RNS Number : 9012V
Duke Royalty Limited
06 December 2019
6 December 2019
Duke Royalty Limited
("Duke Royalty", "Duke" or the "Company")
Interim Results for the six months ended 30 September 2019
Duke Royalty Limited (AIM: DUKE), a provider of alternative capital solutions to a diversified range of profitable and long-established businesses in Europe and abroad, is pleased to announce its interim results for the six months ended 30 September 2019 ("H1 2019").
Highlights
· Revenue of £5.9 million (H1 2018: £2.7 million) an increase of 119%
· Positive net cash inflow from operations rose 195% to £3.9 million (H1 2018: £1.3 million)
· Net profit before tax of £3.7 million (H1 2018: £1.1 million)
· Two follow-up investments into Welltel Ireland Limited and Step Investments Limited completed, totalling £1.65 million
· Extension of three senior loan agreements with existing royalty partners, increasing future cashflows
· Entered into a new £30 million revolving facility agreement with existing debt provider, Honeycomb Investment Trust PLC, on improved terms, providing greater financial flexibility
· Strengthened operational team to reflect the scale achieved during the period
· Post period end, raised £17.45 million via a Placing, an Open Offer and a Retail Offer to build the Company's royalty portfolio and to pay down the inherited credit facility
Dividend Declaration
The Company is pleased to report that during the interim period, Duke paid quarterly dividends of 0.7p per share to shareholders on 17 April 2019 and 0.7p per share paid on 12 July 2019. Additionally, for the September 2019 quarterly dividend, the Board announced the Company's third increase to 0.75p per share. This increase was in line with its strategy to maintain a high and stable dividend.
Neil Johnson, CEO of Duke Royalty, said, "I am delighted to report that H1 2019's activities have materially increased our revenue, profitability and cashflow. Having entered the second half of the year with a strong pipeline of new royalty opportunities and greater financial flexibility, thanks to our new credit facility and our recent successful equity raise, we are confident that we can continue the rapid growth achieved to date. Importantly, we increased our dividend for the third time since inception, in line with our strategy, due to the follow-on investments made in existing royalty partners. We look forward to supporting our existing royalty partners further and making additional investments during the period to build on the rapid growth achieved to date."
For further information, please contact www.dukeroyalty.com, or contact:
Duke Royalty Limited
Neil Johnson / Charlie Cannon Brookes
+44 (0) 1481 741 240
Cenkos Securities plc (Nominated Adviser and Broker)
Julian Morse / Michael Johnson / Stephen Keys / Callum Davidson
+44 (0) 207 397 8900
Newgate Communications (PR)
Elisabeth Cowell/ Ian Silvera/ Megan Kovach
+44 (0) 20 3757 6882
Chairman's Statement
Duke Royalty's ("Duke") strategy is to provide its shareholders with exposure to capital growth and income by becoming the preferred and leading provider of royalty finance for companies in Europe and abroad.
Our sector focus currently covers:
· Hospitality and Leisure;
· Industrials;
· Technology and Media;
· Healthcare; and
· Business Services.
Duke is the only UK-quoted diversified royalty company, meaning that it benefits from a first-mover advantage to secure compelling investment opportunities in the royalty financing sector in the UK and Europe.
Royalty finance, which provides capital and receives returns based on revenue performance of its investee companies over a long term, represents a £50 billion sector in North America. Due to the banks' historic unwillingness to lend to SMEs, the funding gap in Europe and abroad means that we represent an attractive financing solution for private growth businesses that want to retain control of their businesses without any refinancing risk. In turn, our business model provides investors with exposure to ambitious private companies with excellent track records of delivering growth.
One of the key selling points and differentiating factors about Duke's business model is that its investee companies (royalty partners) are able to service the obligations arising from the royalty contract entirely out of expected cash flows. This is different than other forms of debt which typically expect the company to repay the entire principal within five years, sometimes with amortisation periods starting within two years. In times of short term uncertainty, repayment of principal which cannot be managed through operational cash flow, presents risk to the business owner and makes Duke Royalty's long term capital solution a more attractive option for businesses.
Our business development team has continued to broaden awareness of the benefits of royalty finance across the corporate and corporate advisory community, building on the success we have experienced so far.
Operational Review
I am pleased to report the results for the Group for the six-month period ended 30 September 2019 ("Interim 2020"). Interim 2020 was a period of ongoing rapid development for the Company with revenue, profitability and cashflow all increasing materially year on year, as well as further deployment of capital into its royalty portfolio. The Group also strengthened its operational team.
Careful cost management during growth phase
The Company's operating cost base is carefully managed to ensure that each deal entered into by Duke is immediately accretive. While cash operating expenses increased from £0.57 million to £1.1 million period-on-period, this reflects the decision by management to scale-up its operating team to effectively manage its deal origination, execution and monitoring requirements. Operating expenses will continue to be kept under tight control.
Improvements to operational team
I am delighted to report that the operating team has been further strengthened during the period by the appointment of Hugo Evans as Duke's new Finance Director. Hugo brings with him a wealth of expertise having previously acted as a Group Finance Director to a Guernsey domiciled, AIM listed investment management company. His relevant financial experience will be extremely useful in helping Duke prudently navigate its way through this next phase of growth.
I am pleased to say that post Hugo's appointment, the existing operating team and central cost base has now reached a sustainable level for the foreseeable future. Going forward, the Group's profitability is now expected to benefit from this operational leverage as additional income is generated from its royalty partners.
Extensions to investments
During Interim 2020, the Group made extensions to three senior loan agreements with existing royalty partners, thereby increasing the amount of cash that Duke can expect to receive back from these investments over their life.
These agreements were made with existing partners Welltel (Ireland) Limited ("Welltel"), a telecommunications services company, media company Step Investments Limited ("Step Investments", formerly "the Pearl & Dean Group"), and Xtremepush Limited, a technology solutions company. Each of these partners were acquired via the Capital Step acquisition in February 2019.
Follow on investments
During the period, Duke also completed two small follow-on investments into both Welltel and Step Investments, totalling £1.65 million, further demonstrating the confidence that Duke has in the recently acquired Capital Step portfolio.
Financial Review
I am pleased to report that total income for the period under review was £5.9 million, which is an increase of 119% year on year. Moreover, total comprehensive income for the period increased by 246% year on year to £3.3 million, as did net cash inflow from operating activities which rose 195% year on year to £3.9 million.
As referenced in previous Chairman's reports, I have encouraged shareholders to focus on the "net cash inflow from operating activities" number as this provides a true reflection of the Company's operating performance, highlighting what cash has been generated from the Company's royalty and loan book minus all cash operating costs incurred to manage the Group. I also refer you to the adjusted earnings figure in Note 4, which provides shareholders with a more detailed breakdown of operating performance. Given the increasing amount of capital that has been deployed by Duke coupled with the positive adjustment factors being generated by the existing portfolio alongside a now largely fixed operating cost base, I am pleased to report that I expect this metric to continue its increase in future periods.
In September 2019, Duke announced that it had entered into a new £30 million revolving facility agreement with its existing debt provider, Honeycomb Investment Trust PLC (the "New Credit Facility"), on improved terms. The New Credit Facility has a five-year term expiring in September 2024 with straight line amortization beginning in year four. It also has an interest rate equal to one-month LIBOR plus 7.25% per annum, which represents an improvement of 225bps on the previous rate of 9.5%.
Importantly, the New Credit Facility has an accordion facility which, subject to various loan to value and NAV thresholds, could allow for it to increase to a total of £50 million.
Duke now has significant balance sheet flexibility given that it can draw on this credit line before going to the equity markets to raise additional capital. This thereby avoids the potentially damaging impact of "cash drag" for shareholders, which is always an area of focus for Duke management given the Company's ongoing high dividend yield.
Dividend
During the interim period, Duke paid quarterly dividends to shareholders of 0.7p per share on 17 April 2019 and 0.7p per share on 12 July 2019. Additionally, for the September 2019 quarterly dividend, the Board announced the Company's third increase to 0.75p per share.
This increase was in line with our strategy to maintain a high and stable dividend.
Outlook
Looking towards 2020, I am confident that the Company's momentum will continue as it seeks to further expand and balance its portfolio. Finally, it is pleasing to report that progress has continued post the period end, with a significant equity issue of £17.45 million which closed in October 2019 and a further capital deployment into Lynx Equity in November. With the aforementioned New Credit Facility, the Company now has the capital to deploy into new and existing royalty partners which the management team is focused on delivering for the rest of FY2020.
Although we continually assess the geopolitical uncertainties facing the UK and European business community, the Company is well-positioned to cope with challenging macroeconomic events due to the consistently low operating costs and tight controls which are central to our business model. As such, the future remains bright for the Company and I am looking forward to the additional positive news flow expected for the remainder of FY2020.
We are pleased to report another strong period of growth and progress by the Company. I am grateful for the ongoing support of our shareholders, royalty partners and network of corporate partners and advisers and we look forward to reporting on the Group's ongoing progress in future periods.
Nigel Birrell
Chairman
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 30 SEPTEMBER 2019
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
Note
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Income
Net change in fair value of financial assets and financial liabilities through profit and loss
7,15,18
5,089
5,676
2,483
Loan interest receivable
9
672
255
-
Other income
6
209
216
Foreign exchange movements
136
-
-
Total income
5,903
6,140
2,699
Investment Expenses
Transaction costs
(208)
(1,508)
(436)
Royalty participation fees
15,18
-
(432)
(432)
Net foreign currency losses
-
(42)
(2)
(208)
(1,982)
(870)
Operating Expenses
Administration and personnel
17
(801)
(1,133)
(279)
Legal and professional
(315)
(509)
(234)
Other operating expenses
(139)
(203)
(92)
(1,255)
(1,845)
(605)
Operating profit
4,440
2,313
1,224
Interest payable
16
(611)
(397)
(79)
Other finance costs
(140)
-
(93)
Profit for the period before tax
3,689
1,916
1,052
Taxation expense
3
(406)
(119)
(102)
Total comprehensive income for the period
3,283
1,797
950
Basic earnings per share (pence)
1.66
1.10
0.73
Diluted earnings per share (pence)
1.65
1.10
0.73
All income is attributable to the holders of the Ordinary Shares of the Company.
The notes on pages 12 to 24 form an integral part of these Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2019
Note
30-Sep-19
31-Mar-19
30-Sep-18
£000
£000
£000
Non-current assets
Goodwill
6
203
203
-
Financial assets at fair value through profit or loss
7
63,163
63,167
39,174
Loans receivable
8
9,052
8,993
-
Deferred tax asset
9
-
-
107
72,418
72,363
39,281
Current assets
Financial assets at fair value through profit or loss
7
9,106
8,065
5,609
Loans receivable
9
2,065
632
-
Trade and other receivables
10
260
178
712
Cash and cash equivalents
3,998
5,894
30,066
15,429
14,769
36,387
Current liabilities
Trade and other payables
11
250
714
469
Current tax liability
538
248
209
Financial liabilities at fair value through profit or loss
12
212
173
187
Borrowings
13
257
326
-
1,257
1,461
865
Non-current liabilities
Trade and other payables
11
480
440
-
Financial liabilities at fair value through profit or loss
12
1,172
1,193
1,214
Borrowings
13
11,470
11,365
-
Deferred tax liability
9
680
565
-
13,802
13,563
1,214
Net Assets
72,788
72,108
73,587
Equity
Shares issued
14
102,044
102,044
101,918
Share based payment reserve
15
491
333
169
Warrant reserve
15
265
265
125
Retained losses
16
(30,012)
(30,534)
(28,623)
Total Equity
72,788
72,108
73,589
The notes on pages 12 to 24 form an integral part of these Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED 30 SEPTEMBER 2019
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Cash flows from operating activities
Receipts from royalty investments
4,397
5,097
1,792
Receipts of interest from loan investments
625
257
-
Receipts from transaction costs reimbursed
6
308
168
Other interest income received
-
1
-
Payments for royalty participation fees
(78)
(161)
(81)
Operating expenses paid
(1,084)
(1,392)
(568)
Net cash inflow from operating activities
3,866
4,110
1,311
Cash flows from investing activities
Royalty investments advanced
(250)
(25,033)
(13,925)
Loan investments advanced
(1,400)
(3,057)
-
Payment for acquisition of subsidiaries, net of cash acquired
(321)
(4,274)
-
Transaction costs paid - royalty investments
(404)
(624)
(222)
Transaction costs paid - business combinations
-
(268)
-
Pre-royalty investment advanced
-
-
(605)
Gain on exercise of warrants
-
-
88
Payment to acquire equity investment
-
-
-
Proceeds from disposal of equity instruments
-
89
-
Interest income received
-
-
14
Net cash outflow from investing activities
(2,375)
(33,167)
(14,650)
Cash flows from financing activities
Proceeds from share issue
-
44,010
44,010
Share issue costs
-
(2,398)
(2,345)
Dividends paid
(2,760)
(4,023)
(1,251)
Proceeds from loans
-
3,500
-
Redemption of loans
-
(9,109)
-
Interest paid
(662)
(172)
(79)
Other finance costs paid
-
-
(86)
Net cash (outflow)/inflow from financing activities
(3,422)
31,808
40,250
Net change in cash and cash equivalents
(1,931)
2,749
26,911
Cash and cash equivalents at beginning of Period/year
5,894
3,165
3,165
Effect of foreign exchange on cash
35
(21)
(10)
Cash and cash equivalents at the end of Period/year
3,998
5,894
30,066
The notes on pages 12 to 24 form an integral part of these Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 30 SEPTEMBER 2019
Share-based
Shares
payment
Warrant
Retained
Total
Note
issued
reserve
reserve
losses
equity
£000
£000
£000
£000
£000
At 1 April 2018
60,303
130
125
(28,314)
32,244
Total comprehensive income for the period
-
-
-
950
950
Transactions with owners
Shares issued for cash
11
44,000
-
-
-
44,000
Share issuance costs
11
(2,385)
-
-
-
(2,385)
Share based payments
12
-
39
-
-
39
Dividends
5
-
-
-
(1,259)
(1,259)
Total transactions with owners
41,615
39
-
(1,259)
40,395
At 30 September 2018
101,918
169
125
(28,623)
73,589
Total comprehensive income for the period
-
-
-
847
847
Transactions with owners
Share issuance costs
11
(13)
-
-
-
(13)
Share based payments
12
139
164
-
-
303
Warrants issued
12
-
-
140
-
140
Dividends
5
-
-
-
(2,758)
(2,758)
Total transactions with owners
126
164
140
(2,758)
(2,328)
At 31 March 2019
102,044
333
265
(30,534)
72,108
Share-based
Shares
payment
Warrant
Retained
Total
Note
issued
reserve
reserve
losses
equity
£000
£000
£000
£000
£000
At 1 April 2019
102,044
333
265
(30,534)
72,108
Total comprehensive income for the period
-
-
-
3,283
3,283
Transactions with owners
Share based payments
12
-
158
-
-
158
Dividends
5
-
-
-
(2,761)
(2,761)
Total transactions with owners
-
158
-
(2,761)
(2,603)
At 30 September 2019
102,044
491
265
(30,012)
72,788
The notes on pages 12 to 24 form an integral part of these Condensed Consolidated Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 SEPTEMBER 2019
1. General Information
Duke Royalty Limited ("Duke Royalty" or the "Company") is a closed-ended investment company with limited liability formed under the Companies (Guernsey) Law, 2008. The Company is domiciled in Guernsey. Its shares are traded on the AIM market of the London Stock Exchange.
Throughout the period, the "Group" comprised Duke Royalty Limited and its wholly owned subsidiaries; Duke Royalty UK Limited, Capital Step Holdings Limited, Capital Step Investments Limited, Capital Step Funding Limited, Capital Step Funding 2 Limited and Duke Royalty Employee Benefit Trust.
The Group's investing policy is to invest in a diversified portfolio of royalty finance and related opportunities
2. Significant accounting policies
1.1 Basis of preparation
The interim Condensed Consolidated Financial Statements of the Group have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting", as adopted by the European Union, and using the going concern basis of preparation. These interim financial statements do not contain all the information and disclosures as presented in the annual financial statements, and should be read in conjunction with the Consolidated Financial Statements of the Group for the year ended 31 March 2019, which have been prepared in accordance with International Financial Reporting Standards ("IFRS"), to the extent that they have been adopted by the European Union, and applicable Guernsey law.
The accounting policies adopted in the preparation of the interim Condensed Consolidated Financial Statements are consistent with those followed in the preparation of the Consolidated Financial Statements of the Group for the year ended 31 March 2019.
The Financial Statements have been prepared on a historical cost basis, except for the following:
· Royalty investments - measured at fair value through profit or loss
· Equity investments - measured at fair value through profit or loss
· Royalty participation liabilities - measured at fair value through profit or loss
1.2 New and amended standards adopted by the Group
There were no new standards adopted by the Group during the reporting period.
3. Income tax
The Company has been granted exemption from Guernsey taxation. The Company's subsidiary in the UK is subject to taxation in accordance with relevant tax legislation.
Factors affecting income tax expense for the year
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Profit on ordinary activities before tax
3,689
1,916
950
Tax using the Groups effective tax rate of 11.29% (2018: 10.53%, period to 30 September 2018: 10.73%)
417
202
102
Tax losses not recognised
-
(97)
-
Differential in tax rate
(11)
14
-
406
119
102
4. Earnings per share
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Total comprehensive income (£000)
3,283
1,797
950
Weighted average number of Ordinary Shares
in issue, excluding treasury shares (000s)
197,182
163,129
130,211
Basic earnings per share (pence)
1.66
1.10
0.73
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
Total comprehensive income (£000)
3,283
1,797
950
Weighted average number of Ordinary Shares,
diluted for warrants in issue (000s)
199,182
163,244
130,309
Diluted earnings per share (pence)
1.65
1.10
0.73
Basic earnings per share is calculated by dividing total comprehensive income for the period by the weighted average number of shares in issue throughout the period. Diluted earnings per share represents the basic earnings per share adjusted for the effect of dilutive potential shares issuable on exercise of share options under the Company's share-based payment schemes, weighted for the relevant period.
Adjusted earnings per share
Adjusted earnings represents the Group's underlying performance from core activities. Adjusted earnings is the total comprehensive income adjusted for unrealised and non-core fair value movements, non-cash items and transaction-related costs, including royalty participation fees, together with the tax effects thereon.
Valuation and other non-cash movements such as those outlined are not considered by management in assessing the level of profit and cash generation of the Group. Additionally, IFRS 9 requires transaction-related costs to be expensed immediately whilst the income benefit is over the life of the asset. As such, an adjusted earnings measure is used which reflects the underlying contribution from the Group's core activities during the year.
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Total comprehensive income for the period
3,283
1,797
950
Unrealised fair value movements
(693)
(651)
(771)
Gain on warrants
-
(88)
(88)
Share-based payments
158
482
39
Transactions costs net of costs reimbursed
208
1,161
329
Royalty participation fees
-
432
432
Tax effect of the adjustments above at Group effective rate
37
(140)
8
Adjusted earnings
2,993
2,992
899
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
Adjusted earnings (£000)
2,993
2,992
899
Weighted average number of Ordinary Shares
in issue, excluding treasury shares (000s)
197,182
163,129
130,211
Adjusted earnings per share (pence)
1.52
1.83
0.69
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
Adjusted earnings (£000)
2,993
2,992
899
Weighted average number of Ordinary Shares,
diluted for warrants in issue (000s)
199,182
163,244
130,309
Diluted adjusted earnings per share (pence)
1.50
1.83
0.69
5. Dividends
The following interim dividends have been recorded in the period:
Dividend per
Dividends
share
payable
pence/share
£000
Record date
Payment date
3 April 2018
12 April 2018
0.6
581
29 June 2018
12 July 2018
0.7
678
Dividends payable for the period ended 30 September 2018
1,259
Record date
Payment date
28 September 2018
12 October 2018
0.7
1,378
28 December 2018
11 January 2019
0.7
1,380
Dividends payable for the period ended 31 March 2019
2,758
Record date
Payment date
5 April 2019
17 April 2019
0.7
1,380
28 June 2019
12 July 2019
0.7
1,381
Dividends payable for the period ended 30 September 2019
2,761
On 27 September 2019 the Company approved a further quarterly dividend of 0.75 pence per share, totalling £1,479,000, which was paid on 18 October 2018.
6. Goodwill
Goodwill
£000
Opening net book value at 1 April 2018 and 1 October 2018
-
Arising on business combination
203
Closing net book value at 31 March 2019 and 30 September 2019
203
7. Financial assets at fair value through profit or loss
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Non-current
Royalty investments
61,952
61,990
39,174
Equity investments
1,211
1,177
-
63,163
63,167
39,174
Current
Royalty investments
9,106
8,065
5,609
72,269
71,232
44,783
Net changes in fair value on financial assets at fair value through profit or loss:
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
On royalty investments
5,150
5,789
2,615
On equity investments
34
65
-
Total net gains
5,184
5,854
2,615
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Realised
4,396
5,185
1,792
Change in unrealised
788
669
823
Total net gains
5,184
5,854
2,615
Realised changes in fair value relate to cash amounts received under the Group's royalty financing agreements.
Royalty investments
The Group's royalty investments comprise royalty financing agreements with 12 (30 September 2018: five, 31 March 2019: 12) investees. Under the terms of these agreements the Group advances funds in exchange for annualised royalty distributions. The distributions are adjusted based on the change in the investees' revenues, subject to a floor and a cap. The financing is secured by way of fixed and floating charges over certain of the investees' assets. The investees are provided with buyback options, exercisable at certain stages of the agreements.
Equity investments
The Group's equity investments comprise unlisted shares and warrants in four of its royalty investment companies (30 September 2018: one, 31 March 2019: four)
The Group also still holds two (30 September 2018: three, 31 March 2019: two) unlisted investments in mining entities from its previous investment objectives. The Board does not consider there to be any future cash flows from the remaining investments and they are fully written down to nil value.
8. Loans receivable
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Non-current
9,052
8,993
-
Current
2,065
632
-
11,117
9,625
-
The Group's loans receivable comprise secured loans advanced to five entities (2018 - nil) in connection with the Group's royalty investments.
The loans comprise fixed rate loans of £8,760,000 which bear interest at rates of between 5% and 16% and one variable rate loan of £2,357,000 which bears interest at 14.5% over LIBOR. The total interest receivable during the period was £672,000 (period to 30 September 2018 - £nil).
The loans mature as follows:
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
In less than one year
2,065
632
-
In one to two years
-
4,241
-
In two to five years
9,052
4,752
-
11,117
9,625
-
9. Deferred tax
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Deferred tax (liability)/asset
(680)
(565)
107
The deferred tax asset arises due to a temporary timing differences on the treatment of transaction costs in the UK subsidiary. This deferred tax asset is expected to reverse over a 30 year period. The utilisation of this asset is dependent on sufficient future taxable profits being generated by the UK subsidiary.
10. Trade and other receivables
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Transaction costs reimbursed receivable
-
-
40
Prepayments and accrued income
260
178
58
Pre-royalty investment advances
-
-
614
260
178
712
11. Trade and other payables
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Current
Trade payables
5
160
77
Consideration on business acquisition
-
321
-
Transaction costs
63
99
-
Accruals and deferred income
182
136
392
250
714
469
Non-current
Transaction costs
480
440
-
480
440
-
12. Financial liabilities at fair value through profit or loss
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Royalty participation liability
Current
212
173
187
Non-current
1,172
1,193
1,214
1,384
1,366
1,401
Net changes in fair value on financial liabilities at fair value through profit or loss:
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Realised
78
161
-
Change in realised
17
17
132
95
178
132
13. Borrowings
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Secured loan
Current - accrued interest
257
326
-
Non-current
11,470
11,365
-
11,727
11,691
-
The secured loan had an interest rate of 9.5% over LIBOR per annum. This rate was lowered to 7.25% over LIBOR per annum following a restructuring of the facility, completed on 8 October 2019. The principal amount is repayable on 8 October 2024. The loan is secured by means of a fixed and floating charge over the assets of the Group.
14. Share capital
No. shares
£000
Authorised
Unlimited number of shares of no par value
-
-
Allotted, called up and fully paid
At 1 April 2018
96,877,459
60,303
Shares issued for cash during the period
100,000,000
44,000
Share issuance costs
-
(2,385)
Shares issued to Employee Benefit Trust during the period
1,025,000
-
At 30 September 2018
197,902,459
101,918
Shares issued for cash during the period
-
-
Share issuance costs
-
(13)
Shares issued to Employee Benefit Trust during the period
1,665,000
-
Shares issued to directors and key advisers as remuneration
305,000
139
At 31 March 2019
199,872,459
102,044
Shares issued for cash during the period
-
-
Share issuance costs
-
-
Shares issued to Employee Benefit Trust during the period
-
-
At 30 September 2019
199,872,459
102,044
There is a single class of shares. There are no restrictions on the distribution of dividends and the repayment of capital with respect to externally held shares. The shares held by The Duke Royalty Employee Benefit Trust are treated as treasury shares. The rights to dividends and voting rights have been waived in respect of these shares.
15. Equity-settled share-based payments
The following table shows the movements in the warrant reserve during the year:
Warrants
£000
At 1 April 2018
125
Issued during the period
140
At 1 September 2018
265
Issue during the period
-
At 1 April 2019 and 30 September 2019
265
No warrants were issued during the period to 30 September 2019.
The following table shows the movements in the share-based payment reserve during the period:
Share
options
LTIP
Total
£000
£000
£000
At 1 April 2018
124
6
130
LTIP awards
-
39
39
At 30 September 2018
124
45
169
LTIP awards
-
152
152
Share options granted
12
-
12
At 31 March 2019
136
197
333
LTIP awards
-
158
158
At 30 September 2019
136
355
491
No options were granted in respect of the Company's equity-settled share-based payment schemes during the period ended 30 September 2019. The charge to the Consolidated Statement of Comprehensive Income for the period ended 30 September 2019 in respect of all equity settled share-based payment schemes was £158,000 (period ended 30 September 2018: £39,000, year ended 31 March 2019: £203,000).
16. Distributable reserves
Under Guernsey law, the Company can pay dividends provided it satisfies the solvency test prescribed by the Companies (Guernsey) Law, 2008. The solvency test considers whether the Company is able to pay its debts when they fall due, and whether the value of the Company's assets is greater than its liabilities. The Company satisfied the solvency test in respect of the dividends declared in the period.
17. Related parties
Directors fees
The following fees were payable to the Directors during the period:
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Short term remuneration
211
338
105
Share-based payments
144
213
39
355
551
144
Other related party transactions
The following amounts were paid to related parties during the period in respect of support services fees:
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Abingdon Capital Corporation
150
248
98
Arlington Group Asset Management Limited
50
62
12
200
310
110
Support Service Agreements with Abingdon Capital Corporation ("Abingdon"), a company of which Neil Johnson is a Director, and Arlington Group Asset Management Limited ("Arlington"), a company of which Charles Cannon Brookes is a Director, were signed on 16 June 2015. The services to be provided by both Abingdon and Arlington include global deal origination, vertical partner relationships and on-going investment management, including preparation of investment reports, performance data and compliance with the Company's investing policy.
Dividends
The following dividends were paid to related parties
Period to
Year to
Period to
30-Sep-19
31-Mar-19
30-Sep-18
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Directors1
147
270
125
1 Includes dividends paid to Abinvest Corporation, a wholly owned subsidiary of Abingdon, and Arlington
18. Fair value measurements
Fair value hierarchy
IFRS 13 requires disclosure of fair value measurements by level of the following fair value hierarchy:
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities that the entity can readily observe.
Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.
Level 3: Inputs that are not based on observable market date (unobservable inputs).
The Group has classified its financial instruments into the three levels prescribed as follows:
30-Sep-19
31-Mar-19
30-Sep-18
Level 3
Level 3
Level 3
(unaudited)
(audited)
(unaudited)
£000
£000
£000
Financial assets
Financial assets at fair value through profit or loss
- Royalty investments
71,058
70,054
44,783
- Equity investments
1,211
1,177
-
72,269
71,231
44,783
Financial liabilities
Financial liabilities at fair value through profit or loss
- Royalty participation instruments
1,384
1,367
1,401
1,384
1,367
1,401
The following table presents the changes in level 3 items for the periods ended 30 September 2019, 31 March 2019 and 30 September 2018:
Financial
Financial
assets
liabilities
Total
£000
£000
£000
At 1 April 2018
23,569
(917)
22,652
Additions
20,392
(352)
20,040
Royalty income received
(1,792)
-
(1,792)
Net change in fair value
2,615
(132)
2,483
At 30 September 2018
44,784
(1,401)
43,383
Additions
11,108
-
11,108
Business combination
15,494
-
15,494
Royalty income received
(3,305)
-
(3,305)
Royalty participation liabilities paid
-
161
161
Proceeds from exercise of warrants
(88)
-
(88)
Net change in fair value
3,239
(126)
3,113
At 31 March 2019
71,232
(1,366)
69,865
Additions
250
-
250
Royalty income received
(4,397)
-
(4,397)
Royalty participation liabilities paid
-
78
78
Net change in fair value
5,184
(95)
5,089
At 30 September 2019
72,269
(1,384)
70,885
Valuation techniques used to determine fair values
The fair value of the Group's financial instruments is determined using discounted cash flow analysis and all the resulting fair value estimates are included in level 3.
Valuation processes
The main level 3 inputs used by the Group are derived and evaluated as follows:
Annual adjustment factors for royalty investments and royalty participation liabilities
These factors are estimated based upon the underlying past and projected performance of the royalty investee companies together with general market conditions.
Discount rates for financial assets and liabilities
These are initially estimated based upon the projected internal rate of return of the royalty investment and subsequently adjusted to reflect changes in credit risk determined by the Group's Investment Committee.
Changes in level 3 fair values are analysed at the end of each reporting period and reasons for the fair value movements are documented.
Valuation inputs and relationships to fair value
The following summary outlines the quantitative information about the significant unobservable inputs used in level 3 fair value measurements:
Royalty investments
The unobservable inputs are the annual adjustment factor and the discount rate. The range of annual adjustment factors used is 0.0% to 6.0% and the range of risk-adjusted discount rates is 12.4% to 18.8%.
Equity investments
Sensitivity analysis has not been performed on the Group's equity investments on the basis that they are not material to the Condensed Consolidated Financial Statements
Royalty participation instruments
The unobservable inputs are the annual adjustment factor and the discount rate used in the fair value calculation of the royalty investments. The range of annual adjustment factors used is 0.0% to 6.0% and the range of risk-adjusted discount rates is 13.5% to 18.8%.
19. Events after the financial reporting date
Dividends
On 18 October 2019 the Company paid a quarterly dividend of 0.75 pence per share.
Issuance of ordinary shares
On 31 October 2019 the Company issued 39,667,899 new Ordinary Shares at 44 pence each. A total of £16,526,000 was raised, net of issuance costs.
Follow-on royalty investments
On 31 October 2019 the Group announced a follow-on investment of £2.0 million into its royalty partner (Lynx UK) Limited.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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