3 December 2021

Duke Royalty Limited

 

("Duke Royalty", "Duke" or the "Company")

 

Interim Results for the six months ended 30 September 2021

 

Duke Royalty Limited (AIM: DUKE), a provider of alternative capital solutions to a diversified range of profitable and long-established businesses in Europe and abroad, is pleased to announce its interim results for the six-month ended 30 September 2021.

 

Financial Highlights

·      Cash revenue of £7.8 million, up 78% from the prior period (Interim 2021: £4.4 million)

·      Net cash inflow from operations of £5.2 million, a 46% increase (Interim 2021: £3.6 million)

·      Net profit generated of £6.2 million, a 50% increase (Interim 2021: £4.1 million)

·      Free cash flow of £4.6 million, up 58% from Interim 2021 (£2.9 million)

·      Adjusted earnings of 1.39 pence per share, a 60% increase (Interim 2021: 0.87 pence per share)

·      Cash dividends of 1.10 pence per share paid to shareholders

 

Operational Highlights

 

·      Raised £35 million of new equity capital in April 2021

·      Deployed over £23 million of capital into three new royalty partners

·      Realised exits from two investments

·      Over £55 million of available liquidity for future deployments

·      Current deal pipeline is at historic levels in deal value and number

 

Neil Johnson, CEO of Duke Royalty, said:

 

"This has been a very successful half year, characterised by substantial cashflow growth and accelerating investment deployment. Cash revenue is up 78% from the prior period to £7.8 million, and we have delivered a 58% increase in free cashflow to £4.6 million. This positive performance has been driven mainly by our team's rapid execution of new royalty agreements which has seen us invest over £23 million into three new royalty partners during the period.

 

"This strong trading performance makes me confident that Duke will exceed the market's expectations for the 12 months ended 31 March 2022. Since the resumption of its cash dividend, Duke has increased its dividend payment from 0.50 pence per share to 0.55 pence per share, with the prospect of higher dividend payments for shareholders in the future. This growth will be supported by entering into new royalty agreements and I am pleased to report that our pipeline is the strongest in our history. We expect to announce a range of new deployments in the coming weeks and months."

 

Investor Webinar

Neil Johnson, CEO, and Hugo Evans, Finance Director, will deliver a live presentation via the Investor Meet Company platform on 13 December 2021 at 15:30 GMT.

 

The online presentation is open to all existing and potential shareholders.

 

Questions can be submitted pre-event via your IMC dashboard or at any time during the live presentation via the "Ask a Question" function. Although the Company may not be in a position to answer every question it receives, it will address the most prominent within the confines of information already disclosed to the market. Responses to the Q&A from the live presentation will be published at the earliest opportunity on the Investor Meet Company platform.

 

Investor feedback can also be submitted directly to management post-event to ensure the Company can understand the views of all elements of its shareholder base.

 

Investors can sign up to Investor Meet Company for free and add to meet Duke Royalty via:

https://www.investormeetcompany.com/duke-royalty-limited/register-investor

 

Investors who have already registered and added to meet the Company will be automatically invited.

 

This announcement contains inside information.

 

 

For further information, please contact www.dukeroyalty.com, or contact:

 

Duke Royalty Limited	Neil Johnson / Charlie Cannon Brookes / Hugo Evans	+44 (0) 1481 741 240
Cenkos Securities plc  (Nominated Adviser and Joint Broker)	Stephen Keys / Callum Davidson / Julian Morse / Michael Johnson	+44 (0) 207 397 8900
Canaccord Genuity (Joint Broker)	Adam James / Georgina McCooke	+44 (0) 207 523 8000
SEC Newgate Communications (PR)	Elisabeth Cowell / Richard Bicknell / Megan Kovach	+44 (0) 203 757 6880 [email protected]

 

 

CHAIRMAN'S REPORT

 

 

Dear Shareholder,

 

I am pleased to report the results for the Group for the six-month period ended 30 September 2021 ("Interim 2022"), which were characterised by substantial cashflow growth and accelerating investment deployment.

 

Interim 2022 was a period of positive development for Duke during which the executive team's focus reverted to business development, growth and deal execution following the initial shock of the pandemic felt during the prior half year period. After a sustained period where the Company was required to focus much of its attention on internal monitoring and working closely with its Royalty Partners to ensure that they traded safely through the many challenges of Covid-19, it has been encouraging to witness a significant bounce back in the operating performance of many of those Partners.

 

Furthermore, after such a period of global financial stress, the Company's unique, long dated and aligned product offering has meant that Duke is increasingly being seen as a preferred capital partner for many profitable, well managed private businesses who do not wish to become encumbered by the high refinancing risk associated with short-dated debt. To highlight this point, I am pleased to be able to report that Duke's current deal pipeline is as robust as it has ever been in the Company's history and I am confident that the Company will being able to announce a number of new deployments in due course.

 

 

Operational Review

 

Interim 2022 started with an over-subscribed £35 million equity placing which closed in late April, providing Duke with the necessary liquidity to allow it to accelerate its speed of deployment. It was very pleasing to note that several large, new institutions were added to the Duke share register as part of the fundraising. As with previous equity fundraisings, Duke ensured there was a retail element to the capital raising process with £32 million being raised from institutional investors and £3 million coming from existing and new retail shareholders through the PrimaryBid platform. Wherever possible, Duke seeks to provide existing and new individual shareholders the chance to participate on the same terms as the institutions and we very much appreciate the strong support we continue to receive from our large retail investor base.

 

Duke made three material new investments during the period under review, the first of which was a €10 million investment into Fairmed Healthcare AG ("Fairmed"), closed at the end of June. Formed in 2012 and based in Zug, Switzerland, Fairmed provides high quality generic prescription medicines, over-the-counter pharmaceuticals, dermocosmetics and dietary supplements in various EU countries. The second investment, made in July, was a £7.7 million investment into InTec Business Solutions Limited ("InTec"). InTec is a UK company specialising in the design, implementation, and support of a wide range of cloud services and business applications and is undertaking a buy and build strategy of synergistic companies within the I.T. Managed Services sector in the UK and Ireland. In September, Duke subsequently upsized its investment in Intec by £2.2 million, which allowed InTec to complete its eighth acquisition, providing additional product, profitability and diversification to the business. Also in July, Duke agreed to a total funding commitment of up to CA$20 million (approximately £11.6 million) with Creō-Tech Industrial Group Inc. ("Creō-Tech"). Creō-Tech is a Canadian holding company that has been set up to acquire businesses that provide engineering, procurement and construction ("EPC") services in commercial and industrial settings. Of the CA$20 million total commitment, Duke invested CA$8.3 million as part of the initial drawdown to facilitate the acquisitions of Silhouette and Axial, two longstanding and profitable businesses with predictable revenue streams.

 

Two successful divestments were also made during the period. The first was Duke's exit of its investment in royalty partner Almondclose Limited, trading as Berkley Recruitment (Group) Limited ("Berkley"), a Cork-based resourcing and recruitment business. Duke received net cash of €1.3 million at closing, delivering an IRR on the Berkley investment of 16.0%. Due to its sub £5 million investment size, Berkley represented a subscale investment for Duke which was inherited via its acquisition of Capital Step back in February 2019. Duke has retained exposure to the Irish resourcing and recruitment sector via its other larger royalty partner, BIL, which is conducting a buy and build strategy within the sector. The second exit came from royalty partner BHPC Limited ("BHP"), an Irish insurance brokerage specialising in the not-for-profit insurance space, and at closing Duke received back net cash of £6.9 million, delivering an IRR of 29.4%, Duke's highest realised IRR to date. BHP represented Duke's fifth exit to date further validating our funding model.

 

 

Financial Review

 

The financial results for Interim 2022 reflect the resilience of Duke's business model and its ability to withstand the global economic disruption caused by the Covid-19 pandemic. I am delighted to report that the Company's cash revenue, being cash distributions from royalty partners and cash gains from the sale of equity investments, grew to £7.8 million during the period under review, a 78% increase over the £4.4 million generated in Interim 2021. Net cash inflow from operations, the key indicator of the Group's underlying operating performance, totalled £5.2 million, a 46% increase over the £3.6 million generated in Interim 2021. Total cash available for distribution (free cashflow), which represents the Group's operating cashflows less its interest on debt financing and is a measure of Duke's ability to cover its dividend, grew by 58% to £4.6 million, generating 1.36 pence per share, up from £2.9 million and 1.22 pence per share in Interim 2021.   

 

Total income, which includes non-cash fair value movements on the Company's investment portfolio, grew to £9.8 million, a 38% increase over Interim 2021. This produced total earnings after tax of £6.2 million and earnings per share of 1.84 pence against £4.1 million in Interim 2021 and earnings per share of 1.73 pence. Adjusted earnings, which strips out the fair value movements and represents a truer reflection of Duke's operating performance, rose to £4.7 million from £2.1 million, a 125% increase.

 

The Company strengthened its balance sheet during the period under review, raising £35 million of new equity capital at the end of April. Of this, over £23 million was deployed into three new royalty partners, only marginally less than the aggregate deployments for the entire financial year 2021. The full cashflow benefits of these deployments will be seen over the second half of the financial year.

 

 

Dividend

 

In April 2021, the Company increased its dividend from 0.50 pence per share to 0.55 pence per share, the first increase since the resumption of the cash dividend in Q3 of financial year 2021. This was followed with a further dividend of 0.55 pence per share paid in July 2021. Post-period end, a dividend of 0.55 pence per share was paid to shareholders in October 2021.

 

 

Outlook

 

One of the few benefits of the Covid-19 experience was the strong working relationship that has been created between Duke and its Royalty Partners. Together, we faced problems and implemented solutions and this has created a strong platform from which Duke can now embark on the next chapter of its growth, one in which I expect to see the Company grow its asset base and diversify its portfolio further.

 

Current trading for the three months ended 31 December 2021 is strong and I am pleased to share the Board's confidence of exceeding the market's expectations for 12 months ended 31 March 2022.

 

Notably, we have a robust pipeline of new investment opportunities, all of which have demonstrated resilience in the height of the pandemic. Given the nature of the Company's low and largely fixed cost base, additional deployments are expected to lead to increases in the Company's operating cash flow per share which in turn should lead to the prospect of higher dividend payments for Duke's shareholders in the future. It remains the Company's key objective to create a large, diversified portfolio of compounding long term income streams with the majority of this income being paid to shareholders in the form of quarterly dividends.

 

As always, I am appreciative of the ongoing support of our shareholders and am pleased to report the Chairman's statement for Interim 2022. Our existing partners have traded resiliently and we have minimised our exposure to the travel and leisure sectors. Therefore, the Group is well placed to continue to grow and I look forward to being able to report on the Group's ongoing progress and development in future periods.

 

Nigel Birrell

Chairman

 

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD ENDED 30 SEPTEMBER 2021

 

		Period to		Year to		Period to
		30-Sep-21		31-Mar-21		30-Sep-20
		(unaudited)		(audited)		(unaudited)
		£000		£000		£000
Cash flows from operating activities
Receipts from royalty investments		6,419		9,931		3,654
Receipts of interest from loan investments		450		667		381
Receipts from equity instruments		652		345		345
Other operating income		266		93		6
Operating expenses paid		(946)		(2,154)		(893)
Payments for royalty participation fees		(57)		(81)		(52)
Tax (paid) / received		(1,569)		135		135
Net cash inflow from operating activities		5,215		8,936		3,576
Cash flows from investing activities
Royalty investments advanced		(23,209)		(22,708)		(5,326)
Royalty investments received		2,938		14,354		900
Loan investments advanced		-		(1,145)		(132)
Loan investments received		3,370		2,370		1,100
Equity investments advanced		(530)		(653)		(350)
Investment costs paid		(496)		(634)		(61)
Net cash outflow from investing activities		(17,927)		(8,416)		(3,869)
Cash flows from financing activities
Proceeds from share issue		35,000		-		-
Share issue costs		(1,938)		(1)		-
Dividends paid		(3,269)		(3,013)		(1,778)
Proceeds from loans		-		15,200		4,000
Loans repaid		(7,500)		(13,926)		-
Interest paid		(611)		(1,409)		(663)
Other finance costs paid		-		(95)		(157)
Net cash inflow / (outflow) from financing activities		21,682		(3,244)		1,402
Net change in cash and cash equivalents		8,970		(2,724)		1,109
Cash and cash equivalents at beginning of period/year		1,766		4,481		4,481
Effect of foreign exchange on cash		9		9		14
Cash and cash equivalents at the end of period/year		10,745		1,766		5,604

 

 

CONDENSED CONSOLIDATED STATEMENT OF INCOME

FOR THE PERIOD ENDED 30 SEPTEMBER 2021

 

		Period to		Year to		Period to
		30-Sep-21		31-Mar-21		30-Sep-20
	Note	(unaudited)		(audited)		(unaudited)
		£000		£000		£000
Income
Royalty investment net income	6	7,584		19,344		7,509
Loan investment net income	7	410		636		339
Equity investment net income	8	1,497		1,569		(769)
Other operating income		266		93		6
Total income		9,757		21,642		7,085
Investment Expenses
Transaction costs		(525)		(447)		11
Due diligence costs		11		(103)		40
		(514)		(550)		51
Operating Expenses
Administration and personnel		(1,191)		(1,675)		(953)
Legal and professional		(183)		(367)		(178)
Other operating expenses		(65)		(99)		(41)
Share-based payments		(472)		(806)		(303)
		(1,911)		(2,947)		(1,475)
Operating profit		7,332		18,145		5,661
Net foreign currency gains		108		(542)		15
Finance costs		(693)		(1,539)		(815)
Profit for the period before tax		6,747		16,064		4,861
Taxation expense	4	(540)		(2,111)		(734)
Total comprehensive income for the period		6,207		13,953		4,127
Basic earnings per share (pence)		1.84		5.75		1.73
Diluted earnings per share (pence)		1.84		5.75		1.73

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2021

 

	Note	30-Sep-21		31-Mar-21		30-Sep-20
		(unaudited)		(audited)		(unaudited)
		£000		£000		£000
Non-current assets
Goodwill	13	203		203		203
Royalty finance investments	6	93,232		71,107		53,299
Loan investments	7	1,000		4,370		3,357
Equity investments	8	4,810		3,495		172
Trade and other receivables	10	2,236		5,618		-
Deferred tax asset	18	157		158		204
		101,638		84,951		57,235
Current assets
Royalty finance investments	6	13,607		14,194		30,186
Loan investments	7	580		580		5,192
Equity investments	8	60		-		-
Trade and other receivables	10	7,780		4,422		67
Cash and cash equivalents		10,745		1,766		5,604
Current tax asset		-		-		169
		32,772		20,962		41,218
Total Assets		134,410		105,913		98,453
Current liabilities
Royalty debt liabilities	9	144		114		131
Trade and other payables	11	868		267		484
Borrowings	12	172		161		117
Current tax liability		132		1,163		-
		1,316		1,705		732
Non-current liabilities
Royalty debt liabilities	9	932		917		1,063
Trade and other payables	11	204		402		400
Borrowings	12	9,659		17,103		19,566
		10,795		18,422		21,029
Net Assets		122,299		85,786		76,692
Equity
Shares issued	14	153,973		120,870		119,663
Share based payment reserve	15	2,020		1,548		1,045
Warrant reserve	15	265		265		265
Retained losses	16	(33,959)		(36,897)		(44,281)
Total Equity		122,299		85,786		76,692

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 SEPTEMBER 2021

 

				Share-based
		Shares		payment		Warrant		Retained		Total
	Note	issued		reserve		reserve		losses		equity
		£000		£000		£000		£000		£000
At 1 April 2020		118,479		742		265		(45,446)		74,040
Total comprehensive income for the period		-		-		-		4,127		4,127
Transactions with owners
Shares issued as dividends		1,184		-		-		-		1,184
Share based payments		-		303		-		-		303
Dividends		-		-		-		(2,962)		(2,962)
Total transactions with owners		1,184		303		-		(2,962)		(1,475)
At 30 September 2020		119,663		1,045		265		(44,281)		76,692
Total comprehensive income for the period		-		-		-		9,826		9,826
Transactions with owners
Shares issued as dividends		1,207		-		-		-		1,207
Share based payments		-		503		-		-		503
Dividends		-		-		-		(2,442)		(2,442)
Total transactions with owners		1,207		503		-		(2,442)		(732)
At 31 March 2021		120,870		1,548		265		(36,897)		85,786

 

 

 

				Share-based
		Shares		payment		Warrant		Retained		Total
	Note	issued		reserve		reserve		losses		equity
		£000		£000		£000		£000		£000
At 1 April 2021		120,870		1,548		265		(36,897)		85,786
Total comprehensive income for the period		-		-		-		6,207		6,207
Transactions with owners
Shares issued for cash		35,000		-		-		-		35,000
Share issuance costs		(1,937)		-		-		-		(1,937)
Share based payments		40		472		-		-		512
Dividends		-		-		-		(3,269)		(3,269)
Total transactions with owners		33,103		472		-		(3,269)		30,306
At 30 September 2021		153,973		2,020		265		(33,959)		122,299

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 SEPTEMBER 2021

 

 

1.       General Information

 

Duke Royalty Limited ("Duke Royalty" or the "Company") is a company limited by shares, incorporated in Guernsey under the Companies (Guernsey) Law, 2008. Its shares are traded on the AIM market of the London Stock Exchange. The Company's registered office is shown on page 28.

 

Throughout the period, the "Group" comprised Duke Royalty Limited and its wholly owned subsidiaries; Duke Royalty UK Limited, Capital Step Holdings Limited, Capital Step Investments Limited, Capital Step Funding Limited, Capital Step Funding 2 Limited and Duke Royalty Employee Benefit Trust.

 

The Group's investing policy is to invest in a diversified portfolio of royalty finance and related opportunities.

 

2.       Significant accounting policies

 

2.1     Basis of preparation

 

The interim Condensed Consolidated Financial Statements of the Group have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting", as adopted by the European Union, and using the going concern basis of preparation. These interim financial statements do not contain all the information and disclosures as presented in the annual financial statements and should be read in conjunction with the Consolidated Financial Statements of the Group for the year ended 31 March 2021, which have been prepared in accordance with International Financial Reporting Standards ("IFRS"), to the extent that they have been adopted by the European Union, and applicable Guernsey law.

 

The accounting policies adopted in the preparation of the interim Condensed Consolidated Financial Statements are consistent with those followed in the preparation of the Consolidated Financial Statements of the Group for the year ended 31 March 2021.

 

The Financial Statements have been prepared on a historical cost basis, except for the following:

 

·          Royalty investments - measured at fair value through profit or loss

·          Equity investments - measured at fair value through profit or loss

·          Royalty participation liabilities - measured at fair value through profit or loss

 

2.2     New and amended standards adopted by the Group

 

There were no new standards adopted by the Group during the reporting period.

 

2.3     Going concern

 

In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. After making enquiries and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future.

 

The cash flow needs of the Group have been assessed taking account the need for further funding for any of the existing royalty partners and the ongoing working capital needs of the business against the current cash and liquidity of the Group.

 

Furthermore, there is adequate headroom in terms of the uncalled loan facility in place should it be required.

 

 

3.       Finance Costs

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Interest payable on borrowings	(409)		(1,293)		(689)
Non-utilisation fees	(213)		(106)		(56)
Deferred finance costs released to P&L	(71)		(140)		(70)
	(693)		(1,539)		(815)

 

 

4.       Income tax

 

The Company has been granted exemption from Guernsey taxation. The Company's subsidiary in the UK is subject to taxation in accordance with relevant tax legislation.

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Current tax
Income tax expense	539		1,594		263
Deferred tax
Decrease in deferred tax assets	2		674		483
Decrease in deferred tax liabilities	(1)		(157)		(12)
	1		517		471
Income tax expense	540		2,111		734

 

 

Factors affecting income tax expense for the period

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Profit on ordinary activities before tax	6,747		16,064		4,861
Tax using the Groups effective tax rate of 8.00% (2021: 13.14%, period to 30 September 2020: 15.10%)	540		2,111		734
Income tax expense	540		2,111		734

 

 

5.       Earnings per share

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Total comprehensive income (£000)	6,207		13,953		4,127
Weighted average number of Ordinary Shares in issue, excluding treasury shares (000s)	337,310		242,836		238,797
Basic earnings per share (pence)	1.84		5.75		1.73

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Total comprehensive income (£000)	6,207		13,953		4,127
Weighted average number of Ordinary Shares, diluted for warrants in issue (000s)	337,310		242,836		238,797
Diluted earnings per share (pence)	1.84		5.75		1.73

 

Basic earnings per share is calculated by dividing total comprehensive income for the period by the weighted average number of shares in issue throughout the period. Diluted earnings per share represents the basic earnings per share adjusted for the effect of dilutive potential shares issuable on exercise of share options under the Company's share-based payment schemes, weighted for the relevant period.

 

Adjusted earnings per share

 

Adjusted earnings represents the Group's underlying performance from core activities. Adjusted earnings is the total comprehensive income adjusted for unrealised and non-core fair value movements, non-cash items and transaction-related costs, including royalty participation fees, together with the tax effects thereon.

 

Valuation and other non-cash movements such as those outlined are not considered by management in assessing the level of profit and cash generation of the Group. Additionally, IFRS 9 requires transaction-related costs to be expensed immediately whilst the income benefit is over the life of the asset. As such, an adjusted earnings measure is used which reflects the underlying contribution from the Group's core activities during the year.

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Total comprehensive income for the period	6,207		13,953		4,127
Unrealised fair value movements	(2,663)		(9,871)		(2,658)
Share-based payments	472		806		303
Transactions costs / (receipts) net of costs reimbursed	525		550		(51)
Tax effect of the adjustments above at Group effective rate	134		1,119		353
Adjusted earnings	4,675		6,557		2,074

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Adjusted earnings (£000)	4,675		6,557		2,074
Weighted average number of Ordinary Shares, excluding treasury shares (000s)	337,310		242,836		238,797
Adjusted earnings per share (pence)	1.39		2.70		0.87

 

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Diluted adjusted earnings (£000)	4,675		6,557		2,074
Weighted average number of Ordinary Shares, diluted for warrants in issue (000s)	337,310		242,836		238,797
Diluted adjusted earnings per share (pence)	1.39		2.70		0.87

 

 

6.       Royalty investments

 

Royalty finance investments are financial assets held at fair value through profit and loss ("FVTPL") that relate to the provision of royalty capital to a diversified portfolio of companies.

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Brought forward	85,301		75,559		75,559
Additions	23,209		22,708		5,326
Refinanced assets	(2,938)		(21,434)		(900)
Gain on financial assets at FVTPL	1,267		8,468		3,500
	106,839		85,301		83,485

 

Royalty finance investments are comprised of:

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Non-Current	93,232		71,107		53,299
Current	13,607		14,194		30,186
	106,839		85,301		83,485

 

 

Royalty investment net income on the face of the consolidated statement of comprehensive income comprises:

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Royalty interest	5,705		9,179		4,082
Royalty premiums	714		1,862		-
Gain on royalty assets at FVTPL	1,267		8,468		3,500
Loss on royalty liabilities at FVTPL	(102)		(165)		(73)
	7,584		19,344		7,509

 

All financial assets held at FVTPL are mandatorily measured as such.

 

The Group's royalty investment assets comprise royalty financing agreements with 11 (30 September 2020: 11, 31 March 2021: 10) investees. Under the terms of these agreements the Group advances funds in exchange for annualised royalty distributions. The distributions are adjusted based on the change in the investees' revenues, subject to a floor and a cap. The financing is secured by way of fixed and floating charges over certain investees' assets. The investees are provided with buyback options, exercisable at certain stages of the agreements.

 

 

7.       Loan investments

 

Loan investments are financial assets held at amortised cost.

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Brought forward	4,950		9,517		9,517
Additions	-		1,145		132
Refinanced loans	(3,370)		(5,649)		(1,100)
Net foreign currency movement	-		(63)		-
	1,580		4,950		8,549

 

The Group's loan investments comprise secured loans advanced to two entities (30 September 2020: six, 31 March 2021: three) in connection with the Group's royalty investments.

 

The loans comprise fixed rate loans of £1,580,000 (30 September 2020: £6,192,000, 31 March 2021: £1,580,000) which bear interest at rates of between 5% and 15% and nil variable rate loans (30 September 2020: £2,357,000, 31 March 2021: £3,370,000).

 

The loans mature as follows:

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
In less than one year	580		580		5,192
In one to two years	-		-		-
In two to five years	1,000		4,370		3,357
	1,580		4,950		8,549

 

The total loan investment net income during the period was £410,000 (30 September 2020: £339,000, 31 March 2021: £636,000). Loan investment net income on the face of the consolidated statement of comprehensive income comprises:

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Loan interest	242		603		306
Loan premiums	168		33		33
	410		636		339

 

ECL Analysis

 

The measurement of ECLs is primarily based on the product of the instrument's probability of default ("PD"), loss given default ("LGD"), and exposure at default ("EAD"). The Group analyses a range of factors to determine the credit risk of each investment. These include, but are not limited to:

 

·           liquidity and cash flows of the underlying businesses

·           security strength

·           covenant cover

·           balance sheet strength

 

If there is a material change in these factors, the weighting of either the PD, LGD or EAD increases, thereby increasing the ECL impairment.

 

The disclosure below presents the gross and net carrying value of the Group' loan investments by stage:

 

	Gross carrying amount		Allowance for ECLs		Net Carrying amount
As at 30 September 2021	£000		£000		£000
Stage 1	1,580		-		1,580
Stage 2	-		-		-
Stage 3	-		-		-
	1,580		-		1,580

 

 

	Gross carrying amount		Allowance for ECLs		Net Carrying amount
As at 31 March 2021	£000		£000		£000
Stage 1	4,950		-		4,950
Stage 2	-		-		-
Stage 3	-		-		-
	4,950		-		4,950

 

	Gross carrying amount		Allowance for ECLs		Net Carrying amount
As at 30 September 2020	£000		£000		£000
Stage 1	5,269		-		5,269
Stage 2	-		-		-
Stage 3	3,280		-		3,280
	8,549		-		8,549

 

Under the ECL model introduced by IFRS 9, impairment provisions are driven by changes in credit risk of instruments, with a provision for lifetime expected credit losses recognised where the risk of default of an instrument has increased significantly since initial recognition.

 

At 30 September 2020, the Group determined the risk profile of one loan investment was deemed to be impaired and was classified as Stage 3. This investment was subsequently sold prior to the year ended 31 March 2021.

 

The credit risk profile of the remaining investments has not increased materially and they remain Stage 1 assets. No ECLs have been charged on these assets as they are not deemed material.

 

The following table analyses Group's provision for ECL's by stage for the period ended 30 September 2021:

 

	Stage 1		Stage 2		Stage 3		Total
	£000		£000		£000		£000
At 1 April 2020 and 30 September 2020	-		-		2,947		2,947
Impairment charged in period	-		-		-		-
Refinanced Loans	-		-		(2,947)		(2,947)
Carrying value at 31 March 2021 and 30 September 2021	-		-		-		-

 

 

8.       Equity investments

 

Equity investments are financial assets held at FVTPL.

 

	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Brought forward	3,495		507		507
Additions	530		1,764		779
Disposals	(652)		(345)		(345)
Gain / (loss) on equity assets at FVTPL	1,497		1,569		(769)
	4,870		3,495		172

 

The Group's equity investments comprise unlisted shares and warrants in eight of its royalty investment companies (30 September 2020: six, 31 March 2021: eight).

 

The Group also still holds two (30 September 2020: two, 31 March 2021: two) unlisted investments in mining entities from its previous investment objectives. The Board does not consider there to be any future cash flows from the remaining investments and they are fully written down to nil value.

 

Equity investment net income on the face of the consolidated statement of comprehensive income comprises:

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Gain / (loss) on equity investments at FVTPL	1,497		1,569		(778)
Realised gain on sale of equity investments	-		-		9
	1,497		1,569		(769)

 

 

9.       Royalty debt liabilities

 

Royalty debt liabilities are financial liabilities held at FVTPL.

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Brought forward	1,031		1,173		1,173
Repayments	-		(226)		-
Payments made	(57)		(81)		(52)
Loss on financial assets at FVTPL	102		165		73
	1,076		1,031		1,194

 

Royalty debt liabilities are comprised of:

 

	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Current	144		114		131
Non-current	932		917		1,063
	1,076		1,031		1,194

 

 

10.     Trade and other receivables

 

	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Current
Prepayments and accrued income	43		167		64
Other receivables	7,737		4,255		3
	7,780		4,422		67
Non-current
Other receivables	2,236		5,618		-
	10,016		10,040		67

 

11.     Trade and other payables

 

	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Current
Trade payables	10		2		2
Transaction costs	125		82		94
Accruals and deferred income	733		183		388
	868		267		484
Non-current
Transaction costs	204		402		480
	1,072		669		884

 

 

12.     Borrowings

 

	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Secured loan
Current - accrued interest	172		161		117
Non-current	9,659		17,103		19,566
	9,831		17,264		19,683

 

The secured revolving loan facility has an interest rate of 7.25% over UK LIBOR per annum. The principal amount is repayable on 11 March 2026. The loan is secured by means of a fixed and floating charge over the assets of the Group.

 

As at 30 September 2021, £25,000,000 was undrawn on the facility (30 September 2020: £10,000,000, 31 March 2020: £17,500,000).

 

At 30 September 2021, £355,000 (30 September 2020: £434,000, 31 March 2021: £396,000) of unamortised fees remained outstanding.

 

The table below set out an analysis of net debt and the movements in net debt for the period ended 30 September 2021, the prior period and the year ended 31 March 2021.

 

	Interest Payable		Borrowings
	£000		£000
At 1 April 2021	161		17,103
Cash movements
Loan advanced	-		-
Loan repaid	-		(7,500)
Deferred finance costs paid	-		-
Interest paid	(611)		-
Non-cash movements
Deferred finance costs released to P&L	-		56
Interest charged	622		-
As at 30 September 2021	172		9,659

 

 

	Interest Payable		Borrowings
	£000		£000
At 1 April 2020	172		15,517
Cash movements
Loan advanced	-		4,000
Loan repaid	-		-
Deferred finance costs paid	-		-
Interest paid	(799)		-
Non-cash movements
Deferred finance costs released to P&L	-		49
Interest charged	744		-
As at 30 September 2020	117		19,566
Cash movements
Loan advanced	-		11,200
Loan repaid	-		(13,926)
Deferred finance costs paid	-		(23)
Interest paid	(611)		-
Non-cash movements
Deferred finance costs released to P&L	-		60
Transfer to royalty debt liability	-		226
Interest charged	655		-
At 31 March 2021	161		17,103

 

 

13.     Goodwill

 

	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Goodwill arising on business combination	203		203		203

 

14.     Share capital

 

	External Shares No.		Treasury Shares No.		Total shares No.		£000
Allotted, called up and fully paid
At 31 March 2020	236,937		2,690		239,627		118,479
Shares issued for cash during the period	-		-		-		-
Share issuance costs	-		-		-		-
Scrip dividend paid	4,479		-		4,479		1,184
Shares issued to Employee Benefit Trust during the period	-		2,525		2,525		-
At 30 September 2020	241,416		5,215		246,631		119,663
Shares issued to Employee Benefit Trust during the period	-		6,153		6,153		-
Scrip dividend paid	5,123		-		5,123		1,207
PSA shares vested during the year	513		(513)		-		-
At 31 March 2021	247,052		10,855		257,907		120,870
Shares issued for cash during the period	100,000		-		100,000		35,000
Share issuance costs	-		-		-		(1,937)
Shares issued to directors and key advisers as remuneration	105		-		105		40
At 31 September 2021	347,157		10,855		358,012		153,973

 

 

There is a single class of shares. There are no restrictions on the distribution of dividends and the repayment of capital with respect to externally held shares. The shares held by the Duke Royalty Employee Benefit Trust are treated as treasury shares. The rights to dividends and voting rights have been waived in respect of these shares.

 

 

15.     Equity-settled share-based payments

 

Warrant reserve 

 

There were no movements in the warrant reserve during the period:

 

	Warrants
	No. (000)		£000
At 1 April 2020, 30 September 2020, 31 March 2021, and 30 September 2021	4,375		265

 

At 30 September 2021, 4,375,000 (30 September 2020: 4,375,000, 31 March 2020: 4,375,000) warrants were outstanding and exercisable at a weighted average exercise price of 46 pence (30 September 2020: 46 pence, 31 March 2020: 46 pence). The weighted average remaining contractual life of the warrants outstanding was 1.50 years (30 September 2020: 2.50 years, 31 March 2021: 2.00 years).

 

Share-based payment reserve 

 

The following table shows the movements in the share-based payment reserve during the period:

 

 

	Share options		LTIP		Total
	£000		£000		£000
At 1 April 2020	136		606		742
LTIP awards	-		303		303
At 30 September 2020	136		909		1,045
LTIP awards	-		503		503
At 31 March 2021	136		1,412		1,548
LTIP awards	-		472		472
At 30 September 2021	136		1,884		2,020

 

Share option scheme 

 

No share options were granted during the period to 30 September 2021.

 

At 30 September 2021, 200,000 options (30 September 2020: 960,000, 31 March 2021: 200,000) were outstanding and exercisable at a weighted average exercise price of 50 pence (30 September 2020: 31 March 2021: 50 pence). The weighted average remaining contractual life of the options outstanding at the period end was 2.00 years (30 September 2020: 1.44 years, 31 March 2021: 2.50 years).

 

Long Term Incentive Plan

 

No performance share awards (PSAs) were granted during the period to 30 September 2021.

 

At 30 September 2021, 11,855,000 (30 September 2020: 2,690,000, 31 March 2021: 11,855,000) PSAs were outstanding. The weighted average remaining vesting period of these awards outstanding was 1.50 years (30 September 2020: 1.44 years, 31 March 2021: 2.04 years).

 

 

16.     Distributable reserves

 

Under Guernsey law, the Company can pay dividends provided it satisfies the solvency test prescribed by the Companies (Guernsey) Law, 2008. The solvency test considers whether the Company is able to pay its debts when they fall due, and whether the value of the Company's assets is greater than its liabilities. The Company satisfied the solvency test in respect of the dividends declared in the period.

 

 

17.     Dividends

 

The following interim dividends have been recorded in the period:

 

		Dividend per		Dividends
		share		payable
Record date	Payment date	pence/share		£000
27 March 2020	14 April 2020	0.75		1,777
26 June 2020	10 July 2020	0.50		1,185
Dividends payable for the period ended 30 September 2020				2,962
		Dividend per		Dividends
		share		payable
Record date	Payment date	pence/share		£000
25 September 2020	12 October 2020	0.50		1,206
29 December 2020	12 January 2021	0.50		1,236
Dividends paid for the period ended 31 March 2021				2,442
26 March 2021	12 April 2021	0.55		1,359
25 June 2021	12 July 2021	0.55		1,909
Dividends paid for the period ended 30 September 2021				3,268

 

On 24 September 2021 the Company approved a further quarterly cash dividend of 0.55 pence per share, totalling £1,909,000, which was paid on 12 October 2021.

 

18.     Deferred tax

 

 

	Royalty investment		Tax losses		Total
	£000s		£000s		£000s
1 April 2020	(12)		687		675
Credited / (charged) to profit & loss	9		(480)		(471)
At 30 September 2020	(3)		207		204
Credited / (charged) to profit & loss	161		(207)		(46)
At 31 March 2021	158		-		158
Charged to profit & loss	(1)		-		(1)
At 30 September 2021	157		-		157

 

 

The deferred tax asset arises due to a temporary timing differences on the treatment of transaction costs in the UK subsidiary. This deferred tax asset is expected to reverse over a 30 year period. The utilisation of this asset is dependent on sufficient future taxable profits being generated by the UK subsidiary.

 

 

19.     Related parties

 

Directors' fees

 

The following fees were payable to the Directors during the period:

 

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Short term remuneration	463		582		366
Share-based payments	273		528		326
	736		1,110		692

 

Other related party transactions

 

The following amounts were paid to related parties during the period in respect of support services fees:

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Abingdon Capital Corporation	175		350		175
Arlington Group Asset Management Limited	43		85		43
	218		435		218

 

 

Support Service Agreements with Abingdon Capital Corporation ("Abingdon"), a company of which Neil Johnson is a Director, and Arlington Group Asset Management Limited ("Arlington"), a company of which Charles Cannon Brookes is a Director, were signed on 16 June 2015. The services to be provided by both Abingdon and Arlington include global deal origination, vertical partner relationships and assisting the Board with the selection, execution and monitoring of royalty partners and royalty performance. Abingdon fees also includes fees relating to remuneration of staff residing in North America.

 

Dividends

 

The following dividends were paid to related parties:

 

	Period to		Year to		Period to
	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Directors 1	124		232		126
Other related parties	17		31		10
	141		263		136

 

¹ Includes dividends paid to Abinvest Corporation, a wholly owned subsidiary of Abingdon Capital Corporation, and to Arlington Group Asset Management

 

 

20.     Fair value measurements

 

Fair value hierarchy

 

IFRS 13 requires disclosure of fair value measurements by level of the following fair value hierarchy:

 

Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities that the entity can readily observe.

 

Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.

 

Level 3: Inputs that are not based on observable market date (unobservable inputs).

 

The Group has classified its financial instruments into the three levels prescribed as follows:

 

 

	30-Sep-21		31-Mar-21		30-Sep-20
	(unaudited)		(audited)		(unaudited)
	£000		£000		£000
Financial assets
Financial assets at FVTPL
- Royalty finance investments	106,839		85,301		83,485
- Equity investments	4,870		3,495		172
	111,709		88,796		83,657
Financial liabilities
Financial liabilities at FVTPL
- Royalty debt liabilities	1,076		1,031		1,194

 

The following table presents the changes in level 3 items for the periods ended 30 September 2021, 31 March 2021 and 30 September 2020:

 

	Financial		Financial
	Assets		Liabilities		Total
	£000		£000		£000
At 31 March 2020	76,067		(1,173)		74,894
Additions	6,104		-		6,104
Repayments	(1,245)		-		(1,245)
Royalty income received	3,654		-		3,654
RP liability paid	-		52		52
Net change in FV	(923)		(73)		(996)
At 30 September 2020	83,657		(1,194)		82,463
Additions	18,368		-		18,368
Repayments	(20,533)		226		(20,307)
Royalty income received	(22,999)		-		(22,999)
RP liability paid	-		29		29
Net change in FV	30,303		(92)		30,211
At 31 March 2021	88,796		(1,031)		87,765
Additions	23,739		-		23,739
Repayments	(3,590)		-		(3,590)
Royalty income received	5,705		-		5,705
RP liability paid	-		57		57
Net change in FV	(2,941)		(102)		(3,043)
At 30 September 2021	111,709		(1,076)		110,633

 

 

Valuation techniques used to determine fair values

 

The fair value of the Group's financial instruments is determined using discounted cash flow analysis and all the resulting fair value estimates are included in level 3.

 

Valuation processes

 

The main level 3 inputs used by the Group are derived and evaluated as follows:

 

Annual adjustment factors for royalty investments and royalty participation liabilities

 

These factors are estimated based upon the underlying past and projected performance of the royalty investee companies together with general market conditions.

 

Discount rates for financial assets and liabilities

 

These are initially estimated based upon the projected internal rate of return of the royalty investment and subsequently adjusted to reflect changes in credit risk determined by the Group's Investment Committee.

 

Changes in level 3 fair values are analysed at the end of each reporting period and reasons for the fair value movements are documented.

 

Valuation inputs and relationships to fair value

 

The following summary outlines the quantitative information about the significant unobservable inputs used in level 3 fair value measurements:

 

Royalty investments

 

The unobservable inputs are the annual adjustment factor and the discount rate. The range of annual adjustment factors used is -6.0% to 6.0% and the range of risk-adjusted discount rates is 14.7% to 17.4%.

 

Equity investments

 

Sensitivity analysis has not been performed on the Group's equity investments on the basis that they are not material to the Condensed Consolidated Financial Statements

 

Royalty participation instruments

 

The unobservable inputs are the annual adjustment factor and the discount rate. The range of annual adjustment factors used is -6.0% to 6.0% and the range of risk-adjusted discount rates is 16.3% to 17.4%.

 

 

21.     Events after the financial reporting date

 

Dividends

 

On 12 October 2021, the Company paid a quarterly dividend of 0.55 pence per share.