dividend, engage in appropriate maintenance capital expenditures, expand existing platforms and invest in new assets to further diversify the portfolio, both geographically and by asset type.
The Investment Manager remains closely focused on the Company's target of 9% return to shareholders, comprising dividend and capital growth. The Investment Manager continues to see some improvement in the pricing environment for digital assets in the middle market and the purchase terms available. The Investment Manager has recruited a large and capable team of digital specialists with the skills and experience required to manage the Company's assets and to succeed in maximising total return from Core Plus assets.
Based on the solid performance since inception, which has continued up to 31 March 2024, the Investment Manager believes the Company remains well placed to deliver as planned in the year ending 31 March 2025. The Investment Manager looks forward to the year ahead with confidence.
Emitel
|
| £m |
| Original cost | 353.0 |
| Value at 1 April 2023 | 429.0 |
| Further investment by the Company in the year | - |
| Distributions paid to the Company in the year | 6.0 |
| Unrealised value gain in the year | 78.0 |
| Unrealised foreign exchange gain in the year | 24.0 |
| Value at 31 March 2024 | 525.0 |
Financial performance in the year
Emitel has had a solid year. For Emitel's audited financial year ending 31 December 2023, revenue increased 8.3% to PLN 594 million (£113.8 million at average exchange rates for the year) and EBITDA increased by 4.4% to PLN 384 million (£73.7 million at average exchange rates for the year). This performance reflected strong growth in telecoms infrastructure and TV broadcast, offset by high energy costs and the regulatory delay in approving a new channel during the year. There was also a time lag in the receipt of contractual inflation-adjusted revenues.
Overall revenue growth was driven by inflation-linked price increases as 2022 inflation of 14% passed through to 2023 revenues; approximately 75% of Emitel's revenues are generated by either full or partial inflation-linked contracts. 2023 inflation will principally be reflected in indexed revenue contracts from January 2024 onwards. Inflation in Poland for 2023 was 10.9%.
Telecoms infrastructure revenue growth in the period was driven by continued growth in 'build-to-suit' provision for MNOs, and Emitel's acquisition of 65 telecoms towers in Poland from American Tower Corporation. The acquired towers are less than three years old and have robust long-term contracts (14 years average) with inflation-linked escalators.
In Q3, Emitel signed a new loan facilities agreement with a consortium of leading Polish and international banks. The new facilities include senior secured term loans of PLN 1,270 million (of which PLN 370 million - €83 million - is denominated in euros), a capex facility of PLN 250 million and a revolving credit facility (RCF) of PLN 50 million. The new facilities have a blended credit margin lower than the 2.9% of the previous senior facilities. The capex facility and RCF will support Emitel's growth trajectory by financing its operational activities, new investments and acquisition plans.
Of the interest payable on the third-party bank debt at 31 March 2024, 50% was fixed rate and 50% floating rate. Emitel and the Investment Manager are keeping the optimal hedging approach towards the floating rate debt under constant review as interest rates in Poland trend downwards.
The aggregate amount of debt drawn at 31 March 2024 was PLN 1,320 million (£262 million). Emitel is 3.0x geared, as measured by net debt divided by EBITDA at 31 March 2024, which is viewed as conservative compared to other tower businesses.
Emitel continues to be strongly cash generative and in March 2024 paid its first distribution of PLN 30 million (£6.0 million) to the Company.
Cash balances reduced to PLN 135 million (£26.9 million) over the year. Underlying cash generation during the year was offset by the partial repayment of the senior debt facilities as part of the refinance; the acquisition of American Tower Corporation's telecoms tower portfolio in Poland and the distribution to the Company mentioned above.
Operations
Emitel's contracted orderbook remains strong at more than PLN 3 billion (more than £596 million), with contracts extending out as far as 2043. The weighted average contract length in TV broadcasting is seven years, three years in radio broadcasting and 12 years in telecom infrastructure services.
During the year, Emitel signed a new ten-year DTT broadcast contract expiring in 2034 with Polsat, the most watched free-to-air TV channel in Poland. The channel will be broadcast from MUX1, with revenues under the contract being inflation linked.
Emitel also signed a new ten-year DTT contract with Red Carpet TV, to broadcast from a vacant slot on MUX8. Broadcasting started in March 2024.
Regarding other broadcast contracts, following the Polish election in November 2023, the company's contracts with the state-owned media providers have continued in accordance with their terms, with payments being made as expected.
In November 2023, Emitel won a nationwide tender to extend DAB coverage to 17 regional radio stations for state broadcaster, Polskie Radio. As a result of this, Emitel expects to extend DAB coverage across the country, from 67% to 88% of households. The contract is a renewal, as well as an expansion, of an existing contract held by Emitel and is also expected to result in incremental extra revenues. The contract runs to Q3 2027 and has a gross value of PLN 59.5 million (£12 million), with revenues linked to inflation.
Emitel has also been working on the development and commercial implementation of new technology to deliver dynamic advertisement insertion (DAI) which enables the delivery of targeted advertising which is adapted to the viewer. Proof of concept trials were completed in partnership with the Warsaw Stock Exchange. Commercial launch is planned for later in 2024.
A further illustration of its forward-looking approach has seen Emitel partner with ISWireless to create a 5G campus network at Bialystok University of Technology, the first of its kind in Poland. As part of this initiative, Emitel provided the distributed antenna system (DAS) to this innovative network. 5G networks operate at high frequencies and require advanced levels of design and implementation. It is believed that the creation and operation of the network will also educate future 6G specialists working at the University.
Outlook
Demand for data and Digital Infrastructure in Poland remains strong and was supported by continued growth in GDP during the year. Emitel remains well positioned to benefit from these positive trends in Poland.
CRA
|
| £m |
| Original cost | 305.9 |
| Value at 1 April 2023 | 389.1 |
| Further investment by the Company in the year1 | 1.9 |
| Distributions paid to the Company in the year | (19.4) |
| Unrealised value gain in the year | 51.6 |
| Unrealised foreign exchange loss in the year | (37.3) |
| Value at 31 March 2024 | 385.9 |
1. Interest on shareholder loan capitalised during the period
Financial performance
CRA had a strong performance for the year. Revenue for the 12 months to 31 March 2024 increased by 10.7% to CZK 2.5 billion (£89.0 million at average exchange rates for the year) and EBITDA increased 8.8% to CZK 1.3 billion (£44.9 million at average exchange rates for the year).
The revenue performance was driven by double-digit growth in the data centre, cloud and IoT business lines, assisted by the acquisition of Cloud4com in Q1 2024.
EBITDA performance was driven by strong performance across all business units and effective control of costs, particularly personnel and energy costs, the latter of which were hedged in advance to protect the business against the increase in wholesale energy prices seen in the period.
In January 2024, CRA completed the acquisition of Cloud4com, a leading cloud services provider in the Czech Republic (acquired for CZK 870 million, £30.6 million), and DC Lužice, a Tier III data centre (acquired for CZK 130 million, £4.4 million). A further potential payment of up to CZK 485 million (£17 million) is payable subject to Cloud4com's EBITDA for 2024.
The acquisition of these businesses, all funded by organic cash flow at CRA, substantially increases the data centre and cloud proportion of CRA's revenue mix and marks an important step in CRA's continued growth in the Czech data centre and cloud services markets. On a pro-forma basis for 2023, CRA's broadcast revenues would have accounted for less than 50% of the company's overall revenues. This will inevitably reduce further as CRA's data centre and other businesses expand at a faster rate than the growth in the broadcast business.
CRA also saw continued demand for its existing data centre capacity, as measured in racks occupied (+33%) and power (+92%). This reflects the acquisition of DC Lužice and the completion of DC Cukrák, together with robust demand dynamics from new and existing customers.
Cash balances reduced to CZK 352 million (£11.9 million) at 31 March 2024 from CZK 1.3 billion a year earlier. This reduction reflected strong cash generation through the year, offset by the acquisitions mentioned above, and the distribution made to the Company in December 2023.
Third-party bank debt increased slightly to CZK 4.1 billion (£137.0 million). Interest on the bank debt is 100% hedged until the second half of 2025 when the loan falls due. As measured as a multiple of EBITDA, CRA's net debt is 3.0x unaudited financial year EBITDA.
The Investment Manager and CRA have begun work on refinancing CRA's senior debt facilities, which extend until mid-2025.
Operations
Planning work continues on the construction of the Zbraslav data centre on the outskirts of Prague. This 26MW data centre will be built on a former AM radio mast site wholly owned by CRA.
CRA successfully bid for and won the spectrum tender which will enable the launch of one national commercial DAB network and seven regional networks, including Prague. The company will install DAB transmitters during 2024 and expects to conclude agreements with existing FM radio clients (representing additional incremental revenues) which are expected to commence in 2025. CRA also increased available spectrum through the acquisition of Prague Digital in January 2024.
In July 2023, CRA signed a new 15-year contract with T-Mobile, in which extra revenues are expected to be earned from leasing further towers to T-Mobile that were not in scope of the previous contract.
In Q1 2024, CRA signed a new five-year contract with blue chip US content provider, Warner Bros Discovery, to broadcast free-to-air Warner Bros content in DVB-T2.
In line with power planning for the new data centre, CRA has committed to 100% of its power requirement coming from renewable sources within the next five years; as at 31 March 2024 68% of the company's electricity use came from renewable sources.
Outlook
Inflation in the Czech Republic in 2023 was 10.7%. For those revenue contracts with inflation escalation built in, this will typically take effect from 1 January 2024. Over 66% of CRA's revenue has either full or partial inflation linkage (excluding Cloud4com).
The date centre and cloud businesses, now strengthened by the addition of Cloud4com and DC Lužice, are expected to continue to grow revenues and EBITDA as vacant space is utilised and a higher volume of cloud services are sold. The 'stickiness' of data centre and cloud contracts with customers is one of the key attractions of this business unit to CRA.
The addition of the Warner Bros TV broadcast contract, following on from new broadcast contracts with US content provider AMC, Swedish shopping channel Topmerch and local broadcaster the A11 group will also support stronger broadcast revenues during the coming year.
Speed Fibre
|
| £m |
| Original cost1 | 58.4 |
| Vendor Loan Note interest paid and accrued | (0.7) |
| Unrealised value gain in the year | 3.9 |
| Unrealised foreign exchange loss in the year | (0.8) |
| Value at 31 March 2024 | 60.8 |
1. Including €5.6 million (£4.8 million) of accrued deferred consideration and reported net of £25.5 million Vendor Loan Note.
Speed Fibre is a leading open access fibre infrastructure provider based in Ireland. The acquisition of Speed Fibre from the Irish Infrastructure Fund was agreed in August 2023 for a total enterprise value of €190.5 million (£164.6 million). The equity consideration of €97.2 million (£83.9 million) was funded by €67.6 million (£58.4 million) in cash and €29.6 million (£25.5 million) through a vendor loan note with an initial interest rate of 6% and a maturity of four years. The acquisition completed in October 2023.
Speed Fibre is the fourth Digital Infrastructure asset acquired by the Company since its launch in 2021 and is consistent with its investment strategy of buying cash flow generating platforms capable of growth under its Buy, Build & Grow model. The acquisition further diversifies the Company's portfolio on a sub-sector and geographic basis.
Financial performance
Speed Fibre performed well in its financial year to 31 December 2023. Revenues increased by 3.8% to €78.6 million (£68.4 million at average exchange rates for the year) and EBITDA increased 5.0% to €23.8 million (£20.7 million at average exchange rates for the year).
Revenue growth was driven by higher recurring revenues from fibre and wireless sales and lower than expected churn. EBITDA growth was affected by higher than expected maintenance costs and the pass through of power costs on some contracts at low or no margin.
At 31 March 2024, Speed Fibre had €6.1 million of cash (£5.2 million) and gross debt of €116.0 million (£98.8 million) comprising a term loan of €100 million and drawn RCF of €16.0 million, both due for repayment in 2029.
The interest on Speed Fibre's term loan is 85% fixed and the interest on the RCF is all floating rate.
Operations
Speed Fibre continues to deploy growth capital expenditure in the form of building out fibre networks and connecting new customers. These connections form the greater part of the annual growth capital expenditure of €17.9 million (£15.4 million) deployed by the company.
During the year, Speed Fibre completed the upgrade of its DWDM software, technology that increases the usable bandwidth of fibre networks. The company also continues to build out connections to Dublin business parks adjacent to Dublin airport.
About Speed Fibre
Speed Fibre operates 5,400 kilometres of owned and leased fibre and wireless backhaul across Ireland, on which it provides dark fibre, wavelength and ethernet services to a mix of carriers, internet service providers, corporate customers, and the government. The business is also well-positioned to serve Ireland's growing data centre sector, which is expected to be the fastest growing hyperscale data centre market in Western Europe over the next six years. While primarily a backbone provider, Speed Fibre's subsidiary, Magnet Plus, provides connection and service to approximately 10,000 business and retail customers in Ireland.
Speed Fibre has a strong ESG and sustainability focus, earning a 5-star rating from GRESB, an independent organisation providing validated ESG performance data, and is targeting net zero carbon emissions by 2040.
Outlook
Speed Fibre is a national digital network in a strategically located market. The management team has demonstrated a track record of operational success, attracting blue-chip clients that include Vodafone, AT&T, Three and Verizon. Strong recurring revenues give visibility over future performance, and support a strong platform from which to invest in accretive strategic organic and inorganic opportunities.
Hudson
|
| £m |
| Original cost | 55.8 |
| Value at 1 April 2023 | 57.0 |
| Further investment by the Company in the year | 4.9 |
| Unrealised value loss in the year | (18.4) |
| Unrealised foreign exchange loss in the year | (1.2) |
| Value at 31 March 2024 | 42.3 |
Financial performance
During the year, Hudson saw revenue increase by 8.5% to $22.3 million (£17.7 million at average exchange rates for the year) and EBITDA loss reduce by 17% to $(4.4) million (loss of £3.5 million at average exchange rates for the year). The reduced loss was a result of the cost control and operational improvements implemented by Atul Roy as Interim CEO.
Shortly after the year end, Hudson signed a contract with a leading US IT services provider for 120KW of power. Once fully deployed, this is expected to increase capacity utilisation of the sixth floor to 475kW, up 36% since March 2023. In total, space utilisation is now at 61% of the fifth and sixth floors. Other contract wins in the year have included blue-chip customers such as a major US mobile operator and a leading provider of advance network communications. The fifth floor remains fully occupied by the anchor tenant.
Notwithstanding these wins, the pace of new sales has continued to be slower than the Investment Manager had anticipated. In order to improve business flexibility, Hudson has negotiated with the landlord of 60 Hudson Street to give up the call options on the seventh and eighth floors for which it was previously paying. Due to the proximity of the operations to these floors and the advantageous ownership and control of critical power supply exercised by Hudson, management consider it unlikely that the space will be taken by an alternative tenant.
Management continues to market the remaining space and power to interested potential customers and is in early discussions with counterparties which would be able to take a considerable portion of the free space.
Operations
The team continue to explore the potential benefits of technological improvements and upgrades to Hudson, together with other innovative strategic solutions to increase the attractiveness of the offering to potential tenants. The team is now increasingly active in the market, with a campaign to target customers in the financial and AI-driven sectors where low-latency interconnection and colocation are required.
Outlook
Hudson remains an attractive opportunity for growth. While the space is 61% utilised, power utilisation is at 43%. The business has no requirement for upfront investment without new contracts having been signed. The Investment Manager confirms its view, given in the Interim Report, that Hudson is unlikely to show positive EBITDA in the next twelve months.
Norkring
The Company acquired Norkring for €6.1 million (£5.2 million) in January 2024. Norkring is a tower business located in the Flemish speaking part of Belgium, and operates 25 communication and broadcast towers. Of these, eight are owned freehold and 17 are leased. Norkring is also the holder of two DAB broadcast licences and one digital terrestrial television multiplex licence. This small business is EBITDA positive.
The digital television market in Flanders currently has a limited number of viewers. However, there is a strong market for radio, with average listening times among the highest in Europe at 3.3 hours per day per listener, together with a healthy radio advertising market.
Norkring is of most interest to the Company and its portfolio due to its participation in trials as part of a consortium using 5G broadcast technology, which are partially funded and supported by the Flemish government. 5G broadcast technology opens the potential to offer additional services to broadcasters and mobile operators to meet the growing demand for watching video content on the move. Video content already drives the most traffic on public mobile networks, accounting for around two-thirds of overall global mobile data consumption.
Principal risks and uncertainties
Risk identification, monitoring and review
Under the FCA's Disclosure Guidance and Transparency Rules, the Directors are required to identify those material risks to which the Company is exposed and take appropriate steps to mitigate those risks.
The Company maintains a comprehensive risk matrix, on which are recorded the significant risks that have been identified and that could affect the Company's operations and those of its subsidiaries and investments. This includes risks that were identified in a comprehensive risk identification and assessment process which was undertaken before the launch of the Company, together with other risks that have been identified since IPO.
The risk matrix is maintained by the Investment Manager and is reviewed quarterly by the Audit Committee. It is updated whenever a new risk is identified or when the assessment of a previously identified risk changes.
Risk assessment
Every risk that is identified is considered by the Investment Manager and by the Directors, with specialist third party advice where necessary. That assessment is both qualitative and quantitative, considering the nature of the risk and the likelihood of it crystallising, together with the financial, legal and/or operational consequences if it does. For each risk, a two-part score is assigned, assessing the likelihood and impact on a scale of 1 (low) to 5 (high). This initial assessment is before any risk mitigation activity.
This scoring system has changed slightly since the previous year, when the likelihood and impact of each risk was assigned a score of high, medium or low. The change to the scoring system was made to allow for a more rigorous and granular assessment of each risk.
Risk management
The Board thoroughly considers the process for identifying, evaluating and managing any significant risks faced by the Company, including emerging risks, on an ongoing basis and these are reported to and discussed at each Board meeting. The Board ensures that to the extent practicable effective controls are in place to mitigate these risks and that a satisfactory compliance regime exists to ensure all applicable local and international laws and regulatory obligations are met.
Whenever a new risk is identified, it is assessed and scored, and the Audit Committee considers how best to manage the risk. For risks whose scoring changes as a result of a review, the Audit Committee considers whether any previously identified mitigating factors remain appropriate and sufficient, or whether additional controls are necessary.
There are several options for managing risks once identified. Some risks are likely to have minimal impact and the Company may choose simply to accept them. Some risks can be shared with or transferred to other parties, such as by purchasing insurance. Some risks can be avoided altogether by declining to participate in the process which gives rise to the risk, for example by declining to make an offer for an asset where insufficient information is available to allow a properly informed assessment of the returns available from it. Most risks, though, are managed by identifying mitigating actions which can be taken, either to minimise the probability of the risk materialising or to minimise any impact, or both.
Having assessed the options for managing risks, and having put in place appropriate risk mitigation measures, the risks are reassessed using the same two-part scoring system as before to determine a post-mitigation score. This reassessment enables the Directors to measure the effectiveness of the risk management measures put in place, and to identify any areas where further measures may be required.
The Company's assets consist primarily of investments in Digital Infrastructure assets, with a predominant focus on data centres, mobile telecommunications/broadcast towers and fibre-optic network assets. Its principal risks are therefore related to market conditions in the Digital Infrastructure sector in general, but also the particular circumstances of the businesses in which it is invested. The Investment Manager seeks to mitigate these risks through active asset management initiatives and carrying out due diligence work on potential targets before entering into any investments.
Investment valuation
The Company's business model, and many of the specific principal risks identified and shown in the table, relate to the Investment Manager's ability to value a business appropriately. This is relevant at several stages in acquiring and managing
an investment:
¾ At the initial stage of considering whether a particular target is an attractive investment prospect, and therefore whether
to apply resources to pursuing it;
¾ At the offer stage, in considering at what level to pitch a bid, setting that level high enough to be attractive to the seller but not so high as to dilute the returns that may potentially be achieved by the Company from the asset;
¾ After acquisition, in considering the performance of an investment in delivering the Company's target returns and whether the investment should be retained or whether a disposal could achieve greater shareholder value;
¾ When a disposal is contemplated, in determining what price should be sought for the asset; and
¾ At each financial reporting date, in determining the value at which the investment should be recognised in the Company's financial statements.
The Investment Manager has extensive expertise in valuing businesses at all stages of making, holding and disposing of investments. It has formed an Investment Committee, consisting of six senior members of the Investment Manager's team, which meets whenever significant decisions are required involving making, holding or disposing of investments. That Investment Committee informs and makes recommendations to the Board, and the Board has the opportunity to ask questions and seek further information. The Company has also appointed an independent valuation expert, who provides a reasonableness check of the Investment Manager's valuations at each half-year financial reporting date, and performs a full independent valuation at each financial year end. The key areas of risk faced by the Company are summarised below.
| 1 | The capital markets may remain effectively closed to the Company for a significant period. As a consequence, the Company may be unable to raise new capital and it may therefore be unable to progress investment opportunities. To mitigate the risk, the Company has acquired a portfolio of cash-generating assets with significant organic growth prospects, which together are capable of providing returns meeting the investment objective without further acquisitions. The Investment Manager also continues to consider potential alternative sources of capital, including debt and coinvestment. Risk: Level |
| 2 | There is a risk that, even when the capital markets are open, insufficient numbers of investors are prepared to invest new capital, or that investors are unwilling to invest sufficient new capital, to enable the Company to achieve its investment objectives. To mitigate the risk, the Company has established a track record of successful investments, which together are capable of providing returns meeting the investment objective without further acquisitions. The Investment Manager has deep sector knowledge and investment expertise and is well-known and respected in the market. Risk: New |
| 3 | The Company may lose investment opportunities if it does not match investment prices, structures and terms offered by competing bidders. Conversely, the Company may experience decreased rates of return and increased risk of loss if it matches investment prices, structures and terms offered by competitors. To mitigate the risk, the Investment Manager operates a prudent and disciplined investment strategy, participating in transaction processes only where it can be competitive without compromising its investment objectives. Risk: Level |
| 4 | There can be no guarantee or assurance the Company will achieve its investment objectives, which are indicative targets only. Investments may fail to deliver the projected earnings, cash flows and/or capital growth expected at the time of acquisition, and valuations may be affected by foreign exchange fluctuations. The actual rate of return may be materially lower than the targeted rate of return. To mitigate the risk, the Investment Manager performs a rigorous due diligence process with internal specialists and expert professional advisers in fields relevant to the proposed investment before any investment is made. The Investment Manager also carries out a regular review of the investment environment and benchmarks target and actual returns against the industry and competitors. Risk: Level |
| 5 | Actual results of portfolio investments may vary from the projections, which may have a material adverse effect on NAV. To mitigate the risk, the Investment Manager provides the Board with at least quarterly updates of portfolio investment performance and detail around any material variation from budget and forecast returns. Risk: Level |
| 6 | The Company invests in unlisted Digital Infrastructure assets, and such investments are illiquid. There is a risk that it may be difficult for the Company to sell the Digital Infrastructure assets and the price achieved on any realisation may be at a discount to the prevailing valuation of the relevant Digital Infrastructure asset. The Investment Manager has considerable experience across relevant digital infrastructure sectors, and senior members of the team have had leadership roles in over $80 billion of relevant transactions. To further mitigate the risk, the Company seeks a diversified range of investments so that exposure to temporary poor conditions in any one market is limited. Risk: New |
| 7 | The Company may invest in Digital Infrastructure assets which are in construction or construction-ready or otherwise require significant future capital expenditure. Digital Infrastructure assets which have significant capital expenditure requirements may be exposed to cost overruns, construction delay, failure to meet technical requirements or construction defects. The Investment Manager has significant experience of managing construction risks arising from Digital Infrastructure assets and will also engage third parties where appropriate to oversee such construction. Risk: Level |
Statement of Financial Position
As at 31 March 2024
| | Note | As at 31 March 2024 £'000 | As at 31 March 2023 £'000 |
| Non-current assets | | | |
| Investments at fair value through profit or loss | 6 | 1,005,937 | 872,315 |
| | | 1,005,937 | 872,315 |
| Current assets | | | |
| Receivables | 8 | 17,279 | 14,680 |
| Cash and cash equivalents | | 60,085 | 10,498 |
| | | 77,364 | 25,178 |
| | | | |
| Current liabilities | | | |
| Loans and borrowings | 9 | (157,629) | (20,287) |
| Accrued expenses and other creditors | | (5,012) | (1,495) |
|
|
| (162,641) | (21,782) |
| Net current (liabilities)/assets |
| (85,277) | 3,396 |
| Net assets |
| 920,660 | 875,711 |
| | | | |
| Equity | | | |
| Equity share capital | 10 | 774,656 | 779,157 |
| Retained earnings - Revenue | | (14,538) | (196) |
| Retained earnings - Capital | | 160,542 | 96,750 |
| Total equity |
| 920,660 | 875,711 |
| | | | |
| Number of shares in issue | | | |
| Ordinary shares | 10 | 766,290,477 | 772,509,707 |
| | | 766,290,477 | 772,509,707 |
| | | | |
| Net asset value per ordinary share (pence) | 14 | 120.15 | 113.36 |
The financial statements were approved and authorised for issue by the Board of Directors on 19 June 2024 and signed on their behalf by:
Shonaid Jemmett-Page Sian Hill
Chairman Director
The accompanying notes form an integral part of these financial statements.
Statement of Comprehensive Income
Year ended 31 March 2024
| | | Year ended 31 March 2024 | Year ended 31 March 2023 | ||||||||
|
| Note | Revenue £'000 | | Capital £'000 | | Total £'000 | Revenue £'000 | | Capital £'000 | | Total £'000 |
| Movement in fair value of investments | 6 | - | | 99,588 | | 99,588 | - | | 73,079 | | 73,079 |
| Unrealised foreign exchange (loss)/gains on investment | 6 | - | | (3,013) | | (3,013) | - | | 6,143 | | 6,143 |
| Management fee income | 6 | 1,408 | | - | | 1,408 | - | | - | | - |
| Realised loss on restructure | 6 | - | | - | | - | - | | (3,927) | | (3,927) |
| Interest income | 6 | 1,877 | | - | | 1,877 | 2,749 | | - | | 2,749 |
|
|
| 3,285 |
| 96,575 |
| 99,860 | 2,749 |
| 75,295 |
| 78,044 |
| Operating expenses | | | | | |
| | | | |
|
| Investment acquisition costs | | - | | (568) | | (568) | - | | (6,553) | | (6,553) |
| Other expenses | 4 | (7,628) | | (1,888) | | (9,516) | (9,553) | | (1,793) | | (11,346) |
|
|
| (7,628) |
| (2,456) |
| (10,084) | (9,553) |
| (8,346) |
| (17,899) |
| | | | | | |
| | | | |
|
| Operating (loss)/profit | | (4,343) | | 94,119 | | 89,776 | (6,804) | | 66,949 | | 60,145 |
| Foreign exchange movements on working capital | | - | | 518 | | 518 | - | | 11,119 | | 11,119 |
| Gain on expired foreign exchange forwards | | - | | - | | - | - | | 580 | | 580 |
| Finance income | 5 | 2,126 | | - | | 2,126 | 9,706 | | - | | 9,706 |
| Finance expense | 17 | (12,125) | | - | | (12,125) | (374) | | - | | (374) |
| (Loss)/profit for the year before tax |
| (14,342) |
| 94,637 |
| 80,295 | 2,528 |
| 78,648 |
| 81,176 |
| | | | | | |
| | | | |
|
| Tax charge | 12 | - | | - | | - | - | | - | | - |
| (Loss)/profit for the year after tax |
| (14,342) |
| 94,637 |
| 80,295 | 2,528 |
| 78,648 |
| 81,176 |
| | | | | | |
| | | | |
|
| Total comprehensive (loss)/income for the year |
| (14,342) |
| 94,637 |
| 80,295 | 2,528 |
| 78,648 |
| 81,176 |
| | | | | | |
| | | | |
|
| Weighted average number of shares | | | | | |
| | | | |
|
| Basic | 14 | 770,510,117 | | 770,510,117 | | 770,510,117 | 773,442,556 | | 773,442,556 | | 773,442,556 |
| Diluted | 14 | 770,510,117 | | 770,510,117 | | 770,510,117 | 773,442,556 | | 773,442,556 | | 773,442,556 |
| | | | | | |
| | | | |
|
| Earnings per share | | | | | |
| | | | |
|
| Basic earnings from continuing operations in the year (pence) | 14 | (1.86) | | 12.28 | | 10.42 | 0.33 | | 10.17 | | 10.50 |
| Diluted earnings from continuing operations in the year (pence) | 14 | (1.86) | | 12.28 | | 10.42 | 0.33 | | 10.17 | | 10.50 |
The accompanying notes form an integral part of these financial statements.
Statement of Changes in Equity
Year ended 31 March 2024
| | Note | | Share capital £'000 | | Retained earnings - Revenue £'000 | | Retained earnings - Capital £'000 | | Total equity £'000 |
| Opening net assets attributable to shareholders at 1 April 2022 | | | 779,896 | | (2,724) | | 45,174 | | 822,346 |
| Issue of share capital | | | 295 | | - | | - | | 295 |
| Share issue costs | | | (91) | | - | | - | | (91) |
| Shares repurchased in the year | | | (943) | | - | | - | | (943) |
| Dividends paid during the year | 15 | | - | | - | | (27,072) | | (27,072) |
| Total comprehensive income for the year | | | - | | 2,528 | | 78,648 | | 81,176 |
| Closing net assets attributable to shareholders as at 31 March 2023 |
|
| 779,157 |
| (196) |
| 96,750 |
| 875,711 |
| | Note | | Share capital £'000 | | Retained earnings - Revenue £'000 | | Retained earnings - Capital £'000 | | Total equity £'000 |
| Opening net assets attributable to shareholders at 1 April 2023 | | | 779,157 | | (196) | | 96,750 | | 875,711 |
| Shares repurchased in the year | | | (4,501) | | - | | - | | (4,501) |
| Dividends paid during the year | 15 | | - | | - | | (30,845) | | (30,845) |
| Total comprehensive (loss)/income for the year | | | - | | (14,342) | | 94,637 | | 80,295 |
| Closing net assets attributable to shareholders as at 31 March 2024 |
|
| 774,656 |
| (14,538) |
| 160,542 |
| 920,660 |
The accompanying notes form an integral part of these financial statements.
Statement of Cash Flows
Year ended 31 March 2024
| | Note | Year ended 31 March 2024 £'000 | Year ended 31 March 2023 £'000 |
| Operating activities |
|
|
|
| Operating profit for the year | | 89,776 | 60,145 |
| Adjustments to operating activities | | | |
| Movement in fair value of investments | 6 | (99,588) | (73,079) |
| Unrealised foreign exchange loss/(gain) on investments | 6 | 3,013 | (6,143) |
| Management fee income | | (1,408) | - |
| Realised loss on restructure | 6 | - | 3,927 |
| Interest capitalised and receivable on shareholder loan investments | 6 | (1,877) | (2,749) |
| Increase in receivables | | (2,979) | (4,444) |
| Decrease in payables | | 31 | 474 |
| Cash received on settled foreign currency contract | | 37,167 | 361,652 |
| Cash paid on foreign currency contract | | (37,177) | (353,000) |
| Net cash flows used in operating activities |
| (13,104) | (13,217) |
| | | | |
| Cash flows used in investing activities | | | |
| Investment additions | 6 | (66,224) | (384,415) |
| Cash collateral held for investing purposes | | - | 41,469 |
| Finance income | | 449 | 9,549 |
| Loan interest received | | 3,978 | - |
| Repayment of shareholder loan received | | 26,384 | - |
| Net cash flows used in investing activities |
| (35,413) | (333,397) |
| | | | |
| Cash flows generated from/(used in) financing activities | | | |
| Issue of share capital | | - | 295 |
| Payment of issue costs | | - | (91) |
| Shares repurchased | | (4,501) | (943) |
| Loan drawn down | 9 | 148,992 | 20,287 |
| Loan repaid | | (7,610) | - |
| Finance costs paid | | (7,428) | (374) |
| Bank interest received | 5 | 418 | 157 |
| Dividends paid | 15 | (30,845) | (27,072) |
| Net cash flows generated from /(used in) financing activities |
| 99,026 | (7,741) |
| Increase/(Decrease) in cash and cash equivalents during the year | | 50,509 | (354,355) |
| Cash and cash equivalents at the beginning of the year | | 10,498 | 353,734 |
| Exchange translation movement | | (922) | 11,119 |
| Cash and cash equivalents at the end of the year |
| 60,085 | 10,498 |
The accompanying notes form an integral part of these financial statements.
Notes to the financial statements
1. General information
Cordiant Digital Infrastructure Limited (the Company; LSE ticker: CORD) was incorporated and registered in Guernsey on 4 January 2021 with registered number 68630 as a non-cellular company limited by shares and is governed in accordance with the provisions of the Companies (Guernsey) Law 2008. The registered office address is East Wing, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3PP. The Company's ordinary shares were admitted to trading on the Specialist Fund Segment of the London Stock Exchange on 16 February 2021 and its C Shares on 10 June 2021. On 20 January 2022, all C Shares were converted to ordinary shares. A second issuance of ordinary shares took place on 25 January 2022. Note 10 gives more information on share capital.
2. Material accounting policies
The material accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The financial statements have been prepared in accordance with IFRS as issued by the IASB, the Statement of Recommended Practice issued by the Association of Investment Companies (the AIC SORP) and the Companies (Guernsey) Law 2008.
The financial statements have been prepared on an historical cost basis as modified for the measurement of certain financial instruments at fair value through profit or loss. They are presented in pounds sterling, which is the currency of the primary economic environment in which the Company operates, and are rounded to the nearest thousand, unless otherwise stated.
The material accounting policies are set out below.
Going concern
The financial statements have been prepared on a going concern basis as the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.
While the ongoing geopolitical conflicts and market volatility in different parts of the world during the year have affected the way in which the Company's investee companies are conducted, this did not have a material direct effect on the results of the business. The Directors are satisfied that the resulting macroeconomic environment is not likely to significantly restrict business activity.
The Directors have reviewed different scenarios and stress testing of the cash flow forecasts prepared by the Investment Manager to understand the resilience of the Company's cash flows to adverse scenarios.
The Directors and Investment Manager are actively monitoring these risks and their potential effect on the Company and its underlying investments. In particular, they have considered the following specific key potential impacts:
| - | increased volatility in the fair value of investments |
| - | disruptions to business activities of the underlying investments; and |
| - | recoverability of income and principal and allowance for expected credit losses. |
In considering the above key potential impacts on the Company and its underlying investments, the Investment Manager has assessed these with reference to the mitigation measures in place. Based on this assessment, the Directors do not consider that the effects of the above risks have created a material uncertainty over the assessment of the Company as a going concern.
As further detailed in note 6 to the financial statements, the Board uses a third-party valuation provider to perform a reasonableness assessment of the Investment Manager's valuation of the underlying investments. Additionally, the Investment Manager and Directors have considered the cash flow forecast to determine the term over which the Company can remain viable given its current resources.
On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least the period from 19 June 2024 to 30 September 2025, being the period of assessment considered by the Directors. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
Accounting for subsidiaries
The Directors have concluded that the Company has all the elements of control as prescribed by IFRS 10 'Consolidated Financial Statements' in relation to all its subsidiaries and that the Company satisfies the three essential criteria to be regarded as an Investment Entity as defined in IFRS 10. The three essential criteria are that the entity must:
| - | obtain funds from one or more investors for the purpose of providing these investors with professional investment management services; |
| - | commit to its investors that its business purpose is to invest its funds solely for returns from capital appreciation, investment income or both; and |
| - | measure and evaluate the performance of substantially all of its investments on a fair value basis. |
In satisfying the second essential criterion, the notion of an investment time frame is critical and an Investment Entity should have an exit strategy for the realisation of its investments. The Board has approved a divestment strategy under which the Investment Manager will, within two years from acquisition of an investment and at least annually thereafter, undertake a review of the current condition and future prospects of the investment. If the Investment Manager concludes that:
| - | the future prospects for an investment are insufficiently strong to meet the Company's rate of return targets; or |
| - | the value that could be realised by an immediate disposal would outweigh the value of retaining the investment; or |
| - | it would be more advantageous to realise capital for investment elsewhere than to continue to hold the investment |
| | then the Investment Manager will take appropriate steps to dispose of the investment. |
Also as set out in IFRS 10, further consideration should be given to the typical characteristics of an Investment Entity, which are that:
| - | it should have more than one investment, to diversify the risk portfolio and maximise returns; |
| - | it should have multiple investors, who pool their funds to maximise investment opportunities; |
| - | it should have investors that are not related parties of the entity; and |
| | it should have ownership interests in the form of equity or similar interests. |
The Directors are of the opinion that the Company meets the essential criteria and typical characteristics of an Investment Entity. Therefore, subsidiaries are measured at fair value through profit or loss, in accordance with IFRS 9 'Financial Instruments'. Fair value is measured in accordance with IFRS 13 'Fair Value Measurement'.
Financial instruments
In accordance with IFRS 9, financial assets and financial liabilities are recognised in the Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument.
Financial assets
The classification of financial assets at initial recognition depends on the purpose for which the financial asset was acquired and its characteristics. All purchases of financial assets are recorded at the date on which the Company became party to the contractual requirements of the financial asset.
The Company's financial assets principally comprise investments held at fair value through profit or loss, cash and cash equivalents, and trade receivables.
Financial assets are recognised at the date of purchase or the date on which the Company became party to the contractual requirements of the asset. Financial assets are initially recognised at cost, being the fair value of consideration given. Transaction costs of financial assets at fair value through profit or loss are recognised in the Statement of Comprehensive Income as incurred.
A financial asset is derecognised (in whole or in part) either:
| - | when the Company has transferred substantially all the risks and rewards of ownership; or |
| - | when it has neither transferred nor retained substantially all the risks and rewards and when it no longer has control over the assets or a portion of the asset; or |
| - | when the contractual right to receive cash flow has expired. |
Investments held at fair value through profit or loss
Investments are measured at fair value through profit or loss. Gains or losses resulting from the movement in fair value are recognised in the Statement of Comprehensive Income at each interim and annual valuation point, 30 September and 31 March respectively.
The loans provided to subsidiaries are held at fair value through profit or loss as they form part of a managed portfolio of assets whose performance is evaluated on a fair value basis. These loans are recognised at the loan principal value plus outstanding interest. Any gain or loss on the loan investment is recognised in profit or loss.
Fair value is defined 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. Fair value is calculated on an unlevered, discounted cash flow basis in accordance with IFRS 13.
When available, the Company measures fair value using the quoted price in an active market. A market is regarded as 'active' if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Company uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account when pricing a transaction.
Valuation process
The Investment Manager is responsible for proposing the valuation of the assets held by the Company, and the Directors are responsible for reviewing the Company's valuation policy and approving the valuations for 31 March and 30 September annually.
The Investment Manager reviews the key assumptions of the valuations of the assets proposed to the Board and performs sensitivity analysis on them. The results of this sensitivity analysis are included in note 6.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments with an original maturity of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Cash Collateral
Cash collateral is classified as a financial asset at amortised cost. It is measured at amortised cost. Cash collateral is recorded based on agreements entered into with an entity without notable history of default causing ECL to be immaterial and therefore not recorded.
Financial liabilities
Financial liabilities are classified according to the substance of the contractual agreements entered into and are recorded on the date on which the Company becomes party to the contractual requirements of the financial liability.
The Company's financial liabilities measured at amortised cost include trade and other payables, intercompany loans and other short-term monetary liabilities which are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method.
A financial liability (in whole or in part) is derecognised when the Company has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on derecognition is taken to the Statement of Comprehensive Income.
Equity
Financial instruments issued by the Company are treated as equity if the holder has only a residual interest in the assets of the Company after the deduction of all liabilities. The Company's ordinary shares and Subscription Shares are classified as equity.
Share issue costs directly attributable to the issue of ordinary shares are shown in equity as a deduction from share capital. When shares recognised as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognised as a deduction from equity.
Dividends
Dividends payable are recognised as distributions in the financial statements when the Company's obligation to make payment has been established.
Revenue recognition
Dividend income is recognised when the Company's entitlement to receive payment is established. Other income is accounted for on an accruals basis using the effective interest rate method.
Expenses
Expenses are recognised on an accruals basis in the Statement of Comprehensive Income in the period in which they are incurred.
Taxation
The Company has met the conditions in section 1158 Corporation Tax Act 2010 and the Investment Trust (Approved Company) (Tax) Regulations 2011 for each period to date, and it is the intention of the Directors to conduct the affairs of the Company so that it continues to satisfy those conditions and continue to be approved by HMRC as an investment trust.
In respect of each accounting period for which the Company is approved by HMRC as an investment trust, the Company will be exempt from UK corporation tax on its chargeable gains and its capital profits from creditor loan relationships. The Company will, however, be subject to UK corporation tax on its income (currently at a rate of 25%).
In principle, the Company will be liable to UK corporation tax on its dividend income. However, there are broad-ranging exemptions from this charge which would be expected to be applicable in respect of most of the dividends the Company may receive.
A company that is an approved investment trust in respect of an accounting period is able to take advantage of modified UK tax treatment in respect of its 'qualifying interest income' for an accounting period. It is expected that the Company will have material amounts of qualifying interest income and that it may, therefore, decide to designate some or all of the dividends paid in respect of a given accounting period as interest distributions.
To the extent that the Company receives income from, or realises amounts on the disposal of, investments in foreign countries it may be subject to foreign withholding or other taxation in those jurisdictions. To the extent it relates to income, this foreign tax may, to the extent not relievable under a double tax treaty, be able to be treated as an expense for UK corporation tax purposes, or it may be treated as a credit against UK corporation tax up to certain limits and subject to certain conditions.
Current tax is the expected tax payable on the taxable income for the period, using tax rates that have been enacted or substantively enacted at the reporting date. Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition of other assets and liabilities in a transaction that is not a business combination and that affects neither the taxable profit nor the accounting profit. Deferred tax assets and liabilities are recognised for taxable temporary differences arising on investments, except where the Company is able to control the timing of the reversal of the difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the Statement of Comprehensive Income except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with directly in equity.
Deferred tax assets and liabilities are offset when: there is a legally enforceable right to set off tax assets against tax liabilities; they relate to income taxes levied by the same taxation authority; and the Company intends to settle its current tax assets and liabilities on a net basis. Deferred tax assets and liabilities are not discounted.
Foreign currencies
The functional currency of the Company is the pound sterling, reflecting the primary economic environment in which it operates. The Company has chosen pounds sterling as its presentation currency for financial reporting purposes.
Foreign currency transactions during the year, including purchases and sales of investments, income and expenses are translated into pounds sterling at the rate of exchange prevailing on the date of the transaction.
Monetary assets and liabilities denominated in currencies other than pounds sterling are retranslated at the rate of exchange ruling at the reporting date. Non-monetary items that are measured in terms of historical cost in a currency other than pounds sterling are translated using the exchange rates at the dates of the initial transactions.
Non-monetary items measured at fair value in a currency other than pounds sterling are translated using the exchange rates at the date as at which the fair value was determined. Foreign currency transaction gains and losses on financial instruments classified as at fair value through profit or loss are included in profit or loss in the Statement of Comprehensive Income as part of the change in fair value of investments.
Foreign currency transaction gains and losses on financial instruments are included in profit or loss in the Statement of Comprehensive Income as a finance income or expense.
Segmental reporting
The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors as a whole. The key measure of performance used by the Directors to assess the Company's performance and to allocate resources is the Company's NAV, as calculated under IFRS as issued by the IASB, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the Annual Report.
For management purposes, the Company is organised into one main operating segment, which invests in Digital Infrastructure Assets.
Due to the Company's nature, it has no customers.
New standards, amendments and interpretations issued and effective for the financial period beginning 1 April 2023
The Board of Directors has considered new standards and amendments that are mandatorily effective from 1 January 2023 and with the exception of the Disclosure of Accounting Policies (Amendment to IAS1) has not had a significant impact on the financial statements. The Disclosure of Accounting Policies amendment generated a review of and reduction in the accounting policy disclosures to reflect only material accounting policy information. Accounting policy information is material if, when considered together with other information included in an entity's financial statements, it can reasonably be expected to influence decisions that primary users of the financial statements make on the basis of those financials statements.
New standards, amendments and interpretations issued but not yet effective
There are a number of new standards, amendments to standards and interpretations which are not yet mandatory for the 31 March 2024 reporting period and have not been adopted early by the Company. These standards are not expected to have a material impact on the financial statements of the Company in the current or future reporting periods and on foreseeable future transactions.
3. Significant accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income, and expenses.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key estimates made by the Company are disclosed in note 6.
The resulting accounting estimates will, by definition, seldom equal the related actual results. Revisions to accounting estimates are recognised in the period in which the estimate is revised and
in any future periods affected.
Judgements
In the process of applying the Company's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:
Assessment as an Investment Entity
In the judgement of the Directors, the Company qualifies as an Investment Entity under IFRS 10 and therefore its subsidiary entities have not been consolidated in the preparation of the financial statements. Further details of the impact of this accounting policy are included in note 7.
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the year ended 31 March 2024 is included in note 6 and relates to the determination of fair value of investments with significant unobservable inputs.
Climate change
In preparing the financial statements, the Directors have considered the impact of climate change, particularly in the context of the climate change risks identified in the ESG report section of the Strategic report.
In preparing the financial statements, the Directors have considered the medium- and longer-term cash flow impacts of climate change on a number of key estimates within the financial statements, including:
| - | the estimates of future cash flows used in assessments of the fair value of investments; and |
| - | the estimates of future profitability used in the assessment of distributable income. |
These considerations did not have a material impact on the financial reporting judgements and estimates in the current year. This reflects the conclusion that climate change is not expected to have a significant impact on the Company's short- or medium-term cash flows including those considered in the going concern and viability assessments.
4. Other expenses
Other expenses in the Statement of Comprehensive Income comprises:
| | Note | Year ended 31 March 2024 £'000 | Year ended 31 March 2023 £'000 |
| Management fees | 13 | 5,928 | 7,271 |
| Legal and professional fees | | 713 | 1,281 |
| Aborted deal fees | | 1,888 | 1,793 |
| Directors' fees | | 185 | 185 |
| Fees payable to the statutory auditor | 11 | 198 | 195 |
| Other expenses | | 604 | 621 |
|
|
| 9,516 | 11,346 |
5. Finance income
Finance income in the Statement of Comprehensive Income comprises:
| | Year ended 31 March 2024 £'000 | Year ended 31 March 2023 £'000 |
| Bank interest received | 418 | 157 |
| Interest on fixed term deposits1 | 1,708 | 9,549 |
|
| 2,126 | 9,706 |
1. During the year ended 31 March 2024, the Company invested £180.5 million in RBSI and £7.0 million Investec fixed term deposits at an average interest rate of 3% per annum. At 31 March 2024, £53.8 million of these deposits had not matured.
During the year ended 31 March 2024, the Company entered into two foreign exchange forward contracts totalling £37.2 million. The maturity date of one of these foreign exchange forwards was 27 March 2024 and the other instrument was 3 May 2024. The fair value gain or loss on these instruments during the year was immaterial.
6. Investments at fair value through profit or loss
| | Year ended 31 March 2024 | | Year ended 31 March 2023 | ||||||||
| | Loans £'000 | | Equity £'000 | | Total £'000 | | Loans £'000 | | Equity £'000 | | Total £'000 |
| Opening balance | 37,350 | | 834,965 | | 872,315 | | 27,671 | | 382,185 | | 409,856 |
| Additions | 4,807 | | 61,485 | | 66,292 | | 4,691 | | 379,724 | | 384,415 |
| Shareholder loan interest capitalised | - | | - | | - | | 521 | | - | | 521 |
| Interest on promissory notes | 1,877 | | - | | 1,877 | | 2,228 | | - | | 2,228 |
| Shareholder loan repayment | (32,530) | | - | | (32,530) | | - | | - | | - |
| Net (losses)/gains on investments at fair value through profit or loss | (2,060) | | 100,043 | | 97,983 | | 2,239 | | 73,056 | | 75,295 |
|
| 9,444 |
| 996,493 |
| 1,005,937 |
| 37,350 |
| 834,965 |
| 872,315 |
During the year ended 31 March 2024 the Company, through its indirect subsidiary Cordiant Digital Holdings Ireland (CDHI), acquired Speed Fibre DAC. The Company subscribed for 40 million additional shares in CDH UK for cash consideration of £56.1 million in order to provide funds for CDHI to complete the acquisition of Speed Fibre DAC. The value of the Company's indirect investment in Speed Fibre DAC at 31 March 2024 was £86.4 million; after taking into account the vendor loan note, the net value is £60.8 million.
The Company also subscribed for an additional 3.5 million ordinary shares in CDH UK for cash consideration of £5.4 million which was directed towards acquisition of Norkring België NV (Norkring) at £5.4 million on 15 January 2024. The timing of this transaction was close to the year end and therefore the investment has not been revalued as the price of the recent acquisition is considered to be equal to its fair value at 31 March 2024.
In the prior year ended 31 March 2023, the Company restructured its loan and equity investments in Communication Investments Holdings s.r.o. (CIH), an entity incorporated in the Czech Republic and the parent company of České Radiokomunikace a.s. (CRA), to hold them indirectly through Cordiant Digital Holdings UK Limited (CDHUK) and Cordiant Digital Holdings Two Limited (CDH2), two wholly owned subsidiaries of the Company. CDH2 issued shares and promissory notes to the Company in consideration for the transfer of the loan and equity investments in CIH. CDHUK then issued shares and promissory notes to the Company in consideration for the transfer of the shares and promissory notes of CDH2. The value of the Company's indirect investment in CRA as at 31 March 2024 was £385.9 million (31 March 2023: £389.1 million), comprising an equity investment only as the loan of £32.5 million (31 March 2023: £26.2 million) including the accrued interest during the year was fully settled.
The Company, through its indirect subsidiary Cordiant Digital Holdings One Limited (CDH1), acquired 100% of the equity of Emitel S.A. during the year ended 31 March 2023. During the year ended 31 March 2024, CDH1 restructured part of its equity investment in Emitel S.A. into a loan investment. £37.2 million (PLN 192.5 million) was transferred from equity to loan. At 31 March 2024, the value of CDH1's equity investment was £490.0 million (31 March 2023: £429.0 million) and the loan investment was £35.0 million (31 March 2023: £ nil).
The fair value of the shares and promissory notes issued by CDHUK are included in the table above, and represent the fair values of the underlying investments together with other assets and liabilities of its subsidiaries. The promissory notes were repaid in full on 19 December 2023. The fair value of the Company's equity investment in CDHUK amounted to £963.8 million at 31 March 2024 (31 March 2023: £782.8 million) and the loan investment amounted to £nil (31 March 2023: £32.5 million). Movements in the fair value of CDHUK are driven largely by movements in the fair value of the underlying investee companies calculated in their local currencies, and by the effects of foreign currency fluctuations when those fair values are translated into sterling. Further information regarding foreign currency exposure is given in note 16.
The Company has direct investments in CDIL Data Centre USA LLC, the legal entity operating as Hudson Interxchange (previously operating under the name DataGryd). As at 31 March 2024, the equity investment was valued at £32.8 million (31 March 2023: £52.3 million) and the loan investments amounted to £9.4 million (31 March 2023: £4.7 million).
The table below details all gains on investments through profit or loss.
| | As at 31 March 2024 | As at 31 March 2023 | ||||||||
| | Loans £'000 | | Equity £'000 | | Total £'000 | Loans £'000 | | Equity £'000 | | Total £'000 |
| Movement in fair value of investments | - | | 99,588 | | 99,588 | - | | 73,079 | | 73,079 |
| Unrealised foreign exchange (loss)/gain on investment | (2,060) | | (953) | | (3,013) | - | | 6,143 | | 6,143 |
| Management fee income | 1,408 | | - | | 1,408 | - | | - | | - |
| Realised loss on restructure | - | | - | | - | - | | 3,927 | | 3,927 |
| Shareholder loan interest income | 1,877 | | - | | 1,877 | 2,546 | | 3,597 | | 6,143 |
| Total investment income recognised in the year | (183) |
| 100,043 |
| 99,860 | 4,988 |
| 73,056 |
| 78,044 |
Fair value measurements
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 three 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).
The determination of what constitutes 'observable' requires significant judgement by the Company. The Directors consider observable data to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The Company's investments have been classified within Level 3 as the investments are not traded and contain unobservable inputs. The valuations have been carried out by the Investment Manager. In order to obtain assurance in respect of the valuations calculated by the Investment Manager, the Company has engaged a third-party valuations expert to carry out an independent assessment of the unobservable inputs and of the forecast cash flows of the Company's investments.
During the year ended 31 March 2024, there were no transfers of investments at fair value through profit or loss from or to Level 3 (31 March 2023: nil)
The Company's investments in CRA, Hudson Interxchange, Speed Fibre DAC and Emitel have been valued using a DCF methodology. This involves forecasting the entity's future cash flows, taking into account the terms of existing contracts, expected rates of contract renewal and targeted new contracts, and the economic and geopolitical environment. These cash flows are discounted at the entity's estimated weighted average cost of capital (WACC). This method also requires estimating a terminal value, being the value of the investment at the end of the period for which cash flows can be forecast with reasonable accuracy, which is March 2030 for CRA, December 2030 for Emitel, December 2031 for Speed Fibre and March 2037 for Hudson Interxchange. The terminal value is calculated using an assumed terminal growth rate (TGR) into perpetuity based on anticipated industry trends and long-term inflation rates. The Norkring investment has been valued at cost, the price of the most recent transaction being regarded as the most appropriate indicator of fair value.
The DCF valuation methodology requires estimation of unobservable inputs. The following table summarises the effect on the valuation of the Company's portfolio of reasonably possible alternative investment assumptions with regards to those estimates; these are calculated using the DCF valuation models referred to above.
31 March 2024
| Unobservable input | Range | Valuation if rate increases by 1% (£m) | Movement in valuation (£m) | Valuation if rate decreases by 1% (£m) | Movement in valuation (£m) |
| WACC | 9.00%-10.13% | 858 | (182) | 1,276 | 236 |
| TGR | 1.25%-2.40% | 1,194 | 154 | 920 | (119) |
31 March 2023
| Unobservable input | Range | Valuation if rate increases by 1% (£m) | Movement in valuation (£m) | Valuation if rate decreases by 1% (£m) | Movement in valuation (£m) |
| WACC | 8.20%-11.00% | 729 | (146) | 1,063 | 188 |
| TGR | 1.25%-2.25% | 993 | 118 | 7832 | (92) |
Changes to WACC and TGR could be driven by, among other factors: market movements in interest rates, inflation rates and other macroeconomic indicators; perception of risk and volatility in debt and equity markets affecting general market returns; and by political and societal changes and technological developments affecting the operations of the portfolio companies and the countries in which they operate.
Both the Investment Manager and the third-party valuation expert use a combination of other valuation techniques to verify the reasonableness of the DCF valuations, as recommended in the International Private Equity and Venture Capital (IPEV) Valuation Guidelines:
| - | earnings multiple: applying a multiple, derived largely from comparable listed entities in the market, to the forecast EBITDA of the entity to calculate an enterprise value, and then deducting the fair value of any debt in the entity; |
| - | DCF with multiple: calculating a DCF valuation of the cash flows of the entity to the end of the period for which cash flows can be forecast with reasonable accuracy, and then applying a multiple to EBITDA at the end of that period to estimate a terminal value; and |
| - | dividend yield: forecasting the entity's capacity to pay dividends in the future and applying an equity yield to that forecast dividend, based on comparable listed entities in the market. |
The DCF valuations derived by the Investment Manager and those derived by the third-party valuation expert were not materially different from each other, and the other valuation techniques used provided assurance that the DCF valuations are reasonable.
7. Unconsolidated subsidiaries
The following table shows the subsidiaries of the Company. As the Company qualifies as an Investment Entity as referred to in note 3, these subsidiaries have not been consolidated in the preparation of the financial statements:
| Investment | Place of business | Ownership interest at 31 March 2024 | Ownership interest at 31 March 2023 |
| Held directly | | | |
| Cordiant Digital Holdings UK Limited | United Kingdom | 100% | 100% |
| CDIL Data Centre USA LLC | USA | 100% | 100% |
| | | | |
| Held indirectly | | | |
| Cordiant Digital Holdings One Limited | United Kingdom | 100% | 100% |
| Cordiant Digital Holdings Two Limited | United Kingdom | 100% | 100% |
| Cordiant Digital Holdings Three Limited | United Kingdom | 100% | 0% |
| Cordiant Digital Holdings Four Limited | United Kingdom | 100% | 0% |
| Cordiant Digital Holdings Ireland | Ireland | 100% | 0% |
| Communications Investments Holdings s. r. o. | Czech Republic | 100% | 100% |
| České Radiokomunikace a.s. (Czechia) | Czech Republic | 100% | 100% |
| Czech Digital Group, a.s | Czech Republic | 100% | 100% |
| Cloud4com s.r.o. | Czech Republic | 100% | 0% |
| Datové centrum Lužice s.r.o. | Czech Republic | 100% | 0% |
| Prague Digital TV s.r.o | Czech Republic | 100% | 0% |
| Emitel S.A. | Poland | 100% | 100% |
| Allford Investments S.A. | Poland | 100% | 100% |
| EM Properties sp. z o. o. | Poland | 100% | 100% |
| EM Projects sp. z o. o. | Poland | 100% | 100% |
| Hub Investments sp. z o. o. | Poland | 100% | 100% |
| Norkring België NV | Belgium | 100% | 0% |
| Speed Fibre DAC | Ireland | 100% | 0% |
| Speed Fibre 2 Holdings Limited | Ireland | 100% | 0% |
| Speed Fibre Intermediate Holdings Limited | Ireland | 100% | 0% |
| Speed Fibre Borrower Limited | Ireland | 100% | 0% |
| Airspeed Communications Holdings ULC | Ireland | 100% | 0% |
| Airspeed Communications Solutions ULC | Ireland | 100% | 0% |
| Airspeed Investments Limited | Isle of Man | 100% | 0% |
| Airspeed Networks Limited | Isle of Man | 100% | 0% |
| Airspeed Ventures Unlimited | Isle of Man | 100% | 0% |
| Speed Fibre Group Limited | Ireland | 100% | 0% |
| Airspeed Communications Limited | Ireland | 100% | 0% |
| E-Nasc Éireann Teoranta | Ireland | 100% | 0% |
| Enet Telecommunications Networks Limited | Ireland | 100% | 0% |
| Enet Telecommunications Networks Limited | Ireland | 100% | 0% |
The following additional information is provided in relation to unquoted investments as recommended by the AIC SORP.
| | Turnover | Pre-tax profit/(loss) | Net assets/ (liabilities) |
| Emitel2 | £113.8 million | (£24.3 million) | £214.2 million |
| CRA3 | £80.0 million | £16.9 million | (£57.3 million) |
| Hudson Interxchange4 | £18.2 million | (£12.4 million) | £46.8 million |
| Speed Fibre DAC5 | £68.4 million | (£11.4 million) | (£99.3 million) |
| Norkring België NV6 | £7.7 million | £1.7 million | £4.8 million |
| 2. Figures from Emitel's audited IFRS accounts for the year ended 31 December 2023 |
| 3. Figures from CRA's audited IFRS accounts for the year ended 31 March 2023 |
| 4. Figures from Hudson's audited US GAAP accounts for the period from 13 January 2022 to 31 March 2023 |
| 5. Figures from Speed Fibre DAC audited IFRS accounts for the year ended 31 December 2023. |
| 6. Figures from Norkring management pack at 31 December 2023. |
The amounts invested in the Company's unconsolidated subsidiaries during the year and their carrying value at 31 March 2024 are as outlined in note 6.
There are certain restrictions on the ability of the Company's unconsolidated subsidiaries in the Czech Republic to transfer funds to the Company in the form of cash dividends or repayment of loans. In accordance with the documentation relating to loans made by various banks to CRA, such cash movements are subject to limitations on amounts and timing, and satisfaction of certain conditions relating to leverage and interest cover ratio. The Directors do not consider that these restrictions are likely to have a significant effect on the ability of the Company's subsidiaries to transfer funds to the Company. In addition, during the year, the Investment Manager received immaterial fees from Emitel and CRA for advisory services rendered.
Subsidiaries held in the Czech Republic, Ireland, Belgium and in Poland are profitable and cash generative, and do not need the financial support of the Company. The subsidiary based in the US will receive the financial support of the Company for a period of at least 12 months from the publication of this report.
8. Trade and other receivables
| | As at 31 March 2024 £'000 | As at 31 March 2023 £'000 |
| Cash collateral | 8,963 | 9,130 |
| Other debtors | 6,582 | 2,573 |
| Expenses paid on behalf of related parties | 1,599 | 2,866 |
| Prepayments | 105 | 77 |
| Interest receivable | 30 | 34 |
|
| 17,279 | 14,680 |
Cash collateral relates to one security deposit held in money market accounts. An amount of USD 11.29 million (£8.96 million) relates to collateral for a letter of credit relating to the lease of the building occupied by Hudson, and generated interest of 5.4% per annum during the year ended 31 March 2024.
9. Loan and borrowings
| | As at 31 March 2024 £'000 | As at 31 March 2023 £'000 |
| Opening balance | 20,287 | - |
| Drawdown of principal during the year | 148,962 | 20,287 |
| Repayments of principal during the year | (9,990) | - |
| Unrealised exchange loss | (1,630) | - |
| | 157,629 | 20,287 |
As at 31 March 2024, the Company had borrowings of £157.6 million (€184.4 million) from CDH2 compared to £20.3 million (€23.1 million) at 31 March 2023. The loan between the Company and CDH2 is repayable on demand and carries interest at a fixed margin over a variable EURIBOR rate set at the beginning of each six-month interest period. Note 17 provides more detail on interest charged during the year ended 31 March 2024.
10. Share capital
Subject to any special rights, restrictions, or prohibitions regarding voting for the time being attached to any shares, holders of ordinary shares have the right to receive notice of and to attend, speak and vote at general meetings of the Company and each holder being present in person or by proxy shall upon a show of hands have one vote and upon a poll shall have one vote in respect of each ordinary share that they hold.
Holders of ordinary shares are entitled to receive and participate in any dividends or distributions of the Company in relation to assets of the Company that are available for dividend or distribution. On a winding-up of the Company, the surplus assets of the Company available for distribution to the holders of ordinary shares (after payment of all other debts and liabilities of the Company attributable to the ordinary shares) shall be divided amongst the holders of ordinary shares pro rata according to their respective holdings of ordinary shares.
| Ordinary shares | 31 March 2024 Number of shares | £'000 | 31 March 2023 Number of shares | £'000 |
| Issued and fully paid | 773,559,707 | 780,100 | 773,559,707 | 780,100 |
| Shares held in treasury | (7,269,230) | (5,444) | (1,050,000) | (943) |
| Outstanding shares at year end | 766,290,477 | 774,656 | 772,509,707 | 779,157 |
Holders of ordinary shares are entitled to all dividends paid by the Company on the ordinary shares and, on a winding up, provided the Company has satisfied all of its liabilities, ordinary shareholders are entitled to all of the surplus assets of the Company attributable to the ordinary shares.
Subscription shares carry no right to any dividends paid by the Company and have no voting rights.
No subscription shares have been exercised between 31 March 2024 and the date of this report.
| Treasury shares | 31 March 2024 Number of shares £'000 | 31 March 2023 Number of shares £'000 |
| Opening balance | 1,050,000 | - |
| Shares repurchased during the year | 6,219,230 | 1,050,000 |
| Closing balance at year end | 7,269,230 | 1,050,000 |
The Company has undertaken market buybacks during the year. The movements are shown in the table above. The average purchase price of the shares bought back during the year is 72.4 pence. The average price at which shares were repurchased represents a 39.75% discount to the NAV per share (31 March 2023: 20.78%) at the time of repurchase. The shares repurchased were funded out of distributable reserves.
Subscription shareholders have no right to any dividends paid by the Company and have no voting rights.
11. Audit fees
Other operating expenses include fees payable to the Company's auditor, which can be analysed as follows:
| | Year ended 31 March 2024 £'000 | Year ended 31 March 2023 £'000 |
| Fees payable to the statutory auditor | | |
| for audit of the statutory financial statements | 198 | 195 |
| for other audit-related services | - | - |
| for non-audit services | - | - |
|
| 198 | 195 |
At 31 March 2024, there were no audit fees from the year ended 31 March 2023 remaining unpaid.
12. Taxation
a) Analysis of the tax charge for the year
| Corporation tax | Year ended 31 March 2024 £'000 | Year ended 31 March 2023 £'000 |
| Taxation for the year (see note 12b) | - | - |
b) Factors affecting the tax charge for the year
The tax assessed for the year ended 31 March 2024 is lower than the Company's applicable rate of corporation tax for that year of 25%. The factors affecting the tax charge for the year are as follows:
| | Year ended 31 March 2024 £'000 | Year ended 31 March 2023 £'000 |
| Profit for the year before tax | 80,427 | 81,176 |
| Net return before taxation multiplied by the Company's applicable rate of corporation tax for the period of 25% | 20,107 | 15,423 |
| Effects of: | | |
| Capital return on investments | (24,306) | (17,275) |
| Expenses not deductible for corporation tax | 2,180 | 1,586 |
| Realised loss on restructure not deductible | - | 746 |
| Utilisation of expenses brought forward | - | (480) |
| Amounts taxable in different periods | (173) | - |
| Unrelieved current year expenses | 2,192 | - |
| Total tax for the year (see note 12a) | - | - |
c) Deferred taxation
The Company has an unrecognised deferred tax asset of £2,192,000 (Prior year: £77,000) based on a main rate of corporation tax of 25%, in respect of excess management expenses of £6,768,000 and non-trading relationships of £2,000,000.
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.
Due to the Company's status as an investment trust and the intention to continue to meet the conditions required to retain that status, the Company has not provided for tax on any capital gains arising on capital gains or losses arising on the revaluation of investments.
13. Management and performance fees
Under the Investment Management Agreement, the Investment Manager is entitled to receive an annual management fee and a performance fee, plus any applicable VAT, in addition to the reimbursement of reasonable expenses incurred by it in the performance of its duties.
Management fee
The Investment Manager receives from the Company an annual management fee, based on the average market capitalisation of the Company, calculated using the closing market capitalisation for each LSE trading day for the relevant month, and paid monthly in arrears. The management fee has been payable since 30 April 2021, being the date on which more than 75% of the IPO proceeds were deployed in investment activities.
The annual management fee is calculated on the following basis:
| - | 1.00% of the average market capitalisation up to £500 million. |
| - | 0.90% of the average market capitalisation between £500 million and £1 billion; and |
| - | 0.80% of the average market capitalisation in excess of £1 billion. |
Following the publication of each Interim Report and Annual Report, the Investment Manager is required to apply an amount, in aggregate, equal to 10% of the annual management fee for the preceding six-month period in the following manner:
a) if the average trading price, calculated over the 20 trading days immediately preceding the announcement date, is equal to, or higher than, the last reported NAV per ordinary share (as adjusted to reflect any dividends reflected in the average trading price) the Investment Manager shall use the relevant amount to subscribe for new ordinary shares (rounded down to the nearest whole number of ordinary shares), issued at the average trading price; or
b) if the average trading price is lower than the last reported NAV per ordinary share (as adjusted to reflect any dividends reflected in the average trading price) the Investment Manager shall, as soon as reasonably practicable, use the relevant amount to make market purchases of ordinary shares (rounded down to the nearest whole number of ordinary shares) within two months of the relevant NAV announcement date.
Even though the annual management fee is payable on a monthly basis, ordinary shares will only be acquired by the Investment Manager on a half-yearly basis.
Any ordinary shares subscribed or purchased by the Investment Manager pursuant to the above arrangements are, subject to usual exceptions, subject to a lock-up of 12 months from the date of subscription or purchase.
For the year ended 31 March 2024, the Investment Manager has charged management fees of £5.9 million (31 March 2023: £7.3 million) to the Company, with £0.6 million (31 March 2023: £0.6 million) owed at year end.
During the year ended 31 March 2024, the Investment Manager was not required to subscribe for new ordinary shares (31 March 2023: £0.29 million) but was required to conduct open market purchases for aggregate consideration of £0.63million (31 March 2023: £0.39 million).
Performance fee
The Investment Manager may in addition receive a performance fee on each performance fee calculation date, dependent on the performance of the Company's NAV and share price. The first performance fee calculation date is 31 March 2024 and subsequent calculation dates are on 31 March each year thereafter. The fee will be equal to 12.5% of the excess return over the target of 9% for the NAV return or share price return, whichever is the lower, multiplied by the time-weighted average number of ordinary shares in issue (excluding any ordinary shares held in treasury) during the relevant period.
Any performance fee is to be satisfied as follows:
| - | as to 50% in cash; and |
| - | as to the remaining 50% of the performance fee, subject to certain exceptions and the relevant regulatory and tax requirements: |
| a) | if the average trading price, calculated over the 20 trading days immediately preceding the performance fee calculation date, is equal to or higher than the last reported NAV per ordinary share (as adjusted to reflect any dividends reflected in the average trading price) the Company will issue to the Investment Manager such number of new ordinary shares (credited as fully paid) as is equal to the performance fee investment amount divided by the average trading price (rounded down to the nearest whole number of ordinary shares); or |
| b) | if the average trading price is lower than the last reported NAV per ordinary share (as adjusted to reflect any dividends reflected in the average trading price) then the Company shall (on behalf of, and as agent for, the Investment Manager) apply the performance fee investment amount in making market purchases of ordinary shares, provided any such ordinary shares are purchased at prices below the last reported NAV per ordinary share. |
Any ordinary shares subscribed or purchased by the Investment Manager pursuant to the above arrangements will, subject to usual exceptions, be subject to a lock-up of 36 months from the date of subscription or purchase.
For the year ended 31 March 2024, no performance fee is due to the Investment Manager (31 March 2023: £nil) and no amount has been accrued as the share price performance hurdle has not been met.
14. Earnings per share and net asset value per share
| Ordinary shares | Year ended 31 March 2024 | |
| Earnings per share | Basic | Diluted |
| Allocated profit attributable to this share class - £'000 | 80,295 | 80,295 |
| Weighted average number of shares in issue | 770,510,117 | 770,510,117 |
| Earnings per share from continuing operations in the year (pence) | 10.42 | 10.42 |
| Ordinary shares | Year ended 31 March 2023 | |
| Earnings per share | Basic | Diluted |
| Allocated profit attributable to this share class - £'000 | 81,176 | 81,176 |
| Weighted average number of shares in issue | 773,442,556 | 773,442,556 |
| Earnings per share from continuing operations in the year (pence) | 10.50 | 10.50 |
As at 31 March 2024, there were 6,434,884 (31 March 2023: 6,434,884) Subscription Shares in issue. During the year ended 31 March 2024, nil (31 March 2023: 187) Subscription Shares were exercised.
| | Year ended 31 March 2024 | Year ended 31 March 2023 |
| Weighted average number of shares used in the calculation of basic earnings per share | 770,510,117 | 773,442,556 |
| Weighted average number of shares used in the calculation of diluted earnings per share | 770,510,117 | 773,442,556 |
| Net asset value - £'000 | 920,660 | 875,711 |
| Number of ordinary shares issued | 766,290,477 | 772,509,707 |
| Net asset value per share (pence) | 120.15 | 113.36 |
15. Dividends declared and paid with respect to the year/period
| Dividends paid during the year ended 31 March 2024 | Dividend per ordinary share pence | Total dividend £'000 |
| Second interim dividend in respect of the period ended 31 March 2023 | 2.00 | 15,450 |
| Interim dividend in respect of the period ended 31 March 2024 | 2.00 | 15,395 |
|
|
| 30,845 |
| Dividends declared | Dividend per ordinary share pence | Total dividend £'000 |
| Second interim dividend in respect of the period ended 31 March 2024 | 2.20 | 16,858 |
| Dividends paid during the period ended 31 March 2023 | Dividend per ordinary share pence | Total dividend £'000 |
| Second interim dividend in respect of the period ended 30 September 2023 | 2.00 | 11,599 |
| Interim dividend in respect of the year ended 31 March 2023 | 2.00 | 15,473 |
|
|
| 27,072 |
On 14 June 2024, the Board approved a second interim dividend of 2.20 pence per share in respect of the period from 1 April 2023 to 31 March 2024, bringing the total dividend for the year to 4.20 pence per share. The record date for this dividend is 28 June 2024 and the payment date is 19 July 2024.
16. Financial risk management
Financial risk management objectives
The Company's investing activities intentionally expose it to various types of risks that are associated with the underlying investments. The Company makes the investment in order to generate returns in accordance with its investment policy and objectives.
The most important types of financial risks to which the Company is exposed are market risk (including price, interest rate and foreign currency risk), liquidity risk and credit risk. The Board of Directors has overall responsibility for the determination of the Company's risk management and sets policy to manage that risk at an acceptable level to achieve those objectives. The policy and process for measuring and mitigating each of the main risks are described below.
The Investment Manager and the Administrator provide advice to the Company which allows it to monitor and manage financial risks relating to its operations through internal risk reports which analyse exposures by degree and magnitude of risks. The Investment Manager and the Administrator report to the Board on a quarterly basis.
Categories of financial instruments
For those financial assets and liabilities carried at amortised cost, the Directors are of the opinion that their carrying value approximates to their fair value.
| | As at 31 March 2024 £'000 | As at 31 March 2023 £'000 |
| Financial assets |
|
|
| Financial assets at fair value through profit or loss: | | |
| Investments | 1,005,937 | 872,315 |
| | | |
| Other financial assets at amortised cost: |
|
|
| Cash and cash equivalents | 60,085 | 10,498 |
| Trade and other receivables (excluding prepayments) | 17,174 | 14,603 |
| | | |
| Financial liabilities |
|
|
| Financial liabilities at amortised cost: | | |
| Loans and borrowings | (157,629) | (20,287) |
| Accrued expenses and other creditors | (5,012) | (1,495) |
Fair value hierarchy
The table below analyses financial instruments measured at fair value at the reporting date by the level in fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the Statement of Financial Position. All fair value measurements below are recurring.
| 31 March 2024 | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 |
| Financial assets | | | | |
| Financial assets at fair value through profit or loss: | | | | |
| Investments | - | - | 1,005,937 | 1,005,937 |
|
| - | - | 1,005,937 | 1,005,937 |
| 31 March 2023 | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 |
| Financial assets | | | | |
| Financial assets at fair value through profit or loss: | | | | |
| Investments | - | - | 872,315 | 872,315 |
|
| - | - | 872,315 | 872,315 |
Capital risk management
The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the capital return to shareholders. The capital structure of the Company consists of issued share capital and retained earnings, as stated in the Statement of Financial Position.
In order to maintain or adjust the capital structure, the Company may issue new shares. There are no external capital requirements imposed on the Company.
Market risk
Market risk includes price risk, foreign currency risk and interest rate risk.
Price risk
The underlying investments held present a potential risk of loss of capital to the Company. As outlined in note 6, investments are in the form of shareholder loans and equity with protective provisions in place. Price risk arises from uncertainty about future prices of underlying financial investments held by the Company. As at 31 March 2024, the fair value of investments, excluding cash and cash equivalents, was £1,005.9 million (31 March 2023: £872.3 million) and a 5% increase/(decrease) in the price of investments with all other variables held constant would result in a change to the fair value of investments of +/- £50.3 million (31 March 2023: £43.6 million).
Please refer to note 6 for quantitative information about the fair value measurements of the Company's Level 3 investments.
The Company is exposed to a variety of risks which may have an impact on the carrying value of its investments. The risk factors are set out below.
Not actively traded
The Company's investments are not generally traded in an active market but are indirectly exposed to market price risk arising from uncertainties about future values of the investments held. The investments of the Company vary as to geographic distribution of operations and size, all of which may impact the susceptibility of their valuation to uncertainty.
Concentration
The Company invests in the Digital Infrastructure sector. While the Company is subject to the investment and diversification restrictions in its investment policy, within those limits material concentrations of investments may arise.
Although the investments are in the same industry, each individual underlying data centre, mobile telecommunications tower or segment of a fibre-optic network held within the portfolio constitutes a separate Digital Infrastructure Asset. This risk is managed through careful selection of investments within the specified limits of the investment policy.
Each of these investment restrictions is calculated and applied as at the time of investment and non-compliance resulting from changes in the price or value of assets following investment is not considered a breach of the investment restrictions.
Foreign currency risk
The Company invests in financial instruments and enters into transactions that are denominated in currencies other than its functional currency, primarily in Polish zloty, Czech koruna, Euros and US dollars.
The Company's currency risk is managed by the Investment Manager in accordance with the policies and procedures in place.
The Company also has exposure to foreign currency risk due to the payment of some expenses in Polish zloty, Czech koruna, Euros, US dollars and Canadian dollars. Consequently, the Company is exposed to risks that the exchange rate of its currency relative to other foreign currencies may change in a manner that has an adverse effect on the value of that portion of the Company's assets or liabilities denominated in currencies other than pounds sterling. Any exposure to foreign currency risk at the underlying investment level is captured within price risk.
The following table sets out, in pounds sterling, the Company's total exposure to direct and indirect foreign currency risk and the net exposure to foreign currencies of the monetary assets and liabilities. Of the total exposure set out below, the Company's direct foreign exchange exposure is £66.7 million.
| As at 31 March 2024 |
| |||||||
| | USD £'000 | CZK £'000 | CAD £'000 | PLN £'000 | EUR £'000 | GBP £'000 | Total £'000 | |
| Non-current assets | | | | | | | | |
| Financial assets at fair value through profit or loss | 42,262 | 385,941 | - | 525,050 | 52,654 | 30 | 1,005,937 | |
| Total non-current assets | 42,262 | 385,941 | - | 525,050 | 52,654 | 30 | 1,005,937 | |
| Current assets | | | | | | | | |
| Receivables and prepayments | 9,171 | - | - | - | 2,568 | 5,540 | 17,279 | |
| Cash and cash equivalents | 67 | - | | - | 40,734 | 19,284 | 60,085 | |
| Total current assets | 9,238 | - | - | - | 43,302 | 24,824 | 77,364 | |
| Current liabilities | | | | | | | | |
| Loans and borrowings | - | - | - | - | (157,629) | - | (157,629) | |
| Accrued expenses and other creditors | (29) | - | - | - | (3,862) | (1,121) | (5,012) | |
| Total current liabilities | (29) | - | - | - | (161,491) | (1,121) | (162,641) | |
| Total net assets | 51,471 | 385,941 | - | 525,050 | (65,535) | 23,733 | 920,660 | |
| As at 31 March 2023 |
| |||||||
| | USD £'000 | CZK £'000 | CAD £'000 | PLN £'000 | EUR £'000 | GBP £'000 | Total £'000 | |
| Non-current assets | | | | | | | | |
| Financial assets at fair value through profit or loss | 56,993 | 389,101 | - | 429,002 | (2,984) | 203 | 872,315 | |
| Total non-current assets | 56,993 | 389,101 | - | 429,002 | (2,984) | 203 | 872,315 | |
| Current assets | | | | | | | | |
| Receivables and prepayments | 9,164 | - | - | - | 2,639 | 2,877 | 14,680 | |
| Cash and cash equivalents | 168 | - | 1 | - | 1 | 10,328 | 10,498 | |
| Total current assets | 9,332 | - | 1 | - | 2,640 | 13,205 | 25,178 | |
| Current liabilities | | | | | | | | |
| Loans and borrowings | - | - | - | - | (20,745) | - | (20,745) | |
| Payables | (30) | - | - | - | - | (1,007) | (1,037) | |
| Total current liabilities | (30) | - | - | - | (20,745) | (1,007) | (21,782) | |
| Total net assets | 66,295 | 389,101 | 1 | 429,002 | (21,089) | 12,401 | 875,711 | |
The table below sets out the effect on the net assets against a reasonably possible weakening of the pound against the US dollar, Czech koruna, Polish zloty and euros by 5%, at 31 March 2024. The analysis assumes that all other variables remain constant.
| Effect in increase of pounds sterling | As at 31 March 2024 £'000 | As at 31 March 2023 £'000 |
| USD | 2,574 | 3,315 |
| CZK | 19,297 | 19,455 |
| PLN | 26,253 | 21,450 |
| EUR | (3,277) | (1,054) |
A strengthening of the pound against the above currencies would have resulted in an equal but opposite effect to the amounts shown above.
Interest rate risk
The Company's exposure to interest rate risk relates to the Company's cash and cash equivalents and intercompany loans and borrowings. The Company is subject to risk due to fluctuations in the prevailing levels of market interest rates.
As at 31 March 2024, the cash balance held by the Company was £60.1 million (31 March 2023: £10.5 million). A 1% increase/(decrease) in interest rates with all other variables held constant would result in a change to interest received of +/- £0.6 million (31 March 2023: +/- £0.1 million) per annum.
As at 31 March 2024, the intercompany loans and borrowings balance held by the Company was £157.6 million (31 March 2023: £20.3 million). A 1% increase/(decrease) in interest rates with all other variables held constant would result in a change to interest payable of +/- £1.6 million (31 March 2023: £0.2 million). This effect at the Company level would be off-set by an equal and opposite change in the investments as the loan is with a 100% owned subsidiary (note 17).
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors.
Liquidity risk is defined as the risk that the Company may not be able to settle or meet its obligations on time or at a reasonable price. The Company's policy and the Investment Manager's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stress conditions, without incurring unacceptable losses or risking damage to the Company's reputation. The Company's liabilities are made up of estimated accruals and trade creditors which are due to be settled within three months of the year end.
The Company's liquidity risk arises principally from the fact that there is no liquid market for its investments and it may not be able to realise their full value on a timely basis. The Company will maintain flexibility in funding by keeping sufficient liquidity in cash and cash equivalents, which may be invested on a temporary basis in line with the cash management policy as agreed by the Directors from time to time.
The Company adopts a prudent approach to liquidity management and through the preparation of budgets and cash flow forecasts maintains sufficient cash reserves to meet its obligations.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company.
Financial assets mainly consist of cash and cash equivalents and investments at fair value through profit or loss. The Company's risk on liquid funds is managed by only depositing monies with institutions with a short term credit rating of A1/P-1 - A1/F1 or equivalent. The Company mitigates its credit risk exposure on its investments at fair value through profit or loss by the exercise of due diligence on the counterparties and the Investment Manager.
The table below shows the material cash balances and the credit rating for the counterparties used by the Company at the year/period-end date:
| | Location | 31 March 2024 £'000 | | 31 March 2023 £'000 |
| Royal Bank of Scotland International | Guernsey | 24,414 | | 10,498 |
| Investec Bank Plc | UK | 36,685 | | - |
Credit ratings:
| | S&P | Moody's | Fitch |
| Royal Bank of Scotland International | A/A-1 | A1/P-1 | A1/F1 |
| Investec Bank Plc | Not rated | A1/P-1 | BBB+/ F2 |
The Company's maximum exposure to loss of capital at the year/period end is shown below:
Carrying value and maximum exposure
| | 31 March 2024 £'000 | 31 March 2023 £'000 |
| Financial assets (including cash and equivalents but excluding prepayments) | 77,259 | 25,101 |
Gearing
As at the date of these financial statements the Company had gearing of 17.1% (31 March 2023: 2.3%) calculated as loans and borrowings divided by net assets.
17. Related party transactions
Directors
The Company has four non-executive Directors, each of whom is considered to be independent. Directors' fees for the year ended 31 March 2024 amounted to £185,000 (31 March 2023: £185,000), of which £nil (31 March 2023: £nil) was outstanding at the year end.
The shares held by the Directors at 31 March 2024 are shown in the table below:
| | Ordinary shares held at 31 March 2024 | Ordinary shares held at 31 March 2023 |
| Shonaid Jemmett-Page | 63,355 | 28,039 |
| Sian Hill | 57,500 | 37,500 |
| Marten Pieters | 103,125 | 48,125 |
| Simon Pitcher | 63,125 | 38,125 |
Investments
As part of the initial acquisition of Communications Investments Holdings s.r.o. (CIH) in April 2021, the Company acquired a loan due from CIH which accrues interest at 9.9% per annum. Total interest receivable by the Company in relation to the year was £1.9 million (31 March 2023: £0.5 million), of which £nil (31 March 2023: £nil) remained outstanding at the year/period end. The loan investment was transferred to the Company's subsidiary Cordiant Digital Holdings Two Ltd (CDH2) on 31 May 2022, in exchange for a promissory note. The balance on the promissory note investment at 31 March 2024, including accrued interest, was £nil (31 March 2023: £32.6 million). In January 2022, the assets of Hudson Interxchange were acquired by the Company's subsidiary CDIL Data Centre USA LLC. The Company provided funding for this transaction in the form of equity contributions. The balance of the equity investment at 31 March 2024, was £32.8 million (31 March 2023: £52.2 million).
Company subsidiaries
On 16 December 2022, the Company borrowed £20.3 million from CDH2, and a further £149.0 million on 6 June 2023, representing proceeds from Eurobonds issued by CDH2. At 31 March 2024, the loan principal was valued at £157.6 million (31 March 2023: £20.3 million). The loan is subject to interest charged at a variable rate. Interest charged during the year amounted to £12.1 million (31 March 2023: £0.4 million) of which £3.9 million remained outstanding as at 31 March 2024 (31 March 2023: £0.4 million). The expenses paid by the Company on behalf of subsidiary companies during the year amounted to £1.6 million (31 March 2023: £2.9 million).
During the year ended 31 March 2024, the Company charged management fees amounting to £1.4 million related to management services provided to CRA and Emitel investments.
18. 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.
19. Subsequent events
With the exception of dividends declared and disclosed in note 15, there are no material subsequent events.
Glossary of capitalised defined terms
Administrator means Aztec Financial Services (Guernsey) Limited
AIC means the Association of Investment Companies
AIC SORP means the AIC Statement of Recommended Practice
AFFO means adjusted funds from operations
Board means the Directors of the Company as a group
CDH2 means Cordiant Digital Holdings Two Limited
CIH means Communications Investments Holdings s.r.o.
Company means Cordiant Digital Infrastructure Limited.
Company Law means the Companies (Guernsey) Law 2008
CRA means České Radiokomunikace s.a.
C Shares means C shares of no par value each in the capital of the Company issued pursuant to the Company's placing programme as an alternative to the issue of ordinary shares
DCF means discounted cash flow
Digital Infrastructure means the physical infrastructure resources that are necessary to enable the storage and transmission of data by telecommunications operators, corporations, governments and individuals. These predominantly consist of mobile telecommunications/broadcast towers, data centres, fibre optic networks, in-building systems and, as appropriate, the land under such infrastructure. Digital Infrastructure assets do not include switching and routing equipment, servers and other storage devices or radio transmission equipment or software
Directors means the directors of the Company
DTTs means digital terrestrial television
EBITDA means earnings before interest, taxation, depreciation and amortisation
Emitel means Emitel S.A.
ESG means environmental, social and governance
EV means enterprise value
FCA means the UK Financial Conduct Authority (or its successor bodies)
Hudson means Hudson Interxchange (previously operating under the name DataGryd Datacenters LLC)
IAS means international accounting standards as issued by the Board of the International Accounting Standards Committee
IASB means International Accounting Standards Board
IFRS means the International Financial Reporting Standards, being the principles-based accounting standards, interpretations and the framework by that name issued by the International Accounting Standards Board
Interim Report means the Company's half yearly report and unaudited condensed interim financial statements for the six-month period ended 30 September 2022
Investment Entity means an entity whose business purpose is to make investments for capital appreciation, investment income, or both.
Investment Manager means Cordiant Capital Inc.
IoT means the Internet of Things
IPEV Valuation Guidelines means the International Private Equity and Venture Capital Valuation Guidelines
IPO means the initial public offering of shares by a company to the public
LSE means the London Stock Exchange
NAV or net asset value means the value of the assets of the Company less its liabilities as calculated in accordance with the Company's valuation policy and expressed in pound sterling
Norkring means Norkring België NV
RCF means revolving credit facility
Speed Fibre means Speed Fibre Designated Activity Company
Subscription Shares means redeemable subscription shares of no par value each in the Company, issued on the basis of one Subscription Share for every eight ordinary shares subscribed for in the IPO
UK or United Kingdom means the United Kingdom of Great Britain and Northern Ireland
US or United States means the United States of America, its territories and possessions, any state of the United States and the District of Columbia
USD means United States dollars.
WACC means weighted average cost of capital.
Directors and general information
Directors (all appointed 26 January 2021)
Shonaid Jemmett-Page Chairman
Sian Hill Audit Committee Chairman and Senior Independent Director
Marten Pieters
Simon Pitcher
All independent and of the registered office below.
Website www.cordiantdigitaltrust.com
ISIN (ordinary shares) GG00BMC7TM77
Ticker (ordinary shares) CORD
SEDOL (ordinary shares) BMC7TM7
Registered Company Number 68630
| Registered office East Wing Trafalgar Court Les Banques St Peter Port Guernsey GY1 3PP | Legal advisors to the Company Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU |
| Investment manager Cordiant Capital Inc. 28th Floor Bank of Nova Scotia Tower 1002 Sherbrooke Street West Montreal QC H3A 3L6 | Carey Olsen (Guernsey) LLP Carey House Les Banques St Peter Port Guernsey GY1 4BZ |
| Company secretary and administrator Aztec Financial Services (Guernsey) Limited East Wing Trafalgar Court Les Banques Guernsey GY1 3PP | Registrar Computershare Investor Services (Guernsey) Limited 1st Floor Tudor House Le Bordage St Peter Port Guernsey GY1 4BZ |
| Auditor BDO Limited PO Box 180 Place du Pre Rue du Pre St Peter Port Guernsey GY1 3LL | Brokers Investec Bank plc 30 Gresham Street London EC2V 7QP |
| Principal banker and custodian The Royal Bank of Scotland International Limited Royal Bank Place 1 Glategny Esplanade St Peter Port Guernsey GY1 4BQ | Jefferies International Limited 100 Bishopsgate London EC2N 4JL |
| | Receiving agent Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6AH |
Cautionary Statement
This document 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 terms or expressions, including 'believes', 'estimates', 'anticipates', 'expects', 'intends', 'may', 'plans', 'projects', 'will', 'explore' or 'should' or, in each case, their negative or other variations or comparable terminology or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They may appear in a number of places throughout this document and may include, but are not limited to, statements regarding the intentions, beliefs or current expectations of the Company, the Directors and/or 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 distribution policy of the Company and the markets in which it invests.
By their nature, forward-looking statements involve risks and uncertainties because they relate to future 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, or described in or suggested by, the forward-looking statements contained in this document. Further, this document may include target figures for future financial periods. Any such figures are targets only and are not forecasts. Nothing in this document should be construed as a profit forecast or a profit estimate. In addition, even if actual investment performance, results of operations, financial condition, liquidity, distribution policy and the development of its financing strategies, are consistent with any forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. A number of factors could cause results and developments of the Company to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, inflation and interest rates, the availability and cost of energy, competition, changes in law or regulation, changes in taxation regimes, the availability and cost of capital, currency fluctuations, changes in its business strategy, political and economic uncertainty. Any forward-looking statements herein speak only at the date of this document.
As a result, you are cautioned not to place any reliance on any such forward-looking statements and neither the Company nor any other person accepts responsibility for the accuracy of such statements. Subject to their legal and regulatory obligations, the Company, the Directors and the Investment Manager 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.
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