Fiscal 2019 Final Results

RNS Number : 5815L

Duke Royalty Limited

09 September 2019

 

9 September 2019

Duke Royalty Limited

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

Final Results for the full year ended 31 March 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 final results for the 12 months ended 31 March 2019 ("FY19").

Highlights

·      Total income of £6.1 million (2018: £1.8 million), an increase of +240%

·      Operational cash flow of £4.1 million (2018: £0.2 million), an increase of +1,500%

·      Adjusted post tax profits of £2.9 million, 1.83p per share

·      Inaugural full year of profitability

·      Increased dividend to 2.8 pence per share (2018: 2.1 pence per share)

·      Quadrupled portfolio of Royalty Partners to 12 (2018: 3)

·      Royalty Partners' annual adjustments all increased during the year

·      Raised £44 million in equity in Fiscal Q2

·      Acquired only known competitor to solidify Duke's market leading position

·    Introduced a revolving line of credit with a view to creating working capital efficiencies and to providing enhanced returns to shareholders

Neil Johnson, CEO of Duke Royalty, said:

"I am delighted to report on the positive financial performance that our portfolio diversification strategy has delivered for our business. The operating cash flow, which is a key metric for our business, has grown substantially together with revenue. As a result of Duke's high operating leverage, combined with the fact that we have quadrupled our royalty portfolio in the past year, we are pleased to see the financial benefits that have been generated, particularly in relation to our increased dividend.

"Looking forward, we see a strong pipeline of new opportunities and follow-on investments. The political headwinds being felt in the UK mean uncertain times, however near-term uncertainty makes the long-term nature of our capital more attractive to business owners who require capital.  Also, the predictability of our cash flow increases the confidence for shareholders in times of volatility. This is one of the characteristics which ensures that royalty finance businesses are well positioned to weather economic and political headwinds, such as those currently being felt in the UK. With our demonstrated cash flow generation, we are confident that the year ahead will be characterised by continued growth."

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

Duke Royalty Limited	Neil Johnson / Charlie Cannon Brookes	[phone]
Cenkos Securities plc   (Nominated Adviser and Broker)	Julian Morse / Michael Johnson / Stephen Keys / Callum Davidson	[phone]
Newgate Communications  (PR)	Elisabeth Cowell / Ian Silvera / Megan Kovach	[phone]   [e-mail]

CHAIRMAN'S REPORT

Dear Shareholder,

I am pleased to report that the results for the Group for the financial year ended 31 March 2019 ("Fiscal 2019"), demonstrate another period of significant progress, development and growth for Duke Royalty.  The period under review included the completion of several new royalty investments, follow-on investments into existing royalty partners as well as a material acquisition. I am delighted to say that the result of these efforts means that the Group now sits with 12 core royalty partners in its portfolio, a large pipeline of new deal opportunities in late stage negotiation and a more diversified portfolio.  Importantly, during Fiscal 2019, the Group grew its team of professionals to manage its growth and importantly, they are incentivised to continue to increase shareholder value in the future.

As a reminder to shareholders of the material events that occurred during the year under review, in April 2018 the Group entered into its fourth royalty financing agreement of £7.5 million with United Glass Group Limited ("UGG"), the holding company for a UK based group which represents one of the UK's leading independent glass merchants and processors.   

In order to continue to grow and diversify its portfolio, during August 2018 the Company successfully raised £44.0 million in an oversubscribed offering from new and existing institutions at 44p per share. This was Duke Royalty's largest equity raise to date by some margin.

The first deployment of that new capital also occurred during August 2018 with the Group entering into a £10.0 million royalty financing agreement with InterHealth Canada Holding Corp ("ICHC"), the Group's fifth and largest royalty partner. ICHC is the wholly owned subsidiary of a 24-year-old Canadian-based organisation, InterHealth Canada Limited, that specialises in the development, commissioning and management of healthcare facilities in multiple jurisdictions around the world.

During February 2019, the Company announced the acquisition of the entire issued share capital of Capital Step Holdings Limited and Capital Step Investments Limited (together "Capital Step"), the Group's only known UK diversified royalty competitor. With an initial implied enterprise value of £21.7 million, it was the Group's largest transaction to date and represented a transformational and accretive deal which increased the Group's portfolio from five to 11 royalty partners.  Furthermore, the acquisition allowed the Group to strengthen its investment team via the retention of two senior Capital Step executives and also allowed the Group to inherit Capital Step's existing debt line with Honeycomb Investment Trust Plc.

Also in February 2019, the Group concluded its 12^th core royalty financing with a £10.0 million royalty financing into the MRDB Holdings Limited Group ("Miriad"). Miriad is the largest privately-owned recreational vehicle ("RV") parts wholesale company in the UK, and was founded over 40 years ago.

In summary, Fiscal 2019 represented a very busy year for the Group, where it increased its core portfolio from three to 12 royalty partners providing significant diversification and less concentration risk to its shareholders. 

In regard to the dividend, the aggregate Fiscal 2019 effective dividend pay-out was in line with expectations at 2.8p per share, which showed an increase of 33% from the previous year's effective dividend of 2.1p per share. A stable and increasing dividend yield is a fundamental principle that the Company will continue to focus on in future years. I am pleased to report that at the current time the current dividend is well covered by operating cash flow and the Board will continue to monitor the ability to make further increases to the quarterly payout as additional accretive capital is deployed.

In regard to the Group's financial performance in Fiscal 2019, the Group saw the income generated from its royalty investment strategy increase significantly, which is a major step in the Group's development. I am pleased to report a total income for the year of £6.1 million, which is an increase of 238% from Fiscal 2018's £1.8 million, reflecting increased capital deployment, positive adjustment factors achieved on existing investments and the acquisition of Capital Step. It is also pleasing to note that Fiscal 2019 saw the Group's inaugural profit for a full year.  In Fiscal 2019, total comprehensive income for the year increased to £1.8 million, from a £0.9 million loss for Fiscal 2018.

Due to the nature of IFRS 9 reporting, the Group's royalty investments are classified at fair value through profit or loss which leads to both non-cash movements in the fair values of every investment at each reporting date as well as requiring all transaction and various other costs to be expensed immediately. Adding to this, the Group has various material transaction costs that have been expensed during Fiscal 2019 but which are payable over terms of up to 30 years such as the present values of the fees payable to the Group's management consultants on the UGG, ICHC and Miriad deals.  Alone, these three fees amount to a current non-cash expense of £0.65 million being recorded in Fiscal 2019.

As a result of the above impacts on the income statement, and as mentioned in my Chairman's Statement of last year, I would urge investors to focus their attention on the Consolidated Statement of Cash Flows to obtain a clearer picture of the Group's operating performance. In Fiscal 2019, this showed a net cash inflow from operating activities of £4.1 million.  

To further assist shareholders, the Group has for the first time published a non-IFRS measure of 'Adjusted Earnings.'  Adjusted Earnings represents the Group's underlying operating performance from core activities.  This provides shareholders with a detailed breakdown and reconciliation of the operating performance in note 6 to the Consolidated Financial Statements. It is worth noting that in the more mature Canadian royalty market, due to the IFRS guidelines in valuing financial instruments, many of the independent research analysts focus much more heavily on operating cash flow per share and adjusted earnings per share rather than on reported earnings per share.

Over the course of Fiscal 2019, the Company's operating, finance and investment teams have also been expanded to manage the significant growth of the Group, and I thank the core operating team for their considerable efforts during Fiscal 2019.  I am pleased to report that the operating expenses paid during the year of £1.4 million were within budget.  While some further additions may be required in the future, the Group's central operating cost is now reaching a sustainable level for the foreseeable future which allows for operating leverage.  Therefore, as further capital is both raised and then deployed, a large proportion of the income generated from new investments will fall to the bottom line.  

As always, I am appreciative of the ongoing support of our shareholders and am pleased to report the Chairman's statement for Fiscal 2019. The Group is well placed to continue to grow and I am glad to say that acceptance for the Group's product offering is gaining rapid support and momentum in the marketplace.

I look forward to being able to report on the Group's ongoing progress and development in future periods.

Nigel Birrell

Chairman

6 September 2019

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2019

	Note	2019		2018
		£		£
Income
Net change in fair value on financial assets and financial
liabilities at fair value through profit or loss	9,16,20	5,675,525		1,554,518
Loan interest receivable	2.12,10	255,664		-
Transaction costs reimbursed	2.8	207,500		145,000
Other interest receivable		1,355		-
Net foreign currency gains		-		97,238
Total income		6,140,044		1,796,756
Expenses
Support services administration fees	19	(310,000)		(806,537)
Directors' fees	19	(550,555)		(132,065)
Investment Committee fees	19	(127,217)		(37,500)
Personnel and other operating costs		(348,122)		(112,289)
Legal and professional fees		(508,915)		(229,723)
Transaction costs - royalty investments	2.7	(807,756)		(488,308)
Transaction costs - business combination	22	(700,548)		-
Royalty participation fees	2.12,20	(431,768)		(848,534)
Net foreign currency losses		(41,596)		-
Total operating expenses		(3,826,477)		(2,654,956)
Interest payable	17	(397,277)		(2)
Total non-operating expenses		(397,277)		(2)
Total expenses		(4,223,754)		(2,654,958)
Profit/(loss) for the financial year before tax		1,916,290		(858,202)
Taxation expense	5	(119,053)		-
Total comprehensive income/(loss) for the year		1,797,237		(858,202)

Basic earnings/(deficit) per share (pence)	6	1.10		(1.38)

Diluted earnings/(deficit) per share (pence)	6	1.10		(1.38)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2019

	Note	2019		2018
		£		£
Non-current assets
Goodwill	8	202,995		-
Financial assets at fair value through profit or loss	9	63,166,641		20,782,297
Loans receivable	10	8,993,465		-
		72,363,101		20,782,297
Current assets
Financial assets at fair value through profit or loss	9	8,064,939		2,786,501
Loans receivable	10	632,281		-
Trade and other receivables	11	177,578		6,687,020
Cash and cash equivalents		5,893,813		3,165,221
		14,768,611		12,638,742
Total assets		87,131,712		33,421,039
Equity
Shares issued	12	102,044,312		60,303,293
Share-based payment reserve	13	333,182		129,977
Warrant reserve	13	265,000		125,000
Retained losses	14	(30,534,913)		(28,314,324)
Total equity		72,107,581		32,243,946
Current liabilities
Trade and other payables	15	714,387		259,693
Current tax liability		247,917		-
Financial liabilities at fair value through profit or loss	16	172,918		140,886
Borrowings	17	325,938		-
		1,461,160		400,579
Non-current liabilities
Trade and other payables	15	439,709		-
Financial liabilities at fair value through profit or loss	16	1,193,579		776,514
Borrowings	17	11,365,426		-
Deferred tax liability	18	564,257		-
		13,562,971		776,514
Total liabilities		15,024,131		1,177,093
Total equity and liabilities		87,131,712		33,421,039

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2019

	Note	2019		2018
		£		£
Cash flows from operating activities
Receipts from royalty investments		5,096,698		987,192
Receipts of interest from loan investments		257,460		-
Receipts from transaction costs reimbursed		307,500		45,000
Other interest income received		1,355		-
Payments for royalty participation fees		(160,964)		-
Operating expenses paid		(1,392,331)		(785,714)
Net cash inflow from operating activities		4,109,718		246,478
Cash flows from investing activities
Royalty investments advanced		(25,032,500)		(22,932,356)
Loan investments advanced		(3,056,842)		-
Payment for acquisition of subsidiaries, net of cash acquired	22	(4,273,753)		-
Transaction costs paid - royalty investments		(624,209)		(277,737)
Transaction costs paid - business combination		(267,720)		-
Amounts advanced to agents pending royalty investment
completion		-		(6,467,500)
Payments to acquire equity investments		(313)		(250)
Proceeds from disposal of equity investments		87,989		-
Net cash outflow from investing activities		(33,167,348)		(29,677,843)
Cash flows from financing activities
Proceeds from share issue		44,010,000		19,840,275
Share issue costs		(2,398,366)		(765,613)
Dividends paid		(4,023,189)		(925,468)
Proceeds from loans	17	3,500,000		-
Redemption of loans	17	(9,109,461)		-
Interest paid		(172,146)		-
Net cash inflow from financing activities		31,806,838		18,149,194
Net change in cash and cash equivalents		2,749,208		(11,282,171)
Cash and cash equivalents at beginning of year		3,165,221		14,350,154
Effect of foreign exchange on cash		(20,616)		97,238
Cash and cash equivalents at the end of year		5,893,813		3,165,221

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2019

				Share-based
		Shares		payment		Warrant		Retained		Total
	Note	issued		reserve		reserve		losses		equity
		£		£		£		£		£
At 1 April 2017		40,905,094		124,412		-		(26,523,494)		14,506,012
Total comprehensive loss for the year								(858,202)		(858,202)
Transactions with owners
Shares issued for cash	12	19,507,275		-		-		-		19,507,275
Share issuance costs -	12	(1,188,338)		-		-		-		(1,188,338)
Share-based payments	12,13	1,079,262		5,565		-		-		1,084,827
Warrants issued	13	-		-		125,000		-		125,000
Dividends	7	-		-		-		(932,628)		(932,628)
Total transactions with owners		19,398,199		5,565		125,000		(932,628)		18,596,136
At 1 April 2018		60,303,293		129,977		125,000		(28,314,324)		32,243,946
Total comprehensive income for the year		-		-		-		1,797,237		1,797,237
Transactions with owners
Shares issued for cash	12	44,000,000		-		-		-		44,000,000
Share issuance costs -	12	(2,398,366)		-		-		-		(2,398,366)
Share-based payments	12,13	139,385		203,205		-		-		342,590
Warrants issued	13	-		-		140,000		-		140,000
Dividends	7	-		-		-		(4,017,826)		(4,017,826)
Total transactions with owners		41,741,019		203,205		140,000		(4,017,826)		38,066,398
At 31 March 2019		102,044,312		333,182		265,000		(30,534,913)		72,107,581

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 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. The Company's registered office is shown on page 63. Throughout the prior year, the Group comprised Duke Royalty Limited and its wholly owned subsidiary Duke Royalty UK Limited, a company registered in England and Wales. During the year, Duke Royalty Limited acquired the entire issued share capital of Capital Step Holdings Limited and Capital Step Investments Limited, which are both companies registered in England and Wales. Capital Step Holdings Limited owns the entire ordinary share capital of Capital Step Funding Limited, a company registered in England and Wales. Capital Step Investments Limited owns the entire ordinary share capital of Capital Step Funding 2 Limited, a company registered in England and Wales (see note 22 for further details).  The Company also established The Duke Royalty Employee Benefit Trust during the year to hold shares issued under the Group's Long Term Incentive Plan (see notes 12 and 13). The Group's investing policy is to invest in a diversified portfolio of royalty finance and related opportunities.

2.	Significant accounting policies

2.1

Basis of preparation

The Consolidated Financial Statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS"), to the extent that they have been adopted by the European Union, and applicable Guernsey law, and reflect the following policies, which have been adopted and applied consistently. The Consolidated Financial Statements have been prepared on a historical cost basis, except for the following: §    Royalty investments - measured at fair value through profit or loss §    Equity investments - measured at fair value through profit or loss §    Royalty participation liabilities - measured at fair value through profit or loss

2.2

New and amended standards adopted by the Group

IFRS 9 'Financial Instruments' became mandatory for accounting periods commencing on or after 1 January 2018, however the Group elected to apply the standard early. Accordingly, the changes arising from IFRS 9 were reflected in the financial statements for the year ended 31 March 2018. IFRS 15 'Revenue from Contracts with Customers' was adopted during the year. The majority of the Group's income is derived from royalty investments, loans and equity investments, which are outside the scope of IFRS 15 and therefore there has been no material change to the Consolidated Financial Statements as a result of the adoption of this standard. There are no other new or amended standards adopted by the Group during the year that have had a material impact on these Consolidated Financial Statements.

2.3

New standards and interpretations not yet adopted

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

2.4

Basis of consolidation

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. All intra-group transactions, balances, income and expenses are eliminated on consolidation.  Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted across the Group. The "Group" is defined as the Company, its subsidiaries Duke Royalty UK Limited, Capital Step Holdings Limited, Capital Step Investments Limited, Capital Step Funding Limited and Capital Step Funding 2 Limited and The Duke Royalty Employee Benefit Trust.

2.5

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors, as a whole. The key measure of performance used by the Board to assess the Group's performance and to allocate resources is operating cash flow, 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 12 investments into this segment and has derived income from them. Due to the Group's nature it has no customers.

2.6

Foreign currency

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

Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the reporting date. Foreign exchange gains and losses relating to cash and cash equivalents are presented in the Consolidated Statement of Comprehensive Income within 'net foreign currency gains/losses'. 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 'net change in fair value on financial assets and financial liabilities at fair value through profit or loss'.

2.7

Transaction costs

Transaction costs are costs incurred to acquire financial assets at fair value through profit or loss.  They include finders' fees, legal and due diligence fees and other fees paid to agents and advisers. Transaction costs, when incurred, are recognised immediately in profit or loss as an expense.

2.8

Transaction costs reimbursed

Income relating to transaction costs reimbursed comprises one off fees charged to investee companies as a reimbursement of certain costs incurred by the Group in connection with the related investments (see note 2.7). The Group recognises transaction costs reimbursed when the costs have been incurred by the Group and the transaction to which they relate has completed.

2.9

Income tax

The income tax expense or credit for the period is the tax payable on the current period's taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company's subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

2.10

Business combinations

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: §    fair values of the assets transferred §    liabilities incurred to the former owners of the acquired business §    equity interests issued by the Group §    fair value of any asset or liability resulting from a contingent consideration arrangement, and §    fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest's proportionate share of the acquired entity's net identifiable assets. Acquisition-related costs are expensed as incurred. The excess of the: §    consideration transferred §    amount of any non-controlling interest in the acquired entity, and §    acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the acquirer's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as financial liability are subsequently remeasured to fair value, with changes in fair value recognised in profit or loss. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss.

2.11

Goodwill

Goodwill is measured as described in note 2.10. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of the entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes.

2.12

Financial instruments

Financial assets and financial liabilities are recognised in the Consolidated Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are only offset and the net amount reported in the Consolidated Statement of Financial Position and Consolidated Statement of Comprehensive Income when there is a currently enforceable legal right to offset the recognised amounts and the Group intends to settle on a net basis or realise the asset and liability simultaneously. 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; 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 fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss 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 recognises an allowance for expected credit losses ("ECLs") for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

		ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12 month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). For trade receivables the Group has elected to apply the simplified approach permitted by IFRS 9 in calculating ECLs. This approach requires expected lifetime losses to be recognised from initial recognition of the receivables. The Group's financial assets held at amortised cost include loans receivable, trade and other receivables and cash and cash equivalents. 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 fair value through profit or loss Royalty investments are debt instruments classified at fair value through profit or loss 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 the 'net change in fair value on financial assets and financial liabilities' 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 20.  Investments in equity instruments are classified at fair value through profit or loss. 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 'net change in fair value on financial assets and financial liabilities' 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.
		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 fair value through profit or loss Financial liabilities at fair value through profit or loss 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 fair value through profit or loss 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 'net change in fair value on financial assets and financial liabilities'.  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 20. 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. Capital 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. The Group considers its capital to comprise its Ordinary Share Capital, share-based payment reserve, warrant reserve and retained losses.

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

2.13

Share-based payment

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. The Group issues warrants in return for services. These are measured based on the value of the service provided and are recognised as the service is delivered.

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 methods and assumptions used in determining the fair value can be found in note 20. 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. 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. Business combination - acquisition date fair values The assets acquired and liabilities assumed as part of the business combination have been valued at fair value at the date of acquisition. Royalty and loan investments The fair values of the royalty and loan investments have been determined using a discounted cash flow model. The key judgements required include considerations of the forecast cash flow and appropriate discount rate. The discount rates have been determined based on market interest rates and the credit worthiness of the investee entities. The discount rate applied in respect of the royalty investments was 13.2%.  If the forecast cash flows were discounted at a rate of 12.8% the fair value on acquisition would have increased by £445,781.  Conversely, if the discount rate increased to 13.6% the fair value would have fallen by £419,561.

4.	Auditor's remuneration

		2019		2018
		£		£
	Audit of the Consolidated Financial Statements	63,760		28,500

5.	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.

		2019		2018
		£		£
	Current tax
	Current tax on profits for the year	242,584		-
	Deferred tax
	Increase in deferred tax assets	(102,443)		-
	Decrease in deferred tax liabilities	(21,088)		-
	Total deferred tax benefit	(123,531)		-
	Income tax expense	119,053		-

Factors affecting income tax expense for the year

		2019		2018
		£		£
	Profit/(loss) on ordinary activities before tax	1,916,290		(858,202)
	Tax using the Group effective tax rate of 10.53% (2018 - 14.27%)	201,786		(122,458)
	Utilisation of tax losses not previously recognised	(97,268)		122,458
	Differential in tax rate	14,535		-
		119,053		-

Tax losses

		2019		2018
		£		£
	Unused tax losses for which no deferred tax asset has been recognised	-		644,517
	Potential tax benefit at 17%	-		109,568

The unused tax losses were incurred by the Company's subsidiary Duke Royalty UK Limited and have been utilised during the current year.

6.	Earnings/(deficit) per share

		2019		2018
	Basic earnings/(deficit) per Ordinary Share
	Profit/(loss) for the year (£)	1,797,237		(858,202)
	Weighted average number of Ordinary Shares in issue, excluding
	treasury shares	163,129,418		62,234,062
	Basic earnings/(deficit) per share (pence)	1.10		(1.38)

		2019		2018
	Diluted earnings/(deficit) per Ordinary Share
	Profit/(loss) for the year (£)	1,797,237		(858,202)
	Weighted average number of Ordinary Shares,
	diluted for warrants in issue	163,244,319		62,234,062
	Diluted earnings/(deficit) per share (pence)	1.10		(1.38)

The basic earnings per share is based on the Group profit for the year and on the weighted average number of Ordinary Shares in issue for the period, excluding treasury shares (see note 12). 2,000,000 warrants issued in the prior year have become dilutive this year. All other share options, warrants and Long Term Incentive Plan awards in issue are not dilutive at the year end but could become dilutive in future periods.

Adjusted earnings 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.

		2019		2018
		£		£
	Total comprehensive income/(loss) for the year	1,797,237		(858,202)
	Adjusted for:
	Unrealised fair value movements	(651,802)		(567,326)
	Gain on exercise of warrants - non-recurring	(87,989)		-
	Share-based payments	482,590		717,102
	Transaction costs, net of transaction costs reimbursed	1,160,804		273,308
	Royalty participation fees	431,768		848,534
	Tax effect of the adjustments above at the Group's effective tax rate	(140,615)		(181,460)
	Adjusted earnings	2,991,993		231,956

		2019		2018
	Adjusted earnings per Ordinary Share
	Adjusted earnings for the year (£)	2,991,993		231,956
	Weighted average number of Ordinary Shares in issue, excluding
	treasury shares	163,129,418		62,234,062
	Basic adjusted earnings per share (pence)	1.83		0.37

		2019		2018
	Diluted adjusted earnings per Ordinary Share
	Adjusted earnings for the year (£)	2,991,993		231,956
	Weighted average number of Ordinary Shares,
	diluted for warrants in issue	163,244,319		62,234,062
	Diluted adjusted earnings per share (pence)	1.83		0.37

7.

Dividends

The Company implemented a quarterly dividend policy during the year ended 31 March 2018. The following interim dividends have been recorded and paid since the inception of this policy:

				Dividend per		Dividends
				share		payable
	Record date	Payment date		(pence)		£
	30 June 2017	27 July 2017		0.5		226,887
	29 September 2017	19 October 2017		0.5		226,887
	29 December 2017	12 January 2018		0.5		478,854
	Dividends payable for the year ended 31 March 2018					932,628
	3 April 2018	12 April 2018		0.6		581,265
	29 June 2018	12 July 2018		0.7		678,142
	28 September 2018	12 October 2018		0.7		1,378,142
	28 December 2018	11 January 2019		0.7		1,380,277
	Dividends payable for the year ended 31 March 2019					4,017,826

Further quarterly dividends were paid post year end, refer to Note 23 for further details. Rights to dividends have been waived in respect of shares held by the Group's Employee Benefit Trust (see note 12).

8.

Goodwill

				Goodwill
	Years ended 31 March 2018 and 31 March 2019			£
	Opening net book amount at 1 April 2017 and 1 April 2018			-
	Arising on business combination (see note 22)			202,995
	Closing net book amount			202,995

9.	Financial assets at fair value through profit or loss

		2019		2018
		£		£
	Non-current
	Royalty investments	61,989,172		20,782,047
	Equity investments	1,177,469		250
		63,166,641		20,782,297
	Current
	Royalty investments	8,064,939		2,786,501
		71,231,580		23,568,798

A reconciliation of the movements in financial assets at fair value through profit or loss during the year is set out in note 20.

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

		2019		2018
		£		£
	On royalty investments	5,789,057		1,623,384
	On equity investments	64,761		-
	Total net gains	5,853,818		1,623,384

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

		2019		2018
		£		£
	Realised	5,184,687		987,192
	Change in unrealised	669,131		636,192
	Total net gains	5,853,818		1,623,384

Realised changes in fair value relate to cash amounts received under the Group's royalty financing agreements and cash amounts received from the exercise of certain warrants held.

Royalty investments The Group's royalty investments comprise royalty financing agreements with 12 (2018 - 3) 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 certain of its royalty investment companies.

The Group also still holds two (2018 - three) unlisted investments in mining entities from its previous investment objectives. During the year the Group disposed of one of the investments for proceeds of £87,989. The Board does not consider there to be any future cash flows from the remaining investments and were fully written down to nil value in prior years.

10.	Loans receivable

		2019		2018
		£		£
	Loans
	Non-current	8,993,465		-
	Current	632,281		-
		9,625,746		-

The Group's loans receivable comprise secured loans advanced to five entities (2018 - nil) in connection with the Group's royalty investments. This includes three loans totalling £6,598,587 that were acquired as part of the business combination (see note 22). The loans comprise fixed rate loans of £7,268,752 which bear interest at rates of between 5% and 16% and one variable rate loan of £2,356,994 which bears interest at 14.5% over LIBOR. The total interest receivable during the year was £255,664 (2018 - £nil). The loans mature as follows:

		2019		2018
		£		£
	In less than one year	632,281		-
	In one to two years	4,241,593		-
	In two to five years	4,751,872		-
		9,625,746		-

11.	Trade and other receivables

		2019		2018
		£		£
	Transaction costs reimbursed receivable	-		100,000
	Prepayments and accrued income	177,578		109,520
	Unpaid share capital	-		10,000
	Amounts advanced to agents pending royalty investment completion	-		6,467,500
		177,578		6,687,020

12.	Share capital

		External		Treasury		Total
		shares		shares		shares
		No.		No.		No.		£
	Authorised
	Unlimited no. of shares of no par value	-		-		-		-
	Allotted, called up and fully paid
	At 1 April 2017	45,377,459		-		45,377,459		40,905,094
	Shares issued for cash during the
	year	48,768,187		-		48,768,187		19,507,275
	Shares issued in settlement of share
	issuance costs	1,231,813		-		1,231,813		492,725
	Share issuance costs	-		-		-		(1,188,338)
	Shares issued in connection with
	support services agreement	1,500,000		-		1,500,000		586,537
	At 1 April 2018	96,877,459		-		96,877,459		60,303,293
	Shares issued for cash during the
	year	100,000,000		-		100,000,000		44,000,000
	Share issuance costs	-		-		-		(2,398,366)
	Shares issued to Employee Benefit
	Trust during the year	-		2,690,000		2,690,000		-
	Shares issued to directors and key
	advisers as remuneration	305,000		-		305,000		139,385
	At 31 March 2019	197,182,459		2,690,000		199,872,459		102,044,312

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. In August 2018 the Company issued 100 million new Ordinary Shares at 44 pence per share for cash. A total of £41,601,634 was raised, net of issuance costs. The Company issued 2,690,000 shares for consideration of £nil into The Duke Royalty Employee Benefit Trust, under the terms of its Long Term Incentive Plan (LTIP). See note 13 for further details. The Company issued 305,000 shares for consideration of £nil to certain directors and key advisers (see note 13).

13.	Share-based payments

Warrant reserve

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

						Warrants
						£
	At 1 April 2017					-
	Warrants issued in the year					125,000
	At 1 April 2018					125,000
	Warrants issued in the year					140,000
	At 31 March 2019					265,000

In November 2017 the Company issued 2,000,000 warrants to Partners Value Investments LP in consideration for services provided under a Strategic Advisory Agreement to subscribe for shares at 42 pence per share. The warrants are exercisable immediately and can be exercised within a period of five years from the date of the agreement. The fair value of the warrants was determined to be £125,000, being the value of services provided. This was recognised in profit or loss with £70,000 attributed to ‘Transaction costs’ and £55,000 to ‘Legal and professional fees’. In September 2018 the Company issued a further 2,375,000 warrants to Partners Value Investments LP to subscribe for shares at 50 pence per share. The warrants are exercisable immediately and can be exercised within a period of five years from the date of the agreement. The fair value of the warrants was determined to be £140,000, being the value of services provided. This was recognised within ‘Transaction costs’ in the Consolidated Statement of Comprehensive Income. At the year end 4,375,000 warrants were outstanding and exercisable at a weighted average exercise price of 46 pence (2018 – 42 pence). The weighted average remaining contractual life of the warrants outstanding at the year end was 4.08 years (2018 – 4.58 years).

Share-based payment reserve

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

		Share		LTIP
		options		awards		Total
		£		£		£
	At 1 April 2017	124,412		-		124,412
	LTIP awards	-		5,565		5,565
	At 1 April 2018	124,412		5,565		129,977
	Share options granted	11,778		-		11,778
	LTIP awards	-		191,427		191,427
	At 31 March 2019	136,190		196,992		333,182

Share option scheme

The Group operates a share option scheme ("the Scheme"). The Scheme was established to incentivise Directors, staff and certain key advisers and consultants to deliver long-term value creation for shareholders. Under the Scheme, the Board of the Company will award, at its sole discretion, options to subscribe for Ordinary Shares of the Company on terms and at exercise prices and with vesting and exercise periods to be determined at the time. However, the Board of the Company has agreed not to grant options such that the total number of unexercised options represents more than 4 per cent of the Company's Ordinary Shares in issue from time to time. Options vest immediately and lapse 5 years from the date of grant. In October 2018 the Company issued 200,000 options at an exercise price of 50 pence under the terms of the Scheme. The Black-Scholes value of the options was assessed as £11,778.  Since the options vested immediately, the full expense was recognised in profit or loss during the year.

At the year end 960,000 (2018 - 760,000) options were outstanding and exercisable at a weighted average exercise price of 70 pence (2018 - 75 pence). The weighted average remaining contractual life of the options outstanding at the year end was 2.09 years (2018 - 2.43 years).

Long Term Incentive Plan

Under the rules of the Long Term Incentive Plan ("LTIP") the Remuneration Committee may grant Performance Share Awards ("PSAs") which vest after a period of three years and are subject to various performance conditions. The LTIP awards will be subject to a performance condition based 50 per cent on total shareholder return ("TSR") and 50 per cent on total cash available for distribution ("TCAD per share"). TSR can be defined as the returns generated by shareholders based on the combined value of the dividends paid out by the Company and the share price performance over the period in question. Upon vesting the awards are issued fully paid. The fair value of the LTIP awards consists of (a) the fair value of the TSR portion; and (b) the fair value of the TCAD per share portion.  Since no consideration is paid for the awards, the fair value of the awards is based on the share price at the date of grant, as adjusted for the probability of the likely vesting of the performance conditions.  Since the performance condition in respect of the TSR portion is a market condition, the probability of vesting is not revisited following the date of grant.  The probability of vesting of the TCAD per share portion, containing a non-market condition, is reassessed at each reporting date.  The resulting fair values are recorded on a straight line basis over the vesting period of the awards. On 6 March 2018 1,025,000 PSAs were granted to Directors with a fair value of £234,390. An expense of £5,565 was recognised in the Consolidated Statement of Comprehensive Income in 'Directors' fees'. On 31 October 2018 1,665,000 PSAs were granted to Directors and key advisers with a fair value of £643,939. An expense of £89,388 was recognised in the Consolidated Statement of Comprehensive Income split between 'Directors' fees' and 'Investment Committee fees'. An expense of £102,039 in relation to the 1,025,000 PSAs granted in the prior year was recognised in 'Directors' fees'. At the year end 2,690,000 (2018 - 1,025,000) LTIP awards were outstanding. The weighted average remaining vesting period of the LTIP awards outstanding at the year end was 2.33 years (2018 - 2.93 years).

Other share-based payments

During the prior year the Company issued 1,500,000 shares with a fair value of £586,537 in respect of its support services agreement (see note 19).  During the year the Company issued 305,000 shares to certain Non-Executive Directors, members of the Investment Committee and to new members (“New Joiners”) of the Duke team.  The shares issued to the Non-Executive Directors and Investment Committee members were in recognition of the significant contribution made during the previous financial year and for voluntarily forgoing service fees.  The shares issued to New Joiners were as signing bonuses.  The fair value of the shares was determined to be £139,395, being the share price at the date of the awards.  The expense was recognised in full in profit or loss during the year.

14.	Distributable reserves

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

15.	Trade and other payables

		2019		2018
		£		£
	Current
	Trade payables	159,252		178,761
	Consideration on business acquisition (note 22)	320,811		-
	Transaction costs	98,766		-
	Accruals and deferred income	135,558		80,932
		714,387		259,693
	Non-current
	Transaction costs	439,709		-
		1,154,096		259,693

16.	Financial liabilities at fair value through profit or loss

		2019		2018
		£		£
	Royalty participation liability
	Current	172,918		140,886
	Non-current	1,193,579		776,514
		1,366,497		917,400

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

		2019		2018
		£		£
	Realised	160,964		-
	Change in unrealised	17,329		68,866
	Total net losses	178,293		68,866

17.	Borrowings

		2019		2018
		£		£
	Secured loan
	Current - accrued interest	325,938		-
	Non-current	11,365,426		-
		11,691,364		-

The secured loan has an interest rate of 9.5% over LIBOR per annum. The principal amount is repayable on 15 March 2023. The loan is secured by means of a fixed and floating charge over the assets of certain subsidiary companies. The loan was assumed as part of the business combination (see note 22). The Group assumed further loans as part of the business combination totalling £5,609,461. These loans were repaid immediately following acquisition. During the year the Group received a short term loan of £3,500,000. The loan was interest bearing at 12% per annum.  This loan was repaid during the year.

18.	Deferred tax liability

		Financial
		assets at
		fair value
		through
		profit or loss		Tax losses		Total
		£		£		£
	At 1 April 2017 and 1 April 2018	-		-		-
	Arising on business combination	946,191		(258,403)		687,788
	Charged/(credited) to profit or loss	(155,248)		31,717		(123,531)
	At 31 March 2019	790,943		(226,686)		564,257

The balance comprises temporary differences attributable to:

		2019		2018
		£		£
	Financial assets at fair value through profit or loss	790,943		-
	Tax losses	(226,686)		-
		564,257		-

19.	Related parties

Directors' fees

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

		Basic fees		Share-based payments		Total		Basic fees		Share-based payments		Total
		2019		2019		2019		2018		2018		2018
		£		£		£		£		£		£
	N Birrell	24,000		20,337		44,337		12,000		-		12,000
	N Johnson	149,995		95,408		245,403		50,000		2,715		52,715
	C Cannon Brookes	105,000		67,055		172,055		35,000		1,900		36,900
	J Cochrane	35,000		17,421		52,421		17,500		950		18,450
	J Ryan*	-		-		-		6,000		-		6,000
	M Le Tissier	-		-		-		-		-		-
	M Wrigley	24,000		12,339		36,339		6,000		-		6,000
		337,995		212,560		550,555		126,500		5,565		132,065

* Resigned 28 September 2017 Fees relating to Charles Cannon Brookes are paid to Arlington Group Asset Management Limited. During the prior year, the Directors voluntarily reduced their fees in order for the Company to implement and sustain its quarterly dividend policy. This reduction ceased during the year. The above fees include the following expenses relating to shares issued as remuneration (see note 12):

		2019		2018
		£		£
	Nigel Birrell	20,337		-
	Matthew Wrigley	12,339		-
		32,676		-

The above noted fees include the following expenses relating to awards granted under the Group's Long Term Incentive Plan (see note 13):

		2019		2018
		£		£
	Neil Johnson	95,408		2,715
	Charles Cannon Brookes	67,055		1,900
	Justin Cochrane	17,421		950
		179,884		5,565

Mark Le Tissier, a Director of Trident Trust Company (Guernsey) Limited, has waived his entitlement to a fee in relation to being Director of the Company.

At the year end a total of £33,250 of fees remained outstanding (2018 - £nil), of which £12,500 was due to Neil Johnson, £8,750 was due to Charles Cannon Brookes, £6,000 was due to Nigel Birrell and £6,000 was due to Matthew Wrigley. These fees have been settled subsequent to the year end.

Investment Committee fees

The Group's Investment Committee assist in analysing and recommending potential royalty transactions and its members are considered to be key management along with the Directors. The following fees were payable to the members of the Investment Committee during the year:

		2019		2018
		£		£
	Andrew Carragher	20,337		-
	John Romeo	20,337		-
	Jim Webster	86,543		37,500
		127,217		37,500

The above noted fees include the following expenses relating to shares issued as remuneration (see note 12):

		2019		2018
		£		£
	Andrew Carragher	20,337		-
	John Romeo	20,337		-
		40,674		-

The above noted fees include the following expenses relating to awards granted under the Group's Long Term Incentive Plan (see note 13):

		2019		2018
		£		£
	Jim Webster	11,543		-

Jim Webster is also the Group's Chief Investment Officer and has an operational role in the Group beyond the Investment Committee, which is reflected in the level of his fee. During the prior year, Andrew Carragher waived his entitlement to a fee in relation to being a member of the Group's Investment Committee, and Jim Webster agreed to voluntarily reduce his fee, in conjunction with the voluntary reductions of the Directors, in order for the Company to implement and sustain its quarterly dividend policy. During the year these reductions ceased. At the year end a total of £12,500 remained outstanding (2018 - £nil) to Jim Webster. These fees have been settled subsequent to the year end.

Support services administration fees

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

		2019		2018
		£		£
	Payable to Abingdon Capital Corporation
	Annual service fee	248,000		196,000
	Share award	-		415,818
		248,000		611,818
	Payable to Arlington Group Asset Management Limited
	Annual service fee	62,000		24,000
	Share award	-		170,719
		62,000		194,719
		310,000		806,537

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.

The Support Services Agreements also entitled Abingdon and Arlington to be allotted up to 1,500,000 Ordinary Shares in the Company, in recognition of the execution of the royalty strategy, principally the completion of royalty investments by the Group. These conditions were met during the prior year and the shares were issued on 22 December 2017. This entitlement has now been satisfied in full and no further shares will be issued pursuant to the Support Services Agreements. The shares were valued at £586,537 based on the 20-day volume weighted average share prices preceding the dates on which Abingdon and Arlington became entitled to them in accordance with the terms of the agreement.

During the prior year, both Abingdon and Arlington agreed to voluntary reductions in their annual service fees in order for the Company to implement and sustain its quarterly dividend policy. These reductions ceased from October 2018.

Share options and LTIP awards

The Group's related parties have the following interests, either directly or beneficially, in share options issued under the Group's share option scheme and Long Term Incentive Plan:

		Share options				LTIP awards
		2019		2018		2019		2018
		No.		No.		No.		No.
	Neil Johnson	85,000		85,000		1,350,000		500,000
	Charles Cannon Brookes1	85,000		85,000		950,000		350,000
	Nigel Birrell	85,000		85,000		-		-
	James Ryan	-		85,000		-		-
	Justin Cochrane	70,000		70,000		175,000		175,000
	Jim Webster	-		-		215,000		-

1 Includes share options issued to Arlington

The following dividends were paid to related parties:

						2019		2018
						£		£
	Neil Johnson1					90,794		33,636
	Charles Cannon Brookes2					139,200		58,000
	Nigel Birrell					19,962		8,500
	Justin Cochrane					19,980		10,600
	Matthew Wrigley					189		-
	Andrew Carragher					7,737		-
	John Romeo					312		-

1 Includes dividends paid to Abinvest Corporation, a wholly owned subsidiary of Abingdon 2 Includes dividends paid to Arlington

20.	Fair value measurements

Fair value hierarchy IFRS 13 requires disclosure of fair value measurements by level of the following fair value hierarchy: Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities that the entity can readily observe. Level 2: Inputs are inputs other than quoted prices included within level 1 that are observable for the asset, either directly or indirectly. Level 3: Inputs that are not based on observable market date (unobservable inputs). The Group has classified its financial instruments into the three levels prescribed as follows:

		2019		2018
		Level 3		Level 3
		£		£
	Financial assets
	Financial assets at fair value through profit or loss
	- Royalty investments	70,054,111		23,568,548
	- Equity investments	1,177,469		250
	Total financial assets at fair value through profit or loss	71,231,580		23,568,798
	Financial liabilities
	Financial liabilities at fair value through profit or loss
	- Royalty participation liabilities	1,366,497		917,400
	Total financial liabilities at fair value through profit or loss	1,366,497		917,400

The following table presents the changes in level 3 items for the years ended 31 March 2018 and 31 March 2019:

		Financial		Financial
		assets		liabilities		Total
		£		£		£
	At 1 April 2017	-		-		-
	Additions	22,932,606		(848,534)		22,084,072
	Royalty income received	(987,192)		-		(987,192)
	Net change in fair value	1,623,384		(68,866)		1,554,518
	At 1 April 2018	23,568,798		(917,400)		22,651,398
	Additions	31,500,313		(431,768)		31,068,545
	Business combination	15,493,338		-		15,493,338
	Royalty income received	(5,096,698)		-		(5,096,698)
	Royalty participation liabilities paid	-		160,964		160,964
	Proceeds from exercise of warrants	(87,989)		-		(87,989)
	Net change in fair value	5,853,818		(178,293)		5,675,525
	At 31 March 2019	71,231,580		(1,366,497)		69,865,083

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 of the resulting fair value estimates are included in level 3. The fair value methodologies and techniques have remained unchanged and are consistent with that of the prior year. 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 revenue growth rates and the discount rate.  The range of annual revenue growth rates used is 0.0% to 6.0% and the range of risk-adjusted discount rates is 12.4% to 17.5%. An increase in the annual revenue growth rates (subject to the collars set under the terms of the royalty financing agreements) of 5% would increase the fair value by £496,804. A reduction in the discount rate of 25 basis points would increase the fair value by £909,907. A decrease in the annual revenue growth rates (subject to the collars set under the terms of the royalty financing agreements) of 5% would decrease the fair value by £488,743. An increase in the discount rate of 25 basis points would decrease the fair value by £922,819. Equity investments Sensitivity analysis has not been performed on the Group's equity investments on the basis that they are not material to the 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 13.6% to 17.5%. An increase in the annual adjustment factor (subject to the collars set under the terms of the royalty financing agreements) of 5% would increase the fair value of the liability by £11,233. A reduction in the discount rate of 25 basis points would increase the fair value of the liability by £7,619. A decrease in the annual adjustment factor (subject to the collars set under the terms of the royalty financing agreements) of 5% would decrease the fair value of the liability by £11,002. An increase in the discount rate of 25 basis points would decrease the fair value of the liability by £19,257.

21.	Financial risk management

The Group's royalty financing activities expose it to various types of risk that are associated with the investee companies to which it provides royalty finance. The most important types of financial risk to which the Group is exposed are market risk, liquidity risk and credit risk. Market risk includes price risk, foreign currency risk and interest rate risk. The Board of Directors has overall responsibility for risk management and the policies adopted to minimise potential adverse effects on the Group's financial performance. The policies and processes for measuring and mitigating each of the main risks are described below. Market risk Market risk comprises foreign exchange risk, interest rate risk and other price risk. Foreign exchange risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency exchange rates. The functional and presentation currency of the Group is Sterling. The Group is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the Euro. Foreign exchange risk arises from future commercial transactions in recognised assets and liabilities denominated in a currency that is not the functional currency of the Company and its subsidiary. The Board monitors foreign exchange risk on a regular basis. The Group's exposure to this risk is outlined below.

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

		2019		2019		2018		2018
		Euro		US Dollar		Euro		US Dollar
		£		£		£		£
	Royalty investment	7,095,492		-		7,216,755		-
	Equity investments	1,176,906		-		-		-
	Loans receivable	2,413,191		613,968		-		-
	Cash and cash equivalents	372,501		8		75,663		-
	Royalty participation liability	(274,849)		-		(293,002)		-
	Transaction costs payable	-		(538,475)		-		-
		10,783,241		75,501		6,999,416		-

If Sterling strengthens by 5% against the Euro the net Euro-denominated assets would reduce by £513,488. Conversely, if it weakens by 5% the assets would increase by £567,539.

During the year the following foreign exchange related amounts were recognised in profit or loss:

		2019		2018
		£		£
	Exchange (loss)/gain on royalty investment included in net change in fair value
	on financial assets and liabilities at fair value through profit or loss	(121,263)		77,837
	Exchange loss on equity investments included in net change in fair value
	on financial assets and liabilities at fair value through profit or loss	(23,228)		-
	Exchange loss on loans receivable included in net foreign
	currency losses	(20,980)		-
	Exchange loss on royalty participation liability included in net
	change in fair value on financial assets and liabilities at fair value
	through profit or loss	(36,963)		(8,493)
	Other exchange gains included in net foreign currency (losses)/gains	(20,616)		97,238
		(223,050)		166,582

Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial asset will fluctuate because of changes in market interest rates. The Group's main interest rate risks arise in relation to its royalty investments, which are carried at fair value through profit or loss, and its borrowings, which are subject to an interest charge of LIBOR + 9.5%. The Group's royalty investments have a fair value at the reporting date of £70,054,111 (2018 - £23,568,548). A sensitivity analysis in respect of these assets is presented in note 20.

The Group's borrowings have a fair value at the reporting date of £11,365,426 (2018 - £nil). A sensitivity analysis has not been presented as it is not material to the Consolidated Financial Statements. Other price risk Other price risk is the risk that the fair value of future cash flows of a financial asset will fluctuate because of changes in market prices (other than those arising from interest rate risk or foreign exchange risk). The fair value of the Group's royalty investments fluctuates due to changes in the expected annual adjustment factors applied to the royalties payable by each of the investee companies, which are based upon the revenue growth of the investee company. A sensitivity analysis in respect of the annual adjustment factors applied to the royalty investments is presented in note 20. Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Group's maximum exposure to credit risk is as follows:

		2019		2018
		£		£
	Royalty investments	70,054,111		23,568,548
	Loans receivable	9,625,746		-
	Deal fees reimbursed receivable	-		100,000
	Funds held in escrow	-		6,467,500
	Cash and cash equivalents	5,893,813		3,165,221
		85,573,670		33,301,269

Royalty investments The royalty investments relate to the Group's 12 royalty financing agreements. At the reporting date there are no royalty receipts that are past due. The Group monitors the credit worthiness of the investee companies on an ongoing basis and receives regular financial reports from each investee company. These reports are reviewed by the Investment Committee. The credit risk relating to these investments is taken into account in calculating the fair value of the instruments. The Group also has security in respect of the royalty investments which can be called upon if the counterparty is in default under the terms of the agreement.

Loans receivable The Group's loans receivable are held at amortised cost. Included within the 'loans receivable' asset of £9,625,746 is £6,598,557 relating to assets acquired as part of the business combination (see note 22). Any expected credit losses at the time of the business combination were taken into account in arriving at the acquisition date fair values. Since there have been no changes in the associated credit risk between the date of acquisition and the year end no expected credit loss has been recognised. The remaining balance of £3,027,189 relates to loans advanced by the Group during the year.  These loans have been reviewed by the Directors.  The Board considered the credit risk, both at issue and at the year end, and have determined that there has been no significant movement. Consequently any loss allowance is limited to 12 months' expected losses. Such allowance is considered to be immaterial due to the security held by the Group in connection with the related investments. Cash and cash equivalents The credit quality of the Group's cash and cash equivalents can be assessed by reference to external credit ratings as follows:

		2019		2018
	Moody's credit rating:	£		£
	Aa2	1,585		-
	Aa3	-		294,136
	Baa2	5,193,588		-
	Baa3	-		2,871,085
	Unrated	698,640		-
		5,893,813		3,165,221

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

Liquidity risk Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. The Group maintains sufficient cash to pay accounts payable and accrued expenses as they fall due. The Group's overall liquidity risks are monitored on a quarterly basis by the Board. At the year end the Group had access to an undrawn borrowing facility of £4,550,001 (2018 - £nil) (see note 17).

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

							Total
							contrac-
		Less than	6 - 12	Between	Between	Over	tual cash
		6 months	months	1 - 2 years	2 - 5 years	5 years	flows
		£'000	£'000	£'000	£'000	£'000	£'000
	As at 31 March 2019
	Royalty investments	4,350	4,387	10,250	38,733	200,393	258,113
	Royalty participation	(107)	(78)	(208)	(740)	(4,206)	(5,339)
	Trade and other payables	(990)	(296)	(96)	(288)	(480)	(2,150)
	Borrowings	(652)	(652)	(1,304)	(14,583)	-	(17,191)
	Total	2,601	3,361	8,642	23,122	195,707	233,433

	As at 31 March 2018
	Royalty investments	1,473	1,515	3,132	10,044	88,712	104,876
	Royalty participation	(92)	(57)	(117)	(377)	(3,327)	(3,970)
	Trade and other payables	(260)	-	-	-	-	(260)
	Total	1,121	1,458	3,015	9,667	85,385	100,646

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

22.	Business combination

Summary of acquisition On 1 February 2019, Duke Royalty Limited acquired the entire issued share capital of both the Capital Step Holdings and Capital Step Investments groups. Capital Step Holdings Group comprises Capital Step Holdings Limited and its wholly owned subsidiary Capital Step Funding Limited. Capital Step Investments Group comprises Capital Step Investments Limited and its wholly owned subsidiary Capital Step Funding 2 Limited. The Capital Step group is a UK-based diversified provider of royalty and uni-tranche financing. Details of the purchase consideration, the net assets acquired and goodwill are as follows:

				£
	Cash paid			4,591,757
	Cash payable			320,811
	Contingent cash consideration			-
	Total purchase consideration			4,912,568

The contingent consideration is subject to the achievement of certain performance related milestones in the period to 31 March 2020. The potential undiscounted amount payable under the agreement is between £nil and £1,300,000. The fair value of the contingent consideration of £nil was estimated based upon the future expected performance of the acquired entities. The Group has designated 31 January 2019 as the acquisition date for the purposes of determining the fair value of assets acquired and liabilities assumed. The assets and liabilities recognised as a result of the acquisition are as follows:

				Fair value
				£
	Royalty investments			14,293,205
	Equity investments			1,200,134
	Loan investments			6,598,587
	Cash			318,004
	Other current assets			103,614
	Corporation tax payable			(5,333)
	Other current liabilities			(145,776)
	Loans payable			(16,965,074)
	Deferred tax liability			(687,788)
				4,709,573
	Add: Goodwill			202,995
				4,912,568

The goodwill is attributable to the workforce of the acquired business. It will not be deductible for tax purposes.

Revenue and profit contribution The acquired business contributed income of £393,737 and profit before tax of £66,465 to the Group for the period from 1 February to 31 March 2019. The Group has not presented the information required by paragraph B64(q)(ii) of IFRS 3 'Business Combinations', being the revenue and profit or loss of the combined entity for the current reporting period as though the acquisition date for the business combination had been as of the beginning of the annual reporting period.  The acquired entities were in a transition phase during the period, with their total number of investments increasing from two to six between 1 April 2018 and 31 March 2019.  Consequently such information would not be representative of the financial effect of the acquisition and would give rise to misleading results.

Purchase consideration - cash outflow

				£
	Cash paid			4,591,757
	Less: Cash balance acquired			(318,004)
	Net outflow of cash - investing activities			4,273,753

Acquisition-related costs Acquisition-related costs of £700,548 are included in 'Transaction costs' in the Consolidated Statement of Comprehensive Income. Of this, £267,720 was paid during the year.

There were no acquisitions in the year ending 31 March 2018.

23.	Events after the financial reporting date

Dividends On 17 April 2019 the Company paid a quarterly dividend of 0.7 pence per share and on 12 July 2019 the Company paid a further quarterly dividend of 0.7 pence per share. Modifications to existing investment agreements On 14 May 2019 the Group announced certain modifications to the terms of three loans receivable that were acquired as part of the business combination.  The maturity dates of two of the loans were extended from 2022 to 2024 and the third loan was converted to a royalty investment. Follow-on royalty investments On 28 May 2019 the Group announced a follow-on investment of £1.4 million into its royalty partner Welltel (Ireland) Limited. On 29 August 2019 the Group announced a follow-on investment of £0.25 million into its royalty partner Pearl & Dean Cinemas Limited.

 

END

 

 

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