TIDMDUKE
RNS Number : 6877Y
Duke Royalty Limited
08 September 2022
8 September 2022
Duke Royalty Limited
("Duke Royalty", "Duke" or the "Company")
Final Results for the year ended 31 March 2022
Duke Royalty Limited (AIM: DUKE), a provider of alternative
capital solutions to a diversified range of profitable and
long-established businesses in Europe and abroad, is pleased to
announce its audited final results for the 12 months ended 31 March
2022 ("FY22").
FY22 Highlights
-- 67% year on year increase in total cash revenue to GBP18.4
million (FY21: GBP11.0 million), driven by a strengthening of the
underlying investment portfolio and increased deployments
-- Free cashflow* per share rose from 3.10p in FY21, to 3.53p in
FY22, demonstrating the accretive nature of the business model
-- Net income of GBP20.4 million, up 46% from the GBP14.0 million generated in FY21
-- 41% year-on-year increase in adjusted earnings per share** to 3.81p (FY21: 2.70p)
-- Dividend per share of 2.25p (FY21: 2.25p)
-- Deployed over GBP75 million of capital, adding five new
royalty partners to the portfolio and completing a range of
follow-on investments into existing royalty partners
-- Realised exits from two investments with strong IRRs
-- GBP35 million of equity capital raised in oversubscribed
placing which, together with additional capital from Duke's senior
credit provider, supported record deployments
Post Period End Highlights
-- Raised GBP20 million of equity capital, providing significant
liquidity to deploy into a strong pipeline of partnership and
follow-on opportunities
-- Quarterly cash revenue of GBP5.1 million achieved for Q1 of
the Company's current financial year ended 30 June 2023 ("Q1
FY23"), a 78% increase on Q1 FY22
-- Paid a dividend of 0.70p per share for Q1 FY23, representing
an annualised dividend of 2.80p per share, a 24% increase over FY22
total dividend
-- Two additional follow-on investments completed
* Free cashflow is defined as net cash inflows from operations
plus cash gains from the sale of equity investments less interest
paid on borrowings
** Adjusted earnings is the total comprehensive income adjusted
for unrealised and non-core fair value movements, non-cash items
and transaction-related costs, including royalty participation
fees, together with the tax effects thereon.
Neil Johnson, CEO of Duke Royalty, said:
"We are delighted to report significant growth across all our
core KPIs for the 12 months to 31 March 2022. It is particularly
pleasing that this positive performance has been achieved as we
celebrate our fifth year since admission to AIM in 2017. Through
all the highs and lows of the last five years, we have persevered
through all the unexpected economic, political and public health
shocks, to create Europe's largest corporate royalty provider for
long standing, profitable private businesses.
"While we have celebrated our growth in the face of the many
macroeconomic headwinds over the last five years, the next five
years will, undoubtedly, present their own challenges. With the
majority of the western world now dealing with unusually high
inflation and global supply chain issues, we take reassurance from
the fact that not only Duke, but the wider royalty industry, has
seen many economic cycles before.
"We believe we are in a strong position for growth and will
prudently continue to make deployments to deliver higher free cash
flow and increase free cash flow per share. As a company, our
portfolio metrics are more robust than they have ever been, meaning
Duke is well positioned to withstand headwinds better than
ever."
Analyst Presentation
There will be a webinar for equity analysts at 09:30 a.m. BST
today, Thursday, 8 September 2022, hosted by Neil Johnson, CEO, and
Hugo Evans, Finance Director. Any equity analysts wishing to attend
should contact SEC Newgate
at dukeroyalty@secnewgate.co.uk where further details will be provided.
Investor Presentation
Neil Johnson, CEO, and Hugo Evans, Finance Director, will also
provide a live investor presentation relating the Full Year Results
via the Investor Meet Company platform on Friday 9 September at
10:00 a.m. BST.
The presentation is open to all existing and potential
shareholders. Questions can be submitted via the Investor Meet
Company dashboard up until 09:00 a.m. the day before the meeting or
at any time during the live presentation.
Investors can sign up to Investor Meet Company for free and add
to meet Duke Royalty via:
https://www.investormeetcompany.com/duke-royalty-limited/register-investor
Investors who already follow Duke Royalty on the Investor Meet
Company platform will automatically be invited.
This announcement contains inside information.
For further information, please contact www.dukeroyalty.com, or
contact:
Neil Johnson / Charles
Cannon Brookes / Hugo
Duke Royalty Limited Evans +44 (0) 1481 741 240
Cenkos Securities
plc Stephen Keys / Callum
(Nominated Adviser Davidson
and Julian Morse / Michael
Joint Broker) Johnson +44 (0) 207 397 8900
Canaccord Genuity Adam James / Georgina
(Joint Broker) McCooke +44 (0) 207 523 8000
SEC Newgate Elisabeth Cowell / Richard +44 (0) 20 3757 6882
(Financial Communications) Bicknell dukeroyalty@secnewgate.co.uk
Max Richardson
About Duke Royalty
Duke Royalty Limited provides alternative capital solutions to a
diversified range of profitable and long-established businesses in
Europe and abroad. Duke Royalty's experienced team provide
financing solutions to private companies that are in need of
capital but whose owners wish to maintain equity control of their
business. Duke Royalty's royalty investments are intended to
provide robust, stable, long term returns to its shareholders. Duke
Royalty is listed on the AIM market under the ticker DUKE and is
headquartered in Guernsey.
Chairman's Statement
Dear Shareholder,
I am pleased to report on the results for the Group for the
financial year ending 31 March 2022 ("FY22"), a period in which
Duke was able to produce record cashflow underpinned by higher
levels of investment deployment. It is fair to say that FY22 once
again presented challenges as the global economy emerged from the
immense economic and social strains brought about by the Covid
pandemic. It is against this challenging backdrop that I am pleased
to be able to report such a strong set of financial results.
In my Chairman's statement for FY21, I referred to the emergence
of mild inflationary pressures spurred on by a backdrop of rapidly
rising commodity prices. FY22 was the year where those inflationary
pressures firmly took hold with cost pressures being seen across
all main expense items such as raw materials, labour, freight and
power. Post period end, we have seen this inflationary pressure
worsen, exacerbated by the war in Ukraine which has forced central
banks around the world into aggressively raising interest rates to
try to bring inflation rates back down towards their historically
acceptable ranges. The coupling effect of high inflation alongside
higher interest rates will inevitably lead to downward pressure
being exerted on consumer spending and we will remain vigilant as
to what effects this may have on our royalty partners in the coming
months.
Thankfully, however, I am pleased to report that during FY22
Duke's royalty partners were, in the majority of cases, able to
pass on this FY22 cost inflation to their customers and many were
able to post record operating performance of their own. This strong
trading has led to Duke's overall portfolio metrics improving in
terms of higher underlying profitability, increased debt service
coverage ratios and improved liquidity levels, and as a result
Duke's portfolio has entered FY23 in a robust position. One of the
core benefits of the Duke business model is that it provides
shareholders with a degree of inflation hedging as higher costs
being incurred by its royalty partners translate into them charging
higher pricing (and therefore generating higher revenues) which in
turn should lead to an increase in Duke's cash receipts via the
annual reset mechanism. I am happy to report that Duke's average
returns increased during FY22, validating this thesis, and we
expect this trend to continue while inflationary pressures
persist.
Over time, we have also been able to significantly diversify our
portfolio both in terms of sector and internal weighting. At period
end the Company had exposure to 48 underlying operating companies
via its 13 royalty partners, with a maximum concentration limit per
royalty partner of approximately 10%. Diversification is the
ultimate risk mitigation tool and during the period Duke invested a
record GBP61m into five new royalty partners as well as GBP14m into
existing partners via follow-on investments. As I referenced in the
Company's last report, after a period of global financial stress
there is demand for the Company's unique, long dated and aligned
product offering. Duke has a fantastic opportunity to take market
share away from the traditional debt markets whose short-dated,
amortising loans carry a high degree of inherent refinancing risk.
To take advantage of this market opportunity, Duke raised GBP35m of
equity during FY22 and another GBP20m post period end which, when
taken alongside its existing credit facilities, means that Duke
currently has significant liquidity to deploy in its pipeline of
new deal opportunities. These two equity financings included a
Primary Bid offering to allow our valued retail investors to
participate, and going
forward, we will seek to pursue the best available initiatives
and technology which provide all our investors with the best access
to corporate actions, as they occur.
Duke benefitted from two profitable buyouts of its royalty
partners in FY22 which delivered a significant upside event to the
Company's financial performance. The positive effects of these
buyouts are rarely modelled into analyst forecasts because the
timing of the buyout always remains in the hands of the royalty
partner. Another benefit which I would like to draw shareholders'
attention to in FY22 is the positive effect of operational
leverage. Given the nature of the Company's low and largely fixed
cost base, additional deployments led to an increase in the
Company's free cash flow per share in FY22 and this is a trend that
should only accelerate into FY23 as Duke deploys more capital.
Higher levels of free cashflow per share underpin Duke's future
quarterly dividend policy and during FY22 Duke paid out cash
dividends of 2.25p per share. It is pleasing to note that in the
most recent quarter Duke's dividend stood at 0.70 pence per share,
equating to 2.80 pence per annum, showing a continued upward
trajectory of the Company's dividend into FY23.
Throughout FY22, the Duke team has worked hard to manage the
Company and its partners through the difficulties presented by the
pandemic and the macro-economic environment and I thank them for
their considerable efforts. As a fiduciary and long-term partner in
companies, we see it as our duty to deploy our capital in a
responsible way. As set out in our Responsible Investment Policy,
we recognise that by following a set of commitments, Duke better
aligns itself and its partners with the broader objectives of
society. Furthermore, because our investment products are
structured over decades, we believe that long term success as a
business is directly correlated to the way that business approaches
and manages their environmental, social and governance
considerations.
As always, I am appreciative of the ongoing support of all our
shareholders and am pleased to report a strong set of results
within the Chairman's statement for FY22. Our underlying royalty
partners have traded resiliently during the period and the Group is
well placed to continue to grow in FY23. Our recent trading update
for first financial quarter ended 30 June 2022 ("Q1 FY23") showed
that normalised cash revenue had reached new highs and we expect
this growth trend to continue into Q2 FY23 by virtue of Duke's
annual yield adjustments linked to the underlying companies'
revenue performance in this inflationary macro-environment.
The macro environment certainly remains challenging but the
resilience of Duke's royalty model, which provides exposure to a
diverse portfolio of 48 underlying operating companies, should
allow the Company to continue to prosper as demonstrated through
the pandemic and I look forward to being able to report on the
Group's ongoing progress and development in future periods.
Nigel Birrell
Chairman
CEO's Statement
Dear Shareholders,
As we celebrate our fifth year since admission to AIM in 2017, I
can't help but reflect on how different the world looks today.
Through all the highs and lows of the last five years, we would not
be here without the support of our shareholders, the trust of our
royalty partners, the dedication of our employees, and the
leadership of our Board. We have persevered through all the
unexpected economic, political and public health shocks, to create
Europe's largest corporate royalty provider for long standing,
profitable private businesses.
As this year's Annual Report has demonstrated, we think of our
growth over the past five years in three phases:
Phase 1 - Establishing our presence
In the first phase, we focused on building the equity base,
portfolio and cash flow, in order to deliver dividends for our
shareholders. We were taking a proven financing mechanism which had
existed in North America for decades and tailored it for the UK
public markets and European businesses. We had to build a track
record and prove to both investors and business owners, that
corporate royalties had a role in filling the SME funding gap. We
appreciate the support from those early shareholders who backed us
to build a company which was unique on the London Stock Exchange.
We successfully built a base of royalty partners who placed faith
in us and developed long-term symbiotic partnerships not found in
the high street bank offerings. We certainly would not be here
without these early supporters.
Phase 2 - Proving our investment thesis
After three years of building our business, our focus was forced
to change in March 2020. The arrival of Covid-19 and the ensuing
pandemic gave us an opportunity to test the strength of the
foundation we had built. In North America, where Royalty Finance
has been established for decades, investors are drawn to the
downside protection royalty providers deliver during crises. The
pandemic enabled us to demonstrate this characteristic to both
business owners and our investors in the UK and Europe. Duke worked
with our royalty partners through unprecedented stresses to
stabilise their businesses, and I am proud of the work, resiliency
and flexibility that both our team and our royalty partners showed
throughout this period. We did not panic; we had a clear plan to
survive the initial shock and we executed.
Once the market and public health stabilised, our team reflected
on what we could learn from the experience and set about putting
those learnings into action. We forged deep relationships with our
royalty partners, focused on the long-term prospects of each and
helped them navigate the effects of the pandemic. We believe our
actions have not only ensured the long-term profitability of our
royalty partners, but that, in the fulness of time, our
shareholders will be rewarded by these actions. We focused our
criteria of selection on what was working best and set about
solidifying our position.
The post-pandemic recovery was viewed as an opportunity for Duke
to accelerate our marketing efforts and expand our network,
defining our market segment by demonstrating acceptance of our
solution by business owners and operators. This was successful and
with five new royalty partners, multiple bolt-on acquisitions from
our existing portfolio, and accretive buyouts, FY22 was, by this
measure, a banner year for the Company and resulted in an
unprecedented growth year in our Company's short history.
Across Europe and North America, Duke deployed over GBP61
million into new partners during the period, spread across managed
IT services, engineering, medicines, signage and healthcare,
highlighting Duke's commitment to create a diverse group of royalty
partners. A further GBP14 million was deployed in follow on
investments into our existing royalty partners. The result was a
tripling of the deployments made in any financial year in the
Company's history.
Duke also demonstrated the lifecycle of a typical investment
during this growth phase, successfully realising two further
investment buybacks. One of these, BHPC Limited, represented Duke's
fifth exit, for which Duke received back net cash of GBP6.9
million, delivering an IRR of 29.4% on closing, our highest return
to date.
Shareholder support
At the beginning of the period under review, we announced an
oversubscribed GBP35 million placing with new and existing
institutional and retail investors. This allowed us to take
advantage of what we saw as an exciting time to be evaluating
deals. We are thankful to our supportive shareholders who
recognised the value of our dividend and understood the downside
protection that our royalty agreements provide to them, as well the
role our solution could provide in supporting businesses. We also
received further support from Pollen Street Capital in FY22 to
increase the top end of our credit facility to support further
growth.
The placing and Pollen Street's credit facility enabled Duke to
have an unprecedent year of deployments in FY22, further discussed
below. Following another GBP20 million placing post period end,
Duke is uniquely positioned with significant liquidity to deploy
into a strong pipeline of partnership and follow-on opportunities.
We will be doing this prudently and selectively, given the
challenging headwinds currently affecting business globally.
Duke appreciates the support of all its shareholders in these
raisings, and the participation of our valued retail investors. We
utilised the Primary Bid process in these placings to enable retail
investors participation and continue to explore initiatives which
provide all our investors with the best possible opportunity to
access any future corporate actions.
Scaling internationally
As I discussed in last year's CEO statement, to ensure the best
returns for shareholders our ambitions are not limited to Europe.
Our philosophy of diversification is not simply about having a
basket of different companies, it is to ensure a variety of
industries, currencies, and geographies. I am pleased to report
that that this diversification continues with the addition of Cre
-Tech Industrial Group and Atlas Signs Holdings, headquartered in
British Columbia, Canada, and Florida, USA respectively. These also
represent two different examples of uses of our capital; Cre -Tech
is using our funds to enable its buy-and-build strategy, while at
Atlas Signs, we support a family-owned business with its long-term
objectives through debt refinancing.
ESG
Armed with our published responsible investing policy and our
Company's dedication to Environment Social and Governance (ESG)
best practice, our team implemented the policy throughout our
investment lifecycle. An ESG criteria checklist was added to our
initial screening of new opportunities, and throughout the due
diligence process in an effort to understand and evaluate our ESG
criteria for every new investment. We have also begun the process
of articulating our goals to our royalty partners, and initiated
dialogues with them to set and meet their own ESG targets. One
example of positive change we have seen through this process is
Trimite Global Coatings. As a supplier of high-performance paints
and coatings for industrial applications, Trimite prides itself on
its technical knowhow and quality products. Through our strategic
dialogue, the company has now set a goal to make all coatings
water-based, where customers can accommodate this technology, with
no reduction in performance. This move will not only lower their
impact on the environment, but will mean greater opportunity for
growth, as their customers increasingly look for greener, more
sustainable solutions. Other initiatives are underway within the
company to drive its commitment to the environment and we commend
the Trimite team on articulating and doing their part in committing
to a positive environmental impact.
Our company is committed to helping our communities. In London,
the Duke team has taken the lead in organising the reintroduction
of the Terry Fox Run. Terry Fox is a Canadian hero, who lost his
leg to cancer and set about raising money for cancer research in
1980 by running a marathon a day across Canada, tragically needing
to stop 143 days into his inspiring journey as his cancer had
spread to his lungs. Terry Fox died less than a year later but the
foundation in his name has raised over GBP500 million since his
death. In 2021, through the efforts of Duke team, we were able to
continue to support this legacy raising over GBP65,000 for the UK's
pre-eminent cancer research organisation, The Institute of Cancer
Research.
Financial Review
Cashflow
FY22 saw record cashflows for the Group, with total cash revenue
of GBP18.4 million generated, a 67% increase over the GBP11.0
million produced in FY21. This was driven by a strengthening of the
underlying investment portfolio following the problems experienced
during the first wave of the Covid pandemic. Recurring revenue,
reflecting the ongoing monthly distributions made by Duke's royalty
partners, represented 81% of cash revenue and totalled GBP14.9
million, up from GBP8.8 million in FY21.
Operating cashflow for the year totalled GBP11.2 million, a 25%
gain on the FY21 total of GBP8.9 million. It is especially pleasing
to see the operating leverage increase, driven by Duke's ability to
control its operating costs as cash revenue grows. In FY22, cash
operating costs as a percentage of total cash revenue reduced from
20% to 14% and we expect this to continue decreasing as revenue
grows and the cost base remains largely stable.
Free cashflow, defined as Duke's operating cashflows plus cash
gains from the sale of equity investments less the interest due on
its debt financing, totalled GBP12.1 million, a 61% increase on the
GBP7.5 million generated in FY21. But perhaps more importantly,
free cashflow per share rose 14% to 3.5 pence per share,
demonstrating the accretive nature of the business model. The
pay-out ratio, which represents the percentage of total free
cashflow that the Group pays out in dividends, reduced from 72% to
60%, allowing the Group to reinvest a larger proportion of its
cashflow into new investments.
Income Statement
Total income for the year grew to GBP28.8 million in FY22, a 33%
increase over FY21, while earnings after tax totalled GBP20.4
million, a 46% increase on the prior year. However, both these
measures include the non-cash fair value movements on the royalty
and equity portfolios. If we strip out these fair value movements,
then total adjusted income rose 56% to GBP18.4 million, while
Duke's non-IFRS measure of adjusted earnings (refer to the
Director's report for full explanation of adjusted earnings), rose
from GBP6.6 million to GBP13.1 million. As with free cashflow per
share, adjusted earnings per share also increased, growing 41% from
2.70 pence per share to 3.81 pence per share.
Dividends
The Company increased its quarterly dividend in January 2022
from 0.55 pence per share to 0.60 pence per share, resulting in
total dividend payments for FY22 of GBP7.6 million, the equivalent
of 2.25 pence per share. Notably, the most recent quarterly
dividend, paid post period end in July 2022, increased to 0.70
pence, representing an annualised dividend of 2.80 pence per
share.
Balance Sheet
During the year the Group successfully deployed over GBP75
million into new and follow-on investments (2021: GBP24 million),
securing five new royalty partners. This included an investment of
ca. GBP16 million into Atlas Signs Holdings Inc., a US based
national brand implementation company delivering signage and
related services to businesses around the globe. This investment
represents Duke's largest initial investment to date and expands
upon the Group's North American presence, diversifying its currency
exposure.
Group net assets increased by 55% to GBP133 million (2021: GBP86
million) following a successful GBP35 million equity raise in April
2021.
The Group's total assets were GBP184 million as at 31 March
2022, an increase of 73% from the GBP106 million at 31 March 2021,
once again primarily attributable to the increase in capital
deployments during the year on the back of April 2021's successful
equity raise. The total fair value of the royalty portfolio stood
at GBP160 million at 31 March 2022, while the equity portfolio
increased its fair value from GBP3.5 million to GBP10.8 million,
again reflecting the increasing stability and strength of our
underlying investment portfolio.
Net debt for the Group increased to GBP42.3 million (31 March
2021: GBP15.5 million) following the successful extension of Duke's
borrowing facility with Pollen Street Capital in January 2022,
providing additional liquidity to the Group.
Phase 3 - Scaling our business
As we embark on the second half of our first decade, we enter
the third phase of our growth; continuing our momentum and scaling
the business. Now that we have established the robustness of our
business model in difficult economic conditions, a diversified
portfolio and a presence in our target markets, we have the
opportunity to solidify our first mover advantage in the UK, Europe
and abroad. As the only corporate royalty provider listed in
London, we believe we are in a strong position for growth and will
prudently continue to make deployments to deliver higher free cash
flow and increase free cash flow per share. The benefits of our
product are clear and accepted by our target partners and we now
have a track record of delivering benefits for business owners who
want to retain control of their business.
We will also continue generating returns for our shareholders
through value-realisation events. As our portfolio matures and
grows, the embedded value that our agreements have in the form of
buyout premiums and minority equity stakes we believe will be
realised. While the timing of buyouts is outside of our control -
in line with our philosophy to keep business owners in control of
their destiny - they are highly accretive to shareholders and will
be an ongoing theme in the future. Each year our cash distribution
is adjusted based on our partners' revenue, and every buyout of our
product crystallises the value of the buyout premium and value of
our equity stake if we have one in the business. In the meantime,
our partners are paying monthly distributions over the typical
30-year term of our agreement.
While we have celebrated our growth in the face of the last five
year's economic, political and public health headwinds, the next
five years will, undoubtedly, present their own challenges. Our
business model's first principal - to preserve our investor's
capital - is as strong as ever. With the western world now dealing
with unusually high inflation and global supply chain issues, we
take reassurance from the fact that not only Duke, but the wider
royalty industry, has seen many economic cycles before. The
industry is bigger than it has ever been and the knowledge and
understanding of royalty finance has become embedded in the market.
As a company, our portfolio metrics are more robust than they have
ever been, meaning Duke is well positioned to withstand headwinds
better than ever. More importantly our relationships and ability to
make decisions for the long-term best interest of our royalty
partners makes it apparent that our company, and corporate
royalties, have a very important place in the alternative finance
industry.
I would like to personally thank our shareholders, our royalty
partners, our employees and our Board for our continued progress
and our best year yet.
Neil Johnson
CEO
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 MARCH 2022
Year to Year to
31-Mar-22 31-Mar-21
GBP000 GBP000
Cash flows from operating activities
Receipts from royalty investments 14,701 9,931
Receipts of interest from loan investments 580 667
Other operating receipts 543 438
Operating expenses paid (2,487) (2,154)
Payments for royalty participation fees (115) (81)
Tax (paid) / refunded (2,055) 135
----------- -----------
Net cash inflow from operating activities 11,167 8,936
Cash flows from investing activities
Royalty investments advanced (74,586) (22,708)
Royalty investments repaid 2,938 14,354
Loan investments advanced (3,192) (1,145)
Loan investments repaid 3,949 2,370
Equity investments advanced (530) (653)
Equity investments repaid 2,883 -
Receipt of deferred consideration 7,679 -
Investments costs paid (972) (634)
Net cash outflow from investing activities (61,831) (8,416)
Cash flows from financing activities
Proceeds from share issue 35,000 -
Share issue costs (1,936) (1)
Dividends paid (7,270) (3,013)
Proceeds from loans 38,200 15,200
Loans repaid (7,500) (13,926)
Interest Paid (1,649) (1,409)
Other finance costs (181) (95)
Net cash inflow / (outflow) from financing
activities 54,664 (3,244)
Net change in cash and cash equivalents 4,000 (2,724)
Cash and cash equivalents at beginning
of year 1,766 4,481
Effect of foreign exchange on cash (59) 9
Cash and cash equivalents at the end
of year 5,707 1,766
=========== ===========
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 MARCH 2022
Note Year to Year to
31-Mar- 31-Mar-21
22
GBP000 GBP000
Income
Royalty investment income 9 18,037 19,344
Loan investment income 10 533 636
Equity investment income 11 9,678 1,569
Other operating income 543 93
Total Income 28,791 21,642
Investment Costs
Transaction costs (631) (447)
Due diligence costs (1,113) (103)
Total Investment Costs (1,744) (550)
Operating Costs
Administration and personnel 5 (2,060) (1,675)
Legal and professional (405) (367)
Other operating costs (151) (99)
Expected credit losses 10 (72) -
Share-based payments 18 (930) (806)
--------- -----------
Total Operating Costs (3,618) (2,947)
Operating Profit 23,429 18,145
--------- -----------
Net foreign currency movement (60) (542)
Finance costs 6 (1,996) (1,539)
Profit before tax 21,373 16,064
Taxation expense 7 (982) (2,111)
Profit after tax 20,391 13,953
========= ===========
Basic earnings per share (pence) 8 5.95 5.75
========= ===========
Diluted earnings per share (pence) 8 5.95 5.75
========= ===========
All income is attributable to the holders of the Ordinary Shares
of the Company.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2022
Note 31-Mar- 31-Mar-
22 21
GBP000 GBP000
Non-current assets
Goodwill 16 203 203
Royalty finance investments 9 139,648 71,107
Loan investments 10 3,172 4,370
Equity investments 11 10,820 3,495
Trade and other receivables 13 2,141 5,618
Deferred tax 21 156 158
---------- ----------
156,140 84,951
Current assets
Royalty finance investments 9 20,831 14,194
Loan investments 10 1,000 580
Trade and other receivables 13 53 4,422
Cash and cash equivalents 5,707 1,766
27,591 20,962
Total Assets 183,731 105,913
---------- ----------
Current liabilities
Royalty debt liabilities 12 160 114
Trade and other payables 14 423 267
Borrowings 15 362 161
Current tax liability 87 1,163
1,032 1,705
Non-current liabilities
Royalty debt liabilities 12 951 917
Trade and other payables 14 1,067 402
Borrowings 15 47,740 17,103
49,758 18,422
Net Assets 132,941 85,786
========== ==========
Equity
Share capital 17 153,974 120,870
Share-based payment reserve 18 2,478 1,548
Warrant reserve 18 265 265
Retained losses 19 (23,776) (36,897)
---------- ----------
Total Equity 132,941 85,786
========== ==========
The Consolidated Financial Statements were approved and
authorised for issue by the Board of Directors on 7 September 2022
and were signed on its behalf by Directors Maree Wilms and Matt
Wrigley.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MARCH 2022
Share-based
Shares payment Warrant Retained Total
Note issued reserve reserve losses equity
GBP000 GBP000 GBP000 GBP000 GBP000
At 31 March 2020 118,479 742 265 (45,446) 74,040
Total comprehensive
income for the year - - - 13,953 13,953
Transactions with
owners
Shares issued in
scrip dividend 17 2,391 - - - 2,391
Share based payments 18 - 806 - - 806
Dividends 20 - - - (5,404) (5,404)
Total transactions
with owners 2,391 806 - (5,404) (2,207)
At 31 March 2021 120,870 1,548 265 (36,897) 85,786
--------- ------------- --------- ---------- ---------
Total comprehensive
income for the year 20,391 20,391
Transactions with
owners
Shares issued for
cash 17 35,000 - - - 35,000
Share issuance costs 17 (1,936) - - - (1,936)
Shares issued to
key advisers as remuneration 17 40 - - - 40
Share based payments 18 - 930 - - 930
Dividends 20 - - - (7,270) (7,270)
--------- ------------- --------- ---------- ---------
Total transactions
with owners 33,104 930 - (7,270) 26,764
At 31 March 2022 153,974 2,478 265 (23,776) 132,941
========= ============= ========= ========== =========
The notes set out below form an integral part of these
Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 MARCH 2022
1. General Information
Duke Royalty Limited ("Duke Royalty" or the "Company") is a
company limited by shares, incorporated in Guernsey under the
Companies (Guernsey) Law, 2008. Its shares are traded on the AIM
market of the London Stock Exchange. The Company's registered
office is shown at the end of the Notes.
Throughout the year, the "Group" comprised Duke Royalty Limited
and its wholly owned subsidiaries; Duke Royalty UK Limited, Capital
Step Holdings Limited, Capital Step Investments Limited, Capital
Step Funding Limited, Capital Step Funding 2 Limited and Duke
Royalty Employee Benefit Trust.
The Group's investing policy is to invest in a diversified
portfolio of royalty finance and related opportunities.
2. Significant accounting policies
2.1 Basis of preparation
The Consolidated Financial Statements of the Group have been
prepared in accordance with UK adopted international accounting
standards, and applicable Guernsey law, and reflect the following
policies, which have been adopted and applied consistently.
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into the UK law and became UK-adopted
international accounting standards, with future changes being
subject to endorsement by the UK Endorsement Board. The group
transitioned to UK-adopted international accounting standards in
its consolidated financial statements on 1 April 2021. There was no
impact or changes in accounting from the transition.
The Consolidated Financial Statements have been prepared on a
going concern basis and under the historical cost basis, except for
the following:
-- Royalty investments - measured at fair value through profit or loss
-- Equity investments - measured at fair value through profit or loss
-- Royalty participation liabilities - measured at fair value through profit or loss
The Directors consider that the Group has adequate financial
resources to enable it to continue operations for a period of no
less than 12 months from the date of approval of the financial
statements. Accordingly, the Directors believe that it is
appropriate to continue to adopt the going concern basis in
preparing the financial statements.
Presentation of statement of cash flows
The Board considers cash flow to be the most important measure
of the Group's performance and subsequently has presented its
Statement of Cash Flows before the Statement of Comprehensive
Income and Statement of Financial Position.
There have been no changes to the classification of any of the
cash flows or to the overall cash movements.
Presentation of statement of comprehensive income
In order to better reflect the activities of a royalty financing
company, the Statement of Comprehensive Income includes additional
analysis, splitting the Group's income by investment type.
2.2 New and amended standards adopted by the Group
A few amendments and interpretations of existing standards apply
to the Group's financial year but these did not have a significant
impact on the financial statements of the Company.
2.3 New standards and interpretations not yet adopted
At the date of authorisation of these Consolidated Financial
Statements, certain standards and interpretations were in issue but
not yet effective and have not been applied in these Consolidated
Financial Statements. The Directors do not expect that the adoption
of these standards and interpretations will have a material impact
on the Consolidated Financial Statements of the Group in future
periods.
2.4 Going concern
In assessing the going concern basis of accounting the Directors
have had regard to the guidance issued by the Financial Reporting
Council.
The escalation of tensions between Russia and the West,
following Russia's invasion of Ukraine in February 2022, presents a
range of implications for industry and markets at large. Soaring
energy costs suggest that higher inflation is likely to last longer
than governments are currently forecasting. The war has also
further emphasised the issue of supply chains. The importance of
where goods and services are produced and how easily they can reach
their end markets had already been highlighted during the Covid
pandemic. Some commentators are now suggesting an end to the trend
of extreme globalisation that has occurred in recent decades.
Should this be the case, the reverse trend could see even more
significant supply chain disruptions leading to higher
inflation.
The other key outcome from the sanctions on Russia and the
resulting increases in oil and gas prices is likely to be an
acceleration in the West of the existing drive towards
electrification, renewable energy and greater energy
self-sufficiency over the medium term.
On the downside, higher energy prices and wage inflation will
undoubtedly raise operating costs, and supply chain issues could
mean a requirement for greater working capital. This could
particularly apply to companies such as those in which the Company
is investing.
The economic and social impact of Covid-19 continues to
influence the economic backdrop in which the Group operates.
The directors continue to closely monitor the impact of Covid-19
and of Russia's invasion of Ukraine on the Group's trading
activities and cash flows. The Group does not have any direct
investment exposure to Russia or Ukraine, and therefore the impact
to the current investment portfolio is minimal.
During the year, the Group extended its current borrowing
facility with Honeycomb Investment Trust (as detailed in the
Directors' Report) from GBP35 million to GBP55 million. At the 31
March 2022, the Group had GBP6,800,000 of available headroom on the
facility.
In May 2022, the Company raised GBP20 million of new capital
from a share issue, providing the Company with additional
liquidity. Detailed cashflow analysis has been carried for the next
24 months, with sensitivity analysis on the effect of rising
interest rates as well as a decrease in underlying cash revenue.
The Directors consider that the Company has adequate resources to
continue in operational existence for the next 24 months and
beyond.
2.5 Basis of consolidation
Where the Company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the
policies adopted across the Group.
The "Group" is defined as the Company, its subsidiaries Duke
Royalty UK Limited, Capital Step Holdings Limited, Capital Step
Investments Limited, Capital Step Funding Limited and Capital Step
Funding 2 Limited and The Duke Royalty Employee Benefit Trust.
2.6 Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors, as a
whole. The key measure of performance used by the Board to assess
the Group's performance and to allocate resources is operating
cashflow, as calculated under IFRS, and therefore no reconciliation
is required between the measure of performance used by the Board
and that contained in these Consolidated Financial Statements.
For management purposes, the Group's investment objective is to
focus on one main operating segment, which is to invest in a
diversified portfolio of royalty finance and related opportunities.
At the end of the period the Group has 13 investments into this
segment and has derived income from them. Due to the Group's
nature, it has no customers.
2.7 Foreign currency
Functional and presentation currency
Items included in the Financial Statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates (the "functional
currency"). The Consolidated Financial Statements are presented in
Pounds Sterling, which is also the functional currency of the
Company and its subsidiaries.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign currency assets and liabilities are
translated into the functional currency using the exchange rate
prevailing at the reporting date.
Foreign exchange gains and losses relating to the financial
assets and liabilities carried at fair value through profit or loss
are presented in the Consolidated Statement of Comprehensive Income
within 'royalty investment net income', 'loan investment net
income' and 'equity investment net income'.
Foreign exchange gains and losses relating to cash and cash
equivalents are presented in the Consolidated Statement of
Comprehensive Income within 'Net foreign currency gains /
(losses)'. This has been presented below operating costs as this
best reflects the true nature of the balance.
2.8 Transaction costs
Transaction costs are costs incurred to acquire financial assets
at fair value through profit or loss. They include finders' fees,
legal and due diligence fees and other fees paid to agents and
advisers. Transaction costs, when incurred, are recognised
immediately in profit or loss as an expense. Where transaction
costs are in respect of loans, these are offset using the effective
interest method.
2.9 Income tax
The income tax expense or credit for the period is the tax
payable on the current period's taxable income based on the
applicable income tax rate for each jurisdiction adjusted by
changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the
tax laws enacted or substantively enacted at the end of the
reporting period in the countries where the Company's subsidiaries
operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations
in which applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the
Consolidated Financial Statements. Deferred income tax is
determined using tax rates (and laws) that have been enacted or
substantively enacted by the end of the reporting period and are
expected to apply when the related deferred income tax asset is
realised or the deferred income tax liability is settled.
Deferred tax assets are recognised only if it is probable that
future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to the same
taxation authority. Current tax assets and tax liabilities are
offset where the entity has a legally enforceable right to offset
and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except
to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
2.10 Goodwill
Goodwill on acquisition of subsidiaries is included in
intangible assets. Goodwill is not amortised, but it is tested for
impairment annually, or more frequently if events or changes in
circumstances indicate that it might be impaired and is carried at
cost less accumulated impairment losses. Gains and losses on the
disposal of the entity include the carrying amount of goodwill
relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose
of impairment testing. The allocation is made to those
cash-generating units that are expected to benefit from the
business combination in which the goodwill arose. The units or
groups of units are identified at the lowest level at which
goodwill is monitored for internal management purposes.
2.11 Dividends
Dividends are recognised as a liability in the Group's financial
statements in the period in which they become obligations of the
Group.
2.12 Financial instruments
Financial assets and financial liabilities are recognised in the
Consolidated Statement of Financial Position when the Group becomes
a party to the contractual provisions of the instrument. Financial
assets and financial liabilities are only offset and the net amount
reported in the Consolidated Statement of Financial Position and
Consolidated Statement of Comprehensive Income when there is a
currently enforceable legal right to offset the recognised amounts
and the Group intends to settle on a net basis or realise the asset
and liability simultaneously.
a. Financial assets
The Group's financial assets are classified in the following
measurement categories:
-- those to be measured subsequently at fair value through profit or loss ("FVTPL"); and
-- those to be measured at amortised cost
The classification depends on the entity's business model for
managing the financial assets and the contractual terms of the cash
flows.
At initial recognition, the Group measures a financial asset at
its fair value, plus, in the case of a financial asset not at
FVTPL, transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial
assets carried at FVTPL are expensed in profit or loss.
Financial assets held at amortised cost
Assets that are held for collection of contractual cash flows
where those cash flows represent solely payments of principal and
interest are measured at amortised cost. These assets are
subsequently measured at amortised cost using the effective
interest method.
The Group's financial assets held at amortised cost include
loans receivable, trade and other receivables and cash and cash
equivalents.
Expected Credit Loss ("ECL") allowance for financial assets
measured at amortised cost
Impairment of financial assets is calculated using a
forward-looking expected credit loss (ECL) model. ECLs are an
unbiased probability weighted estimate of credit losses determined
by evaluating a range of possible outcomes. They are measured in a
manner that reflects the time value of money and uses reasonable
and supportable information that is available without undue cost or
effort at the reporting date about past events, current conditions
and forecasts of future economic conditions.
The Group recognises an allowance for ECLs for all debt
instruments not held at fair value through profit or loss. Assets
held at fair value through profit and loss are not subject to
impairment.
IFRS 9 establishes a three-stage approach for impairment of
financial assets:
-- Stage 1 - when a financial asset is first recognised, it is
assigned to Stage 1. If there is no significant increase in credit
risk from initial recognition, the financial asset remains in Stage
1. Stage 1 also includes financial assets where the credit risk
improved and the financial asset has been reclassified back from
Stage 2. For financial assets in Stage 1, a 12-month ECL is
recognised;
-- Stage 2 - when a financial asset has experienced a
significant increase in credit risk since initial recognition, the
asset is classified as Stage 2. Stage 2 also includes financial
assets where the credit risk improved and the financial asset has
been reclassified back from Stage 3. For financial assets in Stage
2, a lifetime ECL is recognised;
-- Stage 3 - that where there is objective evidence of
impairment and the financial asset is considered to be in default,
or otherwise credit-impaired, it is moved to Stage 3. For financial
assets in Stage 3, a lifetime ECL is recognised and interest income
is recognised on a net basis.
In relation to the above
-- Lifetime ECL is defined as ECLs that result from all possible
default events over the expected behavioural life of a financial
instrument
-- 12-month ECL is defined as the portion of lifetime credit
loss that will result if a default occurs in the 12 months after
the reporting, weighted by the probability of that default
occurring
The measurement of ECLs is primarily based on the product of the
instrument's probability of default ("PD"), loss given default
("LGD"), and exposure at default ("EAD"), taking into account the
value of any collateral held or other mitigants of loss and
including the impact of discounting using the effective interest
rate.
-- The PD represents the likelihood of a borrower defaulting on
its financial obligation, either over the next 12 months ("12-month
PD"), or over the remaining lifetime ("Lifetime PD") of the
obligation
-- EAD is based on the amounts the Group expects to be owed at
the time of default, over the next 12 months ("12-month EAD") or
over the remaining lifetime ("Lifetime EAD")
-- LGD represents the Group's expectation of the extent of loss on a defaulted exposure
The ECL is determined by estimating the PD, LGD, and EAD for
each individual exposure. These three components are multiplied
together and adjusted for the likelihood of survival. This
effectively calculates an ECL.
The measurement ECLs for each stage and the assessment of
significant increases in credit risk considers economic information
about past events and current conditions as well as reasonable and
supportable forward-looking information. When determining whether
the credit risk profile has materially increased, the Group
specifically reviews the debt covenant positions of each company.
If the debt service coverage ratio falls below zero and the Group
does not have sufficient liquidity to cover 12 months of debt
obligations, the investment will be deemed to be in default and a
lifetime ECL allowance will be provided for.
As with any forecasts and economic assumptions, the projections
and likelihoods of occurrence are subject to a high degree of
inherent uncertainty and therefore the actual outcomes may be
significantly different to those projected. Other forward-looking
considerations, such as the impact of any regulatory, legislative
or political changes, have also been considered, but no adjustment
has been made to the ECL for such factors. This is reviewed and
monitored for appropriateness on an annual basis.
Cash and cash equivalents
Cash and cash equivalents comprise current accounts and demand
deposits and other short-term highly liquid investments with an
original maturity of three months or less that are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Financial assets at FVTPL
Royalty investments are debt instruments classified at FVTPL
under IFRS 9. The return on these investments is linked to a
fluctuating revenue stream and thus, whilst the business model is
to collect contractual cash flows, such cash flows are not solely
payments of principal and interest. Such assets are recognised
initially at fair value and remeasured at each reporting date. The
change in fair value is recognised in profit or loss and is
presented within 'royalty investment income' in the Consolidated
Statement of Comprehensive Income. The fair value of these
financial instruments is determined using discounted cash flow
analysis. Further details of the methods and assumptions used in
determining the fair value can be found in note 23.
Investments in equity instruments are classified at FVTPL. The
Group subsequently measures all equity investments at fair value
and the change in fair value is recognised in profit or loss and is
presented within the 'equity investment income' in the Consolidated
Statement of Comprehensive Income. Dividends from such investments
are recognised in profit or loss when the Group's right to receive
payments is established.
Derecognition of financial assets
A financial asset (in whole or in part) is derecognised either
(i) when the Group has transferred substantially all the risks and
rewards of ownership; or (ii) when it has neither transferred nor
retained substantially all the risks and rewards and when it no
longer has control over the assets or a portion of the asset; or
(iii) when the contractual right to receive cash flow has expired.
Any gain or loss on derecognition is taken to other income/expenses
in the Consolidated Statement of Comprehensive Income as
appropriate.
b. Financial liabilities
The classification of financial liabilities at initial
recognition depends on the purpose for which the financial
liability was issued and its characteristics.
All financial liabilities are initially recognised at fair
value. Unless otherwise indicated the carrying amounts of the
Group's financial liabilities are approximate to their fair
values.
Financial liabilities measured at amortised cost
These consist of borrowings and trade and other payables. These
liabilities are initially recognised at fair value, net of
transaction costs incurred, and subsequently carried at amortised
cost using the effective interest rate method.
Financial liabilities at FVTPL
Financial liabilities at FVTPL comprise royalty participation
liabilities. These liabilities arise under a contractual agreement
between the Group and a strategic partner for the provision of
services in connection with the Group's royalty financing
arrangements. Under this agreement services are provided in
exchange for a percentage of gross royalties' receivable. These
instruments are classified at FVTPL on the basis that the liability
is linked to the Group's royalty investments. Such liabilities are
recognised initially at fair value with the costs being recorded
immediately in profit or loss as 'royalty participation fees' and
remeasured at each reporting date in order to avoid an accounting
mismatch. The change in fair value is recognised in profit or loss
and presented within 'royalty investment income'. The fair value of
these financial instruments is determined using discounted cash
flow analysis. Further details of the methods and assumptions used
in determining the fair value can be found in note 23.
Derecognition of financial liabilities
A financial liability (in whole or in part) is derecognised when
the Group has extinguished its contractual obligations, it expires
or is cancelled. Any gain or loss on derecognition is taken to
other income/expenses in the Consolidated Statement of
Comprehensive Income.
c. Equity Instruments
Financial instruments issued by the Group are treated as equity
if the holder has only a residual interest in the assets of the
Group after the deduction of all liabilities. The Company's
Ordinary Shares are classified as equity instruments.
Incremental costs directly attributable to the issue of new
shares are shown in equity as a deduction from proceeds.
2.13 Share-based payments
The Group operates an equity settled Share Option Plan and a
Long-Term Incentive Plan for its Directors and key advisers.
The fair value of awards granted under the above plans are
recognised in profit or loss with a corresponding increase in
equity. The total amount to be expensed is determined by reference
to the fair value of the awards granted:
-- including any market performance conditions (e.g., the entity's share price)
-- excluding the impact of any service and non-market
performance vesting conditions (e.g., increase in cash available
for distribution, remaining a director for a specified time
period); and
-- including the impact of any non-vesting conditions
The total expense is recognised over the vesting period, which
is the period over which all of the specified vesting conditions
are to be satisfied. At the end of each reporting period, the Group
revises its estimates of the number of options that are expected to
vest based on the non-market vesting and service conditions. It
recognises the impact of the revision to original estimates, if
any, in profit or loss, with a corresponding adjustment to
equity.
The Group also settles a portion of expenses by way of
share-based payments. These expenses are settled based on the fair
value of the service received as an expense with the corresponding
amount increasing equity. All expenses recognised in the year in
relation to the Group's Share Option and Long-Term Incentive Plan
schemes are recognised through the share-based payment reserve.
2.15 Reserves
Equity comprises the following:
-- Share capital represents the nominal value of equity shares in issue
Other reserves
-- Warrant reserve was created in connection with the issue of
share warrants in return for services provided
-- Share-based payment reserve represents equity-settled
share-based employee remuneration as detailed in note 2.14
-- Retained earnings represents retained profits
3. Critical accounting judgements and estimates
The preparation of the Consolidated Financial Statements in
conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of policies
and the reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making the judgements about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised, if the revision
affects only that period, or in the period of revision and future
periods, if the revision affects both current and future periods.
The following judgements, estimates and assumptions that may cause
a material adjustment to the carrying amount of assets and
liabilities are:
Fair value of royalty investments
Royalty investments are valued using a discounted cash flow
analysis. The discount rate used in these valuations has been
estimated to take account of market interest rates and the credit
worthiness of the investee. Revenue growth has been estimated by
the Directors and is based on unobservable market inputs.
Where the royalty investment contains a buy-back clause, the
Directors have assessed the likelihood of this occurring. Where
occurrence of the buy-back is deemed likely, this is built into the
discounted cash flow at the appropriate point.
These assumptions are reviewed semi-annually. The Directors
believe that the applied valuation techniques and assumptions used
are appropriate in determining the fair value of the royalty
investments and have made adjustments to the discount rates and
estimated revenue growth where necessary. Further details of the
carrying values, methods, assumptions and sensitivities used in
determining the fair value can be found in note 23.
Fair value of royalty participation liabilities
The payments falling due under the Group's contract for royalty
participation fees are directly linked to the Group's royalty
investments and thus the same assumptions have been applied in
arriving at the fair value of these liabilities. The Directors have
considered whether any increase in discount rate is required to
represent the Group's credit risk as the payments are made by the
Group rather than the investee and have concluded that none is
required since payment under the contract is only due once the
Group has received the gross amounts from the investee. Further
details of the methods, assumptions and sensitivities used in
determining the fair value can be found in note 23.
Fair value of equity investments
The Group's equity investments are not traded in an active
market and thus the fair value of the instruments is determined
using valuation techniques. The Group uses its judgement to select
methods and make assumptions based on market conditions at the end
of each reporting period. The key judgements that the Directors
have made in arriving at the fair values are the price/earnings
multiples to be applied to the investee entities' profits. These
multiples have been estimated based on market information for
similar types of companies. The carrying value of equity
investments are disclosed in Note 11. Further details of the
methods, assumptions and sensitivities used in determining the fair
value can be found in note 23.
4. Auditor's remuneration
2022 2021
GBP000 GBP000
Audit of the Consolidated Financial
Statements 75 72
======== ========
5. Administration and personnel
The table below splits out administration and personnel
costs.
2022 2021
GBP000 GBP000
Support services administration fees 449 435
Directors' fees 730 518
Investment committee fees 107 64
Personnel costs 774 658
-------- --------
2,060 1,675
======== ========
6. Finance costs
2022 2021
GBP000 GBP000
Interest payable on borrowings 1,499 1,293
Non-utilisation fees 350 106
Deferred finance costs released to P&L 147 140
-------- --------
1,996 1,539
======== ========
7. Income tax
The Company has been granted exemption from Guernsey taxation.
The Company's subsidiaries in the UK are subject to taxation in
accordance with relevant tax legislation.
2022 2021
GBP000 GBP000
Current tax
Income tax expense 980 1,594
-------- --------
Deferred tax
Increase in deferred tax assets 3 674
Decrease in deferred tax liabilities (1) (157)
Total deferred tax benefit 2 517
Income tax expense 982 2,111
======== ========
Factors affecting income tax expense for the year
Profit on ordinary activities before
tax 21,373 16,064
-------- --------
Guernsey taxation at 0% (2021: 0%) - -
Overseas tax charges at effective rate
of 4.56% (2021: 13.14%) 982 2,111
Income tax expense 982 2,111
======== ========
8. Earnings per share
2022 2021
Total comprehensive income (GBP000) 20,391 13,953
Weighted average number of Ordinary
Shares in issue, excluding treasury
shares (000s) 342,822 242,836
Basic earnings per share (pence) 5.95 5.75
========= =========
2022 2021
Total comprehensive income (GBP000) 20,391 13,953
Diluted weighted average number of Ordinary
Shares in issue, excluding treasury
shares (000s) 342,822 242,836
Diluted earnings per share (pence) 5.95 5.75
========= =========
Basic earnings per share is calculated by dividing total
comprehensive income for the period by the weighted average number
of shares in issue throughout the period, excluding treasury shares
(see Note 17).
Diluted earnings per share represents the basic earnings per
share adjusted for the effect of dilutive potential shares issuable
on exercise of share options under the Company's share-based
payment schemes, weighted for the relevant period.
All share options, warrants and Long-Term Incentive Plan awards
in issue are not dilutive at the year-end as the exercise prices
were above the average share price for the period. However, these
could become dilutive in future periods.
Adjusted earnings per share
Adjusted earnings represent the Group's underlying performance
from core activities. Adjusted earnings is the total comprehensive
income adjusted for unrealised and non-core fair value movements,
non-cash items and transaction-related costs, including royalty
participation fees, together with the tax effects thereon. Given
the sensitivity of the inputs used to determine the fair value of
its investments, the Group believes that adjusted earnings is a
better reflection of its ongoing financial performance.
Valuation and other non-cash movements such as those outlined
are not considered by management in assessing the level of profit
and cash generation of the Group. Additionally, IFRS 9 requires
transaction-related costs to be expensed immediately whilst the
income benefit is over the life of the asset. As such, an adjusted
earnings measure is used which reflects the underlying contribution
from the Group's core activities during the year.
2022 2021
GBP000 GBP000
Total comprehensive income for the period 20,391 13,953
Unrealised fair value movements (10,431) (9,871)
Impairment loss on loan investments 72 -
Share-based payments 930 806
Transactions costs net of costs reimbursed 1,746 550
Tax effect of the adjustments above
at Group effective rate 350 1,119
----------
Adjusted earnings 13,058 6,557
========== =========
2022 2021
Adjusted earnings for the year (GBP000) 13,058 6,557
Weighted average number of Ordinary
Shares in issue, excluding treasury
shares (000s) 342,822 242,836
Adjusted earnings per share (pence) 3.81 2.70
========= =========
2022 2021
Diluted adjusted earnings for the year
(GBP000) 13,058 6,557
Diluted weighted average number of Ordinary
Shares in issue, excluding treasury
shares (000s) 342,822 242,836
Diluted adjusted earnings per share
(pence) 3.81 2.70
========= =========
9. Royalty investments
Royalty investments are financial assets held at FVTPL that
relate to the provision of royalty capital to a diversified
portfolio of companies.
31-Mar-22 31-Mar-
21
GBP000 GBP000
At 1 April 85,301 75,559
Additions 74,586 22,708
Buybacks (2,939) (21,434)
Profit on financial assets at FVTPL 3,531 8,468
As at 31 March 160,479 85,301
=========== ==========
Royalty investments are comprised of:
31-Mar-22 31-Mar-
21
GBP000 GBP000
Non-Current 139,648 71,107
Current 20,831 14,194
160,479 85,301
=========== =========
Royalty investment net income on the face of the consolidated
statement of comprehensive income comprises:
2022 2021
GBP000 GBP000
Royalty interest 13,987 9,179
Royalty premiums 714 1,862
Gain on royalty assets at FVTPL 3,531 8,468
Loss on royalty liabilities at FVTPL (195) (165)
Royalty investment net income 18,037 19,344
======== ========
All financial assets held at FVTPL are mandatorily measured as
such.
The Group's royalty investment assets comprise royalty financing
agreements with 13 (31 March 2021:10) investees. Under the terms of
these agreements the Group advances funds in exchange for
annualised royalty distributions. The distributions are adjusted
based on the change in the investees' revenues, subject to a floor
and a cap. The financing is secured by way of fixed and floating
charges over certain of the investees' assets. The investees are
provided with buyback options, exercisable at certain stages of the
agreements.
10. Loan investments
Loan investments are financial assets held at amortised cost
which the exception of the 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-22 31-Mar-
21
GBP000 GBP000
1 April 4,950 9,517
Additions 3,192 1,145
Buybacks (3,950) (5,649)
ECL allowance (20) -
Net foreign currency movement - (63)
As at 31 March 4,172 4,950
=========== =========
The Group's loan investments comprise secured loans advanced to
two entities (2021 - three) in connection with the Group's royalty
investments.
The loans comprise fixed rate loans of GBP4,172,000 (31 March
2021: GBP1,580,000) which bear interest at rates of between 0% and
15% (2021: 5% and 15%). The Group has no variable rate loans at the
year end (2021: one variable rate loan of GBP3,370,000 bearing
interest at 14.5% over LIBOR). The total interest receivable during
the period was GBP533,000 (31 March 2021: GBP636,000).
The loan investments mature as follows:
31-Mar-22 31-Mar-
21
GBP000 GBP000
In less than one year 1,000 580
In one to two years - -
In two to five years 3,172 4,370
4,172 4,950
=========== =========
Loan investment net income on the face of the consolidated
statement of comprehensive income comprises:
2022 2021
GBP000 GBP000
Loan Interest charged 365 603
Loan premiums on exit 168 33
-------- --------
533 636
======== ========
ECL Analysis
The measurement of ECLs is primarily based on the product of the
instrument's probability of default ("PD"), loss given default
("LGD"), and exposure at default ("EAD"). The Group analyses a
range of factors to determine the credit risk of each investment.
These include, but are not limited to:
-- liquidity and cash flows of the underlying businesses
-- security strength
-- covenant cover
-- balance sheet strength
If there is a material change in these factors, the weighting of
either the PD, LGD or EAD increases, thereby increasing the ECL
impairment.
The disclosure below presents the gross and net carrying value
of the Group' loan investments by stage:
Gross Net
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
=========== =========== ===========
Net
Gross carrying Allowance Carrying
amount for ECLs amount
As at 31 March 2021 GBP000 GBP000 GBP000
Stage 1 4,950 - 4,950
Stage 2 - - -
Stage 3 - - -
---------------- ----------- -----------
4,950 - 4,950
================ =========== ===========
Under the ECL model introduced by IFRS 9, impairment provisions
are driven by changes in credit risk of instruments, with a
provision for lifetime expected credit losses recognised where the
risk of default of an instrument has increased significantly since
initial recognition.
The credit risk profile of the investments has not increased
materially and they remain Stage 1 assets. Minor expected credit
losses have been charged for the Stage 1 assets.
The following table analyses Group's provision for ECL's by
stage:
Stage Stage Stage Total
1 2 3
GBP000 GBP000 GBP000 GBP000
At 1 April 2020 - - 2,947 2,947
Expected credit losses - - - -
on loan investments
in year
Refinanced loans - - (2,947) (2,947)
Carrying value at 31 - - - -
March 2021
-------- -------- --------- ---------
Expected credit losses
on loan investments
in year 20 - - 20
Expected credit losses
on other receivables
in year 52 - - 52
-------- -------- --------- ---------
Carrying value at
31 March 2022 72 - - 72
======== ======== ========= =========
11. Equity investments
Equity investments are financial assets held at FVTPL.
31-Mar-22 31-Mar-
21
GBP000 GBP000
At 1 April 3,495 507
Additions 530 1,764
Proceeds (2,883) (345)
Gain on equity assets at FVTPL 9,678 1,569
As at 31 March 10,820 3,495
=========== =========
The Group's equity investments comprise unlisted shares and
warrants in nine of its royalty investment companies (31 March
2021: eight).
The Group also still holds two (31 March 2021: two) unlisted
investments in mining entities from its previous investment
objectives. The Board does not consider there to be any future cash
flows from the remaining investments and they are fully written
down to nil value.
Equity investment net income on the face of the consolidated
statement of comprehensive income comprises:
2022 2021
GBP000 GBP000
Unrealised gain on equity assets at
FVTPL 7,095 1,224
Realised gain on equity assets at FVTPL 2,583 345
-------- --------
9,678 1,569
======== ========
12. Royalty debt liabilities
Royalty debt liabilities are financial liabilities held at fair
value through profit and loss.
31-Mar-22 31-Mar-
21
GBP000 GBP000
At 1 April 1,031 1,173
Additions - -
Repayments - (226)
Payments made (115) (81)
Gain on royalty liabilities at fair
value through profit and loss 195 165
As at 31 March 1,111 1,031
=========== =========
Royalty investment liabilities are comprised of:
31-Mar-22 31-Mar-
21
GBP000 GBP000
Non-Current 951 917
Current 160 114
1,111 1,031
=========== =========
13. Trade and other receivables
31-Mar-22 31-Mar-
21
GBP000 GBP000
Current
Prepayments and accrued income 53 167
Other receivables - 4,255
53 4,422
Non-current
Other receivables 2,141 5,618
2,194 10,040
=========== =========
The other receivable balance consists of funds due on the sale
of Duke Royalty Switzerland Gmbh, incorporated to hold the
riverboat assets. On 31 March 2021, Duke sold its Swiss subsidiary
to Starling Fleet AG for EUR11,600,000. The deal was structured so
that EUR5,000,000 was payable on or before 30 September 2021,
EUR4,000,000 is due on or before 30 September 2022, with the
remaining EUR2,600,000 due on or before 30 June 2023. The second
instalment of EUR4,000,000 was repaid early in March 2022. The last
instalment is classified as non-current.
Using the same methodology as laid out in note 10 for the loan
investments, the deferred consideration has been subject to ECL
impairment. The financial strength of the counterparty has been
reviewed in conjunction with current and future outlook for river
cruising, while also taking into account the charges that the Group
owns over the riverboats. An ECL impairment of GBP52,000 has been
recognised against this asset (refer to Note 10 for
classification).
14. Trade and other payables
31-Mar-22 31-Mar-
21
GBP000 GBP000
Current
Trade payables 11 2
Transaction costs 233 82
Accruals and deferred income 179 183
423 267
Non-current
Transaction costs 1,067 402
1,490 669
=========== =========
15. Borrowings
31-Mar-22 31-Mar-
21
GBP000 GBP000
Current - accrued interest 362 161
Non-current 47,740 17,103
48,102 17,264
=========== =========
The secured loan facility has an interest rate of 7.25% over
one-month UK LIBOR per annum. In January 2022, the facility term
was extended and the facility size increased from GBP35,000,000 to
GBP55,000,000. Of this, GBP35,000,000 comprised a revolving
facility and GBP20,000,000 a term facility. The principal amount is
repayable on 18 January 2027. Furthermore, the interest rate was
amended to 7.25% over SONIA. The loan is secured by means of a
fixed and floating charge over the assets of the Group.
The Group has adopted Interest Rate Benchmark Reform - IBOR
'phase 2' (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and 16).
Applying the practical expedient introduced by the amendments, when
the benchmarks affecting the Group's loans are replaced, the
adjustments to the contractual cash flows will be reflected as an
adjustment to the effective interest rate. Therefore, the
replacement of the loans' benchmark interest rate will not result
in an immediate gain or loss recorded in profit or loss, which may
have been required if the practical expedient was not available or
adopted.
At 31 March 2022, GBP6,800,000 was undrawn on the facility (31
March 2021: GBP17,500,000).
At 31 March 2022, GBP460,000 (31 March 2021: GBP396,000) of
unamortised fees remained outstanding.
The table below sets out an analysis of net debt and the
movements in net debt for the year ended 31 March 2022 and prior
year.
Interest
Payable Borrowings
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 - 118
Interest charged 1,850 -
At 31 March 2022 362 47,740
========== ============
Interest
Payable Borrowings
GBP000 GBP000
At 1 April 2020 172 15,517
Cash movements
Loan advanced - 15,200
Loan repaid - (13,926)
Deferred finance costs paid - (23)
Interest paid (1,409) -
Non-cash movements
Deferred finance costs released to P&L - 109
Transfer to royalty debt liability - 226
Interest charged 1,398 -
At 31 March 2021 161 17,103
========== ============
16. Goodwill
Goodwill
GBP000
Opening and closing net book value at 1 April
2020, 31 March 2021 and 31 March 2022 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 2020 236,937 2,690 239,627 118,479
Shares issued to Employee
Benefit Trust during
the year - 8,678 8,678 -
PSA shares vested during
year 513 (513) - -
Shares issued in scrip
dividend 9,602 - 9,602 2,391
---------- ---------- --------- ---------
At 31 March 2021 247,052 10,855 257,907 120,870
---------- ---------- --------- ---------
Shares issued for cash
during the year 100,000 - 100,000 35,000
Share issuance costs - - - (1,936)
PSA shares vested during
year 1,457 (1,457) - -
Shares issued to Employee
Benefit Trust during
the year - 792 792 -
Shares issued to directors
and key advisors as
remuneration 105 - 105 40
At 31 March 2022 348,614 10,190 358,804 153,974
========== ========== ========= =========
There is a single class of shares. There are no restrictions on
the distribution of dividends and the repayment of capital with
respect to externally held shares. The shares held by The Duke
Royalty Employee Benefit Trust are treated as treasury shares. The
rights to dividends and voting rights have been waived in respect
of these shares.
18. Equity-settled share-based payments
Warrant reserve
The following table shows the movements in the warrant reserve
during the year:
Warrants
No. (000) GBP000
At 1 April 2020, 31 March 2021 and 31
March 2022 4,375 265
=========== ========
At 31 March 2022, 4,375,000 (31 March 2021: 4,375,000) warrants
were outstanding and exercisable at a weighted average exercise
price of 46 pence (31 March 2021: 46 pence). The weighted average
remaining contractual life of the warrants outstanding was 1.00
years (31 March 2021: 2.00 years).
Share-based payment reserve
The following table shows the movements in the share-based
payment reserve during the period:
Share options LTIP Total
GBP000 GBP000 GBP000
At 1 April 2020 136 606 742
LTIP awards - 806 806
--------------- -------- --------
At 31 March 2021 136 1,412 1,548
LTIP awards - 930 930
--------------- -------- --------
At 31 March 2022 136 2,342 2,478
=============== ======== ========
Share option scheme
The Group operates a share option scheme ("the Scheme"). The
Scheme was established to incentivise Directors, staff and key
advisers and consultants to deliver long-term value creation for
shareholders.
Under the Scheme, the Board of the Company will award, at its
sole discretion, options to subscribe for Ordinary Shares of the
Company on terms and at exercise prices and with vesting and
exercise periods to be determined at the time. However, the Board
of the Company has agreed not to grant options such that the total
number of unexercised options represents more than four per cent of
the Company's Ordinary Shares in issue from time to time. Options
vest immediately and lapse five years from the date of grant.
At 31 March 2022, 200,000 options (31 March 2021: 200,000) were
outstanding and exercisable at a weighted average exercise price of
50 pence (31 March 2021: 50 pence). The weighted average remaining
contractual life of the options outstanding at the year-end was
1.50 year (31 March 2021: 2.50 year).
Share Options
No. (000)
At 1 April 2020 and 31 March 2021 200
Lapsed during the year -
---------------
At 31 March 2022 200
===============
Long Term Incentive Plan
Under the rules of the Long-Term Incentive Plan ("LTIP") the
Remuneration Committee may grant Performance Share Awards ("PSAs")
which vest after a period of three years and are subject to various
performance conditions. The LTIP awards will be subject to a
performance condition based 50 per cent on total shareholder return
("TSR") and 50 per cent on total cash available for distribution
("TCAD per share"). TSR can be defined as the returns generated by
shareholders based on the combined value of the dividends paid out
by the Company and the share price performance over the period in
question. Upon vesting the awards are issued fully paid.
The fair value of the LTIP awards consists of (a) the fair value
of the TSR portion; and (b) the fair value of the TCAD per share
portion. Since no consideration is paid for the awards, the fair
value of the awards is based on the share price at the date of
grant, as adjusted for the probability of the likely vesting of the
performance conditions. Since the performance condition in respect
of the TSR portion is a market condition, the probability of
vesting is not revisited following the date of grant. The
probability of vesting of the TCAD per share portion, containing a
non-market condition, is reassessed at each reporting date. The
resulting fair values are recorded on a straight-line basis over
the vesting period of the awards.
On 31 October 2018, 1,665,000 PSAs were granted to Directors and
key personnel with a fair value of GBP644,000. An expense of
GBP125,000 was recognised in Administration and Personnel costs in
the Consolidated Statement of Comprehensive Income.
On 31 October 2019, 2,525,000 PSAs were granted to Directors and
key personnel with a fair value of GBP871,000. An expense of
GBP274,000 was recognised in Administration and Personnel costs in
the Consolidated Statement of Comprehensive Income.
On 1 October 2020, 6,665,000 PSAs were granted to Directors and
key personnel with a fair value of GBP1,093,000. An expense of
GBP364,000 was recognised in Administration and Personnel costs in
the Consolidated Statement of Comprehensive Income.
On 3 January 2021, 1,000,000 PSAs were granted to Directors and
key personnel with a fair value of GBP164,000. An expense of
GBP55,000 was recognised in Administration and Personnel costs in
the Consolidated Statement of Comprehensive Income.
On 1 October 2021, 2,108,000 PSAs were granted to Directors and
key personnel with a fair value of GBP672,000. An expense of
GBP112,000 was recognised in Administration and Personnel costs in
the Consolidated Statement of Comprehensive Income.
At 31 March 2022, 12,298,000 (31 March 2021: 11,855,000) PSAs
were outstanding. The weighted average remaining vesting period of
these awards outstanding was 1.5 years (2021 - 2.04 years).
Other share-based payments
During the year ended 31 March 2022, the Company issued 104,576
(2021: nil) shares to members of the Investment Committee in
recognition of the significant contribution made during the
previous financial year and for voluntarily forgoing service fees.
The fair value of the shares was determined to be GBP41,000 being
the share price at the date of the awards. The expense was
recognised in full in the Consolidated Statement of Comprehensive
Income during that year.
19. Distributable reserves
Pursuant to the Companies (Guernsey) Law, 2008 (as amended), all
reserves (including share capital) can be designated as
distributable. However, in accordance with the Admission Document,
the Company shall not make any distribution of capital profits or
capital reserves except by means of capitalisation issues in the
form of fully paid Ordinary Shares or issue securities by way of
capitalisation of profits or reserves except fully paid Ordinary
Shares issued to the holders of its Ordinary Shares.
20. Dividends
The following interim dividends have been recorded in the
periods to 31 March 2021 and 31 March 2022:
Dividend Dividends
per
share payable
pence/share GBP000
Record date Payment date
27 March 2020 14 April 2020 0.75 1,777
26 June 2020 10 July 2020 0.50 1,185
12 October
25 September 2020 2020 0.50 1,206
12 January
29 December 2020 2021 0.55 1,236
-----------
Dividends paid for the period ended
31 March 2021 5,404
===========
Record date Payment date
26 March 2021 12 April 2021 0. 55 1,359
25 June 2021 12 July 2021 0. 55 1,909
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
===========
Further quarterly dividends were paid post year end, refer to
Note 25 for details.
The dividends paid in July and October 2020 were paid in the
form of a scrip dividend rather than cash.
Rights to dividends have been waived in respect of shares held
by the Group's Employee Benefit Trust (see note 17).
21. Deferred tax
The temporary differences for deferred tax are attributable
to:
Royalty Equity
investment investment Tax losses Total
GBP000s GBP000s GBP000s GBP000s
1 April 2020 (12) - 687 675
Credited to profit
& loss 170 - (687) (517)
------------- ------------- ------------ ---------
At 31 March 2021 158 - - 158
Charged to profit
& loss (2) - - (2)
------------- -------------
At 31 March 2022 156 - - 156
============= ============= ============ =========
A deferred tax asset has been recognised as it is expected that
future available taxable profits will be available against which
the Group can use against the current year tax losses.
22. Related parties
Directors' fees
The following fees were payable to the Directors during the
period:
Share Share
Basic based Annual Basic based Annual
fees payment bonus Total fees payment bonus Total
2022 2022 2022 2022 2021 2021 2021 2021
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Non-Executive
N Birrell 38 - - 38 28 - - 28
M Wrigley 29 - - 29 24 - - 24
M LeTissier* - - - - - - - -
M Wilms** 4 - - 4 - - - -
Executive
N Johnson 233 269 108 610 200 294 75 569
C Cannon Brookes 210 216 108 534 180 218 75 473
-------- ---------- -------- -------- -------- ---------- -------- --------
514 485 216 1,215 432 512 150 1,094
======== ========== ======== ======== ======== ========== ======== ========
* Resigned 17 February 2022
** Appointed 17 February 2022
Fees relating to Charles Cannon Brookes are paid to Arlington
Group Asset Management Limited.
Directors' fees include the following expenses relating to
awards granted under the Group's Long Term Incentive Plan (see note
18):
2022 2021
GBP000 GBP000
N Johnson 269 294
C Cannon Brookes 216 218
485 512
======== ========
Mark Le Tissier, a Director of Trident Trust Company (Guernsey)
Limited, has waived his entitlement to a fee in relation to being
Director of the Company until his resignation on 17 February
2022.
At 31 March 2022, no Directors' fees were outstanding (2021: no
fees outstanding).
Investment Committee fees
The Group's Investment Committee assists in analysing and
recommending potential royalty transactions and its members are
considered to be key management along with the Directors.
The following fees were payable to the members of the Investment
Committee during the year:
2022 2021
GBP000 GBP000
A Carragher 20 10
J Romeo 20 10
J Cochrane 20 10
J Webster 109 99
169 129
======== ========
Investment Committee fees include the following expenses
relating to shares issued as remuneration (see note 18):
2022 2021
GBP000 GBP000
A Carragher 20 10
J Romeo 20 10
J Cochrane 20 10
J Webster 20 10
80 40
======== ========
Investment Committee fees include the following expenses
relating to awards granted under the Group's Long Term Incentive
Plan (see note 18):
2022 2021
GBP000 GBP000
J Webster 62 63
======== ========
Jim Webster also served as the Group's Chief Investment Officer
until 3 January 2021 and has an operational role in the Group
beyond the Investment Committee, which is reflected in the level of
his fee.
At the year-end a total of GBP7,000 remained outstanding (31
March 2021 - GBP16,000) to Jim Webster. These fees have been
settled subsequent to the year end.
Support services administration fees
The following amounts were payable to related parties during the
year in respect of support services fees:
2022 2021
GBP000 GBP000
Abingdon Capital Corporation 363 350
Arlington Group Asset Management Limited 85 85
448 435
======== ========
Support Service Agreements with Abingdon Capital Corporation
("Abingdon"), a company of which Neil Johnson is a director, and
Arlington Group Asset Management Limited ("Arlington"), a company
of which Charles Cannon Brookes is a director, were signed on 16
June 2015. The services to be provided by both Abingdon and
Arlington include global deal origination, vertical partner
relationships, office rental and assisting the Board with the
selection, execution and monitoring of royalty partners and royalty
performance. Abingdon fees also includes fees relating to
remuneration of staff residing in North America.
Share options and LTIP awards
The Group's related parties, either directly or beneficially,
held share options issued under the Group's share option scheme and
Long-Term Incentive Plan as follows:
Share options LTIP awards
2022 2021 2022 2021
No. No. No. No.
Neil Johnson - - 2,821 3,200
Charles Cannon
Brookes - - 2,474 2,650
Jim Webster - - 590 805
======== ======= ======= =======
Dividends
The following dividends were paid to related parties:
2022 2021
GBP000 GBP000
N Johnson(1) 97 84
C Cannon Brookes(2) 141 128
N Birrell 23 19
M Wrigley 1 1
J Webster 2 1
J Cochrane 21 19
A Carragher 11 10
J Romeo 3 2
======== ========
(1) Includes dividends paid to Abinvest Corporation, a wholly
owned subsidiary of Abingdon
(2) Includes dividends paid to Arlington Group Asset
Management
23. Fair value measurements
Fair value hierarchy
IFRS 13 requires disclosure of fair value measurements by level
of the following fair value hierarchy:
Level 1 : Inputs are quoted prices (unadjusted) in active
markets for identical assets and liabilities that the entity can
readily observe.
Level 2: Inputs are inputs other than quoted prices included
within Level 1 that are observable for the asset, either directly
or indirectly.
Level 3: Inputs that are not based on observable market date
(unobservable inputs).
The Group has classified its financial instruments into the
three levels prescribed as follows:
31-Mar- 31-Mar-
22 21
Level 3 Level 3
GBP000 GBP000
Financial assets
Financial assets at FVTPL
- Royalty investments 160,479 85,301
- Equity investments 10,820 3,495
--------- ---------
171,299 88,796
========= =========
Financial liabilities
Financial liabilities at FVTPL
- Royalty debt liabilities 1,111 1,031
--------- ---------
1,111 1,031
========= =========
The following table presents the changes in level 3 items for
the years ended 31 March 2022 and 31 March 2021:
Financial Financial
assets liabilities Total
GBP000 GBP000 GBP000
At 1 April 2020 76,066 (1,173) 74,893
Additions 24,472 - 24,472
Repayments (21,778) 226 (21,552)
Royalty income received (19,344) - (19,344)
Royalty participation liabilities
paid - 81 81
Net change in fair value 29,380 (165) 29,215
----------- ------------- ----------
At 31 March 2021 88,796 (1,031) 87,765
Additions 75,116 - 75,116
Repayments (5,822) - (5,822)
Royalty income received (18,037) - (18,037)
Royalty participation liabilities
paid - 115 115
Net change in fair value 31,246 (195) 31,051
----------- ------------- ----------
At 31 March 2022 171,299 (1,111) 170,188
=========== ============= ==========
Valuation techniques used to determine fair values
The fair value of the Group's royalty financial instruments is
determined using discounted cash flow analysis and all the
resulting fair value estimates are included in level 3. The fair
value of the equity instruments is determined applying an EBITDA
multiple to the underlying businesses forward looking EBITDA. All
resulting fair value estimates are included in level 3.
Valuation processes
The main level 3 inputs used by the Group are derived and
evaluated as follows:
Annual adjustment factors for royalty investments and royalty
participation liabilities
These factors are estimated based upon the underlying past and
projected performance of the royalty investee companies together
with general market conditions.
Discount rates for financial assets and liabilities
These are initially estimated based upon the projected internal
rate of return of the royalty investment and subsequently adjusted
to reflect changes in credit risk determined by the Group's
Investment Committee.
EBITDA multiples
These multiples are based on comparable market transactions
Forward looking EBITDA
These are estimated based on the projected underlying
performance of the royalty investee companies together.
Changes in level 3 fair values are analysed at the end of each
reporting period and reasons for the fair value movements are
documented.
Valuation inputs and relationships to fair value
The following summary outlines the quantitative information
about the significant unobservable inputs used in level 3 fair
value measurements:
Royalty investments
The unobservable inputs are the annual adjustment factor and the
discount rate. The range of annual adjustment factors used is 1.9%
to 6.0% (2021: -6.0% to 6.0%) and the range of risk-adjusted
discount rates is 14.8% to 17.35% (2021: 14.8% to 17.4%).
An increase in the annual revenue growth rates (subject to the
collars set under the terms of the royalty financing agreements) of
5% would increase the fair val ue by GBP891,000 (2 021:
GBP431,000).
A reduction in the discount rate of 25 basis points would
increase the fair value by GBP2,302,000 (2021: GBP1,154,000).
A decrease in the annual revenue growth rates (subject to the
collars set under the terms of the royalty financing agreements) of
5% would decrease the fair value by GBP1,296,000 (2021:
GBP621,000).
An increase in the discount rate of 25 basis points would
decrease the fair v alue by GBP2,232,000 (2021: GBP1,056,000).
Equity investments
The unobservable inputs are the EBITDA multiples and forward
looking EBITDA. The range of EBITDA multiples used is 5.0x to
7.8x.
An increase in the EBITDA multiple of 25 basis points would
increase fair value by GBP1,560,000
A decrease in the EBITDA multiple of 25 basis points would
decrease fair value by GBP1,560,000
An increase in the forward looking EBITDA of 5% would increase
the fair value by GBP1,695,000
A decrease in the forward looking EBITDA of 5% would decrease
fair value by 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 -1.9%
to 6.0% (2021: -6.0% to 6.0%) and the range of risk-adjusted
discount rates is 16.3% to 17.3% (2021: 16.3% to 17.3%).
An increase in the annual adjustment factor (subject to the
collars set under the terms of the royalty financing agreements) of
5% would increase the fair value of the liability by GBP5,797
(2021: GBP7,000).
A reduction in the discount rate of 25 basis points would
increase the fair value of the liability by GBP13,697 (2021:
GBP15,000).
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 GBP10,176
(2021: GBP8,000).
An increase in the discount rate of 25 basis points would
decrease the fair value of the liability by GBP13,467 (2021:
GBP12,000).
24. Financial risk management
The Group's royalty financing activities expose it to various
types of risk that are associated with the investee companies to
which it provides royalty finance. The most important types of
financial risk to which the Group is exposed are market risk,
liquidity risk and credit risk. Market risk includes price risk,
foreign currency risk and interest rate risk. The Board of
Directors has overall responsibility for risk management and the
policies adopted to minimise potential adverse effects on the
Group's financial performance.
Principal financial instruments
The principal financial instruments used by the Group from which
financial instrument risk arises, are as follows:
31-Mar-22 31-Mar-21
GBP000 GBP000
Financial assets held at FVTPL
Royalty investments 160,479 85,301
Equity investments 10,820 3,495
----------- -----------
Total Financial assets held at FVTPL 171,299 88,796
Financial assets held at amortised cost
Loan investments 4,172 4,950
Cash and cash equivalents 5,707 1,766
Trade and other receivables 2,194 10,040
----------- -----------
Total Financial assets held at amortised
cost 12,073 16,756
Total financial assets 183,372 105,552
=========== ===========
Financial liabilities held at amortised
cost
Bank borrowings (48,102) (17,264)
Trade and other payables (1,490) (669)
----------- -----------
Total financial liabilities held at
amortised cost (49,592) (17,933)
Financial liabilities held at FVTPL (1,111) (1,031)
Total financial liabilities (50,703) (18,964)
=========== ===========
The policies and processes for measuring and mitigating each of
the main risks are described below.
Market risk
Market risk comprises foreign exchange risk, interest rate risk
and other price risk.
Foreign exchange risk
Currency risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes
in foreign currency exchange rates. The functional and presentation
currency of the Group is Sterling.
The Group is exposed to foreign exchange risk arising from
foreign currency transactions, primarily with respect to the Euro.
Foreign exchange risk arises from future commercial transactions in
recognised assets and liabilities denominated in a currency that is
not the functional currency of the Company and its subsidiary.
The Board monitors foreign exchange risk on a regular basis. The
Group's exposure to this risk is outlined below.
The Group's exposure to foreign currency risk at the end of the
reporting period was as follows:
31-Mar-22 31-Mar-22 31-Mar-22 31-Mar-21 31-Mar-21 31-Mar-21
Euro US Dollar CAD Dollar Euro US Dollar CAD Dollar
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Royalty investment 14,118 16,061 11,380 - - -
Equity investments 3,814 - 461 1,750 - -
Loans receivable - - - - 580 -
Cash and cash
equivalents 189 247 81 105 38 -
Trade and
other receivables 2,141 - - 9,872 - -
Royalty participation - - - - - -
liability
Transaction
costs payable - (1,300) - - (482) -
----------- ----------- ------------ ----------- ----------- ------------
20,262 15,008 11,922 11,727 136 -
=========== =========== ============ =========== =========== ============
If Sterling strengthens by 5% against the Euro, the net
Euro-denominated assets would reduce by GBP964,863 (2021:
GBP558,000). Conversely, if Sterling weakens by 5% the assets would
increase by GBP1,066,428 (2021: GBP617,000).
If Sterling strengthens by 5% against the US Dollar, the net US
Dollar-denominated assets would reduce by GBP714,678 (2021:
GBP4,000). Conversely, if Sterling weakens by 5% the assets would
increase by GBP789,907 (2021: GBP5,000).
If Sterling strengthens by 5% against the Canadian Dollar, the
net Canadian Dollar-denominated assets would reduce by GBP567,721
(2021: nil). Conversely, if Sterling weakens by 5% the assets would
increase by GBP627,481 (2021: nil).
Interest rate risk
Interest rate risk is the risk that the fair value of future
cash flows of a financial asset will fluctuate because of changes
in market interest rates.
The Group's main interest rate risks arise in relation to its
royalty investments, which are carried at fair value through profit
or loss, and its borrowings, which are subject to an interest
charge of one-month UK SONIA +7.25%. The Group's royalty
investments have a fair value at the reporting date of
GBP160,479,000 (31 March 2021: GBP85,301,000). A sensitivity
analysis in respect of these assets is presented in note 23.
The Group's borrowings at the reporting date are GBP47,740,000,
see Note 15 (31 March 2021: GBP17,103,000). A movement in the rate
of SONIA of 100bps impacts loan interest payable by GBP477,400 (31
March 2021: GBP171,030).
Other price risk
Other price risk is the risk that the fair value of future cash
flows of a financial asset will fluctuate because of changes in
market prices (other than those arising from interest rate risk or
foreign exchange risk).
The fair value of the Group's royalty investments fluctuates due
to changes in the expected annual adjustment factors applied to the
royalties payable by each of the investee companies, which are
based upon the revenue growth of the investee company.
A sensitivity analysis in respect of the annual adjustment
factors applied to the royalty investments is presented in note
23.
Credit risk
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation.
The Group's maximum exposure to credit risk is as follows:
31-Mar-22 31-Mar-21
GBP000 GBP000
Royalty investments 160,479 85,301
Loan investments 4,172 4,950
Cash and cash equivalents 5,707 1,766
Trade and other receivables 2,194 10,040
172,552 102,057
=========== ===========
Royalty investments
The royalty investments relate to the Group's 13 royalty
financing agreements. At the reporting date, there was GBP2,439,000
of royalty cash payments outstanding (2021; GBP1,492,000) from two
royalty partners. Of this, GBPnil (GBP193,000) was received in the
month post year-end. Payment plans have been agreed to recover the
GBP2,439,000 from both royalty partners over the next five
years.
The Group monitors the credit worthiness of the investee
companies on an ongoing basis and receives regular financial
reports from each investee company. These reports are reviewed by
the Board on a semi-annual basis. The credit risk relating to these
investments is taken into account in calculating the fair value of
the instruments.
The Group also has security in respect of the royalty
investments which can be called upon if the counterparty is in
default under the terms of the agreement.
Loan investments
The Group's loan investments are held at amortised cost. All
loans have been reviewed by the directors. The Board considered the
credit risk, both at issue and at the year-end, and has determined
that there have been no significant movements. Consequently, any
loss allowance is limited to 12 months' expected losses and such
allowances are considered to be immaterial.
Cash and cash equivalents
The credit quality of the Group's cash and cash equivalents can
be assessed by reference to external credit ratings as follows:
31-Mar-22 31-Mar-21
GBP000 GBP000
Moody's credit rating:
A1 3,657 1,234
Aa2 - -
Baa1 2,018 243
Baa2 - -
B+ 32 289
BB- - -
5,707 1,766
=========== ===========
The Group considers that the credit risk relating to cash and
cash equivalents is acceptable.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in
realising assets or otherwise raising funds to meet financial
commitments.
The Group maintains sufficient cash to pay accounts payable and
accrued expenses as they fall due. The Group's overall liquidity
risks are monitored on a quarterly basis by the Board.
At the year end the Group had access to an undrawn borrowing
facility of GBP6,200,000 (2021: GBP17,500,000 (see note 15).
The table below analyses the Group's royalty investments and
financial liabilities into relevant maturity groupings based on
their undiscounted contractual maturities.
Less than 1 - 5 Over five
one year 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
=========== ========== =========== ==========
Less than Over five
one year 1 - 5 years years Total
As at 31 March 2021 GBP000 GBP000 GBP000 GBP000
Royalty finance investments 14,194 43,179 290,495 347,868
Royalty finance liabilities (114) (601) (3,311) (4,026)
Trade and other payables (279) (377) (368) (1,024)
Borrowings (1,835) (20,899) - (22,734)
----------- ------------- ----------- ----------
11,966 21,302 286,816 320,084
=========== ============= =========== ==========
Capital management
The Board manages the Company's capital with the objective of
being able to continue as a going concern while maximising the
return to Shareholders through the capital appreciation of its
investments. The capital structure of the Company consists of
equity as disclosed in the Consolidated Statement of Financial
Position
25. Events after the financial reporting date
Dividends
On 12 April 2022 and 12 July 2022, the Company paid a quarterly
dividend of 0.70 pence per share.
Equity raise
On 26 May 2022, the Group announced the successful placement of
57,142,858 new shares at a price of 35p per share, raising new
capital of GBP20 million.
New royalty investments
On 20 April 2022, the Group announced a GBP2,300,000 follow-on
investment into Tristone.
On 28 April 2022, the Group announced a GBP3,100,000 follow-on
investment into InTec.
Exits
No exits have been announced by the Group since the reporting
date.
Directors Nigel Birrell (Chairman)
Neil Johnson
Charles Cannon Brookes
Matthew Wrigley
M Wilms (appointed 17 February
2022)
M Le Tissier (resigned 17
February 2022)
Secretary and administrator Trident Trust Company (Guernsey)
Limited
Trafalgar Court
4(th) Floor, West Wing, St
Peter Port
Guernsey, GY1 3RL
Registered in Guernsey,
number 54697
Website address www.dukeroyalty.com
Registered office Trafalgar Court
4(th) Floor, West Wing, St
Peter Port
Guernsey, GY1 2JA
Independent auditor BDO Limited
Place du Pre
Rue de Pre
St Peter Port
Guernsey, GY1 3LL
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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(END) Dow Jones Newswires
September 08, 2022 02:01 ET (06:01 GMT)
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