29 November 2023
Cordiant Digital Infrastructure Limited
Interim report for the six months ended 30 September 2023
Solid performance, reflecting strength of underlying portfolio
Cordiant Digital Infrastructure Limited (the Company), an operationally focused specialist digital infrastructure investor, is pleased to announce its unaudited interim results for the six months to 30 September 2023.
Financial highlights:
| · | Total return for the period of £9.4 million, being 1.2p per share or 1.1% of opening ex-dividend NAV. o Total return reflects positive operating performance, offset by an increase in the weighted average discount rate to 9.8% and adverse foreign exchange movements in the period of £22.3 million. |
| · | Interim dividend of 2.0p per share, in line with 4.0p per share target for the year. |
| · | Full year target dividend of 4.0p per share is 3.6x covered by EBITDA, 1.2x covered by AFFO (adjusted funds from operations). Addition of Speed Fibre strengthens EBITDA cover further to 4.3x and AFFO to 1.5x on a pro forma basis. |
| · | NAV per share decreased from 113.4p at 31 March 2023 to 112.7p at 30 September 2023 due to payment of the 2.0p per share second interim dividend in July 2023, partly offset by the total return of 1.2p per share. |
| · | Portfolio EBITDA for the six-month period increased 5.5% to £55.5 million, over the prior comparable period, on a like-for-like pro forma, constant currency basis. |
| · | Acquisition of Speed Fibre increases portfolio diversification with investments now made in the Czech Republic, United States, Poland and Ireland. |
| · | Total liquidity post-Speed Fibre acquisition is £207 million, including £72 million held directly by the Company and £135 million at portfolio company level. |
Commenting, Shonaid Jemmett-Page,Chairman of Cordiant Digital Infrastructure Limited, said:
“I am pleased to report a solid performance by the Company for the first six months of the year, despite the challenging economic conditions during the period. The Company’s performance reflects the strength of its portfolio companies, which offer strong cashflows and growth opportunities in line with our Buy, Build & Grow model. The strength of the portfolio has been achieved with a conservative level of debt and through a disciplined acquisition strategy. The recently announced acquisition of Speed Fibre is additive to the portfolio as it offers additional cashflows, growth potential and further diversity in geography and asset class. With continued liquidity of £207 million, the Company remains well positioned, and as such the Board looks forward to the second half of the year with confidence”.
-ENDS-
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 |
Interim Report and results webcast for analysts
The 2023 Interim Report will be available to download at cordiantdigitaltrust.com/investors/results-centre/ from 29 November 2023.
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.
Notes to editors:
Cordiant Digital Infrastructure Limited 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 four core acquisitions: CRA, Hudson Interxchange, Emitel and Speed Fibre, which together offer stable, often index-linked income, and opportunities for growth, in line with the Company’s Buy, Build & Grow model.
Cordiant Capital Inc (the Investment Manager or Cordiant), the Company’s investment manager, 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.
Chairman’s statement
I am pleased to present the Interim Report for Cordiant Digital Infrastructure Limited (the Company) for the six months to 30 September 2023.
Introduction
The Company has achieved a solid financial performance despite the headwinds created by the current high interest rate environment which have continued throughout the period. The Company’s NAV has decreased from £875.7 million at 31 March 2023 to £868.6 million, due to the payment of the second interim dividend in July 2023. The decrease in NAV was partially offset by the £9.4 million profit for the period. Profit for the period would have been higher but for the adverse movements in the weighted average discount rate used to value the portfolio and foreign exchange.
At the portfolio company level, we have seen a good financial performance. The aggregate pro forma¹ normalised EBITDA of the portfolio companies for the six months to 30 September 2023 was £55.5 million1, up 5.5% from the prior comparable period. This financial performance was accompanied by strong operating performance, reflecting the overall quality of our portfolio companies. Among the highlights during the period were the successful refinancing of Emitel’s senior loan facilities, with a consortium of leading international and national lenders that secured PLN 1.57 billion (£293.5 million) of financing maturing in 2030 and the new 15-year contract CRA signed with T-Mobile, which substantially expanded the scope of its existing contract.
A further strategic step in the construction of the portfolio has also been achieved with the acquisition of Speed Fibre – Ireland’s leading open access fibre infrastructure provider. This was the Company’s fourth significant investment since its IPO, announced during the summer and completed in October 2023. In November 2023, we also announced a smaller transaction – the agreement to acquire Norkring, the Belgian broadcast and colocation business, which we expect to complete later in the financial year.
We recognise that macroeconomic factors have continued to create challenges for many companies and their shareholders across the listed investment trust sector and throughout the period we have continued to consider capital allocation as part our decision-making process. In this, we have taken into account our strategy for the portfolio and our aim of further diversification by geography and asset class, as well as opportunities to drive further growth through disciplined capital expenditure, while also acknowledging that some shareholders wish to see capital deployed through the purchase of the Company’s own shares. We have made further buy backs during the period under the programme announced in February 2023 and expect to retain this option as part of our response to current financial market conditions.
Portfolio strategy
The Investment Manager has a Core Plus strategy that aims to generate a stable 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.
Following its IPO, the Company began deploying the capital raised during a period of intense corporate activity where Digital Infrastructure transaction prices reached a peak. Consequently, we prudently sought out high-quality, cash-generating mid-market assets that we viewed as attractive investment opportunities. We have continued to focus on targeted investment in our existing portfolio companies and the acquisition of new businesses that reflect the current pricing environment and further diversifies the portfolio, both geographically across Europe and North America and by asset class. This highly focused strategy is exemplified by the acquisition of Speed Fibre in Ireland, as well as the smaller acquisition of Norkring in Belgium.
Our disciplined approach to deploying capital since IPO has resulted in a portfolio acquired for an EBITDA/EV multiple of approximately 10.2x and which delivers approximately £132 million of annual EBITDA based on most recent last twelve months (LTM) EBITDA, pro forma including Speed Fibre.
Overall, the portfolio we have constructed is high quality with a broad diversification by asset type. It is supported predominantly by blue-chip customers and is capable of generating strong cash flows through long-term contracts.
We are also a long-term investor with a clear focus on sustainability. We consider the ESG approach and metrics of potential targets in our pipeline as part of our pre-investment analysis and post-acquisition we work with our portfolio companies to improve their ESG performance.
Operational performance
The strength of the overall performance of our portfolio companies underpinned the Company’s results for the period. This performance was achieved against the backdrop of rates of inflation and central bank interest rate levels not seen in many years. The Company’s 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.
Excluding Speed Fibre, approximately three-quarters of the portfolio’s contracts are multi-year in nature and offer full or partial inflation protection, with the remainder being annual in nature, often renewed automatically, and therefore capable of being repriced to reflect the renewal year’s inflation. Active management of long-term contracts also provided opportunities to re-negotiate contractual terms with a number of customers.
Emitel performed well during the period, with revenues increasing 10.1% and EBITDA increasing 3.6% over the prior comparable period. Performance was driven by the launch of a new sixth digital TV multiplex and the effect of inflation-linked price increases. In addition, Emitel completed a successful refinance of its loan facilities during the period, 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. Recently, Emitel has also won several important broadcast contracts in TV and radio, which are expected to drive further future revenue and EBITDA.
CRA also performed well during the period, with revenue and EBITDA growth of 10.5% and 8.1% respectively, driven by growth in all business areas. CRA continued to see strong growth in demand for data centre capacity, +15.1% as measured in racks occupied and +22.0% as measured in power deployed. A new 15-year contract with T-Mobile, which significantly expanded the scope of services provided by CRA completed a successful half year.
Hudson remains a growth opportunity, with the Investment Manager providing substantial hands-on support in order to develop the business. During the period, the Investment Manager began to refresh Hudson’s leadership team and has refocused the sales effort. While Hudson has added customers to its business during the period, its overall financial progress has been slower than hoped.
Speed Fibre was acquired after 30 September 2023 and we will report on its performance in the Company’s Annual Report 2023 for the year ended 31 March 2024.
Returns and dividend
On 28 November 2023, the Board approved an interim dividend of 2.0p per share for the six months ended 30 September 2023 and confirms that it expects to pay a total dividend of 4.0p per share for the year ended 31 March 2024. The record date for distribution is 8 December 2023 and the payment date is 22 December 2023. The dividend continues to be well covered by earnings and by adjusted funds from operations (net cash flows from the portfolio businesses) and represents a significant increase over the indicative level set out at the time of the IPO in 2021.
The NAV per share as at 30 September 2023 was 112.7p (as at 31 March 2023: 113.4p or 111.4p ex-dividend), reflecting the payment of the dividend in July 2023 and a return of 1.1% over the period from the ex-dividend opening NAV, or 1.2p per share.
The profit for the six-month period reflected the strong overall performance of the underlying portfolio companies, offset by adverse foreign exchange movements (totalling £22.3 million) and an increase in the weighted average discount rate used to value our investments of 18 basis points to 9.8% (causing a £32.6 million decrease in value). Excluding foreign exchange movements in the period would result in a total return of 3.7%. The Company continues to target an annual NAV total return of at least 9%.
The Company’s shares traded at a discount to NAV during the period. A similar situation exists for many of the companies in the UK investment trust sector, largely as a result of macroeconomic factors and dislocations in the market. Both the Board and Investment Manager remain confident in the Company’s strategy and the reported NAV. While the primary focus has been, and remains, deploying available capital in support of the Company’s Buy, Build & Grow model, further purchases of the Company’s shares have been made under the discretionary programme of share buybacks of up to £20 million announced in the February 2023 trading update. Buybacks totalling £2.0 million had been executed by 30 September 2023. The buyback programme is not subject to a set cut-off date.
Gearing and interest
In June 2022, the Company raised a €200 million Eurobond facility from a group of blue-chip financial institutions, further bolstering its liquidity position and giving it additional flexibility to invest in the existing portfolio and make further acquisitions. The Eurobond was issued at subsidiary company level and fully drawn down by June 2023.
As at 30 September 2023, the Company and its subsidiaries had total debt on a look-through basis equivalent to £552.9 million. The Company takes a conservative approach to gearing, and on a pro forma basis, including Speed Fibre, net gearing was 38% of gross assets (substantially below the level of 50% permitted under the gearing policy set out in the Company’s Prospectus). A majority of the debt is held at the portfolio platform level on a non-recourse basis, with the remainder being the full drawdown of the Eurobond facility during the period.
Of the debt at 30 September 2023, 51% of the Company and its subsidiaries’ total debt is on a fixed-interest basis, with the rest at floating rates, none of which is inflation linked. The Company is reviewing the appropriate level of hedging for the interest rate of the new Emitel facilities, which are currently all at floating rates.
Principal risks and uncertainties
In the six months to 30 September 2023, we updated the principal risks identified by the Company. The changes largely continue to be driven by macroeconomic factors and the resulting impacts on the financial markets which we have seen persist across the period. As a result of the high inflation environment, further increases to interest rates and market volatility, the Company’s share price, as with many other investment trusts listed on the London Stock Exchange, has been adversely impacted and this in turn has restricted the ability to raise additional equity capital and to take advantage of some of the opportunities to develop in portfolio. These factors are expected to continue for some time yet.
Sustainability
Both the Board and the Investment Manager continue to focus on sustainability and reducing the impact of the Company and its portfolio companies on our environment. It is pleasing to highlight achievements and progress on initiatives across the portfolio. Emitel has been the recipient of a number of prestigious awards, including ranking second in the ‘telecommunications, technology, media and entertainment’ group in the XVII edition of the Responsible Companies Ranking 2023. In the general classification, the company was ranked twelfth, out of a total of 250, of the largest companies operating in the Polish market. CRA published its first ‘ESG Sustainability & Responsibility’ report in October 2023, issuing a public commitment to meet 100% of its electricity consumption through the use of renewables by 1 January 2025, having made progress to reach 46% by December 2022. Hudson has become a participant in a new initiative being undertaken by major US utility, Con Edison – the Conservation Voltage Reduction (CVR) Plan. The CVR plan enables an electric utility to reduce energy and peak demand by lowering voltage at the distribution system. Hudson is making the necessary adjustments in its transformers to enable energy savings. Speed Fibre’s ESG performance was considered as part of the acquisition process. Earlier this year it was awarded a 5-star rating by GRESB, the widely recognised provider of ESG data to financial markets.
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. During the period, the Senior Independent Director and I met with a number of shareholders to listen to their views on the Company and the Investment Manager and to feed these back for discussion at our Board meetings. The Board, Investment Manager and the Company’s brokers remain available to engage with shareholders as appropriate. The Board continues to note the Investment Manager’s strong hands-on operational experience and depth of capability being deployed on a day-to-day basis in support of portfolio’s operations whether through its active engagement with portfolio company management of commercial initiatives and technological insights to increase revenue growth, its leadership on strategic financings and bolt on acquisitions and its support in taking forward ESG initiatives.
Outlook
There are early indications that financial market conditions could be entering a new phase, as interest rates begin to plateau or fall across the Company’s markets. This brings uncertainty as well as opportunity for the Company and its portfolio companies. However, the overall performance of our portfolio companies continues to be a positive one, with Speed Fibre well placed to contribute positively to the results for the full year. The Investment Manager is actively managing the portfolio to drive that performance. In addition, Digital Infrastructure’s importance to the functioning of the global economy and our society continues to increase, with the growth of AI representing a further major evolution of the sector.
As a result, and notwithstanding the current conditions affecting financial markets generally, the underlying strength of the Company and the attractiveness of its core markets lead the Board to look forward to the year ahead with confidence.
Shonaid Jemmett-Page
Chairman
28 November 2023