CHAIR'S STATEMENT

The Company faced significant challenges over the period and in recent years. Following the constitution of a new Board of Directors over the last few months, our focus is to reset the Company's priorities in delivering an orderly wind-down of the D9's portfolio of assets.

To oversee this process, I was appointed Chair on 30 May 2024, and since 12 August 2024, following the appointment of three additional new non-executive directors, the D9 Board has operated on a near-full time basis, with almost daily meetings.

During this time, the new Board has overseen the completion of the interim portfolio valuation, progressed the ongoing sale processes for the Company's wholly-owned assets, and sought to honour the existing commitments made to shareholders; including the Investment Management Review.

The Board fully understands shareholders' frustration regarding the persistent discount at which the Company's share price is trading relative to its NAV, the cessation of the Company's dividend, and the NAV reduction to 30 June 2024.

We recognise that delivering on the Board's stated commitments is critical for good governance and ultimately to realise the mandate shareholders voted for in March 2024, being the implementation of the Managed Wind-Down and taking every action possible to realise shareholder value over time.

To do so, the Board's decision-making is characterised by four factors:

1.   The Board will seek to realise all of the Company's investments in a manner that achieves a balance between maximising the net value from these assets and making timely capital returns to shareholders.

2.   The Board will seek to repay the remaining RCF, which amounted to £53 million as of 30 June 2024. The RCF remains subject to refinancing in March 2025, when the facility matures. The Company maintains an ongoing constructive dialogue with RCF lenders as the Managed Wind-Down progresses.

3.   The Board will seek to ensure the Company preserves value by actively managing all costs associated with both its obligations as a listed company and those necessary to implement the Managed Wind-Down.

4.   The Board will seek to regularly engage with its shareholders through timely market communication. We trust that the Company's shareholders acknowledge it will often be in the Company's interest to limit sensitive disclosure to protect its commercial position during live sale processes.

Portfolio Valuation

For the period ended 30 June 2024, the portfolio NAV declined to £403 million at 30 June 2024 (31 Dec 2023: £686 million). The Board determined that it is in shareholders' best interests to publish an aggregate NAV to protect the Company's commercial position during live sale processes of portfolio companies.  At the point when the Company's commercial position changes, the Board will provide the customary transparency on asset valuations.

In considering the valuation of the larger portfolio positions (Arqiva, Aqua Comms, Elio Networks and the Verne Global earn out) as at 30 June 2024, for each position the Board has concluded that the low-end of an acceptable value range was appropriate; and in arriving at their fair value conclusions for each of these positions, the Board has obtained an independent valuation.  The Board's adoption of the low-end of an acceptable value range is the same basis adopted by the previous Board as at 31 December 2023.

The valuation ranges were primarily based on a discounted cash flow model from revenue forecasted over a 8-10 year period followed by a terminal value based on a long term growth rate. Revenue projections were derived from the portfolio company business plans.

In the preparation of the portfolio business plans for the 30 June 2024 valuation, there was a re-assessment of the assumptions relating to the availability of finance for underlying portfolio companies, and timing thereof, and the consequential impact on the growth expectations of the portfolio companies.

The Board is cognisant that had certain of the assumptions adopted in the 30 June 2024 valuation been adopted at 31 December 2023, the valuation at that date would have been materially lower.

Sale Processes

The Board remains committed to maximising shareholder value from the sale of the Company's wholly-owned assets at the earliest possible opportunity.

Sale preparations  of Aqua Comms, EMIC-1, SeaEdge UK1 and Elio Networks, were initiated following shareholder approval of the Company's Managed Wind-Down. The Board will provide material updates on each sale process, as necessary.

The Board continues to believe that the launch of a sale process for D9's stake in Arqiva requires more consideration due to the complexity of the business and the co-shareholding structure. The Board continues to explore various options for Arqiva in consultation with a collaborative shareholder group. Further detail is set out in the Company's circular dated 28 February 2024.

As part of the Verne Transaction, the Company can benefit from a potential earn-out payment of up to $135 million (approximately £107 million), subject to Verne Global achieving run-rate EBITDA targets for 2026 which were outlined to all prospective bidders at the time of the Verne Global sale. The Company also has customary protections to ensure Verne Global continues operating and reporting substantially in line with prior practices, including quarterly updates on its EBITDA to the Investment Manager and the D9 Board. The growth trajectory of the business to date is in line with expectations based on information received to date.

During the Managed Wind-Down, the Company intends to maintain its investment trust status and listing with due consideration for the regulatory requirements and costs of doing so following the sale of the Company's wholly owned assets.

Investment Management Arrangements Review

As announced on 30 April 2024, the Company provided notice to the Investment Manager, Triple Point Investment Management LLP ("Triple Point"), to terminate the Investment Management Agreement ("IMA") on the earliest date permissible under the IMA being 31 March 2025. On 29 January 2024, the previous Board disclosed its intention to actively explore whether Triple Point might agree revised commercial terms that would be in the best interests of the Company and its shareholders. In light of the material downward revaluation of the portfolio's NAV as at June 2024, announced by the Company on 6 September 2024, the Board is continuing this review and intends to update shareholders at the earliest opportunity. As announced on 6 September 2024, the Board has made significant progress in its independent review of the Company's investment management arrangements and a further announcement is expected in the near future.

Capital Allocation

Ultimately, following the full repayment and cancellation of the RCF, the Board intends to use proceeds to prioritise returns of capital to shareholders over the Group's longer-term obligations.

As previously disclosed, any cash distributions to shareholders will likely take the form of returns of capital but with final allocation amounts to be determined at the time by the Board in conjunction with the Investment Manager and taking into consideration the Company's liquidity.

No further dividend distributions are planned or foreseen. The Company will also cease to make any new investments except where there may be a legal or contractual imperative to do so, or if new investments may facilitate a sale process and in turn deliver superior shareholder value.

I would like to thank shareholders for their continued engagement with the Company and the new Board through what was a challenging period.

Eric Sanderson

Chair

30 September 2024

KEY PERFORMANCE INDICATORS

In order to track the Company and/or Group's progress, the key performance indicators ("KPIs") monitored are set out below.

Sustainability KPIs are reported on a yearly basis, and the KPIs for the year ended 31 December 2023 can be found in the Company's separate Sustainability Report which is available here: https://www.d9infrastructure.com/digital-9-infrastructure-plc-sustainability-report-2023/.

* Alternative Performance Measure ("APM"). Further information on APMs can be found in the Annual Report.

INVESTMENT MANAGER'S REPORT

Company and Portfolio Performance

The Company reported a pre-tax loss of £283 million for the six months to 30 June 2024 (six months to 30 June 2023: £57 million pre-tax loss), equal to a 32.73 pence loss per share (six months to 30 June 2023: 6.63 pence loss per share), under IFRS 10 investment entity accounting. This was the net result of income received from investments and revaluation losses arising on the investments held at fair value as at 30 June 2024. During the six-month period, the Company's NAV decreased from £686 million (79.33 pence per share) as at 31 December 2023 to £403 million as at 30 June 2024 (46.59 pence per share). Further details regarding the decline in NAV are provided in the Financial Review section.

For the first six months of 2024, aggregate Investee Company revenue declined by 1% year-on-year, whilst EBITDA fell 7% in the same period due to continued margin pressure at Arqiva and Aqua Comms. Further details are provided in the following sections.

Portfolio company debt as at 30 June 2024 consisted of £737 million at Arqiva (31 December 2023: £744 million), presented pro rata based on D9's 51.76% economic interest.

Managed Wind-Down

In line with the new investment objective and investment policy approved by the Shareholders in the General Meeting held on 25 March 2024, non-binding offers for certain assets have been received and a selected number of preferred bidders have been admitted to a second phase of the sales processes, which will include detailed due diligence. Sales processes are also ongoing for various assets in the portfolio, excluding Arqiva. There can be no guarantee that the sales will proceed, and the sale processes will only be progressed if the Board is satisfied that the values achieved are acceptable. A further update on the sales processes will be made as matters progress.

Financial Review

Net Asset Value

The following chart shows the movement in the Company's NAV on a pence per share basis, for the six-month period from 31 December 2023 to 30 June 2024.

In the six months to 30 June 2024, the portfolio's fair value reduced by £257 million or 29.72 pence per share.

The total fall in NAV of the Company of £283 million or 32.74 pence per share was driven by portfolio fair value movement of £257 million, RCF and VLN interests of £16 million, Verne Global disposal fees of £6 million and net other costs of £4 million.

NAV per share movement - six months to 30 June 2024

(pence per share)

Reconciliation to IFRS Valuation

The below chart shows the build-up of the IFRS Investment Valuation held on the Balance Sheet of the Company, which amounts to a total of £384 million. This includes a £360 million valuation for the Company's wholly-owned subsidiary Digital 9 HoldCo Limited, which holds the investments in the underlying Investee Companies. A £24 million shareholder loan the Company has made to Digital 9 HoldCo Limited is shown separately.

In the chart below, Total Portfolio Value (£424 million) is net of all VLN deductions, being VLN principal (£163 million), as well as additional VLN notes issued in June 2023 (£7 million) and in June 2024 (£10 million) in respect of interest for prior periods (please see below the section entitled 'Capital structure at Arqiva and at HoldCo level' for further detail). Deductions are also made for the RCF which, for the avoidance of doubt, does not sit on the Company's Balance Sheet but as it is held in Digital 9 HoldCo Limited, an unconsolidated subsidiary of the Company.

Digital 9 HoldCo Limited valuation reconciliation as of 30 June 2024

(£ million)

Valuations

The valuation follows an independent valuation process for Aqua Comms, Arqiva and Elio Networks as at 30 June 2024. The total portfolio valuation is £424 million. This is net of the total VLN balance as of June 2024, which includes additional PIK notes issued in June 2023 and June 2024.

As of 30 June 2024, Company NAV per share is 46.59 pence per share, a 41% reduction from 79.33 pence per share as of 30 December 2023. A major part of the NAV reduction is attributable to a re-assessment of the assumptions relating to the availability of finance for underlying portfolio companies and its impact on portfolio companies' growth outcomes in the valuation models, as compared to those inputs used in arriving at the NAV as at 31 December 2023.

Summary of Portfolio Valuation methodology

The cash flows used in the valuations are based on plans signed off by Investee Company boards. These models are used to evaluate Investee Company performance and assess the performance of Investee Company management.

Valuation

Investment valuations are calculated at the financial half-year (30 June) and the financial year-end (31 December) periods. For the current period ended 30 June 2024, in arriving at their fair value conclusions, the Board obtained an independent valuation of Aqua Comms, Elio Networks, Arqiva Group and the Verne Earn-Out. EMIC-1 and SeaEdge UK1 were valued by TriplePoint. The Verne Global Earn-Out was valued utilising a Monte Carlo Simulation.

Discount rates

As described in Note 7, investments are typically valued on a discounted cash flow ("DCF") basis. The discounted cash flow from revenue is forecast over an 8-to-10-year period followed by a terminal value based on a long-term growth rate. Discount rates are arrived at via a bottom-up analysis of the weighted average cost of capital, using both observable and unobservable inputs, and calculation of the appropriate beta based on comparable listed companies. Where appropriate, a sense-check to the DCF analysis is done by comparison to market multiples. The weighted average discount rate used in these valuations was 13.80% (31 December 2023: 13.62%).

Liquidity

The chart below shows the unrestricted cash movements for the Group in the six-month period to 30 June 2024. For the avoidance of doubt, this chart includes all unrestricted cash across the D9 subsidiaries to 30 June 2024.

At 30 June 2024, the Group held total cash of £33.6 million*. Of this, unrestricted cash available for use was £23.9 million. Unrestricted cash includes £19.8m held at the Company level, with the £4.1 million balances being held in unconsolidated subsidiaries.

As at 30 June 2024, the Group had cash of £5.1 million in a restricted interest reserve account, under the terms of its RCF. In agreement with its RCF lenders, the Company negotiated and agreed that from 1 January 2024 the cash reserves in the RCF's interest reserve account can be used for interest payments which enables the Company to pay interest for the residual RCF without using any unrestricted cash until the RCF's maturity in March 2025. The Group also had £4.6 million restricted cash held in an escrow account in relation to the EMIC-1 project.

All Letters of Credit relating to Verne Global Iceland were cancelled in Q1 2024.

* Alternative Performance Measure ("APM"). Further information on APMs can be found in the 2023 Annual Report.

Unaudited Unrestricted Cash Group Waterfall - 1 January 2024 to 30 June 2024

(£ million)

Inflation

In the period, inflation has started to stabilise following the highs of last year, which has had a strong positive cash flow impact for Arqiva. Last year, 13.5% RPI in March 2023 resulted in Arqiva paying £147 million in accretion on its inflation-linked swaps. This year, RPI declined to 4.3% in March 2024, corresponding to a £53 million accretion payment by Arqiva (equating to c.£28 million prorated for D9's 51.76% economic interest in Arqiva). High inflation last year had two main impacts on Arqiva. The first was the immediate but short negative cash flow impact of the large 2023 accretion payment. The second is positive, increasing EBITDA in the long term due to the compounding effect of Arqiva's long-term inflation-linked contracts.

Debt financing

Excluding Investee Companies, D9 had gross debt of £233 million as of 30 June 2024, corresponding to 51% of Adjusted GAV. This comprised the Company's RCF, which was fully drawn at £53 million, as well as the outstanding VLN balance of £180 million. Interest on the VLN can be paid either in cash or by issuance of additional notes, and the latter option was exercised in respect of the 12 months to 30 June 2024, increasing the outstanding balance by £10 million. The current balance consists of £163 million principal and £17 million of additional notes.

Investee company leverage

As of 30 June 2024, Arqiva was the only Investee Company with external debt, with a balance of £1,423 million (including project debt), of which D9's share was £737 million (31 December 2023: £744 million).

Debt metrics

The below table shows the Group's leverage position as at 30 June 2024.

As of 30 June 2024, the Company's net debt / EBITDA position has decreased since 31 December 2023, mainly as a result of the significant partial repayment and cancellation of the Company's RCF following the sale of Verne Global.

*Includes £6.8 million additional notes issued in June 2023 and £10.2 million additional notes issued in June 2024 in respect of interest for the periods prior.

**This is D9's share of Arqiva gross debt. It is not an Arqiva net debt figure and as a result does not include cash held by Arqiva; it is a more conservative approach and is in line with previously reported figures.

Please see below the 'Provision in respect of potential VLN adjustment' section for further details relating to the potential change to the VLN relating to the Bilsdale matter.

Review of Portfolio as of 30 June 2024

Aggregate revenues for the Investee Companies during the period amounted to £194.7 million, 1% lower than the same six-month period to 30 June 2023. The decrease was largely attributable to small customer losses at Arqiva, mitigated by Aqua Comms' higher-than-expected O&M sales and Elio Networks' continued drive to grow their higher bandwidth Elio Enterprise product. In line with business plans, margins have remained under pressure for some of the businesses, particularly Arqiva and Aqua Comms, resulting in a 7% year-on-year drop in EBITDA for the period. In the six months to 30 June 2024, the portfolio's fair value reduced by £257 million or 29.72 pence per share. Further details on the portfolio revaluation are provided in the Financial Review section above.

Portfolio Financial Performance

Aqua Comms (excluding EMIC-1)

Aqua Comms is a leading carrier-neutral owner and operator of subsea fibre cable systems with a strategic opportunity to expand, connecting the world's largest traffic hubs. It is a transatlantic leader, with its AEC-1, AEC-2, AEC-3, CC-1, CC-2 and North-sea Connect cables, and is expanding around the globe. Through its niche product suite and carefully considered partner network, Aqua Comms delivers high speed solutions for carriers who desire best-in-class connectivity, without the complexity.

Compared to the six months to 30 June 2023, revenue increased by 16% in the six months to 30 June 2024 mainly driven by increased sales in Aqua Comms' existing systems and on AEC-3, which became operational in the third quarter of last year. EBITDA decreased by 12% mainly because of the planned addition of headcount to support sales, operations and expansion into new geographies such as Asian markets, in line with the business' long-term strategy, along with additional and temporary overlapping costs to internalise its previously outsourced Network Operations Centre (with the transition on track to finalise at the end of this year).

Aqua Comms has had a strong start to the year and continues its success in the transatlantic market with large, announced sales such as a 25% fibre pair sale on its transatlantic system to Energy Sciences Network (ESnet).

As planned, Aqua Comms has now lit the second fibre pair it owns on AEC-1, as customer demand has driven the need to supply further capacity on this system.

EMIC-1

Aqua Comms is also managing the EMIC-1 system with its development continuing through 2024 before earliest expected launch in 2025. EMIC-1 has the potential to be delayed further based on the geopolitical situation in the Red Sea and Middle East, which is impacting the ability of new cable systems to be deployed in the region. Despite the geopolitical situation and potential for further delay, the Aqua Comms team achieved a large pre-sale on EMIC-1 in Q4 of last year.  The leader of the investor consortium building out the cable system continues to explore alternative plans to connect the Red Sea and Indian leg of the system, to allow service to start even if the original wet route is not fully completed.

SeaEdge UK1

SeaEdge UK1 is a data centre asset and subsea fibre landing station, located on the UK's largest data centre campus in Newcastle. D9 owns the underlying real estate of SeaEdge UK1 and leases the facility to data centre operator Stellium Data Centres Ltd, via a 25-year occupational lease. SeaEdge UK1 offers unique positioning as a premier data centre provider in the UK with unparalleled connectivity to North America, the Nordics, and the UK via exclusive subsea Cable Landing Station's and proprietary local network.

SeaEdge UK1 is the UK's only landing station for the North Sea Connect subsea cable, which improves connectivity in northern England and forms part of the North Atlantic Loop subsea network, which includes Aqua Comms' AEC-1 and AEC-2 cables.

In the six months to 30 June 2024, revenue grew by 6% and EBITDA by 7% compared with the same period in the previous year. This was due to continued positive revenue indexation and reduced expenses. The Company has agreed to defer the rent due as part of the sale process of SeaEdge.

The asset is leased on fully repairing and insuring terms to the tenant and operator, Stellium Data Centres Ltd, via a 25-year occupational lease with over 21 years remaining.

Elio Networks

Elio Networks is a leading provider of resilient and high performance B2B connectivity, operating the highest-capacity Fixed Wireless Access (FWA) network in Ireland, with dedicated up to 10 Gbps (Gigabits per second) lines due to a dense base station coverage.

Elio Networks continued growing its high-quality wireless connectivity operations in 2024, with revenue of £4.1 million achieved in the six months to 30 June 2024, a 3% increase compared to the six months to 30 June 2023. Elio Networks has seen strong growth momentum in Cork city since launching in 2023, reaffirming its position as the leading wireless fixed connectivity player in Ireland.

Elio Networks has a diverse client base, including larger multinationals, government bodies, global technology companies, small professional service firms, retail and hospitality companies. Elio Networks was launched to address the growing requirement for affordable high-speed broadband in the greater Dublin area. Since then, it has grown to become the largest wireless internet service provider ("ISP") in the greater Dublin region, with the 2023 expansion into Cork city reaffirming its position as a leading connectivity player in Ireland.

Arqiva

Arqiva is the UK's pre-eminent national provider of television and radio broadcast infrastructure and provides end-to-end connectivity solutions in the media and utility industries. It has been an early and leading participant in the development of smart utility infrastructure in the UK through its smart water and energy metering services. It is also a leading provider of satellite uplink infrastructure and distribution services in the UK.

Note: Figures presented are prorated based on D9's 51.76% economic interest in Arqiva.

Arqiva is a large, robust business with c.1,300 employees and predictable earnings underpinned by long‐term contracts with blue‐chip customers, including the BBC, ITV, Channel 4, Sky, Discovery, the DCC and Thames Water. Arqiva's utilities business continues to represent a growth opportunity grounded in a quality product offering and enabling clear cost savings and environmental benefits.

Arqiva achieved revenue of £174m in the six months to 30 June 2024, down 3% year-on-year. Positive revenue indexation through Arqiva's inflation-linked contracts was offset by reduced DTT channel sales, lower pricing on contract renewals and customer losses. EBITDA declined year-on-year, with margins impacted by rising power costs and increased headcount expenses, reflecting macroeconomic wage pressures and strategic investments in new media markets.

In May 2024, Ofcom published a report on the future of TV distribution, which outlined how the market could evolve over the next 10-15 years. Arqiva is in close dialogue with relevant stakeholders including the regulator and relevant government departments as this area of policy debate progresses.

In the utilities sector, the UK's water industry regulator, Ofwat, published its draft determinations for the 2025-2030 period, which signal the largest investment programme since privatisation. This includes an ambitious rollout of over 10 million smart water meters, presenting Arqiva with a significant growth opportunity to leverage its smart metering expertise and support the sector's strategic agenda in water and waste monitoring.

Capital structure at Arqiva and at HoldCo level

In October 2022, D9 acquired a 51.76% economic interest (48.02% equity stake) in Arqiva for £463 million, which consisted of £300 million paid in cash and £163 million owed to the vendor in the form of a vendor loan note (VLN).

As of 30 June 2024, D9 owes the £163 million VLN principal to the vendor along with £17 million of PIK interest (additional notes issued on 30 June 2023 and 30 June 2024). Arqiva also holds a large balance of shareholder loans owed to its own shareholders. For the avoidance of doubt, these do not represent an external debt obligation and should be excluded when examining Arqiva's leverage. Arqiva's total external debt as of 30 June 2024 was £1,423 million, which corresponds to £737 million attributable to D9 pro rata based on its 51.76% economic interest.

Provision in respect of potential VLN adjustment

Arqiva's Bilsdale site returned to full operation in January 2024 following the 2021 fire and subsequent restoration. We expect net costs associated with the incident to be lower than anticipated at acquisition. Per the terms agreed with the vendor at the time of the acquisition by D9, this cash flow upside for Arqiva is expected to be offset by an increase to the VLN. The Group holds a provision in respect of this potential adjustment to the VLN and any such adjustment to the VLN will be made when it crystallises. The provision has not been stated explicitly due to its commercially sensitive nature, but it has been accounted for at D9 HoldCo level such that the impact is reflected within the fair value of the investments in D9 HoldCo for the period.

Inflation-linked swaps

The six months to 30 June 2024 have seen inflation stabilising, following the highs of last year, with a strong positive cash flow impact for Arqiva. Last year, 13.5% RPI in March 2023 resulted in Arqiva paying £147 million in accretion on its inflation-linked swaps. In stark contrast this year, RPI was down to 4.3% in March, resulting in a £53 million accretion payment (equating to c.£28 million prorated for D9's 51.76% economic interest in Arqiva). For the avoidance of doubt, accretion is paid out of Arqiva's own cash flows and not by D9. Please see above the 'Provision in respect of potential VLN adjustment' section for further details relating to the potential change to the VLN relating to the Bilsdale matter.

As disclosed in June 2023, Arqiva implemented a collar on its inflation-linked swaps, which applies a cap and floor to future accretion payments, limiting downside cash flow exposure for the business. Given that March 2024 RPI fell within the collar's range (2.5% to 6.0%), there were no collar cash flows relating to Arqiva's 2024 accretion payment.

Vendor loan note interest

D9's 2022 acquisition of a 48.02% equity stake in Arqiva consisted of £300 million paid in cash and a £163 million vendor loan note issued by the vendor. Please see above the 'Provision in respect of potential VLN adjustment' section for further details relating to the potential change to the VLN relating to the Bilsdale matter. The VLN, which matures in 2029, is non-recourse to the Company. In the event of a default, recourse is limited to the Company's shares in Arqiva Group Limited, and this charge is registered at Companies House against D9 Wireless Midco 1 Limited, a subsidiary of the Company.

The VLN is due to mature on 18 October 2029 and has the following stepped interest rate profile:

·      6% per annum up to and including 30 June 2025;

·      7% per annum from 1 July 2025 up to 30 June 2026;

·      8% per annum from 1 July 2026 up to 30 June 2027; and

·      9% per annum from 1 July 2027 to maturity.

Interest on the VLN is due annually in arrears on 30 June and can be paid either in cash or by issuance of additional payment-in-kind ("PIK") notes. This PIK option was exercised in respect of the 12 months to 30 June 2024, increasing the outstanding balance from £169.8 million as of 30 June 2023 to £180 million as of June 2024. This consists of £163 million principal and £17 million of additional notes. PIK interest is capitalised into the balance of the VLN annually in June each year, and all interest on the Arqiva VLN was PIK as of 30 June 2024. No interest on the VLN has been settled in cash.

Accrued interest must be repaid in full before distributions can be made to the Group. After the fourth anniversary of the VLN (18 October 2026), the Group can only receive distributions if the entirety of the VLN principal and any rolled up interest have been repaid in full.

Note: Figures presented are pro-rated based on D9's 51.76% economic interest in Arqiva.

Verne Global Earn-Out

As previously announced, the Company completed the Verne Transaction which consisted of a potential earn-out payment of up to approximately £107 million (US$135million) (the "Earn-Out") payable subject to Verne Global achieving run-rate EBITDA targets for the year ending on 31 December 2026.

We continue to receive information relating to Verne Global's EBITDA under the terms of the Sale and Purchase Agreement in order to inform the valuation of the Earn-Out.

Diego Massidda

Head of Digital Infrastructure

Triple Point Investment Management LLP

30 September 2024

PRINCIPAL RISKS AND UNCERTAINTIES

The table below sets out what the Board believes to be the principal risks and uncertainties facing the Group. The table does not cover all of the risks that the Group may face. The Board defines the Group's risk appetite, enabling the Group to judge the level of risk it is prepared to take in achieving its overall objectives. Additional risks and uncertainties not presently known to management or deemed to be less material at the date of this report may also have an adverse effect on the Group.

Emerging Risks

Introduction of, or amendment to laws, regulations, or technology (especially in relation to climate change)

The global ambition for a more sustainable future has never been greater, particularly in light of various climate-related events across the globe. There is increasing pressure for governments and authorities to enforce green-related legislation. This could materially affect organisations which are not set up to deal with such changes in the form of financial penalties, operational and capital expenditure to restructure operations and infrastructure, or even ceasing of certain activities.

The Investment Manager will continue to actively monitor changes and to actively engage with portfolio companies to improve their alignment with current and future legislation, regulations and best practices in this field.

Changes to power supply and prices / Supply chain disruption

As demonstrated by the Russia's invasion of Ukraine, global conflicts can have significant disruption to both power supply and supply chains. The changing political landscape across the world and increased tensions are monitored by the Investment Manager. Scenario planning tool are used to understand the impacts and possible mitigation actions.

Development of disruptive technology

The digital infrastructure sector is constantly evolving. As a result, there is a risk that disruptive technology emerges which results in current digital infrastructure assets becoming obsolete. The Investment Manager constantly monitors the emerging technology trends with digital infrastructure to ensure Investee Companies evolve their business models where required and new investment opportunities are accurately assessed.

Other information

Going Concern

The Directors have concluded that it is appropriate for the condensed financial statements to be prepared on a going concern basis. As included within the Going Concern section in the Financial Statements (Note: 2), the Company continues to disclose a material uncertainty, which may cast significant doubt over the Company's ability to continue as a going concern. Full details are set out in Note 2 of the attached financial statements.

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors confirm that to the best of their knowledge this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and that the operating and financial review includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 of the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority namely:

•     an indication of important events that have occurred during the period and their impact on the condensed financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

•       material related party transactions in the period as disclosed in Note 10.

A list of the Directors is shown in Note 10.

Shareholder information is as disclosed on the Digital 9 Infrastructure plc website.

Approval

This Directors' responsibilities statement was approved by the Board of Directors and signed on its behalf by:

Eric Sanderson

Chair

30 September 2024

UNAUDITED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2024

CONDENSED STATEMENT OF COMPREHENSIVE INCOME

For the six-month period ended 30 June 2024

The total column of this statement is the Condensed Statement of Comprehensive Income of Digital 9 Infrastructure Plc ("the Company") prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union ("EU"). The supplementary revenue return and capital columns have been prepared in accordance with the Association of Investment Companies Statement of Recommended Practice (AIC SORP).

All revenue and capital items in the above statement derive from continuing operations. The Company does not have any other income or expenses that are not included in the net profit for the year. The net profit for the year disclosed above represents the Company's total comprehensive income.

This Condensed Statement of Comprehensive Income includes all recognised gains and losses.

The accompanying Notes below are an integral part of these Condensed Interim Financial Statements.

CONDENSED STATEMENT OF FINANCIAL POSITION

As at 30 June 2024

The Condensed Interim Financial Statements were approved and authorised for issue by the Board on 30 September 2024 and signed on its behalf by:

Eric Sanderson

Chairman                                                                    

30 September 2024

The accompanying Notes are an integral part of these Condensed Interim Financial Statements.

CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the six-month period ended 30 June 2024

The accompanying Notes are an integral part of these Condensed Interim Financial Statements.

CONDENSED STATEMENT OF CASH FLOWS

For the six-month period ended 30 June 2024

The accompanying Notes are an integral part of these Condensed Interim Financial Statements.

Notes to the Interim Financial Statements

CORPORATE INFORMATION

Digital 9 Infrastructure plc (the "Company" or "D9") is a Jersey registered alternative investment fund, and it is regulated by the Jersey Financial Services Commission as a 'listed fund' under the Collective Investment Funds (Jersey) Law 1988 (the "Funds Law") and the Jersey Listed Fund Guide published by the Jersey Financial Services Commission. The Company is registered with number 133380 under the Companies (Jersey) Law 1991.

The Company is domiciled in Jersey and the address of its registered office, which is also its principal place of business, is 26 New Street, St Helier, Jersey, JE2 3RA.

The Company was incorporated on 8 January 2021 and is a Public Company. The Company's Ordinary Shares were admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange under the ticker DGI9 on 31 March 2021.

The Company's principal activity was investing in a diversified portfolio of critical digital infrastructure assets which contribute to improving global digital communications whilst targeting sustainable income and capital growth for investors. In line with the new investment objective and investment policy approved by the Shareholders in the General Meeting held on 25 March 2024, the Company will not make any new investments save that investments may be made in existing Investee Companies when considered appropriate to maximise value for shareholders.

These condensed interim financial statements comprise only the results of the Company, as its investment in Digital 9 Holdco Limited ("D9 Holdco") is measured at fair value through profit or loss.

1.       BASIS OF PREPARATION OF HALF-YEAR REPORT

These condensed interim financial statements for the half-year reporting period ended 30 June 2024 have been prepared in accordance with European Union adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

The interim report does not include all the notes of the type normally included in the annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2023 and any public announcements made by the Company during the interim reporting period.

Where presentational guidance set out in the Association of Investment Companies Statement of Recommended Practice (the "AIC SORP") is consistent with the requirements of IAS 34 Interim Financial Reporting and International Financial Reporting Standards ("IFRS") the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the AIC SORP. In particular, supplementary information which analyses the Condensed Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the total Condensed Statement of Comprehensive Income.

Following the recent shareholder vote at the General Meeting, the Company is now in a Managed Wind-Down and as a result the objective of the Company is no longer to acquire digital infrastructure projects, it is to ensure an orderly wind down and return proceeds to Shareholders. The Company, via D9 Holdco has begun the process to start selling select Investee Companies and whilst this process in on-going, the Directors deem the operations of the Company to be continuing.

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.

(a)      Investment entities

The Directors have concluded that in accordance with IFRS 10, the Company meets the definition of an investment entity, having evaluated against the criteria presented below that needs to be met. Under IFRS 10, investment entities are required to hold financial investments at fair value through profit or loss rather than consolidate them on a line-by-line basis. There are three key conditions to be met by the Company for it to meet the definition of an investment entity.

For each reporting period, the Directors will continue to assess whether the Company continues to meet these conditions:

·   It obtains funds from one or more investors for the purpose of providing these investors with professional investment management services;

·     It commits to its investors that its business purpose is to invest its funds solely for returns (including having an exit strategy for investments) from capital appreciation, investment income or both; and

·       It measures and evaluates the performance of substantially all its investments on a fair value basis.

The Company satisfies the first criteria as it has multiple investors and has obtained funds from a diverse group of shareholders for the purpose of providing them with investment opportunities to invest in a large pool of digital infrastructure assets.

In satisfying the second criteria, the notion of an investment timeframe is critical. An investment entity should not hold its investments indefinitely but should have an exit strategy for their realisation. The intention of the Company is to seek equity interests in digital infrastructure projects that have an indefinite life; the underlying assets that it invests in will have a medium to long term expected life. The exit strategy for each asset will depend on the characteristics of the assets, transaction structure, exit price potentially achievable, suitability and availability of alternative investments, balance of the portfolio and lot size of the assets as compared to the value of the portfolio. Whilst the Company is in a  Managed Wind-Down process, the Company may dispose of the investments should an appropriate opportunity arise where, in the Investment Manager's opinion, the value that could be realised from such disposal would represent a satisfactory return on the investment and enhance the value of the Company as a whole.

During the period, the Company sold 100% of its ownership in the Verne Global Group of Companies, reinforcing the exit strategy point described above. As the Company enters into its wind- down phase, it will continue to realise its exit strategy across its portfolio.

The Company satisfies the third criteria as it measures and evaluates the performance of all of its investments on a fair value basis which is the most relevant for investors in the Company. Management use fair value information as a primary measurement to evaluate the performance of all the investments and in decision making.

In assessing whether it meets the definition, the Company shall also consider whether it has the following typical characteristics of an investment entity:

a) it has more than one investment

b) it has more than one investor

c) it has investors that are not related parties of the entity

d) it has ownership interests in the form of equity or similar interests.

As per IFRS 10 a parent investment entity is required to consolidate subsidiaries that are not themselves investment entities and whose main purpose is to provide services relating to the entity's investment activities.

The Directors have assessed whether D9 Holdco satisfies those conditions set above by considering the characteristics of the whole group structure, rather than individual entities. The Directors have concluded that the Company and D9 Holdco are formed in connection with each other for business structure purposes. When considered together, both entities display the typical characteristics of an investment entity.

The Company entering into a Managed Wind-Down, a decision which was made and voted on by shareholders during the period, and the changes in the group structure following the sale of Verne Global have not impacted the management's judgement and conclusion over the IFRS 10 investment entity application and the Company has applied the same accounting policies described.

The Directors are therefore of the opinion that the Company meets the criteria and characteristics of an investment entity and therefore, subsidiaries are measured at fair value through profit or loss, in accordance with IFRS 13 "Fair Value Measurement", IFRS 10 "Consolidated Financial Statements" and IFRS 9 "Financial Instruments".

(b)      Going concern

Material Uncertainty

Following the recent shareholder vote at the General Meeting, the Company is now in a Managed Wind-Down. The Directors however believe that the Company and its subsidiaries (together the "Group") have adequate resources to continue in operational existence until the conclusion of a period of at least 12 months.  The unaudited condensed interim financial statements for the half-year ended 30 June 2024 therefore continue to be prepared on a going concern basis.

In adopting the appropriateness of the Going Concern basis of preparation the Board considered the fact that the Company is in Managed Wind-Down. In doing so various options for realising the stake in Arqiva were considered by the Board and after careful consideration of Arqiva's plans and current market conditions, the Board believes that the maximisation of the value of the Company's stake in Arqiva is likely to take longer to realise than the other investments held by the Company. This process may take up to 3 years.

Additionally following the recent sale of Verne Global, the Company may receive a potential Earn-Out payment of up to $135 million, which is subject to Verne Global achieving run-rate EBITDA targets for the financial year ending December 2026. As both the sale of Arqiva and the receipt of any Earn-Out payment are expected to take a number of years, the Board still believes that the Going Concern basis of preparation of the financial statements remains appropriate.

However, the Company's going concern assessment is dependent on the Group either completing the sale of assets to fund the repayment of the remaining balance of the Group's Revolving Credit Facility due by March 2025 or alternatively refinancing this debt.

In addition, the Directors have also considered the fact that the Company's wholly owned subsidiary D9 Holdco has not met one of its covenants under the terms of the RCF (related to its Global LTV), as reported to the board by Triple Point on 25 September 2024, and as notified to the RCF Lenders that same day. The RCF Lenders have indicated that, at present, they intend to work collaboratively with the Company, where possible, over the coming weeks to explore the option of providing a waiver, or alternative action if more appropriate at the time, of this breach, but in the meantime they are reserving their rights in that regard.

In relation to the remaining term of the RCF, the RCF Lenders have indicated that they intend to work collaboratively, where possible, with Digital 9 Holdco Limited (the "Borrower") with a view to finding a solution to the covenant breach for the remaining term of the loan, which could include a repayment though an asset sale or from a refinancing, as noted above.

The Directors have made this assessment of going concern, taking into account a wide range of information relating to present and future conditions, current performance and outlook, including the Company's cash and liquidity position, and finding a solution for the subsidiary's covenant breach noted above.

In particular the board have considered the position of the Company, and the following matters:

-   The fact that shareholders have already approved the orderly wind down of the Company and the realisation of the underlying assets, which are actively being worked on.

-    The understanding that the breach was inadvertent (i.e. resulting from the revaluation of the groups assets) and that all other covenants are being met, and are forecast to be met for the remainder of the duration of the facility.

-    The understanding that the group is continuing to service the debt and that all interest payments have been made, and are forecast to continue to be made on time.

-     That the current fair value of the groups investments together with available cash are around 8 times of the outstanding amount of the RCF.

The Directors believe that the Company and the Group have adequate resources to continue in operational existence for a period of at least 12 months since the reporting date. As at 30 June 2024, the Company had a cash balance of £33.6 million.  However, given that a degree of uncertainty exists in the timing of ongoing strategic initiatives which includes management's ability to refinance or repay the Group's existing RCF (of which c.£53 million remains at 26 September 2024) due in the next 12 months (March 2025), and finding a solution for the subsidiary's covenant breach as noted above, there exists a material uncertainty which may cast significant doubt over the Company's ability to continue as a going concern.

Accordingly, no provision has been made for the costs of winding up the Company as these will be charged to the Income Statement on an accruals basis as they are incurred or as the Company become obligated to make such payments in the future.

(c)      New and amended standards adopted by the Company

A number of amended standards became applicable for the current reporting period. The group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these amended standards. Management do not expect the new or amended standards will have a material impact on the Company's interim financial statements. The most significant of these standards are set out below:

(a) Classification of Liabilities as Current or Non-current and Non-current liabilities with covenants - Amendments to IAS 1

(b) Lease liability in sale and leaseback - Amendments to IFRS 16

(c) Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7

FORTHCOMING REQUIREMENTS

The following standards and interpretations had been issued but were not mandatory for annual reporting periods ending on 31 December 2024.

(a) Amendments to IAS 21 - Lack of Exchangeability (effective date 1 January 2025)

3.       SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

In the application of the Company's accounting policies, the Directors are required to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. It is possible that actual results may differ from these estimates.

(a)      Significant accounting judgements

(i)  Investment entity

As discussed above in Note 2(a), the Company meets the definition of an investment entity as defined in IFRS 10 and therefore its subsidiary entities have not been consolidated in these financial statements.

(b)      Key sources of estimation uncertainty

The estimates and underlying assumptions underpinning our investments are reviewed on an ongoing basis by both the Board and the Investment Manager. Revisions to any accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

(i)  Fair value measurement of investments at fair value through profit or loss

The Company owns 100% of D9 Holdco which through its wholly owned subsidiaries invest in digital infrastructure projects.  The fair value of the underlying investments in digital infrastructure projects is calculated by discounting at an appropriate discount rate future cash flows expected to be generated by the trading subsidiary companies and received by D9 Holdco, through dividend income, equity redemptions and Shareholder loan repayments or restructurings and adjusted in accordance with the IPEV (International Private Equity and Venture Capital) valuation guidelines, where appropriate, to comply with IFRS 13 and IFRS 9.  The fair value of the underlying investments in turn impacts the fair value of the Company's investment in D9 Holdco.

During the period, an Independent Valuer was appointed to carry out the fair valuation of four of the financial assets for financial reporting purposes, including level 3 fair valuations. The remaining two assets were valued by the Investment Manager and indicative sale price.

Estimates such as the forecasted cash flows from investments form the basis of making judgements about the fair value of assets, which is not readily available from other sources. The discounted cash flows from earnings are forecasted over an 8-to-10-year period followed by a terminal value based on a long- term growth rate or exit multiple. Discount rates are arrived at via a bottom-up analysis of the weighted average cost of capital, using both observable and unobservable inputs, and calculation of the appropriate beta based on comparable listed companies where appropriate, a sense-check to the DCF analysis is compared to market multiples.

The discounted cash flow from earning is forecasted over an 8-to-10-year period followed by a terminal value based on a long-term growth rate or exit multiples. The discounted cash flow comprises a bottom-up analysis of the weighted average cost of capital over time, using unobservable inputs; and calculation of the appropriate beta based on comparable listed companies. Where appropriate, a sense-check to the DCF analysis is compared to market multiples.

The valuation for SeaEdge and EMIC is based on valuations carried out by the Investment Manager.

A broad range of assumptions are used in the Company's valuation models, which are arrived at by reviewing and challenging the business plans of the Investee Companies with their management. The Investment Manager exercises its judgement and uses its experience in assessing the expected future cash flows from each investment and long-term growth rates. The impact of changes in the key drivers of the valuation are set out below.

The following significant unobservable inputs were used in the model, cash flows, terminal value and discount rates. The key area where estimates are significant to the financial statements and have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year is in the valuation of the investment portfolio.  The portfolio is diversified by sector, geography and underlying risk exposures.  The majority of assets in the investment portfolio are typically valued on a discounted cash flow basis which requires assumptions to be made regarding future cash flows, terminal value and the discount rate to be applied to these cash flows. The Earn-Out valuation methodology is described in more detail below.

The discount rate applied to the cash flows in each investment portfolio company is a key source of estimation uncertainty. The acquisition discount rate is adjusted to reflect changes in company-specific risks to the deliverability of future cash flows and is calibrated against secondary market information and other available data points, including comparable transactions. The weighted average discount rate used in these valuations was 13.80% derived from the Free Cash Flow to Equity ("FCFE") discounted cashflow approach.

The cash flows on which the discounted cash flow valuations are based are derived from detailed financial models. These incorporate a number of assumptions with respect to individual portfolio companies, including: forecast new business wins or new orders; cost-cutting initiatives; liquidity and timing of debtor payments; timing of non-committed capital expenditure and construction activity; the terms of future debt refinancing; and macroeconomic assumptions such as inflation and energy prices.

The terminal value attributes a residual value to the portfolio company at the end of the projected discrete cash flow period based on market comparables. The valuation of each asset has significant estimation in relation to asset-specific items but there is also consideration given to the impact of wider megatrends such as the transition to a lower-carbon economy and climate change. The effects of climate change, including extreme weather patterns or rising sea levels in the longer term, could impact the valuation of the assets in the portfolio in different ways. The weighted average long-term growth rate used in the valuation was 0.18%.

The fair value of the Earn-Out, attributable to the Verne Global transaction was computed by way of a Monte Carlo analysis. In this approach a random value is selected for each of the simulations, based on a range of estimates. The model is calculated based on this random value. The result of the model is recorded, and the process is repeated. A typical Monte Carlo simulation calculates the model hundreds or thousands of times, each time using different randomly selected values. The results are used to describe the likelihood, or probability, of reaching various results in the model.

4.       SIGNIFICANT CHANGES IN THE CURRENT REPORTING PERIOD

The Company has reviewed its exposure to climate related and other emerging business risks, but has not identified any risks that could impact the financial performance or position of the Company and its subsidiaries as at 30 June 2024.

The financial position and performance of the Company was particularly affected by the following events and transactions during the six months to 30 June 2024:

Completion of Verne disposal

On 14 March 2024, the Company completed the sale of its entire stake through its 100% owned subsidiary in the Verne Global group of companies to funds managed or advised by Ardian France SA for an equity purchase price of up to US$575 million (approximately £450 million). Following the Verne Transaction's completion the Company received US$415 million (£325.8 million). The completion follows receipt of all applicable regulatory approvals and the satisfaction of all conditions in line with the previously communicated timetable.

Managed Wind-Down

The Board published a circular to shareholders on 28 February 2024 to convene a general meeting and seek approval from shareholders to amend the Company's Investment Objective and Policy. The appropriate resolution was subsequently approved on 25 March 2024 with 99.9% of the votes cast in favour.

The Company will not make any new investments save that investments may be made in existing Investee Companies when considered appropriate to maximise value for shareholders. A financial advisor has been engaged to support the proposed wind-down process and to provide the Board with an independent review of the investment management arrangements. It will include evaluating the options of the Company (i) continuing to be managed by Triple Point on different fee arrangements; (ii) managed by a new investment manager, or (iii) becoming a self-managed alternative investment fund. The Board served the Investment Manager notice with a termination to take effect in March 2025. Shareholders should note that during the Managed Wind-Down, the Company intends to maintain its investment trust status and listing.

RCF Repayment

The Company, through D9 Holdco Limited made total repayment and partial cancellation of the Group's RCF of c.£321 million. The repayment which included funds that were released from the Interest Reserve as a consequence of the repayment itself reducing the drawn RCF amount to c.£53 million.

For a detailed discussion about the Company's performance and financial position please refer to the Chair's Statement.

5.       INVESTMENT MANAGEMENT FEES

The Company served notice of termination to the Investment Manager before 31 March 2024 following the completion of the Verne Global sale, with the Investment Management Agreement to terminate on 31 March 2025.

The Company and the Investment Manager entered into an Investment Management Agreement on 8 March 2021 and a Side Letter dated 17 March 2021.

The Company and Triple Point Investment Management LLP (the "Investment Manager") have entered into the Investment Management Agreement pursuant to which the Investment Manager has been given responsibility, subject to the overall supervision of the Board, for active discretionary investment management of the Company's Portfolio in accordance with the Company's Investment Objective and Policy.

The Investment Manager is appointed to be responsible for risk management and portfolio management and is the Company's AIFM. The Investment Manager has full discretion under the Investment Management Agreement to make investments in accordance with the Company's Investment Policy from time to time.

This discretion is, however, subject to: (i) the Board's ability to give instructions to the Investment Manager from time to time; and (ii) the requirement of the Board to approve certain investments where the Investment Manager has a conflict of interest in accordance with the terms of the Investment Management Agreement.

With effect from 31 March 2021, the date of admission of the Ordinary Shares to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange, the Company shall pay the Investment Manager a management fee (the "Annual Management Fee") calculated, invoiced and payable quarterly in arrears based on the Adjusted Net Asset Value which is based on funds deployed and committed at the relevant quarter date.

The total amount accrued and due to Triple Point at the period end was £1.6 million.

The management fee is calculated at the rates set out below:

For the period from 1 July 2021, in the event that less than 75 percent of the net proceeds from the issue of shares have been deployed, Adjusted Net Asset Value is the Current Net Asset Value at the previous reporting date adjusted as follows:

(a) Deduction from the Current Net Asset Value for undeployed and uncommitted cash balances

(b) Addition to the Current Net Asset Value the amount equal to the total funds (if any) deployed after the Current Net Asset Value Date and before the end of the relevant Quarter.

In the event that 75 per cent or more of the net proceeds of all relevant issues have been deployed there will be no deduction from the Current Net Asset Value for any undeployed cash balances.

6.       TAXATION

The Company is registered in Jersey, Channel Islands but resident in the United Kingdom for taxation. The standard rate of corporate income tax currently applicable to the Company is 25% (2023: 25%).

The financial statements do not directly include the tax charges for the Company's intermediate holding company, as D9 Holdco is held at fair value. D9 Holdco is subject to taxation in the United Kingdom.

The tax charge for the period is less than the standard rate of corporation tax in the UK of 25% (2023: 25%). The differences are explained below.

Investment companies which have been approved by HM Revenue & Customs under section 1158 of the Corporation Tax Act 2010 are exempt from tax on capital gains. The Directors are of the opinion that the Company has complied with the requirements for maintaining investment trust status for the purposes of section 1158 of the Corporation Tax Act 2010. The Company has not provided for deferred tax on any capital gains or losses arising on the revaluation of investments.

The Company has unrelieved excess management expenses of £22 million. It is unlikely that the Company will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax asset has been recognised.

The unrecognised deferred tax asset calculated using a tax rate of 25% amounts to £5.5 million.  

7.       FINANCIAL ASSET AT FAIR VALUE THROUGH PROFIT OR LOSS

As set out in Note 2, the Company designates its interest in its wholly owned direct subsidiary as a financial asset at fair value through profit or loss.

Summary of the Company's valuation:

Analysis of financial assets:

Valuation process

During the period, an independent valuer was appointed to carry out the fair valuation of four financial assets for financial reporting purposes, including level 3 fair valuations. The remaining two assets were valued at cost.  These valuations are presented to the Board for their approval and adoption. The valuation is carried out on a six-monthly basis as at 30 June and 31 December each year and is reported to shareholders in the Annual Report and Financial Statements.

Valuation methodology

The Company owns 100% of its subsidiary D9 Holdco. The Company meets the definition of an investment entity as described by IFRS 10, as such, the Company's investment in D9 Holdco is valued at fair value. D9 Holdco's cash, working capital balances and fair value of investments are included in calculating fair value of D9 Holdco. The Company acquires underlying investments in special purpose vehicles ("SPV") through its investment in D9 Holdco.

The Board has carried out fair market valuations of the underlying investments held by the underlying subsidiaries of D9 Holdco Limited in Arqiva, Aqua Comms, Elio Networks and the Verne Global Earn-Out as at 30 June 2024 based on the valuation report carried out by the independent valuer. The valuation for SeaEdge and EMIC is based on valuations carried out by the Investment Manager. The Directors have considered the valuation and satisfied themselves as to the methodology used, the discount rates and key assumptions applied, and the valuations. All SPV investments are at fair value through profit or loss and are valued using the IFRS 13 framework for fair value measurement. The fair value of the underlying investments in turn impacts the fair value of the Company's investment in D9 Holdco.

The following economic assumptions were used in the valuation of the SPVs.

The main Level 3 inputs used by the Group are derived and evaluated as follows:

• The valuer uses its judgement in arriving at the appropriate discount rate using a capital asset pricing model to calculate a pre-tax rate that reflects current market assessment. This is based on its knowledge of the market, considering intelligence gained from its bidding activities, discussions with financial advisers in the appropriate market and publicly available information on relevant transactions. The bottom-up analysis of the discount rate and the appropriate beta is based on comparable listed companies. Investments are valued using a discounted cash flow approach, being valued on a FCFE basis and taking into account non-binding bids received by the Company for these investments during the period. The portfolio weighted average discount rate for investments valued under the FCFE discounted cash flows approach was 13.80%.

• To calculate portfolio NAV, 88% of total NAV from Investment companies is valued using the FCFE discounted cash flows approach, 3% of total NAV is valued using evidence of indicative offer and the remaining 9% of investments being valued at cost.

• Expected cash inflows are estimated based on terms of the contracts and the Company's knowledge of the business and how the current economic environment is likely to impact it taking into consideration of growth rate factors. The portfolio weighted long-term growth rate for investments valued under the FCFE discounted cash flows approach was 0.18%.

• Future Foreign exchange rates of GBP against USD and

Fair value measurements

As set out above, the Company accounts for its interest in its wholly owned direct subsidiary as a financial asset at fair value through profit or loss.

IFRS 13 requires disclosure of fair value measurement by level. The level of fair value hierarchy within the financial assets or financial liabilities is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the following 3 levels:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e., as prices) or indirectly (i.e. derived from prices); and

Level 3 - inputs for assets or liabilities that are not based on observable market data (unobservable inputs).

The following table presents the Company's financial assets and financial liabilities measured and recognised at fair value at 30 June 2024 and 31 December 2023:

There have been no transfers between Level 1 and Level 2 during the period, nor have there been any transfers between Level 2 and Level 3 during the year.

The Company's investments are reported as Level 3 in accordance with IFRS 13 where external inputs are "unobservable" and value is the Directors' best estimate, based upon advice from relevant knowledgeable experts.

Fair value measurements using significant unobservable inputs (level 3)

As set out within the significant accounting estimates and judgements in note 3(b), the valuation of the Company's financial asset is an estimation uncertainty. The sensitivity analysis was performed based on the current capital structure and expected performance of the Company's investment in D9 Holdco. For each of the sensitivities, it is assumed that potential changes occur independently of each other with no effect on any other base case assumption, and that the number of investments in the SPVs remains static throughout the modelled life. The following table summarises the quantitative information about the significant unobservable inputs used in Level 3 fair value measurement and the changes to the fair value of the financial asset if these inputs change upwards or downwards by 0.25% for long-term growth rate and 1% for discount rate:

8.       STATED CAPITAL

                                                                                                                                           30 June 2024

Shareholders are entitled to all dividends paid by the Company and, on a winding up, provided the Company has satisfied all its liabilities, the shareholders are entitled to all of the residual assets of the Company.

9.       SUBSIDIARIES

At the reporting date, the Company had one wholly owned subsidiary, being its 100% investment in Digital 9 Holdco Limited. The following table shows subsidiaries of the Company. As the Company is regarded as an Investment Entity as referred to in Note 2, these subsidiaries have not been consolidated in the preparation of the financial statements.