REG - Duke Royalty Limited - Final Results for the year ended 31 March 2022
08/09/2022 07:00
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RNS Number : 6877Y Duke Royalty Limited 08 September 2022
8 September 2022
Duke Royalty Limited
("Duke Royalty", "Duke" or the "Company")
Final Results for the year ended 31 March 2022
Duke Royalty Limited (AIM: DUKE), a provider of alternative capital solutions
to a diversified range of profitable and long-established businesses in Europe
and abroad, is pleased to announce its audited final results for the 12 months
ended 31 March 2022 ("FY22").
FY22 Highlights
· 67% year on year increase in total cash revenue to £18.4
million (FY21: £11.0 million), driven by a strengthening of the underlying
investment portfolio and increased deployments
· Free cashflow* per share rose from 3.10p in FY21, to 3.53p in
FY22, demonstrating the accretive nature of the business model
· Net income of £20.4 million, up 46% from the £14.0 million
generated in FY21
· 41% year-on-year increase in adjusted earnings per share** to
3.81p (FY21: 2.70p)
· Dividend per share of 2.25p (FY21: 2.25p)
· Deployed over £75 million of capital, adding five new royalty
partners to the portfolio and completing a range of follow-on investments into
existing royalty partners
· Realised exits from two investments with strong IRRs
· £35 million of equity capital raised in oversubscribed placing
which, together with additional capital from Duke's senior credit provider,
supported record deployments
Post Period End Highlights
· Raised £20 million of equity capital, providing significant
liquidity to deploy into a strong pipeline of partnership and follow-on
opportunities
· Quarterly cash revenue of £5.1 million achieved for Q1 of the
Company's current financial year ended 30 June 2023 ("Q1 FY23"), a 78%
increase on Q1 FY22
· Paid a dividend of 0.70p per share for Q1 FY23, representing an
annualised dividend of 2.80p per share, a 24% increase over FY22 total
dividend
· Two additional follow-on investments completed
* Free cashflow is defined as net cash inflows from operations plus cash gains
from the sale of equity investments less interest paid on borrowings
** Adjusted earnings is the total comprehensive income adjusted for unrealised
and non-core fair value movements, non-cash items and transaction-related
costs, including royalty participation fees, together with the tax effects
thereon.
Neil Johnson, CEO of Duke Royalty, said:
"We are delighted to report significant growth across all our core KPIs for
the 12 months to 31 March 2022. It is particularly pleasing that this positive
performance has been achieved as we celebrate our fifth year since admission
to AIM in 2017. Through all the highs and lows of the last five years, we have
persevered through all the unexpected economic, political and public health
shocks, to create Europe's largest corporate royalty provider for long
standing, profitable private businesses.
"While we have celebrated our growth in the face of the many macroeconomic
headwinds over the last five years, the next five years will, undoubtedly,
present their own challenges. With the majority of the western world now
dealing with unusually high inflation and global supply chain issues, we take
reassurance from the fact that not only Duke, but the wider royalty industry,
has seen many economic cycles before.
"We believe we are in a strong position for growth and will prudently continue
to make deployments to deliver higher free cash flow and increase free cash
flow per share. As a company, our portfolio metrics are more robust than they
have ever been, meaning Duke is well positioned to withstand headwinds better
than ever."
Analyst Presentation
There will be a webinar for equity analysts at 09:30 a.m. BST today, Thursday,
8 September 2022, hosted by Neil Johnson, CEO, and Hugo Evans, Finance
Director. Any equity analysts wishing to attend should contact SEC Newgate
at dukeroyalty@secnewgate.co.uk (mailto:dukeroyalty@secnewgate.co.uk) where
further details will be provided.
Investor Presentation
Neil Johnson, CEO, and Hugo Evans, Finance Director, will also provide a live
investor presentation relating the Full Year Results via the Investor Meet
Company platform on Friday 9 September at 10:00 a.m. BST.
The presentation is open to all existing and potential shareholders. Questions
can be submitted via the Investor Meet Company dashboard up until 09:00 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
Royalty via:
https://www.investormeetcompany.com/duke-royalty-limited/register-investor
(https://www.investormeetcompany.com/duke-royalty-limited/register-investor%20%20)
Investors who already follow Duke Royalty on the Investor Meet Company
platform will automatically be invited.
This announcement contains inside information.
For further information, please contact www.dukeroyalty.com, or contact:
Duke Royalty Limited Neil Johnson / Charles Cannon Brookes / Hugo Evans +44 (0) 1481 741 240
Cenkos Securities plc Stephen Keys / Callum Davidson +44 (0) 207 397 8900
(Nominated Adviser and Julian Morse / Michael Johnson
Joint Broker)
Canaccord Genuity Adam James / Georgina McCooke +44 (0) 207 523 8000
(Joint Broker)
SEC Newgate Elisabeth Cowell / Richard Bicknell +44 (0) 20 3757 6882
(Financial Communications) Max Richardson dukeroyalty@secnewgate.co.uk (mailto:dukeroyalty@secnewgate.co.uk)
About Duke Royalty
Duke Royalty Limited provides alternative capital solutions to a diversified
range of profitable and long-established businesses in Europe and
abroad. Duke Royalty's experienced team provide financing solutions to
private companies that are in need of capital but whose owners wish to
maintain equity control of their business. Duke Royalty's royalty
investments are intended to provide robust, stable, long term returns to its
shareholders. Duke Royalty is listed on the AIM market under the ticker DUKE
and is headquartered in Guernsey.
Chairman's Statement
Dear Shareholder,
I am pleased to report on the results for the Group for the financial year
ending 31 March 2022 ("FY22"), a period in which Duke was able to produce
record cashflow underpinned by higher levels of investment deployment. It is
fair to say that FY22 once again presented challenges as the global economy
emerged from the immense economic and social strains brought about by the
Covid pandemic. It is against this challenging backdrop that I am pleased to
be able to report such a strong set of financial results.
In my Chairman's statement for FY21, I referred to the emergence of mild
inflationary pressures spurred on by a backdrop of rapidly rising commodity
prices. FY22 was the year where those inflationary pressures firmly took hold
with cost pressures being seen across all main expense items such as raw
materials, labour, freight and power. Post period end, we have seen this
inflationary pressure worsen, exacerbated by the war in Ukraine which has
forced central banks around the world into aggressively raising interest rates
to try to bring inflation rates back down towards their historically
acceptable ranges. The coupling effect of high inflation alongside higher
interest rates will inevitably lead to downward pressure being exerted on
consumer spending and we will remain vigilant as to what effects this may have
on our royalty partners in the coming months.
Thankfully, however, I am pleased to report that during FY22 Duke's royalty
partners were, in the majority of cases, able to pass on this FY22 cost
inflation to their customers and many were able to post record operating
performance of their own. This strong trading has led to Duke's overall
portfolio metrics improving in terms of higher underlying profitability,
increased debt service coverage ratios and improved liquidity levels, and as a
result Duke's portfolio has entered FY23 in a robust position. One of the core
benefits of the Duke business model is that it provides shareholders with a
degree of inflation hedging as higher costs being incurred by its royalty
partners translate into them charging higher pricing (and therefore generating
higher revenues) which in turn should lead to an increase in Duke's cash
receipts via the annual reset mechanism. I am happy to report that Duke's
average returns increased during FY22, validating this thesis, and we expect
this trend to continue while inflationary pressures persist.
Over time, we have also been able to significantly diversify our portfolio
both in terms of sector and internal weighting. At period end the Company had
exposure to 48 underlying operating companies via its 13 royalty partners,
with a maximum concentration limit per royalty partner of approximately 10%.
Diversification is the ultimate risk mitigation tool and during the period
Duke invested a record £61m into five new royalty partners as well as £14m
into existing partners via follow-on investments. As I referenced in the
Company's last report, after a period of global financial stress there is
demand for the Company's unique, long dated and aligned product offering. Duke
has a fantastic opportunity to take market share away from the traditional
debt markets whose short-dated, amortising loans carry a high degree of
inherent refinancing risk. To take advantage of this market opportunity, Duke
raised £35m of equity during FY22 and another £20m post period end which,
when taken alongside its existing credit facilities, means that Duke currently
has significant liquidity to deploy in its pipeline of new deal opportunities.
These two equity financings included a Primary Bid offering to allow our
valued retail investors to participate, and going forward, we will seek to
pursue the best available initiatives and technology which provide all our
investors with the best access to corporate actions, as they occur.
Duke benefitted from two profitable buyouts of its royalty partners in FY22
which delivered a significant upside event to the Company's financial
performance. The positive effects of these buyouts are rarely modelled into
analyst forecasts because the timing of the buyout always remains in the hands
of the royalty partner. Another benefit which I would like to draw
shareholders' attention to in FY22 is the positive effect of operational
leverage. Given the nature of the Company's low and largely fixed cost base,
additional deployments led to an increase in the Company's free cash flow per
share in FY22 and this is a trend that should only accelerate into FY23 as
Duke deploys more capital. Higher levels of free cashflow per share underpin
Duke's future quarterly dividend policy and during FY22 Duke paid out cash
dividends of 2.25p per share. It is pleasing to note that in the most recent
quarter Duke's dividend stood at 0.70 pence per share, equating to 2.80 pence
per annum, showing a continued upward trajectory of the Company's dividend
into FY23.
Throughout FY22, the Duke team has worked hard to manage the Company and its
partners through the difficulties presented by the pandemic and the
macro-economic environment and I thank them for their considerable efforts. As
a fiduciary and long-term partner in companies, we see it as our duty to
deploy our capital in a responsible way. As set out in our Responsible
Investment Policy, we recognise that by following a set of commitments, Duke
better aligns itself and its partners with the broader objectives of society.
Furthermore, because our investment products are structured over decades, we
believe that long term success as a business is directly correlated to the way
that business approaches and manages their environmental, social and
governance considerations.
As always, I am appreciative of the ongoing support of all our shareholders
and am pleased to report a strong set of results within the Chairman's
statement for FY22. Our underlying royalty partners have traded resiliently
during the period and the Group is well placed to continue to grow in FY23.
Our recent trading update for first financial quarter ended 30 June 2022 ("Q1
FY23") showed that normalised cash revenue had reached new highs and we expect
this growth trend to continue into Q2 FY23 by virtue of Duke's annual yield
adjustments linked to the underlying companies' revenue performance in this
inflationary macro-environment.
The macro environment certainly remains challenging but the resilience of
Duke's royalty model, which provides exposure to a diverse portfolio of 48
underlying operating companies, should allow the Company to continue to
prosper as demonstrated through the pandemic and I look forward to being able
to report on the Group's ongoing progress and development in future periods.
Nigel Birrell
Chairman
CEO's Statement
Dear Shareholders,
As we celebrate our fifth year since admission to AIM in 2017, I can't help
but reflect on how different the world looks today. Through all the highs and
lows of the last five years, we would not be here without the support of our
shareholders, the trust of our royalty partners, the dedication of our
employees, and the leadership of our Board. We have persevered through all the
unexpected economic, political and public health shocks, to create Europe's
largest corporate royalty provider for long standing, profitable private
businesses.
As this year's Annual Report has demonstrated, we think of our growth over the
past five years in three phases:
Phase 1 - Establishing our presence
In the first phase, we focused on building the equity base, portfolio and cash
flow, in order to deliver dividends for our shareholders. We were taking a
proven financing mechanism which had existed in North America for decades and
tailored it for the UK public markets and European businesses. We had to build
a track record and prove to both investors and business owners, that corporate
royalties had a role in filling the SME funding gap. We appreciate the support
from those early shareholders who backed us to build a company which was
unique on the London Stock Exchange. We successfully built a base of royalty
partners who placed faith in us and developed long-term symbiotic partnerships
not found in the high street bank offerings. We certainly would not be here
without these early supporters.
Phase 2 - Proving our investment thesis
After three years of building our business, our focus was forced to change in
March 2020. The arrival of Covid-19 and the ensuing pandemic gave us an
opportunity to test the strength of the foundation we had built. In North
America, where Royalty Finance has been established for decades, investors are
drawn to the downside protection royalty providers deliver during crises. The
pandemic enabled us to demonstrate this characteristic to both business owners
and our investors in the UK and Europe. Duke worked with our royalty partners
through unprecedented stresses to stabilise their businesses, and I am proud
of the work, resiliency and flexibility that both our team and our royalty
partners showed throughout this period. We did not panic; we had a clear plan
to survive the initial shock and we executed.
Once the market and public health stabilised, our team reflected on what we
could learn from the experience and set about putting those learnings into
action. We forged deep relationships with our royalty partners, focused on the
long-term prospects of each and helped them navigate the effects of the
pandemic. We believe our actions have not only ensured the long-term
profitability of our royalty partners, but that, in the fulness of time, our
shareholders will be rewarded by these actions. We focused our criteria of
selection on what was working best and set about solidifying our position.
The post-pandemic recovery was viewed as an opportunity for Duke to accelerate
our marketing efforts and expand our network, defining our market segment by
demonstrating acceptance of our solution by business owners and operators.
This was successful and with five new royalty partners, multiple bolt-on
acquisitions from our existing portfolio, and accretive buyouts, FY22 was, by
this measure, a banner year for the Company and resulted in an unprecedented
growth year in our Company's short history.
Across Europe and North America, Duke deployed over £61 million into new
partners during the period, spread across managed IT services, engineering,
medicines, signage and healthcare, highlighting Duke's commitment to create a
diverse group of royalty partners. A further £14 million was deployed in
follow on investments into our existing royalty partners. The result was a
tripling of the deployments made in any financial year in the Company's
history.
Duke also demonstrated the lifecycle of a typical investment during this
growth phase, successfully realising two further investment buybacks. One of
these, BHPC Limited, represented Duke's fifth exit, for which Duke received
back net cash of £6.9 million, delivering an IRR of 29.4% on closing, our
highest return to date.
Shareholder support
At the beginning of the period under review, we announced an oversubscribed
£35 million placing with new and existing institutional and retail investors.
This allowed us to take advantage of what we saw as an exciting time to be
evaluating deals. We are thankful to our supportive shareholders who
recognised the value of our dividend and understood the downside protection
that our royalty agreements provide to them, as well the role our solution
could provide in supporting businesses. We also received further support from
Pollen Street Capital in FY22 to increase the top end of our credit facility
to support further growth.
The placing and Pollen Street's credit facility enabled Duke to have an
unprecedent year of deployments in FY22, further discussed below. Following
another £20 million placing post period end, Duke is uniquely positioned with
significant liquidity to deploy into a strong pipeline of partnership and
follow-on opportunities. We will be doing this prudently and selectively,
given the challenging headwinds currently affecting business globally.
Duke appreciates the support of all its shareholders in these raisings, and
the participation of our valued retail investors. We utilised the Primary Bid
process in these placings to enable retail investors participation and
continue to explore initiatives which provide all our investors with the best
possible opportunity to access any future corporate actions.
Scaling internationally
As I discussed in last year's CEO statement, to ensure the best returns for
shareholders our ambitions are not limited to Europe. Our philosophy of
diversification is not simply about having a basket of different companies, it
is to ensure a variety of industries, currencies, and geographies. I am
pleased to report that that this diversification continues with the addition
of Creō-Tech Industrial Group and Atlas Signs Holdings, headquartered in
British Columbia, Canada, and Florida, USA respectively. These also represent
two different examples of uses of our capital; Creō-Tech is using our funds
to enable its buy-and-build strategy, while at Atlas Signs, we support a
family-owned business with its long-term objectives through debt refinancing.
ESG
Armed with our published responsible investing policy and our Company's
dedication to Environment Social and Governance (ESG) best practice, our team
implemented the policy throughout our investment lifecycle. An ESG criteria
checklist was added to our initial screening of new opportunities, and
throughout the due diligence process in an effort to understand and evaluate
our ESG criteria for every new investment. We have also begun the process of
articulating our goals to our royalty partners, and initiated dialogues with
them to set and meet their own ESG targets. One example of positive change we
have seen through this process is Trimite Global Coatings. As a supplier of
high-performance paints and coatings for industrial applications, Trimite
prides itself on its technical knowhow and quality products. Through our
strategic dialogue, the company has now set a goal to make all coatings
water-based, where customers can accommodate this technology, with no
reduction in performance. This move will not only lower their impact on the
environment, but will mean greater opportunity for growth, as their customers
increasingly look for greener, more sustainable solutions. Other initiatives
are underway within the company to drive its commitment to the environment and
we commend the Trimite team on articulating and doing their part in committing
to a positive environmental impact.
Our company is committed to helping our communities. In London, the Duke team
has taken the lead in organising the reintroduction of the Terry Fox Run.
Terry Fox is a Canadian hero, who lost his leg to cancer and set about raising
money for cancer research in 1980 by running a marathon a day across Canada,
tragically needing to stop 143 days into his inspiring journey as his cancer
had spread to his lungs. Terry Fox died less than a year later but the
foundation in his name has raised over £500 million since his death. In 2021,
through the efforts of Duke team, we were able to continue to support this
legacy raising over £65,000 for the UK's pre-eminent cancer research
organisation, The Institute of Cancer Research.
Financial Review
Cashflow
FY22 saw record cashflows for the Group, with total cash revenue of £18.4
million generated, a 67% increase over the £11.0 million produced in FY21.
This was driven by a strengthening of the underlying investment portfolio
following the problems experienced during the first wave of the Covid
pandemic. Recurring revenue, reflecting the ongoing monthly distributions made
by Duke's royalty partners, represented 81% of cash revenue and totalled
£14.9 million, up from £8.8 million in FY21.
Operating cashflow for the year totalled £11.2 million, a 25% gain on the
FY21 total of £8.9 million. It is especially pleasing to see the operating
leverage increase, driven by Duke's ability to control its operating costs as
cash revenue grows. In FY22, cash operating costs as a percentage of total
cash revenue reduced from 20% to 14% and we expect this to continue decreasing
as revenue grows and the cost base remains largely stable.
Free cashflow, defined as Duke's operating cashflows plus cash gains from the
sale of equity investments less the interest due on its debt financing,
totalled £12.1 million, a 61% increase on the £7.5 million generated in
FY21. But perhaps more importantly, free cashflow per share rose 14% to 3.5
pence per share, demonstrating the accretive nature of the business model. The
pay-out ratio, which represents the percentage of total free cashflow that the
Group pays out in dividends, reduced from 72% to 60%, allowing the Group to
reinvest a larger proportion of its cashflow into new investments.
Income Statement
Total income for the year grew to £28.8 million in FY22, a 33% increase over
FY21, while earnings after tax totalled £20.4 million, a 46% increase on the
prior year. However, both these measures include the non-cash fair value
movements on the royalty and equity portfolios. If we strip out these fair
value movements, then total adjusted income rose 56% to £18.4 million, while
Duke's non-IFRS measure of adjusted earnings (refer to the Director's report
for full explanation of adjusted earnings), rose from £6.6 million to £13.1
million. As with free cashflow per share, adjusted earnings per share also
increased, growing 41% from 2.70 pence per share to 3.81 pence per share.
Dividends
The Company increased its quarterly dividend in January 2022 from 0.55 pence
per share to 0.60 pence per share, resulting in total dividend payments for
FY22 of £7.6 million, the equivalent of 2.25 pence per share. Notably, the
most recent quarterly dividend, paid post period end in July 2022, increased
to 0.70 pence, representing an annualised dividend of 2.80 pence per share.
Balance Sheet
During the year the Group successfully deployed over £75 million into new and
follow-on investments (2021: £24 million), securing five new royalty
partners. This included an investment of ca. £16 million into Atlas Signs
Holdings Inc., a US based national brand implementation company delivering
signage and related services to businesses around the globe. This investment
represents Duke's largest initial investment to date and expands upon the
Group's North American presence, diversifying its currency exposure.
Group net assets increased by 55% to £133 million (2021: £86 million)
following a successful £35 million equity raise in April 2021.
The Group's total assets were £184 million as at 31 March 2022, an increase
of 73% from the £106 million at 31 March 2021, once again primarily
attributable to the increase in capital deployments during the year on the
back of April 2021's successful equity raise. The total fair value of the
royalty portfolio stood at £160 million at 31 March 2022, while the equity
portfolio increased its fair value from £3.5 million to £10.8 million, again
reflecting the increasing stability and strength of our underlying investment
portfolio.
Net debt for the Group increased to £42.3 million (31 March 2021: £15.5
million) following the successful extension of Duke's borrowing facility with
Pollen Street Capital in January 2022, providing additional liquidity to the
Group.
Phase 3 - Scaling our business
As we embark on the second half of our first decade, we enter the third phase
of our growth; continuing our momentum and scaling the business. Now that we
have established the robustness of our business model in difficult economic
conditions, a diversified portfolio and a presence in our target markets, we
have the opportunity to solidify our first mover advantage in the UK, Europe
and abroad. As the only corporate royalty provider listed in London, we
believe we are in a strong position for growth and will prudently continue to
make deployments to deliver higher free cash flow and increase free cash flow
per share. The benefits of our product are clear and accepted by our target
partners and we now have a track record of delivering benefits for business
owners who want to retain control of their business.
We will also continue generating returns for our shareholders through
value-realisation events. As our portfolio matures and grows, the embedded
value that our agreements have in the form of buyout premiums and minority
equity stakes we believe will be realised. While the timing of buyouts is
outside of our control - in line with our philosophy to keep business owners
in control of their destiny - they are highly accretive to shareholders and
will be an ongoing theme in the future. Each year our cash distribution is
adjusted based on our partners' revenue, and every buyout of our product
crystallises the value of the buyout premium and value of our equity stake if
we have one in the business. In the meantime, our partners are paying monthly
distributions over the typical 30-year term of our agreement.
While we have celebrated our growth in the face of the last five year's
economic, political and public health headwinds, the next five years will,
undoubtedly, present their own challenges. Our business model's first
principal - to preserve our investor's capital - is as strong as ever. With
the western world now dealing with unusually high inflation and global supply
chain issues, we take reassurance from the fact that not only Duke, but the
wider royalty industry, has seen many economic cycles before. The industry is
bigger than it has ever been and the knowledge and understanding of royalty
finance has become embedded in the market. As a company, our portfolio metrics
are more robust than they have ever been, meaning Duke is well positioned to
withstand headwinds better than ever. More importantly our relationships and
ability to make decisions for the long-term best interest of our royalty
partners makes it apparent that our company, and corporate royalties, have a
very important place in the alternative finance industry.
I would like to personally thank our shareholders, our royalty partners, our
employees and our Board for our continued progress and our best year yet.
Neil Johnson
CEO
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2022
Year to Year to
31-Mar-22 31-Mar-21
£000 £000
Cash flows from operating activities
Receipts from royalty investments 14,701 9,931
Receipts of interest from loan investments 580 667
Other operating receipts 543 438
Operating expenses paid (2,487) (2,154)
Payments for royalty participation fees (115) (81)
Tax (paid) / refunded (2,055) 135
Net cash inflow from operating activities 11,167 8,936
Cash flows from investing activities
Royalty investments advanced (74,586) (22,708)
Royalty investments repaid 2,938 14,354
Loan investments advanced (3,192) (1,145)
Loan investments repaid 3,949 2,370
Equity investments advanced (530) (653)
Equity investments repaid 2,883 -
Receipt of deferred consideration 7,679 -
Investments costs paid (972) (634)
Net cash outflow from investing activities (61,831) (8,416)
Cash flows from financing activities
Proceeds from share issue 35,000 -
Share issue costs (1,936) (1)
Dividends paid (7,270) (3,013)
Proceeds from loans 38,200 15,200
Loans repaid (7,500) (13,926)
Interest Paid (1,649) (1,409)
Other finance costs (181) (95)
Net cash inflow / (outflow) from financing activities 54,664 (3,244)
Net change in cash and cash equivalents 4,000 (2,724)
Cash and cash equivalents at beginning of year 1,766 4,481
Effect of foreign exchange on cash (59) 9
Cash and cash equivalents at the end of year 5,707 1,766
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2022
Note Year to Year to
31-Mar-22 31-Mar-21
£000 £000
Income
Royalty investment income 9 18,037 19,344
Loan investment income 10 533 636
Equity investment income 11 9,678 1,569
Other operating income 543 93
Total Income 28,791 21,642
Investment Costs
Transaction costs (631) (447)
Due diligence costs (1,113) (103)
Total Investment Costs (1,744) (550)
Operating Costs
Administration and personnel 5 (2,060) (1,675)
Legal and professional (405) (367)
Other operating costs (151) (99)
Expected credit losses 10 (72) -
Share-based payments 18 (930) (806)
Total Operating Costs (3,618) (2,947)
Operating Profit 23,429 18,145
Net foreign currency movement (60) (542)
Finance costs 6 (1,996) (1,539)
Profit before tax 21,373 16,064
Taxation expense 7 (982) (2,111)
Profit after tax 20,391 13,953
Basic earnings per share (pence) 8 5.95 5.75
Diluted earnings per share (pence) 8 5.95 5.75
All income is attributable to the holders of the Ordinary Shares of the
Company.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2022
Note 31-Mar-22 31-Mar-21
£000 £000
Non-current assets
Goodwill 16 203 203
Royalty finance investments 9 139,648 71,107
Loan investments 10 3,172 4,370
Equity investments 11 10,820 3,495
Trade and other receivables 13 2,141 5,618
Deferred tax 21 156 158
156,140 84,951
Current assets
Royalty finance investments 9 20,831 14,194
Loan investments 10 1,000 580
Trade and other receivables 13 53 4,422
Cash and cash equivalents 5,707 1,766
27,591 20,962
Total Assets 183,731 105,913
Current liabilities
Royalty debt liabilities 12 160 114
Trade and other payables 14 423 267
Borrowings 15 362 161
Current tax liability 87 1,163
1,032 1,705
Non-current liabilities
Royalty debt liabilities 12 951 917
Trade and other payables 14 1,067 402
Borrowings 15 47,740 17,103
49,758 18,422
Net Assets 132,941 85,786
Equity
Share capital 17 153,974 120,870
Share-based payment reserve 18 2,478 1,548
Warrant reserve 18 265 265
Retained losses 19 (23,776) (36,897)
Total Equity 132,941 85,786
The Consolidated Financial Statements were approved and authorised for issue
by the Board of Directors on 7 September 2022 and were signed on its behalf by
Directors Maree Wilms and Matt Wrigley.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2022
Share-based
Shares payment Warrant Retained Total
Note issued reserve reserve losses equity
£000 £000 £000 £000 £000
At 31 March 2020 118,479 742 265 (45,446) 74,040
Total comprehensive income for the year - - - 13,953 13,953
Transactions with owners
Shares issued in scrip dividend 17 2,391 - - - 2,391
Share based payments 18 - 806 - - 806
Dividends 20 - - - (5,404) (5,404)
Total transactions with owners 2,391 806 - (5,404) (2,207)
At 31 March 2021 120,870 1,548 265 (36,897) 85,786
Total comprehensive income for the year 20,391 20,391
Transactions with owners
Shares issued for cash 17 35,000 - - - 35,000
Share issuance costs 17 (1,936) - - - (1,936)
Shares issued to key advisers as remuneration 17 40 - - - 40
Share based payments 18 - 930 - - 930
Dividends 20 - - - (7,270) (7,270)
Total transactions with owners 33,104 930 - (7,270) 26,764
At 31 March 2022 153,974 2,478 265 (23,776) 132,941
The notes set out below form an integral part of these Consolidated Financial
Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
1. General Information
Duke Royalty Limited ("Duke Royalty" 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 at the end of the Notes.
Throughout the year, the "Group" comprised Duke Royalty Limited and its wholly
owned subsidiaries; Duke Royalty UK Limited, Capital Step Holdings Limited,
Capital Step Investments Limited, Capital Step Funding Limited, Capital Step
Funding 2 Limited and Duke Royalty Employee Benefit Trust.
The Group's investing policy is to invest in a diversified portfolio of
royalty finance and related opportunities.
2. Significant accounting policies
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.
On 31 December 2020, IFRS as adopted by the European Union at that date was
brought into the UK law and became UK-adopted international accounting
standards, with future changes being subject to endorsement by the UK
Endorsement Board. The group transitioned to UK-adopted international
accounting standards in its consolidated financial statements on 1 April 2021.
There was no impact or changes in accounting from the transition.
The Consolidated Financial Statements have been prepared on a going concern
basis and under the historical cost basis, except for the following:
· Royalty investments - measured at fair value through
profit or loss
· Equity investments - measured at fair value through
profit or loss
· Royalty participation liabilities - measured at fair
value through profit or loss
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 financial statements. Accordingly, the Directors
believe that it is appropriate to continue to adopt the going concern basis in
preparing the 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 Statement of Cash Flows before
the Statement of Comprehensive Income and 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 royalty financing company, the
Statement of Comprehensive Income includes additional analysis, splitting the
Group's income by investment type.
2.2 New and amended standards adopted by the Group
A few amendments and interpretations of existing standards apply to the
Group's financial year but these did not have a significant impact on the
financial statements of the Company.
2.3 New standards and interpretations not yet adopted
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.
The escalation of tensions between Russia and the West, following Russia's
invasion of Ukraine in February 2022, presents a range of implications for
industry and markets at large. Soaring energy costs suggest that higher
inflation is likely to last longer than governments are currently forecasting.
The war has also further emphasised the issue of supply chains. The importance
of where goods and services are produced and how easily they can reach their
end markets had already been highlighted during the Covid pandemic. Some
commentators are now suggesting an end to the trend of extreme globalisation
that has occurred in recent decades. Should this be the case, the reverse
trend could see even more significant supply chain disruptions leading to
higher inflation.
The other key outcome from the sanctions on Russia and the resulting increases
in oil and gas prices is likely to be an acceleration in the West of the
existing drive towards electrification, renewable energy and greater energy
self-sufficiency over the medium term.
On the downside, higher energy prices and wage inflation will undoubtedly
raise operating costs, and supply chain issues could mean a requirement for
greater working capital. This could particularly apply to companies such as
those in which the Company is investing.
The economic and social impact of Covid-19 continues to influence the economic
backdrop in which the Group operates.
The directors continue to closely monitor the impact of Covid-19 and of
Russia's invasion of Ukraine on the Group's trading activities and cash flows.
The Group does not have any direct investment exposure to Russia or Ukraine,
and therefore the impact to the current investment portfolio is minimal.
During the year, the Group extended its current borrowing facility with
Honeycomb Investment Trust (as detailed in the Directors' Report) from £35
million to £55 million. At the 31 March 2022, the Group had £6,800,000 of
available headroom on the facility.
In May 2022, the Company raised £20 million of new capital from a share
issue, providing the Company with additional liquidity. Detailed cashflow
analysis has been carried for the next 24 months, with sensitivity analysis on
the effect of rising interest rates as well as a decrease in underlying cash
revenue. The Directors consider that the Company has adequate resources to
continue in operational existence for the next 24 months and beyond.
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.
The "Group" is defined as the Company, its subsidiaries Duke Royalty UK
Limited, Capital Step Holdings Limited, Capital Step Investments Limited,
Capital Step Funding Limited and Capital Step Funding 2 Limited and The Duke
Royalty Employee Benefit Trust.
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
royalty finance and related opportunities. At the end of the period the Group
has 13 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 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
liabilities carried at fair value through profit or loss are presented in the
Consolidated Statement of Comprehensive Income within 'royalty investment net
income', 'loan investment net income' and 'equity investment net 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 gains / (losses)'. 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 Goodwill
Goodwill on acquisition of subsidiaries is included in intangible assets.
Goodwill is not amortised, but it is tested for impairment annually, or more
frequently if events or changes in circumstances indicate that it might be
impaired and is carried at cost less accumulated impairment losses. Gains and
losses on the disposal of the entity include the carrying amount of goodwill
relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment
testing. The allocation is made to those cash-generating units that are
expected to benefit from the business combination in which the goodwill arose.
The units or groups of units are identified at the lowest level at which
goodwill is monitored for internal management purposes.
2.11 Dividends
Dividends are recognised as a liability in the Group's financial statements in
the period in which they become obligations of the Group.
2.12 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 loans receivable,
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
and 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.
Cash and cash equivalents
Cash and cash equivalents comprise current accounts and demand deposits and
other short-term highly liquid investments with an original maturity of three
months or less that are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value.
Financial assets at FVTPL
Royalty 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
'royalty 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 royalty 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
royalty 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 royalty investments. Such liabilities are recognised initially at fair
value with the costs being recorded immediately in profit or loss as 'royalty
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 'royalty 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.
2.13 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.
2.15 Reserves
Equity comprises the following:
· Share capital represents the nominal value of equity
shares in issue
Other reserves
· Warrant reserve was created in connection with the issue of
share warrants in return for services provided
· Share-based payment reserve represents equity-settled
share-based employee remuneration as detailed in note 2.14
· Retained earnings represents retained profits
3. Critical accounting judgements and estimates
The preparation of the Consolidated Financial Statements in conformity with
IFRS requires management to make judgements, 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
making the judgements about 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 judgements, estimates and assumptions that
may cause a material adjustment to the carrying amount of assets and
liabilities are:
Fair value of royalty investments
Royalty 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 royalty 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 royalty 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 royalty participation liabilities
The payments falling due under the Group's contract for royalty participation
fees are directly linked to the Group's royalty 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 uses its judgement to select methods and make assumptions based on
market conditions at the end of each reporting period. The key judgements 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
2022 2021
£000 £000
Audit of the Consolidated Financial Statements 75 72
5. Administration and personnel
The table below splits out administration and personnel costs.
2022 2021
£000 £000
Support services administration fees 449 435
Directors' fees 730 518
Investment committee fees 107 64
Personnel costs 774 658
2,060 1,675
6. Finance costs
2022 2021
£000 £000
Interest payable on borrowings 1,499 1,293
Non-utilisation fees 350 106
Deferred finance costs released to P&L 147 140
1,996 1,539
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.
2022 2021
£000 £000
Current tax
Income tax expense 980 1,594
Deferred tax
Increase in deferred tax assets 3 674
Decrease in deferred tax liabilities (1) (157)
Total deferred tax benefit 2 517
Income tax expense 982 2,111
Factors affecting income tax expense for the year
Profit on ordinary activities before tax 21,373 16,064
Guernsey taxation at 0% (2021: 0%) - -
Overseas tax charges at effective rate of 4.56% (2021: 13.14%) 982 2,111
Income tax expense 982 2,111
8. Earnings per share
2022 2021
Total comprehensive income (£000) 20,391 13,953
Weighted average number of Ordinary Shares in issue, excluding treasury shares 342,822 242,836
(000s)
Basic earnings per share (pence) 5.95 5.75
2022 2021
Total comprehensive income (£000) 20,391 13,953
Diluted weighted average number of Ordinary Shares in issue, excluding 342,822 242,836
treasury shares (000s)
Diluted earnings per share (pence) 5.95 5.75
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 royalty 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.
2022 2021
£000 £000
Total comprehensive income for the period 20,391 13,953
Unrealised fair value movements (10,431) (9,871)
Impairment loss on loan investments 72 -
Share-based payments 930 806
Transactions costs net of costs reimbursed 1,746 550
Tax effect of the adjustments above at Group effective rate 350 1,119
Adjusted earnings 13,058 6,557
2022 2021
Adjusted earnings for the year (£000) 13,058 6,557
Weighted average number of Ordinary Shares in issue, excluding treasury shares 342,822 242,836
(000s)
Adjusted earnings per share (pence) 3.81 2.70
2022 2021
Diluted adjusted earnings for the year (£000) 13,058 6,557
Diluted weighted average number of Ordinary Shares in issue, excluding 342,822 242,836
treasury shares (000s)
Diluted adjusted earnings per share (pence) 3.81 2.70
9. Royalty investments
Royalty investments are financial assets held at FVTPL that relate to the
provision of royalty capital to a diversified portfolio of companies.
31-Mar-22 31-Mar-21
£000 £000
At 1 April 85,301 75,559
Additions 74,586 22,708
Buybacks (2,939) (21,434)
Profit on financial assets at FVTPL 3,531 8,468
As at 31 March 160,479 85,301
Royalty investments are comprised of:
31-Mar-22 31-Mar-21
£000 £000
Non-Current 139,648 71,107
Current 20,831 14,194
160,479 85,301
Royalty investment net income on the face of the consolidated statement of
comprehensive income comprises:
2022 2021
£000 £000
Royalty interest 13,987 9,179
Royalty premiums 714 1,862
Gain on royalty assets at FVTPL 3,531 8,468
Loss on royalty liabilities at FVTPL (195) (165)
Royalty investment net income 18,037 19,344
All financial assets held at FVTPL are mandatorily measured as such.
The Group's royalty investment assets comprise royalty financing agreements
with 13 (31 March 2021:10) investees. Under the terms of these agreements the
Group advances funds in exchange for annualised royalty distributions. The
distributions are adjusted based on the change in the investees' revenues,
subject to a floor and a cap. The financing is secured by way of fixed and
floating charges over certain of the investees' assets. The investees are
provided with buyback options, exercisable at certain stages of the
agreements.
10. Loan investments
Loan investments are financial assets held at amortised cost which the
exception of the £2.2 million loan issued at 0% interest. The impact of
discounting is immaterial to the financial statements. The below table shows
both the loans at amortised cost and fair value.
31-Mar-22 31-Mar-21
£000 £000
1 April 4,950 9,517
Additions 3,192 1,145
Buybacks (3,950) (5,649)
ECL allowance (20) -
Net foreign currency movement - (63)
As at 31 March 4,172 4,950
The Group's loan investments comprise secured loans advanced to two entities
(2021 - three) in connection with the Group's royalty investments.
The loans comprise fixed rate loans of £4,172,000 (31 March 2021:
£1,580,000) which bear interest at rates of between 0% and 15% (2021: 5% and
15%). The Group has no variable rate loans at the year end (2021: one variable
rate loan of £3,370,000 bearing interest at 14.5% over LIBOR). The total
interest receivable during the period was £533,000 (31 March 2021:
£636,000).
The loan investments mature as follows:
31-Mar-22 31-Mar-21
£000 £000
In less than one year 1,000 580
In one to two years - -
In two to five years 3,172 4,370
4,172 4,950
Loan investment net income on the face of the consolidated statement of
comprehensive income comprises:
2022 2021
£000 £000
Loan Interest charged 365 603
Loan premiums on exit 168 33
533 636
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'
loan investments by stage:
Gross carrying amount Allowance for ECLs Net
Carrying amount
As at 31 March 2022 £000 £000 £000
Stage 1 4,192 (20) 4,172
Stage 2 - - -
Stage 3 - - -
4,192 (20) 4,172
Gross carrying amount Allowance for ECLs Net
Carrying amount
As at 31 March 2021 £000 £000 £000
Stage 1 4,950 - 4,950
Stage 2 - - -
Stage 3 - - -
4,950 - 4,950
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
At 1 April 2020 - - 2,947 2,947
Expected credit losses on loan investments in year - - - -
Refinanced loans - - (2,947) (2,947)
Carrying value at 31 March 2021 - - - -
Expected credit losses on loan investments in year 20 - - 20
Expected credit losses on other receivables in year 52 - - 52
Carrying value at 31 March 2022 72 - - 72
11. Equity investments
Equity investments are financial assets held at FVTPL.
31-Mar-22 31-Mar-21
£000 £000
At 1 April 3,495 507
Additions 530 1,764
Proceeds (2,883) (345)
Gain on equity assets at FVTPL 9,678 1,569
As at 31 March 10,820 3,495
The Group's equity investments comprise unlisted shares and warrants in nine
of its royalty investment companies (31 March 2021: eight).
The Group also still holds two (31 March 2021: two) unlisted investments in
mining entities from its previous investment objectives. The Board does not
consider there to be any future cash flows from the remaining investments and
they are fully written down to nil value.
Equity investment net income on the face of the consolidated statement of
comprehensive income comprises:
2022 2021
£000 £000
Unrealised gain on equity assets at FVTPL 7,095 1,224
Realised gain on equity assets at FVTPL 2,583 345
9,678 1,569
12. Royalty debt liabilities
Royalty debt liabilities are financial liabilities held at fair value through
profit and loss.
31-Mar-22 31-Mar-21
£000 £000
At 1 April 1,031 1,173
Additions - -
Repayments - (226)
Payments made (115) (81)
Gain on royalty liabilities at fair value through profit and loss 195 165
As at 31 March 1,111 1,031
Royalty investment liabilities are comprised of:
31-Mar-22 31-Mar-21
£000 £000
Non-Current 951 917
Current 160 114
1,111 1,031
13. Trade and other receivables
31-Mar-22 31-Mar-21
£000 £000
Current
Prepayments and accrued income 53 167
Other receivables - 4,255
53 4,422
Non-current
Other receivables 2,141 5,618
2,194 10,040
The other receivable balance consists of funds due on the sale of Duke Royalty
Switzerland Gmbh, incorporated to hold the riverboat assets. On 31 March 2021,
Duke sold its Swiss subsidiary to Starling Fleet AG for €11,600,000. The
deal was structured so that €5,000,000 was payable on or before 30 September
2021, €4,000,000 is due on or before 30 September 2022, with the remaining
€2,600,000 due on or before 30 June 2023. The second instalment of
€4,000,000 was repaid early in March 2022. The last instalment is classified
as non-current.
Using the same methodology as laid out in note 10 for the loan investments,
the deferred consideration has been subject to ECL impairment. The financial
strength of the counterparty has been reviewed in conjunction with current and
future outlook for river cruising, while also taking into account the charges
that the Group owns over the riverboats. An ECL impairment of £52,000 has
been recognised against this asset (refer to Note 10 for classification).
14. Trade and other payables
31-Mar-22 31-Mar-21
£000 £000
Current
Trade payables 11 2
Transaction costs 233 82
Accruals and deferred income 179 183
423 267
Non-current
Transaction costs 1,067 402
1,490 669
15. Borrowings
31-Mar-22 31-Mar-21
£000 £000
Current - accrued interest 362 161
Non-current 47,740 17,103
48,102 17,264
The secured loan facility has an interest rate of 7.25% over one-month UK
LIBOR per annum. In January 2022, the facility term was extended and the
facility size increased from £35,000,000 to £55,000,000. Of this,
£35,000,000 comprised a revolving facility and £20,000,000 a term facility.
The principal amount is repayable on 18 January 2027. Furthermore, the
interest rate was amended to 7.25% over SONIA. The loan is secured by means of
a fixed and floating charge over the assets of the Group.
The Group has adopted Interest Rate Benchmark Reform - IBOR 'phase 2'
(Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and 16). Applying the practical
expedient introduced by the amendments, when the benchmarks affecting the
Group's loans are replaced, the adjustments to the contractual cash flows will
be reflected as an adjustment to the effective interest rate. Therefore, the
replacement of the loans' benchmark interest rate will not result in an
immediate gain or loss recorded in profit or loss, which may have been
required if the practical expedient was not available or adopted.
At 31 March 2022, £6,800,000 was undrawn on the facility (31 March 2021:
£17,500,000).
At 31 March 2022, £460,000 (31 March 2021: £396,000) of unamortised 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 2022 and prior year.
Interest Payable Borrowings
£000 £000
At 1 April 2021 161 17,103
Cash movements
Loan advanced - 38,200
Loan repaid - (7,500)
Deferred finance costs paid - (181)
Interest paid (1,649) -
Non-cash movements
Deferred finance costs released to P&L - 118
Interest charged 1,850 -
At 31 March 2022 362 47,740
Interest Payable Borrowings
£000 £000
At 1 April 2020 172 15,517
Cash movements
Loan advanced - 15,200
Loan repaid - (13,926)
Deferred finance costs paid - (23)
Interest paid (1,409) -
Non-cash movements
Deferred finance costs released to P&L - 109
Transfer to royalty debt liability - 226
Interest charged 1,398 -
At 31 March 2021 161 17,103
16. Goodwill
Goodwill
£000
Opening and closing net book value at 1 April 2020, 31 March 2021 and 31 March 203
2022
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 2020 236,937 2,690 239,627 118,479
Shares issued to Employee Benefit Trust during the year - 8,678 8,678 -
PSA shares vested during year 513 (513) - -
Shares issued in scrip dividend 9,602 - 9,602 2,391
At 31 March 2021 247,052 10,855 257,907 120,870
Shares issued for cash during the year 100,000 - 100,000 35,000
Share issuance costs - - - (1,936)
PSA shares vested during year 1,457 (1,457) - -
Shares issued to Employee Benefit Trust during the year - 792 792 -
Shares issued to directors and key advisors as remuneration 105 - 105 40
At 31 March 2022 348,614 10,190 358,804 153,974
There is a single class of shares. There are no restrictions on the
distribution of dividends and the repayment of capital with respect to
externally held shares. The shares held by The Duke Royalty Employee Benefit
Trust are treated as treasury shares. The rights to dividends and voting
rights have been waived in respect of these shares.
18. Equity-settled share-based payments
Warrant reserve
The following table shows the movements in the warrant reserve during the
year:
Warrants
No. (000) £000
At 1 April 2020, 31 March 2021 and 31 March 2022 4,375 265
At 31 March 2022, 4,375,000 (31 March 2021: 4,375,000) warrants were
outstanding and exercisable at a weighted average exercise price of 46 pence
(31 March 2021: 46 pence). The weighted average remaining contractual life of
the warrants outstanding was 1.00 years (31 March 2021: 2.00 years).
Share-based payment reserve
The following table shows the movements in the share-based payment reserve
during the period:
Share options LTIP Total
£000 £000 £000
At 1 April 2020 136 606 742
LTIP awards - 806 806
At 31 March 2021 136 1,412 1,548
LTIP awards - 930 930
At 31 March 2022 136 2,342 2,478
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.
At 31 March 2022, 200,000 options (31 March 2021: 200,000) were outstanding
and exercisable at a weighted average exercise price of 50 pence (31 March
2021: 50 pence). The weighted average remaining contractual life of the
options outstanding at the year-end was 1.50 year (31 March 2021: 2.50 year).
Share Options
No. (000)
At 1 April 2020 and 31 March 2021 200
Lapsed during the year -
At 31 March 2022 200
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 31 October 2018, 1,665,000 PSAs were granted to Directors and key personnel
with a fair value of £644,000. An expense of £125,000 was recognised in
Administration and Personnel costs in the Consolidated Statement of
Comprehensive Income.
On 31 October 2019, 2,525,000 PSAs were granted to Directors and key personnel
with a fair value of £871,000. An expense of £274,000 was recognised in
Administration and Personnel costs in the Consolidated Statement of
Comprehensive Income.
On 1 October 2020, 6,665,000 PSAs were granted to Directors and key personnel
with a fair value of £1,093,000. An expense of £364,000 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 £164,000. An expense of £55,000 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 £672,000. An expense of £112,000 was recognised in
Administration and Personnel costs in the Consolidated Statement of
Comprehensive Income.
At 31 March 2022, 12,298,000 (31 March 2021: 11,855,000) PSAs were
outstanding. The weighted average remaining vesting period of these awards
outstanding was 1.5 years (2021 - 2.04 years).
Other share-based payments
During the year ended 31 March 2022, the Company issued 104,576 (2021: nil)
shares to members of the Investment Committee in recognition of the
significant contribution made during the previous financial year and for
voluntarily forgoing service fees. The fair value of the shares was determined
to be £41,000 being the share price at the date of the awards. The expense
was recognised in full in the Consolidated Statement of Comprehensive Income
during that year.
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
2021 and 31 March 2022:
Dividend per Dividends
share payable
pence/share £000
Record date Payment date
27 March 2020 14 April 2020 0.75 1,777
26 June 2020 10 July 2020 0.50 1,185
25 September 2020 12 October 2020 0.50 1,206
29 December 2020 12 January 2021 0.55 1,236
Dividends paid for the period ended 31 March 2021 5,404
Record date Payment date
26 March 2021 12 April 2021 0.55 1,359
25 June 2021 12 July 2021 0.55 1,909
24 September 2021 12 October 2021 0.55 1,909
24 December 2021 12 January 2022 0.60 2,093
Dividends paid for the period ended 31 March 2022 7,270
Further quarterly dividends were paid post year end, refer to Note 25 for
details.
The dividends paid in July and October 2020 were paid in the form of a scrip
dividend rather than cash.
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:
Royalty investment Equity investment Tax losses Total
£000s £000s £000s £000s
1 April 2020 (12) - 687 675
Credited to profit & loss 170 - (687) (517)
At 31 March 2021 158 - - 158
Charged to profit & loss (2) - - (2)
At 31 March 2022 156 - - 156
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 period:
Basic fees Share Annual bonus Total Basic fees Share Annual bonus Total
based payment based payment
2022 2022 2022 2022 2021 2021 2021 2021
£000 £000 £000 £000 £000 £000 £000 £000
Non-Executive
N Birrell 38 - - 38 28 - - 28
M Wrigley 29 - - 29 24 - - 24
M LeTissier* - - - - - - - -
M Wilms** 4 - - 4 - - - -
Executive
N Johnson 233 269 108 610 200 294 75 569
C Cannon Brookes 210 216 108 534 180 218 75 473
514 485 216 1,215 432 512 150 1,094
* Resigned 17 February 2022
** Appointed 17 February 2022
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):
2022 2021
£000 £000
N Johnson 269 294
C Cannon Brookes 216 218
485 512
Mark Le Tissier, a Director of Trident Trust Company (Guernsey) Limited, has
waived his entitlement to a fee in relation to being Director of the Company
until his resignation on 17 February 2022.
At 31 March 2022, no Directors' fees were outstanding (2021: no fees
outstanding).
Investment Committee fees
The Group's Investment Committee assists in analysing and recommending
potential royalty 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:
2022 2021
£000 £000
A Carragher 20 10
J Romeo 20 10
J Cochrane 20 10
J Webster 109 99
169 129
Investment Committee fees include the following expenses relating to shares
issued as remuneration (see note 18):
2022 2021
£000 £000
A Carragher 20 10
J Romeo 20 10
J Cochrane 20 10
J Webster 20 10
80 40
Investment Committee fees include the following expenses relating to awards
granted under the Group's Long Term Incentive Plan (see note 18):
2022 2021
£000 £000
J Webster 62 63
Jim Webster also served as the Group's Chief Investment Officer until 3
January 2021 and has an operational role in the Group beyond the Investment
Committee, which is reflected in the level of his fee.
At the year-end a total of £7,000 remained outstanding (31 March 2021 -
£16,000) to Jim Webster. These fees have been settled subsequent to the year
end.
Support services administration fees
The following amounts were payable to related parties during the year in
respect of support services fees:
2022 2021
£000 £000
Abingdon Capital Corporation 363 350
Arlington Group Asset Management Limited 85 85
448 435
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 royalty partners and royalty 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
2022 2021 2022 2021
No. No. No. No.
Neil Johnson - - 2,821 3,200
Charles Cannon Brookes - - 2,474 2,650
Jim Webster - - 590 805
Dividends
The following dividends were paid to related parties:
2022 2021
£000 £000
N Johnson(1) 97 84
C Cannon Brookes(2) 141 128
N Birrell 23 19
M Wrigley 1 1
J Webster 2 1
J Cochrane 21 19
A Carragher 11 10
J Romeo 3 2
(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-22 31-Mar-21
Level 3 Level 3
£000 £000
Financial assets
Financial assets at FVTPL
- Royalty investments 160,479 85,301
- Equity investments 10,820 3,495
171,299 88,796
Financial liabilities
Financial liabilities at FVTPL
- Royalty debt liabilities 1,111 1,031
1,111 1,031
The following table presents the changes in level 3 items for the years ended
31 March 2022 and 31 March 2021:
Financial Financial
assets liabilities Total
£000 £000 £000
At 1 April 2020 76,066 (1,173) 74,893
Additions 24,472 - 24,472
Repayments (21,778) 226 (21,552)
Royalty income received (19,344) - (19,344)
Royalty participation liabilities paid - 81 81
Net change in fair value 29,380 (165) 29,215
At 31 March 2021 88,796 (1,031) 87,765
Additions 75,116 - 75,116
Repayments (5,822) - (5,822)
Royalty income received (18,037) - (18,037)
Royalty participation liabilities paid - 115 115
Net change in fair value 31,246 (195) 31,051
At 31 March 2022 171,299 (1,111) 170,188
Valuation techniques used to determine fair values
The fair value of the Group's royalty 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 royalty investments and royalty participation
liabilities
These factors are estimated based upon the underlying past and projected
performance of the royalty investee companies together with general market
conditions.
Discount rates for financial assets and liabilities
These are initially estimated based upon the projected internal rate of return
of the royalty investment and subsequently adjusted to reflect changes in
credit risk determined by the Group's Investment Committee.
EBITDA multiples
These multiples are based on comparable market transactions
Forward looking EBITDA
These are estimated based on the projected underlying performance of the
royalty 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:
Royalty investments
The unobservable inputs are the annual adjustment factor and the discount
rate. The range of annual adjustment factors used is 1.9% to 6.0% (2021: -6.0%
to 6.0%) and the range of risk-adjusted discount rates is 14.8% to 17.35%
(2021: 14.8% to 17.4%).
An increase in the annual revenue growth rates (subject to the collars set
under the terms of the royalty financing agreements) of 5% would increase the
fair value by £891,000 (2021: £431,000).
A reduction in the discount rate of 25 basis points would increase the fair
value by £2,302,000 (2021: £1,154,000).
A decrease in the annual revenue growth rates (subject to the collars set
under the terms of the royalty financing agreements) of 5% would decrease the
fair value by £1,296,000 (2021: £621,000).
An increase in the discount rate of 25 basis points would decrease the fair
value by £2,232,000 (2021: £1,056,000).
Equity investments
The unobservable inputs are the EBITDA multiples and forward looking EBITDA.
The range of EBITDA multiples used is 5.0x to 7.8x.
An increase in the EBITDA multiple of 25 basis points would increase fair
value by £1,560,000
A decrease in the EBITDA multiple of 25 basis points would decrease fair value
by £1,560,000
An increase in the forward looking EBITDA of 5% would increase the fair value
by £1,695,000
A decrease in the forward looking EBITDA of 5% would decrease fair value by
£1,695,000
Royalty participation instruments
The unobservable inputs are the annual adjustment factor and the discount rate
used in the fair value calculation of the royalty investments. The range of
annual adjustment factors used is -1.9% to 6.0% (2021: -6.0% to 6.0%) and the
range of risk-adjusted discount rates is 16.3% to 17.3% (2021: 16.3% to
17.3%).
An increase in the annual adjustment factor (subject to the collars set under
the terms of the royalty financing agreements) of 5% would increase the fair
value of the liability by £5,797 (2021: £7,000).
A reduction in the discount rate of 25 basis points would increase the fair
value of the liability by £13,697 (2021: £15,000).
A decrease in the annual adjustment factor (subject to the collars set under
the terms of the royalty financing agreements) of 5% would decrease the fair
value of the liability by £10,176 (2021: £8,000).
An increase in the discount rate of 25 basis points would decrease the fair
value of the liability by £13,467 (2021: £12,000).
24. Financial risk management
The Group's royalty financing activities expose it to various types of risk
that are associated with the investee companies to which it provides royalty
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
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-22 31-Mar-21
£000 £000
Financial assets held at FVTPL
Royalty investments 160,479 85,301
Equity investments 10,820 3,495
Total Financial assets held at FVTPL 171,299 88,796
Financial assets held at amortised cost
Loan investments 4,172 4,950
Cash and cash equivalents 5,707 1,766
Trade and other receivables 2,194 10,040
Total Financial assets held at amortised cost 12,073 16,756
Total financial assets 183,372 105,552
Financial liabilities held at amortised cost
Bank borrowings (48,102) (17,264)
Trade and other payables (1,490) (669)
Total financial liabilities held at amortised cost (49,592) (17,933)
Financial liabilities held at FVTPL (1,111) (1,031)
Total financial liabilities (50,703) (18,964)
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 functional and presentation currency of the Group is
Sterling.
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-22 31-Mar-22 31-Mar-22 31-Mar-21 31-Mar-21 31-Mar-21
Euro US Dollar CAD Dollar Euro US Dollar CAD Dollar
£000 £000 £000 £000 £000 £000
Royalty investment 14,118 16,061 11,380 - - -
Equity investments 3,814 - 461 1,750 - -
Loans receivable - - - - 580 -
Cash and cash equivalents 189 247 81 105 38 -
Trade and other receivables 2,141 - - 9,872 - -
Royalty participation liability - - - - - -
Transaction costs payable - (1,300) - - (482) -
20,262 15,008 11,922 11,727 136 -
If Sterling strengthens by 5% against the Euro, the net Euro-denominated
assets would reduce by £964,863 (2021: £558,000). Conversely, if Sterling
weakens by 5% the assets would increase by £1,066,428 (2021: £617,000).
If Sterling strengthens by 5% against the US Dollar, the net US
Dollar-denominated assets would reduce by £714,678 (2021: £4,000).
Conversely, if Sterling weakens by 5% the assets would increase by £789,907
(2021: £5,000).
If Sterling strengthens by 5% against the Canadian Dollar, the net Canadian
Dollar-denominated assets would reduce by £567,721 (2021: nil). Conversely,
if Sterling weakens by 5% the assets would increase by £627,481 (2021: nil).
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 royalty
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
+7.25%. The Group's royalty investments have a fair value at the reporting
date of £160,479,000 (31 March 2021: £85,301,000). A sensitivity analysis in
respect of these assets is presented in note 23.
The Group's borrowings at the reporting date are £47,740,000, see Note 15 (31
March 2021: £17,103,000). A movement in the rate of SONIA of 100bps impacts
loan interest payable by £477,400 (31 March 2021: £171,030).
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 royalty 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 royalty 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-22 31-Mar-21
£000 £000
Royalty investments 160,479 85,301
Loan investments 4,172 4,950
Cash and cash equivalents 5,707 1,766
Trade and other receivables 2,194 10,040
172,552 102,057
Royalty investments
The royalty investments relate to the Group's 13 royalty financing agreements.
At the reporting date, there was £2,439,000 of royalty cash payments
outstanding (2021; £1,492,000) from two royalty partners. Of this, £nil
(£193,000) was received in the month post year-end. Payment plans have been
agreed to recover the £2,439,000 from both royalty 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 royalty investments which can be
called upon if the counterparty is in default under the terms of the
agreement.
Loan investments
The Group's loan 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-22 31-Mar-21
£000 £000
Moody's credit rating:
A1 3,657 1,234
Aa2 - -
Baa1 2,018 243
Baa2 - -
B+ 32 289
BB- - -
5,707 1,766
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
£6,200,000 (2021: £17,500,000 (see note 15).
The table below analyses the Group's royalty 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 2022 £000 £000 £000 £000
Royalty finance investments 20,550 93,694 656,584 770,828
Royalty finance liabilities 116 615 3,457 4,188
Trade and other payables (443) (1,011) (918) (2,372)
Borrowings (3,864) (58,455) - (62,319)
16,359 34,843 659,123 710,325
Less than one year 1 - 5 years Over five years Total
As at 31 March 2021 £000 £000 £000 £000
Royalty finance investments 14,194 43,179 290,495 347,868
Royalty finance liabilities (114) (601) (3,311) (4,026)
Trade and other payables (279) (377) (368) (1,024)
Borrowings (1,835) (20,899) - (22,734)
11,966 21,302 286,816 320,084
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 2022 and 12 July 2022, the Company paid a quarterly dividend of
0.70 pence per share.
Equity raise
On 26 May 2022, the Group announced the successful placement of 57,142,858 new
shares at a price of 35p per share, raising new capital of £20 million.
New royalty investments
On 20 April 2022, the Group announced a £2,300,000 follow-on investment into
Tristone.
On 28 April 2022, the Group announced a £3,100,000 follow-on investment into
InTec.
Exits
No exits have been announced by the Group since the reporting date.
Directors Nigel Birrell (Chairman)
Neil Johnson
Charles Cannon Brookes
Matthew Wrigley
M Wilms (appointed 17 February 2022)
M Le Tissier (resigned 17 February 2022)
Secretary and administrator Trident Trust Company (Guernsey) Limited
Trafalgar Court
4(th) Floor, West Wing, St Peter Port
Guernsey, GY1 3RL
Registered in Guernsey, number 54697
Website address www.dukeroyalty.com
Registered office Trafalgar Court
4(th) Floor, West Wing, St Peter Port
Guernsey, GY1 2JA
Independent auditor BDO Limited
Place du Pre
Rue de Pre
St Peter Port
Guernsey, GY1 3LL
Co-brokers Cenkos Securities plc Canaccord Genuity Limited
6-8 Tokenhouse Yard 88 Wood Street
London, EC2R 7AS London, EC2V 7QR
Nominated advisor Cenkos Securities plc
6-8 Tokenhouse Yard
London, EC2R 7AS
Support service providers Arlington Group Asset Management Ltd Abingdon Capital Corporation
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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