TIDMDUKE
RNS Number : 8324E
Duke Royalty Limited
04 July 2023
4 July 2023
Duke Royalty Limited
("Duke Royalty", "Duke" or the "Company")
Final Results for the year ended 31 March 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 audited final results for the 12 months ended 31 March
2023 ("FY23").
FY23 Highlights
-- 46% year-on-year increase in recurring cash revenue* to
GBP21.8 million (FY22: GBP14.9 million)
-- 19% year-on-year increase in total cash revenue to GBP21.9
million (FY22: GBP18.4 million)
-- Free cash flow of GBP13.1 million, up 9% from GBP12.1 million in FY22
-- Free cash flow** per share reduced from 3.53p in FY22 to
3.30p in FY23, due to lack of investment buyouts
-- 30% increase in recurring free cash flow per share from 2.52p
per share to 3.27p per share
-- 24% year-on-year increase in dividend per share of to 2.80p (FY22: 2.25p)
-- Deployed over GBP26 million of capital, adding two new
royalty partners to the portfolio and completed four material
follow-on investments into existing royalty partners
-- GBP20 million of equity capital raised in oversubscribed placing
-- Refinanced and upsized a GBP100 million credit facility to
facilitate more investment opportunities
Post Period End Highlights
-- Achieved GBP6.0 million of recurring cash revenue in Q1 FY24,
representing an 18% year-on-year increase (Q1 FY23: GBP5.1 million)
and an increase on Q4 FY23
-- Exited royalty partner Instor, receiving net cash of US$11.2
million at closing, delivering a total gain of US$2.4 million over
Duke's initial investment amount and a triple digit IRR
-- Two additional follow-on investments completed in Q1 into
Tristone and New Path Fire & Security
* Recurring cash revenue excludes buyout premiums and cash gains
from the sale of equity investments
** Free cashflow is defined as net cash inflows from operations
plus cash gains from the sale of equity investments less interest
paid on borrowings
Neil Johnson, CEO of Duke Royalty, said:
"We are delighted to announce that we have achieved a strong set
of financial results across all our important financial metrics for
the 12 months to 31 March 2023. Despite the prevailing macro
uncertainties, it also brings forth opportunities. We understand
that during times of short-term uncertainty, business owners seek
long-term capital solutions, which further reinforces the
attractiveness of our proposition to them, as our solution offers
both investors and shareholders what they desire - a long-term,
predictable revenue stream with a focus on dividends.
"Having achieved GBP2.0 million per month of cash revenue in Q1
FY24, this represents the 11(th) consecutive quarter of delivering
increasing quarterly recurring cash revenue. With this in mind, we
have witnessed a very healthy and promising pipeline of new
partners. The recent increase in deal flow has been encouraging, as
it demonstrates the attractiveness of our proposition in a
difficult funding market, and we are confident that our product
continues to demonstrate its competitiveness against other
financing options available to small businesses."
Investor Presentation
Neil Johnson, CEO, and Hugo Evans, CFO, will also provide a live
investor presentation relating the Full Year Results via the
Investor Meet Company platform on Thursday 13 July at 13:30
BST.
The presentation is open to all existing and potential
shareholders. Questions can be submitted via the Investor Meet
Company dashboard up until 9 a.m. the day before the meeting or at
any time during the live presentation.
Investors can sign up to Investor Meet Company for free and add
to meet Duke Royalty via:
https://www.investormeetcompany.com/duke-royalty-limited/register-investor
Investors who already follow Duke Royalty on the Investor Meet
Company platform will automatically be invited.
Annual Report & Accounts
The 2023 Annual Report and Accounts are expected to be posted to
shareholders on Monday 10 July 2023, together with a notice of the
Company's Annual General Meeting. An electronic copy of the Annual
Report and Accounts will also be available to view on the Company's
website at www.dukeroyalty.com
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
Cenkos Securities
plc
(Nominated Adviser
and Stephen Keys / Callum
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 Statement
Dear Shareholder,
I am pleased to report a strong set of results for the financial
year ending 31 March 2023 ("FY23"), which once again demonstrated
the resilience of Duke's business model to perform robustly in both
a positive and challenging macroeconomic environment.
It is fair to say that FY23 presented a challenging operating
environment for Duke's royalty partners. They battled against
interest rate hikes and supply chain issues, alongside a
significant increase in corporate energy prices and a general
shortage of labour. Furthermore, overall consumer demand was
affected by surging utility bills and food prices, resulting in a
general reduction of consumer discretionary spend. Despite these
challenging circumstances, I would like to congratulate Duke's
royalty partners for their extremely resilient operating
performance in FY23.
Duke's strategic focus on providing long-term, secured lending
to established and profitable owner-operated businesses has proven
to be a safeguard against these economic challenges. Moreover, the
very low amortisation payments of Duke's product in the early years
have alleviated some of the short-term liquidity concerns of our
royalty partners, allowing them to focus on managing their
businesses rather than having to refinance their debts during
unfavourable times. This, together with a long-term partnership
approach which has always been at the core of Duke's investment and
corporate philosophy, has helped support our partners through these
times of macroeconomic pressure.
It is worth noting that one of the inevitable consequences of
the substantial increase in global interest rates has been the
material increase in the cost for all other competing forms of
short-term debt. However, Duke's permanent equity capital base and
its long-term lending approach throughout economic cycles have
enabled the Company to refrain from increasing the cost of its
offering in the short-term. As a result, we have experienced a
notable increase in both the number and the quality of deal
opportunities that Duke has been offered, the benefits of which
will be witnessed in the current financial year and in the periods
ahead.
Outlook
FY23 has been a year of relentless collaboration between the
Duke team and our royalty partners, as we work together to overcome
significant economic challenges they have faced. I would like to
take this opportunity to thank them for their considerable efforts.
As a long-term investor, Duke believes that a business' long-term
success is directly correlated to its business approach and
management of their environmental, social and governance
considerations. We remain committed to adhering to the commitments
set out in the Company's Responsible Investment Policy.
Whilst the macro environment continues to create ongoing
challenges for our royalty partners, the higher level of global
interest rates and continued lack of demand from the mainstream
banks to lend to well-managed, profitable SMEs, puts Duke in an
ideal position to selectively deploy further capital and increase
market share. As a result, I expect to see a higher deployment rate
in FY24 than we saw in FY23.
Over the past few years, Duke has been able to put together a
diverse portfolio, and now has exposure to 62 underlying operating
companies. In FY23, The Company was able to release a series of
record quarterly recurring cash revenue updates, which is a trend
that I expect to see continue into FY24. This is attributable to
the anticipated growth in deployment rate, alongside positive
adjustment resets linked to the underlying companies' organic
revenue performance in this inflationary macroenvironment.
As always, I would like to express my gratitude to the ongoing
support of our shareholders and to the achievements of our
employees. It is my pleasure to report the Chairman's Statement for
FY23. I look forward to reporting on the Group's ongoing progress
and development, and I remain cautiously optimistic about the
Company's future.
Nigel Birrell
Chairman
CEO's Statement
In 2022, businesses around the world faced a remarkable
landscape that surpassed the unprecedented challenges brought by
the pandemic in 2020. The Bank of England's 12th consecutive
interest rate hikes brought rates to their highest level in almost
15 years, and inflation being at a 40-year high has further
intensified the economic climate. The geopolitical situation in
Europe also demanded our attention and played a crucial role in
shaping our decisions at Duke.
Despite this, I am pleased to report that Duke managed a strong
set of financial results across all our important financial
metrics. In particular, our recurring cash revenue grew 46% to
GBP21.8 million against GBP14.9 million in FY22 and our recurring
cash revenue per share grew 30% over FY22. It is reassuring to note
our solution continues to deliver for investors and business owners
alike during these challenging times.
However, during FY23, we exercised caution in our approach to
new deployments, analogous to the Covid-19 impaired FY21. With
rapidly changing macroeconomic developments, we chose caution in
allocating shareholder funds following our successful fundraising
efforts in May 2022, which resulted in four follow-on investments
(totalling GBP11.5 million) into existing partners and two new
royalty agreements (totalling GBP12.3 million). During the 12
months under review, we deployed a total of GBP26.8 million, spread
over several geographic markets in line with our strategy, while
also reinforcing our portfolio in our core territories. This
strategic decision reflects our prudent approach to capital
allocation and our commitment to ensuring that financial stability
is maintained. Nevertheless, we continued to diversify the
portfolio, ending the period with exposure to 61 underlying
operating companies with an aggregate book cost of GBP185 million.
We continue to maintain a close relationship with our royalty
partners, which generally performed robustly during the period, and
are reassured of their resilience to trading in the current market
conditions.
It is important to note that we feel the prevailing macro
uncertainties do not pose only risks, but also opportunities. We
know that when there is short term uncertainty, business owners
seek long term capital solutions, reinforcing the attractiveness of
our proposition to them. What sets Duke apart is our long-term
strategic partnership approach, which offers business owners the
certainty of sustainable capital without significant dilution of
their ownership or large capital repayments which need
refinancing.
The credit and equity characteristics of our hybrid model drives
our relationships with all of our stakeholders
Our shareholders who participate in our regular shareholder
meetings, conferences and podcasts will know, we believe Duke has a
unique value proposition for shareholders. At the core of our
offering is a focus on preserving capital, which is why our royalty
agreements are structured as senior secured loans. We aim to
provide a healthy dividend to investors, which is our second
priority, investing into profitable, longstanding private
companies. And unlike a traditional debt product, as our third
priority, we look to be rewarded in the event of a positive outcome
at the time of the buyout. The six buyouts achieved since inception
have shown that our product has produced the results we
intended.
Our hybrid model also drives our relationships with our royalty
partners. We see ourselves as more than just a lender. We are
economically invested in the long-term success of the partners we
work with, like equity owners. However, because we have downside
protections to preserve our capital, we also have capped our equity
participation. The combination of these factors means that Duke's
model combines the best elements of private equity and private
credit.
Duke's approach allows us to develop good relationships with our
royalty partners. Receiving monthly management accounts gives us
regular and in-depth financial information to ensure our royalty
partners are performing to budget. In addition, we actively engage
with our portfolio companies through Board representation and/or
monthly management meetings. This involvement allows us to provide
continuous support and strategic guidance throughout their journey,
helping them to navigate through headwinds and to seize
opportunities. We do this because we are economically incentivised
in the growth of the company through our annual adjustment factor
and when we have minority equity stakes. However, the business
owners know they control the destiny of the company and have the
incentive to succeed. With our alignment of interests, I am
delighted to be able to observe the exceptional dedication to meet
all challenges head on of our current royalty partners, and we
remain fully dedicated to supporting their ongoing growth in the
future.
Our model augments the resilience of our existing partners in
the face of market fluctuations. Unlike floating-rate loans, Duke's
monthly payments from our royalty partners change only once per
year at the annual adjustment date according to the revenue
performance of the business, and the adjustment is capped. This
aligns Duke's return with the performance of the royalty partners
over the long-term and gives them certainty of their obligations to
us as senior lender, leading to confidence of decision making
during these challenging times.
With this in mind, Duke's partners generally performed robustly
in the period, with inflationary forces driving the average yield
of the Company's portfolio to 13.1%, its highest level to date.
Duke also received 94% of its expected cash revenue payments in the
period and the Company was able to increase our recurring cash
revenue each quarter throughout the financial year.
I am pleased to be able to report that at period end, Duke had
over GBP50 million of liquidity available to deploy into its
pipeline of opportunities with FY24 gearing up to be a busy period
for the Company.
Financial Review
In May 2022, Duke announced a GBP20 million equity placing from
both institutional and retail investors. Net proceeds from this
fundraising were used to repay the existing debt and provide
additional liquidity headroom, allowing the Company both to invest
further capital into its existing royalty partners as well into new
opportunities.
During the period, we were delighted to announce that we had
entered into a new GBP100 million credit facility agreement with
Fairfax Financial Holdings Limited and certain of its subsidiaries
("Fairfax"). In refinancing and upsizing our credit facility, we
secured a significant amount of additional liquidity, prolonging
our requirement for additional equity capital. We also reduced the
headline interest rate by 225 bps in comparison to our previous
facility, leading to an immediate and material impact on our free
cash flow. This support from such a reputable firm represents a
huge endorsement of our business model, and we look forward to a
long-term relationship with Fairfax.
The financial results for FY23 represent a strong operating
performance and I am pleased to report that the Company's cash
revenue, being cash distributions from royalty partners, cash gains
from the sale of equity investments and buyout premiums, grew to
GBP21.9 million during the Period under review, a 19% increase over
the GBP18.4 million generated in FY22.
However, as our portfolio matures and buyouts start to become a
material part of the of the Group's cashflows, it is important to
distinguish between recurring and non-recurring cash revenue.
Recurring cash revenue relates to the annuity-like monthly cash
revenue streams that Duke receives from its royalty partners, as
opposed to the non-recurring nature of buyout premiums and realised
gains on equity that Duke receives on an investment exit. In FY22,
the Group benefited from a royalty buyout and an equity realisation
event, which delivered over GBP3.5 million of premiums and realised
equity gains. Therefore, on a like-for-like basis, FY23 produced
GBP21.8 million of recurring cash revenue against GBP14.9 million
in FY22, a 46% increase.
Free cash flow, defined as net operating cash inflow plus cash
gains from the sale of equity investments less its interest on debt
financing, also continued to grow, increasing by 9% to GBP13.1
million. However, if we strip out the non-recurring cash revenue,
then recurring free cash flow actually grew 51% from GBP8.6m to
GBP13.0 million, while recurring free cash flow per share grew 30%
to 3.27 pence per share, a significant achievement given a
macroenvironment of high inflation and soaring interest rates. It
is these last two metrics that are particularly pleasing as it is
these that derive our ability to continue paying a steady quarterly
dividend to our shareholders.
Total income, which includes non-cash fair value movements on
the Company's investment portfolio, grew to GBP31.0 million, an 8%
increase over FY22. This generated total earnings after tax of
GBP19.6 million and earnings per share of 4.92 pence against
GBP20.4 million in FY22 and earnings per share of 5.95 pence.
Adjusted earnings, which strips out the fair value movements,
decreased 5% from GBP13.1m in FY22 to GBP12.5m in FY23, due to the
lack investment exits in FY23.
Dividend
Duke maintained a 0.70 pence quarterly dividend throughout FY23,
equating to an annualised dividend of 2.80 pence which represents a
material increase from the 2.25 pence per share of dividends paid
out in FY22. Despite the high dividend yield percentage at the
current share price, I can reassure shareholders that the dividend
remains well covered by recurring free cash flow.
Duke Royalty's ESG initiatives
By definition, a royalty company itself has a small
environmental footprint, being an investment company in other
companies. Since inception over eight years ago, our business model
has been underpinned by an ethos of responsible investing. We do
not invest in extraction industries, and we support business owners
who have a positive impact in providing local jobs and keeping
ownership in their hands for the betterment of their
communities.
As we have increased capital deployed in an expanding number of
companies, we understand our duty and influence in asking more of
our royalty partners' ESG credentials. We admire each company's
leadership as they work to improve the lives of their employees,
their communities, and the world they inhabit.
While we can only help indirectly with our royalty partners'
operations, the Duke team has led by example and remains deeply
committed to making a positive social impact in the world we live
in.
Duke Royalty's leaders are also leaders in their community. I am
the Founder and Chair of the UK Terry Fox Association and Hugo
Evans our CFO acts as Treasurer. It is the UK affiliate of the
Terry Fox Foundation, which has raised over GBP500 million for
cancer research in the name of Canada's hero. Terry Fox ran 143
consecutive marathons in the summer of 1980 on a prosthetic leg
before cancer returned and forced him to stop. Terry Fox died less
than a year later, but the Terry Fox Run was born. The money we
raise stays in the UK, supporting the UK's #1 academic cancer
research centre, The Institute of Cancer Research (ICR). Our
mission is to bring communities and families touched by cancer
together for the free, family friendly and non-competitive Terry
Fox Runs across the UK. Since I re-started the London Terry Fox Run
in 2020, we have raised over GBP200,000 for the ICR, and our goal
is GBP1,000,000 by 2030. This year, there will be four Terry Fox
Runs across the UK. Every year, the Duke team and their families
come together to support cancer research and volunteer their
time.
Recognising the importance of giving back to local communities,
we have also extended our support to Home-Start UK, a network that
assists needy families with young children during challenging
times. In additional to our financial contributions, the Cannon
Brookes family volunteers and advocates for the importance of a
healthy and supportive family unit in the first years of life.
Professional care workers provide emotional and financial support
to single mothers and underprivileged families with young children.
This makes a direct impact in the local UK neighbourhoods where
Home-Start is active.
Our outlook is one of cautious optimism
The year to 31 March 2024 has already kicked off to a positive
start, with Duke achieving an average monthly recurring cash
revenue of GBP2.0 million for the first time for Q1 FY24. A quarter
of GBP6.0 million recurring cash revenue represents a 18% year on
year increase (Q1 FY23: GBP5.1 million) and will be our 11(th)
consecutive quarter delivering increasing recurring cash
revenues.
In addition, we have had our first buyout since 2021 during the
first three months of the current financial year. A key aspect that
distinguishes Duke is our commitment to empowering business owners
by allowing them to retain control over their exit strategies. This
was illustrated well with the recent positive exit we announced in
May where the terms of Duke's capital facilitated Instor's CEO
decision to opportunistically sell the company to a private equity
firm, and in turn delivered a triple digit IRR to Duke. This is an
attractive differentiator of our capital which enhances the appeal
of our long-term, passive capital for business owners and is just
one of the qualities that reaffirms Duke's strong position to
capture an important share of the private funding market.
One consequence of the rapidly increasing interest rates of 2022
is that Duke's monthly payments have become more competitive to
floating rate interest rate payments. For business owners, the
monthly payment is their total obligation to Duke subject to only
the annual adjustment. The certainty of knowing future obligations,
without a looming refinancing event, is increasingly attractive to
business owners. With this in mind, we have witnessed a very
healthy and promising pipeline of new partners. The recent increase
in deal flow has been encouraging, demonstrating the attractiveness
of our proposition in a difficult funding market, and we are
confident that our product continues to demonstrate its
competitiveness against other financing options available to small
businesses.
Royalty finance has a longstanding history in North America,
drawing investors with its ability to provide downside protection
during times of crisis. Similar to how the pandemic showcased the
resilience of this model, we believe the current economic
environment offers us the opportunity to continue demonstrating the
ability of our approach to withstand market cycles. We see a bigger
opportunity ahead, as our solution offers both investors and
shareholders what they desire: a long-term, predictable revenue
stream with a focus on dividends.
We are pleased to report another year of delivering on the
promise of our business model for our shareholders: a long-term,
predictable revenue stream with a focus on dividends. I would like
to personally thank our shareholders, our royalty partners, our
employees and our Board as we look forward to continued
success.
Neil Johnson
Chief Executive Officer
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 MARCH 2023
Year to Year to
31-Mar-23 31-Mar-22
GBP000 GBP000
Cash flows from operating activities
Receipts from royalty investments 9 21,364 14,701
Receipts of interest from loan investments 10 339 580
Other operating receipts 176 543
Operating expenses paid (3,306) (2,487)
Payments for royalty participation fees 12 (112) (115)
Tax paid (1,346) (2,055)
----------- -----------
Net cash inflow from operating activities 17,115 11,167
Cash flows from investing activities
Royalty investments advanced 9 (23,809) (74,586)
Royalty investments repaid 9 - 2,938
Loan investments advanced 10 (2,500) (3,192)
Loan investments repaid 10 2,000 3,949
Equity investments purchased 11 (500) (530)
Equity investments sold 11 - 2,883
Equity dividends received 11 3 -
Receipt of deferred consideration - 7,679
Investments costs paid (357) (972)
Net cash outflow from investing activities (25,163) (61,831)
Cash flows from financing activities
Proceeds from share issue 17 20,000 35,000
Share issue costs 17 (1,115) (1,936)
Dividends paid 20 (10,979) (7,270)
Proceeds from loans 15 71,250 38,200
Loans repaid 15 (61,450) (7,500)
Interest Paid 15 (3,976) (1,649)
Other finance costs (2,426) (181)
Net cash inflow from financing activities 11,304 54,664
Net change in cash and cash equivalents 3,256 4,000
Cash and cash equivalents at beginning
of year 5,707 1,766
Effect of foreign exchange on cash (24) (59)
Cash and cash equivalents at the end
of year 8,939 5,707
=========== ===========
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 MARCH 2023
Note Year to Year to
31-Mar- 31-Mar-22
23
GBP000 GBP000
Income
Royalty investment income 9 28,266 18,037
Loan investment income 10 339 533
Equity investment income 11 2,212 9,678
Other operating income 176 543
Total Income 30,993 28,791
Investment Costs
Transaction costs (66) (631)
Due diligence costs (620) (1,113)
Total Investment Costs (686) (1,744)
Operating Costs
Administration and personnel 5 (2,627) (2,060)
Legal and professional (456) (405)
Other operating costs (223) (151)
Expected credit losses 10 (20) (72)
Share-based payments 18 (969) (930)
--------- -----------
Total Operating Costs (4,295) (3,618)
Operating Profit 26,012 23,429
--------- -----------
Net foreign currency movement 66 (60)
Finance costs 6 (5,644) (1,996)
Profit before tax 20,434 21,373
Taxation expense 7 (842) (982)
Profit after tax 19,592 20,391
========= ===========
Basic earnings per share (pence) 8 4.92 5.95
========= ===========
Diluted earnings per share (pence) 8 4.92 5.95
========= ===========
All income is attributable to the holders of the Ordinary Shares
of the Company. There is no other comprehensive income.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEARED 31 MARCH 2023
Note 31-Mar- 31-Mar-
23 22
GBP000 GBP000
Non-current assets
Goodwill 16 203 203
Royalty finance investments 9 158,540 139,648
Loan investments 10 4,652 3,172
Equity investments 11 13,529 10,820
Trade and other receivables 13 - 2,141
Deferred tax 21 200 156
---------- ----------
177,124 156,140
Current assets
Royalty finance investments 9 32,793 20,831
Loan investments 10 - 1,000
Trade and other receivables 13 2,290 53
Cash and cash equivalents 8,939 5,707
Current tax asset 373 -
44,395 27,591
Total Assets 221,519 183,731
---------- ----------
Current liabilities
Royalty debt liabilities 12 154 160
Trade and other payables 14 433 423
Borrowings 15 441 362
Current tax liability - 87
1,028 1,032
Non-current liabilities
Royalty debt liabilities 12 988 951
Trade and other payables 14 1,314 1,067
Borrowings 15 53,930 47,740
56,232 49,758
Net Assets 164,259 132,941
========== ==========
Equity
Share capital 17 172,939 153,974
Share-based payment reserve 18 3,447 2,478
Warrant reserve 18 3,036 265
Retained losses 19 (15,163) (23,776)
---------- ----------
Total Equity 164,259 132,941
========== ==========
The Consolidated Financial Statements were approved and
authorised for issue by the Board of Directors on 3 July 2023 and
were signed on its behalf by Directors Maree Wilms and Matt
Wrigley.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MARCH 2023
Share-based
Shares payment Warrant Retained Total
Note issued reserve reserve losses equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 31 March 2021 120,870 1,548 265 (36,897) 85,786
Total comprehensive
income for the year - - - 20,391 20,391
Transactions with
owners
Shares issued for
cash 17 35,000 - - - 35,000
Share issuance costs 17 (1,936) - - - (1,936)
Shares issued to key
advisers as remuneration 17 40 - - - 40
Share based payments 18 - 930 - - 930
Dividends 20 - - - (7,270) (7,270)
Total transactions
with owners 33,104 930 - (7,270) 26,764
At 31 March 2022 153,974 2,478 265 (23,776) 132,941
--------- ------------- --------- ---------- ----------
Total comprehensive
income for the year 19,592 19,592
Transactions with
owners
Shares issued for
cash 17 20,000 - - - 20,000
Share issuance costs 17 (1,115) - - - (1,115)
Shares issued to key
advisers as remuneration 17 80 - - - 80
Warrants issued 18 - - 2,771 2,771
Share based payments 18 - 969 - - 969
Dividends 20 - - - (10,979) (10,979)
--------- ------------- --------- ---------- ----------
Total transactions
with owners 18,965 969 2,771 (10,979) 11,726
At 31 March 2023 172,939 3,447 3,036 (15,163) 164,259
========= ============= ========= ========== ==========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 MARCH 2023
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 73 .
Throughout the year, the "Group" comprised Duke Royalty Limited
and its wholly owned subsidiaries; Duke Royalty UK Limited, Capital
Step Holdings Limited, Capital Step Investments Limited, Capital
Step Funding Limited, Capital Step Funding 2 Limited and Duke
Royalty Employee Benefit Trust.
The Group's investing policy is to invest in a diversified
portfolio of royalty finance and related opportunities.
2. Significant accounting policies
2.1 Basis of preparation
The Consolidated Financial Statements of the Group have been
prepared in accordance with UK adopted international accounting
standards, and applicable Guernsey law, and reflect the following
policies, which have been adopted and applied consistently.
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into the UK law and became UK-adopted
international accounting standards, with future changes being
subject to endorsement by the UK Endorsement Board. The group
transitioned to UK-adopted international accounting standards in
its consolidated financial statements on 1 April 2021. There was no
impact or changes in accounting from the transition.
The Consolidated Financial Statements have been prepared on a
going concern basis and under the historical cost basis, except for
the following:
-- Royalty investments - measured at fair value through profit or loss
-- Equity investments - measured at fair value through profit or loss
-- Royalty participation liabilities - measured at fair value through profit or loss
The Directors consider that the Group has adequate financial
resources to enable it to continue operations for a period of no
less than 12 months from the date of approval of the financial
statements. Accordingly, the Directors believe that it is
appropriate to continue to adopt the going concern basis in
preparing the financial statements.
Presentation of statement of cash flows
The Board considers cash flow to be the most important measure
of the Group's performance and subsequently has presented its
Statement of Cash Flows before the Statement of Comprehensive
Income and Statement of Financial Position.
There have been no changes to the classification of any of the
cash flows or to the overall cash movements.
Presentation of statement of comprehensive income
In order to better reflect the activities of a royalty financing
company, the Statement of Comprehensive Income includes additional
analysis, splitting the Group's income by investment type.
2.2 New and amended standards adopted by the Group
A few amendments and interpretations of existing standards apply
to the Group's financial year but these did not have a significant
impact on the financial statements of the Company.
2.3 New standards and interpretations not yet adopted
At the date of authorisation of these Consolidated Financial
Statements, certain standards and interpretations were in issue but
not yet effective and have not been applied in these Consolidated
Financial Statements. The Directors do not expect that the adoption
of these standards and interpretations will have a material impact
on the Consolidated Financial Statements of the Group in future
periods.
2.4 Going concern
In assessing the going concern basis of accounting the Directors
have had regard to the guidance issued by the Financial Reporting
Council.
FY23 continued to present a challenging operating environment
for Duke's royalty partners. The impact of the Russia - Ukraine
conflict continues to have a significant impact on European
economies as businesses battle against interest rate hikes, supply
chain issues, alongside a significant increase in corporate power
prices and a general shortage of labour. Furthermore, overall
consumer demand was affected by surging utility bills and food
prices, resulting in a general reduction of consumer discretionary
spend.
Despite this, Duke's strategic focus on providing long-term,
secured lending to established and profitable owner-operated
businesses has proven to be a safeguard against these economic
challenges. Moreover, the very low amortisation payments of Duke's
product in the early years have alleviated some of the short-term
liquidity concerns of our royalty partners, allowing them to focus
on managing their businesses rather than having to refinance their
debts during unfavourable times.
The directors continue to closely monitor the impact of these
macroeconomic headwinds on the Group's trading activities and
cashflows, but do not consider that there will be any significant
effect on the ability of the Group to continue in business and meet
liabilities as they fall due.
During the year, the Group refinanced its debt facility,
replacing the previous facility with a new GBP100 million facility
with Fairfax (as detailed in the Directors' Report). At the 31
March 2023, the Group had GBP42,000,000 of available headroom on
the facility.
The Directors consider that the Company has adequate resources
to continue in operational existence for the next 24 months and
beyond.
2.5 Basis of consolidation
Where the Company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the
policies adopted across the Group.
The "Group" is defined as the Company, its subsidiaries Duke
Royalty UK Limited, Capital Step Holdings Limited, Capital Step
Investments Limited, Capital Step Funding Limited and Capital Step
Funding 2 Limited and The Duke Royalty Employee Benefit Trust.
2.6 Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors, as a
whole. The key measure of performance used by the Board to assess
the Group's performance and to allocate resources is operating
cashflow, as calculated under IFRS, and therefore no reconciliation
is required between the measure of performance used by the Board
and that contained in these Consolidated Financial Statements.
For management purposes, the Group's investment objective is to
focus on one main operating segment, which is to invest in a
diversified portfolio of royalty finance and related opportunities.
At the end of the period the Group has 15 investments into this
segment and has derived income from them. Due to the Group's
nature, it has no customers.
2.7 Foreign currency
Functional and presentation currency
Items included in the Financial Statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates (the "functional
currency"). The Consolidated Financial Statements are presented in
Pounds Sterling, which is also the functional currency of the
Company and its subsidiaries.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign currency assets and liabilities are
translated into the functional currency using the exchange rate
prevailing at the reporting date.
Foreign exchange gains and losses relating to the financial
assets and liabilities carried at fair value through profit or loss
are presented in the Consolidated Statement of Comprehensive Income
within 'royalty investment net income', 'loan investment net
income' and 'equity investment net income'.
Foreign exchange gains and losses relating to cash and cash
equivalents are presented in the Consolidated Statement of
Comprehensive Income within 'Net foreign currency gains /
(losses)'. This has been presented below operating costs as this
best reflects the true nature of the balance.
2.8 Transaction costs
Transaction costs are costs incurred to acquire financial assets
at fair value through profit or loss. They include finders' fees,
legal and due diligence fees and other fees paid to agents and
advisers. Transaction costs, when incurred, are recognised
immediately in profit or loss as an expense. Where transaction
costs are in respect of loans, these are offset using the effective
interest method.
2.9 Income tax
The income tax expense or credit for the period is the tax
payable on the current period's taxable income based on the
applicable income tax rate for each jurisdiction adjusted by
changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the
tax laws enacted or substantively enacted at the end of the
reporting period in the countries where the Company's subsidiaries
operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations
in which applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the
Consolidated Financial Statements. Deferred income tax is
determined using tax rates (and laws) that have been enacted or
substantively enacted by the end of the reporting period and are
expected to apply when the related deferred income tax asset is
realised or the deferred income tax liability is settled.
Deferred tax assets are recognised only if it is probable that
future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to the same
taxation authority. Current tax assets and tax liabilities are
offset where the entity has a legally enforceable right to offset
and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except
to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
2.10 Goodwill
Goodwill on acquisition of subsidiaries is included in
intangible assets. Goodwill is not amortised, but it is tested for
impairment annually, or more frequently if events or changes in
circumstances indicate that it might be impaired and is carried at
cost less accumulated impairment losses. Gains and losses on the
disposal of the entity include the carrying amount of goodwill
relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose
of impairment testing. The allocation is made to those
cash-generating units that are expected to benefit from the
business combination in which the goodwill arose. The units or
groups of units are identified at the lowest level at which
goodwill is monitored for internal management purposes.
2.11 Dividends
Dividends are recognised as a liability in the Group's financial
statements in the period in which they become obligations of the
Group.
2.12 Financial instruments
Financial assets and financial liabilities are recognised in the
Consolidated Statement of Financial Position when the Group becomes
a party to the contractual provisions of the instrument. Financial
assets and financial liabilities are only offset and the net amount
reported in the Consolidated Statement of Financial Position and
Consolidated Statement of Comprehensive Income when there is a
currently enforceable legal right to offset the recognised amounts
and the Group intends to settle on a net basis or realise the asset
and liability simultaneously.
a. Financial assets
The Group's financial assets are classified in the following
measurement categories:
-- those to be measured subsequently at fair value through profit or loss ("FVTPL"); and
-- those to be measured at amortised cost
The classification depends on the entity's business model for
managing the financial assets and the contractual terms of the cash
flows.
At initial recognition, the Group measures a financial asset at
its fair value, plus, in the case of a financial asset not at
FVTPL, transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial
assets carried at FVTPL are expensed in profit or loss.
Financial assets held at amortised cost
Assets that are held for collection of contractual cash flows
where those cash flows represent solely payments of principal and
interest are measured at amortised cost. These assets are
subsequently measured at amortised cost using the effective
interest method.
The Group's financial assets held at amortised cost include
loans receivable, trade and other receivables and cash and cash
equivalents.
Expected Credit Loss ("ECL") allowance for financial assets
measured at amortised cost
Impairment of financial assets is calculated using a
forward-looking expected credit loss (ECL) model. ECLs are an
unbiased probability weighted estimate of credit losses determined
by evaluating a range of possible outcomes. They are measured in a
manner that reflects the time value of money and uses reasonable
and supportable information that is available without undue cost or
effort at the reporting date about past events, current conditions
and forecasts of future economic conditions.
The Group recognises an allowance for ECLs for all debt
instruments not held at fair value through profit or loss. Assets
held at fair value through profit and loss are not subject to
impairment.
IFRS 9 establishes a three-stage approach for impairment of
financial assets:
-- Stage 1 - when a financial asset is first recognised, it is
assigned to Stage 1. If there is no significant increase in credit
risk from initial recognition, the financial asset remains in Stage
1. Stage 1 also includes financial assets where the credit risk
improved and the financial asset has been reclassified back from
Stage 2. For financial assets in Stage 1, a 12-month ECL is
recognised;
-- Stage 2 - when a financial asset has experienced a
significant increase in credit risk since initial recognition, the
asset is classified as Stage 2. Stage 2 also includes financial
assets where the credit risk improved and the financial asset has
been reclassified back from Stage 3. For financial assets in Stage
2, a lifetime ECL is recognised;
-- Stage 3 - that where there is objective evidence of
impairment and the financial asset is considered to be in default,
or otherwise credit-impaired, it is moved to Stage 3. For financial
assets in Stage 3, a lifetime ECL is recognised and interest income
is recognised on a net basis.
In relation to the above
-- Lifetime ECL is defined as ECLs that result from all possible
default events over the expected behavioural life of a financial
instrument
-- 12-month ECL is defined as the portion of lifetime credit
loss that will result if a default occurs in the 12 months after
the reporting, weighted by the probability of that default
occurring
The measurement of ECLs is primarily based on the product of the
instrument's probability of default ("PD"), loss given default
("LGD"), and exposure at default ("EAD"), taking into account the
value of any collateral held or other mitigants of loss and
including the impact of discounting using the effective interest
rate.
-- The PD represents the likelihood of a borrower defaulting on
its financial obligation, either over the next 12 months ("12-month
PD"), or over the remaining lifetime ("Lifetime PD") of the
obligation
-- EAD is based on the amounts the Group expects to be owed at
the time of default, over the next 12 months ("12-month EAD") or
over the remaining lifetime ("Lifetime EAD")
-- LGD represents the Group's expectation of the extent of loss on a defaulted exposure
The ECL is determined by estimating the PD, LGD, and EAD for
each individual exposure. These three components are multiplied
together and adjusted for the likelihood of survival. This
effectively calculates an ECL.
The measurement ECLs for each stage and the assessment of
significant increases in credit risk considers economic information
about past events and current conditions as well as reasonable and
supportable forward-looking information. When determining whether
the credit risk profile has materially increased, the Group
specifically reviews the debt covenant positions of each company.
If the debt service coverage ratio falls below zero and the Group
does not have sufficient liquidity to cover 12 months of debt
obligations, the investment will be deemed to be in default and a
lifetime ECL allowance will be provided for.
As with any forecasts and economic assumptions, the projections
and likelihoods of occurrence are subject to a high degree of
inherent uncertainty and therefore the actual outcomes may be
significantly different to those projected. Other forward-looking
considerations, such as the impact of any regulatory, legislative
or political changes, have also been considered, but no adjustment
has been made to the ECL for such factors. This is reviewed and
monitored for appropriateness on an annual basis.
Cash and cash equivalents
Cash and cash equivalents comprise current accounts and demand
deposits and other short-term highly liquid investments with an
original maturity of three months or less that are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Financial assets at FVTPL
Royalty investments are debt instruments classified at FVTPL
under IFRS 9. The return on these investments is linked to a
fluctuating revenue stream and thus, whilst the business model is
to collect contractual cash flows, such cash flows are not solely
payments of principal and interest. Such assets are recognised
initially at fair value and remeasured at each reporting date. The
change in fair value is recognised in profit or loss and is
presented within 'royalty investment income' in the Consolidated
Statement of Comprehensive Income. The fair value of these
financial instruments is determined using discounted cash flow
analysis. Further details of the methods and assumptions used in
determining the fair value can be found in note 23.
Investments in equity instruments are classified at FVTPL. The
Group subsequently measures all equity investments at fair value
and the change in fair value is recognised in profit or loss and is
presented within the 'equity investment income' in the Consolidated
Statement of Comprehensive Income. Dividends from such investments
are recognised in profit or loss when the Group's right to receive
payments is established.
Derecognition of financial assets
A financial asset (in whole or in part) is derecognised either
(i) when the Group has transferred substantially all the risks and
rewards of ownership; or (ii) when it has neither transferred nor
retained substantially all the risks and rewards and when it no
longer has control over the assets or a portion of the asset; or
(iii) when the contractual right to receive cash flow has expired.
Any gain or loss on derecognition is taken to other income/expenses
in the Consolidated Statement of Comprehensive Income as
appropriate.
b. Financial liabilities
The classification of financial liabilities at initial
recognition depends on the purpose for which the financial
liability was issued and its characteristics.
All financial liabilities are initially recognised at fair
value. Unless otherwise indicated the carrying amounts of the
Group's financial liabilities are approximate to their fair
values.
Financial liabilities measured at amortised cost
These consist of borrowings and trade and other payables. These
liabilities are initially recognised at fair value, net of
transaction costs incurred, and subsequently carried at amortised
cost using the effective interest rate method.
Financial liabilities at FVTPL
Financial liabilities at FVTPL comprise royalty participation
liabilities. These liabilities arise under a contractual agreement
between the Group and a strategic partner for the provision of
services in connection with the Group's royalty financing
arrangements. Under this agreement services are provided in
exchange for a percentage of gross royalties' receivable. These
instruments are classified at FVTPL on the basis that the liability
is linked to the Group's royalty investments. Such liabilities are
recognised initially at fair value with the costs being recorded
immediately in profit or loss as 'royalty participation fees' and
remeasured at each reporting date in order to avoid an accounting
mismatch. The change in fair value is recognised in profit or loss
and presented within 'royalty investment income'. The fair value of
these financial instruments is determined using discounted cash
flow analysis. Further details of the methods and assumptions used
in determining the fair value can be found in note 23.
Derecognition of financial liabilities
A financial liability (in whole or in part) is derecognised when
the Group has extinguished its contractual obligations, it expires
or is cancelled. Any gain or loss on derecognition is taken to
other income/expenses in the Consolidated Statement of
Comprehensive Income.
c. Equity Instruments
Financial instruments issued by the Group are treated as equity
if the holder has only a residual interest in the assets of the
Group after the deduction of all liabilities. The Company's
Ordinary Shares are classified as equity instruments.
Incremental costs directly attributable to the issue of new
shares are shown in equity as a deduction from proceeds.
2.13 Share-based payments
The Group operates an equity settled Share Option Plan and a
Long-Term Incentive Plan for its Directors and key advisers.
The fair value of awards granted under the above plans are
recognised in profit or loss with a corresponding increase in
equity. The total amount to be expensed is determined by reference
to the fair value of the awards granted:
-- including any market performance conditions (e.g., the entity's share price)
-- excluding the impact of any service and non-market
performance vesting conditions (e.g., increase in cash available
for distribution, remaining a director for a specified time
period); and
-- including the impact of any non-vesting conditions
The total expense is recognised over the vesting period, which
is the period over which all of the specified vesting conditions
are to be satisfied. At the end of each reporting period, the Group
revises its estimates of the number of options that are expected to
vest based on the non-market vesting and service conditions. It
recognises the impact of the revision to original estimates, if
any, in profit or loss, with a corresponding adjustment to
equity.
The Group also settles a portion of expenses by way of
share-based payments. These expenses are settled based on the fair
value of the service received as an expense with the corresponding
amount increasing equity. All expenses recognised in the year in
relation to the Group's Share Option and Long-Term Incentive Plan
schemes are recognised through the share-based payment reserve.
2.14 Reserves
Equity comprises the following:
-- Share capital represents the nominal value of equity shares in issue
Other reserves comprises the following:
-- Warrant reserve was created in connection with the issue of
share warrants. Further warrants were issued during the year ended
31 March 2023. These allow the owner to subscribe for a fixed
number of equity shares at a fixed price, and have therefore been
classified as equity in accordance with IAS 32 paragraph 16.
-- Share-based payment reserve represents equity-settled
share-based employee remuneration as detailed in note 2.13
-- Retained earnings represents retained profits
3. Critical accounting estimates
The preparation of the Consolidated Financial Statements in
conformity with IFRS requires management to make estimates and
assumptions that affect the application of policies and the
reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised, if the revision
affects only that period, or in the period of revision and future
periods, if the revision affects both current and future periods.
The following estimates and assumptions that may cause a material
adjustment to the carrying amount of assets and liabilities
are:
Fair value of royalty investments
Royalty investments are valued using a discounted cash flow
analysis. The discount rate used in these valuations has been
estimated to take account of market interest rates and the credit
worthiness of the investee. Revenue growth has been estimated by
the Directors and is based on unobservable market inputs.
Where the royalty investment contains a buy-back clause, the
Directors have assessed the likelihood of this occurring. Where
occurrence of the buy-back is deemed likely, this is built into the
discounted cash flow at the appropriate point.
These assumptions are reviewed semi-annually. The Directors
believe that the applied valuation techniques and assumptions used
are appropriate in determining the fair value of the royalty
investments and have made adjustments to the discount rates and
estimated revenue growth where necessary. Further details of the
carrying values, methods, assumptions and sensitivities used in
determining the fair value can be found in note 23.
Fair value of royalty participation liabilities
The payments falling due under the Group's contract for royalty
participation fees are directly linked to the Group's royalty
investments and thus the same assumptions have been applied in
arriving at the fair value of these liabilities. The Directors have
considered whether any increase in discount rate is required to
represent the Group's credit risk as the payments are made by the
Group rather than the investee and have concluded that none is
required since payment under the contract is only due once the
Group has received the gross amounts from the investee. Further
details of the methods, assumptions and sensitivities used in
determining the fair value can be found in note 23.
Fair value of equity investments
The Group's equity investments are not traded in an active
market and thus the fair value of the instruments is determined
using valuation techniques. The Group make assumptions based on
market conditions at the end of each reporting period. The key
estimates that the Directors have made in arriving at the fair
values are the price/earnings multiples to be applied to the
investee entities' profits. These multiples have been estimated
based on market information for similar types of companies. The
carrying value of equity investments are disclosed in Note 11.
Further details of the methods, assumptions and sensitivities used
in determining the fair value can be found in note 23.
4. Auditor's remuneration
2023 2022
GBP000 GBP000
Audit of the Consolidated Financial
Statements 105 75
======== ========
5. Administration and personnel
The table below splits out administration and personnel
costs.
2023 2022
GBP000 GBP000
Support services administration fees 518 449
Directors' fees 1,012 730
Investment committee fees 108 107
Personnel costs 989 774
-------- --------
2,627 2,060
======== ========
6. Finance costs
2023 2022
GBP000 GBP000
Interest payable on borrowings 3,861 1,499
Non-utilisation fees 194 350
Deferred finance costs released to P&L 1,558 147
Other finance costs 31 -
-------- --------
5,644 1,996
======== ========
7. Income tax
The Company has been granted exemption from Guernsey taxation.
The Company's subsidiaries in the UK are subject to taxation in
accordance with relevant tax legislation.
2023 2022
GBP000 GBP000
Current tax
Income tax expense 886 980
-------- --------
Deferred tax
Increase in deferred tax assets (44) 3
Decrease in deferred tax liabilities - (1)
Total deferred tax benefit (44) 2
Income tax expense 842 982
======== ========
Factors affecting income tax expense for the year
Profit on ordinary activities before
tax 20,434 21,373
-------- --------
Guernsey taxation at 0% (2022: 0%) - -
Overseas tax charges at effective rate
of 4.12% (2021: 13.14%) 842 982
Income tax expense 842 982
======== ========
8. Earnings per share
2023 2022
Total comprehensive income (GBP000) 19,592 20,391
Weighted average number of Ordinary
Shares in issue, excluding treasury
shares (000s) 397,991 342,822
Basic earnings per share (pence) 4.92 5.95
========= =========
2023 2022
Total comprehensive income (GBP000) 19,592 20,391
Diluted weighted average number of Ordinary
Shares in issue, excluding treasury
shares (000s) 397,991 342,822
Diluted earnings per share (pence) 4.92 5.95
========= =========
Basic earnings per share is calculated by dividing total
comprehensive income for the period by the weighted average number
of shares in issue throughout the period, excluding treasury shares
(see Note 17).
Diluted earnings per share represents the basic earnings per
share adjusted for the effect of dilutive potential shares issuable
on exercise of share options under the Company's share-based
payment schemes, weighted for the relevant period.
All share options, warrants and Long-Term Incentive Plan awards
in issue are not dilutive at the year-end as the exercise prices
were above the average share price for the period. However, these
could become dilutive in future periods.
Adjusted earnings per share
Adjusted earnings represent the Group's underlying performance
from core activities. Adjusted earnings is the total comprehensive
income adjusted for unrealised and non-core fair value movements,
non-cash items and transaction-related costs, including royalty
participation fees, together with the tax effects thereon. Given
the sensitivity of the inputs used to determine the fair value of
its investments, the Group believes that adjusted earnings is a
better reflection of its ongoing financial performance.
Valuation and other non-cash movements such as those outlined
are not considered by management in assessing the level of profit
and cash generation of the Group. Additionally, IFRS 9 requires
transaction-related costs to be expensed immediately whilst the
income benefit is over the life of the asset. As such, an adjusted
earnings measure is used which reflects the underlying contribution
from the Group's core activities during the year.
2023 2022
GBP000 GBP000
Total comprehensive income for the period 19,592 20,391
Unrealised fair value movements (9,111) (10,431)
Impairment loss on loan investments 20 72
Share-based payments 969 930
Transactions costs net of costs reimbursed 686 1,746
Tax effect of the adjustments above
at Group effective rate 306 350
---------
Adjusted earnings 12,462 13,058
========= ==========
2023 2022
Adjusted earnings for the year (GBP000) 12,462 13,058
Weighted average number of Ordinary
Shares in issue, excluding treasury
shares (000s) 397,991 342,822
Adjusted earnings per share (pence) 3.13 3.81
========= =========
2023 2022
Diluted adjusted earnings for the year
(GBP000) 12,462 13,058
Diluted weighted average number of Ordinary
Shares in issue, excluding treasury
shares (000s) 397,991 342,822
Diluted adjusted earnings per share
(pence) 3.13 3.81
========= =========
9. Royalty investments
Royalty investments are financial assets held at FVTPL that
relate to the provision of royalty capital to a diversified
portfolio of companies.
31-Mar-23 31-Mar-
22
GBP000 GBP000
At 1 April 160,479 85,301
Additions 23,809 74,586
Buybacks - (2,939)
Profit on financial assets at FVTPL 7,045 3,531
As at 31 March 191,333 160,479
=========== =========
Royalty investments are comprised of:
31-Mar-23 31-Mar-
22
GBP000 GBP000
Non-Current 158,540 139,648
Current 32,793 20,831
191,333 160,479
=========== =========
Royalty investment net income on the face of the consolidated
statement of comprehensive income comprises:
2023 2022
GBP000 GBP000
Royalty interest 21,364 13,987
Royalty premiums - 714
Gain on royalty assets at FVTPL 7,045 3,531
Loss on royalty liabilities at FVTPL (143) (195)
Royalty investment net income 28,266 18,037
======== ========
All financial assets held at FVTPL are mandatorily measured as
such.
The Group's royalty investment assets comprise royalty financing
agreements with 15 (31 March 2022:13) investees. Under the terms of
these agreements the Group advances funds in exchange for
annualised royalty distributions. The distributions are adjusted
based on the change in the investees' revenues, subject to a floor
and a cap. The financing is secured by way of fixed and floating
charges over certain of the investees' assets. The investees are
provided with buyback options, exercisable at certain stages of the
agreements.
10. Loan investments
Loan investments are financial assets held at amortised cost
with 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.
31-Mar-23 31-Mar-
22
GBP000 GBP000
1 April 4,172 4,950
Additions 2,500 3,192
Buybacks (2,000) (3,950)
ECL allowance (20) (20)
Net foreign currency movement - -
As at 31 March 4,652 4,172
=========== =========
The Group's loan investments comprise secured loans advanced to
two entities (2022 - two) in connection with the Group's royalty
investments.
The loans comprise fixed rate loans of GBP4,652,000 (31 March
2022: GBP4,172,000) which bear interest at rates of between 0% and
15% (2022: 0% and 15%). The Group has no variable rate loans at the
year end (2022: no variable rate loans at year end). The total
interest receivable during the period was GBP339,074 (31 March
2022: GBP533,000).
The loan investments mature as follows:
31-Mar-23 31-Mar-
22
GBP000 GBP000
In less than one year - 1,000
In one to two years 4,652 -
In two to five years - 3,172
4,652 4,172
=========== =========
Loan investment net income on the face of the consolidated
statement of comprehensive income comprises:
2023 2022
GBP000 GBP000
Loan Interest charged 339 365
Loan premiums on exit - 168
-------- --------
339 533
======== ========
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 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 31 March 2022 GBP000 GBP000 GBP000
Stage 1 4,192 (20) 4,172
Stage 2 - - -
Stage 3 - - -
---------------- ----------- -----------
4,192 (20) 4,172
================ =========== ===========
Under the ECL model introduced by IFRS 9, impairment provisions
are driven by changes in credit risk of instruments, with a
provision for lifetime expected credit losses recognised where the
risk of default of an instrument has increased significantly since
initial recognition.
The credit risk profile of the investments has not increased
materially and they remain Stage 1 assets. Minor expected credit
losses have been charged for the Stage 1 assets.
The following table analyses Group's provision for ECL's by
stage:
Stage Stage Stage Total
1 2 3
GBP000 GBP000 GBP000 GBP000
Expected credit losses
on loan investments
in year 20 - - 20
Expected credit losses
on other receivables
in year 52 - - 52
Carrying value at 31
March 2022 72 - - 72
-------- -------- -------- --------
Expected credit losses
on loan investments
in year 22 - - 22
Refinanced loans (2) - - (2)
Carrying value at
31 March 2023 92 - - 92
======== ======== ======== ========
11. Equity investments
Equity investments are financial assets held at FVTPL.
31-Mar-23 31-Mar-
22
GBP000 GBP000
At 1 April 10,820 3,495
Additions 500 530
Repayments - (300)
Realised gains on sale of equity investment - (2,583)
Gain on equity investments at FVTPL 2,209 9,678
As at 31 March 13,529 10,820
=========== =========
The Group's equity investments comprise unlisted shares and
warrants in eleven of its royalty investment companies (31 March
2022: nine).
The Group also still holds two (31 March 2022: 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 mining 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:
2023 2022
GBP000 GBP000
Unrealised gain on equity assets at
FVTPL 2,209 7,095
Realised gain on equity assets at FVTPL - 2,583
Dividend income 3 -
-------- --------
2,212 9,678
======== ========
12. Royalty debt liabilities
Royalty debt liabilities are financial liabilities held at fair
value through profit and loss.
31-Mar-23 31-Mar-
22
GBP000 GBP000
At 1 April 1,111 1,031
Additions - -
Repayments - -
Payments made (112) (115)
Gain on royalty liabilities at fair
value through profit and loss 143 195
As at 31 March 1,142 1,111
=========== =========
Royalty investment liabilities are comprised of:
31-Mar-23 31-Mar-
22
GBP000 GBP000
Non-Current 988 951
Current 154 160
1,142 1,111
=========== =========
13. Trade and other receivables
31-Mar-23 31-Mar-
22
GBP000 GBP000
Current
Prepayments and accrued income 59 53
Other receivables 2,231 -
2,290 53
Non-current
Other receivables - 2,141
2,290 2,194
=========== =========
14. Trade and other payables
31-Mar-23 31-Mar-
22
GBP000 GBP000
Current
Trade payables 6 11
Transaction costs 315 233
Accruals and deferred income 112 179
433 423
Non-current
Transaction costs 1,314 1,067
1,747 1,490
=========== =========
15. Borrowings
31-Mar-23 31-Mar-
22
GBP000 GBP000
Current - accrued interest 441 362
Non-current 53,930 47,740
54,371 48,102
=========== =========
In January 2023, the Group entered into a new credit facility
agreement with Fairfax Financial Holdings Limited and certain of
its subsidiaries ("Fairfax") and issued Fairfax 41,615,134
warrants. Refer to Note 18 for details. The facility term is up to
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, which
represents a 225bps improvement on Duke's previous rate of SONIA
plus 7.25%.
The Group has adopted Interest Rate Benchmark Reform - IBOR
'phase 2' (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and 16).
Applying the practical expedient introduced by the amendments, when
the benchmarks affecting the Group's loans are replaced, the
adjustments to the contractual cash flows will be reflected as an
adjustment to the effective interest rate. Therefore, the
replacement of the loans' benchmark interest rate will not result
in an immediate gain or loss recorded in profit or loss, which may
have been required if the practical expedient was not available or
adopted.
At 31 March 2023, GBP42,000,000 was undrawn on the facility (31
March 2022: GBP6,800,000).
At the date of extinguishment of the previous facility,
capitalised loan issue fees of GBP350,000 were outstanding. These
fees were immediately charged to the income statement. Further fees
of GBP1,439,000 were capitalised against the new credit facility.
At 31 March 2023, GBP1,391,000 (31 March 2022: GBP460,000) of
unamortised fees remained outstanding.
The table below sets out an analysis of net debt and the
movements in net debt for the year ended 31 March 2023 and prior
year.
Interest
Payable Borrowings
GBP000 GBP000
At 1 April 2022 362 47,7340
Cash movements
Loan advanced - 71,250
Loan repaid - (61,450)
Deferred finance costs paid - (2,347)
Interest paid (3,976) -
Non-cash movements
Deferred finance costs released to P&L
- old credit facility - 1,416
Deferred finance costs released to P&L
- new credit facility - 92
Issue of warrants - (2,771)
Interest charged 4,055 -
At 31 March 2023 441 53,930
========== ============
Interest
Payable Borrowings
GBP000 GBP000
At 1 April 2021 161 17,103
Cash movements
Loan advanced - 38,200
Loan repaid - (7,500)
Deferred finance costs paid - (181)
Interest paid (1,649) -
Non-cash movements
Deferred finance costs released to P&L
- new credit facility - 118
Interest charged 1,850 -
At 31 March 2022 362 47,740
========== ============
16. Goodwill
Goodwill
GBP000
Opening and closing net book value at 1 April
2021, 31 March 2022 and 31 March 2023. 203
==========
The goodwill has not been assessed for impairment on the basis
of materiality.
17. Share capital
External Treasury Total
Shares Shares shares
No. No. No. GBP000
Allotted, called up
and fully paid
At 1 April 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 - - - (1,936)
PSA shares vested during
year 1,457 (1,457) - -
Shares issued to Employee
Benefit Trust during
the period - 792 792 -
Shares issued to key
advisers as remuneration 105 - 105 40
At 31 March 2022 348,614 10,190 358,804 153,974
---------- ---------- --------- ---------
Shares issued for cash
during the year 57,143 - 57,143 20,000
Share issuance costs - - - (1,115)
PSA shares vested during
year 1,800 (1,800) - -
Shares issued to Employee
Benefit Trust during
the year - 1,382 1,382 -
Shares issued to directors
and key advisors as
remuneration 205 - 205 80
At 31 March 2023 407,762 9,772 417,534 172,939
========== ========== ========= =========
There is a single class of shares. There are no restrictions on
the distribution of dividends and the repayment of capital with
respect to externally held shares. The shares held by The Duke
Royalty Employee Benefit Trust are treated as treasury shares. The
rights to dividends and voting rights have been waived in respect
of these shares.
18. Equity-settled share-based payments
Warrant reserve
The following table shows the movements in the warrant reserve
during the year:
Warrants
No. (000) GBP000
At 1 April 2022 4,375 265
Issued during the year 41,615 2,771
Lapsed during the year (2,000) -
----------- --------
At 31 March 2023 43,990 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 year to
31 March 2023, an expense of GBP92,000 (2022: GBPnil) was
recognised through finance costs in relation to the warrants.
At 31 March 2023, 43,990,000 (31 March 2022: 4,375,000) warrants
were outstanding and exercisable at a weighted average exercise
price of 45 pence (31 March 2022: 46 pence). The weighted average
remaining contractual life of the warrants outstanding was 4.56
years (31 March 2022: 1.00 years).
Share-based payment reserve
The following table shows the movements in the share-based
payment reserve during the period:
Share options LTIP Total
GBP000 GBP000 GBP000
At 1 April 2021 136 1,412 1,548
LTIP awards - 930 930
--------------- -------- --------
At 31 March 2022 136 2,342 2,478
LTIP awards - 969 969
--------------- -------- --------
At 31 March 2023 136 3,311 3,447
=============== ======== ========
Share option scheme
The Group operates a share option scheme ("the Scheme"). The
Scheme was established to incentivise Directors, staff and key
advisers and consultants to deliver long-term value creation for
shareholders.
Under the Scheme, the Board of the Company will award, at its
sole discretion, options to subscribe for Ordinary Shares of the
Company on terms and at exercise prices and with vesting and
exercise periods to be determined at the time. However, the Board
of the Company has agreed not to grant options such that the total
number of unexercised options represents more than four per cent of
the Company's Ordinary Shares in issue from time to time. Options
vest immediately and lapse five years from the date of grant.
At 31 March 2023, 200,000 options (31 March 2022: 200,000) were
outstanding and exercisable at a weighted average exercise price of
50 pence (31 March 2022: 50 pence). The weighted average remaining
contractual life of the options outstanding at the year-end was
0.50 year (31 March 2022: 1.50 year).
Share Options
No. (000)
At 1 April 2021 and 31 March 2022 200
Lapsed during the year -
---------------
At 31 March 2023 200
===============
Long Term Incentive Plan
Under the rules of the Long-Term Incentive Plan ("LTIP") the
Remuneration Committee may grant Performance Share Awards ("PSAs")
which vest after a period of three years and are subject to various
performance conditions. The LTIP awards will be subject to a
performance condition based 50 per cent on total shareholder return
("TSR") and 50 per cent on total cash available for distribution
("TCAD per share"). TSR can be defined as the returns generated by
shareholders based on the combined value of the dividends paid out
by the Company and the share price performance over the period in
question. Upon vesting the awards are issued fully paid.
The fair value of the LTIP awards consists of (a) the fair value
of the TSR portion; and (b) the fair value of the TCAD per share
portion. Since no consideration is paid for the awards, the fair
value of the awards is based on the share price at the date of
grant, as adjusted for the probability of the likely vesting of the
performance conditions. Since the performance condition in respect
of the TSR portion is a market condition, the probability of
vesting is not revisited following the date of grant. The
probability of vesting of the TCAD per share portion, containing a
non-market condition, is reassessed at each reporting date. The
resulting fair values are recorded on a straight-line basis over
the vesting period of the awards.
On 31 October 2019, 2,525,000 PSAs were granted to Directors and
key personnel with a fair value of GBP842,280. An expense of
GBP185,927 was recognised in Administration and Personnel costs in
the Consolidated Statement of Comprehensive Income.
On 1 October 2020, 6,665,000 PSAs were granted to Directors and
key personnel with a fair value of GBP1,093,478. An expense of
GBP364,493 was recognised in Administration and Personnel costs in
the Consolidated Statement of Comprehensive Income.
On 3 January 2021, 1,000,000 PSAs were granted to Directors and
key personnel with a fair value of GBP164,063. An expense of
GBP54,688 was recognised in Administration and Personnel costs in
the Consolidated Statement of Comprehensive Income.
On 1 October 2021, 2,108,000 PSAs were granted to Directors and
key personnel with a fair value of GBP671,926. An expense of
GBP223,771 was recognised in Administration and Personnel costs in
the Consolidated Statement of Comprehensive Income.
On 1 October 2022, 3,954,700 PSA's were granted to Directors and
key personnel with a fair value of GBP840,376. An expense of
GBP139,935 was recognised in Administration and Personnel costs in
the Consolidated Statement of Comprehensive Income.
At 31 March 2023, 13,727,700 (31 March 2022:12,298,000) PSAs
were outstanding. The weighted average remaining vesting period of
these awards outstanding was 1.2 years (2022 - 1.5 years).
Other share-based payments
During the year ended 31 March 2023, the Company issued 205,128
(2022: 104,576) shares to members of the Investment Committee in
recognition of the significant contribution made during the
previous financial year and for voluntarily forgoing service fees.
The fair value of the shares was determined to be GBP80,000 being
the share price at the date of the awards. The expense was
recognised in full in the Consolidated Statement of Comprehensive
Income during that year.
19. Distributable reserves
Pursuant to the Companies (Guernsey) Law, 2008 (as amended), all
reserves (including share capital) can be designated as
distributable. However, in accordance with the Admission Document,
the Company shall not make any distribution of capital profits or
capital reserves except by means of capitalisation issues in the
form of fully paid Ordinary Shares or issue securities by way of
capitalisation of profits or reserves except fully paid Ordinary
Shares issued to the holders of its Ordinary Shares.
20. Dividends
The following interim dividends have been recorded in the
periods to 31 March 2022 and 31 March 2023:
Dividend Dividends
per
share payable
pence/share GBP000
Record date Payment date
26 March 2021 12 April 2021 0. 55 1,359
25 June 2021 12 July 2021 0. 55 1,909
12 October
24 September 2021 2021 0. 55 1,909
12 January
24 December 2021 2022 0. 60 2,093
-----------
Dividends paid for the period ended
31 March 2022 7,270
===========
Payment date
25 March 2022 12 April 2022 0. 70 2,440
1 July 2022 12 July 2022 0. 70 2,842
12 October
30 September 2022 2022 0. 70 2,842
12 January
23 December 2022 2023 0. 70 2,855
Dividends paid for the period ended
31 March 2023 10,979
===========
A further quarterly dividend was paid post year end, refer to
Note 25 for details.
Rights to dividends have been waived in respect of shares held
by the Group's Employee Benefit Trust (see note 17).
21. Deferred tax
The temporary differences for deferred tax are attributable
to:
Royalty Equity
investment investment Tax losses Total
GBP000s GBP000s GBP000s GBP000s
1 April 2021 158 - - 158
Credited to profit
& loss (2) - - (2)
------------- ------------- ------------ ---------
At 31 March 2022 156 - - 156
Charged to profit
& loss 44 - - 44
------------- -------------
At 31 March 2023 200 - - 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 current year tax losses.
22. Related parties
Directors' fees
The following fees were payable to the Directors during the
period:
Share Share
Basic based Annual Basic based Annual
fees payment bonus Total fees payment bonus Total
2023 2023 2023 2023 2022 2022 2022 2022
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Non-Executive
N Birrell 40 - - 40 38 - - 38
M Wilms 30 - - 30 4 - - 4
M Wrigley 30 - - 30 29 - - 29
Executive
N Johnson 240 248 240 728 233 269 108 610
C Cannon Brookes 216 216 216 648 210 216 108 534
-------- ---------- -------- -------- -------- ---------- -------- --------
556 464 456 1,476 514 485 216 1,215
======== ========== ======== ======== ======== ========== ======== ========
Fees relating to Charles Cannon Brookes are paid to Arlington
Group Asset Management Limited.
Directors' fees include the following expenses relating to
awards granted under the Group's Long Term Incentive Plan (see note
18):
2023 2022
GBP000 GBP000
N Johnson 248 269
C Cannon Brookes 216 216
464 485
======== ========
At 31 March 2023, no Directors' fees were outstanding (2022: no
fees outstanding).
Investment Committee fees
The Group's Investment Committee assists in analysing and
recommending potential royalty transactions and its members are
considered to be key management along with the Directors.
The following fees were payable to the members of the Investment
Committee during the year:
2023 2022
GBP000 GBP000
A Carragher 20 20
J Romeo 20 20
J Cochrane 20 20
J Webster 113 109
173 169
======== ========
Investment Committee fees include the following expenses
relating to shares issued as remuneration (see note 18):
2023 2022
GBP000 GBP000
A Carragher - 20
J Romeo - 20
J Cochrane - 20
J Webster - 20
- 80
========== ========
Investment Committee fees include the following expenses
relating to awards granted under the Group's Long Term Incentive
Plan (see note 18):
2023 2022
GBP000 GBP000
J Webster 37 62
======== ========
Support services administration fees
The following amounts were payable to related parties during the
year in respect of support services fees:
2023 2022
GBP000 GBP000
Abingdon Capital Corporation 425 363
Arlington Group Asset Management Limited 93 85
518 448
======== ========
Support Service Agreements with Abingdon Capital Corporation
("Abingdon"), a company of which Neil Johnson is a director, and
Arlington Group Asset Management Limited ("Arlington"), a company
of which Charles Cannon Brookes is a director, were signed on 16
June 2015. The services to be provided by both Abingdon and
Arlington include global deal origination, vertical partner
relationships, office rental and assisting the Board with the
selection, execution and monitoring of royalty partners and royalty
performance. Abingdon fees also includes fees relating to
remuneration of staff residing in North America.
Share options and LTIP awards
The Group's related parties, either directly or beneficially,
held share options issued under the Group's share option scheme and
Long-Term Incentive Plan as follows:
Share options LTIP awards
2023 2022 2023 2022
No. No. No. No.
Neil Johnson - - 3,382 2,821
Charles Cannon
Brookes - - 3,144 2,474
Nigel Birrell - - - -
Justin Cochrane - - - -
Jim Webster - - 375 590
======== ======= ======= =======
Dividends
The following dividends were paid to related parties:
2023 2022
GBP000 GBP000
N Johnson(1) 142 97
C Cannon Brookes(2) 212 141
N Birrell 35 23
M Wrigley 1 1
J Webster 9 2
J Cochrane 28 21
A Carragher 15 11
J Romeo 4 3
======== ========
(1) Includes dividends paid to Abinvest Corporation, a wholly
owned subsidiary of Abingdon
(2) Includes dividends paid to Arlington Group Asset
Management
23. Fair value measurements
Fair value hierarchy
IFRS 13 requires disclosure of fair value measurements by level
of the following fair value hierarchy:
Level 1 : Inputs are quoted prices (unadjusted) in active
markets for identical assets and liabilities that the entity can
readily observe.
Level 2: Inputs are inputs other than quoted prices included
within Level 1 that are observable for the asset, either directly
or indirectly.
Level 3: Inputs that are not based on observable market date
(unobservable inputs).
The Group has classified its financial instruments into the
three levels prescribed as follows:
31-Mar- 31-Mar-
23 22
Level 3 Level 3
GBP000 GBP000
Financial assets
Financial assets at FVTPL
- Royalty investments 191,333 160,479
- Equity investments 13,529 10,820
--------- ---------
204,862 171,299
========= =========
Financial liabilities
Financial liabilities at FVTPL
- Royalty debt liabilities 1,142 1,111
--------- ---------
1,142 1,111
========= =========
The following table presents the changes in level 3 items for
the years ended 31 March 2023 and 31 March 2022:
Financial Financial
assets liabilities Total
GBP000 GBP000 GBP000
At 1 April 2021 88,796 (1,031) 87,765
Additions 75,116 - 75,116
Repayments (5,822) - (5,822)
Royalty income received (18,037) - (18,037)
Royalty participation liabilities
paid - 115 115
Net change in fair value 31,246 (195) 31,051
----------- ------------- ----------
At 31 March 2022 171,299 (1,111) 170,188
Additions 24,309 - 24,309
Royalty income received (28,266) - (28,266)
Royalty participation liabilities
paid - 112 112
Net change in fair value 37,520 (143) 37,377
----------- ------------- ----------
At 31 March 2023 204,862 (1,142) 203,720
=========== ============= ==========
Valuation techniques used to determine fair values
The fair value of the Group's royalty financial instruments is
determined using discounted cash flow analysis and all the
resulting fair value estimates are included in level 3. The fair
value of the equity instruments is determined applying an EBITDA
multiple to the underlying businesses forward looking EBITDA. All
resulting fair value estimates are included in level 3.
Valuation processes
The main level 3 inputs used by the Group are derived and
evaluated as follows:
Annual adjustment factors for royalty investments and royalty
participation liabilities
These factors are estimated based upon the underlying past and
projected performance of the royalty investee companies together
with general market conditions.
Discount rates for financial assets and liabilities
These are initially estimated based upon the projected internal
rate of return of the royalty investment and subsequently adjusted
to reflect changes in credit risk determined by the Group's
Investment Committee.
EBITDA multiples
These multiples are based on comparable market transactions
Forward looking EBITDA
These are estimated based on the projected underlying
performance of the royalty investee companies together.
Changes in level 3 fair values are analysed at the end of each
reporting period and reasons for the fair value movements are
documented.
Valuation inputs and relationships to fair value
The following summary outlines the quantitative information
about the significant unobservable inputs used in level 3 fair
value measurements:
Royalty investments
The unobservable inputs are the annual adjustment factor and the
discount rate. The range of annual adjustment factors used is -6.0%
to 6.0% (2022: 1.9%% to 6.0%) and the range of risk-adjusted
discount rates is 14.7% to 17.70% (2022: 14.8% to 17.35%).
An increase in the annual revenue growth rates (subject to the
collars set under the terms of the royalty financing agreements) of
5% would increase the fair val ue by GBP929,000 (2 022:
GBP891,000).
A reduction in the discount rate of 25 basis points would
increase the fair value by GBP2,289,000 (2022: GBP2,302,000).
A decrease in the annual revenue growth rates (subject to the
collars set under the terms of the royalty financing agreements) of
5% would decrease the fair value by GBP1,263,000 (2022:
GBP1,296,000).
An increase in the discount rate of 25 basis points would
decrease the fair v alue by GBP2,230,000 (2022: GBP2,232,000).
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).
An increase in the EBITDA multiple of 25 basis points would
increase fair value by GBP1,378,000 (2022: GBP1,560,000)
A decrease in the EBITDA multiple of 25 basis points would
decrease fair value by GBP1,378,000 (2022: GBP1,560,000)
An increase in the forward looking EBITDA of 5% would increase
the fair value by GBP1,575,000 (2022: GBP1,695,000)
A decrease in the forward looking EBITDA of 5% would decrease
fair value by GBP1,575,000 (2022: GBP1,695,000)
Royalty participation instruments
The unobservable inputs are the annual adjustment factor and the
discount rate used in the fair value calculation of the royalty
investments. The range of annual adjustment factors used is -0.37%
to 6.0% (2022: 1.9% to 6.0%) and the range of risk-adjusted
discount rates is 16.3% to 17.3% (2022: 16.3% to 17.3%).
An increase in the annual adjustment factor (subject to the
collars set under the terms of the royalty financing agreements) of
5% would increase the fair value of the liability by GBP5,000
(2022: GBP6,000).
A reduction in the discount rate of 25 basis points would
increase the fair value of the liability by GBP9,000 (2022:
GBP14,000).
A decrease in the annual adjustment factor (subject to the
collars set under the terms of the royalty financing agreements) of
5% would decrease the fair value of the liability by GBP9,000
(2022: GBP10,000).
An increase in the discount rate of 25 basis points would
decrease the fair value of the liability by GBP14,000 (2022:
GBP13,000).
24. Financial risk management
The Group's royalty financing activities expose it to various
types of risk that are associated with the investee companies to
which it provides royalty finance. The most important types of
financial risk to which the Group is exposed are market risk,
liquidity risk and credit risk. Market risk includes price risk,
foreign currency risk and interest rate risk. The Board of
Directors has overall responsibility for risk management and the
policies adopted to minimise potential adverse effects on the
Group's financial performance.
Principal financial instruments
The principal financial instruments used by the Group from which
financial instrument risk arises, are as follows:
31-Mar-23 31-Mar-22
GBP000 GBP000
Financial assets held at FVTPL
Royalty investments 191,333 160,479
Equity investments 13,529 10,820
----------- -----------
Total financial assets held at FVTPL 204,862 171,299
Financial assets held at amortised cost
Loan investments 4,652 4,172
Cash and cash equivalents 8,939 5,707
Trade and other receivables 2,290 2,194
----------- -----------
Total financial assets held at amortised
cost 15,881 12,073
Total financial assets 220,743 183,372
=========== ===========
Financial liabilities held at amortised
cost
Bank borrowings (54,371) (48,102)
Trade and other payables (1,747) (1,490)
----------- -----------
Total financial liabilities held at
amortised cost (56,118) (49,592)
Financial liabilities held at FVTPL (1,142) (1,111)
Total financial liabilities (57,260) (50,703)
=========== ===========
The policies and processes for measuring and mitigating each of
the main risks are described below.
Market risk
Market risk comprises foreign exchange risk, interest rate risk
and other price risk.
Foreign exchange risk
Currency risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes
in foreign currency exchange rates. The functional and presentation
currency of the Group is Sterling.
The Group is exposed to foreign exchange risk arising from
foreign currency transactions, primarily with respect to the Euro.
Foreign exchange risk arises from future commercial transactions in
recognised assets and liabilities denominated in a currency that is
not the functional currency of the Company and its subsidiary.
The Board monitors foreign exchange risk on a regular basis. The
Group's exposure to this risk is outlined below.
The Group's exposure to foreign currency risk at the end of the
reporting period was as follows:
31-Mar-23 31-Mar-23 31-Mar-23 31-Mar-22 31-Mar-22 31-Mar-22
Euro US Dollar CAD Dollar Euro US Dollar CAD Dollar
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Royalty investment 9,779 27,330 11,304 14,118 16,061 11,380
Equity investments 6,760 - 1,377 3,814 - 461
Loans receivable - - - - - -
Cash and cash
equivalents - 81 54 189 247 81
Trade and
other receivables 2,231 - - 2,141 - -
Royalty participation - - - - - -
liability
Transaction
costs payable - (1,629) - - (1,300) -
----------- ----------- ------------ ----------- ----------- ------------
18,770 25,782 12,735 20,262 15,008 11,922
=========== =========== ============ =========== =========== ============
If Sterling strengthens by 10% against the Euro, the net
Euro-denominated assets would reduce by GBP844,000 (2022:
GBP965,000). Conversely, if Sterling weakens by 5% the assets would
increase by GBP932,000 (2022: GBP1,066,000).
If Sterling strengthens by 5% against the US Dollar, the net US
Dollar-denominated assets would reduce by GBP1,228,000 (2022:
GBP715,000). Conversely, if Sterling weakens by 5% the assets would
increase by GBP1,357,000 (2022: GBP790,000).
If Sterling strengthens by 5% against the Canadian Dollar, the
net Canadian Dollar-denominated assets would reduce by GBP606,000
(2022: GBP568,000). Conversely, if Sterling weakens by 5% the
assets would increase by GBP670,000 (2022: GBP627,000).
Interest rate risk
Interest rate risk is the risk that the fair value of future
cash flows of a financial asset will fluctuate because of changes
in market interest rates.
The Group's main interest rate risks arise in relation to its
royalty investments, which are carried at fair value through profit
or loss, and its borrowings, which are subject to an interest
charge of one-month UK SONIA +5.00%. The Group's royalty
investments have a fair value at the reporting date of
GBP191,333,000 (31 March 2022: GBP160,479,000). A sensitivity
analysis in respect of these assets is presented in note 23.
The Group's borrowings at the reporting date are GBP53,930,000,
see Note 15 (31 March 2022: GBP47,740,000). A movement in the rate
of SONIA of 100bps impacts loan interest payable by GBP539,000 (31
March 2022: GBP477,000).
Other price risk
Other price risk is the risk that the fair value of future cash
flows of a financial asset will fluctuate because of changes in
market prices (other than those arising from interest rate risk or
foreign exchange risk).
The fair value of the Group's royalty investments fluctuates due
to changes in the expected annual adjustment factors applied to the
royalties payable by each of the investee companies, which are
based upon the revenue growth of the investee company.
A sensitivity analysis in respect of the annual adjustment
factors applied to the royalty investments is presented in note
23.
Credit risk
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation.
The Group's maximum exposure to credit risk is as follows:
31-Mar-23 31-Mar-22
GBP000 GBP000
Royalty investments 191,333 160,479
Loan investments 4,652 4,172
Cash and cash equivalents 8,939 5,707
Trade and other receivables 2,290 2,194
207,214 172,552
=========== ===========
Royalty investments
The royalty investments relate to the Group's 15 royalty
financing agreements. At the reporting date, there was GBP4,423,000
of royalty cash payments outstanding (31 March 2022: GBP2,439,000)
from three royalty partners (31 March 2022: 2). Of this, GBPnil (31
March 2022: GBPnil) was received in the month post year-end.
Payment plans have been agreed to recover the GBP4,423,000 from all
three royalty partners over the next five years.
The Group monitors the credit worthiness of the investee
companies on an ongoing basis and receives regular financial
reports from each investee company. These reports are reviewed by
the Board on a semi-annual basis. The credit risk relating to these
investments is taken into account in calculating the fair value of
the instruments.
The Group also has security in respect of the royalty
investments which can be called upon if the counterparty is in
default under the terms of the agreement.
Loan investments
The Group's loan investments are held at amortised cost. All
loans have been reviewed by the directors. The Board considered the
credit risk, both at issue and at the year-end, and has determined
that there have been no significant movements. Consequently, any
loss allowance is limited to 12 months' expected losses and such
allowances are considered to be immaterial.
Cash and cash equivalents
The credit quality of the Group's cash and cash equivalents can
be assessed by reference to external credit ratings as follows:
31-Mar-23 31-Mar-22
GBP000 GBP000
Moody's credit rating:
A1 6,681 3,657
Baa1 2,220 2,018
Baa2 38 -
B+ - 32
8,939 5,707
=========== ===========
The Group considers that the credit risk relating to cash and
cash equivalents is acceptable.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in
realising assets or otherwise raising funds to meet financial
commitments.
The Group maintains sufficient cash to pay accounts payable and
accrued expenses as they fall due. The Group's overall liquidity
risks are monitored on a quarterly basis by the Board.
At the year end the Group had access to an undrawn borrowing
facility of GBP42,000,000 (2022: GBP6,800,000 (see note 15).
The table below analyses the Group's royalty investments and
financial liabilities into relevant maturity groupings based on
their undiscounted contractual maturities.
Less than 1 - 5 Over five
one year years years Total
As at 31 March 2023 GBP000 GBP000 GBP000 GBP000
Royalty finance investments 25,967 149,279 747,951 923,197
Royalty finance liabilities 121 571 3,540 4,232
Trade and other payables (433) (882) (431) (1,746)
Borrowings (441) (53,930) - (54,371)
----------- ---------- ----------- ----------
25,214 95,038 751,060 871,312
=========== ========== =========== ==========
Less than Over five
one year 1 - 5 years years Total
As at 31 March 2022 GBP000 GBP000 GBP000 GBP000
Royalty finance investments 20,550 93,694 656,584 770,828
Royalty finance liabilities 116 615 3,457 4,188
Trade and other payables (443) (1,011) (918) (2,372)
Borrowings (3,864) (58,455) - (62,319)
----------- ------------- ----------- ----------
16,359 34,843 659,123 710,325
=========== ============= =========== ==========
Capital management
The Board manages the Company's capital with the objective of
being able to continue as a going concern while maximising the
return to Shareholders through the capital appreciation of its
investments. The capital structure of the Company consists of
equity as disclosed in the Consolidated Statement of Financial
Position
25. Events after the financial reporting date
Dividends
On 12 April 2023 the Company paid a quarterly dividend of 0.70
pence per share.
Exits
On 24 May 2023, Duke announced that it had exited its
investments in Instor Solutions, Inc ("Instor"). The total cash
return was GBP8.7 million.
New royalty investments
On 23 June 2023, the Group announced a GBP1,800,000 follow-on
investment into Tristone.
On 30 June 2023, the Group announced a GBP1,900,000 follow-on
investment into New Path Fire & Security.
Directors Nigel Birrell (Chairman)
Neil Johnson
Charles Cannon Brookes
Matthew Wrigley
Maree Wilms
Secretary and administrator IQ EQ Fund Services Trident Trust Company
(Guernsey) Limited) (Guernsey) Limited
(from 1 June 2023) (until 31 May 2023)
Ground Floor, Cambridge Trafalgar Court
House 4th Floor, West Wing
Le Truchot St Peter Port
St Peter Port Guernsey, GY1 2JA
Guernsey GY1 1WD
Registered in Guernsey,
number 54697
Website address www.dukeroyalty.com
Ground Floor, Cambridge
Registered office House
Le Truchot, St Peter
Port
Guernsey, GY1 1WD
Independent auditor BDO Limited
Place du Pre, Rue de
Pre
St Peter Port
Guernsey, GY1 3LL
Canaccord Genuity
Co-brokers Cenkos Securities plc Limited
6-8 Tokenhouse Yard 88 Wood Street
London, EC2R 7AS London, EC2V 7QR
Nominated advisor Cenkos Securities plc
6-8 Tokenhouse Yard
London, EC2R 7AS
Support service providers Arlington Group Asset
Management Ltd Abingdon Capital Corporation
4 King Street W.,
47/48 Piccadilly Suite 401
London, W1J 0DT Toronto, Ontario
Canada, M5H 1B6
Registrar and CREST agent Computershare Investor
Services
(Guernsey) Limited
3(rd) Floor, Natwest
House
Le Truchot, St Peter
Port
Guernsey, GY1 2JP
Advocates to the Company
as to Appleby (Guernsey) LLP
Guernsey law Hirzel Court
Hirzel Street
St Peter Port
Guernsey, GY1 3BN
Investment Committee Jim Webster (Chairman) Andrew Carragher
Neil Johnson Justin Cochrane
Charles Cannon Brookes John Romeo
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END
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July 04, 2023 02:00 ET (06:00 GMT)
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