REG - Duke Royalty Limited - Interim Results
03/12/2021 07:00
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RNS Number : 4992U Duke Royalty Limited 03 December 2021
3 December 2021
Duke Royalty Limited
("Duke Royalty", "Duke" or the "Company")
Interim Results for the six months ended 30 September 2021
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-month ended
30 September 2021.
Financial Highlights
· Cash revenue of £7.8 million, up 78% from the prior period
(Interim 2021: £4.4 million)
· Net cash inflow from operations of £5.2 million, a 46% increase
(Interim 2021: £3.6 million)
· Net profit generated of £6.2 million, a 50% increase (Interim
2021: £4.1 million)
· Free cash flow of £4.6 million, up 58% from Interim 2021 (£2.9
million)
· Adjusted earnings of 1.39 pence per share, a 60% increase
(Interim 2021: 0.87 pence per share)
· Cash dividends of 1.10 pence per share paid to shareholders
Operational Highlights
· Raised £35 million of new equity capital in April 2021
· Deployed over £23 million of capital into three new royalty
partners
· Realised exits from two investments
· Over £55 million of available liquidity for future deployments
· Current deal pipeline is at historic levels in deal value and
number
Neil Johnson, CEO of Duke Royalty, said:
"This has been a very successful half year, characterised by substantial
cashflow growth and accelerating investment deployment. Cash revenue is up 78%
from the prior period to £7.8 million, and we have delivered a 58% increase
in free cashflow to £4.6 million. This positive performance has been driven
mainly by our team's rapid execution of new royalty agreements which has seen
us invest over £23 million into three new royalty partners during the period.
"This strong trading performance makes me confident that Duke will exceed the
market's expectations for the 12 months ended 31 March 2022. Since the
resumption of its cash dividend, Duke has increased its dividend payment from
0.50 pence per share to 0.55 pence per share, with the prospect of higher
dividend payments for shareholders in the future. This growth will be
supported by entering into new royalty agreements and I am pleased to report
that our pipeline is the strongest in our history. We expect to announce a
range of new deployments in the coming weeks and months."
Investor Webinar
Neil Johnson, CEO, and Hugo Evans, Finance Director, will deliver a live
presentation via the Investor Meet Company platform on 13 December 2021 at
15:30 GMT.
The online presentation is open to all existing and potential shareholders.
Questions can be submitted pre-event via your IMC dashboard or at any time
during the live presentation via the "Ask a Question" function. Although the
Company may not be in a position to answer every question it receives, it will
address the most prominent within the confines of information already
disclosed to the market. Responses to the Q&A from the live presentation
will be published at the earliest opportunity on the Investor Meet Company
platform.
Investor feedback can also be submitted directly to management post-event to
ensure the Company can understand the views of all elements of its shareholder
base.
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)
Investors who have already registered and added to meet the Company will be
automatically invited.
This announcement contains inside information.
For further information, please contact www.dukeroyalty.com
(https://www.dukeroyalty.com) , or contact:
Duke Royalty Limited Neil Johnson / Charlie Cannon Brookes / Hugo Evans +44 (0) 1481 741 240
Cenkos Securities plc Stephen Keys / Callum Davidson / Julian Morse / Michael Johnson +44 (0) 207 397 8900
(Nominated Adviser and Joint Broker)
Canaccord Genuity Adam James / Georgina McCooke +44 (0) 207 523 8000
(Joint Broker)
SEC Newgate Communications (PR) Elisabeth Cowell / +44 (0) 203 757 6880
Richard Bicknell / Megan Kovach dukeroyalty@secnewgate.co.uk (mailto:dukeroyalty@secnewgate.co.uk)
CHAIRMAN'S REPORT
Dear Shareholder,
I am pleased to report the results for the Group for the six-month period
ended 30 September 2021 ("Interim 2022"), which were characterised by
substantial cashflow growth and accelerating investment deployment.
Interim 2022 was a period of positive development for Duke during which the
executive team's focus reverted to business development, growth and deal
execution following the initial shock of the pandemic felt during the prior
half year period. After a sustained period where the Company was required to
focus much of its attention on internal monitoring and working closely with
its Royalty Partners to ensure that they traded safely through the many
challenges of Covid-19, it has been encouraging to witness a significant
bounce back in the operating performance of many of those Partners.
Furthermore, after such a period of global financial stress, the Company's
unique, long dated and aligned product offering has meant that Duke is
increasingly being seen as a preferred capital partner for many profitable,
well managed private businesses who do not wish to become encumbered by the
high refinancing risk associated with short-dated debt. To highlight this
point, I am pleased to be able to report that Duke's current deal pipeline is
as robust as it has ever been in the Company's history and I am confident that
the Company will being able to announce a number of new deployments in due
course.
Operational Review
Interim 2022 started with an over-subscribed £35 million equity placing which
closed in late April, providing Duke with the necessary liquidity to allow it
to accelerate its speed of deployment. It was very pleasing to note that
several large, new institutions were added to the Duke share register as part
of the fundraising. As with previous equity fundraisings, Duke ensured there
was a retail element to the capital raising process with £32 million being
raised from institutional investors and £3 million coming from existing and
new retail shareholders through the PrimaryBid platform. Wherever possible,
Duke seeks to provide existing and new individual shareholders the chance to
participate on the same terms as the institutions and we very much appreciate
the strong support we continue to receive from our large retail investor base.
Duke made three material new investments during the period under review, the
first of which was a €10 million investment into Fairmed Healthcare AG
("Fairmed"), closed at the end of June. Formed in 2012 and based in Zug,
Switzerland, Fairmed provides high quality generic prescription medicines,
over-the-counter pharmaceuticals, dermocosmetics and dietary supplements in
various EU countries. The second investment, made in July, was a £7.7 million
investment into InTec Business Solutions Limited ("InTec"). InTec is a UK
company specialising in the design, implementation, and support of a wide
range of cloud services and business applications and is undertaking a buy and
build strategy of synergistic companies within the I.T. Managed Services
sector in the UK and Ireland. In September, Duke subsequently upsized its
investment in Intec by £2.2 million, which allowed InTec to complete its
eighth acquisition, providing additional product, profitability and
diversification to the business. Also in July, Duke agreed to a total funding
commitment of up to CA$20 million (approximately £11.6 million) with
Creō-Tech Industrial Group Inc. ("Creō-Tech"). Creō-Tech is a Canadian
holding company that has been set up to acquire businesses that provide
engineering, procurement and construction ("EPC") services in commercial and
industrial settings. Of the CA$20 million total commitment, Duke invested
CA$8.3 million as part of the initial drawdown to facilitate the acquisitions
of Silhouette and Axial, two longstanding and profitable businesses with
predictable revenue streams.
Two successful divestments were also made during the period. The first was
Duke's exit of its investment in royalty partner Almondclose Limited, trading
as Berkley Recruitment (Group) Limited ("Berkley"), a Cork-based resourcing
and recruitment business. Duke received net cash of €1.3 million at closing,
delivering an IRR on the Berkley investment of 16.0%. Due to its sub £5
million investment size, Berkley represented a subscale investment for Duke
which was inherited via its acquisition of Capital Step back in February 2019.
Duke has retained exposure to the Irish resourcing and recruitment sector via
its other larger royalty partner, BIL, which is conducting a buy and build
strategy within the sector. The second exit came from royalty partner BHPC
Limited ("BHP"), an Irish insurance brokerage specialising in the
not-for-profit insurance space, and at closing Duke received back net cash of
£6.9 million, delivering an IRR of 29.4%, Duke's highest realised IRR to
date. BHP represented Duke's fifth exit to date further validating our funding
model.
Financial Review
The financial results for Interim 2022 reflect the resilience of Duke's
business model and its ability to withstand the global economic disruption
caused by the Covid-19 pandemic. I am delighted to report that the Company's
cash revenue, being cash distributions from royalty partners and cash gains
from the sale of equity investments, grew to £7.8 million during the period
under review, a 78% increase over the £4.4 million generated in Interim 2021.
Net cash inflow from operations, the key indicator of the Group's underlying
operating performance, totalled £5.2 million, a 46% increase over the £3.6
million generated in Interim 2021. Total cash available for distribution (free
cashflow), which represents the Group's operating cashflows less its interest
on debt financing and is a measure of Duke's ability to cover its dividend,
grew by 58% to £4.6 million, generating 1.36 pence per share, up from £2.9
million and 1.22 pence per share in Interim 2021.
Total income, which includes non-cash fair value movements on the Company's
investment portfolio, grew to £9.8 million, a 38% increase over Interim 2021.
This produced total earnings after tax of £6.2 million and earnings per share
of 1.84 pence against £4.1 million in Interim 2021 and earnings per share of
1.73 pence. Adjusted earnings, which strips out the fair value movements and
represents a truer reflection of Duke's operating performance, rose to £4.7
million from £2.1 million, a 125% increase.
The Company strengthened its balance sheet during the period under review,
raising £35 million of new equity capital at the end of April. Of this, over
£23 million was deployed into three new royalty partners, only marginally
less than the aggregate deployments for the entire financial year 2021. The
full cashflow benefits of these deployments will be seen over the second half
of the financial year.
Dividend
In April 2021, the Company increased its dividend from 0.50 pence per share to
0.55 pence per share, the first increase since the resumption of the cash
dividend in Q3 of financial year 2021. This was followed with a further
dividend of 0.55 pence per share paid in July 2021. Post-period end, a
dividend of 0.55 pence per share was paid to shareholders in October 2021.
Outlook
One of the few benefits of the Covid-19 experience was the strong working
relationship that has been created between Duke and its Royalty Partners.
Together, we faced problems and implemented solutions and this has created a
strong platform from which Duke can now embark on the next chapter of its
growth, one in which I expect to see the Company grow its asset base and
diversify its portfolio further.
Current trading for the three months ended 31 December 2021 is strong and I am
pleased to share the Board's confidence of exceeding the market's expectations
for 12 months ended 31 March 2022.
Notably, we have a robust pipeline of new investment opportunities, all of
which have demonstrated resilience in the height of the pandemic. Given the
nature of the Company's low and largely fixed cost base, additional
deployments are expected to lead to increases in the Company's operating cash
flow per share which in turn should lead to the prospect of higher dividend
payments for Duke's shareholders in the future. It remains the Company's key
objective to create a large, diversified portfolio of compounding long term
income streams with the majority of this income being paid to shareholders in
the form of quarterly dividends.
As always, I am appreciative of the ongoing support of our shareholders and am
pleased to report the Chairman's statement for Interim 2022. Our existing
partners have traded resiliently and we have minimised our exposure to the
travel and leisure sectors. Therefore, the Group is well placed to continue to
grow and I look forward to being able to report on the Group's ongoing
progress and development in future periods.
Nigel Birrell
Chairman
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED 30 SEPTEMBER 2021
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Cash flows from operating activities
Receipts from royalty investments 6,419 9,931 3,654
Receipts of interest from loan investments 450 667 381
Receipts from equity instruments 652 345 345
Other operating income 266 93 6
Operating expenses paid (946) (2,154) (893)
Payments for royalty participation fees (57) (81) (52)
Tax (paid) / received (1,569) 135 135
Net cash inflow from operating activities 5,215 8,936 3,576
Cash flows from investing activities
Royalty investments advanced (23,209) (22,708) (5,326)
Royalty investments received 2,938 14,354 900
Loan investments advanced - (1,145) (132)
Loan investments received 3,370 2,370 1,100
Equity investments advanced (530) (653) (350)
Investment costs paid (496) (634) (61)
Net cash outflow from investing activities (17,927) (8,416) (3,869)
Cash flows from financing activities
Proceeds from share issue 35,000 - -
Share issue costs (1,938) (1) -
Dividends paid (3,269) (3,013) (1,778)
Proceeds from loans - 15,200 4,000
Loans repaid (7,500) (13,926) -
Interest paid (611) (1,409) (663)
Other finance costs paid - (95) (157)
Net cash inflow / (outflow) from financing activities 21,682 (3,244) 1,402
Net change in cash and cash equivalents 8,970 (2,724) 1,109
Cash and cash equivalents at beginning of period/year 1,766 4,481 4,481
Effect of foreign exchange on cash 9 9 14
Cash and cash equivalents at the end of period/year 10,745 1,766 5,604
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD ENDED 30 SEPTEMBER 2021
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
Note (unaudited) (audited) (unaudited)
£000 £000 £000
Income
Royalty investment net income 6 7,584 19,344 7,509
Loan investment net income 7 410 636 339
Equity investment net income 8 1,497 1,569 (769)
Other operating income 266 93 6
Total income 9,757 21,642 7,085
Investment Expenses
Transaction costs (525) (447) 11
Due diligence costs 11 (103) 40
(514) (550) 51
Operating Expenses
Administration and personnel (1,191) (1,675) (953)
Legal and professional (183) (367) (178)
Other operating expenses (65) (99) (41)
Share-based payments (472) (806) (303)
(1,911) (2,947) (1,475)
Operating profit 7,332 18,145 5,661
Net foreign currency gains 108 (542) 15
Finance costs (693) (1,539) (815)
Profit for the period before tax 6,747 16,064 4,861
Taxation expense 4 (540) (2,111) (734)
Total comprehensive income for the period 6,207 13,953 4,127
Basic earnings per share (pence) 1.84 5.75 1.73
Diluted earnings per share (pence) 1.84 5.75 1.73
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2021
Note 30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Non-current assets
Goodwill 13 203 203 203
Royalty finance investments 6 93,232 71,107 53,299
Loan investments 7 1,000 4,370 3,357
Equity investments 8 4,810 3,495 172
Trade and other receivables 10 2,236 5,618 -
Deferred tax asset 18 157 158 204
101,638 84,951 57,235
Current assets
Royalty finance investments 6 13,607 14,194 30,186
Loan investments 7 580 580 5,192
Equity investments 8 60 - -
Trade and other receivables 10 7,780 4,422 67
Cash and cash equivalents 10,745 1,766 5,604
Current tax asset - - 169
32,772 20,962 41,218
Total Assets 134,410 105,913 98,453
Current liabilities
Royalty debt liabilities 9 144 114 131
Trade and other payables 11 868 267 484
Borrowings 12 172 161 117
Current tax liability 132 1,163 -
1,316 1,705 732
Non-current liabilities
Royalty debt liabilities 9 932 917 1,063
Trade and other payables 11 204 402 400
Borrowings 12 9,659 17,103 19,566
10,795 18,422 21,029
Net Assets 122,299 85,786 76,692
Equity
Shares issued 14 153,973 120,870 119,663
Share based payment reserve 15 2,020 1,548 1,045
Warrant reserve 15 265 265 265
Retained losses 16 (33,959) (36,897) (44,281)
Total Equity 122,299 85,786 76,692
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 30 SEPTEMBER 2021
Share-based
Shares payment Warrant Retained Total
Note issued reserve reserve losses equity
£000 £000 £000 £000 £000
At 1 April 2020 118,479 742 265 (45,446) 74,040
Total comprehensive income for the period - - - 4,127 4,127
Transactions with owners
Shares issued as dividends 1,184 - - - 1,184
Share based payments - 303 - - 303
Dividends - - - (2,962) (2,962)
Total transactions with owners 1,184 303 - (2,962) (1,475)
At 30 September 2020 119,663 1,045 265 (44,281) 76,692
Total comprehensive income for the period - - - 9,826 9,826
Transactions with owners
Shares issued as dividends 1,207 - - - 1,207
Share based payments - 503 - - 503
Dividends - - - (2,442) (2,442)
Total transactions with owners 1,207 503 - (2,442) (732)
At 31 March 2021 120,870 1,548 265 (36,897) 85,786
Share-based
Shares payment Warrant Retained Total
Note issued reserve reserve losses equity
£000 £000 £000 £000 £000
At 1 April 2021 120,870 1,548 265 (36,897) 85,786
Total comprehensive income for the period - - - 6,207 6,207
Transactions with owners
Shares issued for cash 35,000 - - - 35,000
Share issuance costs (1,937) - - - (1,937)
Share based payments 40 472 - - 512
Dividends - - - (3,269) (3,269)
Total transactions with owners 33,103 472 - (3,269) 30,306
At 30 September 2021 153,973 2,020 265 (33,959) 122,299
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 SEPTEMBER 2021
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 on page 28.
Throughout the period, the "Group" comprised Duke Royalty Limited and its
wholly owned subsidiaries; Duke Royalty UK Limited, Capital Step Holdings
Limited, Capital Step Investments Limited, Capital Step Funding Limited,
Capital Step Funding 2 Limited and Duke Royalty Employee Benefit Trust.
The Group's investing policy is to invest in a diversified portfolio of
royalty finance and related opportunities.
2. Significant accounting policies
2.1 Basis of preparation
The interim Condensed Consolidated Financial Statements of the Group have been
prepared in accordance with International Accounting Standard 34 "Interim
Financial Reporting", as adopted by the European Union, and using the going
concern basis of preparation. These interim financial statements do not
contain all the information and disclosures as presented in the annual
financial statements and should be read in conjunction with the Consolidated
Financial Statements of the Group for the year ended 31 March 2021, which have
been prepared in accordance with International Financial Reporting Standards
("IFRS"), to the extent that they have been adopted by the European Union, and
applicable Guernsey law.
The accounting policies adopted in the preparation of the interim Condensed
Consolidated Financial Statements are consistent with those followed in the
preparation of the Consolidated Financial Statements of the Group for the year
ended 31 March 2021.
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
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 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-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Interest payable on borrowings (409) (1,293) (689)
Non-utilisation fees (213) (106) (56)
Deferred finance costs released to P&L (71) (140) (70)
(693) (1,539) (815)
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-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Current tax
Income tax expense 539 1,594 263
Deferred tax
Decrease in deferred tax assets 2 674 483
Decrease in deferred tax liabilities (1) (157) (12)
1 517 471
Income tax expense 540 2,111 734
Factors affecting income tax expense for the period
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Profit on ordinary activities before tax 6,747 16,064 4,861
Tax using the Groups effective tax rate of 8.00% (2021: 13.14%, period to 30 540 2,111 734
September 2020: 15.10%)
Income tax expense 540 2,111 734
5. Earnings per share
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Total comprehensive income (£000) 6,207 13,953 4,127
Weighted average number of Ordinary Shares in issue, excluding treasury shares 337,310 242,836 238,797
(000s)
Basic earnings per share (pence) 1.84 5.75 1.73
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Total comprehensive income (£000) 6,207 13,953 4,127
Weighted average number of Ordinary Shares, diluted for warrants in issue 337,310 242,836 238,797
(000s)
Diluted earnings per share (pence) 1.84 5.75 1.73
Basic earnings per share is calculated by dividing total comprehensive income
for the period by the weighted average number of shares in issue throughout
the period. Diluted earnings per share represents the basic earnings per share
adjusted for the effect of dilutive potential shares issuable on exercise of
share options under the Company's share-based payment schemes, weighted for
the relevant period.
Adjusted earnings per share
Adjusted earnings represents the Group's underlying performance from core
activities. Adjusted earnings is the total comprehensive income adjusted for
unrealised and non-core fair value movements, non-cash items and
transaction-related costs, including royalty participation fees, together with
the tax effects thereon.
Valuation and other non-cash movements such as those outlined are not
considered by management in assessing the level of profit and cash generation
of the Group. Additionally, IFRS 9 requires transaction-related costs to be
expensed immediately whilst the income benefit is over the life of the asset.
As such, an adjusted earnings measure is used which reflects the underlying
contribution from the Group's core activities during the year.
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Total comprehensive income for the period 6,207 13,953 4,127
Unrealised fair value movements (2,663) (9,871) (2,658)
Share-based payments 472 806 303
Transactions costs / (receipts) net of costs reimbursed 525 550 (51)
Tax effect of the adjustments above at Group effective rate 134 1,119 353
Adjusted earnings 4,675 6,557 2,074
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Adjusted earnings (£000) 4,675 6,557 2,074
Weighted average number of Ordinary Shares, excluding treasury shares (000s) 337,310 242,836 238,797
Adjusted earnings per share (pence) 1.39 2.70 0.87
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Diluted adjusted earnings (£000) 4,675 6,557 2,074
Weighted average number of Ordinary Shares, diluted for warrants in issue 337,310 242,836 238,797
(000s)
Diluted adjusted earnings per share (pence) 1.39 2.70 0.87
6. Royalty investments
Royalty finance investments are financial assets held at fair value through
profit and loss ("FVTPL") that relate to the provision of royalty capital to a
diversified portfolio of companies.
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Brought forward 85,301 75,559 75,559
Additions 23,209 22,708 5,326
Refinanced assets (2,938) (21,434) (900)
Gain on financial assets at FVTPL 1,267 8,468 3,500
106,839 85,301 83,485
Royalty finance investments are comprised of:
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Non-Current 93,232 71,107 53,299
Current 13,607 14,194 30,186
106,839 85,301 83,485
Royalty investment net income on the face of the consolidated statement of
comprehensive income comprises:
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Royalty interest 5,705 9,179 4,082
Royalty premiums 714 1,862 -
Gain on royalty assets at FVTPL 1,267 8,468 3,500
Loss on royalty liabilities at FVTPL (102) (165) (73)
7,584 19,344 7,509
All financial assets held at FVTPL are mandatorily measured as such.
The Group's royalty investment assets comprise royalty financing agreements
with 11 (30 September 2020: 11, 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 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.
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Brought forward 4,950 9,517 9,517
Additions - 1,145 132
Refinanced loans (3,370) (5,649) (1,100)
Net foreign currency movement - (63) -
1,580 4,950 8,549
The Group's loan investments comprise secured loans advanced to two entities
(30 September 2020: six, 31 March 2021: three) in connection with the Group's
royalty investments.
The loans comprise fixed rate loans of £1,580,000 (30 September 2020:
£6,192,000, 31 March 2021: £1,580,000) which bear interest at rates of
between 5% and 15% and nil variable rate loans (30 September 2020:
£2,357,000, 31 March 2021: £3,370,000).
The loans mature as follows:
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
In less than one year 580 580 5,192
In one to two years - - -
In two to five years 1,000 4,370 3,357
1,580 4,950 8,549
The total loan investment net income during the period was £410,000 (30
September 2020: £339,000, 31 March 2021: £636,000). Loan investment net
income on the face of the consolidated statement of comprehensive income
comprises:
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Loan interest 242 603 306
Loan premiums 168 33 33
410 636 339
ECL Analysis
The measurement of ECLs is primarily based on the product of the instrument's
probability of default ("PD"), loss given default ("LGD"), and exposure at
default ("EAD"). The Group analyses a range of factors to determine the credit
risk of each investment. These include, but are not limited to:
· liquidity and cash flows of the underlying businesses
· security strength
· covenant cover
· balance sheet strength
If there is a material change in these factors, the weighting of either the
PD, LGD or EAD increases, thereby increasing the ECL impairment.
The disclosure below presents the gross and net carrying value of the Group'
loan investments by stage:
Gross carrying amount Allowance for ECLs Net
Carrying amount
As at 30 September 2021 £000 £000 £000
Stage 1 1,580 - 1,580
Stage 2 - - -
Stage 3 - - -
1,580 - 1,580
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
Gross carrying amount Allowance for ECLs Net
Carrying amount
As at 30 September 2020 £000 £000 £000
Stage 1 5,269 - 5,269
Stage 2 - - -
Stage 3 3,280 - 3,280
8,549 - 8,549
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.
At 30 September 2020, the Group determined the risk profile of one loan
investment was deemed to be impaired and was classified as Stage 3. This
investment was subsequently sold prior to the year ended 31 March 2021.
The credit risk profile of the remaining investments has not increased
materially and they remain Stage 1 assets. No ECLs have been charged 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 2021:
Stage 1 Stage 2 Stage 3 Total
£000 £000 £000 £000
At 1 April 2020 and 30 September 2020 - - 2,947 2,947
Impairment charged in period - - - -
Refinanced Loans - - (2,947) (2,947)
Carrying value at 31 March 2021 and 30 September 2021 - - - -
8. Equity investments
Equity investments are financial assets held at FVTPL.
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Brought forward 3,495 507 507
Additions 530 1,764 779
Disposals (652) (345) (345)
Gain / (loss) on equity assets at FVTPL 1,497 1,569 (769)
4,870 3,495 172
The Group's equity investments comprise unlisted shares and warrants in eight
of its royalty investment companies (30 September 2020: six, 31 March 2021:
eight).
The Group also still holds two (30 September 2020: 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:
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Gain / (loss) on equity investments at FVTPL 1,497 1,569 (778)
Realised gain on sale of equity investments - - 9
1,497 1,569 (769)
9. Royalty debt liabilities
Royalty debt liabilities are financial liabilities held at FVTPL.
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Brought forward 1,031 1,173 1,173
Repayments - (226) -
Payments made (57) (81) (52)
Loss on financial assets at FVTPL 102 165 73
1,076 1,031 1,194
Royalty debt liabilities are comprised of:
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Current 144 114 131
Non-current 932 917 1,063
1,076 1,031 1,194
10. Trade and other receivables
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Current
Prepayments and accrued income 43 167 64
Other receivables 7,737 4,255 3
7,780 4,422 67
Non-current
Other receivables 2,236 5,618 -
10,016 10,040 67
11. Trade and other payables
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Current
Trade payables 10 2 2
Transaction costs 125 82 94
Accruals and deferred income 733 183 388
868 267 484
Non-current
Transaction costs 204 402 480
1,072 669 884
12. Borrowings
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Secured loan
Current - accrued interest 172 161 117
Non-current 9,659 17,103 19,566
9,831 17,264 19,683
The secured revolving loan facility has an interest rate of 7.25% over UK
LIBOR per annum. The principal amount is repayable on 11 March 2026. The loan
is secured by means of a fixed and floating charge over the assets of the
Group.
As at 30 September 2021, £25,000,000 was undrawn on the facility (30
September 2020: £10,000,000, 31 March 2020: £17,500,000).
At 30 September 2021, £355,000 (30 September 2020: £434,000, 31 March 2021:
£396,000) of unamortised fees remained outstanding.
The table below set out an analysis of net debt and the movements in net debt
for the period ended 30 September 2021, the prior period and the year ended 31
March 2021.
Interest Payable Borrowings
£000 £000
At 1 April 2021 161 17,103
Cash movements
Loan advanced - -
Loan repaid - (7,500)
Deferred finance costs paid - -
Interest paid (611) -
Non-cash movements
Deferred finance costs released to P&L - 56
Interest charged 622 -
As at 30 September 2021 172 9,659
Interest Payable Borrowings
£000 £000
At 1 April 2020 172 15,517
Cash movements
Loan advanced - 4,000
Loan repaid - -
Deferred finance costs paid - -
Interest paid (799) -
Non-cash movements
Deferred finance costs released to P&L - 49
Interest charged 744 -
As at 30 September 2020 117 19,566
Cash movements
Loan advanced - 11,200
Loan repaid - (13,926)
Deferred finance costs paid - (23)
Interest paid (611) -
Non-cash movements
Deferred finance costs released to P&L - 60
Transfer to royalty debt liability - 226
Interest charged 655 -
At 31 March 2021 161 17,103
13. Goodwill
30-Sep-21 31-Mar-21 30-Sep-20
(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 2020 236,937 2,690 239,627 118,479
Shares issued for cash during the period - - - -
Share issuance costs - - - -
Scrip dividend paid 4,479 - 4,479 1,184
Shares issued to Employee Benefit Trust during the period - 2,525 2,525 -
At 30 September 2020 241,416 5,215 246,631 119,663
Shares issued to Employee Benefit Trust during the period - 6,153 6,153 -
Scrip dividend paid 5,123 - 5,123 1,207
PSA shares vested during the year 513 (513) - -
At 31 March 2021 247,052 10,855 257,907 120,870
Shares issued for cash during the period 100,000 - 100,000 35,000
Share issuance costs - - - (1,937)
Shares issued to directors and key advisers as remuneration 105 - 105 40
At 31 September 2021 347,157 10,855 358,012 153,973
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 2020, 30 September 2020, 31 March 2021, and 30 September 2021 4,375 265
At 30 September 2021, 4,375,000 (30 September 2020: 4,375,000, 31 March 2020:
4,375,000) warrants were outstanding and exercisable at a weighted average
exercise price of 46 pence (30 September 2020: 46 pence, 31 March 2020: 46
pence). The weighted average remaining contractual life of the warrants
outstanding was 1.50 years (30 September 2020: 2.50 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 - 303 303
At 30 September 2020 136 909 1,045
LTIP awards - 503 503
At 31 March 2021 136 1,412 1,548
LTIP awards - 472 472
At 30 September 2021 136 1,884 2,020
Share option scheme
No share options were granted during the period to 30 September 2021.
At 30 September 2021, 200,000 options (30 September 2020: 960,000, 31 March
2021: 200,000) were outstanding and exercisable at a weighted average exercise
price of 50 pence (30 September 2020: 31 March 2021: 50 pence). The weighted
average remaining contractual life of the options outstanding at the period
end was 2.00 years (30 September 2020: 1.44 years, 31 March 2021: 2.50 years).
Long Term Incentive Plan
No performance share awards (PSAs) were granted during the period to 30
September 2021.
At 30 September 2021, 11,855,000 (30 September 2020: 2,690,000, 31 March 2021:
11,855,000) PSAs were outstanding. The weighted average remaining vesting
period of these awards outstanding was 1.50 years (30 September 2020: 1.44
years, 31 March 2021: 2.04 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:
Dividend per Dividends
share payable
Record date Payment date pence/share £000
27 March 2020 14 April 2020 0.75 1,777
26 June 2020 10 July 2020 0.50 1,185
Dividends payable for the period ended 30 September 2020 2,962
Dividend per Dividends
share payable
Record date Payment date pence/share £000
25 September 2020 12 October 2020 0.50 1,206
29 December 2020 12 January 2021 0.50 1,236
Dividends paid for the period ended 31 March 2021 2,442
26 March 2021 12 April 2021 0.55 1,359
25 June 2021 12 July 2021 0.55 1,909
Dividends paid for the period ended 30 September 2021 3,268
On 24 September 2021 the Company approved a further quarterly cash dividend of
0.55 pence per share, totalling £1,909,000, which was paid on 12 October
2021.
18. Deferred tax
Royalty investment Tax losses Total
£000s £000s £000s
1 April 2020 (12) 687 675
Credited / (charged) to profit & loss 9 (480) (471)
At 30 September 2020 (3) 207 204
Credited / (charged) to profit & loss 161 (207) (46)
At 31 March 2021 158 - 158
Charged to profit & loss (1) - (1)
At 30 September 2021 157 - 157
The deferred tax asset arises due to a temporary timing differences on the
treatment of transaction costs in the UK subsidiary. This deferred tax asset
is expected to reverse over a 30 year period. The utilisation of this asset is
dependent on sufficient future taxable profits being generated by the UK
subsidiary.
19. Related parties
Directors' fees
The following fees were payable to the Directors during the period:
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Short term remuneration 463 582 366
Share-based payments 273 528 326
736 1,110 692
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-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Abingdon Capital Corporation 175 350 175
Arlington Group Asset Management Limited 43 85 43
218 435 218
Support Service Agreements with Abingdon Capital Corporation ("Abingdon"), a
company of which Neil Johnson is a Director, and Arlington Group Asset
Management Limited ("Arlington"), a company of which Charles Cannon Brookes is
a Director, were signed on 16 June 2015. The services to be provided by both
Abingdon and Arlington include global deal origination, vertical partner
relationships and 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.
Dividends
The following dividends were paid to related parties:
Period to Year to Period to
30-Sep-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Directors (1) 124 232 126
Other related parties 17 31 10
141 263 136
(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-21 31-Mar-21 30-Sep-20
(unaudited) (audited) (unaudited)
£000 £000 £000
Financial assets
Financial assets at FVTPL
- Royalty finance investments 106,839 85,301 83,485
- Equity investments 4,870 3,495 172
111,709 88,796 83,657
Financial liabilities
Financial liabilities at FVTPL
- Royalty debt liabilities 1,076 1,031 1,194
The following table presents the changes in level 3 items for the periods
ended 30 September 2021, 31 March 2021 and 30 September 2020:
Financial Financial
Assets Liabilities Total
£000 £000 £000
At 31 March 2020 76,067 (1,173) 74,894
Additions 6,104 - 6,104
Repayments (1,245) - (1,245)
Royalty income received 3,654 - 3,654
RP liability paid - 52 52
Net change in FV (923) (73) (996)
At 30 September 2020 83,657 (1,194) 82,463
Additions 18,368 - 18,368
Repayments (20,533) 226 (20,307)
Royalty income received (22,999) - (22,999)
RP liability paid - 29 29
Net change in FV 30,303 (92) 30,211
At 31 March 2021 88,796 (1,031) 87,765
Additions 23,739 - 23,739
Repayments (3,590) - (3,590)
Royalty income received 5,705 - 5,705
RP liability paid - 57 57
Net change in FV (2,941) (102) (3,043)
At 30 September 2021 111,709 (1,076) 110,633
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
Sensitivity analysis has not been performed on the Group's equity investments
on the basis that they are not material to the Condensed Consolidated
Financial Statements
Royalty participation instruments
The unobservable inputs are the annual adjustment factor and the discount
rate. 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 2021, the Company paid a quarterly dividend of 0.55 pence per
share.
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