Duke Capital Regulatory News (DUKE)

8 September 2022

Duke Royalty Limited

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

Final Results for the year ended 31 March 2022

Duke Royalty Limited (AIM: DUKE), a provider of alternative capital solutions to a diversified range of profitable and long-established businesses in Europe and abroad, is pleased to announce its audited final results for the 12 months ended 31 March 2022 ("FY22").

FY22 Highlights

· 67% year on year increase in total cash revenue to £18.4 million (FY21: £11.0 million), driven by a strengthening of the underlying investment portfolio and increased deployments

· Free cashflow* per share rose from 3.10p in FY21, to 3.53p in FY22, demonstrating the accretive nature of the business model

· Net income of £20.4 million, up 46% from the £14.0 million generated in FY21

· 41% year-on-year increase in adjusted earnings per share** to 3.81p (FY21: 2.70p)

· Dividend per share of 2.25p (FY21: 2.25p)

· Deployed over £75 million of capital, adding five new royalty partners to the portfolio and completing a range of follow-on investments into existing royalty partners

· Realised exits from two investments with strong IRRs

· £35 million of equity capital raised in oversubscribed placing which, together with additional capital from Duke's senior credit provider, supported record deployments

Post Period End Highlights

· Raised £20 million of equity capital, providing significant liquidity to deploy into a strong pipeline of partnership and follow-on opportunities

· Quarterly cash revenue of £5.1 million achieved for Q1 of the Company's current financial year ended 30 June 2023 ("Q1 FY23"), a 78% increase on Q1 FY22

· Paid a dividend of 0.70p per share for Q1 FY23, representing an annualised dividend of 2.80p per share, a 24% increase over FY22 total dividend

· Two additional follow-on investments completed

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

** Adjusted earnings is the total comprehensive income adjusted for unrealised and non-core fair value movements, non-cash items and transaction-related costs, including royalty participation fees, together with the tax effects thereon.

Neil Johnson, CEO of Duke Royalty, said:

"We are delighted to report significant growth across all our core KPIs for the 12 months to 31 March 2022. It is particularly pleasing that this positive performance has been achieved as we celebrate our fifth year since admission to AIM in 2017. Through all the highs and lows of the last five years, we have persevered through all the unexpected economic, political and public health shocks, to create Europe's largest corporate royalty provider for long standing, profitable private businesses.

"While we have celebrated our growth in the face of the many macroeconomic headwinds over the last five years, the next five years will, undoubtedly, present their own challenges. With the majority of the western world now dealing with unusually high inflation and global supply chain issues, we take reassurance from the fact that not only Duke, but the wider royalty industry, has seen many economic cycles before.

"We believe we are in a strong position for growth and will prudently continue to make deployments to deliver higher free cash flow and increase free cash flow per share. As a company, our portfolio metrics are more robust than they have ever been, meaning Duke is well positioned to withstand headwinds better than ever."

Analyst Presentation

There will be a webinar for equity analysts at 09:30 a.m. BST today, Thursday, 8 September 2022, hosted by Neil Johnson, CEO, and Hugo Evans, Finance Director. Any equity analysts wishing to attend should contact SEC Newgate at dukeroyalty@secnewgate.co.uk where further details will be provided.

Investor Presentation

Neil Johnson, CEO, and Hugo Evans, Finance Director, will also provide a live investor presentation relating the Full Year Results via the Investor Meet Company platform on Friday 9 September at 10:00 a.m. BST.

The presentation is open to all existing and potential shareholders. Questions can be submitted via the Investor Meet Company dashboard up until 09:00 a.m. the day before the meeting or at any time during the live presentation.

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

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

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

This announcement contains inside information.

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

About Duke Royalty

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

Chairman's Statement

Dear Shareholder,

I am pleased to report on the results for the Group for the financial year ending 31 March 2022 ("FY22"), a period in which Duke was able to produce record cashflow underpinned by higher levels of investment deployment. It is fair to say that FY22 once again presented challenges as the global economy emerged from the immense economic and social strains brought about by the Covid pandemic. It is against this challenging backdrop that I am pleased to be able to report such a strong set of financial results.

In my Chairman's statement for FY21, I referred to the emergence of mild inflationary pressures spurred on by a backdrop of rapidly rising commodity prices. FY22 was the year where those inflationary pressures firmly took hold with cost pressures being seen across all main expense items such as raw materials, labour, freight and power. Post period end, we have seen this inflationary pressure worsen, exacerbated by the war in Ukraine which has forced central banks around the world into aggressively raising interest rates to try to bring inflation rates back down towards their historically acceptable ranges. The coupling effect of high inflation alongside higher interest rates will inevitably lead to downward pressure being exerted on consumer spending and we will remain vigilant as to what effects this may have on our royalty partners in the coming months.

Thankfully, however, I am pleased to report that during FY22 Duke's royalty partners were, in the majority of cases, able to pass on this FY22 cost inflation to their customers and many were able to post record operating performance of their own. This strong trading has led to Duke's overall portfolio metrics improving in terms of higher underlying profitability, increased debt service coverage ratios and improved liquidity levels, and as a result Duke's portfolio has entered FY23 in a robust position. One of the core benefits of the Duke business model is that it provides shareholders with a degree of inflation hedging as higher costs being incurred by its royalty partners translate into them charging higher pricing (and therefore generating higher revenues) which in turn should lead to an increase in Duke's cash receipts via the annual reset mechanism. I am happy to report that Duke's average returns increased during FY22, validating this thesis, and we expect this trend to continue while inflationary pressures persist.

Over time, we have also been able to significantly diversify our portfolio both in terms of sector and internal weighting. At period end the Company had exposure to 48 underlying operating companies via its 13 royalty partners, with a maximum concentration limit per royalty partner of approximately 10%. Diversification is the ultimate risk mitigation tool and during the period Duke invested a record £61m into five new royalty partners as well as £14m into existing partners via follow-on investments. As I referenced in the Company's last report, after a period of global financial stress there is demand for the Company's unique, long dated and aligned product offering. Duke has a fantastic opportunity to take market share away from the traditional debt markets whose short-dated, amortising loans carry a high degree of inherent refinancing risk. To take advantage of this market opportunity, Duke raised £35m of equity during FY22 and another £20m post period end which, when taken alongside its existing credit facilities, means that Duke currently has significant liquidity to deploy in its pipeline of new deal opportunities. These two equity financings included a Primary Bid offering to allow our valued retail investors to participate, and going forward, we will seek to pursue the best available initiatives and technology which provide all our investors with the best access to corporate actions, as they occur.

Duke benefitted from two profitable buyouts of its royalty partners in FY22 which delivered a significant upside event to the Company's financial performance. The positive effects of these buyouts are rarely modelled into analyst forecasts because the timing of the buyout always remains in the hands of the royalty partner. Another benefit which I would like to draw shareholders' attention to in FY22 is the positive effect of operational leverage. Given the nature of the Company's low and largely fixed cost base, additional deployments led to an increase in the Company's free cash flow per share in FY22 and this is a trend that should only accelerate into FY23 as Duke deploys more capital. Higher levels of free cashflow per share underpin Duke's future quarterly dividend policy and during FY22 Duke paid out cash dividends of 2.25p per share. It is pleasing to note that in the most recent quarter Duke's dividend stood at 0.70 pence per share, equating to 2.80 pence per annum, showing a continued upward trajectory of the Company's dividend into FY23.

Throughout FY22, the Duke team has worked hard to manage the Company and its partners through the difficulties presented by the pandemic and the macro-economic environment and I thank them for their considerable efforts. As a fiduciary and long-term partner in companies, we see it as our duty to deploy our capital in a responsible way. As set out in our Responsible Investment Policy, we recognise that by following a set of commitments, Duke better aligns itself and its partners with the broader objectives of society. Furthermore, because our investment products are structured over decades, we believe that long term success as a business is directly correlated to the way that business approaches and manages their environmental, social and governance considerations.

As always, I am appreciative of the ongoing support of all our shareholders and am pleased to report a strong set of results within the Chairman's statement for FY22. Our underlying royalty partners have traded resiliently during the period and the Group is well placed to continue to grow in FY23. Our recent trading update for first financial quarter ended 30 June 2022 ("Q1 FY23") showed that normalised cash revenue had reached new highs and we expect this growth trend to continue into Q2 FY23 by virtue of Duke's annual yield adjustments linked to the underlying companies' revenue performance in this inflationary macro-environment.

The macro environment certainly remains challenging but the resilience of Duke's royalty model, which provides exposure to a diverse portfolio of 48 underlying operating companies, should allow the Company to continue to prosper as demonstrated through the pandemic and I look forward to being able to report on the Group's ongoing progress and development in future periods.

Nigel Birrell

Chairman

 CEO's Statement

Dear Shareholders,

As we celebrate our fifth year since admission to AIM in 2017, I can't help but reflect on how different the world looks today. Through all the highs and lows of the last five years, we would not be here without the support of our shareholders, the trust of our royalty partners, the dedication of our employees, and the leadership of our Board. We have persevered through all the unexpected economic, political and public health shocks, to create Europe's largest corporate royalty provider for long standing, profitable private businesses.

As this year's Annual Report has demonstrated, we think of our growth over the past five years in three phases:

Phase 1 - Establishing our presence

In the first phase, we focused on building the equity base, portfolio and cash flow, in order to deliver dividends for our shareholders. We were taking a proven financing mechanism which had existed in North America for decades and tailored it for the UK public markets and European businesses. We had to build a track record and prove to both investors and business owners, that corporate royalties had a role in filling the SME funding gap. We appreciate the support from those early shareholders who backed us to build a company which was unique on the London Stock Exchange. We successfully built a base of royalty partners who placed faith in us and developed long-term symbiotic partnerships not found in the high street bank offerings. We certainly would not be here without these early supporters.

Phase 2 - Proving our investment thesis

After three years of building our business, our focus was forced to change in March 2020. The arrival of Covid-19 and the ensuing pandemic gave us an opportunity to test the strength of the foundation we had built. In North America, where Royalty Finance has been established for decades, investors are drawn to the downside protection royalty providers deliver during crises. The pandemic enabled us to demonstrate this characteristic to both business owners and our investors in the UK and Europe. Duke worked with our royalty partners through unprecedented stresses to stabilise their businesses, and I am proud of the work, resiliency and flexibility that both our team and our royalty partners showed throughout this period. We did not panic; we had a clear plan to survive the initial shock and we executed.

Once the market and public health stabilised, our team reflected on what we could learn from the experience and set about putting those learnings into action. We forged deep relationships with our royalty partners, focused on the long-term prospects of each and helped them navigate the effects of the pandemic. We believe our actions have not only ensured the long-term profitability of our royalty partners, but that, in the fulness of time, our shareholders will be rewarded by these actions. We focused our criteria of selection on what was working best and set about solidifying our position.

The post-pandemic recovery was viewed as an opportunity for Duke to accelerate our marketing efforts and expand our network, defining our market segment by demonstrating acceptance of our solution by business owners and operators. This was successful and with five new royalty partners, multiple bolt-on acquisitions from our existing portfolio, and accretive buyouts, FY22 was, by this measure, a banner year for the Company and resulted in an unprecedented growth year in our Company's short history.

Across Europe and North America, Duke deployed over £61 million into new partners during the period, spread across managed IT services, engineering, medicines, signage and healthcare, highlighting Duke's commitment to create a diverse group of royalty partners. A further £14 million was deployed in follow on investments into our existing royalty partners. The result was a tripling of the deployments made in any financial year in the Company's history.

Duke also demonstrated the lifecycle of a typical investment during this growth phase, successfully realising two further investment buybacks. One of these, BHPC Limited, represented Duke's fifth exit, for which Duke received back net cash of £6.9 million, delivering an IRR of 29.4% on closing, our highest return to date.

Shareholder support

At the beginning of the period under review, we announced an oversubscribed £35 million placing with new and existing institutional and retail investors. This allowed us to take advantage of what we saw as an exciting time to be evaluating deals. We are thankful to our supportive shareholders who recognised the value of our dividend and understood the downside protection that our royalty agreements provide to them, as well the role our solution could provide in supporting businesses. We also received further support from Pollen Street Capital in FY22 to increase the top end of our credit facility to support further growth.

The placing and Pollen Street's credit facility enabled Duke to have an unprecedent year of deployments in FY22, further discussed below. Following another £20 million placing post period end, Duke is uniquely positioned with significant liquidity to deploy into a strong pipeline of partnership and follow-on opportunities. We will be doing this prudently and selectively, given the challenging headwinds currently affecting business globally.

Duke appreciates the support of all its shareholders in these raisings, and the participation of our valued retail investors. We utilised the Primary Bid process in these placings to enable retail investors participation and continue to explore initiatives which provide all our investors with the best possible opportunity to access any future corporate actions.

Scaling internationally

As I discussed in last year's CEO statement, to ensure the best returns for shareholders our ambitions are not limited to Europe. Our philosophy of diversification is not simply about having a basket of different companies, it is to ensure a variety of industries, currencies, and geographies. I am pleased to report that that this diversification continues with the addition of Creō-Tech Industrial Group and Atlas Signs Holdings, headquartered in British Columbia, Canada, and Florida, USA respectively. These also represent two different examples of uses of our capital; Creō-Tech is using our funds to enable its buy-and-build strategy, while at Atlas Signs, we support a family-owned business with its long-term objectives through debt refinancing.

ESG

Armed with our published responsible investing policy and our Company's dedication to Environment Social and Governance (ESG) best practice, our team implemented the policy throughout our investment lifecycle. An ESG criteria checklist was added to our initial screening of new opportunities, and throughout the due diligence process in an effort to understand and evaluate our ESG criteria for every new investment. We have also begun the process of articulating our goals to our royalty partners, and initiated dialogues with them to set and meet their own ESG targets. One example of positive change we have seen through this process is Trimite Global Coatings. As a supplier of high-performance paints and coatings for industrial applications, Trimite prides itself on its technical knowhow and quality products. Through our strategic dialogue, the company has now set a goal to make all coatings water-based, where customers can accommodate this technology, with no reduction in performance. This move will not only lower their impact on the environment, but will mean greater opportunity for growth, as their customers increasingly look for greener, more sustainable solutions. Other initiatives are underway within the company to drive its commitment to the environment and we commend the Trimite team on articulating and doing their part in committing to a positive environmental impact.

Our company is committed to helping our communities. In London, the Duke team has taken the lead in organising the reintroduction of the Terry Fox Run. Terry Fox is a Canadian hero, who lost his leg to cancer and set about raising money for cancer research in 1980 by running a marathon a day across Canada, tragically needing to stop 143 days into his inspiring journey as his cancer had spread to his lungs. Terry Fox died less than a year later but the foundation in his name has raised over £500 million since his death. In 2021, through the efforts of Duke team, we were able to continue to support this legacy raising over £65,000 for the UK's pre-eminent cancer research organisation, The Institute of Cancer Research.

Financial Review

Cashflow

FY22 saw record cashflows for the Group, with total cash revenue of £18.4 million generated, a 67% increase over the £11.0 million produced in FY21. This was driven by a strengthening of the underlying investment portfolio following the problems experienced during the first wave of the Covid pandemic. Recurring revenue, reflecting the ongoing monthly distributions made by Duke's royalty partners, represented 81% of cash revenue and totalled £14.9 million, up from £8.8 million in FY21.

Operating cashflow for the year totalled £11.2 million, a 25% gain on the FY21 total of £8.9 million. It is especially pleasing to see the operating leverage increase, driven by Duke's ability to control its operating costs as cash revenue grows. In FY22, cash operating costs as a percentage of total cash revenue reduced from 20% to 14% and we expect this to continue decreasing as revenue grows and the cost base remains largely stable.

Free cashflow, defined as Duke's operating cashflows plus cash gains from the sale of equity investments less the interest due on its debt financing, totalled £12.1 million, a 61% increase on the £7.5 million generated in FY21. But perhaps more importantly, free cashflow per share rose 14% to 3.5 pence per share, demonstrating the accretive nature of the business model. The pay-out ratio, which represents the percentage of total free cashflow that the Group pays out in dividends, reduced from 72% to 60%, allowing the Group to reinvest a larger proportion of its cashflow into new investments.

Income Statement

Total income for the year grew to £28.8 million in FY22, a 33% increase over FY21, while earnings after tax totalled £20.4 million, a 46% increase on the prior year. However, both these measures include the non-cash fair value movements on the royalty and equity portfolios. If we strip out these fair value movements, then total adjusted income rose 56% to £18.4 million, while Duke's non-IFRS measure of adjusted earnings (refer to the Director's report for full explanation of adjusted earnings), rose from £6.6 million to £13.1 million. As with free cashflow per share, adjusted earnings per share also increased, growing 41% from 2.70 pence per share to 3.81 pence per share.

Dividends

The Company increased its quarterly dividend in January 2022 from 0.55 pence per share to 0.60 pence per share, resulting in total dividend payments for FY22 of £7.6 million, the equivalent of 2.25 pence per share. Notably, the most recent quarterly dividend, paid post period end in July 2022, increased to 0.70 pence, representing an annualised dividend of 2.80 pence per share.

Balance Sheet

During the year the Group successfully deployed over £75 million into new and follow-on investments (2021: £24 million), securing five new royalty partners. This included an investment of ca. £16 million into Atlas Signs Holdings Inc., a US based national brand implementation company delivering signage and related services to businesses around the globe. This investment represents Duke's largest initial investment to date and expands upon the Group's North American presence, diversifying its currency exposure.

Group net assets increased by 55% to £133 million (2021: £86 million) following a successful £35 million equity raise in April 2021.

The Group's total assets were £184 million as at 31 March 2022, an increase of 73% from the £106 million at 31 March 2021, once again primarily attributable to the increase in capital deployments during the year on the back of April 2021's successful equity raise. The total fair value of the royalty portfolio stood at £160 million at 31 March 2022, while the equity portfolio increased its fair value from £3.5 million to £10.8 million, again reflecting the increasing stability and strength of our underlying investment portfolio.

Net debt for the Group increased to £42.3 million (31 March 2021: £15.5 million) following the successful extension of Duke's borrowing facility with Pollen Street Capital in January 2022, providing additional liquidity to the Group.

Phase 3 - Scaling our business

As we embark on the second half of our first decade, we enter the third phase of our growth; continuing our momentum and scaling the business. Now that we have established the robustness of our business model in difficult economic conditions, a diversified portfolio and a presence in our target markets, we have the opportunity to solidify our first mover advantage in the UK, Europe and abroad. As the only corporate royalty provider listed in London, we believe we are in a strong position for growth and will prudently continue to make deployments to deliver higher free cash flow and increase free cash flow per share. The benefits of our product are clear and accepted by our target partners and we now have a track record of delivering benefits for business owners who want to retain control of their business.

We will also continue generating returns for our shareholders through value-realisation events. As our portfolio matures and grows, the embedded value that our agreements have in the form of buyout premiums and minority equity stakes we believe will be realised. While the timing of buyouts is outside of our control - in line with our philosophy to keep business owners in control of their destiny - they are highly accretive to shareholders and will be an ongoing theme in the future. Each year our cash distribution is adjusted based on our partners' revenue, and every buyout of our product crystallises the value of the buyout premium and value of our equity stake if we have one in the business. In the meantime, our partners are paying monthly distributions over the typical 30-year term of our agreement.

While we have celebrated our growth in the face of the last five year's economic, political and public health headwinds, the next five years will, undoubtedly, present their own challenges. Our business model's first principal - to preserve our investor's capital - is as strong as ever. With the western world now dealing with unusually high inflation and global supply chain issues, we take reassurance from the fact that not only Duke, but the wider royalty industry, has seen many economic cycles before. The industry is bigger than it has ever been and the knowledge and understanding of royalty finance has become embedded in the market. As a company, our portfolio metrics are more robust than they have ever been, meaning Duke is well positioned to withstand headwinds better than ever. More importantly our relationships and ability to make decisions for the long-term best interest of our royalty partners makes it apparent that our company, and corporate royalties, have a very important place in the alternative finance industry.

I would like to personally thank our shareholders, our royalty partners, our employees and our Board for our continued progress and our best year yet.

Neil Johnson

CEO

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 MARCH 2022

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2022

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

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2022

The Consolidated Financial Statements were approved and authorised for issue by the Board of Directors on 7 September 2022 and were signed on its behalf by Directors Maree Wilms and Matt Wrigley.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2022

The notes set out below form an integral part of these Consolidated Financial Statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2022

1. General Information

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

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

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

2. Significant accounting policies

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.

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.

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.

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

The escalation of tensions between Russia and the West, following Russia's invasion of Ukraine in February 2022, presents a range of implications for industry and markets at large. Soaring energy costs suggest that higher inflation is likely to last longer than governments are currently forecasting. The war has also further emphasised the issue of supply chains. The importance of where goods and services are produced and how easily they can reach their end markets had already been highlighted during the Covid pandemic. Some commentators are now suggesting an end to the trend of extreme globalisation that has occurred in recent decades. Should this be the case, the reverse trend could see even more significant supply chain disruptions leading to higher inflation.

The other key outcome from the sanctions on Russia and the resulting increases in oil and gas prices is likely to be an acceleration in the West of the existing drive towards electrification, renewable energy and greater energy self-sufficiency over the medium term.

On the downside, higher energy prices and wage inflation will undoubtedly raise operating costs, and supply chain issues could mean a requirement for greater working capital. This could particularly apply to companies such as those in which the Company is investing.

The economic and social impact of Covid-19 continues to influence the economic backdrop in which the Group operates.

The directors continue to closely monitor the impact of Covid-19 and of Russia's invasion of Ukraine on the Group's trading activities and cash flows. The Group does not have any direct investment exposure to Russia or Ukraine, and therefore the impact to the current investment portfolio is minimal.

During the year, the Group extended its current borrowing facility with Honeycomb Investment Trust (as detailed in the Directors' Report) from £35 million to £55 million. At the 31 March 2022, the Group had £6,800,000 of available headroom on the facility.

In May 2022, the Company raised £20 million of new capital from a share issue, providing the Company with additional liquidity. Detailed cashflow analysis has been carried for the next 24 months, with sensitivity analysis on the effect of rising interest rates as well as a decrease in underlying cash revenue. The Directors consider that the Company has adequate resources to continue in operational existence for the next 24 months and beyond.

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.

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

For management purposes, the Group's investment objective is to focus on one main operating segment, which is to invest in a diversified portfolio of royalty finance and related opportunities. At the end of the period the Group has 13 investments into this segment and has derived income from them. Due to the Group's nature, it has no customers.

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.

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.

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.

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.

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

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.

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.

Equity comprises the following:

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

Other reserves

· Warrant reserve was created in connection with the issue of share warrants in return for services provided

· Share-based payment reserve represents equity-settled share-based employee remuneration as detailed in note 2.14

· Retained earnings represents retained profits

3. Critical accounting judgements and estimates

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

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

Fair value of royalty investments

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

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

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

Fair value of royalty participation liabilities

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

Fair value of equity investments

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

4. Auditor's remuneration

5. Administration and personnel

The table below splits out administration and personnel costs.

6. Finance costs

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.

Factors affecting income tax expense for the year

8. Earnings per share

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.

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.

Royalty investments are comprised of:

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

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

The Group's royalty investment assets comprise royalty financing agreements with 13 (31 March 2021:10) investees. Under the terms of these agreements the Group advances funds in exchange for annualised royalty distributions. The distributions are adjusted based on the change in the investees' revenues, subject to a floor and a cap. The financing is secured by way of fixed and floating charges over certain of the investees' assets. The investees are provided with buyback options, exercisable at certain stages of the agreements.

10. Loan investments

Loan investments are financial assets held at amortised cost which the exception of the £2.2 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.

The Group's loan investments comprise secured loans advanced to two entities (2021 - three) in connection with the Group's royalty investments.

The loans comprise fixed rate loans of £4,172,000 (31 March 2021: £1,580,000) which bear interest at rates of between 0% and 15% (2021: 5% and 15%). The Group has no variable rate loans at the year end (2021: one variable rate loan of £3,370,000 bearing interest at 14.5% over LIBOR). The total interest receivable during the period was £533,000 (31 March 2021: £636,000).

The loan investments mature as follows:

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

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:

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:

11. Equity investments

Equity investments are financial assets held at FVTPL.

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

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

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

12. Royalty debt liabilities

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

Royalty investment liabilities are comprised of:

13. Trade and other receivables

The other receivable balance consists of funds due on the sale of Duke Royalty Switzerland Gmbh, incorporated to hold the riverboat assets. On 31 March 2021, Duke sold its Swiss subsidiary to Starling Fleet AG for €11,600,000. The deal was structured so that €5,000,000 was payable on or before 30 September 2021, €4,000,000 is due on or before 30 September 2022, with the remaining €2,600,000 due on or before 30 June 2023. The second instalment of €4,000,000 was repaid early in March 2022. The last instalment is classified as non-current.

Using the same methodology as laid out in note 10 for the loan investments, the deferred consideration has been subject to ECL impairment. The financial strength of the counterparty has been reviewed in conjunction with current and future outlook for river cruising, while also taking into account the charges that the Group owns over the riverboats. An ECL impairment of £52,000 has been recognised against this asset (refer to Note 10 for classification).

14. Trade and other payables

15. Borrowings

The secured loan facility has an interest rate of 7.25% over one-month UK LIBOR per annum. In January 2022, the facility term was extended and the facility size increased from £35,000,000 to £55,000,000. Of this, £35,000,000 comprised a revolving facility and £20,000,000 a term facility. The principal amount is repayable on 18 January 2027. Furthermore, the interest rate was amended to 7.25% over SONIA. The loan is secured by means of a fixed and floating charge over the assets of the Group.

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

At 31 March 2022, £6,800,000 was undrawn on the facility (31 March 2021: £17,500,000).

At 31 March 2022, £460,000 (31 March 2021: £396,000) of unamortised fees remained outstanding.

The table below sets out an analysis of net debt and the movements in net debt for the year ended 31 March 2022 and prior year.