REG - Duke Royalty Limited - Financial Year 2024 Interim Results
22/11/2023 07:15
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RNS Number : 2030U Duke Royalty Limited 22 November 2023
22 November 2023
Duke Royalty Limited
("Duke Royalty", "Duke" or the "Company")
Interim Results for the six months ended 30 September 2023
Duke Royalty Limited (AIM: DUKE), a provider of alternative capital solutions
to a diversified range of profitable and long-established businesses in Europe
and abroad, is pleased to announce its interim results for the six-months
ended 30 September 2023 ("Interim 2024").
Financial Highlights
· Total cash revenue up 35% from the prior period to
£14.1 million (Interim 2023: £10.4 million)
· Recurring cash revenue* totalled £12.2 million, up 17%
from Interim 2023 (£10.4 million)
· Free cash flow** up 23% to £7.9 million (Interim 2023:
£6.5 million)
· Adjusted earnings up 23% to 1.95 pence per share
(Interim 2023: 1.58 pence per share)
· Cash dividends of 1.40 pence per share paid to
shareholders (Interim 2023: 1.40 pence per share)
Operational Highlights
· Deployed over £18 million of capital into new and
existing Royalty Partners
· One new royalty partner added to the portfolio, taking
total to 15
· One investment buyback with Instor delivering a triple
digit IRR
· Over £40 million of available liquidity for future
deployments
* Recurring cash revenue excludes buyback premiums, cash gains from the sale
of equity investments and one-off fee income
** Free cashflow is defined as operating cashflow, plus cash gains from the
sale of equity investments, less investment costs less interest payable of
Duke's debt facility
Nigel Birrell, Chairman of Duke Royalty, said:
"During the interim period Duke was able to post its twelfth consecutive
quarter of increasing recurring cash revenue which was a fantastic achievement
for the Company. In line with this strong financial performance, the Company
also maintained its quarterly dividend of 0.70p per share. Investors can be
reassured that the dividend payout remains well covered by operating cashflow
with the attractive yield representing a pillar of Duke's ongoing business
model and its overall financial discipline.
"Looking forward, I am pleased to say that Duke remains well-positioned for
growth. We believe that we have an attractive offering through our private
credit and private equity hybrid product, as well as a philosophy that
resonates with SME business owners due to our ability to offer a long-term,
partnership-based solution which keeps owners in control of their company."
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 231 816
Cavendish Securities plc (Nominated Adviser and Joint Broker) Stephen Keys / Callum Davidson / Michael Johnson +44 (0) 207 397 8900
Canaccord Genuity Adam James / Harry Rees +44 (0) 207 523 8000
(Joint Broker)
SEC Newgate Elisabeth Cowell / Alice Cho / Matthew Elliott +44 (0) 20 3757 6880
(Financial Communications) 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 Report
Dear Shareholder,
I am pleased to report that Duke Royalty's results for Interim 2024 have once
again highlighted the robust nature of the Company's business model in the
face of significant ongoing global economic and political challenges. In
particular, I am delighted to say that Duke was able to post its twelfth
consecutive quarter of increasing recurring cash revenue during the Interim
period.
Duke's simple investment philosophy of providing long dated, senior secured
debt capital into long established, profitable SME owner-operated businesses
has largely protected the Company from the high levels of volatility that have
been witnessed in the public equity markets during the period. The predictable
nature of Duke's monthly cashflows alongside its own tight internal cost
controls has allowed Duke to report a strong financial performance for Interim
2024. In line with this strong financial performance, the Company also
maintained its quarterly dividend of 0.7p per share. Investors can be
reassured that the dividend payout remains well covered by operating cashflow
with the attractive yield representing a pillar of Duke's ongoing business
model and its overall financial discipline.
This strong set of results has been achieved despite the challenging business
environment we are operating in. In the last two years, the UK experienced a
record-breaking 14 consecutive interest rate increases, a trend that has
largely been mirrored in both the EU and North America. Central banks have
taken a pause from additional near-term interest hikes with inflation rates
now trending back towards their longer-term norms. However, we believe the
current elevated level of interest rates are set to remain for some time and
we are not expecting to see any cuts until well into the Company's FY25
period. For Duke, the higher cost of borrowing has had a few core effects.
First, it has increased Duke's own debt servicing costs which have put a
squeeze on free cashflow margins and second, it has resulted in a general
reduction in consumer discretionary spend. Furthermore, there is no question
that businesses have become increasingly burdened by wage inflation and a
period of stubbornly high power costs. This backdrop has had an inevitable
effect on both revenue and profit expectations for some of Duke's partners
but, as long term, supportive investors, our investment team is working
diligently to ensure they are given whatever help is required.
However, overall I am pleased to be able to report that the Duke portfolio
remains well insulated and in a healthy position, protected by its increasing
level of diversification. A positive effect that has resulted from the
elevated level of interest rates has been the material increase in the cost of
all other competing forms of debt. As I have mentioned before, Duke's
permanent equity capital base and its long-term lending approach throughout
economic cycles have enabled it to refrain from significantly increasing the
cost of its offering in the short-term. The deliberate decision to not
significantly raise the initial cost allows Duke to evaluate more
opportunities through the lens of that company's ability to weather continued
economic headwinds.
Unsurprisingly, Duke was cautious on making new deployments in Interim 2024
given the high level of uncertainty in the markets as well as a general
declining trend in valuations that we are seeing across the board. The Company
did welcome Glasshouse Products LLC as a new partner by entering into an
US$11.5 million financing agreement. Founded in 2002 in Texas, Glasshouse is a
long-established provider of custom glass solutions including the design,
fabrication, sale and installation of glass architectural products and I hope
that Glasshouse will become a long-standing core holding in the Duke portfolio
as it executes its buy and build strategy. During the period, Duke also
announced the successful exit of its investment in Instor Solutions, Inc., a
California-based product reseller and service provider for work related to the
build-out and migration of data centres. The exit represented the sixth and
most profitable exit for Duke to date, delivering a triple digit IRR.
Outlook
Duke remains well-positioned for growth, having created a large and
diversified portfolio of royalty investments alongside an exciting pipeline of
new deal opportunities. The Company's liquidity position remains robust and
the current macroeconomic climate means that demand for Duke's low amortising,
patient capital remains strong. Our approach to monitoring our existing
investments is collaborative and thorough. We evaluate monthly management
accounts and look for signs of stress and aim to be proactive in working with
a partner to address any issues. Having good visibility into our portfolio
allows us to be cautiously optimistic for the rest of the year.
Looking more broadly, we constantly review the trends in the financing
industry and we are pleased to report that Duke's core product is unique in
the market due to its long duration and low amortisation qualities. The
Private Credit market is a large and growing segment of the financing sector,
and part of its growth has been from Private Equity players expanding into
credit. What used to be the domain of the high street banks is increasingly
supplemented by alternative financing providers, of which Duke is one. Our
growing pipeline underpins our belief that we have a philosophy that resonates
with SME business owners due to our ability to offer a long-term,
partnership-based solution which keeps owners in control of their company.
Our product is essentially a hybrid between Private Credit and Private Equity,
and as the Private Credit explosion has become mainstream in SME lending, we
aim to ensure our 'best of both worlds' approach is articulated to business
owners in a way they can compare. Therefore, we have embarked on a review of
how best to show business owners the advantages of Duke when they are looking
for capital. This review is ongoing and we will share the exciting changes
with our shareholders in the period to come when they have been finalised. Our
product remains the same to new business owners, but how we will engage with
them will open up more opportunities for Duke and the goal is to broaden our
appeal. We believe we are at the forefront of a large opportunity as Private
Credit solutions become more accepted in SME lending.
As always, I am appreciative of the ongoing support of our shareholders and,
on the back of a period of continued resilience and growth, I look forward to
reporting on the Group's ongoing progress and development in future periods.
Nigel Birrell
Chairman
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Note Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Cash flows from operating activities
Receipts from royalty investments 6 13,720 21,364 10,234
Receipts of interest from loan investments 7 259 339 173
Other operating income 45 176 30
Operating expenses paid (2,383) (3,306) (1,061)
Payments for royalty participation fees 9 (68) (112) (57)
Tax paid (498) (1,346) (813)
Net cash inflow from operating activities 11,075 17,115 8,506
Cash flows from investing activities
Royalty investments advanced 6 (17,102) (23,809) (6,550)
Royalty investments received 6 7,041 - -
Loan investments advanced 7 - (2,500) (700)
Loan investments received 7 - 2,000 -
Equity investments advanced 8 (926) (500) -
Equity dividends received 8 48 3 -
Receipt of deferred consideration 10 750 - -
Investment costs paid (358) (357) (173)
Net cash outflow from investing activities (10,547) (25,163) (7,423)
Cash flows from financing activities
Proceeds from share issue 14 - 20,000 20,000
Share issue costs 14 - (1,115) (1,115)
Dividends paid 17 (5,709) (10,979) (5,282)
Proceeds from loans 12 5,000 71,250 5,050
Loans repaid 12 - (61,450) (18,500)
Interest paid 12 (2,819) (3,976) (1,872)
Other finance costs paid - (2,426) (30)
Net cash (outflow) / inflow financing activities (3,528) 11,304 (1,749)
Net change in cash and cash equivalents (3,000) 3,256 (666)
Cash and cash equivalents at beginning of period/year 8,939 5,707 5,707
Effect of foreign exchange on cash 32 (24) 31
Cash and cash equivalents at the end of period/year 5,971 8,939 5,072
The notes form an integral part of these Condensed Consolidated Financial
Statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
Note (unaudited) (audited) (unaudited)
£000 £000 £000
Income
Royalty investment net income 6 13,514 28,266 15,079
Loan investment net income 7 259 339 173
Equity investment net income 8 (3,442) 2,212 485
Other operating income 45 176 30
Total income 10,376 30,993 15,767
Investment costs
Transaction costs (21) (66) (28)
Due diligence costs (309) (620) (455)
Total investment costs (330) (686) (483)
Operating costs
Administration and personnel (2,033) (2,627) (1,811)
Legal and professional (274) (456) (232)
Other operating costs (131) (223) (100)
Expected credit losses 7 - (20) -
Share-based payments 15 (537) (969) (458)
Total operating costs (2,975) (4,295) (2,601)
Operating profit 7,071 26,012 12,683
Net foreign currency gains 55 66 177
Finance costs 3 (3,326) (5,644) (1,951)
Profit for the period before tax 3,800 20,434 10,909
Taxation expense 4 (408) (842) (614)
Total comprehensive income for the period 3,392 19,592 10,295
Basic earnings per share (pence) 5 0.83 4.92 2.65
Diluted earnings per share (pence) 5 0.83 4.92 2.65
All income is attributable to the holders of the Ordinary Shares of the
Company.
The notes form an integral part of these Condensed Consolidated Financial
Statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30-Sep-23 31-Mar-23 30-Sep-22
Note (unaudited) (audited) (unaudited)
£000 £000 £000
Non-current assets
Goodwill 13 203 203 203
Royalty finance investments 6 174,149 158,540 149,853
Loan investments 7 4,652 4,652 3,872
Equity investments 8 11,564 13,529 11,305
Deferred tax asset 18 200 200 155
190,768 177,124 165,388
Current assets
Royalty finance investments 6 26,521 32,793 22,091
Loan investments 7 - - 1,000
Trade and other receivables 10 1,529 2,290 2,294
Cash and cash equivalents 5,971 8,939 5,072
Current tax asset 463 373 111
34,484 44,395 30,568
Total Assets 225,252 221,519 195,956
Current liabilities
Royalty debt liabilities 9 167 154 165
Trade and other payables 11 454 433 1,423
Borrowings 12 527 441 337
1,148 1,028 1,925
Non-current liabilities
Royalty debt liabilities 9 988 988 960
Trade and other payables 11 1,286 1,314 1,331
Borrowings 12 59,351 53,930 34,363
61,625 56,232 36,654
Net Assets 162,479 164,259 157,377
Equity
Shares issued 14 172,939 172,939 172,939
Share based payment reserve 15 3,984 3,447 2,936
Warrant reserve 15 3,036 3,036 265
Retained losses 16 (17,480) (15,163) (18,763)
Total Equity 162,479 164,259 157,377
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share-based
Shares payment Warrant Retained Total
Note issued reserve reserve losses equity
£000 £000 £000 £000 £000
At 1 April 2022 153,974 2,478 265 (23,776) 132,941
Total comprehensive income for the period - - - 10,295 10,295
Transactions with owners
Shares issued for cash 14 20,000 - - - 20,000
Share issuance costs 14 (1,115) - - - (1,115)
Shares issued to key advisers as remuneration 14 80 - - - 80
Share based payments 15 458 - - 458
Dividends 17 - - - (5,282) (5,282)
Total transactions with owners 18,965 458 - (5,282) 14,141
At 30 September 2022 172,939 2,936 265 (18,763) 157,377
Total comprehensive income for the period - - - 9,297 9,297
Transactions with owners
Share based payments 15 - 511 - - 511
Warrants issued 15 - - 2,771 - 2,771
Dividends 17 - - - (5,697) (5,697)
Total transactions with owners - 511 2,771 (5,697) (2,415)
At 31 March 2023 172,939 3,447 3,036 (15,163) 164,259
Share-based
Shares payment Warrant Retained Total
Note issued reserve reserve losses equity
£000 £000 £000 £000 £000
At 1 April 2023 172,939 3,447 3,036 (15,163) 164,259
Total comprehensive income for the period - - - 3,392 3,392
Transactions with owners
Share based payments 15 - 537 - - 537
Dividends 17 - - - (5,709) (5,709)
Total transactions with owners - 537 - (5,709) (5,172)
At 30 September 2023 172,939 3,984 3,036 (17,480) 162,479
The notes form an integral part of these Condensed Consolidated Financial
Statements.
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 "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. During the period, Capital
Step Holdings Limited, Capital Step Investments Limited, Capital Step Funding
Limited, Capital Step Funding 2 Limited were dissolved via voluntarily strike
offs. Also during the period, the Group incorporated Duke Royalty US Holdings,
Inc., a company registered in Delaware, USA.
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 interim Condensed 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 accounting policies adopted in the preparation of the interim Condensed
Consolidated Financial Statements are consistent with those followed in the
preparation of the Consolidated Financial Statements of the Group for the year
ended 31 March 2023.
The Financial Statements have been prepared on a historical cost basis, except
for the following:
· Royalty investments - measured at fair value through
profit or loss
· Equity investments - measured at fair value through
profit or loss
· Royalty participation liabilities - measured at fair
value through profit or loss
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.
2.2 New and amended standards adopted by the Group
There were no new standards adopted by the Group during the reporting period.
2.3 New standards and interpretations not yet adopted
At the date of authorisation of these interim Condensed Consolidated Financial
Statements, certain standards and interpretations were in issue but not yet
effective and have not been applied in these interim Condensed Consolidated
Financial Statements. The Directors do not expect that the adoption of these
standards and interpretations will have a material impact on the interim
Condensed 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. After making
enquiries and bearing in mind the nature of the Company's business and assets,
the Directors consider that the Company has adequate resources to continue in
operational existence for the foreseeable future.
The cash flow needs of the Group have been assessed taking account the need
for further funding for any of the existing royalty partners and the ongoing
working capital needs of the business against the current cash and liquidity
of the Group.
Furthermore, there is adequate headroom in terms of the uncalled loan facility
in place should it be required.
3. Finance Costs
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Interest payable on borrowings 2,905 3,861 1,750
Non-utilisation fees - 194 112
Deferred finance costs released to P&L 421 1,558 89
Other finance costs - 31 -
3,326 5,644 1,951
4. Income tax
The Company has been granted exemption from Guernsey taxation. The Company's
subsidiary in the UK is subject to taxation in accordance with relevant tax
legislation.
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Current tax
Income tax expense 408 886 613
Deferred tax
Decrease in deferred tax assets - (44) 1
- (44) 1
Income tax expense 408 842 614
Factors affecting income tax expense for the period
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Profit on ordinary activities before tax 3,800 20,434 10,910
Tax using the Groups effective tax rate of 10.73% (30 September 2022: 5.63%, 408 842 614
31 March 2023: 4.12%)
Income tax expense 408 842 614
5. Earnings per share
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Total comprehensive income (£000) 3,392 19,592 10,295
Weighted average number of Ordinary Shares in issue, excluding treasury shares 410,484 397,991 388,412
(000s)
Basic earnings per share (pence) 0.83 4.92 2.65
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Total comprehensive income (£000) 3,392 19,592 10,295
Diluted weighted average number of Ordinary Shares in issue, excluding 410,484 397,991 388,412
treasury shares (000s)
Diluted earnings per share (pence) 0.83 4.92 2.65
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 14). 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 due diligence 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.
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Total comprehensive income for the period 3,392 19,592 10,295
Unrealised fair value movements 4,295 (9,111) (5,330)
Expected credit losses - 20 -
Share-based payments 537 969 458
Investment costs 330 686 483
Tax effect of the adjustments above at Group effective rate (553) 306 247
Adjusted earnings 8,001 12,462 6,153
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Adjusted earnings for the year (£000) 8,001 12,462 6,153
Weighted average number of Ordinary Shares in issue, excluding treasury shares 410,484 397,991 388,412
(000s)
Adjusted earnings per share (pence) 1.95 3.13 1.58
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Diluted adjusted earnings for the year (£000) 8,001 12,462 6,153
Diluted weighted average number of Ordinary Shares in issue, excluding 410,484 397,991 388,412
treasury shares (000s)
Diluted adjusted earnings per share (pence) 1.95 3.13 1.58
6. Royalty investments
Royalty investments are financial assets held at FVTPL that relate to the
provision of royalty capital to a diversified portfolio of companies.
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Brought forward 191,333 160,479 160,479
Additions 17,102 23,809 6,550
Buybacks (7,041) - -
(Loss) / profit on financial assets at FVTPL (724) 7,045 4,915
200,670 191,333 171,944
Royalty finance investments are comprised of:
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Non-current 174,149 158,540 149,853
Current 26,521 32,793 22,091
200,670 191,333 171,944
Royalty investment net income on the face of the consolidated statement of
comprehensive income comprises:
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Royalty interest 12,559 21,364 10,234
Royalty premiums 1,760 - -
(Loss) / gain on royalty assets at FVTPL (724) 7,045 4,916
Loss on royalty liabilities at FVTPL (81) (143) (71)
13,514 28,266 15,079
All financial assets held at FVTPL are mandatorily measured as such.
The Group's royalty investment assets comprise royalty financing agreements
with 15 (30 September 2022: 13, 31 March 2023: 15) 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.
7. 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.
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Brought forward 4,652 4,172 4,172
Additions - 2,500 700
Buybacks - (2,000) -
Expected credit losses - (20) -
4,652 4,652 4,872
The Group's loan investments comprise secured loans advanced to two entities
(30 September 2022: two, 31 March 2023: two) in connection with the Group's
royalty investments.
The loans comprise fixed rate loans of £4,652,000 (30 September 2022:
£4,872,000, 31 March 2023: £4,652,000) which bear interest at rates of
between 0% and 15%.
The loans mature as follows:
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
In less than one year - - 1,000
In one to two years - - -
In two to five years 4,652 4,652 3,872
4,652 4,652 4,872
Loan investment net income on the face of the consolidated statement of
comprehensive income comprises:
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Loan interest 259 339 173
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 30 September 2023 £000 £000 £000
Stage 1 4,692 (40) 4,652
Stage 2 - - -
Stage 3 - - -
4,692 (40) 4,652
Gross carrying amount Allowance for ECLs Net
Carrying amount
As at 31 March 2023 £000 £000 £000
Stage 1 4,692 (40) 4,652
Stage 2 - - -
Stage 3 - - -
4,692 (40) 4,652
Gross carrying amount Allowance for ECLs Net
Carrying amount
As at 30 September 2022 £000 £000 £000
Stage 1 4,892 (20) 4,872
Stage 2 - - -
Stage 3 - - -
4,892 (20) 4,872
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. No ECLs have been charged in the period on these
assets as they are not deemed material.
The following table analyses Group's provision for ECL's by stage for the
period ended 30 September 2023:
Stage 1 Stage 2 Stage 3 Total
£000 £000 £000 £000
At 1 April 2022 and 30 September 2022 72 - - 72
Expected credit losses on loan investments in period 22 - - 22
Refinanced loans (2) (2)
Carrying value at 31 March 2023 and 30 September 2023 92 - - 92
8. Equity investments
Equity investments are financial assets held at FVTPL.
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Brought forward 13,529 10,820 10,820
Additions 1,525 500 -
(Loss) / gain on equity assets held at FVTPL (3,490) 2,209 485
11,564 13,529 11,305
The Group's equity investments comprise unlisted shares in 12 of its royalty
investment companies (30 September 2022: 10, 31 March 2023: 11).
The Group also still holds two (30 September 2022: two, 31 March 2023: 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:
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
(Loss) / gain on equity investments at FVTPL (3,490) 2,209 485
Dividend income 48 3 -
(3,442) 2,212 485
9. Royalty debt liabilities
Royalty debt liabilities are financial liabilities held at FVTPL.
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Brought forward 1,142 1,111 1,111
Payments made (68) (112) (57)
Loss on financial assets held at FVTPL 81 143 71
1,155 1,142 1,125
Royalty debt liabilities are comprised of:
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Current 167 154 165
Non-current 988 988 960
1,155 1,142 1,125
10. Trade and other receivables
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Current
Prepayments and accrued income 25 59 8
Other receivables 1,504 2,231 2,286
1,529 2,290 2,294
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 and €4,000,000 was due on or before 30 September 2022. Of the remaining
€2,600,000, €867,000 was paid in September 2023, with the remainder due on
or before 30 September 2024. The outstanding balance is accruing interest at
10% er annum.
Using the same methodology as laid out in note 7 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 considering the charges that the
Group owns over the riverboats. No impairment was recognised in the period to
30 September 2023.
11. Trade and other payables
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Current
Trade payables 20 6 8
Transaction costs 316 315 279
Accruals and deferred income 118 112 1,136
454 433 1,423
Non-current
Transaction costs 1,286 1,314 1,331
1,740 1,747 2,754
12. Borrowings
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Secured loan
Current - accrued interest 527 441 337
Non-current 59,351 53,930 34,363
59,878 54,371 34,700
In January 2023, the Group entered into a new credit facility agreement with
Fairfax Financial Holdings Limited and certain of its subsidiaries ("Fairfax")
and issued Fairfax 41,615,134 warrants. Refer to Note 15 for details. The
facility term is up to £100m to replace Duke's existing £55m million term
and revolving facilities. The credit facility has a five-year term, expiring
in January 2028 with a bullet repayment on expiry and no amortisation payments
during the five-year term. Furthermore, the interest rate is equal to SONIA
plus 5.00% per annum.
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 30 September 2023, £37,000,000 was undrawn on the facility (30 September
2022: £20,250,000, 31 March 2023: £42,000,000).
Costs and fees of £1,439,000 were capitalised against the new credit
facility. At 30 September 2023, £1,247,000 of unamortised fees were
outstanding (30 September 2022: £387,000, 31 March 2023: £1,391,000).
The table below sets out an analysis of net debt and the movements in net debt
for the period ended 30 September 2023, the prior period and the year ended 31
March 2023.
Interest Payable Borrowings
£000 £000
At 1 April 2022 362 47,740
Cash movements
Loan advanced - 5,050
Loan repaid - (18,500)
Interest paid (1,872) -
Other finance costs paid (30) -
Non-cash movements
Deferred finance costs released to P&L - 73
Interest charged 1,862 -
Other finance costs charged 15 -
As at 30 September 2022 337 34,363
Cash movements
Loan advanced - 66,200
Loan repaid - (42,950)
Deferred finance costs paid - (2,347)
Interest paid (2,104) -
Non-cash movements
Deferred finance costs released to P&L - old facility 1,343
Deferred finance costs released to P&L - new facility - 92
Issue of warrants - (2,771)
Interest charged 2,193 -
Other finance costs charged 15 -
As at 31 March 2023 441 53,930
Interest Payable Borrowings
£000 £000
At 1 April 2023 441 53,930
Cash movements
Loan advanced - 5,000
Loan repaid - -
Interest paid (2,819) -
Non-cash movements
Deferred finance costs released to P&L - 421
Interest charged 2,905 -
As at 30 September 2023 527 59,351
13. Goodwill
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Goodwill arising on business combination 203 203 203
14. Share capital
External Shares Treasury Shares Total shares £000
No. No. No.
Allotted, called up and fully paid
At 31 March 2022 348,614 10,190 358,804 153,974
Shares issued for cash during the period 57,143 - 57,143 20,000
Share issuance costs - - - (1,115)
Shares issued to directors and key advisers as remuneration 205 - 205 80
At 30 September 2022 405,962 10,190 416,152 172,939
Shares issued to Employee Benefit Trust during the period - 1,382 1,382 -
PSA shares vested during the year 1,800 (1,800) - -
At 31 March 2023 407,762 9,772 417,534 172,939
Shares issued to Employee Benefit Trust during the period - 3,955 3,955 -
PSA shares vested during the year 7,665 (7,665) - -
At 31 September 2023 415,427 6,062 421,489 172,939
There is a single class of shares. There are no restrictions on the
distribution of dividends and the repayment of capital with respect to
externally held shares. The shares held by the Duke Royalty Employee Benefit
Trust are treated as treasury shares. The rights to dividends and voting
rights have been waived in respect of these shares.
15. Equity-settled share-based payments
Warrant reserve
There were no movements in the warrant reserve during the period:
Warrants
No. (000) £000
At 1 April and 30 September 2022 4,375 265
Issued during the period 41,615 2,771
Lapsed during the period (2,000) -
At 31 March 2023 43,990 3,036
Lapsed during the period (2,375) -
At 30 September 2023 41,615 3,036
In January 2023, Duke issued 41,615,134 warrants to Fairfax. The warrants
expire in January 2028 and have an exercise price of 45 pence. As per IFRS 2,
the warrants have been valued using the Black Scholes model. A total expense
of £2,771,000 has been capitalised and will be amortised over the life of the
warrants. In the period to 30 September 2023, an expense of £277,000 (30
September 2022: £nil, 31 March 2023: £92,000) was recognised through finance
costs in relation to the warrants.
At 30 September 2023, 41,615,000 (30 September 2022: 4,375,000, 31 March 2023
43,990,000) warrants were outstanding and exercisable at a weighted average
exercise price of 45 pence (30 September 2022: 46 pence, 31 March 2023: 45
pence). The weighted average remaining contractual life of the warrants
outstanding was 4.26 years (30 September 2022: 0.50 years, 31 March 2023: 4.56
years).
Share-based payment reserve
The following table shows the movements in the share-based payment reserve
during the period:
Share options LTIP Total
£000 £000 £000
At 1 April 2022 136 2,342 2,478
LTIP awards - 458 458
At 30 September 2022 136 2,800 2,936
LTIP awards - 511 511
At 31 March 2023 136 3,311 3,447
LTIP awards - 537 537
At 30 September 2023 136 3,848 3,984
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.
No share options were granted during the period to 30 September 2023.
At 30 September 2023, 200,000 options (30 September 2022: 200,000, 31 March
2023: 200,000) were outstanding and exercisable at a weighted average exercise
price of 50 pence (30 September 2022: 50 pence, 31 March 2023: 50 pence). The
weighted average remaining contractual life of the options outstanding at the
period end was 0.10 year (30 September 2022: 1.00 year, 31 March 2023: 1.50
years).
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
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.
3,663,000 performance share awards (PSAs) were granted during the period to 30
September 2023 (30 September 2022: nil, 31 March 2023: 3,955,000).
At 30 September 2023, 9,726,000 (30 September 2022: 12,298,000, 31 March 2023:
13,727,000) PSAs were outstanding. The weighted average remaining vesting
period of these awards outstanding was 1.49 years (30 September 2022: 1.44
years, 31 March 2023: 1.20 years).
16. Distributable reserves
Under Guernsey law, the Company can pay dividends provided it satisfies the
solvency test prescribed by the Companies (Guernsey) Law, 2008. The solvency
test considers whether the Company is able to pay its debts when they fall
due, and whether the value of the Company's assets is greater than its
liabilities. The Company satisfied the solvency test in respect of the
dividends declared in the period.
17. Dividends
The following interim dividends have been recorded in the period to 30
September 2023, 31 March 2023 and 30 September 2022:
Dividend per Dividends
share payable
Record date Payment date pence/share £000
25-Mar-22 12-Apr-22 0.70 2,440
01-Jul-22 12-Jul-22 0.70 2,842
Dividends payable for the period ended 30 September 2022 5,282
Dividend per Dividends
share payable
Record date Payment date pence/share £000
30-Sep-22 12-Oct-22 0.70 2,842
23-Dec-22 12-Jan-23 0.70 2,854
Dividends payable for the period ended 31 March 2023 5,696
31-Mar-23 12-Apr-23 0.70 2,854
23-Jun-23 12-Jul-23 0.70 2,855
Dividends payable for the period ended 30 September 2023 5,709
On 29 September 2023 the Company approved a further quarterly cash dividend of
0.70 pence per share, totalling £2,908,000, which was paid on 12 October
2023.
18. Deferred tax
Total
£000s
1 April 2022 156
Credited / (charged) to profit & loss (1)
At 30 September 2022 155
Credited / (charged) to profit & loss 45
At 31 March 2023 200
Charged to profit & loss -
At 30 September 2023 200
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 tax losses.
19. Related parties
Directors' fees
The following fees were payable to the Directors during the period:
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Short term remuneration 831 1,012 734
Share-based payments 256 464 211
1,087 1,476 945
Other related party transactions
The following amounts were paid to related parties during the period in
respect of support services fees:
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Abingdon Capital Corporation 263 425 205
Arlington Group Asset Management Limited 50 93 43
313 518 248
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. Fees paid to these companies relate
to the recharge of office rental costs. Abingdon fees also includes fees
relating to remuneration of staff residing in North America.
Dividends
The following dividends were paid to related parties:
Period to Year to Period to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Directors (1) 196 354 186
Other related parties 50 92 27
246 446 213
(1) Includes dividends paid to Abinvest Corporation, a wholly owned subsidiary
of Abingdon Capital Corporation, and to Arlington Group Asset Management
20. Fair value measurements
Fair value hierarchy
IFRS 13 requires disclosure of fair value measurements by level of the
following fair value hierarchy:
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical
assets and liabilities that the entity can readily observe.
Level 2: Inputs are inputs other than quoted prices included within Level 1
that are observable for the asset, either directly or indirectly.
Level 3: Inputs that are not based on observable market date (unobservable
inputs).
The Group has classified its financial instruments into the three levels
prescribed as follows:
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
£000 £000 £000
Financial assets
Financial assets at FVTPL
- Royalty finance investments 200,670 191,333 171,944
- Equity investments 11,564 13,529 11,305
212,234 204,862 183,249
Financial liabilities
Financial liabilities at FVTPL
- Royalty debt liabilities 1,155 1,142 1,125
The following table presents the changes in level 3 items for the periods
ended 30 September 2023, 31 March 2023 and 30 September 2022:
Financial Financial
Assets Liabilities Total
£000 £000 £000
At 31 March 2022 171,299 (1,111) 170,188
Additions 6,550 - 6,550
Royalty income received (15,079) - (15,079)
RP liability paid - 57 57
Net change in FV 20,479 (70) 20,409
At 30 September 2022 183,249 (1,124) 182,125
Additions 17,759 17,759
Royalty income received (13,187) (13,187)
RP liability paid - 55 55
Net change in FV 17,041 (73) 16,968
At 31 March 2023 204,862 (1,142) 203,720
Additions 18,628 - 18,628
Repayments (7,041) - (7,041)
Royalty income received 11,959 - 11,959
RP liability paid - 68 68
Net change in FV (16,174) (81) (16,255)
At 30 September 2023 212,234 (1,155) 211,079
Valuation techniques used to determine fair values
The fair value of the Group's financial instruments is determined using
discounted cash flow analysis and all the resulting fair value estimates are
included in level 3.
Valuation processes
The main level 3 inputs used by the Group are derived and evaluated as
follows:
Annual adjustment factors for royalty investments and royalty participation
liabilities
These factors are estimated based upon the underlying past and projected
performance of the royalty investee companies together with general market
conditions.
Discount rates for financial assets and liabilities
These are initially estimated based upon the projected internal rate of return
of the royalty investment and subsequently adjusted to reflect changes in
credit risk determined by the Group's Investment Committee.
Changes in level 3 fair values are analysed at the end of each reporting
period and reasons for the fair value movements are documented.
Valuation inputs and relationships to fair value
The following summary outlines the quantitative information about the
significant unobservable inputs used in level 3 fair value measurements:
Royalty investments
The unobservable inputs are the annual adjustment factor and the discount
rate. The range of annual adjustment factors used is -6.0% to 6.0% and the
range of risk-adjusted discount rates is 14.7% to 17.4%.
Equity investments
The unobservable inputs are the EBITDA multiples and forward-looking EBITDA.
The range of EBITDA multiples used is 5.3x to 10.0x (5.0x to 7.8x).
Royalty participation instruments
The unobservable inputs are the annual adjustment factor and the discount
rate. The range of annual adjustment factors used is -6.0% to 6.0% and the
range of risk-adjusted discount rates is 16.3% to 17.4%.
21. Events after the financial reporting date
Dividends
On 12 October 2023, the Company paid a quarterly dividend of 0.70 pence per
share.
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