Fundraising to raise £44 million and notice of EGM

RNS Number : 6525U

Duke Royalty Limited

13 July 2018

 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, INTO OR FROM THE UNTIED STATES, CANADA, AUSTRALIA, JAPAN, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT. 

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU) NO. 596/2014 ("MAR"). IN ADDITION, MARKET SOUNDINGS (AS DEFINED IN MAR) WERE TAKEN IN RESPECT OF CERTAIN MATTERS CONTAINED IN THIS ANNOUNCEMENT, WITH THE RESULT THAT CERTAIN PERSONS BECAME AWARE OF SUCH INSIDE INFORMATION, AS PERMITTED BY MAR.  UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN AND SUCH PERSONS SHALL THEREFORE CEASE TO BE IN POSSESSION OF INSIDE INFORMATION.

THIS ANNOUNCEMENT DOES NOT CONSTITUTE A PROSPECTUS OR OFFERING MEMORANDUM OR AN OFFER IN RESPECT OF ANY SECURITIES.

13 July 2018

Duke Royalty Limited

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

Fundraising to raise £44 million and announcement of EGM

Duke Royalty Limited (AIM: DUKE), a provider of alternative capital solutions to a diversified range of profitable and long-standing businesses in Europe and abroad, is pleased to announce a conditional placing and subscription ("Fundraising") to raise £44 million, before expenses by way of the issue of 100,000,000 ordinary shares of no par value ("New Shares") at a price of 44 pence per share (the "Issue Price"). The net proceeds of the Fundraising of approximately £42 million will allow the Company to continue to finance its diversified pipeline of royalty financing opportunities.

Highlights

·      Fundraising to raise gross proceeds of £44 million

·      Net proceeds to diversify portfolio of royalty investments and provide working capital

·      Four new potential royalty partners under signed letters of intent, with aggregate demand of £27.5 million of capital

·      Additional proceeds to execute new identified opportunities and/or make follow on investments in existing royalty partners

·      Following full deployment of capital, Duke could have exposure to up to 9 Royalty Partners and 13 underlying diverse businesses

·      Increased dividend yield expected following deployment of capital over a period of less than 12 months

·      Issue price of 44 pence per share

Neil Johnson, Duke's CEO commented, "We are delighted to have closed such a sizable Financing today with the strong support from new and existing institutions.  The Board firmly believes in the ability to scale the business and these proceeds will be used to broaden the portfolio and produce accretive cashflow for shareholders.  The Company has made significant progress since readmission in March of last year and I look forward to updating the market as we further deploy the proceeds into long-standing, profitable businesses in Europe and abroad."

Notice of Extraordinary General Meeting ("EGM")

The Fundraising is conditional on Shareholders passing a resolution authorising the Directors to allot the New Shares as if the rights of pre-emption in Article 4.2 of the Articles of the Company did not apply to any such issue.  An extraordinary resolution is passed where no less than 75 per cent. of those present and entitled to vote, or voting by proxy, in a general meeting vote in favour for it to be passed.

The EGM of the Company is to be held at 10:00 a.m. on 2 August 2018 at the offices of Trident Trust 4th Floor, West Wing, Trafalgar Court, Admiral Park, St Peter Port, Guernsey, GY1 2JA. A copy of the circular and Notice of EGM will be posted to Shareholders shortly and will be available on the Company's website at www.dukeroyalty.com.

Background to and reasons for the Fundraising

Following its successful readmission to AIM in March 2017, the Company has achieved a number of milestones to date. Duke completed its first two royalty transactions with investments into Temarca B.V. and Lynx Equity (UK) Limited, both of which are performing in line with expectations, generating solid revenue growth and yields of over 12 percent. In addition to this, following the successful raising of a further £20 million in growth capital in December 2017, the Company has added two additional royalty partners to its portfolio, with the first transaction completing in March 2018 through the provision of £9 million to Trimite Global Coatings Limited, a Birmingham-based specialist coatings manufacturer with an initial cash on cash yield of over 13 percent. Subsequently a second transaction was completed in April 2018, whereby up to £7.5 million was provided to Brownhills Investments Limited, the holding company for a UK based group which represents one of the UK's leading independent glass merchants and processors. Brownhills drew down £6.5 million immediately to refinance its existing debt obligations and facilitate the completion of an acquisition. The terms of this arrangement provide for an initial cash yield of over 13 percent. The Company has fully deployed all the available capital raised at its re-admission to AIM and subsequently.

Having already secured four royalty partners, the Directors' strategy is to continue to build a diversified portfolio of royalty streams from companies ("Royalty Partners"), increasing its short to mid-term dividend yield and de-risking its business. Over the past months, the Company has continued to evaluate a number of potential Royalty Partners.  The Company is now seeking to raise additional funds to deploy on further royalty transactions.

The Board is now seeking to raise £44 million (before expenses) to provide funding for a further four new Royalty Partners totaling approximately £27.5 million, all of which are under signed letters of intent  on Duke's typical terms.  The balance of the funds will be applied towards follow on investments in three existing partners on the terms of their original contributions, and/or will be applied to pipeline deals to further diversify the portfolio at the Board's discretion, as well as for working capital. The Fundraising is not conditional on the completion of the investments in the four new Royalty Partners, which are still subject to  due diligence and definitive documentation.

The Board believes that the Fundraising and subsequent deployment of capital will provide investors with a more diversified portfolio. The portfolio is expected to provide Duke with a long term predictable revenue stream, paid monthly with embedded growth. Upon full capital deployment, the Board believes that Duke will be able to increase the Company's dividend to a near double digit yield.

Use of Proceeds

It is intended that the proceeds from the Fundraising will be used to provide follow on investment in the Company's existing portfolio of Royalty Partners, to capitalise on four identified near-term opportunities, to repay the loan of £3.5 million as announced on 14^th June 2018 ("the loan") and to provide working capital.

The four near-term investment opportunities that the Company is currently pursuing are:

A)    A £10 million investment into a healthcare services provider 

This company was established in 1994 to provide clinical management services for hospitals and medical clinics. Since 2010 it has been focused on public private partnership contracts with 25 to 30-year terms managing hospitals in a variety of countries. This potential Royalty Partner has an international reach, as in addition to domestic projects it operates in wider Europe, the Middle East and the Caribbean. Duke would provide funding for working capital and more growth opportunities. Non-binding terms have been agreed for an investment of £10 million in line with Duke's typical deal structure including:

·      over 13% initial cash-on-cash yield;

·      an annual adjustment factor based on revenue performance, subject to a collar; and

·      a 30-year term, with seniority over equity, and provides the Royalty Partner with a buy-back option incurring a penalty.

This investment opportunity is still subject to final due diligence and definitive documentation. It is expected that this transaction will be concluded within a few weeks of completion of the Fundraising.

B)    Up to US$7 million investment into a media publications business

As announced on 14 June 2018, Duke has signed a letter of intent with a United States media publications company.  With publications established in the 1950's, this company is currently undergoing an MBO and is a leading publisher of legal publications centering around changes in police law in the United States. Duke's funds are intended to enable the Royalty Partner to complete the MBO process. Non-binding terms have been agreed for an investment of up to US$7 million in line with Duke's typical deal structure including:

·      over 13% initial cash-on-cash yield;

·      an annual adjustment factor based on revenue performance, subject to a collar; and

·      a 40-year term, senior security, and provides the Royalty Partner with a buy-back option incurring a penalty.

This investment opportunity is well advanced but still subject to final due diligence and definitive documentation. It is intended that this transaction will be completed in the coming weeks together with full repayment of the loan.

C)    A US$9 million investment into a healthy foods and drinks vending machine business

Founded in 1999, this United States Company is one of the largest business-to-business companies of its type in the healthy foods sector with over 6,000 vending machines sold in 40 states. The total number of vending machines in the US is 4.6 million and this sector is expected to grow at 9% according to Grandview Research in November 2017.  Duke's funds are intended to enable two of the Royalty Partner's founding shareholders to sell down and to provide working capital to accelerate growth, whilst limiting dilution to the new shareholder group. Non-binding terms have been agreed for a US$9 million investment in line with Duke's typical deal structure including:

·      over 13% initial cash-on-cash yield;

·      an annual adjustment factor based on revenue performance, subject to a collar; and

·      a 40-year term, senior security, and provides the Royalty Partner with a buy-back option incurring a penalty.

This investment opportunity is still subject to due diligence and definitive documentation.

D)    A €5 million investment into an industrial instrumentation business

This company was founded in 1990 and is a European designer/manufacturer of patented professional noise & vibration detectors. It has sales in over 40 countries around the world. Duke's funds are intended to enable a founding shareholder and another individual to buy control from two other founding shareholders and to further grow the business organically through tuck-in acquisitions. Non-binding terms have been agreed for a €5 million investment in line with Duke's typical deal structure including:

·      over 12% initial cash-on-cash yield;

·      an annual adjustment factor based on revenue performance, subject to a collar; and

·      a perpetual  term, senior security, and provides the Royalty Partner with a buy-back option incurring a penalty.

This investment opportunity is still subject to due diligence and definitive documentation.

In the event that any of  A), B), C) or D) do not complete, the Board would expect to deploy proceeds into alternative Royalty Partners, and/or the current options the Company has in relation to the existing Royalty Partners.  The Board's stated goal is to increase the diversification in the number of Royalty Partners, and has a further identified near term pipeline of new Royalty Partners with up to £5 million of capital which could be deployed into such partners. 

Current Trading

The Company's underlying royalty portfolio is trading well with the Company increasing its interim dividend to 0.7p per share per quarter as announced on 19 June 2018. As detailed above, the Company has continued to identify and diligence potential new Royalty Partners whilst it has started to generate royalty revenues from the investment with its four existing Royalty Partners.

The Company is expecting to announce its annual results for the period ended 31^st March 2018 in early September this year, which are expected to be in line with market expectations. It will publish a Notice of Results nearer to the time.

Details of the Fundraising

The Fundraising has been undertaken by way of a conditional placing and subscription of 100,000,000 New Shares (comprised of 96,785,000 placing shares and 3,215,000 subscription shares) with existing and new shareholders of the Company at the Issue Price.   The Issue Price represents a discount of approximately 7.6 per cent to the closing price of 47.6 pence per existing Ordinary Share, being the closing price on 12 July 2018.

The Fundraising is conditional, inter alia, on the Placing Agreement not having been terminated in accordance with its terms, on the granting by Shareholders of authorities to the Directors to disapply the pre-emption rights contained within the Articles and to issue shares and admission of the New Shares to trading on AIM becoming effective. A Circular will shortly be sent to Shareholders convening an Extraordinary General Meeting at which they will be asked to give the Directors the requisite authorities. 

The Fundraising is not conditional on the Company entering into a contract with either of the four companies described above, and may be invested in another opportunity, or opportunities, as the Board deems suitable.  The Board anticipates that the net proceeds of the Fundraising should be fully invested (or committed to be invested) within 12 months of Admission. However, there is no fixed period within which the Company would be required to conclude royalty agreements or return funds to Shareholders.

Issue of Share and Admission to trading on AIM

 The Company will issue 1,025,000 shares pursuant to the Company's Long Term Incentive Plan which were approved by the Remuneration Committee on 6 March 2018, and will be issued to the Duke Royalty Employee Benefit Trust, pending satisfaction of the relevant performance criteria.  The Board intends to issue such shares immediately following the Extraordinary General Meeting, although shareholder approval is not required

Application will be made to the London Stock Exchange for the New Shares and the shares issued to the Duke Royalty Employee Benefit Trust to be admitted to trading on AIM at the conclusion of the Extraordinary General Meeting. It is expected that Admission will become effective at 8:00am on or around 3^rd August 2018.

Total Voting Rights

Following Admission, the Company will have a total of 196,877,459 Ordinary Shares in issue carrying voting rights.  This figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in the Company, under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

Directors' dealing and shareholdings

The following Directors participated in the Fundraising as follows:

Name	No. of existing Ordinary Shares	No. of New Shares	Total holding	Percentage of enlarged issued share capital following Admission
Neil Johnson (1)	3,207,193	300,000	3,507,193	1.78
Charles Cannon-Brookes (2)	5,000,000	300,000	5,300,000	2.69
Nigel Birrell	650,000	150,000	800,000	0.4

(1) Of these, prior to the Fundraising 1,570,193 Ordinary Shares are legally owned by Abingdon Capital Corporation ("Abingdon") and Abingdon has subscribed for 230,000 New Shares, representing £101,200 in the Fundraising. Mr Johnson is Abingdon's sole voting shareholder. Following the issue of New Shares, Abingdon will legally own 1,800,193 Ordinary Shares on Admission. Mr Johnson has subscribed in his own name for 70,000 New Shares, representing £30,800, in the Fundraising].

(2)  Of these, prior to the Fundraising 2,500,000 Ordinary Shares are legally owned by Arlington Group Asset Management ("Arlington"). Arlington has not subscribed for any New Shares in the Fundraising.  Mr Cannon-Brookes is the investment director of Arlington and holds 40.27 percent of the voting shares of Arlington. Following the issue of New Shares, Arlington will legally own 2,500,000 Ordinary Shares on Admission. Mr Cannon-Brookes has subscribed in his own name for 300,000 New Shares, representing £132,000, in the Fundraising.

Related Party Transactions

The participation in the Fundraising by the Directors and their associates, set out in the above table, is deemed to be a related party transaction pursuant to the AIM Rules for Companies. In addition, both Canaccord Genuity Wealth Management (Hargreave Hale) and AXA Framlington are substantial shareholders in the Company and have agreed to subscribe for 14,818,000 and 8,250,000 shares respectively in the Fundraising which is deemed to be treated as a related party transaction under the AIM Rules for Companies.

The directors independent of the participation in the Fundraising (being the directors excluding Charlie Cannon-Brookes, Neil Johnson and Nigel Birrell), consider, having consulted with the Company's nominated adviser, Grant Thornton UK LLP, that the terms of the Directors' and their associates' participation in the Fundraising are fair and reasonable insofar as the Company's Shareholders are concerned. The directors consider, having consulted with the Company's nominated adviser, Grant Thornton UK LLP, the participation of Hargreave Hale and AXA Framlington in the Fundraising to be fair and reasonable insofar as the Company's Shareholders are concerned.

Expected Timetable of Principal Events

Announcement of the Fundraising		13 July 2018
Circular and Form of Proxy published		16 July 2018
Latest date and time for receipt of proxy forms	Time 10:00am	31 July 2018
Extraordinary General Meeting	Time 10:00am	2 August 2018
Announcement of the results of the Extraordinary General Meeting		2 August2018
Admission and commencement of dealings in New Shares	8.00 a.m.	3 August 2018
New Shares in uncertificated form expected to be credited to accounts in CREST	As soon as possible after 8.00 a.m.	3 August 2018
Despatch of definitive share certificates for the New Shares in certificated form	Within 10 business days of Admission

Each of the times and dates above refer to London time and are subject to change by the Company and/or Joint Brokers. Any such change will be notified to Shareholders by an announcement on a Regulatory Information Service and the details of the new times and dates will be notified to the London Stock Exchange.

For further information, please contact:

Duke Royalty Limited	Neil Johnson / Charlie Cannon-Brookes
	[phone]
Grant Thornton UK LLP (Nominated Adviser)	Colin Aaronson / Samantha Harrison / Seamus Fricker
	[phone]
Cenkos Securities plc (Joint Broker)	Stephen Keys / Callum Davidson / Michael Johnson [phone]
Mirabaud Securities Limited (Joint Broker)	Peter Krens / Edward Haig-Thomas
	[phone]
Redleaf Communications (PR)	Elisabeth Cowell / Robin Tozer / Ian Silvera
	[phone]

About Duke Royalty

Headquartered in Guernsey, Duke Royalty Limited provides alternative financing solutions to a diversified range of 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. For more information, visit www.dukeroyalty.com

Important Notice

Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended ("MiFID II"); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, the "Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the Product Governance Requirements) may otherwise have with respect thereto, the New Shares have been subject to a product approval process, which has determined that the New Shares are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, Placees should note that: the price of the New Shares may decline and investors could lose all or part of their investment; New Shares offer no guaranteed income and no capital protection; and an investment in New Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Fundraising.  Furthermore, it is noted that, notwithstanding the Target Market Assessment, the Joint Brokers have only procured investors who meet the criteria of professional clients and eligible counterparties.  For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to New Shares.

Cenkos Securities plc and Mirabaud Securities Limited, which are authorised and regulated in the United Kingdom by the FCA, are acting for the Company and for no one else in connection with the Fundraising and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Cenkos Securities plc and Mirabaud Securities Limited or for providing advice in relation to the Fundraising, or any other matters referred to in this Announcement.

Grant Thornton UK LLP, which is authorised and regulated in the United Kingdom by the FCA, is acting for the Company and for no one else in connection with the Fundraising and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Grant Thornton or for providing advice in relation to the Fundraising, or any other matters referred to in this Announcement.

No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by or on behalf of the Company, Grant Thornton UK LLP, Cenkos Securities plc or Mirabaud Securities Limited or by their affiliates or their respective agents, directors, officers and employees as to, or in relation to, the accuracy or completeness of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefor is expressly disclaimed.

Certain statements in this Announcement are forward-looking statements which are based on the Company's expectations, intentions and projections regarding its future performance, anticipated events or trends and other matters that are not historical facts. These forward-looking statements, which may use words such as "aim", "anticipate", "believe", "could", ""estimate", "expect" and words of similar meaning, include all matters that are not historical facts. These forward-looking statements involve risks, assumptions and uncertainties that could cause the actual results of operations, financial condition, liquidity and dividend policy and the development of the industries in which the Company's businesses operate to differ materially from the impression created by the forward-looking statements. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Given those risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements and, except as required by the UK Financial Conduct Authority, the London Stock Exchange or applicable law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

 

END

 

 

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