Source - RNS
RNS Number : 9012V
Duke Royalty Limited
06 December 2019
 

6 December 2019

Duke Royalty Limited

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

Interim Results for the six months ended 30 September 2019

 

Duke Royalty Limited (AIM: DUKE), a provider of alternative capital solutions to a diversified range of profitable and long-established businesses in Europe and abroad, is pleased to announce its interim results for the six months ended 30 September 2019 ("H1 2019").

Highlights

·      Revenue of £5.9 million (H1 2018: £2.7 million) an increase of 119%

·      Positive net cash inflow from operations rose 195% to £3.9 million (H1 2018: £1.3 million)

·      Net profit before tax of £3.7 million (H1 2018: £1.1 million)

·    Two follow-up investments into Welltel Ireland Limited and Step Investments Limited completed, totalling £1.65 million

·      Extension of three senior loan agreements with existing royalty partners, increasing future cashflows

·   Entered into a new £30 million revolving facility agreement with existing debt provider, Honeycomb Investment Trust PLC, on improved terms, providing greater financial flexibility

·     Strengthened operational team to reflect the scale achieved during the period

·    Post period end, raised £17.45 million via a Placing, an Open Offer and a Retail Offer to build the Company's royalty portfolio and to pay down the inherited credit facility

Dividend Declaration

The Company is pleased to report that during the interim period, Duke paid quarterly dividends of 0.7p per share to shareholders on 17 April 2019 and 0.7p per share paid on 12 July 2019. Additionally, for the September 2019 quarterly dividend, the Board announced the Company's third increase to 0.75p per share. This increase was in line with its strategy to maintain a high and stable dividend.

Neil Johnson, CEO of Duke Royalty, said, "I am delighted to report that H1 2019's activities have materially increased our revenue, profitability and cashflow. Having entered the second half of the year with a strong pipeline of new royalty opportunities and greater financial flexibility, thanks to our new credit facility and our recent successful equity raise, we are confident that we can continue the rapid growth achieved to date. Importantly, we increased our dividend for the third time since inception, in line with our strategy, due to the follow-on investments made in existing royalty partners. We look forward to supporting our existing royalty partners further and making additional investments during the period to build on the rapid growth achieved to date."

 

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

 

Duke Royalty Limited

Neil Johnson / Charlie Cannon Brookes 

+44 (0) 1481 741 240

Cenkos Securities plc 

(Nominated Adviser and Broker)

Julian Morse / Michael Johnson / Stephen Keys / Callum Davidson

+44 (0) 207 397 8900

Newgate Communications

(PR)

Elisabeth Cowell/ Ian Silvera/ Megan Kovach

+44 (0) 20 3757 6882

 

Chairman's Statement

 

 

Duke Royalty's ("Duke") strategy is to provide its shareholders with exposure to capital growth and income by becoming the preferred and leading provider of royalty finance for companies in Europe and abroad.

Our sector focus currently covers:

 

·           Hospitality and Leisure;

·           Industrials;

·           Technology and Media;

·           Healthcare; and

·           Business Services.

 

Duke is the only UK-quoted diversified royalty company, meaning that it benefits from a first-mover advantage to secure compelling investment opportunities in the royalty financing sector in the UK and Europe.

 

Royalty finance, which provides capital and receives returns based on revenue performance of its investee companies over a long term, represents a £50 billion sector in North America. Due to the banks' historic unwillingness to lend to SMEs, the funding gap in Europe and abroad means that we represent an attractive financing solution for private growth businesses that want to retain control of their businesses without any refinancing risk. In turn, our business model provides investors with exposure to ambitious private companies with excellent track records of delivering growth. 

 

One of the key selling points and differentiating factors about Duke's business model is that its investee companies (royalty partners) are able to service the obligations arising from the royalty contract entirely out of expected cash flows. This is different than other forms of debt which typically expect the company to repay the entire principal within five years, sometimes with amortisation periods starting within two years. In times of short term uncertainty, repayment of principal which cannot be managed through operational cash flow, presents risk to the business owner and makes Duke Royalty's long term capital solution a more attractive option for businesses.

 

Our business development team has continued to broaden awareness of the benefits of royalty finance across the corporate and corporate advisory community, building on the success we have experienced so far.

 

Operational Review

 

I am pleased to report the results for the Group for the six-month period ended 30 September 2019 ("Interim 2020"). Interim 2020 was a period of ongoing rapid development for the Company with revenue, profitability and cashflow all increasing materially year on year, as well as further deployment of capital into its royalty portfolio. The Group also strengthened its operational team.

 

Careful cost management during growth phase

 

The Company's operating cost base is carefully managed to ensure that each deal entered into by Duke is immediately accretive. While cash operating expenses increased from £0.57 million to £1.1 million period-on-period, this reflects the decision by management to scale-up its operating team to effectively manage its deal origination, execution and monitoring requirements. Operating expenses will continue to be kept under tight control.

 

Improvements to operational team

 

I am delighted to report that the operating team has been further strengthened during the period by the appointment of Hugo Evans as Duke's new Finance Director. Hugo brings with him a wealth of expertise having previously acted as a Group Finance Director to a Guernsey domiciled, AIM listed investment management company. His relevant financial experience will be extremely useful in helping Duke prudently navigate its way through this next phase of growth.

 

I am pleased to say that post Hugo's appointment, the existing operating team and central cost base has now reached a sustainable level for the foreseeable future. Going forward, the Group's profitability is now expected to benefit from this operational leverage as additional income is generated from its royalty partners.

 

Extensions to investments

 

During Interim 2020, the Group made extensions to three senior loan agreements with existing royalty partners, thereby increasing the amount of cash that Duke can expect to receive back from these investments over their life.

 

These agreements were made with existing partners Welltel (Ireland) Limited ("Welltel"), a telecommunications services company, media company Step Investments Limited ("Step Investments", formerly "the Pearl & Dean Group"), and Xtremepush Limited, a technology solutions company. Each of these partners were acquired via the Capital Step acquisition in February 2019.

 

Follow on investments

 

During the period, Duke also completed two small follow-on investments into both Welltel and Step Investments, totalling £1.65 million, further demonstrating the confidence that Duke has in the recently acquired Capital Step portfolio.

 

Financial Review

 

I am pleased to report that total income for the period under review was £5.9 million, which is an increase of 119% year on year. Moreover, total comprehensive income for the period increased by 246% year on year to £3.3 million, as did net cash inflow from operating activities which rose 195% year on year to £3.9 million.

 

As referenced in previous Chairman's reports, I have encouraged shareholders to focus on the "net cash inflow from operating activities" number as this provides a true reflection of the Company's operating performance, highlighting what cash has been generated from the Company's royalty and loan book minus all cash operating costs incurred to manage the Group. I also refer you to the adjusted earnings figure in Note 4, which provides shareholders with a more detailed breakdown of operating performance. Given the increasing amount of capital that has been deployed by Duke coupled with the positive adjustment factors being generated by the existing portfolio alongside a now largely fixed operating cost base, I am pleased to report that I expect this metric to continue its increase in future periods.

 

In September 2019, Duke announced that it had entered into a new £30 million revolving facility agreement with its existing debt provider, Honeycomb Investment Trust PLC (the "New Credit Facility"), on improved terms. The New Credit Facility has a five-year term expiring in September 2024 with straight line amortization beginning in year four. It also has an interest rate equal to one-month LIBOR plus 7.25% per annum, which represents an improvement of 225bps on the previous rate of 9.5%.

 

Importantly, the New Credit Facility has an accordion facility which, subject to various loan to value and NAV thresholds, could allow for it to increase to a total of £50 million.

 

Duke now has significant balance sheet flexibility given that it can draw on this credit line before going to the equity markets to raise additional capital. This thereby avoids the potentially damaging impact of "cash drag" for shareholders, which is always an area of focus for Duke management given the Company's ongoing high dividend yield.

 

Dividend

 

During the interim period, Duke paid quarterly dividends to shareholders of 0.7p per share on 17 April 2019 and 0.7p per share on 12 July 2019. Additionally, for the September 2019 quarterly dividend, the Board announced the Company's third increase to 0.75p per share.

 

This increase was in line with our strategy to maintain a high and stable dividend.

 

Outlook

 

Looking towards 2020, I am confident that the Company's momentum will continue as it seeks to further expand and balance its portfolio. Finally, it is pleasing to report that progress has continued post the period end, with a significant equity issue of £17.45 million which closed in October 2019 and a further capital deployment into Lynx Equity in November. With the aforementioned New Credit Facility, the Company now has the capital to deploy into new and existing royalty partners which the management team is focused on delivering for the rest of FY2020.

 

Although we continually assess the geopolitical uncertainties facing the UK and European business community, the Company is well-positioned to cope with challenging macroeconomic events due to the consistently low operating costs and tight controls which are central to our business model. As such, the future remains bright for the Company and I am looking forward to the additional positive news flow expected for the remainder of FY2020.

 

We are pleased to report another strong period of growth and progress by the Company. I am grateful for the ongoing support of our shareholders, royalty partners and network of corporate partners and advisers and we look forward to reporting on the Group's ongoing progress in future periods.

 

     

Nigel Birrell

Chairman

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

FOR THE PERIOD ENDED 30 SEPTEMBER 2019

 

Income

 

 

 

 

 

 

Net change in fair value of financial assets and financial liabilities through profit and loss

7,15,18

5,089

 

5,676

 

2,483

Loan interest receivable

9

672

 

255

 

-

Other income

 

6

 

209

 

216

Foreign exchange movements

 

136

 

-

 

-

Total income

 

5,903

 

6,140

 

2,699

 

 

 

 

 

 

 

Investment Expenses

 

 

 

 

 

 

Transaction costs

 

(208)

 

(1,508)

 

(436)

Royalty participation fees

15,18

-

 

(432)

 

(432)

Net foreign currency losses

 

-

 

(42)

 

(2)

 

 

(208)

 

(1,982)

 

(870)

Operating Expenses

 

 

 

 

 

 

Administration and personnel

17

(801)

 

(1,133)

 

(279)

Legal and professional

 

(315)

 

(509)

 

(234)

Other operating expenses

 

(139)

 

(203)

 

(92)

 

 

(1,255)

 

(1,845)

 

(605)

 

 

 

 

 

 

 

Operating profit

 

4,440

 

2,313

 

1,224

 

 

 

 

 

 

 

Interest payable

16

(611)

 

(397)

 

(79)

Other finance costs

 

(140)

 

-

 

(93)

Profit for the period before tax

 

3,689

 

1,916

 

1,052

 

 

 

 

 

 

 

Taxation expense

3

(406)

 

(119)

 

(102)

 

 

 

 

 

 

 

Total comprehensive income for the period

 

3,283

 

1,797

 

950

 

 

 

 

 

 

 

Basic earnings per share (pence)

 

1.66

 

1.10

 

0.73

Diluted earnings per share (pence)

 

1.65

 

1.10

 

0.73

 

 

All income is attributable to the holders of the Ordinary Shares of the Company.

 

The notes on pages 12 to 24 form an integral part of these Condensed Consolidated Financial Statements.

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

AS AT 30 SEPTEMBER 2019

 

 

Note

30-Sep-19

 

31-Mar-19

 

30-Sep-18

 

 

£000

 

£000

 

£000

Non-current assets

 

 

 

 

 

 

Goodwill

6

203

 

203

 

-

Financial assets at fair value through profit or loss

7

63,163

 

63,167

 

39,174

Loans receivable

8

9,052

 

8,993

 

-

Deferred tax asset

9

-

 

-

 

107

 

 

72,418

 

72,363

 

39,281

Current assets

 

 

 

 

 

 

Financial assets at fair value through profit or loss

7

9,106

 

8,065

 

5,609

Loans receivable

9

2,065

 

632

 

-

Trade and other receivables

10

260

 

178

 

712

Cash and cash equivalents

 

3,998

 

5,894

 

30,066

 

 

15,429

 

14,769

 

36,387

Current liabilities

 

 

 

 

 

 

Trade and other payables

11

250

 

714

 

469

Current tax liability

 

538

 

248

 

209

Financial liabilities at fair value through profit or loss

12

212

 

173

 

187

Borrowings

13

257

 

326

 

-

 

 

1,257

 

1,461

 

865

Non-current liabilities

 

 

 

 

 

 

Trade and other payables

11

480

 

440

 

-

Financial liabilities at fair value through profit or loss

12

1,172

 

1,193

 

1,214

Borrowings

13

11,470

 

11,365

 

-

Deferred tax liability

9

680

 

565

 

-

 

 

13,802

 

13,563

 

1,214

 

 

 

 

 

 

 

Net Assets

 

72,788

 

72,108

 

73,587

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Shares issued

14

102,044

 

102,044

 

101,918

Share based payment reserve

15

491

 

333

 

169

Warrant reserve

15

265

 

265

 

125

Retained losses

16

(30,012)

 

(30,534)

 

(28,623)

Total Equity

 

72,788

 

72,108

 

73,589

 

The notes on pages 12 to 24 form an integral part of these Condensed Consolidated Financial Statements.

 

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

FOR THE PERIOD ENDED 30 SEPTEMBER 2019

 

 

Period to

 

Year to

 

Period to

 

 

30-Sep-19

 

31-Mar-19

 

30-Sep-18

 

 

(unaudited)

 

(audited)

 

(unaudited)

 

 

£000

 

£000

 

£000

Cash flows from operating activities

 

 

 

 

 

 

Receipts from royalty investments

 

4,397

 

5,097

 

1,792

Receipts of interest from loan investments

 

625

 

257

 

-

Receipts from transaction costs reimbursed

 

6

 

308

 

168

Other interest income received

 

-

 

1

 

-

Payments for royalty participation fees

 

(78)

 

(161)

 

(81)

Operating expenses paid

 

(1,084)

 

(1,392)

 

(568)

Net cash inflow from operating activities

 

3,866

 

4,110

 

1,311

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Royalty investments advanced

 

(250)

 

(25,033)

 

(13,925)

Loan investments advanced

 

(1,400)

 

(3,057)

 

-

Payment for acquisition of subsidiaries, net of cash acquired

 

(321)

 

(4,274)

 

-

Transaction costs paid - royalty investments

 

(404)

 

(624)

 

(222)

Transaction costs paid - business combinations

 

-

 

(268)

 

-

Pre-royalty investment advanced

 

-

 

-

 

(605)

Gain on exercise of warrants

 

-

 

-

 

88

Payment to acquire equity investment

 

-

 

-

 

-

Proceeds from disposal of equity instruments

 

-

 

89

 

-

Interest income received

 

-

 

-

 

14

Net cash outflow from investing activities

 

(2,375)

 

(33,167)

 

(14,650)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from share issue

 

-

 

44,010

 

44,010

Share issue costs

 

-

 

(2,398)

 

(2,345)

Dividends paid

 

(2,760)

 

(4,023)

 

(1,251)

Proceeds from loans

 

-

 

3,500

 

-

Redemption of loans

 

-

 

(9,109)

 

-

Interest paid

 

(662)

 

(172)

 

(79)

Other finance costs paid

 

-

 

-

 

(86)

Net cash (outflow)/inflow from financing activities

(3,422)

 

31,808

 

40,250

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(1,931)

 

2,749

 

26,911

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of Period/year

 

5,894

 

3,165

 

3,165

Effect of foreign exchange on cash

 

35

 

(21)

 

(10)

 

 

 

 

 

 

 

Cash and cash equivalents at the end of Period/year

 

3,998

 

5,894

 

30,066

 

The notes on pages 12 to 24 form an integral part of these Condensed Consolidated Financial Statements.

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
 

FOR THE PERIOD ENDED 30 SEPTEMBER 2019

 

 

 

 

 

 

 

 

 

 

 

 

At 1 April 2018

 

60,303

 

130

 

125

 

(28,314)

 

32,244

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

-

 

-

 

-

 

950

 

950

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

11

44,000

 

-

 

-

 

-

 

44,000

Share issuance costs

11

(2,385)

 

-

 

-

 

-

 

(2,385)

Share based payments

12

-

 

39

 

-

 

-

 

39

Dividends

5

-

 

-

 

-

 

(1,259)

 

(1,259)

Total transactions with owners

 

41,615

 

39

 

-

 

(1,259)

 

40,395

 

 

 

 

 

 

 

 

 

 

 

At 30 September 2018

 

101,918

 

169

 

125

 

(28,623)

 

73,589

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

-

 

-

 

-

 

847

 

847

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

Share issuance costs

11

(13)

 

-

 

-

 

-

 

(13)

Share based payments

12

139

 

164

 

-

 

-

 

303

Warrants issued

12

-

 

-

 

140

 

-

 

140

Dividends

5

-

 

-

 

-

 

(2,758)

 

(2,758)

Total transactions with owners

 

126

 

164

 

140

 

(2,758)

 

(2,328)

 

 

 

 

 

 

 

 

 

 

 

At 31 March 2019

 

102,044

 

333

 

265

 

(30,534)

 

72,108

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 April 2019

 

102,044

 

333

 

265

 

(30,534)

 

72,108

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

-

 

-

 

-

 

3,283

 

3,283

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

Share based payments

12

-

 

158

 

-

 

-

 

158

Dividends

5

-

 

-

 

-

 

(2,761)

 

(2,761)

Total transactions with owners

 

-

 

158

 

-

 

(2,761)

 

(2,603)

 

 

 

 

 

 

 

 

 

 

 

At 30 September 2019

 

102,044

 

491

 

265

 

(30,012)

 

72,788

 

 

The notes on pages 12 to 24 form an integral part of these Condensed Consolidated Financial Statements.

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 SEPTEMBER 2019

 

1.   General Information

 

Duke Royalty Limited ("Duke Royalty" or the "Company") is a closed-ended investment company with limited liability formed under the Companies (Guernsey) Law, 2008. The Company is domiciled in Guernsey. Its shares are traded on the AIM market of the London Stock Exchange.

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

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

 

2.   Significant accounting policies

 

1.1     Basis of preparation

 

The interim Condensed Consolidated Financial Statements of the Group have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting", as adopted by the European Union, and using the going concern basis of preparation. These interim financial statements do not contain all the information and disclosures as presented in the annual financial statements, and should be read in conjunction with the Consolidated Financial Statements of the Group for the year ended 31 March 2019, which have been prepared in accordance with International Financial Reporting Standards ("IFRS"), to the extent that they have been adopted by the European Union, and applicable Guernsey law.

 

The accounting policies adopted in the preparation of the interim Condensed Consolidated Financial Statements are consistent with those followed in the preparation of the Consolidated Financial Statements of the Group for the year ended 31 March 2019.

 

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

 

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

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

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

 

1.2     New and amended standards adopted by the Group

 

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

 

3.   Income tax

 

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

 

Factors affecting income tax expense for the year

 

 

 

 

 

 

 

Profit on ordinary activities before tax

3,689

 

1,916

 

950

 

 

 

 

 

 

Tax using the Groups effective tax rate of 11.29% (2018: 10.53%, period to 30 September 2018: 10.73%)

417

 

202

 

102

Tax losses not recognised

-

 

(97)

 

-

Differential in tax rate

(11)

 

14

 

-

 

406

 

119

 

102

 

 

4.   Earnings per share

 

 

 

 

 

 

 

Total comprehensive income (£000)

3,283

 

1,797

 

950

Weighted average number of Ordinary Shares

 

 

 

 

 

in issue, excluding treasury shares (000s)

197,182

 

163,129

 

130,211

Basic earnings per share (pence)

1.66

 

1.10

 

0.73

 

 

 

 

 

 

 

 

Total comprehensive income (£000)

3,283

 

1,797

 

950

Weighted average number of Ordinary Shares,

 

 

 

 

 

diluted for warrants in issue (000s)

199,182

 

163,244

 

130,309

Diluted earnings per share (pence)

1.65

 

1.10

 

0.73

 

 

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

Adjusted earnings per share

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

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

 

 

 

 

 

 

 

 

Total comprehensive income for the period

3,283

 

1,797

 

950

 

 

 

 

 

 

Unrealised fair value movements

(693)

 

(651)

 

(771)

Gain on warrants

-

 

(88)

 

(88)

Share-based payments

158

 

482

 

39

Transactions costs net of costs reimbursed

208

 

1,161

 

329

Royalty participation fees

-

 

432

 

432

Tax effect of the adjustments above at Group effective rate

37

 

(140)

 

8

Adjusted earnings

2,993

 

2,992

 

899

 

 

 

 

 

 

 

 

Adjusted earnings (£000)

2,993

 

2,992

 

899

Weighted average number of Ordinary Shares

 

 

 

 

 

in issue, excluding treasury shares (000s)

197,182

 

163,129

 

130,211

Adjusted earnings per share (pence)

1.52

 

1.83

 

0.69

 

 

 

 

 

 

 

 

Adjusted earnings (£000)

2,993

 

2,992

 

899

Weighted average number of Ordinary Shares,

 

 

 

 

 

diluted for warrants in issue (000s)

199,182

 

163,244

 

130,309

Diluted adjusted earnings per share (pence)

1.50

 

1.83

 

0.69

 

5.   Dividends

 

The following interim dividends have been recorded in the period:

 

 

 

 

 

 

 

Record date

Payment date

 

 

 

 

3 April 2018

12 April 2018

 

0.6

 

581

29 June 2018

12 July 2018

 

0.7

 

678

Dividends payable for the period ended 30 September 2018

 

 

 

1,259

 

 

 

 

 

 

Record date

Payment date

 

 

 

 

28 September 2018

12 October 2018

 

0.7

 

1,378

28 December 2018

11 January 2019

 

0.7

 

1,380

Dividends payable for the period ended 31 March 2019

 

 

 

2,758

 

 

 

 

 

Record date

Payment date

 

 

 

 

5 April 2019

17 April 2019

 

0.7

 

1,380

28 June 2019

12 July 2019

 

0.7

 

1,381

Dividends payable for the period ended 30 September 2019

 

 

 

2,761

 

On 27 September 2019 the Company approved a further quarterly dividend of 0.75 pence per share, totalling £1,479,000, which was paid on 18 October 2018.

 

6.   Goodwill

Opening net book value at 1 April 2018 and 1 October 2018

-

Arising on business combination

203

Closing net book value at 31 March 2019 and 30 September 2019

203

 

 

 

7.   Financial assets at fair value through profit or loss

 

 

 

 

 

 

 

Non-current

 

 

 

 

 

Royalty investments

61,952

 

61,990

 

39,174

Equity investments

1,211

 

1,177

 

-

 

63,163

 

63,167

 

39,174

Current

 

 

 

 

 

Royalty investments

9,106

 

8,065

 

5,609

 

72,269

 

71,232

 

44,783

 

Net changes in fair value on financial assets at fair value through profit or loss:

 

 

 

 

 

 

 

On royalty investments

5,150

 

5,789

 

2,615

On equity investments

34

 

65

 

-

Total net gains

5,184

 

5,854

 

2,615

 

 

 

 

 

 

 

Realised

4,396

 

5,185

 

1,792

Change in unrealised

788

 

669

 

823

Total net gains

5,184

 

5,854

 

2,615

 

 

Realised changes in fair value relate to cash amounts received under the Group's royalty financing agreements.

 

Royalty investments

 

The Group's royalty investments comprise royalty financing agreements with 12 (30 September 2018: five, 31 March 2019: 12) 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.

 

Equity investments

 

The Group's equity investments comprise unlisted shares and warrants in four of its royalty investment companies (30 September 2018: one, 31 March 2019: four)

 

The Group also still holds two (30 September 2018: three, 31 March 2019: two) unlisted investments in mining entities from its previous investment objectives. The Board does not consider there to be any future cash flows from the remaining investments and they are fully written down to nil value.

 

 

8.   Loans receivable

 

 

 

 

 

 

 

Non-current

9,052

 

8,993

 

-

Current

2,065

 

632

 

-

 

11,117

 

9,625

 

-

           

The Group's loans receivable comprise secured loans advanced to five entities (2018 - nil) in connection with the Group's royalty investments.

The loans comprise fixed rate loans of £8,760,000 which bear interest at rates of between 5% and 16% and one variable rate loan of £2,357,000 which bears interest at 14.5% over LIBOR. The total interest receivable during the period was £672,000 (period to 30 September 2018 - £nil).

The loans mature as follows:

 

 

 

 

 

 

 

In less than one year

2,065

 

632

 

-

In one to two years

-

 

4,241

 

-

In two to five years

9,052

 

4,752

 

-

 

11,117

 

9,625

 

-

 

9.   Deferred tax

 

 

 

 

 

 

 

Deferred tax (liability)/asset

(680)

 

(565)

 

107

 

 

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

 

10.  Trade and other receivables

 

 

 

 

 

 

 

Transaction costs reimbursed receivable

-

 

-

 

40

Prepayments and accrued income

260

 

178

 

58

Pre-royalty investment advances

-

 

-

 

614

 

260

 

178

 

712

 

 

11.  Trade and other payables

 

Current

 

 

 

 

 

Trade payables

5

 

160

 

77

Consideration on business acquisition

-

 

321

 

-

Transaction costs

63

 

99

 

-

Accruals and deferred income

182

 

136

 

392

 

250

 

714

 

469

Non-current

 

 

 

 

 

Transaction costs

480

 

440

 

-

 

480

 

440

 

-

 

 

12.  Financial liabilities at fair value through profit or loss

 

Royalty participation liability

 

 

 

 

 

Current

212

 

173

 

187

Non-current

1,172

 

1,193

 

1,214

 

1,384

 

1,366

 

1,401

 

Net changes in fair value on financial liabilities at fair value through profit or loss:

 

 

 

 

 

 

 

Realised

78

 

161

 

-

Change in realised

17

 

17

 

132

 

95

 

178

 

132

 

 

13.  Borrowings

 

Secured loan

 

 

 

 

 

Current - accrued interest

257

 

326

 

-

Non-current

11,470

 

11,365

 

-

 

11,727

 

11,691

 

-

 

The secured loan had an interest rate of 9.5% over LIBOR per annum. This rate was lowered to 7.25% over LIBOR per annum following a restructuring of the facility, completed on 8 October 2019. The principal amount is repayable on 8 October 2024. The loan is secured by means of a fixed and floating charge over the assets of the Group.

 

14.  Share capital

 

Authorised

 

 

 

Unlimited number of shares of no par value

-

 

-

 

 

 

 

Allotted, called up and fully paid

 

 

 

At 1 April 2018

96,877,459

 

60,303

Shares issued for cash during the period

100,000,000

 

44,000

Share issuance costs

-

 

(2,385)

Shares issued to Employee Benefit Trust during the period

1,025,000

 

-

At 30 September 2018

197,902,459

 

101,918

Shares issued for cash during the period

-

 

-

Share issuance costs

-

 

(13)

Shares issued to Employee Benefit Trust during the period

1,665,000

 

-

Shares issued to directors and key advisers as remuneration

305,000

 

139

At 31 March 2019

199,872,459

 

102,044

Shares issued for cash during the period

-

 

-

Share issuance costs

-

 

-

Shares issued to Employee Benefit Trust during the period

-

 

-

At 30 September 2019

199,872,459

 

102,044

 

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

 

15.  Equity-settled share-based payments

 

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

 

 

 

 

At 1 April 2018

 

125

Issued during the period

 

140

At 1 September 2018

 

265

Issue during the period

 

-

At 1 April 2019 and 30 September 2019

 

265

 

No warrants were issued during the period to 30 September 2019.

 

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

 

 

 

 

 

 

 

 

At 1 April 2018

124

 

6

 

130

LTIP awards

-

 

39

 

39

At 30 September 2018

124

 

45

 

169

 

 

 

 

 

 

LTIP awards

-

 

152

 

152

Share options granted

12

 

-

 

12

At 31 March 2019

136

 

197

 

333

 

 

 

 

 

 

LTIP awards

-

 

158

 

158

At 30 September 2019

136

 

355

 

491

 

No options were granted in respect of the Company's equity-settled share-based payment schemes during the period ended 30 September 2019. The charge to the Consolidated Statement of Comprehensive Income for the period ended 30 September 2019 in respect of all equity settled share-based payment schemes was £158,000 (period ended 30 September 2018: £39,000, year ended 31 March 2019: £203,000).

 

16.  Distributable reserves

 

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

 

17.  Related parties

 

Directors fees

 

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

 

 

 

 

 

 

 

 

Short term remuneration

211

 

338

 

105

Share-based payments

144

 

213

 

39

 

355

 

551

 

144

 

Other related party transactions

 

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

 

 

 

 

 

 

 

Abingdon Capital Corporation

150

 

248

 

98

Arlington Group Asset Management Limited

50

 

62

 

12

 

200

 

310

 

110

 

 

Support Service Agreements with Abingdon Capital Corporation ("Abingdon"), a company of which Neil Johnson is a Director, and Arlington Group Asset Management Limited ("Arlington"), a company of which Charles Cannon Brookes is a Director, were signed on 16 June 2015. The services to be provided by both Abingdon and Arlington include global deal origination, vertical partner relationships and on-going investment management, including preparation of investment reports, performance data and compliance with the Company's investing policy.

 

Dividends

The following dividends were paid to related parties

 

 

 

 

 

 

 

Directors1

147

 

270

 

125

 

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

 

18.  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:

 

 

Financial assets

 

 

 

 

 

Financial assets at fair value through profit or loss

 

 

 

 

 

- Royalty investments

71,058

 

70,054

 

44,783

- Equity investments

1,211

 

1,177

 

-

 

72,269

 

71,231

 

44,783

Financial liabilities

 

 

 

 

 

Financial liabilities at fair value through profit or loss

 

 

 

 

 

- Royalty participation instruments

1,384

 

1,367

 

1,401

 

1,384

 

1,367

 

1,401

 

The following table presents the changes in level 3 items for the periods ended 30 September 2019, 31 March 2019 and 30 September 2018:

 

At 1 April 2018

23,569

 

(917)

 

22,652

Additions

20,392

 

(352)

 

20,040

Royalty income received

(1,792)

 

-

 

(1,792)

Net change in fair value

2,615

 

(132)

 

2,483

At 30 September 2018

44,784

 

(1,401)

 

43,383

Additions

11,108

 

-

 

11,108

Business combination

15,494

 

-

 

15,494

Royalty income received

(3,305)

 

-

 

(3,305)

Royalty participation liabilities paid

-

 

161

 

161

Proceeds from exercise of warrants

(88)

 

-

 

(88)

Net change in fair value

3,239

 

(126)

 

3,113

At 31 March 2019

71,232

 

(1,366)

 

69,865

Additions

250

 

-

 

250

Royalty income received

(4,397)

 

-

 

(4,397)

Royalty participation liabilities paid

-

 

78

 

78

Net change in fair value

5,184

 

(95)

 

5,089

At 30 September 2019

72,269

 

(1,384)

 

70,885

 

 

Valuation techniques used to determine fair values

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

Valuation processes

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

Annual adjustment factors for royalty investments and royalty participation liabilities

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

Discount rates for financial assets and liabilities

 

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

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

Valuation inputs and relationships to fair value

 

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

Royalty investments

The unobservable inputs are the annual adjustment factor and the discount rate. The range of annual adjustment factors used is 0.0% to 6.0% and the range of risk-adjusted discount rates is 12.4% to 18.8%.

Equity investments

 

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

Royalty participation instruments

The unobservable inputs are the annual adjustment factor and the discount rate used in the fair value calculation of the royalty investments. The range of annual adjustment factors used is 0.0% to 6.0% and the range of risk-adjusted discount rates is 13.5% to 18.8%.

 

19.  Events after the financial reporting date

 

Dividends

On 18 October 2019 the Company paid a quarterly dividend of 0.75 pence per share.

Issuance of ordinary shares

On 31 October 2019 the Company issued 39,667,899 new Ordinary Shares at 44 pence each. A total of £16,526,000 was raised, net of issuance costs.

Follow-on royalty investments

On 31 October 2019 the Group announced a follow-on investment of £2.0 million into its royalty partner (Lynx UK) Limited.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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