Duke Capital (LSE:DUKE) — Results for the year ending 31 March 2021

0:02 Good afternoon, ladies and gentlemen, and welcome to the DUKE Royalty Results Presentation for the Year Ending 03/31/2021. Throughout this presentation, investors will be in listen only mode. Questions are encouraged, can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your question and press send. Company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. These will be available via your investment company dashboard, and we will notify

0:33 you by email when they're ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll. And if you'd be so kind as to give your attention to that, we'd be most grateful. And I'd now like to hand over to Hugo Evans, CFO and Neil Johnson, CEO. Good morning to you both. Good morning, Mark, and Good morning, morning, everyone. I'll start. It's Neil Johnson, the CEO, and welcome to our financial twenty one results presentation. This these are results from March 31 or 04/01/2020 to 03/31/2021.

1:18 And so what a what a year it was. It was right at the very beginning of of the pandemic that we started our financial year. And and so we're really pleased that that we have so many shareholders on this call and and that that we have we have some good news to present for you today. But before I hand over to Hugo, I just wanna set the scene a a little bit about what is and who is DUKE Royalty. We're an alternative finance company, not a fund but an investment company that provides a minimally dilutive capital that has no refinancing risk for private owner managed companies that are profitable.

2:07 So what that in effect means is that for companies that are strong and long standing profitable companies, we provide capital for them without losing control. And no refinancing risk and and no dilution, significant dilution to the owners, that is what appeals to them and what we can provide to them because we are a public company in a long term basis. So I'll get to that, but just for the slide number three, we have today, 11 royalty partners, but we have we've had 16 different partners, five have been refinanced out. We'll get to that. A £140,000,000 now has been deployed since inception and we are recycling some of the capital from the capital that we get back from our refinancings.

3:06 We are the one and only royalty corporate royalty provider in The UK and Europe and the only one listed on the London Stock Exchange. We do have competition, but mostly mostly bank loans and we don't really compete with private equity because we are not looking for companies that are for sale. We will talk about our resilience in COVID-nineteen, I'll leave that for for Hugo, but the tenants of our investment thesis is that we provide a strong dividend and we have we've had a dividend yield ranging from 5% to 8%. We pay quarterly cash dividends and we have since our inception And what we aim to do is is increase the dividend by becoming a bigger company and putting more capital to work.

4:08 That is because as I said, a company structure, we are salaried employees and not a percentage of of our capital. Therefore, the operating leverage is high. We're very cash flow generative and and we have long term embedded growth into the into the royalty contracts that we that we have.

4:31 We're also really pleased kind of in a post COVID world to have a growing market. And we can talk about our market opportunity and how we sit within, you know, the the non bank finance industry, which is very very large. And we don't do all things we don't have a solution for all situations. We're not all things to all people, but I think we have a very strong and robust market to go into. And why don't we turn to exactly what we do? Hopefully, I'll I'll canter through this. We can take questions about it in the back, but for the for the shareholders, this might be old news. Really, what a corporate royalty is, is we we don't do mining or music royalties that we predated a lot of those companies that you might know on the London Stock Exchange and AIM these days.

5:28 But corporate royalty is more like a corporate mortgage. It's a long term participating loan that is not a direct percentage of sales. What we do is we provide a lump sum of capital and and have that term of this long term loan of about thirty years. That's our tradition. And so it acts like a mortgage. And you are at the end of the thirty years, you have no more obligation. Hence, there's no refinancing risk. What you have to pay is actually a percentage of the capital that we have provided, not a direct percentage of revenue. So for example, £10,000,000 capital injection will on average be £1,300,000 of revenue to DUKE royalty.

6:23 The the royalty aspect or the participating aspect is adjusted once per year based on the revenue growth or decline of the business. And in currency terms, that is adjusted, it has a collar and a cap. So it's very steady and if we do our job right, more years than less will be a positive adjustment. And so you can see if that 13% was day one, the adjustment on any one year can only be another 0.7 and and then that 13 would be 13.7, that 13.7 could adjust plus 6%, so it is compounding adjustment.

7:17 So the other interesting aspect of this is that our total obligation, I e our return to all the shareholders can be serviced out of the the current cash flow of the company. So we do not need an exit event, which is a revolution for owner managed businesses. They either have private equity that need to return their capital, so they need to triple the EBITDA and then sell out as quickly as possible. Banks need to be repaid their capital, and there's a lot of aggressive amortization payments these days after a couple credit crisis in the over the last ten to twelve years. So the the no bullet repayment at the end of the term is a is a key tenant of of our of our of our way we finance.

8:11 The the the point of of this, as I've already mentioned, is that companies can pay back and buy back the royalty. And we usually have a non call period of three years, but then after that, for any reason, they can they can pay us back. It does come with penalties. It's kinda like your your house mortgage. You're gonna have to pay penalties to get out of the mortgage, but you do not the bank does not require you to live in your house for thirty years. So that's the same thing here. Our our returns get a bump. It's better for our shareholders if they do get bought back, but we have to recycle that capital. But again, this is all about keeping control in the in the hands of the business owners.

9:00 They they don't lose their equity control, their board control, and they are in control of the refinancing events as well. And that is pretty unique in in in the in the marketplace that we that we rely on. Just a couple things on on here, I don't wanna go through all these just to canter through the presentation, but you know, we at the beginning of our fiscal year, it was very tough. You know, the the the pandemic was bearing down. No one knew what was what was going to happen. We had a a three month bullet, three month kind of game plan to make sure that we and our royalty partners as we call them, had had the liquidity to manage through the business. So for our shareholders, you'll know that we changed to a script dividend for a couple of quarters as we assessed the health of our portfolio and helped our royalty partners act like long term partners.

10:12 We provided forbearance agreements, we took up board seats, we equitized some payments. So we really we really preserved value for our shareholders long term and actually got some equity stakes that we think are going to be very valuable. The sure enough, there was a three month battle plan, the economy recovered, the sales recovered and and the profits recovered in inside our portfolio and and and we and we monetized some good

10:46 partners and equities. So we've that was kind of the first half. In the second half, you know, we've gone back on the front foot. We've hired a new Chief Investment Officer, Peter Maduros. He actually came from our debt provider. So he saw firsthand the resilience of our portfolio and decided to join us. I thought that was a pretty good endorsement. We had one royalty partner in February 2021, we've added three more since the end of this the last fiscal year. The credit facility that Peter was our relationship manager on increased in March of this year. So we're really extended sorry, extended the term, increased the facility and we're really excited about that.

11:42 Moreover, we had a great endorsement from our equity shareholders. We've got some great shareholders, new and existing on the register as a sign of of their commitment to what we're doing. And so we're we're very pleased about that. But let me let me hand over to Hugo now to go through the the rest of the the financials. Yeah. Many thanks, Neil, and afternoon, everyone. Just from a sort of an overview perspective, I really just wanna say from a you know, the 12 in question, bear in mind, we're talking the period of April 1 to March 31. The twelve months, you know, right through the pandemic, you know, right at the beginning of the lockdown, you know, businesses everywhere, and I'm sure you'll all feel the same, were, you know, some very harshly affected. So for us to be able to produce a positive set of results when, you know, many companies throughout last year were issuing profit warnings, suspending dividends for us to come and produce what what I feel is a very positive set of results.

12:52 It's very, very pleasing indeed, and I think it's testament to what Neil referred to in terms of the resilience of our business model and shows that we've now sort of proven through the down cycle as well as saying a great credit to the company and to everyone involved. Moving into snapshots. For those of you that sort of don't know us that well, we pay we are a cash generative business. We pay quarterly dividends. And I've always said, judge us on our cash flow generation. And therefore, it's extremely pleasing to be able to sort of show that we grew our cash flows during the twelve months in question. Top line cash revenue grew from 10,300,000 to 11,000,000 and lower down operating cash flow and operating cash flow per share also increasing.

13:44 I'd like to point out that the increase in cash revenue is even more pleasing considering the forbearance agreements that we put in place at the start of of April. We we we had a stated policy of supporting our royalty partners through this. We are a long term capital partner, so we want to work with our businesses. And as such, in April last year, we introduced these forbearance agreements with five of our partners to alleviate their short term liquidity constraints caused by COVID. So that is not lost cash revenue. We have, in some cases, accrued that interest, and I can go on to that later. In other cases, we've equitized it, and there's a slide later on showing where we hold now equity stakes in a number of our businesses.

14:38 The operating cash flow per share obviously went up from 3.17% to 3.68 as shown on the slide. That was helped not only by the increase in the top line cash revenue, but also a lot of prudent cost control throughout the year. We negotiate with a lot of our service providers short term reductions in our payments, and we cut all noncore operating expenses. So it's a combination of sort of increase in the top line and but also very, very fiscal prudence, I think, in terms of our own operating costs. Moving just well, I've also included an adjusted earnings special. I don't want to sort of totally ignore the income statement.

15:24 The reason I I place a lot more emphasis on the cash flow statement, and it's why actually it's on my primary statement in the annual report. You'll see I'm probably the only company that actually reports my cash flow statement in front of all the others. The income statement is very distorted by the fair value movements in our investments. So we do include an adjusted earnings per share figure here, which really reflects more of the underlying operating performance of the business. And I'll go come into the sort of the royalty the valuation of the royalty investments and those fair value movements when we touch on the balance sheet. But again, very pleasing to see that the adjusted earnings per share total adjusted earnings increased from GBP 5,200,000 to 6,600,000, resulting in an 11% increase in the adjusted earnings per share.

16:18 Moving on to the sort of the cash flow in a little bit more detail. We've obviously talked about the increase in the top line cash revenue, the reduction in the core operating expenses there, down from 2,300,000,000 to 1.85 But a few other sort of points just to really sort of note on. You'll see the dividends obviously halved in FY 'twenty one. For those of you that are shareholders, you will know that we did suspend our cash dividend through that stated policy of preserving cash through the first half of the pandemic or first half of the year right at the start of the pandemic. We did continue to pay dividends through scrip. So that number refers to purely the cash dividend. The actual total dividend paid was up at 6,000,000. I think it's also worth highlighting, and I put in this slide the investment deployments.

17:06 We did it back in April 2020, announced we sort of suspended all new investments for the very reason that we want to support our royalty partners, both if they had liquidity constraints, but also if opportunities presented themselves during sort of times to make further acquisitions. So that 24,500,000 of deployments through the year is very pleasing, in fact, that, that is only one new royalty partner, which we invested with our new partner in Fabrikat in February 2021. So that's 18,000,000 of follow on deployments into existing royalty partners. So while many businesses have obviously struggled significantly through COVID, there have been opportunities for some of our royalty partners to to go on sort of and and acquire other businesses.

18:00 And and it's Myriad and UGG to name a couple of our royalty partners as well as Welltel who actually ended up refinancing us out in in December. But to to sort of deploy more, I think, in in through the last twelve months than we did in the the prior year is a great testament to the investment team.

18:24 Moving on to the balance sheet. You will see our royalty investment portfolio, loan investment equity increasing from 85,000,000 to £94,000,000 Now for those of you that don't know, we I value our royalty investments under IFRS nine. The sort of technical quick technical overview of that is I basically produce a model for every investment. It's a thirty year discounted cash flow and is very sensitive to the growth rates of our of our royalty partners. So last year, we took 15,000,000 of write downs

18:58 because of COVID and because where a number of our businesses would have had plus six adjustment factors, those reversed to minus six. I've managed to claw back. We or we have as a business claw back 10,000,000 of those fair value write downs. So the investment portfolio is now sitting a lot healthier than it was. But again, alluding back to the income statement, that is why I sort of tend to veer away from the income statement because you'll see last year, we made a loss of circa GBP 9,000,000 on account of those fair value write downs as opposed to sort of GBP 15,000,000 profit this year. So not necessarily reflective of the actual operating performance of the company. I will just point out one other sort of number in this balance sheet because it stands out in terms of our the other assets, which are up at GBP 10,400,000.

19:51 As those of you that follow will know, we sold our riverboat assets on the March 31. That is a deferred payment over two two point five years, and we'll expect, I think, final payments in June 23. So that other asset line will come down over the next couple of years. Next real slide is really just sort of giving you slightly more detail in terms of the fair value of our royalty partners and sort of where we sit at the moment. As I said last year, we took fairly significant write downs.

20:28 And the two box on the right top of on the top of the screen, the right hand side, you'll see fair value of the portfolio was £88,000,000 £10,000,000 below its cost. So we were sitting roughly 10% below cost this time last year. And those reversals have come through and now the fair value, which includes the equity investment portfolio, but we're now sitting at £5,000,000 above cost. So if you take out the equity portfolio portion of that, which is £3,500,000 the royalty portion of that is sitting just above cost. And I think taking a step back intuitively, that feels very sort of about right. You know, last year, it was very, very uncertain where the economy was going, whereas now I think there's a there's a lot a lot first of all, a lot of recovery has been seen, and I think people are much more bullish about the next sort of twenty four months. So you would expect to see a rebound in the growth rates.

21:21 But, ultimately, there is still uncertainty. And so a portfolio sitting around cost, I think, is is feels about right. I think it's worth pointing out as well. I know I know a lot of people often get very nervous about fair value movements and in terms of overvaluing portfolios. And I think the difference for us is that our model is constrained by that adjustment collar. So you will never see our investments going up 50% in one year because the growth rates that drive our fair values can never fluctuate greater than 6% or less than 6%. So I do always point you to the fact that while, yes, we are subject to these swings in fair value, it's very different. You'll never see sort of our portfolio sitting at 50%, 60% above cost because the nature of the models just don't allow it. And it's worth just looking at a couple names. I'm sure Neil will go into a little bit more detail in terms of the portfolio in the next few slides, but you'll see a couple of our partners, which I alluded to, Myriad and UGG, they're now sitting sort of 7.5%, 3.5% above cost. Both of those, Myriad especially being

22:29 has benefited from the staycation boom and has seen significant write ups this year. UGG took an opportunity to make a strategic acquisition in February 2021, and that massively reduced sort of its risk environment, increased its growth rates. And again, from a position where it was sitting fairly well below cost last year, it's now sitting 3.5% above cost. And that's not to say that the three there, you'll see Trimite links and BIL, which are now still sitting below cost. That's not to say that we're at all worried about those investments. It's purely the recovery and the rebound and the growth rates hasn't been quite as strong possibly as other files like Myriad.

23:15 And hence, they're still sitting slightly below cost. And I would very much hope over the next certainly the next twelve to eighteen months that those final fair value movements will reverse. So that's sort of my take on the results. Just to summarize, again, I think, a business, we're very, very happy with those results To produce an increase in cash flow generation over the twelve months that we had, I think, is, as I said, a real testament to the model and a real testament to those involved within the company. Back to you, Neil. Thank you, Hugo. Right. Okay. Yeah. Let's let's just I I was looking at some of the comments and questions that you had. Want this to be interactive, so I'm gonna I'm gonna address some of those right now.

24:04 I won't spend time on all our royalty partners. Some of them, you know, we've certainly been through before. There was a question regarding Trimite. Trimite is not back to full it's out of forbearance, which

24:22 when what we have done is is have a scheduled re repayment schedule, And and that will be over a over a number of years and they can they that arrears. We equitized a certain amount of payments up until October of last year and they're accruing some payments because they're they're paying half of what they should.

24:50 So there is an accrual building which will reverse the next fiscal year. So they are in a recovery phase, their sales are going very well. You know, it's it's one of the the the tails which which is part of the recovery, your sales are going up, your cost of goods also go up, so prices are increasing, inflation is coming in, we can see that across the trimes, the glass,

25:25 the Myriad, the the some of the some of the auto parts and FABRICAD as well, one of our new royalty partners that is in steel fabrication and steel prices, they've had to increase the price. But these are all industry

25:43 industry characteristics not affecting our companies any more than anyone else. So the whole industry prices are are are going up and being managed. So that's Trimite. A little bit on others, Interhealth was another one in forbearance and they are back to full payments as of January of this year as a matter of fact. So for a long time, they've been in compliance. Again, they wanted to accrue, not equitize the the missed payments. So that's that's gonna be a bonus in the future. We have a solution there. But but again, their their COVID their COVID happened right as they were opening hospitals, which delay the opening of the hospitals and that revenue And and the one hospital that that was that is open is the Turks And Caicos Countries hospital system that they that they run.

26:44 And COVID has affected them ways or did, which was the forbearance and now they're back to full payments and fully back on the right foot. The other question that I that I that we had was about

27:07 Creo and some of the new investments that that we've made. Let's just take all all four of them. FabriCat UK based MBO in steel fabrication. It's like lamp posts and guard rails for for councils and there's only three or four of them in The UK and so it's a little oligopoly, very good business and we and we and we now long term managers are now the owners of the business and have been there for thirty years. We really like that that that very nice and boring company. FairMed is generics, it's in healthcare. Jim Webster, our our in chairman of the investment committee really was a royalty healthcare royalty specialist and so as a European regulatory and marketing arm of a large Indian generics manufacturer, that is that's one from Switzerland And INTECH is very it's very similar to Welltel that got that got refinanced, bought back last year.

28:22 What it does is IT services. And so when for small businesses, they provide the maintenance and and and services for for your for a company's computers and and software systems. And so they are this is a buy and build. And so they've actually bought eight companies and we and they've been around for for for five years. And most importantly, the companies that they're buying are long standing profitable businesses. So so this is a buy and build, but what they're buying is is is core to the the investment thesis for DUKE. LIMITS is the other one. LIMITS was is a we're at the holding code, and we are the the senior security of of the holding company for LIMITS Equity UK, which has now seven different companies underneath it, all of them long standing profitable businesses.

29:27 So the question about Creotech, one of them was, is that a new company and why isn't it long standing and profitable? The the way I guess the RNS read is that Creo Creo Tech, the the holding company is new, but the two companies that we bought just like LIMITED, just like INTECH, they're they are from the nineteen nineties and 2003, been around for twenty to thirty years, profitable companies, niche EPC businesses, we're marrying them together. They're also a buy and build strategy that we can we can drive synergies in those businesses. And so we like that business, it's it's very much on track. So apologies if the RNS read that we were doing something that we that we usually don't do.

30:25 The other question about Triotech is that I'm I'm really excited about is that is in in Canada. And, you know, our our thesis is we're bringing a Canadian royalty concept that's been that's been developed over decades for the first time into The UK. And and so The UK shareholders like all of us on the on the on the phone and and the and the European or UK small businesses, SME businesses that we're investing into have never had the opportunity to either grain the capital or or invest in this sector before.

31:12 And you know, there's there's there has never been a UK only focus on this, the riverboats were in were in The Netherlands, we've had Irish companies and and and so Western Europe and North America has has been part of the strategy. But in North America, we have competition, but at least we have educated companies. In The UK and wider Europe, we don't have much competition in in royalties, but we have a lot of education to do. It's getting easier because we have more and more knowledge and a presence in the market, but opportunistically, like for example, Creotech, I've known one of the one of the founders for twenty years. We have networks here.

32:04 Jim's from Toronto. Justin Cochran, you guys might remember. He's on our investment committee and been in royalties forever. We have a we have a presence and a network in North America that opportunistically we're going to we're going to do. And and I'm here for the shareholders. I'm a big shareholder and we we founded this with Charlie Brooks with our own money. So I'm I'm a very large shareholder. What I'm here for is to get the best shareholder returns and and that those the the Swiss deals and the Canadian deals are actually more tax efficient because of our Guernsey Topco than than UK deals. So I'm gonna make sure that I work for the shareholders and we and we do the best the best deals with the lowest risk and highest return that we can.

33:00 But Creo Tech is is very much boring a and long established companies that we're that we're building there. So boring is the new exciting as we say. Let's just continue on. I I am happy to take more questions as well. So I'm answering a few, but but we'll leave time at the end for other questions. In this slide is our exits. And I think the pleasing thing about fiscal twenty one and and and today on the phone that we can that we can shout from the rooftops is is not only that we've proven that we are resilient in a downturn, which was a core tenant of our investment thesis, but we had never lived through a downturn.

33:53 I could point to another company and another geography and another team and another portfolio and say we're gonna replicate that. But until we've lived through a downturn, we couldn't say we've done it. I don't wish another downturn like we like we've lived through. But to say that we've now come come through and demonstrated to our investors that we what what our core thesis is is pleasing. The second the second thing that we're talking about today, especially on this page, is that we can demonstrate to our royalty partners that that it benefits them for for taking our capital. And that's because we've had buyouts.

34:40 And and Welltel and Extreme Push accelerated their business plan. COVID came along and the work from home, Welltel was in that in that telecommunication services and, you know, what what they thought would take them five years was was here in '3 and they sold to private equity. And it was their choice. We we got a nice return of 2727% IRR. They they had a 10 x on their invested capital. So they're they're very, very happy. And and we and and they were in control of their exit. So these kind of things that that's the second part of of of fiscal twenty one is that the recycling of capital, it's good for our shareholders, but it's good for the royalty partners and that will just indicate to more and more business owners that we are a good partner to take instead of the banks when things go bad, they they they want their money as as fast as they can get it back. They're not here for the long term.

35:57 The banks were were, you know, were their banks and banks names were muddied again in the media in this in this downturn just like they were in o eight. And so that our our royalty partners, you know, mistrust the banks and and so when we can say there's no refinancing risk and we're long term partners, it sure helps when we can show them some some positive exits for for for business owners. So we like that. Let me go to just a little bit because, you know, we are in September. We're headed to October.

36:47 And, you know, we've we've had five months of this fiscal year. A little bit about the the market. I said at at the beginning that we believe that, you know, in a post COVID environment, companies will will look for alternative financing. When there's short term uncertainty, they look for long term solutions and and certainly, the the non bank industry, as you can see, the bottom of the slide has doubled over the last ten years. And and that's a global number. There are there are lots of different flavors of of that, But for for the SME business owner, the ones that are we provide that alternative to the banks, that is only going one way. The banking regulations that that that basically preclude the banks from from having competitive terms to SME businesses open the door for us to to provide solutions for that subset.

37:56 For those business owners that do not wanna sell their businesses. We are we are in that niche, but it is not expanding and we have been doing a lot of a lot of business. I mean, we've we've done four deals this year, calendar year. We're evaluating a great number of of new opportunities. You know, the number is about a 125 already this year. We've done four, we've evaluated a 125 companies and we've written four checks. So, know, the the the criteria is very is very specific. Our our due diligence is very rigorous.

38:44 We have McKinsey and Company do commercial due diligence with us. We have a partnership with them that is very taxi, very easy on our cash flows, there's no broken deal costs, we don't pay them unless we write a check. So it's a very partnership model that that we have. But what that means is that we're very picky with our with our with our cash and basically with your with your hard earned investment dollars, what we're we're good shepherds of that. And I think you'll see more of the same in the months and years to come. I won't dwell on this, but as you can see, you know, right at the top, it's the the the buy and builds, the management buyouts, and really capitalizations, equity recapitalizations.

39:40 When a majority owner has some minority equity partners that that wanna wanna exit, you know, this is a way for him to increase his equity stake and and have a silent partner that that he keeps control of his business. We like those types of situations and really it's that refinancing risk that we take away and also the free cash flow impact on the on the years right down at the bottom there is is light. Those are the two types of things that that the business owners love. I talked about FABRICAT. I'm not gonna dwell on this because I'd like to to keep some good time for questions.

40:26 And and let's just wrap up. The the as Hugo says, you know, it's a it's a it's it's a pleasing year for us. We did have new equity raised in April. We're now at record cash quarterly revenues. We have momentum with four new royalty partners. We know that the market opportunity is expanding here in The UK and in our markets. What we have to do is ensure that more and more trusted advisors, intermediaries know about our product to pitch us and we're seeing the we're seeing the fruits of our of our labor over the last four years.

41:16 There was one question about the liquidity, that that answers that. It's £55,000,000 that's basically we're we're net cash neutral. We have the £35,000,000 of the Palm Street plus the accordion and with the pipeline that we have, we feel that, I can't say for certain, but we'll certainly be doing more deals between now and the end of end of March. And, you know, I I we gotta get it through our investment committee and our board and and past due diligence. So and no promises, but but, you know, the the past, I feel as confident about, you know, the upcoming six to twelve months as I as I did about six to twelve months ago. So that should give you some comfort.

42:10 Great. I think that's the end of our presentation. The other slides are appendix, and we can talk to them if there's any other questions particularly on them. That's great. Neil, Hugo, thank you very much indeed for updating investors. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the company take a few moments to review those investor questions submitted already, I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard. I'd also like to remind you that your feedback is important to the company. And immediately after this presentation has ended, you'll be redirected for the opportunity to provide feedback in order the company can better understand your views and expectations. Neil, Hugo, obviously investors have the ability to pre submit questions. Perhaps I could just start off the Q and A with those. And then if I could hand back to you to read out the questions and give a response where it's appropriate The to do first question that we received ahead of today's event, how much capacity do you currently have left in your debt facility?

43:12 Combined with cash and assuming a reasonable liquidity buffer, how much firepower do you have currently for further royalty deals? I think, Mark, I think Neil has effectively answered that right at the end there. We we're we're currently in a cash neutral position. So we have a £35,000,000 facility with Poland Street with an extra 20,000,000 accordions. So we have currently 55,000,000 of spare liquidity and firepower to invest. Perfect. Thank you. Apologies. Next question. Funds similar to you in The US and Canadian markets have billion dollar valuations and more established and mature. If your $5.10 year plan to seek growth in this direction to dominate The UK market or remain steady in a mid cap size company, therefore what should I really expect as a long term investor?

44:01 Well, very good question. Our we believe that bigger company reduces the risk, reduces the risk for shareholders in a number of ways, better liquidity in the stock, more number of larger number of royalty partners, bigger size which should be a more less risky investment. So we have and now in the last two years, we've introduced a line of credit. So we're building. We're building, we think that as the market expands, we have big opportunity to put more capital to work.

44:49 You know, the most important thing that an investment company needs to convey to you is that with more capital, our our operating leverage kicks in. And now we're at we've hired a CIO and and and a junior. That's doesn't doesn't move the dial too much on our operating overheads and therefore every new investment that goes straight down to the bottom line in terms of profits. So that's the operating leverage that we talk about. And so more capital was better per share. So our shares should go up now that we're hopefully, we're behind all the crises that we have. I we're talking about Brexit when we started and now we're talking about COVID and and in a post COVID world, it'll be a new normal, but I think we we know that we can live with this disease and we can live with Brexit as well. So these these things we'll have to both live with, but hopefully, there's no there's no existential threat on the horizon.

46:02 And we we now have a full team. So our so our costs don't have to increase at the at the at the rate that they had to when we started. And that means on a per share basis, the cash flow per share is going to go up. That means we can improve our dividend per share and that means all things being equal, the stock will go up if the dividend yield stays the same and I can see that a bigger company that yield compression will also kick in as well. So we're happy to be the leaders in this market. As I said, we are opportunistically looking in Europe and North America, on a basis of what's the best return for the lowest risk for our shareholders.

46:58 That's great. Thank you very much indeed. I think you in fact did touch upon the other pre submitted questions. So in the interest of time, perhaps if I could just hand back to you guys, if you'd be so kind as to read out the question, who it's from, and give a response, and I'll pick up when you're ready. Yeah. Neil, I can I'll have it sent first. Why don't you do one? I haven't read them. Yeah. No. Exactly. You really feel I'll do a couple. I can do the first one very quickly. Peter w has asked, how do set about valuing the investments, and how often are they audited? As I alluded to earlier, we each investment has its own model. It's a thirty year discount to cash flow analysis. I'm audited once a year, and the auditors go through a huge amount of detail analyzing those investments and analyzing my models. And it's why we released our results in September on the back of a March year end. The audit process is about two and a half, three months analyzing that. So while we are only audited once a year, I obviously do a sort of recap after six months for the interims and check kind of how the companies are trending against the growth rate the immediate growth rates that we've used. So although we're only audited once a year, obviously, there's there there is more that goes into it than just that.

48:10 So and then the second question was there's a few questions about the equity stakes. I'll Dave asked, you increased the book value of equity investment in partners to around 3,500,000. The valuation is based on a p applied to their profits, but many partners made little, if any, profit in 2021. Do you consider the book value materially undervalues the equity if these stakes were bought back by management or sold to private equity? Good question. You make a good point. I mean, ultimately, yes, all of our business act actually are and have been profitable apart from probably, obviously, the the riverboats where the industry shut down completely. The ACTI stakes are based on very conservative, very conservative market EBITDA multiples and are based off f y twenty one forward looking EBITDA.

49:03 Do I consider them to be materially undervalued? In all honesty, I I think there probably is some upside there on the basis that the auditors are very, very tight on the multiples they use. And I'll touch very briefly. BHP, which we exited in August, exited on a multiple in the region of nine to 10. That was the multiple used in the valuation at year end was was six. So, you know, there is upside in the fact that the the auditors are are punitive on on analyzing the the multiples that I use. So are they materially undervalued? Probably not well, depends what you call material, but I think there is definitely value upside in those equity stakes.

49:50 I've seen a couple questions just in regards to how many well, there's there's two that I'd like to touch on. One topic is how many how many companies can you comfortably hold and and analyze and and monitor. You know, we we as I as I alluded to, Peter Maduras is full time in London and he's come from Poland Street Capital as our Chief Investment Officer as well as which we didn't publish was we had one junior join us as well on the investment team. So we're nine employees. Just by way of reference, there is a Canadian company, Alaris Equity Partners has 14 people.

50:41 They run a billion dollars, which is £600,000,000 as as their as their book. So we we feel that very comfortable that we can get to twenty twenty royalty partners with the with the current team without any without breaking a sweat. That could be 250 to £300,000,000. And and we we're recycling the capital. I think there's a there's a number of question about, you know, can can you keep up with the investments? I would say that I think COVID accelerated a number of those refinancing, so we wouldn't expect five in a year, we might expect one or two, So it'll be easy for us to to get to 20 not too far.

51:30 There was one other topic that, you know, I was I was looking okay. Yes. There's there's a number of topics about the dilution and and equity placings and and, you know, I I I think I touched on that without reading a a bunch of these questions. But just to just to to let you know, we we are conscious of the the dilution every every time we have an equity placement and the and the cash drag that that that that does. I think the line of credit that we have alleviates that, we'll go into, you know, a £50,000,000 debt position and then a $50,000,000 placement would have no cash drag and we would we would just swap that debt to equity and be debt free. So that would be a boost.

52:27 But going forward, when someone talks about, you know, the the five to ten year future, you know, we we want as shareholders ourselves, c shares or structured debts or third party capital to to really have DUKE royalty and the and the PLC be the engine for more and more hybrid strategies, royalty strategies. We're here and I think if you believe you're a shareholder, I hope you know that we are really adamant about delivering on our promises and and and doing what we said we're gonna do.

53:20 So, you know, pandemics aside, but but we but we're here for the shareholders. So we we constantly evaluate that and and part of why Peter is here after after founding different private debt strategies at his old his old shop, he really loves this model and how we can tweak it for the benefit of our shareholders. We're not gonna do anything off strategy, but but something that we can do that alleviates that that that cycle as we get bigger and as we have a five year track record. Will be five years next year. You know, those those milestones and £250,000,000 is is a milestone and these things these things matter as you as you get bigger.

54:15 But when you start out, you need to do one strategy. You have options when you're when you're bigger. Now just touch on another topic, actually. There seems to be themes on some of these questions. There's a couple of questions here talking about our dividend policy. And a question from Chris, will first quarter income is at record levels? Will this lead to an increase in dividends later this year? Our dividend policy in the admission document was sort of a and and, generally, how we see it is sort of paying out 80 to 90% of our free cash flow. That's what we we intend to do in the immediate future. Will the record levels of incoming lead to increased dividends? I would hope so. Look. I I can't sit down here and tell you we've just announced we maintain the dividend at naught point naught point naught $5.05 p, I think, naught 0.55 p a couple of days ago.

55:12 I'm not gonna sit here and say 100% yes, but it would be natural to assume that as our cash generation per share increases, we will try and increase the dividends. You know, we we've always said we pay a quarterly dividend. We're a high yielding stock. So we would like to increase the dividend when we feel it's appropriate. And our history proves that that thesis. Absolutely. I mean, the dividend was was annualized. You know, pre COVID, the dividend was up at three p annualized. I I like I like the dividends. I I'm I'm in favor. All in favor. You do. Great. Let's see. Sorry. I I should have been looking.

56:02 I can ask a very quick one. Keith b, can you enlarge on how the accordion facility works? Yes. We draw down to our our 35,000,000 term. At that point, if we have further investments to make, we will speak to Pollan Street, who will do a little bit more work to check that they're comfortable with our LTV levels, etcetera, and then we will effectively request a drawdown on that accordion. So it's it's a it's a partnership with Poland Street. I don't see any reason in the world that they wouldn't give us access to that accordion. And then it's just it's it works on the same basis as our current facility. We will just drawdown and and repay as and when. I I've got one here. This is Stuart g. What is the most exciting opportunity in the pipeline in your mind?

56:50 And can a shift towards sustainable environmentally conscious companies be seen? The first question is probably Myriad, which which at the time in 2019 was The UK's largest RV and caravan parts distributor and was pretty boring. But, boy, did that get exciting very quickly with the the staycation markets and they're kind of they're kind of smashing through their their budgets pre COVID. So we do have a 24% equity stake in that in that business. And so that one was is is is higher and more exciting. It is in the top of our of our list now of over fair value oh, sorry, over cost.

57:39 And so that's that. Let's talk about ESG. We we have a policy that's on our website. Please refer to that. It's responsible investing. It talks about putting that into our due diligence and our criteria, which we have done and reporting on our ESG. I'll tell you a couple examples that, you know, for example, TRI MITE that has been a royalty partner since 2018, you know, is an industrial coatings. However, I'm on the board and we have mandated the environment as one of our core strategies to get better and better. So this is about this is about, you know, a conscious shift to to getting more environmentally responsible, so they're doing that.

58:39 For our criteria, for example, we passed on a very would have been a very on the face of it, a very cheap transaction, I e, high return for for us to get involved in an alcohol beverage company. But but we've we we passed on that on that opportunity. And so so that's an example of of our of our ESG policy in in in action. I think that's probably probably time, I think, Mark, if it's Yeah. No. I was just gonna jump in and save it. It seems for every one question you answer, somebody's sending you another. So I think possibly in the interest of time, make I mean, firstly, may I thank all the investors for taking the time to submit these questions. And of course, you know, we'll make everything available where appropriate. We'll publish responses on our website if we haven't got through them today.

59:39 But I know investor feedback is important to you guys. And before I shortly redirect investors to provide you with their thoughts and expectations, perhaps now I could ask you just for a few closing comments to wrap up with, and then I'll divert investors to let you know what they're thinking. Well, the poll is 91% that we're shareholders. So so that that is very pleasing to see and thank you. That that's that's my my message to you. It it was a very you know, it was it was a very stressful time for all investors in March 2020 and and certainly, had some sleepless nights looking just purely on our stock price. But but the but the resiliency of our team and the resiliency of of everyone involved in DUKE royalty and our royalty partners, I I'm I'm pleased with the with the outcome, and I'm pleased that you're here with us.

1:00:39 Thank you for for coming along for the ride. And and again, I think we look with with optimism to the future and be safe out there. Neil Hugo, thank you once again for updating investors this afternoon. Could I please ask investors not to close the session as we will now automatically redirect you for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of DUKE Royalty Limited, we'd like to thank you for attending today's presentation. That now concludes today's session. Good afternoon to you all.