TIDMDUKE

RNS Number : 8324E

Duke Royalty Limited

04 July 2023

4 July 2023

Duke Royalty Limited

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

Final Results for the year ended 31 March 2023

Duke Royalty Limited (AIM: DUKE), a provider of alternative capital solutions to a diversified range of profitable and long-established businesses in Europe and abroad, is pleased to announce its audited final results for the 12 months ended 31 March 2023 ("FY23").

FY23 Highlights

-- 46% year-on-year increase in recurring cash revenue* to GBP21.8 million (FY22: GBP14.9 million)

-- 19% year-on-year increase in total cash revenue to GBP21.9 million (FY22: GBP18.4 million)

   --           Free cash flow of GBP13.1 million, up 9% from GBP12.1 million in FY22 

-- Free cash flow** per share reduced from 3.53p in FY22 to 3.30p in FY23, due to lack of investment buyouts

-- 30% increase in recurring free cash flow per share from 2.52p per share to 3.27p per share

   --           24% year-on-year increase in dividend per share of to 2.80p (FY22: 2.25p) 

-- Deployed over GBP26 million of capital, adding two new royalty partners to the portfolio and completed four material follow-on investments into existing royalty partners

   --           GBP20 million of equity capital raised in oversubscribed placing 

-- Refinanced and upsized a GBP100 million credit facility to facilitate more investment opportunities

Post Period End Highlights

-- Achieved GBP6.0 million of recurring cash revenue in Q1 FY24, representing an 18% year-on-year increase (Q1 FY23: GBP5.1 million) and an increase on Q4 FY23

-- Exited royalty partner Instor, receiving net cash of US$11.2 million at closing, delivering a total gain of US$2.4 million over Duke's initial investment amount and a triple digit IRR

-- Two additional follow-on investments completed in Q1 into Tristone and New Path Fire & Security

* Recurring cash revenue excludes buyout premiums and cash gains from the sale of equity investments

** Free cashflow is defined as net cash inflows from operations plus cash gains from the sale of equity investments less interest paid on borrowings

Neil Johnson, CEO of Duke Royalty, said:

"We are delighted to announce that we have achieved a strong set of financial results across all our important financial metrics for the 12 months to 31 March 2023. Despite the prevailing macro uncertainties, it also brings forth opportunities. We understand that during times of short-term uncertainty, business owners seek long-term capital solutions, which further reinforces the attractiveness of our proposition to them, as our solution offers both investors and shareholders what they desire - a long-term, predictable revenue stream with a focus on dividends.

"Having achieved GBP2.0 million per month of cash revenue in Q1 FY24, this represents the 11(th) consecutive quarter of delivering increasing quarterly recurring cash revenue. With this in mind, we have witnessed a very healthy and promising pipeline of new partners. The recent increase in deal flow has been encouraging, as it demonstrates the attractiveness of our proposition in a difficult funding market, and we are confident that our product continues to demonstrate its competitiveness against other financing options available to small businesses."

Investor Presentation

Neil Johnson, CEO, and Hugo Evans, CFO, will also provide a live investor presentation relating the Full Year Results via the Investor Meet Company platform on Thursday 13 July at 13:30 BST.

The presentation is open to all existing and potential shareholders. Questions can be submitted via the Investor Meet Company dashboard up until 9 a.m. the day before the meeting or at any time during the live presentation.

Investors can sign up to Investor Meet Company for free and add to meet Duke Royalty via: https://www.investormeetcompany.com/duke-royalty-limited/register-investor

Investors who already follow Duke Royalty on the Investor Meet Company platform will automatically be invited.

Annual Report & Accounts

The 2023 Annual Report and Accounts are expected to be posted to shareholders on Monday 10 July 2023, together with a notice of the Company's Annual General Meeting. An electronic copy of the Annual Report and Accounts will also be available to view on the Company's website at www.dukeroyalty.com

This announcement contains inside information.

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

 
                                  Neil Johnson / Charles 
                                   Cannon Brookes / Hugo 
  Duke Royalty Limited             Evans                                   +44 (0) 1481 231 816 
  Cenkos Securities 
   plc 
   (Nominated Adviser 
   and                            Stephen Keys / Callum 
   Joint Broker)                   Davidson / Michael Johnson              +44 (0) 207 397 8900 
  Canaccord Genuity 
   (Joint Broker)                 Adam James / Harry Rees                  +44 (0) 207 523 8000 
  SEC Newgate                     Elisabeth Cowell / Alice                 +44 (0) 20 3757 6880 
   (Financial Communications)      Cho / Matthew Elliott           dukeroyalty@secnewgate.co.uk 
 

About Duke Royalty

Duke Royalty Limited provides alternative capital solutions to a diversified range of profitable and long-established businesses in Europe and abroad. Duke Royalty's experienced team provide financing solutions to private companies that are in need of capital but whose owners wish to maintain equity control of their business. Duke Royalty's royalty investments are intended to provide robust, stable, long term returns to its shareholders. Duke Royalty is listed on the AIM market under the ticker DUKE and is headquartered in Guernsey.

Chairman's Statement

Dear Shareholder,

I am pleased to report a strong set of results for the financial year ending 31 March 2023 ("FY23"), which once again demonstrated the resilience of Duke's business model to perform robustly in both a positive and challenging macroeconomic environment.

It is fair to say that FY23 presented a challenging operating environment for Duke's royalty partners. They battled against interest rate hikes and supply chain issues, alongside a significant increase in corporate energy prices and a general shortage of labour. Furthermore, overall consumer demand was affected by surging utility bills and food prices, resulting in a general reduction of consumer discretionary spend. Despite these challenging circumstances, I would like to congratulate Duke's royalty partners for their extremely resilient operating performance in FY23.

Duke's strategic focus on providing long-term, secured lending to established and profitable owner-operated businesses has proven to be a safeguard against these economic challenges. Moreover, the very low amortisation payments of Duke's product in the early years have alleviated some of the short-term liquidity concerns of our royalty partners, allowing them to focus on managing their businesses rather than having to refinance their debts during unfavourable times. This, together with a long-term partnership approach which has always been at the core of Duke's investment and corporate philosophy, has helped support our partners through these times of macroeconomic pressure.

It is worth noting that one of the inevitable consequences of the substantial increase in global interest rates has been the material increase in the cost for all other competing forms of short-term debt. However, Duke's permanent equity capital base and its long-term lending approach throughout economic cycles have enabled the Company to refrain from increasing the cost of its offering in the short-term. As a result, we have experienced a notable increase in both the number and the quality of deal opportunities that Duke has been offered, the benefits of which will be witnessed in the current financial year and in the periods ahead.

Outlook

FY23 has been a year of relentless collaboration between the Duke team and our royalty partners, as we work together to overcome significant economic challenges they have faced. I would like to take this opportunity to thank them for their considerable efforts. As a long-term investor, Duke believes that a business' long-term success is directly correlated to its business approach and management of their environmental, social and governance considerations. We remain committed to adhering to the commitments set out in the Company's Responsible Investment Policy.

Whilst the macro environment continues to create ongoing challenges for our royalty partners, the higher level of global interest rates and continued lack of demand from the mainstream banks to lend to well-managed, profitable SMEs, puts Duke in an ideal position to selectively deploy further capital and increase market share. As a result, I expect to see a higher deployment rate in FY24 than we saw in FY23.

Over the past few years, Duke has been able to put together a diverse portfolio, and now has exposure to 62 underlying operating companies. In FY23, The Company was able to release a series of record quarterly recurring cash revenue updates, which is a trend that I expect to see continue into FY24. This is attributable to the anticipated growth in deployment rate, alongside positive adjustment resets linked to the underlying companies' organic revenue performance in this inflationary macroenvironment.

As always, I would like to express my gratitude to the ongoing support of our shareholders and to the achievements of our employees. It is my pleasure to report the Chairman's Statement for FY23. I look forward to reporting on the Group's ongoing progress and development, and I remain cautiously optimistic about the Company's future.

Nigel Birrell

Chairman

CEO's Statement

In 2022, businesses around the world faced a remarkable landscape that surpassed the unprecedented challenges brought by the pandemic in 2020. The Bank of England's 12th consecutive interest rate hikes brought rates to their highest level in almost 15 years, and inflation being at a 40-year high has further intensified the economic climate. The geopolitical situation in Europe also demanded our attention and played a crucial role in shaping our decisions at Duke.

Despite this, I am pleased to report that Duke managed a strong set of financial results across all our important financial metrics. In particular, our recurring cash revenue grew 46% to GBP21.8 million against GBP14.9 million in FY22 and our recurring cash revenue per share grew 30% over FY22. It is reassuring to note our solution continues to deliver for investors and business owners alike during these challenging times.

However, during FY23, we exercised caution in our approach to new deployments, analogous to the Covid-19 impaired FY21. With rapidly changing macroeconomic developments, we chose caution in allocating shareholder funds following our successful fundraising efforts in May 2022, which resulted in four follow-on investments (totalling GBP11.5 million) into existing partners and two new royalty agreements (totalling GBP12.3 million). During the 12 months under review, we deployed a total of GBP26.8 million, spread over several geographic markets in line with our strategy, while also reinforcing our portfolio in our core territories. This strategic decision reflects our prudent approach to capital allocation and our commitment to ensuring that financial stability is maintained. Nevertheless, we continued to diversify the portfolio, ending the period with exposure to 61 underlying operating companies with an aggregate book cost of GBP185 million. We continue to maintain a close relationship with our royalty partners, which generally performed robustly during the period, and are reassured of their resilience to trading in the current market conditions.

It is important to note that we feel the prevailing macro uncertainties do not pose only risks, but also opportunities. We know that when there is short term uncertainty, business owners seek long term capital solutions, reinforcing the attractiveness of our proposition to them. What sets Duke apart is our long-term strategic partnership approach, which offers business owners the certainty of sustainable capital without significant dilution of their ownership or large capital repayments which need refinancing.

The credit and equity characteristics of our hybrid model drives our relationships with all of our stakeholders

Our shareholders who participate in our regular shareholder meetings, conferences and podcasts will know, we believe Duke has a unique value proposition for shareholders. At the core of our offering is a focus on preserving capital, which is why our royalty agreements are structured as senior secured loans. We aim to provide a healthy dividend to investors, which is our second priority, investing into profitable, longstanding private companies. And unlike a traditional debt product, as our third priority, we look to be rewarded in the event of a positive outcome at the time of the buyout. The six buyouts achieved since inception have shown that our product has produced the results we intended.

Our hybrid model also drives our relationships with our royalty partners. We see ourselves as more than just a lender. We are economically invested in the long-term success of the partners we work with, like equity owners. However, because we have downside protections to preserve our capital, we also have capped our equity participation. The combination of these factors means that Duke's model combines the best elements of private equity and private credit.

Duke's approach allows us to develop good relationships with our royalty partners. Receiving monthly management accounts gives us regular and in-depth financial information to ensure our royalty partners are performing to budget. In addition, we actively engage with our portfolio companies through Board representation and/or monthly management meetings. This involvement allows us to provide continuous support and strategic guidance throughout their journey, helping them to navigate through headwinds and to seize opportunities. We do this because we are economically incentivised in the growth of the company through our annual adjustment factor and when we have minority equity stakes. However, the business owners know they control the destiny of the company and have the incentive to succeed. With our alignment of interests, I am delighted to be able to observe the exceptional dedication to meet all challenges head on of our current royalty partners, and we remain fully dedicated to supporting their ongoing growth in the future.

Our model augments the resilience of our existing partners in the face of market fluctuations. Unlike floating-rate loans, Duke's monthly payments from our royalty partners change only once per year at the annual adjustment date according to the revenue performance of the business, and the adjustment is capped. This aligns Duke's return with the performance of the royalty partners over the long-term and gives them certainty of their obligations to us as senior lender, leading to confidence of decision making during these challenging times.

With this in mind, Duke's partners generally performed robustly in the period, with inflationary forces driving the average yield of the Company's portfolio to 13.1%, its highest level to date. Duke also received 94% of its expected cash revenue payments in the period and the Company was able to increase our recurring cash revenue each quarter throughout the financial year.

I am pleased to be able to report that at period end, Duke had over GBP50 million of liquidity available to deploy into its pipeline of opportunities with FY24 gearing up to be a busy period for the Company.

Financial Review

In May 2022, Duke announced a GBP20 million equity placing from both institutional and retail investors. Net proceeds from this fundraising were used to repay the existing debt and provide additional liquidity headroom, allowing the Company both to invest further capital into its existing royalty partners as well into new opportunities.

During the period, we were delighted to announce that we had entered into a new GBP100 million credit facility agreement with Fairfax Financial Holdings Limited and certain of its subsidiaries ("Fairfax"). In refinancing and upsizing our credit facility, we secured a significant amount of additional liquidity, prolonging our requirement for additional equity capital. We also reduced the headline interest rate by 225 bps in comparison to our previous facility, leading to an immediate and material impact on our free cash flow. This support from such a reputable firm represents a huge endorsement of our business model, and we look forward to a long-term relationship with Fairfax.

The financial results for FY23 represent a strong operating performance and I am pleased to report that the Company's cash revenue, being cash distributions from royalty partners, cash gains from the sale of equity investments and buyout premiums, grew to GBP21.9 million during the Period under review, a 19% increase over the GBP18.4 million generated in FY22.

However, as our portfolio matures and buyouts start to become a material part of the of the Group's cashflows, it is important to distinguish between recurring and non-recurring cash revenue. Recurring cash revenue relates to the annuity-like monthly cash revenue streams that Duke receives from its royalty partners, as opposed to the non-recurring nature of buyout premiums and realised gains on equity that Duke receives on an investment exit. In FY22, the Group benefited from a royalty buyout and an equity realisation event, which delivered over GBP3.5 million of premiums and realised equity gains. Therefore, on a like-for-like basis, FY23 produced GBP21.8 million of recurring cash revenue against GBP14.9 million in FY22, a 46% increase.

Free cash flow, defined as net operating cash inflow plus cash gains from the sale of equity investments less its interest on debt financing, also continued to grow, increasing by 9% to GBP13.1 million. However, if we strip out the non-recurring cash revenue, then recurring free cash flow actually grew 51% from GBP8.6m to GBP13.0 million, while recurring free cash flow per share grew 30% to 3.27 pence per share, a significant achievement given a macroenvironment of high inflation and soaring interest rates. It is these last two metrics that are particularly pleasing as it is these that derive our ability to continue paying a steady quarterly dividend to our shareholders.

Total income, which includes non-cash fair value movements on the Company's investment portfolio, grew to GBP31.0 million, an 8% increase over FY22. This generated total earnings after tax of GBP19.6 million and earnings per share of 4.92 pence against GBP20.4 million in FY22 and earnings per share of 5.95 pence. Adjusted earnings, which strips out the fair value movements, decreased 5% from GBP13.1m in FY22 to GBP12.5m in FY23, due to the lack investment exits in FY23.

Dividend

Duke maintained a 0.70 pence quarterly dividend throughout FY23, equating to an annualised dividend of 2.80 pence which represents a material increase from the 2.25 pence per share of dividends paid out in FY22. Despite the high dividend yield percentage at the current share price, I can reassure shareholders that the dividend remains well covered by recurring free cash flow.

Duke Royalty's ESG initiatives

By definition, a royalty company itself has a small environmental footprint, being an investment company in other companies. Since inception over eight years ago, our business model has been underpinned by an ethos of responsible investing. We do not invest in extraction industries, and we support business owners who have a positive impact in providing local jobs and keeping ownership in their hands for the betterment of their communities.

As we have increased capital deployed in an expanding number of companies, we understand our duty and influence in asking more of our royalty partners' ESG credentials. We admire each company's leadership as they work to improve the lives of their employees, their communities, and the world they inhabit.

While we can only help indirectly with our royalty partners' operations, the Duke team has led by example and remains deeply committed to making a positive social impact in the world we live in.

Duke Royalty's leaders are also leaders in their community. I am the Founder and Chair of the UK Terry Fox Association and Hugo Evans our CFO acts as Treasurer. It is the UK affiliate of the Terry Fox Foundation, which has raised over GBP500 million for cancer research in the name of Canada's hero. Terry Fox ran 143 consecutive marathons in the summer of 1980 on a prosthetic leg before cancer returned and forced him to stop. Terry Fox died less than a year later, but the Terry Fox Run was born. The money we raise stays in the UK, supporting the UK's #1 academic cancer research centre, The Institute of Cancer Research (ICR). Our mission is to bring communities and families touched by cancer together for the free, family friendly and non-competitive Terry Fox Runs across the UK. Since I re-started the London Terry Fox Run in 2020, we have raised over GBP200,000 for the ICR, and our goal is GBP1,000,000 by 2030. This year, there will be four Terry Fox Runs across the UK. Every year, the Duke team and their families come together to support cancer research and volunteer their time.

Recognising the importance of giving back to local communities, we have also extended our support to Home-Start UK, a network that assists needy families with young children during challenging times. In additional to our financial contributions, the Cannon Brookes family volunteers and advocates for the importance of a healthy and supportive family unit in the first years of life. Professional care workers provide emotional and financial support to single mothers and underprivileged families with young children. This makes a direct impact in the local UK neighbourhoods where Home-Start is active.

Our outlook is one of cautious optimism

The year to 31 March 2024 has already kicked off to a positive start, with Duke achieving an average monthly recurring cash revenue of GBP2.0 million for the first time for Q1 FY24. A quarter of GBP6.0 million recurring cash revenue represents a 18% year on year increase (Q1 FY23: GBP5.1 million) and will be our 11(th) consecutive quarter delivering increasing recurring cash revenues.

In addition, we have had our first buyout since 2021 during the first three months of the current financial year. A key aspect that distinguishes Duke is our commitment to empowering business owners by allowing them to retain control over their exit strategies. This was illustrated well with the recent positive exit we announced in May where the terms of Duke's capital facilitated Instor's CEO decision to opportunistically sell the company to a private equity firm, and in turn delivered a triple digit IRR to Duke. This is an attractive differentiator of our capital which enhances the appeal of our long-term, passive capital for business owners and is just one of the qualities that reaffirms Duke's strong position to capture an important share of the private funding market.

One consequence of the rapidly increasing interest rates of 2022 is that Duke's monthly payments have become more competitive to floating rate interest rate payments. For business owners, the monthly payment is their total obligation to Duke subject to only the annual adjustment. The certainty of knowing future obligations, without a looming refinancing event, is increasingly attractive to business owners. With this in mind, we have witnessed a very healthy and promising pipeline of new partners. The recent increase in deal flow has been encouraging, demonstrating the attractiveness of our proposition in a difficult funding market, and we are confident that our product continues to demonstrate its competitiveness against other financing options available to small businesses.

Royalty finance has a longstanding history in North America, drawing investors with its ability to provide downside protection during times of crisis. Similar to how the pandemic showcased the resilience of this model, we believe the current economic environment offers us the opportunity to continue demonstrating the ability of our approach to withstand market cycles. We see a bigger opportunity ahead, as our solution offers both investors and shareholders what they desire: a long-term, predictable revenue stream with a focus on dividends.

We are pleased to report another year of delivering on the promise of our business model for our shareholders: a long-term, predictable revenue stream with a focus on dividends. I would like to personally thank our shareholders, our royalty partners, our employees and our Board as we look forward to continued success.

Neil Johnson

Chief Executive Officer

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARED 31 MARCH 2023

 
                                                         Year to      Year to 
                                                       31-Mar-23    31-Mar-22 
                                                          GBP000       GBP000 
  Cash flows from operating activities 
  Receipts from royalty investments               9       21,364       14,701 
  Receipts of interest from loan investments     10          339          580 
  Other operating receipts                                   176          543 
  Operating expenses paid                                (3,306)      (2,487) 
  Payments for royalty participation fees        12        (112)        (115) 
  Tax paid                                               (1,346)      (2,055) 
                                                     -----------  ----------- 
  Net cash inflow from operating activities               17,115       11,167 
 
  Cash flows from investing activities 
  Royalty investments advanced                    9     (23,809)     (74,586) 
  Royalty investments repaid                      9            -        2,938 
  Loan investments advanced                      10      (2,500)      (3,192) 
  Loan investments repaid                        10        2,000        3,949 
  Equity investments purchased                   11        (500)        (530) 
  Equity investments sold                        11            -        2,883 
  Equity dividends received                      11            3            - 
  Receipt of deferred consideration                            -        7,679 
  Investments costs paid                                   (357)        (972) 
  Net cash outflow from investing activities            (25,163)     (61,831) 
 
  Cash flows from financing activities 
  Proceeds from share issue                      17       20,000       35,000 
  Share issue costs                              17      (1,115)      (1,936) 
  Dividends paid                                 20     (10,979)      (7,270) 
  Proceeds from loans                            15       71,250       38,200 
  Loans repaid                                   15     (61,450)      (7,500) 
  Interest Paid                                  15      (3,976)      (1,649) 
  Other finance costs                                    (2,426)        (181) 
  Net cash inflow from financing activities               11,304       54,664 
 
  Net change in cash and cash equivalents                  3,256        4,000 
 
  Cash and cash equivalents at beginning 
   of year                                                 5,707        1,766 
  Effect of foreign exchange on cash                        (24)         (59) 
 
  Cash and cash equivalents at the end 
   of year                                                 8,939        5,707 
                                                     ===========  =========== 
 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEARED 31 MARCH 2023

 
 
                                         Note    Year to      Year to 
                                                 31-Mar-    31-Mar-22 
                                                      23 
                                                  GBP000       GBP000 
  Income 
  Royalty investment income                 9     28,266       18,037 
  Loan investment income                   10        339          533 
  Equity investment income                 11      2,212        9,678 
  Other operating income                             176          543 
  Total Income                                    30,993       28,791 
 
  Investment Costs 
  Transaction costs                                 (66)        (631) 
  Due diligence costs                              (620)      (1,113) 
  Total Investment Costs                           (686)      (1,744) 
 
  Operating Costs 
  Administration and personnel              5    (2,627)      (2,060) 
  Legal and professional                           (456)        (405) 
  Other operating costs                            (223)        (151) 
  Expected credit losses                   10       (20)         (72) 
  Share-based payments                     18      (969)        (930) 
                                               ---------  ----------- 
  Total Operating Costs                          (4,295)      (3,618) 
 
  Operating Profit                                26,012       23,429 
                                               ---------  ----------- 
 
  Net foreign currency movement                       66         (60) 
  Finance costs                             6    (5,644)      (1,996) 
 
  Profit before tax                               20,434       21,373 
 
  Taxation expense                          7      (842)        (982) 
 
  Profit after tax                                19,592       20,391 
                                               =========  =========== 
 
  Basic earnings per share (pence)          8       4.92         5.95 
                                               =========  =========== 
  Diluted earnings per share (pence)        8       4.92         5.95 
                                               =========  =========== 
 

All income is attributable to the holders of the Ordinary Shares of the Company. There is no other comprehensive income.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE YEARED 31 MARCH 2023

 
                                  Note     31-Mar-     31-Mar- 
                                                23          22 
                                            GBP000      GBP000 
  Non-current assets 
  Goodwill                          16         203         203 
  Royalty finance investments        9     158,540     139,648 
  Loan investments                  10       4,652       3,172 
  Equity investments                11      13,529      10,820 
  Trade and other receivables       13           -       2,141 
  Deferred tax                      21         200         156 
                                        ----------  ---------- 
                                           177,124     156,140 
  Current assets 
  Royalty finance investments        9      32,793      20,831 
  Loan investments                  10           -       1,000 
  Trade and other receivables       13       2,290          53 
  Cash and cash equivalents                  8,939       5,707 
  Current tax asset                            373           - 
                                            44,395      27,591 
 
  Total Assets                             221,519     183,731 
                                        ----------  ---------- 
 
  Current liabilities 
  Royalty debt liabilities          12         154         160 
  Trade and other payables          14         433         423 
  Borrowings                        15         441         362 
  Current tax liability                          -          87 
                                             1,028       1,032 
  Non-current liabilities 
  Royalty debt liabilities          12         988         951 
  Trade and other payables          14       1,314       1,067 
  Borrowings                        15      53,930      47,740 
                                            56,232      49,758 
 
  Net Assets                               164,259     132,941 
                                        ==========  ========== 
 
  Equity 
  Share capital                     17     172,939     153,974 
  Share-based payment reserve       18       3,447       2,478 
  Warrant reserve                   18       3,036         265 
  Retained losses                   19    (15,163)    (23,776) 
                                        ----------  ---------- 
  Total Equity                             164,259     132,941 
                                        ==========  ========== 
 

The Consolidated Financial Statements were approved and authorised for issue by the Board of Directors on 3 July 2023 and were signed on its behalf by Directors Maree Wilms and Matt Wrigley.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEARED 31 MARCH 2023

 
                                                   Share-based 
                                         Shares        payment    Warrant    Retained       Total 
                                Note     issued        reserve    reserve      losses      equity 
                                         GBP000         GBP000     GBP000      GBP000      GBP000 
 
  At 31 March 2021                      120,870          1,548        265    (36,897)      85,786 
 
  Total comprehensive 
   income for the year                        -              -          -      20,391      20,391 
 
  Transactions with 
   owners 
  Shares issued for 
   cash                           17     35,000              -          -           -      35,000 
  Share issuance costs            17    (1,936)              -          -           -     (1,936) 
  Shares issued to key 
   advisers as remuneration       17         40              -          -           -          40 
  Share based payments            18          -            930          -           -         930 
  Dividends                       20          -              -          -     (7,270)     (7,270) 
  Total transactions 
   with owners                           33,104            930          -     (7,270)      26,764 
 
  At 31 March 2022                      153,974          2,478        265    (23,776)     132,941 
                                      ---------  -------------  ---------  ----------  ---------- 
 
  Total comprehensive 
   income for the year                                                         19,592      19,592 
 
  Transactions with 
   owners 
  Shares issued for 
   cash                           17     20,000              -          -           -      20,000 
  Share issuance costs            17    (1,115)              -          -           -     (1,115) 
  Shares issued to key 
   advisers as remuneration       17         80              -          -           -          80 
  Warrants issued                 18          -              -      2,771                   2,771 
  Share based payments            18          -            969          -           -         969 
  Dividends                       20          -              -          -    (10,979)    (10,979) 
                                      ---------  -------------  ---------  ----------  ---------- 
  Total transactions 
   with owners                           18,965            969      2,771    (10,979)      11,726 
 
  At 31 March 2023                      172,939          3,447      3,036    (15,163)     164,259 
                                      =========  =============  =========  ==========  ========== 
 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARED 31 MARCH 2023

   1.       General Information 

Duke Royalty Limited ("Duke Royalty" or the "Company") is a company limited by shares, incorporated in Guernsey under the Companies (Guernsey) Law, 2008. Its shares are traded on the AIM market of the London Stock Exchange. The Company's registered office is shown on page 73 .

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

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

   2.       Significant accounting policies 
   2.1     Basis of preparation 

The Consolidated Financial Statements of the Group have been prepared in accordance with UK adopted international accounting standards, and applicable Guernsey law, and reflect the following policies, which have been adopted and applied consistently.

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into the UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The group transitioned to UK-adopted international accounting standards in its consolidated financial statements on 1 April 2021. There was no impact or changes in accounting from the transition.

The Consolidated Financial Statements have been prepared on a going concern basis and under the historical cost basis, except for the following:

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

The Directors consider that the Group has adequate financial resources to enable it to continue operations for a period of no less than 12 months from the date of approval of the financial statements. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

Presentation of statement of cash flows

The Board considers cash flow to be the most important measure of the Group's performance and subsequently has presented its Statement of Cash Flows before the Statement of Comprehensive Income and Statement of Financial Position.

There have been no changes to the classification of any of the cash flows or to the overall cash movements.

Presentation of statement of comprehensive income

In order to better reflect the activities of a royalty financing company, the Statement of Comprehensive Income includes additional analysis, splitting the Group's income by investment type.

   2.2     New and amended standards adopted by the Group 

A few amendments and interpretations of existing standards apply to the Group's financial year but these did not have a significant impact on the financial statements of the Company.

   2.3     New standards and interpretations not yet adopted 

At the date of authorisation of these Consolidated Financial Statements, certain standards and interpretations were in issue but not yet effective and have not been applied in these Consolidated Financial Statements. The Directors do not expect that the adoption of these standards and interpretations will have a material impact on the Consolidated Financial Statements of the Group in future periods.

   2.4     Going concern 

In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.

FY23 continued to present a challenging operating environment for Duke's royalty partners. The impact of the Russia - Ukraine conflict continues to have a significant impact on European economies as businesses battle against interest rate hikes, supply chain issues, alongside a significant increase in corporate power prices and a general shortage of labour. Furthermore, overall consumer demand was affected by surging utility bills and food prices, resulting in a general reduction of consumer discretionary spend.

Despite this, Duke's strategic focus on providing long-term, secured lending to established and profitable owner-operated businesses has proven to be a safeguard against these economic challenges. Moreover, the very low amortisation payments of Duke's product in the early years have alleviated some of the short-term liquidity concerns of our royalty partners, allowing them to focus on managing their businesses rather than having to refinance their debts during unfavourable times.

The directors continue to closely monitor the impact of these macroeconomic headwinds on the Group's trading activities and cashflows, but do not consider that there will be any significant effect on the ability of the Group to continue in business and meet liabilities as they fall due.

During the year, the Group refinanced its debt facility, replacing the previous facility with a new GBP100 million facility with Fairfax (as detailed in the Directors' Report). At the 31 March 2023, the Group had GBP42,000,000 of available headroom on the facility.

The Directors consider that the Company has adequate resources to continue in operational existence for the next 24 months and beyond.

   2.5     Basis of consolidation 

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

All intra-group transactions, balances, income and expenses are eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted across the Group.

The "Group" is defined as the Company, its subsidiaries Duke Royalty UK Limited, Capital Step Holdings Limited, Capital Step Investments Limited, Capital Step Funding Limited and Capital Step Funding 2 Limited and The Duke Royalty Employee Benefit Trust.

   2.6     Segmental reporting 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors, as a whole. The key measure of performance used by the Board to assess the Group's performance and to allocate resources is operating cashflow, as calculated under IFRS, and therefore no reconciliation is required between the measure of performance used by the Board and that contained in these Consolidated Financial Statements.

For management purposes, the Group's investment objective is to focus on one main operating segment, which is to invest in a diversified portfolio of royalty finance and related opportunities. At the end of the period the Group has 15 investments into this segment and has derived income from them. Due to the Group's nature, it has no customers.

   2.7     Foreign currency 

Functional and presentation currency

Items included in the Financial Statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The Consolidated Financial Statements are presented in Pounds Sterling, which is also the functional currency of the Company and its subsidiaries.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the reporting date.

Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss are presented in the Consolidated Statement of Comprehensive Income within 'royalty investment net income', 'loan investment net income' and 'equity investment net income'.

Foreign exchange gains and losses relating to cash and cash equivalents are presented in the Consolidated Statement of Comprehensive Income within 'Net foreign currency gains / (losses)'. This has been presented below operating costs as this best reflects the true nature of the balance.

   2.8     Transaction costs 

Transaction costs are costs incurred to acquire financial assets at fair value through profit or loss. They include finders' fees, legal and due diligence fees and other fees paid to agents and advisers. Transaction costs, when incurred, are recognised immediately in profit or loss as an expense. Where transaction costs are in respect of loans, these are offset using the effective interest method.

   2.9     Income tax 

The income tax expense or credit for the period is the tax payable on the current period's taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company's subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

   2.10   Goodwill 

Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not amortised, but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of the entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes.

   2.11   Dividends 

Dividends are recognised as a liability in the Group's financial statements in the period in which they become obligations of the Group.

   2.12   Financial instruments 

Financial assets and financial liabilities are recognised in the Consolidated Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are only offset and the net amount reported in the Consolidated Statement of Financial Position and Consolidated Statement of Comprehensive Income when there is a currently enforceable legal right to offset the recognised amounts and the Group intends to settle on a net basis or realise the asset and liability simultaneously.

   a.       Financial assets 

The Group's financial assets are classified in the following measurement categories:

   --           those to be measured subsequently at fair value through profit or loss ("FVTPL"); and 
   --           those to be measured at amortised cost 

The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows.

At initial recognition, the Group measures a financial asset at its fair value, plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss.

Financial assets held at amortised cost

Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. These assets are subsequently measured at amortised cost using the effective interest method.

The Group's financial assets held at amortised cost include loans receivable, trade and other receivables and cash and cash equivalents.

Expected Credit Loss ("ECL") allowance for financial assets measured at amortised cost

Impairment of financial assets is calculated using a forward-looking expected credit loss (ECL) model. ECLs are an unbiased probability weighted estimate of credit losses determined by evaluating a range of possible outcomes. They are measured in a manner that reflects the time value of money and uses reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

The Group recognises an allowance for ECLs for all debt instruments not held at fair value through profit or loss. Assets held at fair value through profit and loss are not subject to impairment.

IFRS 9 establishes a three-stage approach for impairment of financial assets:

-- Stage 1 - when a financial asset is first recognised, it is assigned to Stage 1. If there is no significant increase in credit risk from initial recognition, the financial asset remains in Stage 1. Stage 1 also includes financial assets where the credit risk improved and the financial asset has been reclassified back from Stage 2. For financial assets in Stage 1, a 12-month ECL is recognised;

-- Stage 2 - when a financial asset has experienced a significant increase in credit risk since initial recognition, the asset is classified as Stage 2. Stage 2 also includes financial assets where the credit risk improved and the financial asset has been reclassified back from Stage 3. For financial assets in Stage 2, a lifetime ECL is recognised;

-- Stage 3 - that where there is objective evidence of impairment and the financial asset is considered to be in default, or otherwise credit-impaired, it is moved to Stage 3. For financial assets in Stage 3, a lifetime ECL is recognised and interest income is recognised on a net basis.

In relation to the above

-- Lifetime ECL is defined as ECLs that result from all possible default events over the expected behavioural life of a financial instrument

-- 12-month ECL is defined as the portion of lifetime credit loss that will result if a default occurs in the 12 months after the reporting, weighted by the probability of that default occurring

The measurement of ECLs is primarily based on the product of the instrument's probability of default ("PD"), loss given default ("LGD"), and exposure at default ("EAD"), taking into account the value of any collateral held or other mitigants of loss and including the impact of discounting using the effective interest rate.

-- The PD represents the likelihood of a borrower defaulting on its financial obligation, either over the next 12 months ("12-month PD"), or over the remaining lifetime ("Lifetime PD") of the obligation

-- EAD is based on the amounts the Group expects to be owed at the time of default, over the next 12 months ("12-month EAD") or over the remaining lifetime ("Lifetime EAD")

   --           LGD represents the Group's expectation of the extent of loss on a defaulted exposure 

The ECL is determined by estimating the PD, LGD, and EAD for each individual exposure. These three components are multiplied together and adjusted for the likelihood of survival. This effectively calculates an ECL.

The measurement ECLs for each stage and the assessment of significant increases in credit risk considers economic information about past events and current conditions as well as reasonable and supportable forward-looking information. When determining whether the credit risk profile has materially increased, the Group specifically reviews the debt covenant positions of each company. If the debt service coverage ratio falls below zero and the Group does not have sufficient liquidity to cover 12 months of debt obligations, the investment will be deemed to be in default and a lifetime ECL allowance will be provided for.

As with any forecasts and economic assumptions, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected. Other forward-looking considerations, such as the impact of any regulatory, legislative or political changes, have also been considered, but no adjustment has been made to the ECL for such factors. This is reviewed and monitored for appropriateness on an annual basis.

Cash and cash equivalents

Cash and cash equivalents comprise current accounts and demand deposits and other short-term highly liquid investments with an original maturity of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial assets at FVTPL

Royalty investments are debt instruments classified at FVTPL under IFRS 9. The return on these investments is linked to a fluctuating revenue stream and thus, whilst the business model is to collect contractual cash flows, such cash flows are not solely payments of principal and interest. Such assets are recognised initially at fair value and remeasured at each reporting date. The change in fair value is recognised in profit or loss and is presented within 'royalty investment income' in the Consolidated Statement of Comprehensive Income. The fair value of these financial instruments is determined using discounted cash flow analysis. Further details of the methods and assumptions used in determining the fair value can be found in note 23.

Investments in equity instruments are classified at FVTPL. The Group subsequently measures all equity investments at fair value and the change in fair value is recognised in profit or loss and is presented within the 'equity investment income' in the Consolidated Statement of Comprehensive Income. Dividends from such investments are recognised in profit or loss when the Group's right to receive payments is established.

Derecognition of financial assets

A financial asset (in whole or in part) is derecognised either (i) when the Group has transferred substantially all the risks and rewards of ownership; or (ii) when it has neither transferred nor retained substantially all the risks and rewards and when it no longer has control over the assets or a portion of the asset; or (iii) when the contractual right to receive cash flow has expired. Any gain or loss on derecognition is taken to other income/expenses in the Consolidated Statement of Comprehensive Income as appropriate.

   b.       Financial liabilities 

The classification of financial liabilities at initial recognition depends on the purpose for which the financial liability was issued and its characteristics.

All financial liabilities are initially recognised at fair value. Unless otherwise indicated the carrying amounts of the Group's financial liabilities are approximate to their fair values.

Financial liabilities measured at amortised cost

These consist of borrowings and trade and other payables. These liabilities are initially recognised at fair value, net of transaction costs incurred, and subsequently carried at amortised cost using the effective interest rate method.

Financial liabilities at FVTPL

Financial liabilities at FVTPL comprise royalty participation liabilities. These liabilities arise under a contractual agreement between the Group and a strategic partner for the provision of services in connection with the Group's royalty financing arrangements. Under this agreement services are provided in exchange for a percentage of gross royalties' receivable. These instruments are classified at FVTPL on the basis that the liability is linked to the Group's royalty investments. Such liabilities are recognised initially at fair value with the costs being recorded immediately in profit or loss as 'royalty participation fees' and remeasured at each reporting date in order to avoid an accounting mismatch. The change in fair value is recognised in profit or loss and presented within 'royalty investment income'. The fair value of these financial instruments is determined using discounted cash flow analysis. Further details of the methods and assumptions used in determining the fair value can be found in note 23.

Derecognition of financial liabilities

A financial liability (in whole or in part) is derecognised when the Group has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on derecognition is taken to other income/expenses in the Consolidated Statement of Comprehensive Income.

   c.       Equity Instruments 

Financial instruments issued by the Group are treated as equity if the holder has only a residual interest in the assets of the Group after the deduction of all liabilities. The Company's Ordinary Shares are classified as equity instruments.

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from proceeds.

   2.13   Share-based payments 

The Group operates an equity settled Share Option Plan and a Long-Term Incentive Plan for its Directors and key advisers.

The fair value of awards granted under the above plans are recognised in profit or loss with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the awards granted:

   --           including any market performance conditions (e.g., the entity's share price) 

-- excluding the impact of any service and non-market performance vesting conditions (e.g., increase in cash available for distribution, remaining a director for a specified time period); and

   --           including the impact of any non-vesting conditions 

The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.

The Group also settles a portion of expenses by way of share-based payments. These expenses are settled based on the fair value of the service received as an expense with the corresponding amount increasing equity. All expenses recognised in the year in relation to the Group's Share Option and Long-Term Incentive Plan schemes are recognised through the share-based payment reserve.

   2.14   Reserves 

Equity comprises the following:

   --           Share capital represents the nominal value of equity shares in issue 

Other reserves comprises the following:

-- Warrant reserve was created in connection with the issue of share warrants. Further warrants were issued during the year ended 31 March 2023. These allow the owner to subscribe for a fixed number of equity shares at a fixed price, and have therefore been classified as equity in accordance with IAS 32 paragraph 16.

-- Share-based payment reserve represents equity-settled share-based employee remuneration as detailed in note 2.13

   --           Retained earnings represents retained profits 
   3.       Critical accounting estimates 

The preparation of the Consolidated Financial Statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of revision and future periods, if the revision affects both current and future periods. The following estimates and assumptions that may cause a material adjustment to the carrying amount of assets and liabilities are:

Fair value of royalty investments

Royalty investments are valued using a discounted cash flow analysis. The discount rate used in these valuations has been estimated to take account of market interest rates and the credit worthiness of the investee. Revenue growth has been estimated by the Directors and is based on unobservable market inputs.

Where the royalty investment contains a buy-back clause, the Directors have assessed the likelihood of this occurring. Where occurrence of the buy-back is deemed likely, this is built into the discounted cash flow at the appropriate point.

These assumptions are reviewed semi-annually. The Directors believe that the applied valuation techniques and assumptions used are appropriate in determining the fair value of the royalty investments and have made adjustments to the discount rates and estimated revenue growth where necessary. Further details of the carrying values, methods, assumptions and sensitivities used in determining the fair value can be found in note 23.

Fair value of royalty participation liabilities

The payments falling due under the Group's contract for royalty participation fees are directly linked to the Group's royalty investments and thus the same assumptions have been applied in arriving at the fair value of these liabilities. The Directors have considered whether any increase in discount rate is required to represent the Group's credit risk as the payments are made by the Group rather than the investee and have concluded that none is required since payment under the contract is only due once the Group has received the gross amounts from the investee. Further details of the methods, assumptions and sensitivities used in determining the fair value can be found in note 23.

Fair value of equity investments

The Group's equity investments are not traded in an active market and thus the fair value of the instruments is determined using valuation techniques. The Group make assumptions based on market conditions at the end of each reporting period. The key estimates that the Directors have made in arriving at the fair values are the price/earnings multiples to be applied to the investee entities' profits. These multiples have been estimated based on market information for similar types of companies. The carrying value of equity investments are disclosed in Note 11. Further details of the methods, assumptions and sensitivities used in determining the fair value can be found in note 23.

   4.       Auditor's remuneration 
 
                                            2023      2022 
                                          GBP000    GBP000 
 
  Audit of the Consolidated Financial 
   Statements                                105        75 
                                        ========  ======== 
 
   5.       Administration and personnel 

The table below splits out administration and personnel costs.

 
                                             2023      2022 
                                           GBP000    GBP000 
 
  Support services administration fees        518       449 
  Directors' fees                           1,012       730 
  Investment committee fees                   108       107 
  Personnel costs                             989       774 
                                         --------  -------- 
                                            2,627     2,060 
                                         ========  ======== 
 
   6.       Finance costs 
 
                                               2023      2022 
                                             GBP000    GBP000 
 
  Interest payable on borrowings              3,861     1,499 
  Non-utilisation fees                          194       350 
  Deferred finance costs released to P&L      1,558       147 
  Other finance costs                            31         - 
                                           --------  -------- 
                                              5,644     1,996 
                                           ========  ======== 
 
   7.       Income tax 

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

 
                                             2023      2022 
                                           GBP000    GBP000 
  Current tax 
  Income tax expense                          886       980 
                                         --------  -------- 
 
  Deferred tax 
  Increase in deferred tax assets            (44)         3 
  Decrease in deferred tax liabilities          -       (1) 
  Total deferred tax benefit                 (44)         2 
 
  Income tax expense                          842       982 
                                         ========  ======== 
 

Factors affecting income tax expense for the year

 
  Profit on ordinary activities before 
   tax                                       20,434    21,373 
                                           --------  -------- 
 
  Guernsey taxation at 0% (2022: 0%)              -         - 
  Overseas tax charges at effective rate 
   of 4.12% (2021: 13.14%)                      842       982 
  Income tax expense                            842       982 
                                           ========  ======== 
 
   8.       Earnings per share 
 
                                                     2023       2022 
 
  Total comprehensive income (GBP000)              19,592     20,391 
  Weighted average number of Ordinary 
   Shares in issue, excluding treasury 
   shares (000s)                                  397,991    342,822 
  Basic earnings per share (pence)                   4.92       5.95 
                                                =========  ========= 
 
                                                     2023       2022 
 
  Total comprehensive income (GBP000)              19,592     20,391 
  Diluted weighted average number of Ordinary 
   Shares in issue, excluding treasury 
   shares (000s)                                  397,991    342,822 
  Diluted earnings per share (pence)                 4.92       5.95 
                                                =========  ========= 
 

Basic earnings per share is calculated by dividing total comprehensive income for the period by the weighted average number of shares in issue throughout the period, excluding treasury shares (see Note 17).

Diluted earnings per share represents the basic earnings per share adjusted for the effect of dilutive potential shares issuable on exercise of share options under the Company's share-based payment schemes, weighted for the relevant period.

All share options, warrants and Long-Term Incentive Plan awards in issue are not dilutive at the year-end as the exercise prices were above the average share price for the period. However, these could become dilutive in future periods.

Adjusted earnings per share

Adjusted earnings represent the Group's underlying performance from core activities. Adjusted earnings is the total comprehensive income adjusted for unrealised and non-core fair value movements, non-cash items and transaction-related costs, including royalty participation fees, together with the tax effects thereon. Given the sensitivity of the inputs used to determine the fair value of its investments, the Group believes that adjusted earnings is a better reflection of its ongoing financial performance.

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

 
                                                    2023        2022 
                                                  GBP000      GBP000 
 
  Total comprehensive income for the period       19,592      20,391 
 
  Unrealised fair value movements                (9,111)    (10,431) 
  Impairment loss on loan investments                 20          72 
  Share-based payments                               969         930 
  Transactions costs net of costs reimbursed         686       1,746 
  Tax effect of the adjustments above 
   at Group effective rate                           306         350 
                                               --------- 
  Adjusted earnings                               12,462      13,058 
                                               =========  ========== 
 
 
                                                     2023       2022 
  Adjusted earnings for the year (GBP000)          12,462     13,058 
  Weighted average number of Ordinary 
   Shares in issue, excluding treasury 
   shares (000s)                                  397,991    342,822 
  Adjusted earnings per share (pence)                3.13       3.81 
                                                =========  ========= 
 
                                                     2023       2022 
  Diluted adjusted earnings for the year 
   (GBP000)                                        12,462     13,058 
  Diluted weighted average number of Ordinary 
   Shares in issue, excluding treasury 
   shares (000s)                                  397,991    342,822 
  Diluted adjusted earnings per share 
   (pence)                                           3.13       3.81 
                                                =========  ========= 
 
   9.       Royalty investments 

Royalty investments are financial assets held at FVTPL that relate to the provision of royalty capital to a diversified portfolio of companies.

 
                                          31-Mar-23    31-Mar- 
                                                            22 
                                             GBP000     GBP000 
 
  At 1 April                                160,479     85,301 
  Additions                                  23,809     74,586 
  Buybacks                                        -    (2,939) 
  Profit on financial assets at FVTPL         7,045      3,531 
  As at 31 March                            191,333    160,479 
                                        ===========  ========= 
 

Royalty investments are comprised of:

 
                  31-Mar-23    31-Mar- 
                                    22 
                     GBP000     GBP000 
 
  Non-Current       158,540    139,648 
  Current            32,793     20,831 
                    191,333    160,479 
                ===========  ========= 
 

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

 
                                             2023      2022 
                                           GBP000    GBP000 
 
  Royalty interest                         21,364    13,987 
  Royalty premiums                              -       714 
  Gain on royalty assets at FVTPL           7,045     3,531 
  Loss on royalty liabilities at FVTPL      (143)     (195) 
  Royalty investment net income            28,266    18,037 
                                         ========  ======== 
 

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

The Group's royalty investment assets comprise royalty financing agreements with 15 (31 March 2022:13) investees. Under the terms of these agreements the Group advances funds in exchange for annualised royalty distributions. The distributions are adjusted based on the change in the investees' revenues, subject to a floor and a cap. The financing is secured by way of fixed and floating charges over certain of the investees' assets. The investees are provided with buyback options, exercisable at certain stages of the agreements.

   10.     Loan investments 

Loan investments are financial assets held at amortised cost with the exception of the GBP2.2 million loan issued at 0% interest. The impact of discounting is immaterial to the financial statements. The below table shows both the loans at amortised cost and fair value.

 
                                    31-Mar-23    31-Mar- 
                                                      22 
                                       GBP000     GBP000 
 
  1 April                               4,172      4,950 
  Additions                             2,500      3,192 
  Buybacks                           (2,000)     (3,950) 
  ECL allowance                          (20)       (20) 
  Net foreign currency movement             -          - 
  As at 31 March                        4,652      4,172 
                                  ===========  ========= 
 

The Group's loan investments comprise secured loans advanced to two entities (2022 - two) in connection with the Group's royalty investments.

The loans comprise fixed rate loans of GBP4,652,000 (31 March 2022: GBP4,172,000) which bear interest at rates of between 0% and 15% (2022: 0% and 15%). The Group has no variable rate loans at the year end (2022: no variable rate loans at year end). The total interest receivable during the period was GBP339,074 (31 March 2022: GBP533,000).

The loan investments mature as follows:

 
                            31-Mar-23    31-Mar- 
                                              22 
                               GBP000     GBP000 
 
  In less than one year             -      1,000 
  In one to two years           4,652          - 
  In two to five years              -      3,172 
                                4,652      4,172 
                          ===========  ========= 
 

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

 
                              2023      2022 
                            GBP000    GBP000 
 
  Loan Interest charged        339       365 
  Loan premiums on exit          -       168 
                          --------  -------- 
                               339       533 
                          ========  ======== 
 

ECL Analysis

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

   --           liquidity and cash flows of the underlying businesses 
   --           security strength 
   --           covenant cover 
   --           balance sheet strength 

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

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

 
                              Gross                       Net 
                           carrying    Allowance     Carrying 
                             amount     for ECLs       amount 
  As at 31 March 2023        GBP000       GBP000       GBP000 
 
  Stage 1                     4,692         (40)        4,652 
  Stage 2                         -            -            - 
  Stage 3                         -            -            - 
                        -----------  -----------  ----------- 
                              4,692         (40)        4,652 
                        ===========  ===========  =========== 
 
 
                                                               Net 
                          Gross carrying    Allowance     Carrying 
                                  amount     for ECLs       amount 
  As at 31 March 2022             GBP000       GBP000       GBP000 
 
  Stage 1                          4,192         (20)        4,172 
  Stage 2                              -            -            - 
  Stage 3                              -            -            - 
                        ----------------  -----------  ----------- 
                                   4,192      (20)           4,172 
                        ================  ===========  =========== 
 

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

The credit risk profile of the investments has not increased materially and they remain Stage 1 assets. Minor expected credit losses have been charged for the Stage 1 assets.

The following table analyses Group's provision for ECL's by stage:

 
                              Stage     Stage     Stage     Total 
                                  1         2         3 
                             GBP000    GBP000    GBP000    GBP000 
 
  Expected credit losses 
   on loan investments 
   in year                       20         -         -        20 
  Expected credit losses 
   on other receivables 
   in year                       52         -         -        52 
  Carrying value at 31 
   March 2022                    72         -         -        72 
                           --------  --------  --------  -------- 
 
  Expected credit losses 
   on loan investments 
   in year                       22         -         -        22 
  Refinanced loans              (2)         -         -       (2) 
  Carrying value at 
   31 March 2023                 92         -         -        92 
                           ========  ========  ========  ======== 
 
   11.     Equity investments 

Equity investments are financial assets held at FVTPL.

 
                                                  31-Mar-23    31-Mar- 
                                                                    22 
                                                     GBP000     GBP000 
 
  At 1 April                                         10,820      3,495 
  Additions                                             500        530 
  Repayments                                              -      (300) 
  Realised gains on sale of equity investment             -    (2,583) 
  Gain on equity investments at FVTPL                 2,209      9,678 
  As at 31 March                                     13,529     10,820 
                                                ===========  ========= 
 

The Group's equity investments comprise unlisted shares and warrants in eleven of its royalty investment companies (31 March 2022: nine).

The Group also still holds two (31 March 2022: two) unlisted investments in mining entities from its previous investment objectives. The Board does not consider there to be any future cash flows from the remaining mining investments and they are fully written down to nil value.

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

 
                                                2023      2022 
                                              GBP000    GBP000 
 
  Unrealised gain on equity assets at 
   FVTPL                                       2,209     7,095 
  Realised gain on equity assets at FVTPL          -     2,583 
  Dividend income                                  3         - 
                                            --------  -------- 
                                               2,212     9,678 
                                            ========  ======== 
 
   12.     Royalty debt liabilities 

Royalty debt liabilities are financial liabilities held at fair value through profit and loss.

 
                                          31-Mar-23    31-Mar- 
                                                            22 
                                             GBP000     GBP000 
 
  At 1 April                                  1,111      1,031 
  Additions                                       -          - 
  Repayments                                      -          - 
  Payments made                               (112)      (115) 
  Gain on royalty liabilities at fair 
   value through profit and loss                143        195 
  As at 31 March                              1,142      1,111 
                                        ===========  ========= 
 

Royalty investment liabilities are comprised of:

 
                  31-Mar-23    31-Mar- 
                                    22 
                     GBP000     GBP000 
 
  Non-Current           988        951 
  Current               154        160 
                      1,142      1,111 
                ===========  ========= 
 
   13.     Trade and other receivables 
 
                                     31-Mar-23    31-Mar- 
                                                       22 
                                        GBP000     GBP000 
  Current 
  Prepayments and accrued income            59         53 
  Other receivables                      2,231          - 
                                         2,290         53 
  Non-current 
  Other receivables                          -      2,141 
 
                                         2,290      2,194 
                                   ===========  ========= 
 
   14.     Trade and other payables 
 
                                   31-Mar-23    31-Mar- 
                                                     22 
                                      GBP000     GBP000 
  Current 
  Trade payables                           6         11 
  Transaction costs                      315        233 
  Accruals and deferred income           112        179 
                                         433        423 
  Non-current 
  Transaction costs                    1,314      1,067 
 
                                       1,747      1,490 
                                 ===========  ========= 
 
   15.     Borrowings 
 
                                 31-Mar-23    31-Mar- 
                                                   22 
                                    GBP000     GBP000 
 
  Current - accrued interest           441        362 
  Non-current                       53,930     47,740 
                                    54,371     48,102 
                               ===========  ========= 
 

In January 2023, the Group entered into a new credit facility agreement with Fairfax Financial Holdings Limited and certain of its subsidiaries ("Fairfax") and issued Fairfax 41,615,134 warrants. Refer to Note 18 for details. The facility term is up to GBP100m to replace Duke's existing GBP55m million term and revolving facilities. The credit facility has a five-year term, expiring in January 2028 with a bullet repayment on expiry and no amortisation payments during the five-year term. Furthermore, the interest rate is equal to SONIA plus 5.00% per annum, which represents a 225bps improvement on Duke's previous rate of SONIA plus 7.25%.

The Group has adopted Interest Rate Benchmark Reform - IBOR 'phase 2' (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and 16). Applying the practical expedient introduced by the amendments, when the benchmarks affecting the Group's loans are replaced, the adjustments to the contractual cash flows will be reflected as an adjustment to the effective interest rate. Therefore, the replacement of the loans' benchmark interest rate will not result in an immediate gain or loss recorded in profit or loss, which may have been required if the practical expedient was not available or adopted.

At 31 March 2023, GBP42,000,000 was undrawn on the facility (31 March 2022: GBP6,800,000).

At the date of extinguishment of the previous facility, capitalised loan issue fees of GBP350,000 were outstanding. These fees were immediately charged to the income statement. Further fees of GBP1,439,000 were capitalised against the new credit facility. At 31 March 2023, GBP1,391,000 (31 March 2022: GBP460,000) of unamortised fees remained outstanding.

The table below sets out an analysis of net debt and the movements in net debt for the year ended 31 March 2023 and prior year.

 
                                             Interest 
                                              Payable    Borrowings 
                                               GBP000        GBP000 
 
  At 1 April 2022                                 362       47,7340 
  Cash movements 
  Loan advanced                                     -        71,250 
  Loan repaid                                       -      (61,450) 
  Deferred finance costs paid                       -       (2,347) 
  Interest paid                               (3,976)             - 
  Non-cash movements 
  Deferred finance costs released to P&L 
   - old credit facility                            -         1,416 
  Deferred finance costs released to P&L 
   - new credit facility                            -            92 
  Issue of warrants                                 -       (2,771) 
  Interest charged                              4,055             - 
  At 31 March 2023                                441        53,930 
                                           ==========  ============ 
 
 
                                             Interest 
                                              Payable    Borrowings 
                                               GBP000        GBP000 
 
  At 1 April 2021                                 161        17,103 
  Cash movements 
  Loan advanced                                     -        38,200 
  Loan repaid                                       -       (7,500) 
  Deferred finance costs paid                       -         (181) 
  Interest paid                               (1,649)             - 
  Non-cash movements 
  Deferred finance costs released to P&L 
   - new credit facility                            -           118 
  Interest charged                              1,850             - 
  At 31 March 2022                                362        47,740 
                                           ==========  ============ 
 
   16.     Goodwill 
 
                                                    Goodwill 
                                                      GBP000 
 
  Opening and closing net book value at 1 April 
   2021, 31 March 2022 and 31 March 2023.                203 
                                                  ========== 
 
 

The goodwill has not been assessed for impairment on the basis of materiality.

   17.     Share capital 
 
                                 External    Treasury      Total 
                                   Shares      Shares     shares 
                                      No.         No.        No.     GBP000 
  Allotted, called up 
   and fully paid 
  At 1 April 2021                 247,052      10,855    257,907    120,870 
  Shares issued for cash 
   during the period              100,000           -    100,000     35,000 
  Share issuance costs                  -           -          -    (1,936) 
  PSA shares vested during 
   year                             1,457     (1,457)          -          - 
  Shares issued to Employee 
   Benefit Trust during 
   the period                           -         792        792          - 
  Shares issued to key 
   advisers as remuneration           105           -        105         40 
  At 31 March 2022                348,614      10,190    358,804    153,974 
                               ----------  ----------  ---------  --------- 
 
  Shares issued for cash 
   during the year                 57,143           -     57,143     20,000 
  Share issuance costs                  -           -          -    (1,115) 
  PSA shares vested during 
   year                             1,800     (1,800)          -          - 
  Shares issued to Employee 
   Benefit Trust during 
   the year                             -       1,382      1,382          - 
  Shares issued to directors 
   and key advisors as 
   remuneration                       205           -        205         80 
  At 31 March 2023                407,762       9,772    417,534    172,939 
                               ==========  ==========  =========  ========= 
 

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

   18.     Equity-settled share-based payments 

Warrant reserve

The following table shows the movements in the warrant reserve during the year:

 
                                  Warrants 
                             No. (000)    GBP000 
 
  At 1 April 2022                4,375       265 
  Issued during the year        41,615     2,771 
  Lapsed during the year       (2,000)         - 
                           -----------  -------- 
  At 31 March 2023              43,990     3,036 
                           ===========  ======== 
 

In January 2023, Duke issued 41,615,134 warrants to Fairfax. The warrants expire in January 2028 and have an exercise price of 45 pence. As per IFRS 2, the warrants have been valued using the Black Scholes model. A total expense of GBP2,771,000 has been capitalised and will be amortised over the life of the warrants. In the year to 31 March 2023, an expense of GBP92,000 (2022: GBPnil) was recognised through finance costs in relation to the warrants.

At 31 March 2023, 43,990,000 (31 March 2022: 4,375,000) warrants were outstanding and exercisable at a weighted average exercise price of 45 pence (31 March 2022: 46 pence). The weighted average remaining contractual life of the warrants outstanding was 4.56 years (31 March 2022: 1.00 years).

Share-based payment reserve

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

 
                       Share options      LTIP     Total 
                              GBP000    GBP000    GBP000 
 
  At 1 April 2021                136     1,412     1,548 
  LTIP awards                      -       930       930 
                     ---------------  --------  -------- 
  At 31 March 2022               136     2,342     2,478 
 
  LTIP awards                      -       969       969 
                     ---------------  --------  -------- 
  At 31 March 2023               136     3,311     3,447 
                     ===============  ========  ======== 
 

Share option scheme

The Group operates a share option scheme ("the Scheme"). The Scheme was established to incentivise Directors, staff and key advisers and consultants to deliver long-term value creation for shareholders.

Under the Scheme, the Board of the Company will award, at its sole discretion, options to subscribe for Ordinary Shares of the Company on terms and at exercise prices and with vesting and exercise periods to be determined at the time. However, the Board of the Company has agreed not to grant options such that the total number of unexercised options represents more than four per cent of the Company's Ordinary Shares in issue from time to time. Options vest immediately and lapse five years from the date of grant.

At 31 March 2023, 200,000 options (31 March 2022: 200,000) were outstanding and exercisable at a weighted average exercise price of 50 pence (31 March 2022: 50 pence). The weighted average remaining contractual life of the options outstanding at the year-end was 0.50 year (31 March 2022: 1.50 year).

 
                                          Share Options 
                                              No. (000) 
 
  At 1 April 2021 and 31 March 2022                 200 
 
  Lapsed during the year                              - 
                                        --------------- 
  At 31 March 2023                                  200 
                                        =============== 
 

Long Term Incentive Plan

Under the rules of the Long-Term Incentive Plan ("LTIP") the Remuneration Committee may grant Performance Share Awards ("PSAs") which vest after a period of three years and are subject to various performance conditions. The LTIP awards will be subject to a performance condition based 50 per cent on total shareholder return ("TSR") and 50 per cent on total cash available for distribution ("TCAD per share"). TSR can be defined as the returns generated by shareholders based on the combined value of the dividends paid out by the Company and the share price performance over the period in question. Upon vesting the awards are issued fully paid.

The fair value of the LTIP awards consists of (a) the fair value of the TSR portion; and (b) the fair value of the TCAD per share portion. Since no consideration is paid for the awards, the fair value of the awards is based on the share price at the date of grant, as adjusted for the probability of the likely vesting of the performance conditions. Since the performance condition in respect of the TSR portion is a market condition, the probability of vesting is not revisited following the date of grant. The probability of vesting of the TCAD per share portion, containing a non-market condition, is reassessed at each reporting date. The resulting fair values are recorded on a straight-line basis over the vesting period of the awards.

On 31 October 2019, 2,525,000 PSAs were granted to Directors and key personnel with a fair value of GBP842,280. An expense of GBP185,927 was recognised in Administration and Personnel costs in the Consolidated Statement of Comprehensive Income.

On 1 October 2020, 6,665,000 PSAs were granted to Directors and key personnel with a fair value of GBP1,093,478. An expense of GBP364,493 was recognised in Administration and Personnel costs in the Consolidated Statement of Comprehensive Income.

On 3 January 2021, 1,000,000 PSAs were granted to Directors and key personnel with a fair value of GBP164,063. An expense of GBP54,688 was recognised in Administration and Personnel costs in the Consolidated Statement of Comprehensive Income.

On 1 October 2021, 2,108,000 PSAs were granted to Directors and key personnel with a fair value of GBP671,926. An expense of GBP223,771 was recognised in Administration and Personnel costs in the Consolidated Statement of Comprehensive Income.

On 1 October 2022, 3,954,700 PSA's were granted to Directors and key personnel with a fair value of GBP840,376. An expense of GBP139,935 was recognised in Administration and Personnel costs in the Consolidated Statement of Comprehensive Income.

At 31 March 2023, 13,727,700 (31 March 2022:12,298,000) PSAs were outstanding. The weighted average remaining vesting period of these awards outstanding was 1.2 years (2022 - 1.5 years).

Other share-based payments

During the year ended 31 March 2023, the Company issued 205,128 (2022: 104,576) shares to members of the Investment Committee in recognition of the significant contribution made during the previous financial year and for voluntarily forgoing service fees. The fair value of the shares was determined to be GBP80,000 being the share price at the date of the awards. The expense was recognised in full in the Consolidated Statement of Comprehensive Income during that year.

   19.     Distributable reserves 

Pursuant to the Companies (Guernsey) Law, 2008 (as amended), all reserves (including share capital) can be designated as distributable. However, in accordance with the Admission Document, the Company shall not make any distribution of capital profits or capital reserves except by means of capitalisation issues in the form of fully paid Ordinary Shares or issue securities by way of capitalisation of profits or reserves except fully paid Ordinary Shares issued to the holders of its Ordinary Shares.

   20.     Dividends 

The following interim dividends have been recorded in the periods to 31 March 2022 and 31 March 2023:

 
                                                 Dividend    Dividends 
                                                      per 
                                                    share      payable 
                                              pence/share       GBP000 
  Record date                Payment date 
  26 March 2021           12 April 2021             0. 55        1,359 
  25 June 2021            12 July 2021              0. 55        1,909 
                          12 October 
  24 September 2021        2021                     0. 55        1,909 
                          12 January 
  24 December 2021         2022                     0. 60        2,093 
                                                           ----------- 
  Dividends paid for the period ended 
   31 March 2022                                                 7,270 
                                                           =========== 
 
                             Payment date 
  25 March 2022           12 April 2022             0. 70        2,440 
  1 July 2022             12 July 2022              0. 70        2,842 
                          12 October 
  30 September 2022        2022                     0. 70        2,842 
                          12 January 
  23 December 2022         2023                     0. 70        2,855 
  Dividends paid for the period ended 
   31 March 2023                                                10,979 
                                                           =========== 
 

A further quarterly dividend was paid post year end, refer to Note 25 for details.

Rights to dividends have been waived in respect of shares held by the Group's Employee Benefit Trust (see note 17).

   21.     Deferred tax 

The temporary differences for deferred tax are attributable to:

 
                             Royalty         Equity 
                          investment     investment    Tax losses      Total 
                           GBP000s        GBP000s       GBP000s      GBP000s 
 
  1 April 2021                   158              -             -        158 
  Credited to profit 
   & loss                        (2)              -             -        (2) 
                       -------------  -------------  ------------  --------- 
  At 31 March 2022               156              -             -        156 
 
  Charged to profit 
   & loss                         44              -             -         44 
                       -------------  ------------- 
  At 31 March 2023           200                  -             -        200 
                       =============  =============  ============  ========= 
 

A deferred tax asset has been recognised as it is expected that future available taxable profits will be available against which the Group can use against the current year tax losses.

   22.     Related parties 

Directors' fees

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

 
                                    Share                                     Share 
                        Basic       based    Annual               Basic       based    Annual 
                         fees     payment     bonus     Total      fees     payment     bonus     Total 
                         2023        2023      2023      2023      2022        2022      2022      2022 
                       GBP000      GBP000    GBP000    GBP000    GBP000      GBP000    GBP000    GBP000 
  Non-Executive 
  N Birrell                40           -         -        40        38           -         -        38 
  M Wilms                30             -         -        30         4           -         -         4 
  M Wrigley                30           -         -        30        29           -         -        29 
  Executive 
  N Johnson               240         248       240       728       233         269       108       610 
  C Cannon Brookes        216         216       216       648       210         216       108       534 
                     --------  ----------  --------  --------  --------  ----------  --------  -------- 
                          556         464       456     1,476       514         485       216     1,215 
                     ========  ==========  ========  ========  ========  ==========  ========  ======== 
 

Fees relating to Charles Cannon Brookes are paid to Arlington Group Asset Management Limited.

Directors' fees include the following expenses relating to awards granted under the Group's Long Term Incentive Plan (see note 18):

 
                         2023      2022 
                       GBP000    GBP000 
 
  N Johnson               248       269 
  C Cannon Brookes        216       216 
                          464       485 
                     ========  ======== 
 

At 31 March 2023, no Directors' fees were outstanding (2022: no fees outstanding).

Investment Committee fees

The Group's Investment Committee assists in analysing and recommending potential royalty transactions and its members are considered to be key management along with the Directors.

The following fees were payable to the members of the Investment Committee during the year:

 
                    2023      2022 
                  GBP000    GBP000 
 
  A Carragher         20        20 
  J Romeo             20        20 
  J Cochrane          20        20 
  J Webster          113       109 
                     173       169 
                ========  ======== 
 

Investment Committee fees include the following expenses relating to shares issued as remuneration (see note 18):

 
                     2023       2022 
                   GBP000     GBP000 
 
  A Carragher            -        20 
  J Romeo                -        20 
  J Cochrane             -        20 
  J Webster              -        20 
          -                       80 
 ==========                 ======== 
 

Investment Committee fees include the following expenses relating to awards granted under the Group's Long Term Incentive Plan (see note 18):

 
                  2023      2022 
                GBP000    GBP000 
 
  J Webster         37        62 
              ========  ======== 
 

Support services administration fees

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

 
                                                 2023      2022 
                                               GBP000    GBP000 
 
  Abingdon Capital Corporation                    425       363 
  Arlington Group Asset Management Limited         93        85 
                                                  518       448 
                                             ========  ======== 
 

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

Share options and LTIP awards

The Group's related parties, either directly or beneficially, held share options issued under the Group's share option scheme and Long-Term Incentive Plan as follows:

 
                       Share options      LTIP awards 
                        2023     2022     2023     2022 
                         No.      No.      No.      No. 
 
  Neil Johnson             -        -    3,382    2,821 
  Charles Cannon 
   Brookes                 -        -    3,144    2,474 
  Nigel Birrell            -        -        -        - 
  Justin Cochrane          -        -        -        - 
  Jim Webster              -        -      375      590 
                    ========  =======  =======  ======= 
 

Dividends

The following dividends were paid to related parties:

 
                            2023      2022 
                          GBP000    GBP000 
 
  N Johnson(1)               142        97 
  C Cannon Brookes(2)        212       141 
  N Birrell                   35        23 
  M Wrigley                    1         1 
  J Webster                    9         2 
  J Cochrane                  28        21 
  A Carragher                 15        11 
  J Romeo                      4         3 
                        ========  ======== 
 

(1) Includes dividends paid to Abinvest Corporation, a wholly owned subsidiary of Abingdon

(2) Includes dividends paid to Arlington Group Asset Management

   23.     Fair value measurements 

Fair value hierarchy

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

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

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

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

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

 
                                     31-Mar-    31-Mar- 
                                          23         22 
                                     Level 3    Level 3 
                                      GBP000     GBP000 
  Financial assets 
  Financial assets at FVTPL 
  - Royalty investments              191,333    160,479 
  - Equity investments                13,529     10,820 
                                   ---------  --------- 
                                     204,862    171,299 
                                   =========  ========= 
  Financial liabilities 
  Financial liabilities at FVTPL 
  - Royalty debt liabilities           1,142      1,111 
                                   ---------  --------- 
                                       1,142      1,111 
                                   =========  ========= 
 

The following table presents the changes in level 3 items for the years ended 31 March 2023 and 31 March 2022:

 
                                        Financial      Financial 
                                           assets    liabilities       Total 
                                           GBP000         GBP000      GBP000 
 
  At 1 April 2021                          88,796        (1,031)      87,765 
  Additions                                75,116              -      75,116 
  Repayments                              (5,822)              -     (5,822) 
  Royalty income received                (18,037)              -    (18,037) 
  Royalty participation liabilities 
   paid                                         -            115         115 
  Net change in fair value                 31,246          (195)      31,051 
                                      -----------  -------------  ---------- 
  At 31 March 2022                        171,299        (1,111)     170,188 
 
  Additions                                24,309              -      24,309 
  Royalty income received                (28,266)              -    (28,266) 
  Royalty participation liabilities 
   paid                                         -            112         112 
  Net change in fair value                 37,520          (143)      37,377 
                                      -----------  -------------  ---------- 
  At 31 March 2023                        204,862        (1,142)     203,720 
                                      ===========  =============  ========== 
 

Valuation techniques used to determine fair values

The fair value of the Group's royalty financial instruments is determined using discounted cash flow analysis and all the resulting fair value estimates are included in level 3. The fair value of the equity instruments is determined applying an EBITDA multiple to the underlying businesses forward looking EBITDA. All resulting fair value estimates are included in level 3.

Valuation processes

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

Annual adjustment factors for royalty investments and royalty participation liabilities

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

Discount rates for financial assets and liabilities

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

EBITDA multiples

These multiples are based on comparable market transactions

Forward looking EBITDA

These are estimated based on the projected underlying performance of the royalty investee companies together.

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

Valuation inputs and relationships to fair value

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

Royalty investments

The unobservable inputs are the annual adjustment factor and the discount rate. The range of annual adjustment factors used is -6.0% to 6.0% (2022: 1.9%% to 6.0%) and the range of risk-adjusted discount rates is 14.7% to 17.70% (2022: 14.8% to 17.35%).

An increase in the annual revenue growth rates (subject to the collars set under the terms of the royalty financing agreements) of 5% would increase the fair val ue by GBP929,000 (2 022: GBP891,000).

A reduction in the discount rate of 25 basis points would increase the fair value by GBP2,289,000 (2022: GBP2,302,000).

A decrease in the annual revenue growth rates (subject to the collars set under the terms of the royalty financing agreements) of 5% would decrease the fair value by GBP1,263,000 (2022: GBP1,296,000).

An increase in the discount rate of 25 basis points would decrease the fair v alue by GBP2,230,000 (2022: GBP2,232,000).

Equity investments

The unobservable inputs are the EBITDA multiples and forward looking EBITDA. The range of EBITDA multiples used is 5.3x to 10.0x (5.0x to 7.8x).

An increase in the EBITDA multiple of 25 basis points would increase fair value by GBP1,378,000 (2022: GBP1,560,000)

A decrease in the EBITDA multiple of 25 basis points would decrease fair value by GBP1,378,000 (2022: GBP1,560,000)

An increase in the forward looking EBITDA of 5% would increase the fair value by GBP1,575,000 (2022: GBP1,695,000)

A decrease in the forward looking EBITDA of 5% would decrease fair value by GBP1,575,000 (2022: GBP1,695,000)

Royalty participation instruments

The unobservable inputs are the annual adjustment factor and the discount rate used in the fair value calculation of the royalty investments. The range of annual adjustment factors used is -0.37% to 6.0% (2022: 1.9% to 6.0%) and the range of risk-adjusted discount rates is 16.3% to 17.3% (2022: 16.3% to 17.3%).

An increase in the annual adjustment factor (subject to the collars set under the terms of the royalty financing agreements) of 5% would increase the fair value of the liability by GBP5,000 (2022: GBP6,000).

A reduction in the discount rate of 25 basis points would increase the fair value of the liability by GBP9,000 (2022: GBP14,000).

A decrease in the annual adjustment factor (subject to the collars set under the terms of the royalty financing agreements) of 5% would decrease the fair value of the liability by GBP9,000 (2022: GBP10,000).

An increase in the discount rate of 25 basis points would decrease the fair value of the liability by GBP14,000 (2022: GBP13,000).

   24.     Financial risk management 

The Group's royalty financing activities expose it to various types of risk that are associated with the investee companies to which it provides royalty finance. The most important types of financial risk to which the Group is exposed are market risk, liquidity risk and credit risk. Market risk includes price risk, foreign currency risk and interest rate risk. The Board of Directors has overall responsibility for risk management and the policies adopted to minimise potential adverse effects on the Group's financial performance.

Principal financial instruments

The principal financial instruments used by the Group from which financial instrument risk arises, are as follows:

 
                                               31-Mar-23    31-Mar-22 
                                                  GBP000       GBP000 
 
  Financial assets held at FVTPL 
  Royalty investments                            191,333      160,479 
  Equity investments                              13,529       10,820 
                                             -----------  ----------- 
  Total financial assets held at FVTPL           204,862      171,299 
 
  Financial assets held at amortised cost 
  Loan investments                                 4,652        4,172 
  Cash and cash equivalents                        8,939        5,707 
  Trade and other receivables                      2,290        2,194 
                                             -----------  ----------- 
  Total financial assets held at amortised 
   cost                                           15,881       12,073 
 
  Total financial assets                         220,743      183,372 
                                             ===========  =========== 
 
  Financial liabilities held at amortised 
   cost 
  Bank borrowings                               (54,371)     (48,102) 
  Trade and other payables                       (1,747)      (1,490) 
                                             -----------  ----------- 
  Total financial liabilities held at 
   amortised cost                               (56,118)     (49,592) 
 
  Financial liabilities held at FVTPL            (1,142)      (1,111) 
 
  Total financial liabilities                   (57,260)     (50,703) 
                                             ===========  =========== 
 

The policies and processes for measuring and mitigating each of the main risks are described below.

Market risk

Market risk comprises foreign exchange risk, interest rate risk and other price risk.

Foreign exchange risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency exchange rates. The functional and presentation currency of the Group is Sterling.

The Group is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the Euro. Foreign exchange risk arises from future commercial transactions in recognised assets and liabilities denominated in a currency that is not the functional currency of the Company and its subsidiary.

The Board monitors foreign exchange risk on a regular basis. The Group's exposure to this risk is outlined below.

The Group's exposure to foreign currency risk at the end of the reporting period was as follows:

 
                            31-Mar-23    31-Mar-23     31-Mar-23    31-Mar-22    31-Mar-22     31-Mar-22 
                                 Euro    US Dollar    CAD Dollar         Euro    US Dollar    CAD Dollar 
                               GBP000       GBP000        GBP000       GBP000       GBP000        GBP000 
 
  Royalty investment            9,779       27,330        11,304       14,118       16,061        11,380 
  Equity investments            6,760            -         1,377        3,814            -           461 
  Loans receivable                  -            -             -            -            -             - 
  Cash and cash 
   equivalents                      -           81            54          189          247            81 
  Trade and 
   other receivables            2,231            -             -        2,141            -             - 
  Royalty participation             -            -             -            -            -             - 
   liability 
  Transaction 
   costs payable                    -      (1,629)             -            -      (1,300)             - 
                          -----------  -----------  ------------  -----------  -----------  ------------ 
                               18,770       25,782        12,735       20,262       15,008        11,922 
                          ===========  ===========  ============  ===========  ===========  ============ 
 

If Sterling strengthens by 10% against the Euro, the net Euro-denominated assets would reduce by GBP844,000 (2022: GBP965,000). Conversely, if Sterling weakens by 5% the assets would increase by GBP932,000 (2022: GBP1,066,000).

If Sterling strengthens by 5% against the US Dollar, the net US Dollar-denominated assets would reduce by GBP1,228,000 (2022: GBP715,000). Conversely, if Sterling weakens by 5% the assets would increase by GBP1,357,000 (2022: GBP790,000).

If Sterling strengthens by 5% against the Canadian Dollar, the net Canadian Dollar-denominated assets would reduce by GBP606,000 (2022: GBP568,000). Conversely, if Sterling weakens by 5% the assets would increase by GBP670,000 (2022: GBP627,000).

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial asset will fluctuate because of changes in market interest rates.

The Group's main interest rate risks arise in relation to its royalty investments, which are carried at fair value through profit or loss, and its borrowings, which are subject to an interest charge of one-month UK SONIA +5.00%. The Group's royalty investments have a fair value at the reporting date of GBP191,333,000 (31 March 2022: GBP160,479,000). A sensitivity analysis in respect of these assets is presented in note 23.

The Group's borrowings at the reporting date are GBP53,930,000, see Note 15 (31 March 2022: GBP47,740,000). A movement in the rate of SONIA of 100bps impacts loan interest payable by GBP539,000 (31 March 2022: GBP477,000).

Other price risk

Other price risk is the risk that the fair value of future cash flows of a financial asset will fluctuate because of changes in market prices (other than those arising from interest rate risk or foreign exchange risk).

The fair value of the Group's royalty investments fluctuates due to changes in the expected annual adjustment factors applied to the royalties payable by each of the investee companies, which are based upon the revenue growth of the investee company.

A sensitivity analysis in respect of the annual adjustment factors applied to the royalty investments is presented in note 23.

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

The Group's maximum exposure to credit risk is as follows:

 
                                  31-Mar-23    31-Mar-22 
                                     GBP000       GBP000 
 
  Royalty investments               191,333      160,479 
  Loan investments                    4,652        4,172 
  Cash and cash equivalents           8,939        5,707 
  Trade and other receivables         2,290        2,194 
                                    207,214      172,552 
                                ===========  =========== 
 

Royalty investments

The royalty investments relate to the Group's 15 royalty financing agreements. At the reporting date, there was GBP4,423,000 of royalty cash payments outstanding (31 March 2022: GBP2,439,000) from three royalty partners (31 March 2022: 2). Of this, GBPnil (31 March 2022: GBPnil) was received in the month post year-end. Payment plans have been agreed to recover the GBP4,423,000 from all three royalty partners over the next five years.

The Group monitors the credit worthiness of the investee companies on an ongoing basis and receives regular financial reports from each investee company. These reports are reviewed by the Board on a semi-annual basis. The credit risk relating to these investments is taken into account in calculating the fair value of the instruments.

The Group also has security in respect of the royalty investments which can be called upon if the counterparty is in default under the terms of the agreement.

Loan investments

The Group's loan investments are held at amortised cost. All loans have been reviewed by the directors. The Board considered the credit risk, both at issue and at the year-end, and has determined that there have been no significant movements. Consequently, any loss allowance is limited to 12 months' expected losses and such allowances are considered to be immaterial.

Cash and cash equivalents

The credit quality of the Group's cash and cash equivalents can be assessed by reference to external credit ratings as follows:

 
                             31-Mar-23    31-Mar-22 
                                GBP000       GBP000 
  Moody's credit rating: 
  A1                             6,681        3,657 
  Baa1                           2,220        2,018 
  Baa2                              38            - 
  B+                                 -           32 
                                 8,939        5,707 
                           ===========  =========== 
 

The Group considers that the credit risk relating to cash and cash equivalents is acceptable.

Liquidity risk

Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments.

The Group maintains sufficient cash to pay accounts payable and accrued expenses as they fall due. The Group's overall liquidity risks are monitored on a quarterly basis by the Board.

At the year end the Group had access to an undrawn borrowing facility of GBP42,000,000 (2022: GBP6,800,000 (see note 15).

The table below analyses the Group's royalty investments and financial liabilities into relevant maturity groupings based on their undiscounted contractual maturities.

 
                                  Less than       1 - 5    Over five 
                                   one year       years        years       Total 
  As at 31 March 2023                GBP000      GBP000       GBP000      GBP000 
 
  Royalty finance investments        25,967     149,279      747,951     923,197 
  Royalty finance liabilities           121         571        3,540       4,232 
  Trade and other payables            (433)       (882)        (431)     (1,746) 
  Borrowings                          (441)    (53,930)            -    (54,371) 
                                -----------  ----------  -----------  ---------- 
                                     25,214      95,038      751,060     871,312 
                                ===========  ==========  ===========  ========== 
 
 
                                  Less than                   Over five 
                                   one year    1 - 5 years        years       Total 
  As at 31 March 2022                GBP000         GBP000       GBP000      GBP000 
 
  Royalty finance investments        20,550         93,694      656,584     770,828 
  Royalty finance liabilities           116            615        3,457       4,188 
  Trade and other payables            (443)        (1,011)        (918)     (2,372) 
  Borrowings                        (3,864)       (58,455)            -    (62,319) 
                                -----------  -------------  -----------  ---------- 
                                     16,359         34,843      659,123     710,325 
                                ===========  =============  ===========  ========== 
 

Capital management

The Board manages the Company's capital with the objective of being able to continue as a going concern while maximising the return to Shareholders through the capital appreciation of its investments. The capital structure of the Company consists of equity as disclosed in the Consolidated Statement of Financial Position

   25.     Events after the financial reporting date 

Dividends

On 12 April 2023 the Company paid a quarterly dividend of 0.70 pence per share.

Exits

On 24 May 2023, Duke announced that it had exited its investments in Instor Solutions, Inc ("Instor"). The total cash return was GBP8.7 million.

New royalty investments

On 23 June 2023, the Group announced a GBP1,800,000 follow-on investment into Tristone.

On 30 June 2023, the Group announced a GBP1,900,000 follow-on investment into New Path Fire & Security.

 
  Directors                       Nigel Birrell (Chairman) 
                                  Neil Johnson 
                                  Charles Cannon Brookes 
                                  Matthew Wrigley 
                                  Maree Wilms 
 
  Secretary and administrator     IQ EQ Fund Services         Trident Trust Company 
                                   (Guernsey) Limited)         (Guernsey) Limited 
                                   (from 1 June 2023)          (until 31 May 2023) 
                                  Ground Floor, Cambridge     Trafalgar Court 
                                   House                       4th Floor, West Wing 
                                   Le Truchot                  St Peter Port 
                                   St Peter Port               Guernsey, GY1 2JA 
                                   Guernsey GY1 1WD 
  Registered in Guernsey, 
   number                         54697 
 
  Website address                 www.dukeroyalty.com 
 
                                  Ground Floor, Cambridge 
  Registered office                House 
                                  Le Truchot, St Peter 
                                   Port 
                                  Guernsey, GY1 1WD 
 
  Independent auditor             BDO Limited 
                                  Place du Pre, Rue de 
                                   Pre 
                                  St Peter Port 
                                  Guernsey, GY1 3LL 
 
                                                              Canaccord Genuity 
  Co-brokers                      Cenkos Securities plc        Limited 
                                  6-8 Tokenhouse Yard         88 Wood Street 
                                  London, EC2R 7AS            London, EC2V 7QR 
 
  Nominated advisor               Cenkos Securities plc 
                                  6-8 Tokenhouse Yard 
                                  London, EC2R 7AS 
 
  Support service providers       Arlington Group Asset 
                                   Management Ltd             Abingdon Capital Corporation 
                                                              4 King Street W., 
                                  47/48 Piccadilly             Suite 401 
                                  London, W1J 0DT             Toronto, Ontario 
                                                              Canada, M5H 1B6 
 
  Registrar and CREST agent       Computershare Investor 
                                   Services 
                                   (Guernsey) Limited 
                                  3(rd) Floor, Natwest 
                                   House 
                                  Le Truchot, St Peter 
                                   Port 
                                  Guernsey, GY1 2JP 
 
  Advocates to the Company 
   as to                          Appleby (Guernsey) LLP 
  Guernsey law                    Hirzel Court 
                                  Hirzel Street 
                                  St Peter Port 
                                  Guernsey, GY1 3BN 
 
  Investment Committee            Jim Webster (Chairman)      Andrew Carragher 
                                  Neil Johnson                Justin Cochrane 
                                  Charles Cannon Brookes      John Romeo 
 

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