REG - Duke Capital - Final Results for the year ended 31 March 2024
27/06/2024 07:00
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RNS Number : 0545U Duke Capital Limited 27 June 2024
27 June 2024
Duke Capital Limited
("Duke Capital", "Duke" or the "Company")
Final Results for the year ended 31 March 2024
Duke Capital Limited (AIM: DUKE), a leading provider of hybrid capital
solutions for SME business owners in Europe and North America, is pleased to
provide its audited final results for the 12 months ended 31 March 2024
("FY24").
FY24 Highlights
· 38% year-on-year increase in total cash revenue to a record
£30.3 million (FY23: £21.9 million)
· 12% year-on-year increase in recurring cash revenue* to a record
£24.3 million (FY23: £21.8 million)
· Free cash flow** of £17.9 million, up 40% from £12.8 million in
FY23
· 35% increase in free cash flow per share to 4.34p (FY23: 3.21p)
· 55% increase in adjusted earnings to 4.85p per share (FY: 3.13p)
· Quarterly dividend of 0.70p throughout FY24, equating to an
annualised dividend of 2.80p
· Delivered three successful and profitable exits (Instor, Fabrikat
and Fairmed), which provided Duke with £23 million of additional liquidity
for future deployments
· Deployed over £46 million of capital during the year, including
investments into new capital partners Glasshouse (£9.0 million) and Integrum
Care Group (£14.5 million)
· Completed strategic review resulting in a change of name to Duke
Capital and renewed positioning for the Company's unique hybrid credit
product.
Post Period End Highlights
· £6.3 million of recurring cash revenue expected in Q1 FY25,
representing a 5% year-on-year increase (Q1 FY24: £6.0 million)
· One additional follow-on investment completed in Q1 FY25 into BPVA
(Ireland), deploying £4.0 million of capital
*Recurring cash revenue excludes exit premiums and cash gains from the sale of
equity investments
** Free cash flow is defined as net cash inflows from operations plus cash
gains from the sale of equity investments less net transaction costs less
interest paid on borrowings
Neil Johnson, CEO of Duke Capital, said:
"FY24 has been a rewarding year, characterised by strategic progress and
delivery. In contrast to FY23 where we exercised caution in our approach to
new deployments due to rapidly changing macroeconomic conditions, FY24 saw us
deploy new capital more confidently, resulting in new cash revenue highs.
During the period, we secured two new partners and delivered four follow-on
investments into existing capital partners, deploying over £45 million in
total and diversifying our revenue base. We also delivered three successful
and profitable exits, providing us with £23 million of additional liquidity
for future deployment. These successful exits are an excellent demonstration
of how our capital can empower business owners to grow their business while
retaining control of any re-financing timing."
Analyst Presentation
There will be a webinar for equity analysts at 09:30 a.m. BST today hosted by
Neil Johnson, CEO, and Hugo Evans, CFO.
Any equity analysts wishing to attend should contact SEC Newgate at
dukecapital@secnewgate.co.uk (mailto:dukecapital@secnewgate.co.uk) where
further details will be provided.
Investor Presentation
Neil Johnson and Hugo Evans will also provide a live investor presentation
relating the FY24 results via the Investor Meet Company platform on Monday 1
July at 12:45 p.m. BST.
The presentation is open to all existing and potential shareholders. Questions
can be submitted via the Investor Meet Company dashboard up until 9 a.m. the
day before the meeting or at any time during the live presentation.
Investors can sign up to Investor Meet Company for free and add to meet Duke
Capital via:
https://www.investormeetcompany.com/duke-capital-limited/register-investor
(https://www.investormeetcompany.com/duke-capital-limited/register-investor)
Investors who already follow Duke Capital on the Investor Meet Company
platform will automatically be invited.
This announcement contains inside information.
For further information, please visit www.dukecapital.com
(http://www.dukecapital.com) or contact:
Duke Capital Limited Neil Johnson / Charles Cannon Brookes / Hugo Evans +44 (0) 1481 231 816
Cavendish Capital Markets Limited (Nominated Adviser and Joint Broker) Stephen Keys / Callum Davidson / Michael Johnson +44 (0) 207 220 0500
Canaccord Genuity Limited Adam James / Harry Rees +44 (0) 207 523 8000
(Joint Broker)
SEC Newgate (Financial Communications) Elisabeth Cowell / Alice Cho / Matthew Elliott + +44 (0) 20 3757 6882 dukecapital@secnewgate.co.uk
About Duke Capital
Duke is a leading provider of hybrid capital solutions for SME business owners
in Europe and North America, combining the best features of both equity and
debt.
Since 2017, Duke has provided unique long-term financing which eliminates
re-financing risk and necessity for a short-term exit by providing a unique
'corporate mortgage' while also aligning its returns to grow with the success
of the business.
Duke is focused on generating attractive risk-adjusted returns for
shareholders and has a track record of achieving this across market cycles.
Its three investment pillars are capital preservation, attractive dividend
yield, and to provide upside upon exits. Duke is listed on the AIM market
under the ticker DUKE and is headquartered in Guernsey.
Chairman's Statement
The financial year to 31 March 2024 ("FY24") has been a busy year for Duke and
we are very pleased with the strategic progress achieved during the period.
In my statement this time last year, I highlighted that, due to the
macroeconomic trends we were observing, we expected to achieve a higher
deployment rate in FY24 enabling us to consistently grow and deliver new
records in terms of cash revenue and operating cashflow.
I am pleased to report that this has indeed been the case, demonstrating that
while the macroeconomic environment has continued to present challenges, the
nature of our long-term patient capital has enabled us to continue delivering
for our investors and capital partners alike.
Our investors have continued to benefit from our high dividend yield and
upside from the high-IRR buyouts achieved during the period, which have
returned over £23 million of cash to the Company. In conjunction, our SME
partners have been able to enjoy certainty in turbulent markets, and to focus
on running their business without the worry of refinancing.
In addition, we firmly believe that the difficult market conditions have
ultimately strengthened the market opportunity available to direct lenders
such as Duke. This environment makes our long-dated, low-amortising debt
products more attractive than ever before.
In fact, the appeal of our offering has continued to increase since our IPO in
2017 with the banks continuing to pull cashflow lending from the lower
mid-market. This has prompted the increasingly underserved SME business
community to look elsewhere for growth capital. Consequently, the private
credit market, particularly direct lending, had to evolve and expand
significantly for capital solutions such as Duke's unique product offering to
become more widely accepted in the SME sector.
In light of the rapid evolution of our sector, our conversations with business
owners highlighted that the term 'royalty' was no longer helpful given that
over the past seven years traditional royalty companies in the mining, music
and pharmaceutical sectors have proliferated. As such, we took the decision to
undertake a strategic review of our positioning in the marketplace during the
period, aimed at ensuring that our unique offering is communicated to business
owners and stakeholders in a way which provides greater clarity and improves
comparison when evaluating a broad array of financing options.
This process led to our decision to rename our business to Duke Capital and to
reframe our direct lending offering as 'hybrid capital', reflecting the fact
that our financing solution blends features of private equity and private
credit products, and is more flexible than traditional debt or equity alone.
While our core product and investing policy and investment criteria remain the
same, making the features of our product more easily relatable versus other
financing options gives us a bigger opportunity to engage with more business
owners who are used to thinking in either 'debt' or 'equity'. So far, it is
very pleasing to be able to report that the universal reaction to the
rebranding has been very positive.
Outlook
With a solid portfolio of opportunities and strengthened liquidity from recent
buyouts, we are poised to seize new growth opportunities. Coupled with a clear
message for the SME community, we are confident that we are in an ideal
position to capitalise on a highly attractive market opportunity and as such,
have enlarged our investment team with three new hires during the period.
This confidence will be boosted further when the economic backdrop improves
and interest rates finally decrease, given the positive impact this will have
on our bottom line as a result of lower interest costs on our Fairfax credit
facility. An improved interest rate environment will also make Duke's strong
dividend yield relatively more attractive compared to what is available to
investors in the market and should boost the demand picture in the UK economy
further.
I would like to take this opportunity to thank shareholders for their support
during the period and look forward to keeping them updated during the months
ahead.
Nigel Birrell
Chairman
CEO's Statement
During FY24, the Company has been focused on what we can control, while the
macro-economic headwinds continue and fiscal policies are given time to
produce the desired effects. Therefore, we have redoubled our efforts on our
capital partners' performance, maintained high standards for new partners, and
reviewed Duke's competitive landscape and positioning in our market. I am
pleased to say that FY24 has been rewarding, in both the Company's strategic
progression and the team's delivery.
In contrast to FY23, where we exercised caution in our approach to new
deployments in light of rapidly changing macroeconomic conditions, FY24
presented opportunities to deploy capital with favourable returns. Combined
with three investment exits during the year, this led to record highs across a
number of the Company's core KPIs.
We have been at the forefront of the UK direct lending movement for seven
years now and during this time, BlackRock estimates that direct lending
globally has increased over six-fold to US$650 billion, making it the largest
segment of the private credit market. As such, it has been fantastic to
witness how the levels of understanding and acceptance of private credit from
the SME community have increased since our IPO, providing us with a stronger
opportunity than ever.
At the same time, as with any rapidly expanding market opportunity, the
terminology and sub-sectors have evolved just as fast.
A strategic evolution of our message
In response to this, we took the decision to undertake a strategic review of
our positioning in the market. This confirmed that Duke's core product has a
strong and attractive market differentiation due to its long duration and low
amortisation qualities, while our growing pipeline confirmed that these were
credentials which resonate with business owners.
Our first realisation is that many competitors use SME to describe a wide
range of company sizes, from startups to quite sizeable businesses. However,
we have always focused on companies with positive EBITDA between £2 and £10
million. While they are SME businesses, they are also more specifically
defined as the lower mid-market in the private capital world. We have always
preferred to partner with people who both owned and operated their businesses,
as opposed to work with 'sponsors' or private equity owners. This focus has
benefits of having less competition to win deals, and having greater
confidence in evaluating the partner's performance. Since our focus remains on
having constructive engagement with management teams and receiving timely
financial information from each of our capital partners, we would rather have
a partnership with the people who go to work and create the profits every day.
On bringing together the insights that our team had gathered through their
hundreds of conversations with business owners over the years, we decided that
moving away from describing ourselves as a royalty business would ensure that
we had a bigger opportunity to engage with more business owners who are used
to thinking in either 'debt' or 'equity'. It was also evident to us that
business owners were increasingly savvy about non-bank alternatives, which
allowed us to simplify and clarify our solution for them. Having the term
'private credit' enter the mainstream ensured that our new positioning would
be well received.
Therefore, as Nigel outlines, we have reframed our product as 'hybrid
capital', which we define as a financing solution that blends the best
features of private equity and private credit and is more flexible than
traditional debt or equity alone. It was pleasing to involve the entire team
with this messaging process, building in their feedback and to the feedback of
our combined network to unveil Duke Capital. The outcome of this process has
emboldened the team's conversations, equipping them with a refined, pertinent
message, and a new website which speaks directly to business owners and is
aligned with the way they think about capital.
While our core product, investing policy and investment criteria are not
changing - we still invest in long-standing, profitable, private businesses,
providing an evergreen capital solution that is ideally suited to fund MBOs
and buy-and-build strategies - a name change to Duke Capital made total sense.
With these developments now delivered, we are confident that we can more
easily convey the attributes of our financing solution to business owners and
investors and build on our momentum.
At the same time, we also announced our decision to create additional
flexibility to take equity ownership in our partners over 30% if and when
situations necessitate or there is clear rationale to do so for our
shareholders. While our investment approach remains the same - unlike private
equity, we are not looking to take control of the business or force an exit -
this will benefit investors by enabling Duke in certain circumstances to
continue longer with our best performing partners and ensure our capital
growth is maximised. Our capital partners will continue to benefit from our
unique 'corporate mortgage' debt product with equity-like attributes which
align our success with the success of the business.
We have already taken advantage of this change, announcing in March 2024 that
we had increased our equity stake in existing capital partner United Glass
Group ("UGG") from 30.0% to 73.8%. This was facilitated through a £2.9
million secondary share purchase from existing shareholders and aligns with
our vision to deepen our engagement with our high-performing portfolio
companies. Indeed, we have been invested in UGG since 2018 and during this
time the management team has proven itself to be a highly successful partner,
driving solid growth in the business despite an array of macro-economic
challenges along the way. Their long-standing track record and strong
potential for future growth meant that it made perfect sense to increase our
equity stake in the business.
Building on our track record of delivering above-average returns from exits
The past 12 months have seen us deliver three successful and profitable exits,
bringing the total number of exits delivered since inception to eight. Our
model allows investors to reap the benefits of any outsized returns and with
each of them delivering above average IRRs, we are delighted with this result.
These exits also provided us with £23 million of additional liquidity for
future deployment, as well as excellent case studies as to how our capital can
empower business owners to grow their business without re-financing risk while
retaining control of any re-financing timing.
In particular, Fabrikat is a real success story for Duke and a great example
of how our capital is a perfect fit for individuals seeking to execute an MBO.
Our capital allowed long-standing employees to step up into large equity
ownership positions within a strong business. With Duke's capital, the vendors
were satisfied there was a fair price for the business, but more importantly
they could leave the business in the hands of the next tier management. Now
empowered, the employees-turned-majority owners delivered three years of
exceptional financial results, and garnered the attention from larger industry
players. Now as majority owners, with Duke as a minority owner and Board
member, they sought our counsel with the negotiations, and a sale was
consummated in March 2024, creating value for all stakeholders.
Executing on our robust pipeline
Over the 12 months under review, we secured two new partners and delivered
four follow-on investments into existing capital partners, deploying £46m in
total and diversifying our revenue base. The first new capital partner is
Glasshouse Products, LLC ("Glasshouse"), which was founded in 2002 and
provides custom glass solutions, and the US$11.5 million in financing we
provided has facilitated a management buyout. Notably, we backed the founder's
son to buy back the business from a conglomerate who deemed it 'non-core',
restoring the firm literally and figuratively to a family business. This
perfectly illustrates the types of situations that we seek, and which would
not fit banks and other large credit institutions' strict and rigid criteria.
In March, we also entered into a £14.5 million financing agreement (announced
2 April) with a newly formed entity to enable them to acquire Integrum Care -
Clearbrook Limited trading as Integrum Care Group ("Integrum"). Integrum
operates six elderly nursing care homes in Kent and East Sussex. At the same
time, we became a 49% equity shareholder in the business, building strong
alignment.
Because our capital is regularly used to deliver buy and build strategies for
our partners, as at 31 March 2024, we had exposure to 71 underlying companies,
owned by our 15 capital partners, across Europe and North America. In total,
our current capital invested amounts to £210m across 16 companies. The
diversification of our portfolio reduces risk and aligns with our three core
investment pillars: capital preservation, attractive dividend yield, and to
provide upside upon exits. Ultimately, we ensure that our shareholders have
safe exposure to a broad range of sectors through our investments in
profitable, long-standing businesses. In doing so, our innovative 'corporate
mortgage' offers unique exposure to private markets, providing exposure to
resilient and profitable privately-owned businesses, while providing enhanced
downside protection on our shareholders' principal.
Expanding our team and our origination reach
Our management team and investment committee has more than 100 years of
investing experience and includes deal originators with deep relationships in
the lower mid-market investment community. During the period, we were pleased
to welcome three new members of our investment team to support in delivering
new investments. This was in light of the growth of the business, as well as
the rapidly expanding market opportunity we continue to observe. The
additional support is also paramount given that we have increased our
geographic spread over recent years. We now have good origination in three G7
countries, UK, Canada and the United States, and are therefore not bound by UK
deals alone.
Finance Review
Cash Flow
The financial results for FY24 represent a strong operating performance and I
am pleased to report that the Company's total cash revenue, being cash
distributions from our capital partners, cash gains from the sale of equity
investments and exit premiums, grew to a record £30.3 million during the
financial year under review, a 38% increase over the £21.9 million generated
in FY23.
The performance benefitted from three exits during the year (Instor, Fabrikat
and Fairmed). However, the Company's recurring cash revenue, which relates to
the annuity-like monthly cash revenue streams that Duke receives from its
capital partners, also grew to £24.3 million in FY24, up from the £21.8
million in FY23.
Free cash flow, which management defines as its core KPI, also saw strong
growth during FY24, increasing to £17.9 million, up from £12.8 million in
FY23, a 40% increase. Free cash flow per share rose 35% from 3.21 pence per
share to 4.34 pence per share. These material uplifts demonstrate the benefits
to Duke when there are investment exits. While the Company's recurring free
cash flow ensures the quarterly dividend is covered, the exit premiums and
equity proceeds provide additional cash to reinvest back into the portfolio.
Income Statement
Total income, which includes non-cash fair value movements on the Company's
investment portfolio, fell to £25.6 million from £31.0 million in FY23,
while profit after tax dropped to £11.6 million from £19.5 million in FY23.
However, both FY24 and FY23 figures were impacted by material fair value
movements with FY24 experiencing a £4.5 million fair value loss across the
investment portfolio versus a £9.1 million gain in FY23. The table below
seeks to present a truer reflection of the underlying performance of the
business by stripping out these non-cash movements, as well as other non-core
elements, to provide an adjusted earnings figure which represents a truer
reflection of the underlying performance of the business.
2024 2023
£000 £000
Total reported comprehensive income for the year 11,608 19,592
Unrealised fair value losses / (gains) 6,854 (9,111)
Expected credit gains / (losses) (14) 20
Share-based payments 938 969
Net transactions costs 1,120 686
Tax effect of the adjustments above (494) 306
Adjusted earnings 20,012 12,463
Adjusted earnings of £20.0 million on FY24 represents a 61% increase over
FY23, while adjusted earnings per share climbed from 3.13 pence per share in
FY23 to 4.85 pence per share in FY24.
Balance Sheet
Liquidity in the business remained strong with cash on the balance sheet
standing at £2.9 million at 31 March 2024. With £27 million remaining
undrawn on Duke's facility with Fairfax, the Company had £30 million of
available liquidity at financial year end.
The total value of the investment portfolio continued to grow in FY24, with
fair value reaching £232 million, split across hybrid credit, term credit and
equity investments.
31-Mar-21 31-Mar-22 31-Mar-23 31-Mar-24
£000 £000 £000 £000
Hybrid credit 85,301 160,479 191,334 210,948
Term credit 4,949 4,172 4,652 5,382
Equity 3,495 10,820 13,529 15,904
Investment portfolio fair value 93,745 175,471 209,514 232,234
Dividend
Duke maintained a 0.70 pence quarterly dividend throughout FY24, equating to
an annualised dividend of 2.80 pence, in line with FY23. With free cash flow
per share of 4.34 pence per share, the dividend remains well covered.
Outlook - careful delivery on an exciting opportunity
Since listing in 2017, we have established a track record of delivering
attractive risk-adjusted returns across market cycles and achieving
above-average returns on exits. We have achieved this through careful
selection of investment opportunities, partnering only with long-standing,
profitable businesses which have demonstrated resilience in difficult markets.
This mantra remains true, and while we continue to apply an extra dose of
caution as the macro-economic headwinds continue to prevail, we are balancing
this with ensuring we are on the front-foot to execute on the increased number
of prospective deals available to us in this higher interest rate environment.
Our ability to execute new deals is strengthened by our liquidity position,
strengthened team, unique investment product and geographic reach. We have
invested in new digital technologies to accelerate our operations and to
assist with international deal origination.
While we navigate some of the hardest times in the UK small cap public markets
for decades, our business prospects remain solid and we start FY25 with
renewed optimism around Duke's position in the private capital marketplace
with our unique hybrid capital product. The public markets are cyclical, and
we believe that London remains a world class financial market. These factors
contribute to our continued belief over the market cycle our business model is
attractive to public investors, both retail and institutional.
I would like to round off by thanking the team, our advisers, capital partners
and our shareholders for their support during the period, and for their
positive feedback to our strategic review. It has been highly rewarding to
reflect closely on how we can leverage our business to have a positive impact
on all of these stakeholders and we look forward to building on our track
record during FY 2025.
Neil Johnson
Chief Executive Officer
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2024
Year to Year to
31-Mar-24 31-Mar-23
Note £000 £000
Cash flows from operating activities
Receipts from hybrid credit investments 9 27,267 21,364
Receipts of interest from term credit investments 10 453 339
Other operating receipts 195 176
Operating expenses paid (4,015) (3,306)
Payments for hybrid credit participation fees 12 (130) (112)
Tax paid (673) (1,346)
Net cash inflow from operating activities 23,097 17,115
Cash flows from investing activities
Hybrid credit investments advanced 9 (42,012) (23,809)
Hybrid credit investments repaid 9 17,636 -
Term credit investments advanced 10 (750) (2,500)
Term credit investments repaid 10 - 2,000
Equity investments purchased 11 (3,799) (500)
Equity investments sold 11 2,326 -
Equity dividends received 11 48 3
Receipt of deferred consideration 1,512 -
Investments costs paid (1,344) (357)
Net cash outflow from investing activities (26,383) (25,163)
Cash flows from financing activities
Proceeds from share issue 17 - 20,000
Share issue costs 17 - (1,115)
Dividends paid 20 (11,524) (10,979)
Proceeds from loans 15 15,000 71,250
Loans repaid 15 - (61,450)
Interest paid 15 (6,222) (3,976)
Other finance costs - (2,426)
Net cash (outflow) / inflow from financing activities (2,746) 11,304
Net change in cash and cash equivalents (6,032) 3,256
Cash and cash equivalents at beginning of year 8,939 5,707
Effect of foreign exchange on cash and cash equivalents (11) (24)
Cash and cash equivalents at the end of year 2,896 8,939
Consolidated Statement of Comprehensive Income
FOR THE YEAR ENDED 31 MARCH 2024
Note Year to Year to
31-Mar-24 31-Mar-23
£000 £000
Income
Hybrid credit investment income 9 23,014 28,266
Term credit investment income 10 453 339
Equity investment income 11 1,925 2,212
Other operating income 195 176
Total Income 25,587 30,993
Investment Costs
Transaction costs (475) (66)
Due diligence costs (645) (620)
Total Investment Costs (1,120) (686)
Operating Costs
Administration and personnel 5 (3,072) (2,627)
Legal and professional (533) (456)
Other operating costs (370) (223)
Expected credit losses 10 14 (20)
Share-based payments 18 (938) (969)
Total Operating Costs (4,899) (4,295)
Operating Profit 19,568 26,012
Net foreign currency movement (22) 66
Finance costs 6 (7,255) (5,644)
Profit before tax 12,291 20,434
Taxation expense 7 (683) (842)
Profit after tax 11,608 19,592
Basic earnings per share (pence) 8 2.81 4.92
Diluted earnings per share (pence) 8 2.81 4.92
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2024
Note 31-Mar-24 31-Mar-23
£000 £000
Non-current assets
Goodwill 16 203 203
Hybrid credit finance investments 9 177,589 158,540
Term credit investments 10 5,382 4,652
Equity investments 11 15,904 13,529
Trade and other receivables 13 1,574 -
Deferred tax 21 408 200
201,060 177,124
Current assets
Hybrid credit finance investments 9 33,359 32,793
Trade and other receivables 13 843 2,290
Cash and cash equivalents 2,896 8,939
Current tax asset 155 373
37,253 44,395
Total Assets 238,313 221,519
Current liabilities
Hybrid credit debt liabilities 12 170 154
Trade and other payables 14 461 433
Borrowings 15 632 441
1,263 1,028
Non-current liabilities
Hybrid credit debt liabilities 12 934 988
Trade and other payables 14 1,063 1,314
Borrowings 15 69,772 53,930
71,769 56,232
Net Assets 165,281 164,259
Equity
Share capital 17 172,939 172,939
Share-based payment reserve 18 4,385 3,447
Warrant reserve 18 3,036 3,036
Retained losses 19 (15,079) (15,163)
Total Equity 165,281 164,259
The Consolidated Financial Statements on pages 32 to 35 were approved and
authorised for issue by the Board of Directors on 26 June 2024 and were signed
on its behalf by Directors Maree Wilms and Matthew Wrigley
Consolidated Statement of Changes in Equity
FOR THE YEAR ENDED 31 MARCH 2024
Share-based
Shares payment Warrant Retained Total
Note issued reserve reserve losses equity
£000 £000 £000 £000 £000
At 31 March 2022 153,974 2,478 265 (23,776) 132,941
Total comprehensive income for the year - - - 19,592 19,592
Transactions with owners
Shares issued for cash 17 20,000 - - - 20,000
Share issuance costs 17 (1,115) - - - (1,115)
Shares issued to key advisers as remuneration 17 80 - - - 80
Warrants issued - - 2,771 2,771
Share based payments 18 - 969 - - 969
Dividends 20 - - - (10,979) (10,979)
Total transactions with owners 18,965 969 2,771 (10,979) 11,726
At 31 March 2023 172,939 3,447 3,036 (15,163) 164,259
Total comprehensive income for the year 11,608 11,608
Transactions with owners
Share based payments 18 - 938 - - 938
Dividends 20 - - - (11,524) (11,524)
Total transactions with owners - 938 - (11,524) (10,586)
At 31 March 2024 172,939 4,385 3,036 (15,079) 165,281
Notes to the Consolidated Financial Statements
FOR THE YEAR ENDED 31 MARCH 2024
1. General Information
Duke Capital Limited ("Duke Capital" or the "Company") is a company limited by
shares, incorporated in Guernsey under the Companies (Guernsey) Law, 2008. Its
shares are traded on the AIM market of the London Stock Exchange. The
Company's registered office is shown on page 71
Throughout the year, the "Group" comprised Duke Capital Limited and its wholly
owned subsidiaries; Duke Royalty UK Limited and Duke Capital Employee Benefit
Trust and Duke Royalty US Holdings, Inc which was incorporated in the year.
During the year Capital Step Holdings Limited, Capital Step Investments
Limited, Capital Step Funding Limited, and Capital Step Funding 2 Limited were
dissolved.
The Group's investing policy is to invest in a diversified portfolio of hybrid
credit finance and related opportunities.
2. Significant accounting policies
2.1 Basis of preparation
The Consolidated Financial Statements of the Group have been prepared in
accordance with UK adopted international accounting standards, and applicable
Guernsey law, and reflect the following policies, which have been adopted and
applied consistently.
During the year, the Group adopted IFRS 10 Consolidated Financial Statements.
IFRS 10 requires entities that meet the definition of an investment entity
within the standard to account for those controlled entities within the
Groups' direct investment portfolio as held at fair value through profit or
loss ("FVTPL") and to not be consolidated into the financial statements. The
main purpose and activity of Duke Royalty US Holdings, Inc (Incorporated in
United States of America, July 2023) is to provide services that related to
the investment entity (Duke) activities and therefore is held at FVTPL.
Subsidiaries that provide investment related services or engage in permitted
investment related activities with investees, continue to be consolidated
unless they are also investment entities.
An investment entity is one which:
- obtains funds from investors for the purpose of providing them with
investment management services
- invests funds solely for returns from capital
appreciation/investment income, and
- measures and evaluates the performance of substantially all of its
investment on a fair value basis
In accordance with IFRS 10 the consolidated financial statements include the
financial statements of the company and service entities controlled by the
company made up to the reporting date. Control is achieved where the company
has the power over the potential investee as a result of voting or other
rights, has rights to positive or negative variable returns from its
involvement with the investee and has the ability to use its power over the
investee to affect significantly the amount of its returns.
The following subsidiaries are deemed service entities and are consolidated in
the group financial statements:
- Duke Royalty UK Limited
- Duke Capital Employee Benefit Trust
Under IFRS12 paragraph 19A, the following subsidiaries have classified as
investment entities under IFRS10 and therefore not consolidated:
Subsidiary Name Place of business % ownership
Duke Capital US GH Holdings, Inc. USA 100%
United Glass Group UK 73.8%
The Consolidated Financial Statements have been prepared on a going concern
basis and under the historical cost basis, except for the following:
· Hybrid credit investments - measured at fair value
through profit or loss
· Equity investments - measured at fair value through
profit or loss
· Hybrid credit participation liabilities - measured at
fair value through profit or loss
The Directors consider that the Group has adequate financial resources to
enable it to continue operations for a period of no less than 12 months from
the date of approval of the consolidated financial statements. Accordingly,
the Directors believe that it is appropriate to continue to adopt the going
concern basis in preparing the consolidated financial statements.
Presentation of statement of cash flows
The Board considers cash flow to be the most important measure of the Group's
performance and subsequently has presented its Consolidated Statement of Cash
Flows before the Consolidated Statement of Comprehensive Income and
Consolidated Statement of Financial Position.
There have been no changes to the classification of any of the cash flows or
to the overall cash movements.
Presentation of statement of comprehensive income
In order to better reflect the activities of a hybrid credit financing
company, the Consolidated Statement of Comprehensive Income includes
additional analysis, splitting the Group's income by investment type.
2.2 New Accounting Standards, interpretations and amendments from 1 January 2023 adopted by the Group
The below new standards, amendments to standards and interpretations were
effective for the current period, and with the exception of the Disclosure of
Accounting Policies (Amendment to IAS 1) has not had a significant impact on
the consolidated financial statements. The Disclosure of Accounting Policies
amendment generated a review of and reduction in the accounting policy
disclosures so that only the material accounting policy information is now
provided. Accounting policy information is material if, when considered
together with other information included in an entity's consolidated financial
statements, it can reasonably be expected to influence decisions that the
primary users of the consolidated financial statements make on the basis of
those consolidated financial statements.
2.3 New Accounting Standards, interpretations and amendments issued but not yet effective
At the date of authorisation of these Consolidated Financial Statements,
certain standards and interpretations were in issue but not yet effective and
have not been applied in these Consolidated Financial Statements. The
Directors do not expect that the adoption of these standards and
interpretations will have a material impact on the Consolidated Financial
Statements of the Group in future periods.
2.4 Going concern
In assessing the going concern basis of accounting the Directors have had
regard to the guidance issued by the Financial Reporting Council.
FY24 continued to present a challenging operating environment for Duke's
capital partners. Despite this, Duke's strategic focus on providing long-term,
secured lending to established and profitable owner-operated businesses has
proven to be a safeguard against these economic challenges. Moreover, the very
low amortisation payments of Duke's product in the early years have alleviated
some of the short-term liquidity concerns of our hybrid credit partners,
allowing them to focus on managing their businesses rather than having to
refinance their debts during unfavourable times.
The directors continue to closely monitor the impact of these macroeconomic
headwinds on the Group's trading activities and cashflows, but do not consider
that there will be any significant effect on the ability of the Group to
continue in business and meet liabilities as they fall due.
Bearing in mind the nature of the Group's recurring revenue streams and after
assessing the 12-month forecasts, combined with the available headroom in
terms of the refinanced debt facility in place should it be required, the
Directors consider that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the consolidated
financial statements.
2.5 Basis of consolidation
Where the Company has control over an investee, it is classified as a
subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect
those variable returns. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation. Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted across the Group.
2.6 Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board of
Directors, as a whole. The key measure of performance used by the Board to
assess the Group's performance and to allocate resources is operating
cashflow, as calculated under IFRS, and therefore no reconciliation is
required between the measure of performance used by the Board and that
contained in these Consolidated Financial Statements.
For management purposes, the Group's investment objective is to focus on one
main operating segment, which is to invest in a diversified portfolio of
hybrid credit finance and related opportunities. At the end of the period the
Group has 15 investments into this segment and has derived income from them.
Due to the Group's nature, it has no customers.
2.7 Foreign currency
Functional and presentation currency
Items included in the Consolidated Financial Statements of each of the Group's
entities are measured using the currency of the primary economic environment
in which the entity operates (the "functional currency"). The Consolidated
Financial Statements are presented in Pounds Sterling, which is also the
functional currency of the Company and its subsidiaries.
Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions. Foreign
currency assets and liabilities are translated into the functional currency
using the exchange rate prevailing at the reporting date.
Foreign exchange gains and losses relating to the financial assets and
financial liabilities carried at fair value through profit or loss are
presented in the Consolidated Statement of Comprehensive Income within 'hybrid
credit investment, 'term credit investment income' and 'equity investment
income'.
Foreign exchange gains and losses relating to cash and cash equivalents are
presented in the Consolidated Statement of Comprehensive Income within 'Net
foreign currency movement'. This has been presented below operating costs as
this best reflects the true nature of the balance.
2.8 Transaction costs
Transaction costs are costs incurred to acquire financial assets at fair value
through profit or loss. They include finders' fees, legal and due diligence
fees and other fees paid to agents and advisers. Transaction costs, when
incurred, are recognised immediately in profit or loss as an expense. Where
transaction costs are in respect of loans, these are offset using the
effective interest method.
2.9 Income tax
The income tax expense or credit for the period is the tax payable on the
current period's taxable income based on the applicable income tax rate for
each jurisdiction adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the end of the reporting period in the
countries where the Company's subsidiaries operate and generate taxable
income. Management periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the Consolidated Financial Statements. Deferred
income tax is determined using tax rates (and laws) that have been enacted or
substantively enacted by the end of the reporting period and are expected to
apply when the related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred tax assets are recognised only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets and liabilities and when the
deferred tax balances relate to the same taxation authority. Current tax
assets and tax liabilities are offset where the entity has a legally
enforceable right to offset and intends either to settle on a net basis, or to
realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent
that it relates to items recognised in other comprehensive income or directly
in equity. In this case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
2.10 Financial instruments
Financial assets and financial liabilities are recognised in the Consolidated
Statement of Financial Position when the Group becomes a party to the
contractual provisions of the instrument. Financial assets and financial
liabilities are only offset and the net amount reported in the Consolidated
Statement of Financial Position and Consolidated Statement of Comprehensive
Income when there is a currently enforceable legal right to offset the
recognised amounts and the Group intends to settle on a net basis or realise
the asset and liability simultaneously.
a. Financial assets
The Group's financial assets are classified in the following measurement
categories:
· those to be measured subsequently at fair value through
profit or loss ("FVTPL"); and
· those to be measured at amortised cost
The classification depends on the entity's business model for managing the
financial assets and the contractual terms of the cash flows.
At initial recognition, the Group measures a financial asset at its fair
value, plus, in the case of a financial asset not at FVTPL, transaction costs
that are directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVTPL are expensed in profit
or loss.
Financial assets held at amortised cost
Assets that are held for collection of contractual cash flows where those cash
flows represent solely payments of principal and interest are measured at
amortised cost. These assets are subsequently measured at amortised cost using
the effective interest method.
The Group's financial assets held at amortised cost include term credit
investments, trade and other receivables and cash and cash equivalents.
Expected Credit Loss ("ECL") allowance for financial assets measured at
amortised cost
Impairment of financial assets is calculated using a forward-looking expected
credit loss (ECL) model. ECLs are an unbiased probability weighted estimate of
credit losses determined by evaluating a range of possible outcomes. They are
measured in a manner that reflects the time value of money and uses reasonable
and supportable information that is available without undue cost or effort at
the reporting date about past events, current conditions and forecasts of
future economic conditions.
The Group recognises an allowance for ECLs for all debt instruments not held
at fair value through profit or loss. Assets held at fair value through profit
or loss are not subject to impairment.
IFRS 9 establishes a three-stage approach for impairment of financial assets:
· Stage 1 - when a financial asset is first recognised,
it is assigned to Stage 1. If there is no significant increase in credit risk
from initial recognition, the financial asset remains in Stage 1. Stage 1 also
includes financial assets where the credit risk improved and the financial
asset has been reclassified back from Stage 2. For financial assets in Stage
1, a 12-month ECL is recognised;
· Stage 2 - when a financial asset has experienced a
significant increase in credit risk since initial recognition, the asset is
classified as Stage 2. Stage 2 also includes financial assets where the credit
risk improved and the financial asset has been reclassified back from Stage 3.
For financial assets in Stage 2, a lifetime ECL is recognised;
· Stage 3 - that where there is objective evidence of
impairment and the financial asset is considered to be in default, or
otherwise credit-impaired, it is moved to Stage 3. For financial assets in
Stage 3, a lifetime ECL is recognised and interest income is recognised on a
net basis.
In relation to the above
· Lifetime ECL is defined as ECLs that result from all possible
default events over the expected behavioural life of a financial instrument
· 12-month ECL is defined as the portion of lifetime credit
loss that will result if a default occurs in the 12 months after the
reporting, weighted by the probability of that default occurring
The measurement of ECLs is primarily based on the product of the instrument's
probability of default ("PD"), loss given default ("LGD"), and exposure at
default ("EAD"), taking into account the value of any collateral held or other
mitigants of loss and including the impact of discounting using the effective
interest rate.
· The PD represents the likelihood of a borrower defaulting on
its financial obligation, either over the next 12 months ("12-month PD"), or
over the remaining lifetime ("Lifetime PD") of the obligation
· EAD is based on the amounts the Group expects to be owed
at the time of default, over the next 12 months ("12-month EAD") or over the
remaining lifetime ("Lifetime EAD")
· LGD represents the Group's expectation of the extent of
loss on a defaulted exposure
The ECL is determined by estimating the PD, LGD, and EAD for each individual
exposure. These three components are multiplied together and adjusted for the
likelihood of survival. This effectively calculates an ECL.
The measurement ECLs for each stage and the assessment of significant
increases in credit risk considers economic information about past events and
current conditions as well as reasonable and supportable forward-looking
information. When determining whether the credit risk profile has materially
increased, the Group specifically reviews the debt covenant positions of each
company. If the debt service coverage ratio falls below zero and the Group
does not have sufficient liquidity to cover 12 months of debt obligations, the
investment will be deemed to be in default and a lifetime ECL allowance will
be provided for.
As with any forecasts and economic assumptions, the projections and
likelihoods of occurrence are subject to a high degree of inherent uncertainty
and therefore the actual outcomes may be significantly different to those
projected. Other forward-looking considerations, such as the impact of any
regulatory, legislative or political changes, have also been considered, but
no adjustment has been made to the ECL for such factors. This is reviewed and
monitored for appropriateness on an annual basis.
Financial assets at FVTPL
Hybrid credit investments are debt instruments classified at FVTPL under IFRS
9. The return on these investments is linked to a fluctuating revenue stream
and thus, whilst the business model is to collect contractual cash flows, such
cash flows are not solely payments of principal and interest. Such assets are
recognised initially at fair value and remeasured at each reporting date. The
change in fair value is recognised in profit or loss and is presented within
'hybrid credit investment income' in the Consolidated Statement of
Comprehensive Income. The fair value of these financial instruments is
determined using discounted cash flow analysis. Further details of the methods
and assumptions used in determining the fair value can be found in note 23.
Investments in equity instruments are classified at FVTPL. The Group
subsequently measures all equity investments at fair value and the change in
fair value is recognised in profit or loss and is presented within the 'equity
investment income' in the Consolidated Statement of Comprehensive Income.
Dividends from such investments are recognised in profit or loss when the
Group's right to receive payments is established.
Derecognition of financial assets
A financial asset (in whole or in part) is derecognised either (i) when the
Group has transferred substantially all the risks and rewards of ownership; or
(ii) when it has neither transferred nor retained substantially all the risks
and rewards and when it no longer has control over the assets or a portion of
the asset; or (iii) when the contractual right to receive cash flow has
expired. Any gain or loss on derecognition is taken to other income/expenses
in the Consolidated Statement of Comprehensive Income as appropriate.
b. Financial liabilities
The classification of financial liabilities at initial recognition depends on
the purpose for which the financial liability was issued and its
characteristics.
All financial liabilities are initially recognised at fair value. Unless
otherwise indicated the carrying amounts of the Group's financial liabilities
are approximate to their fair values.
Financial liabilities measured at amortised cost
These consist of borrowings and trade and other payables. These liabilities
are initially recognised at fair value, net of transaction costs incurred, and
subsequently carried at amortised cost using the effective interest rate
method.
Financial liabilities at FVTPL
Financial liabilities at FVTPL comprise hybrid credit participation
liabilities. These liabilities arise under a contractual agreement between the
Group and a strategic partner for the provision of services in connection with
the Group's hybrid credit financing arrangements. Under this agreement
services are provided in exchange for a percentage of gross royalties'
receivable. These instruments are classified at FVTPL on the basis that the
liability is linked to the Group's hybrid credit investments. Such liabilities
are recognised initially at fair value with the costs being recorded
immediately in profit or loss as 'hybrid credit participation fees' and
remeasured at each reporting date in order to avoid an accounting mismatch.
The change in fair value is recognised in profit or loss and presented within
'hybrid credit investment income'. The fair value of these financial
instruments is determined using discounted cash flow analysis. Further details
of the methods and assumptions used in determining the fair value can be found
in note 23.
Derecognition of financial liabilities
A financial liability (in whole or in part) is derecognised when the Group has
extinguished its contractual obligations, it expires or is cancelled. Any gain
or loss on derecognition is taken to other income/expenses in the Consolidated
Statement of Comprehensive Income.
c. Equity Instruments
Financial instruments issued by the Group are treated as equity if the holder
has only a residual interest in the assets of the Group after the deduction of
all liabilities. The Company's Ordinary Shares are classified as equity
instruments.
Incremental costs directly attributable to the issue of new shares are shown
in equity as a deduction from proceeds.
2.11 Share-based payments
The Group operates an equity settled Share Option Plan and a Long-Term
Incentive Plan for its Directors and key advisers.
The fair value of awards granted under the above plans are recognised in
profit or loss with a corresponding increase in equity. The total amount to be
expensed is determined by reference to the fair value of the awards granted:
· including any market performance conditions (e.g., the
entity's share price);
· excluding the impact of any service and non-market
performance vesting conditions (e.g., increase in cash available for
distribution, remaining a director for a specified time period); and
· including the impact of any non-vesting conditions.
The total expense is recognised over the vesting period, which is the period
over which all of the specified vesting conditions are to be satisfied. At the
end of each reporting period, the Group revises its estimates of the number of
options that are expected to vest based on the non-market vesting and service
conditions. It recognises the impact of the revision to original estimates, if
any, in profit or loss, with a corresponding adjustment to equity.
The Group also settles a portion of expenses by way of share-based payments.
These expenses are settled based on the fair value of the service received as
an expense with the corresponding amount increasing equity. All expenses
recognised in the year in relation to the Group's Share Option and Long-Term
Incentive Plan schemes are recognised through the share-based payment reserve.
2.12 Reserves
Equity comprises the following:
· Share capital represents the nominal value of equity
shares in issue
Other reserves comprises the following:
· Warrant reserve was created in connection with the issue of share
warrants. Further warrants were issued during the year ended 31 March 2023.
These allow the owner to subscribe for a fixed number of equity shares at a
fixed price, and have therefore been classified as equity in accordance with
IAS 32 paragraph 16.
· Share-based payment reserve represents equity-settled share-based
employee remuneration as detailed in note 2.11
· Retained losses represents cumulative retained losses
3. Critical accounting estimates
The preparation of the Consolidated Financial Statements in conformity with
IFRS requires management to make estimates and assumptions that affect the
application of policies and the reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to 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 revision and future periods, if the revision affects both current
and future periods. The following estimates and assumptions that may cause a
material adjustment to the carrying amount of assets and liabilities are:
Fair value of hybrid credit investments
Hybrid credit investments are valued using a discounted cash flow analysis.
The discount rate used in these valuations has been estimated to take account
of market interest rates and the credit worthiness of the investee. Revenue
growth has been estimated by the Directors and is based on unobservable market
inputs.
Where the hybrid credit investment contains a buy-back clause, the Directors
have assessed the likelihood of this occurring. Where occurrence of the
buy-back is deemed likely, this is built into the discounted cash flow at the
appropriate point.
These assumptions are reviewed semi-annually. The Directors believe that the
applied valuation techniques and assumptions used are appropriate in
determining the fair value of the hybrid credit investments and have made
adjustments to the discount rates and estimated revenue growth where
necessary. Further details of the carrying values, methods, assumptions and
sensitivities used in determining the fair value can be found in note 23.
Fair value of hybrid credit participation liabilities
The payments falling due under the Group's contract for hybrid credit
participation fees are directly linked to the Group's hybrid credit
investments and thus the same assumptions have been applied in arriving at the
fair value of these liabilities. The Directors have considered whether any
increase in discount rate is required to represent the Group's credit risk as
the payments are made by the Group rather than the investee and have concluded
that none is required since payment under the contract is only due once the
Group has received the gross amounts from the investee. Further details of the
methods, assumptions and sensitivities used in determining the fair value can
be found in note 23.
Fair value of equity investments
The Group's equity investments are not traded in an active market and thus the
fair value of the instruments is determined using valuation techniques. The
Group make assumptions based on market conditions at the end of each reporting
period. The key estimates that the Directors have made in arriving at the fair
values are the price/earnings multiples to be applied to the investee
entities' profits. These multiples have been estimated based on market
information for similar types of companies. The carrying value of equity
investments are disclosed in Note 11. Further details of the methods,
assumptions and sensitivities used in determining the fair value can be found
in note 23.
4. Auditor's remuneration
2024 2023
£000 £000
Audit of the Consolidated Financial Statements 106 105
5. Administration and personnel
The table below splits out administration and personnel costs.
2024 2023
£000 £000
Support services administration fees 633 518
Directors' fees 1,206 1,012
Investment committee fees 108 108
Personnel costs 1,125 989
3,072 2,627
6. Finance costs
2024 2023
£000 £000
Interest payable on borrowings 6,413 3,861
Non-utilisation fees - 194
Deferred finance costs released to P&L 842 1,558
Other finance costs - 31
7,255 5,644
7. Income tax
The Company has been granted exemption from Guernsey taxation. The Company's
subsidiaries in the UK are subject to taxation in accordance with relevant tax
legislation.
2024 2023
£000 £000
Current tax
Income tax expense 891 886
Deferred tax
Increase in deferred tax assets (208) (44)
Total deferred tax benefit (208) (44)
Income tax expense 683 842
Factors affecting income tax expense for the year
Profit on ordinary activities before tax 12,291 20,434
Guernsey taxation at 0% (2023: 0%) - -
Overseas tax charges at effective rate of 5.55% (2023: 4.12%) 683 842
Income tax expense 683 842
8. Earnings per share
2024 2023
Total comprehensive income (£000) 11,608 19,592
Weighted average number of Ordinary Shares in issue, excluding treasury shares 412,955 397,991
(000s)
Basic earnings per share (pence) 2.81 4.92
2024 2023
Total comprehensive income (£000) 11,608 19,592
Diluted weighted average number of Ordinary Shares in issue, excluding 412,955 397,991
treasury shares (000s)
Diluted earnings per share (pence) 2.81 4.92
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, excluding treasury shares (see Note 17).
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.
All share options, warrants and Long-Term Incentive Plan awards in issue are
not dilutive at the year-end as the exercise prices were above the average
share price for the period. However, these could become dilutive in future
periods.
Adjusted earnings per share
Adjusted earnings represent 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 hybrid credit participation fees,
together with the tax effects thereon. Given the sensitivity of the inputs
used to determine the fair value of its investments, the Group believes that
adjusted earnings is a better reflection of its ongoing financial performance.
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.
2024 2023
£000 £000
Total comprehensive income for the year 11,608 19,592
Unrealised fair value movements 6,854 (9,111)
Impairment loss on credit investments (14) 20
Share-based payments 938 969
Transactions costs net of costs reimbursed 1,120 686
Tax effect of the adjustments above at Group effective rate (494) 306
Adjusted earnings 20,012 12,462
2024 2023
Adjusted earnings for the year (£000) 20,012 12,462
Weighted average number of Ordinary Shares in issue, excluding treasury shares 412,955 397,991
(000s)
Adjusted earnings per share (pence) 4.85 3.13
2024 2023
Diluted adjusted earnings for the year (£000) 20,012 12,462
Diluted weighted average number of Ordinary Shares in issue, excluding 412,955 397,991
treasury shares (000s)
Diluted adjusted earnings per share (pence) 4.85 3.13
9. Hybrid credit investments
Hybrid credit investments are financial assets held at FVTPL that relate to
the provision of hybrid credit capital to a diversified portfolio of
companies.
31-Mar-24 31-Mar-23
£000 £000
At 1 April 191,333 160,479
Additions 42,012 23,809
Exits (17,636) -
(Loss) / profit on financial assets at FVTPL (4,761) 7,045
As at 31 March 210,948 191,333
Hybrid credit investments are comprised of:
31-Mar-24 31-Mar-23
£000 £000
Non-Current 177,589 158,540
Current 33,359 32,793
210,948 191,333
Hybrid credit investment income on the face of the consolidated statement of
comprehensive income comprises:
2024 2023
£000 £000
Hybrid credit interest 23,689 21,364
Hybrid credit premiums 3,578 -
Total hybrid credit cash revenue 27,267 21,364
Hybrid credit equitised revenue 600 -
(Loss) / Gain on hybrid credit assets at FVTPL (4,761) 7,045
Loss on hybrid credit liabilities at FVTPL (92) (143)
Hybrid credit investment income 23,014 28,266
All financial assets held at FVTPL are mandatorily measured as such.
The Group's hybrid credit investment assets comprise hybrid credit financing
agreements with 15 (31 March 2023: 15) investees. Under the terms of these
agreements the Group advances funds in exchange for annualised hybrid credit
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.
10. Term credit investments
Term credit investments are financial assets held at amortised cost with the
exception of the £2.2 million loan issued at 0% interest. The impact of
discounting is immaterial to the Consolidated Financial Statements. The below
table shows both the loans at amortised cost and fair value.
31-Mar-24 31-Mar-23
£000 £000
At 1 April 4,652 4,172
Additions 750 2,500
Buybacks - (2,000)
ECL allowance (20) (20)
As at 31 March 5,382 4,652
The Group's term credit investments comprise secured loans advanced to two
entities (2023 - two) in connection with the Group's hybrid credit
investments.
The loans comprise fixed rate loans of £5,382,000 (31 March 2023:
£4,652,000) which bear interest at rates of between 0% and 5% (2023: 0% and
15%). The Group has no variable rate loans at the year end (2023: no variable
rate loans at year end). The total interest receivable during the year was
£453,000 (31 March 2023: £339,000).
The term credit investments mature as follows:
31-Mar-24 31-Mar-23
£000 £000
In less than one year - -
In one to two years 5,382 4,652
In two to five years - -
5,382 4,652
Term credit investment income on the face of the consolidated statement of
comprehensive income comprises:
2024 2023
£000 £000
Loan Interest charged 453 339
453 339
ECL Analysis
The measurement of ECLs is primarily based on the product of the instrument's
probability of default ("PD"), loss given default ("LGD"), and exposure at
default ("EAD"). The Group analyses a range of factors to determine the credit
risk of each investment. These include, but are not limited to:
· liquidity and cash flows of the underlying businesses
· security strength
· covenant cover
· balance sheet strength
If there is a material change in these factors, the weighting of either the
PD, LGD or EAD increases, thereby increasing the ECL impairment.
The disclosure below presents the gross and net carrying value of the Group'
credit investments by stage:
Gross carrying amount Allowance for ECLs Net
Carrying amount
As at 31 March 2024 £000 £000 £000
Stage 1 5,402 (20) 5,382
Stage 2 - - -
Stage 3 - - -
5,402 (20) 5,382
Gross carrying amount Allowance for ECLs Net
Carrying amount
As at 31 March 2023 £000 £000 £000
Stage 1 4,692 (40) 4,652
Stage 2 - - -
Stage 3 - - -
4,692 (40) 4,652
Under the ECL model introduced by IFRS 9, impairment provisions are driven by
changes in credit risk of instruments, with a provision for lifetime expected
credit losses recognised where the risk of default of an instrument has
increased significantly since initial recognition.
The credit risk profile of the investments has not increased materially and
they remain Stage 1 assets. Minor expected credit losses have been charged for
the Stage 1 assets.
The following table analyses Group's provision for ECL's by stage:
Stage 1 Stage 2 Stage 3 Total
£000 £000 £000 £000
Carrying value at 1 April 2022 72 - - 72
Expected credit losses on credit investments in year 22 - - 22
Refinanced loans (2) - - (2)
Carrying value at 31 March 2023 92 - - 92
Expected credit losses on credit investments in year 20 - - 20
Expected credit losses on other receivables in year (34) - - (34)
Carrying value at 31 March 2024 78 - - 78
11. Equity investments
Equity investments are financial assets held at FVTPL.
31-Mar-24 31-Mar-23
£000 £000
At 1 April 13,529 10,820
Additions - cash 3,799 500
Additions - equitised revenue 600 -
Disposals (3) -
Proceeds on sale (2,323) -
Proceeds on sale - deferred (1,575) -
Gain on equity assets at FVTPL 1,877 2,209
As at 31 March 15,904 13,529
During the year, Fabrikat was sold for total proceeds of £3.9 million. This
includes a realised gain of £1.6 million and aggregated unrealised gains of
£2.3 million since the investment was purchased for £3,000 for a total
realised gain of £3.9 million.
The Group's net equity investments comprise unlisted shares and in 13 capital
partners (31 March 2023: 11).
The Group has two (31 March 2023: two) unlisted investments in mining entities
from its previous investment objectives.
Equity investment income on the face of the consolidated statement of
comprehensive income comprises:
2024 2023
£000 £000
Unrealised gain on equity assets at FVTPL 325 2,209
Realised gain on equity assets at FVTPL 1,552 -
Dividend income 48 3
1,925 2,212
12. Hybrid credit debt liabilities
Hybrid credit debt liabilities are financial liabilities held at fair value
through profit or loss.
31-Mar-24 31-Mar-23
£000 £000
At 1 April 1,142 1,111
Payments made (130) (112)
Gain on hybrid credit debt liabilities at fair value through profit or loss 92 143
As at 31 March 1,104 1,142
Hybrid credit debt liabilities are comprised of:
31-Mar-24 31-Mar-23
£000 £000
Non-Current 934 988
Current 170 154
1,104 1,142
13. Trade and other receivables
31-Mar-24 31-Mar-23
£000 £000
Current
Prepayments and accrued income 101 59
Other receivables 742 2,231
843 2,290
Non-current
Other receivables 1,574 -
2,417 2,290
14. Trade and other payables
31-Mar-24 31-Mar-23
£000 £000
Current
Trade payables 13 6
Transaction costs 342 315
Accruals and deferred income 106 112
461 433
Non-current
Transaction costs 1,063 1,314
1,524 1,747
15. Borrowings
31-Mar-24 31-Mar-23
£000 £000
Current - accrued interest 632 441
Non-current 69,772 53,930
70,404 54,371
In January 2023, the Group entered into a new credit facility agreement with
Fairfax Financial Holdings Limited and certain of its subsidiaries ("Fairfax")
and issued Fairfax 41,615,134 warrants. Refer to Note 18 for details. The
facility term is up to £100m to replace Duke's existing £55m million term
and revolving facilities. The credit facility has a five-year term, expiring
in January 2028 with a bullet repayment on expiry and no amortisation payments
during the five-year term. Furthermore, the interest rate is equal to SONIA
plus 5.00% per annum, which represents a 225bps improvement on Duke's previous
rate of SONIA plus 7.25%.
At 31 March 2024, £27,000,000 was undrawn on the facility (31 March 2023:
£42,000,000).
At 31 March 2024, £2,125,000 (31 March 2023: £2,679,000) of unamortised
warrant costs remained outstanding.
At 31 March 2024, £1,103,241 (31 March 2023: £1,391,000) of unamortised
legal costs and fees remained outstanding.
The table below sets out an analysis of net debt and the movements in net debt
for the year ended 31 March 2024 and prior year.
Interest Payable Borrowings
£000 £000
At 1 April 2023 441 53,930
Cash movements
Loan advanced - 15,000
Loan repaid - -
Deferred finance costs paid - -
Interest paid (6,222) -
Non-cash movements
Deferred finance costs released to P&L - 842
Interest charged 6,413 -
At 31 March 2024 632 69,772
Interest Payable Borrowings
£000 £000
At 1 April 2022 362 47,740
Cash movements
Loan advanced - 71,250
Loan repaid - (61,450)
Deferred finance costs paid - (2,347)
Interest paid (3,976) -
Non-cash movements
Deferred finance costs released to P&L - old credit facility - 1,416
Deferred finance costs released to P&L - new credit facility - 92
Issue of warrants - (2,771)
Interest charged 4,055 -
At 31 March 2023 441 53,930
16. Goodwill
Goodwill
£000
Opening and closing net book value at 1 April 2022, 31 March 2023 and 31 March 203
2024.
The goodwill has not been assessed for impairment on the basis of materiality.
17. Share capital
External Shares Treasury Shares Total shares £000
No. No. No.
Allotted, called up and fully paid
At 1 April 2022 348,614 10,190 358,804 153,974
Shares issued for cash during the year 57,143 - 57,143 20,000
Share issuance costs - - - (1,115)
PSA shares vested during year 1,800 (1,800) - -
Shares issued to Employee Benefit Trust during the year - 1,382 1,382 -
Shares issued to key advisers as remuneration 205 - 205 80
At 31 March 2023 407,762 9,772 417,534 172,939
External Shares Treasury Shares Total shares £000
No. No. No.
Allotted, called up and fully paid
At 31 March 2023 407,762 9,772 417,534 172,939
Shares issued for cash during the year - - - -
Share issuance costs - - - -
PSA shares vested during year 7,665 (7,665) - -
Shares issued to Employee Benefit Trust during the year - - - -
Shares issued to directors and key advisors as remuneration - - - -
At 31 March 2024 415,427 2,107 417,534 172,939
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 Capital Employee Benefit
Trust are treated as treasury shares. The rights to dividends and voting
rights have been waived in respect of these shares.
18. Equity-settled share-based payments
Warrant reserve
The following table shows the movements in the warrant reserve during the:
Warrants
No. (000) £000
At 1 April 2023 43,990 3,036
Issued during the year - -
Lapsed during the year - -
At 31 March 2024 43,990 3,036
The warrants expire in January 2028 and have an exercise price of 45 pence. As
per IFRS 2, the warrants have been valued using the Black Scholes model. A
total expense of £2,771,000 has been capitalised and will be amortised over
the life of the warrants. In the year to 31 March 2024, an expense of
£554,000 (2023: £92,000) was recognised through finance costs in relation to
the warrants.
At 31 March 2024, 43,990,000 (31 March 2023: 43,990,000) warrants were
outstanding and exercisable at a weighted average exercise price of 45 pence
(31 March 2023: 45 pence). The weighted average remaining contractual life of
the warrants outstanding was 3.45 years (31 March 2023: 4.56 years).
Share-based payment reserve
The following table shows the movements in the share-based payment reserve
during the year:
Share options LTIP Total
£000 £000 £000
At 1 April 2022 136 2,342 2,478
LTIP awards - 969 969
At 31 March 2023 136 3,311 3,447
LTIP awards - 938 938
At 31 March 2024 136 4,249 4,385
Share option scheme
The Group operates a share option scheme ("the Scheme"). The Scheme was
established to incentivise Directors, staff and key advisers and consultants
to deliver long-term value creation for shareholders.
Under the Scheme, the Board of the Company will award, at its sole discretion,
options to subscribe for Ordinary Shares of the Company on terms and at
exercise prices and with vesting and exercise periods to be determined at the
time. However, the Board of the Company has agreed not to grant options such
that the total number of unexercised options represents more than four per
cent of the Company's Ordinary Shares in issue from time to time. Options vest
immediately and lapse five years from the date of grant.
In October 2023, the 200,000 options outstanding and exercisable at 31 March
2023 lapsed. Therefore there were nil options outstanding and exercisable at
31 March 2024.
Share Options
No. (000)
At 1 April 2022 and 31 March 2023 200
Lapsed during the year 200
At 31 March 2024 -
Long Term Incentive Plan
Under the rules of the Long-Term Incentive Plan ("LTIP") the Remuneration
Committee may grant Performance Share Awards ("PSAs") which vest after a
period of three years and are subject to various performance conditions. The
LTIP awards will be subject to a performance condition based 50 per cent on
total shareholder return ("TSR") and 50 per cent on total cash available for
distribution ("TCAD per share"). TSR can be defined as the returns generated
by shareholders based on the combined value of the dividends paid out by the
Company and the share price performance over the period in question. Upon
vesting the awards are issued fully paid.
The fair value of the LTIP awards consists of (a) the fair value of the TSR
portion; and (b) the fair value of the TCAD per share portion. Since no
consideration is paid for the awards, the fair value of the awards is based on
the share price at the date of grant, as adjusted for the probability of the
likely vesting of the performance conditions. Since the performance condition
in respect of the TSR portion is a market condition, the probability of
vesting is not revisited following the date of grant. The probability of
vesting of the TCAD per share portion, containing a non-market condition, is
reassessed at each reporting date. The resulting fair values are recorded on a
straight-line basis over the vesting period of the awards.
On 1 October 2020, 6,665,000 PSAs were granted to Directors and key personnel
with a fair value of £1,093,478. An expense of £364,493 was recognised in
Administration and Personnel costs in the Consolidated Statement of
Comprehensive Income.
On 3 January 2021, 1,000,000 PSAs were granted to Directors and key personnel
with a fair value of £164,063. An expense of £54,688 was recognised in
Administration and Personnel costs in the Consolidated Statement of
Comprehensive Income.
On 1 October 2021, 2,108,000 PSAs were granted to Directors and key personnel
with a fair value of £671,926. An expense of £223,771 was recognised in
Administration and Personnel costs in the Consolidated Statement of
Comprehensive Income.
On 1 October 2022, 3,954,700 PSA's were granted to Directors and key personnel
with a fair value of £840,376. An expense of £139,935 was recognised in
Administration and Personnel costs in the Consolidated Statement of
Comprehensive Income.
On 28 July 2023, 3,662,900 PSA's were granted to Directors and key personnel
with a fair value of £892,834. An expense of £223,209 was recognised in
Administration and Personnel costs in the Consolidated Statement of
Comprehensive Income.
At 31 March 2024, 9,725,600 (31 March 2023: 13,727,000) PSAs were outstanding.
The weighted average remaining vesting period of these awards outstanding was
1.3 years (2023 - 1.2 years).
19. Distributable reserves
Pursuant to the Companies (Guernsey) Law, 2008 (as amended), all reserves
(including share capital) can be designated as distributable. However, in
accordance with the Admission Document, the Company shall not make any
distribution of capital profits or capital reserves except by means of
capitalisation issues in the form of fully paid Ordinary Shares or issue
securities by way of capitalisation of profits or reserves except fully paid
Ordinary Shares issued to the holders of its Ordinary Shares.
20. Dividends
The following interim dividends have been recorded in the periods to 31 March
2023 and 31 March 2024:
Dividend per Dividends
share payable
pence/share £000
Record date Payment date
25 March 2022 12 April 2022 0.70 2,440
1 July 2022 12 July 2022 0.70 2,842
30 September 2022 12 October 2022 0.70 2,842
23 December 2022 12 January 2023 0.70 2,855
Dividends paid for the period ended 31 March 2023 10,979
Payment date
31 March 2023 12 April 2023 0.70 2,854
23 June 2023 12 July 2023 0.70 2,854
29 September 2023 12 October 2023 0.70 2,908
29 December 2023 12 January 2024 0.70 2.908
Dividends paid for the period ended 31 March 2024 11,524
A further quarterly dividend was paid post year end, refer to Note 25 for
details.
Rights to dividends have been waived in respect of shares held by the Group's
Employee Benefit Trust (see note 17).
21. Deferred tax
The temporary differences for deferred tax are attributable to:
Hybrid credit investment Equity investment Tax losses Total
£000s £000s £000s £000s
1 April 2022 156 - - 156
Credited to profit & loss 44 - - 44
At 31 March 2023 200 - - 200
Charged to profit & loss (3) - 211 208
At 31 March 2024 197 - 211 408
A deferred tax asset has been recognised as it is expected that future
available taxable profits will be available against which the Group can use
against the current year tax losses.
22. Related parties
Directors' fees
The following fees were payable to the Directors during the year:
Basic fees Annual bonus Share Total Basic fees Annual bonus Share Total
based payment based payment
2024 2024 2024 2024 2023 2023 2023 2023
£000 £000 £000 £000 £000 £000 £000 £000
Non-Executive
N Birrell 60 - - 60 40 - - 40
M Wilms 45 - - 45 30 - - 30
M Wrigley 45 - - 45 30 - - 30
Executive
N Johnson 300 240 243 783 240 240 248 728
C Cannon Brookes 300 216 221 737 216 216 216 648
750 456 464 1,670 556 456 464 1,476
Fees relating to Charles Cannon Brookes are paid to Arlington Group Asset
Management Limited.
Directors' fees include the following expenses relating to awards granted
under the Group's Long Term Incentive Plan (see note 18):
2024 2023
£000 £000
N Johnson 243 248
C Cannon Brookes 221 216
464 464
At 31 March 2024, no Directors' fees were outstanding (2023: no fees
outstanding).
Investment Committee fees
The Group's Investment Committee assists in analysing and recommending
potential hybrid credit transactions and its members are considered to be key
management along with the Directors.
The following fees were payable to the members of the Investment Committee
during the year:
2024 2023
£000 £000
A Carragher 20 20
J Romeo 20 20
J Cochrane 20 20
J Webster 59 113
119 173
Investment Committee fees include the following expenses relating to awards
granted under the Group's Long Term Incentive Plan (see note 18):
2024 2023
£000 £000
J Webster 11 37
Support services administration fees
The following amounts were payable to related parties during the year in
respect of support services fees:
2024 2023
£000 £000
Abingdon Capital Corporation 533 425
Arlington Group Asset Management Limited 100 93
633 518
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, office rental and assisting the Board with the selection,
execution and monitoring of capital partners and investment performance.
Abingdon fees also includes fees relating to remuneration of staff residing in
North America.
Share options and LTIP awards
The Group's related parties, either directly or beneficially, held share
options issued under the Group's share option scheme and Long-Term Incentive
Plan as follows:
Share options LTIP awards
2024 2023 2024 2023
No. No. No. No.
N Johnson - - 2,729 3,382
C Cannon Brookes - - 2,457 3,144
J Webster - - - 375
5,186 6,901
Dividends
The following dividends were paid to related parties:
2024 2023
£000 £000
N Johnson(1) 179 142
C Cannon Brookes(2) 257 212
N Birrell 37 35
M Wrigley 1 1
J Webster 18 9
J Cochrane 28 28
A Carragher 15 15
J Romeo 5 4
540 446
(1) Includes dividends paid to Abinvest Corporation, a wholly owned subsidiary
of Abingdon
(2) Includes dividends paid to Arlington Group Asset Management
23. 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:
31-Mar-24 31-Mar-23
Level 3 Level 3
£000 £000
Financial assets
Financial assets at FVTPL
- Hybrid credit investments 210,948 191,333
- Equity investments 15,904 13,529
226,852 204,862
Financial liabilities
Financial liabilities at FVTPL
- Hybrid credit debt liabilities 1,104 1,142
1,104 1,142
The following table presents the changes in level 3 items for the years ended
31 March 2024 and 31 March 2023:
Financial Financial
assets liabilities Total
£000 £000 £000
At 1 April 2022 171,299 (1,111) 170,188
Additions 24,309 - 24,309
Hybrid credit income received (28,266) - (28,266)
Hybrid credit participation liabilities paid - 112 112
Net change in fair value 37,520 (143) 37,377
At 31 March 2023 204,862 (1,142) 203,720
Additions 46,410 - 46,410
Repayment (21,532) - (21,532)
Hybrid credit income received (23,014) - (23,014)
Hybrid credit participation liabilities paid - 130 130
Net change in fair value 20,126 (92) 20,034
At 31 March 2024 226,852 (1,104) 225,748
Valuation techniques used to determine fair values
The fair value of the Group's hybrid credit financial instruments is
determined using discounted cash flow analysis and all the resulting fair
value estimates are included in level 3. The fair value of the equity
instruments is determined applying an EBITDA multiple to the underlying
businesses forward looking EBITDA. All 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 hybrid credit investments and hybrid credit
participation liabilities
These factors are estimated based upon the underlying past and projected
performance of the hybrid credit investee companies together with general
market conditions.
Discount rates for financial assets and financial liabilities
These are initially estimated based upon the projected internal rate of return
of the hybrid credit investment and subsequently adjusted to reflect changes
in credit risk determined by the Group's Investment Committee.
EBITDA multiples
These multiples are based on comparable market transactions.
Forward looking EBITDA
These are estimated based on the projected underlying performance of the
hybrid credit investee companies together.
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:
Hybrid credit investments
The unobservable inputs are the annual adjustment factor and the discount
rate. The range of annual adjustment factors used is -6.0% to 6.0% (2023:
-6.0%% to 6.0%) and the range of risk-adjusted discount rates is 14.7% to
17.7% (2023: 14.7% to 17.7%).
An increase in the annual revenue growth rates (subject to the collars set
under the terms of the hybrid credit financing agreements) of 5% would
increase the fair value by £1,160,000 (2023: £929,000).
A reduction in the discount rate of 25 basis points would increase the fair
value by £2,369,000 (2023: £2,289,000).
A decrease in the annual revenue growth rates (subject to the collars set
under the terms of the hybrid credit financing agreements) of 5% would
decrease the fair value by £1,362,000 (2023: £1,263,000).
An increase in the discount rate of 25 basis points would decrease the fair
value by £2,616,000 (2023: £2,230,000).
Equity investments
The unobservable inputs are the EBITDA multiples and forward looking EBITDA.
The range of EBITDA multiples used is 4.2x to 8.0x (2023: 5.3x to 10.0x).
An increase in the EBITDA multiple of 25 basis points would increase fair
value by £1,687,000 (2023: £1,378,000).
A decrease in the EBITDA multiple of 25 basis points would decrease fair value
by £1,971,000 (2023: £1,378,000).
An increase in the forward looking EBITDA of 5% would increase the fair value
by £2,086,000 (2023: £1,575,000).
A decrease in the forward looking EBITDA of 5% would decrease fair value by
£2,406,000 (2023: £1,575,000).
Hybrid credit participation instruments
The unobservable inputs are the annual adjustment factor and the discount rate
used in the fair value calculation of the hybrid credit investments. The range
of annual adjustment factors used is -6.0% to 6.0% (2023: 0.4% to 6.0%) and
the range of risk-adjusted discount rates is 16.3% to 17.7% (2023: 16.3% to
17.3%).
An increase in the annual adjustment factor (subject to the collars set under
the terms of the hybrid credit financing agreements) of 5% would increase the
fair value of the liability by £5,000 (2023: £5,000).
A reduction in the discount rate of 25 basis points would increase the fair
value of the liability by £12,000 (2023: £9,000).
A decrease in the annual adjustment factor (subject to the collars set under
the terms of the hybrid credit financing agreements) of 5% would decrease the
fair value of the liability by £4,000 (2023: £9,000).
An increase in the discount rate of 25 basis points would decrease the fair
value of the liability by £12,000 (2023: £14,000).
24. Financial risk management
The Group's hybrid credit financing activities expose it to various types of
risk that are associated with the investee companies to which it provides
hybrid credit finance. The most important types of financial risk to which the
Group is exposed are market risk, liquidity risk and credit risk. Market risk
includes other price risk, foreign currency risk and interest rate risk. The
Board of Directors has overall responsibility for risk management and the
policies adopted to minimise potential adverse effects on the Group's
financial performance.
Principal financial instruments
The principal financial instruments used by the Group from which financial
instrument risk arises, are as follows:
31-Mar-24 31-Mar-23
£000 £000
Financial assets held at FVTPL
Hybrid credit investments 210,948 191,333
Equity investments 15,904 13,529
Total financial assets held at FVTPL 226,852 204,862
Financial assets held at amortised cost
Term credit investments 5,382 4,652
Cash and cash equivalents 2,896 8,939
Trade and other receivables 2,316 2,290
Total financial assets held at amortised cost 10,594 15,881
Total financial assets 237,446 220,743
Financial liabilities held at amortised cost
Bank borrowings (70,404) (54,371)
Trade and other payables (1,524) (1,747)
Total financial liabilities held at amortised cost (71,928) (56,118)
Financial liabilities held at FVTPL (1,104) (1,142)
Total financial liabilities (73,032) (57,260)
The policies and processes for measuring and mitigating each of the main risks
are described below.
Market risk
Market risk comprises foreign exchange risk, interest rate risk and other
price risk.
Foreign exchange risk
Currency risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in foreign currency
exchange rates.
The Group is exposed to foreign exchange risk arising from foreign currency
transactions, primarily with respect to the Euro. Foreign exchange risk arises
from future commercial transactions in recognised assets and liabilities
denominated in a currency that is not the functional currency of the Company
and its subsidiary.
The Board monitors foreign exchange risk on a regular basis. The Group's
exposure to this risk is outlined below.
The Group's exposure to foreign currency risk at the end of the reporting
period was as follows:
31-Mar-24 31-Mar-24 31-Mar-24 31-Mar-23 31-Mar-23 31-Mar-23
Euro US Dollar CAD Dollar Euro US Dollar CAD Dollar
£000 £000 £000 £000 £000 £000
Hybrid credit investment 4,625 26,901 15,380 9,779 27,330 11,304
Equity investments 8,278 650 - 6,760 - 1,377
Cash and cash equivalents 81 34 273 - 81 54
Trade and other receivables 741 - - 2,231 - -
Transaction costs payable - (1,405) - - (1,629) -
13,725 26,180 15,653 18,770 25,782 12,735
If Sterling strengthens by 5% against the Euro, the net Euro-denominated
assets would reduce by £654,000 (2023: £844,000). Conversely, if Sterling
weakens by 5% the assets would increase by £722,000 (2023: £932,000).
If Sterling strengthens by 5% against the US Dollar, the net US
Dollar-denominated assets would reduce by £1,247,000 (2023: £1,228,000).
Conversely, if Sterling weakens by 5% the assets would increase by £1,378,000
(2023: £1,357,000).
If Sterling strengthens by 5% against the Canadian Dollar, the net Canadian
Dollar-denominated assets would reduce by £745,000 (2023: £606,000).
Conversely, if Sterling weakens by 5% the assets would increase by £824,000
(2023: £670,000).
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a
financial asset will fluctuate because of changes in market interest rates.
The Group's main interest rate risks arise in relation to its hybrid credit
investments, which are carried at fair value through profit or loss, and its
borrowings, which are subject to an interest charge of one-month UK SONIA
+5.00%. The Group's hybrid credit investments have a fair value at the
reporting date of £210,948,000 (31 March 2023: £191,333,000). A sensitivity
analysis in respect of these assets is presented in note 23.
The Group's borrowings at the reporting date are £69,772,000, see Note 15 (31
March 2023: £53,930,000). A movement in the rate of SONIA of 100bps impacts
loan interest payable by £697,000 (31 March 2023: £539,000).
Other price risk
Other price risk is the risk that the fair value of future cash flows of a
financial asset will fluctuate because of changes in market prices (other than
those arising from interest rate risk or foreign exchange risk).
The fair value of the Group's hybrid credit investments fluctuates due to
changes in the expected annual adjustment factors applied to the royalties
payable by each of the investee companies, which are based upon the revenue
growth of the investee company.
A sensitivity analysis in respect of the annual adjustment factors applied to
the hybrid credit investments is presented in note 23.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a
financial loss for the other party by failing to discharge an obligation.
The Group's maximum exposure to credit risk is as follows:
31-Mar-24 31-Mar-23
£000 £000
Hybrid credit investments 210,948 191,333
Term credit investments 5,382 4,652
Cash and cash equivalents 2,896 8,939
Trade and other receivables 2,316 2,290
221,542 207,214
Hybrid credit investments
The hybrid credit investments relate to the Group's 15 hybrid credit financing
agreements. At the reporting date, there was £7,492,000 of hybrid credit cash
payments outstanding (31 March 2023: £4,423,000) from five capital partners
(31 March 2023: three). Of this, £58,000 (31 March 2023: £nil) was received
in the month post year-end. Payment plans are being agreed to recover the
£7,434,000 from all five capital partners over the next five years.
The Group monitors the credit worthiness of the investee companies on an
ongoing basis and receives regular financial reports from each investee
company. These reports are reviewed by the Board on a semi-annual basis. The
credit risk relating to these investments is taken into account in calculating
the fair value of the instruments.
The Group also has security in respect of the hybrid credit investments which
can be called upon if the counterparty is in default under the terms of the
agreement.
Term credit investments
The Group's term credit investments are held at amortised cost. All loans have
been reviewed by the directors. The Board considered the credit risk, both at
issue and at the year-end, and has determined that there have been no
significant movements. Consequently, any loss allowance is limited to 12
months' expected losses and such allowances are considered to be immaterial.
Cash and cash equivalents
The credit quality of the Group's cash and cash equivalents can be assessed by
reference to external credit ratings as follows:
31-Mar-24 31-Mar-23
£000 £000
Moody's credit rating:
A1 2,896 6,681
Baa1 - 2,220
Baa2 - 38
2,896 8,939
The Group considers that the credit risk relating to cash and cash equivalents
is acceptable.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in realising assets
or otherwise raising funds to meet financial commitments.
The Group maintains sufficient cash to pay accounts payable and accrued
expenses as they fall due. The Group's overall liquidity risks are monitored
on a quarterly basis by the Board.
At the year end the Group had access to an undrawn borrowing facility of
£27,000,000 (2023: £42,000,000 (see note 15).
The table below analyses the Group's hybrid credit investments and financial
liabilities into relevant maturity groupings based on their undiscounted
contractual maturities.
Less than one year 1 - 5 years Over five years Total
As at 31 March 2024 £000 £000 £000 £000
Hybrid credit investments 33,898 136,474 769,167 939,539
Hybrid credit liabilities 153 925 2,535 3,613
Trade and other payables (402) (790) (333) (1,525)
Borrowings (632) (69,772) - (70,404)
33,017 66,837 771,369 871,223
Less than one year 1 - 5 years Over five years Total
As at 31 March 2023 £000 £000 £000 £000
Hybrid credit investments 25,967 149,279 747,951 923,197
Hybrid credit liabilities 121 571 3,540 4,232
Trade and other payables (433) (882) (431) (1,746)
Borrowings (441) (53,930) - (54,371)
25,214 95,038 751,060 871,312
Capital management
The Board manages the Company's capital with the objective of being able to
continue as a going concern while maximising the return to Shareholders
through the capital appreciation of its investments. The capital structure of
the Company consists of equity as disclosed in the Consolidated Statement of
Financial Position.
25. Events after the financial reporting date
Dividends
On 12 April 2024 the Company paid a quarterly dividend of 0.70 pence per
share.
New hybrid credit investments
On 3 May 2024, the Group announced a £4,000,000 follow-on investment into
BVPA (Ireland) Limited.
Directors Nigel Birrell (Chairman)
Neil Johnson
Charles Cannon Brookes
Matthew Wrigley
Maree Wilms
Secretary and administrator IQ EQ Fund Services
(Guernsey) Limited)
Ground Floor, Cambridge House
Le Truchot
St Peter Port
Guernsey GY1 1WD
Registered in Guernsey, number 54697
Website address www.dukecapital.com
Registered office Ground Floor, Cambridge House
Le Truchot, St Peter Port
Guernsey, GY1 1WD
Independent auditor BDO Limited
Place du Pre, Rue de Pre
St Peter Port
Guernsey, GY1 3LL
Co-brokers Cavendish Financial plc Canaccord Genuity Limited
One Bartholomew Close 88 Wood Street
London, EC1A 7BL London, EC2V 7QR
Nominated advisor Cavendish Financial plc
One Bartholomew Close
London, EC1A 7BL
Support service providers Arlington Group Asset Abingdon Capital Corporation
Management Ltd
47/48 Piccadilly 4 King Street W., Suite 401
London, W1J 0DT Toronto, Ontario
Canada, M5H 1B6
Registrar and CREST agent Computershare Investor Services
(Guernsey) Limited
3(rd) Floor, Natwest House
Le Truchot, St Peter Port
Guernsey, GY1 2JP
Advocates to the Company as to Appleby (Guernsey) LLP
Guernsey law Hirzel Court
Hirzel Street
St Peter Port
Guernsey, GY1 3BN
Investment Committee Jim Webster (Chairman) Andrew Carragher
Neil Johnson Justin Cochrane
Charles Cannon Brookes John Romeo
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