TIDMDUKE
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 GBP14.1
million (Interim 2023: GBP10.4 million)
-- Recurring cash revenue* totalled GBP12.2 million, up 17% from
Interim 2023 (GBP10.4 million)
-- Free cash flow** up 23% to GBP7.9 million (Interim 2023: GBP6.5 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 GBP18 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 GBP40 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:
Neil Johnson / Charles
Cannon Brookes / Hugo
Duke Royalty Limited Evans +44 (0) 1481 231 816
Cavendish Securities
plc (Nominated Adviser Stephen Keys / Callum
and Joint Broker) Davidson / Michael Johnson +44 (0) 207 397 8900
Canaccord Genuity
(Joint Broker) Adam James / Harry Rees +44 (0) 207 523 8000
SEC Newgate Elisabeth Cowell / Alice +44 (0) 20 3757 6880
(Financial Communications) Cho / Matthew Elliott 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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
Note (unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
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)
GBP000 GBP000 GBP000
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
GBP000 GBP000 GBP000 GBP000 GBP000
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
GBP000 GBP000 GBP000 GBP000 GBP000
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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
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%, 31 March 2023:
4.12%) 408 842 614
Income tax expense 408 842 614
============= =========== =============
5. Earnings per share
Period Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
Total comprehensive income
(GBP000) 3,392 19,592 10,295
Weighted average number of
Ordinary Shares in issue, excluding
treasury shares (000s) 410,484 397,991 388,412
Basic earnings per share (pence) 0.83 4.92 2.65
============= =========== =============
Period Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
Total comprehensive income
(GBP000) 3,392 19,592 10,295
Diluted weighted average number
of Ordinary Shares in issue,
excluding treasury shares (000s) 410,484 397,991 388,412
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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
Adjusted earnings for the year
(GBP000) 8,001 12,462 6,153
Weighted average number of
Ordinary Shares in issue, excluding
treasury shares (000s) 410,484 397,991 388,412
Adjusted earnings per share
(pence) 1.95 3.13 1.58
============= =========== =============
Period Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
Diluted adjusted earnings for
the year (GBP000) 8,001 12,462 6,153
Diluted weighted average number
of Ordinary Shares in issue,
excluding treasury shares (000s) 410,484 397,991 388,412
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)
GBP000 GBP000 GBP000
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)
GBP000 GBP000 GBP000
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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
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 GBP2.2 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)
GBP000 GBP000 GBP000
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 GBP4,652,000 (30
September 2022: GBP4,872,000, 31 March 2023: GBP4,652,000) 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)
GBP000 GBP000 GBP000
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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
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 Net
carrying Allowance Carrying
amount for ECLs amount
As at 30 September 2023 GBP000 GBP000 GBP000
Stage 1 4,692 (40) 4,652
Stage 2 - - -
Stage 3 - - -
4,692 (40) 4,652
=========== =========== ===========
Net
Gross carrying Allowance Carrying
amount for ECLs amount
As at 31 March 2023 GBP000 GBP000 GBP000
Stage 1 4,692 (40) 4,652
Stage 2 - - -
Stage 3 - - -
4,692 (40) 4,652
================ =========== ===========
Net
Gross carrying Allowance Carrying
amount for ECLs amount
As at 30 September 2022 GBP000 GBP000 GBP000
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 Stage Stage Total
1 2 3
GBP000 GBP000 GBP000 GBP000
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)
GBP000 GBP000 GBP000
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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
(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)
GBP000 GBP000 GBP000
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)
GBP000 GBP000 GBP000
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)
GBP000 GBP000 GBP000
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 EUR11,600,000. The deal was structured so
that EUR5,000,000 was payable on or before 30 September 2021 and
EUR4,000,000 was due on or before 30 September 2022. Of the
remaining EUR2,600,000, EUR867,000 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)
GBP000 GBP000 GBP000
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)
GBP000 GBP000 GBP000
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
GBP100m to replace Duke's existing GBP55m 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 202 3, GBP37,000,000 was undrawn on the facility
( 30 September 2022: GBP20,250,000, 31 March 2023: GBP42,000,000
).
Costs and fees of GBP1,439,000 were capitalised against the new
credit facility. At 30 September 2023, GBP1,247,000 of unamortised
fees were outstanding (30 September 2022: GBP387,000, 31 March
2023: GBP1,391,000).
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
GBP000 GBP000
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
GBP000 GBP000
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)
GBP000 GBP000 GBP000
Goodwill arising on business
combination 203 203 203
============= =========== =============
14. Share capital
External Treasury Total
Shares Shares shares
No. No. No. GBP000
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) GBP000
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 GBP2,771,000 has been capitalised
and will be amortised over the life of the warrants. In the period
to 30 September 2023, an expense of GBP277,000 (30 September 2022:
GBPnil, 31 March 2023: GBP92,000) 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
GBP000 GBP000 GBP000
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 Dividends
per
share payable
Record date Payment date pence/share GBP000
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 Dividends
per
share payable
Record date Payment date pence/share GBP000
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 GBP2,908,000,
which was paid on 12 October 2023.
18. Deferred tax
Total
GBP000s
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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
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 Year to Period
to to
30-Sep-23 31-Mar-23 30-Sep-22
(unaudited) (audited) (unaudited)
GBP000 GBP000 GBP000
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)
GBP000 GBP000 GBP000
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
GBP000 GBP000 GBP000
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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END
IR KFLFLXFLFFBE
(END) Dow Jones Newswires
November 22, 2023 02:00 ET (07:00 GMT)
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