Final Results

Duke Capital Limited (AIM: DUKE), a leading provider of hybrid capital solutions for SME business owners in Europe and North America, is pleased to provide its audited final results for the 12 months ended 31 March 2024 ("FY24").

FY24 Highlights

• 38% year-on-year increase in total cash revenue to a record £30.3 million (FY23: £21.9 million)
• 12% year-on-year increase in recurring cash revenue* to a record £24.3 million (FY23: £21.8 million)
• Free cash flow** of £17.9 million, up 40% from £12.8 million in FY23
• 35% increase in free cash flow per share to 4.34p (FY23: 3.21p)
• 55% increase in adjusted earnings to 4.85p per share (FY: 3.13p)
• Quarterly dividend of 0.70p throughout FY24, equating to an annualised dividend of 2.80p
• Delivered three successful and profitable exits (Instor, Fabrikat and Fairmed), which provided Duke with £23 million of additional liquidity for future deployments
• Deployed over £46 million of capital during the year, including investments into new capital partners Glasshouse (£9.0 million) and Integrum Care Group (£14.5 million)
• Completed strategic review resulting in a change of name to Duke Capital and renewed positioning for the Company's unique hybrid credit product.

Post Period End Highlights

• £6.3 million of recurring cash revenue expected in Q1 FY25, representing a 5% year-on-year increase (Q1 FY24: £6.0 million)
• One additional follow-on investment completed in Q1 FY25 into BPVA (Ireland), deploying £4.0 million of capital

*Recurring cash revenue excludes exit premiums and cash gains from the sale of equity investments

Neil Johnson, CEO of Duke Capital, said:

"FY24 has been a rewarding year, characterised by strategic progress and delivery. In contrast to FY23 where we exercised caution in our approach to new deployments due to rapidly changing macroeconomic conditions, FY24 saw us deploy new capital more confidently, resulting in new cash revenue highs. During the period, we secured two new partners and delivered four follow-on investments into existing capital partners, deploying over £45 million in total and diversifying our revenue base. We also delivered three successful and profitable exits, providing us with £23 million of additional liquidity for future deployment. These successful exits are an excellent demonstration of how our capital can empower business owners to grow their business while retaining control of any re-financing timing."

Analyst Presentation

There will be a webinar for equity analysts at 09:30 a.m. BST today hosted by Neil Johnson, CEO, and Hugo Evans, CFO.

​Any equity analysts wishing to attend should contact SEC Newgate at dukecapital@secnewgate.co.uk where further details will be provided.

Investor Presentation

Neil Johnson and Hugo Evans will also provide a live investor presentation relating the FY24 results via the Investor Meet Company platform on Monday 1 July at 12:45 p.m. BST.

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

Chairman's Statement

The financial year to 31 March 2024 ("FY24") has been a busy year for Duke and we are very pleased with the strategic progress achieved during the period.

In my statement this time last year, I highlighted that, due to the macroeconomic trends we were observing, we expected to achieve a higher deployment rate in FY24 enabling us to consistently grow and deliver new records in terms of cash revenue and operating cashflow.

I am pleased to report that this has indeed been the case, demonstrating that while the macroeconomic environment has continued to present challenges, the nature of our long-term patient capital has enabled us to continue delivering for our investors and capital partners alike.

Our investors have continued to benefit from our high dividend yield and upside from the high-IRR buyouts achieved during the period, which have returned over £23 million of cash to the Company. In conjunction, our SME partners have been able to enjoy certainty in turbulent markets, and to focus on running their business without the worry of refinancing.

In addition, we firmly believe that the difficult market conditions have ultimately strengthened the market opportunity available to direct lenders such as Duke. This environment makes our long-dated, low-amortising debt products more attractive than ever before.

In fact, the appeal of our offering has continued to increase since our IPO in 2017 with the banks continuing to pull cashflow lending from the lower mid-market. This has prompted the increasingly underserved SME business community to look elsewhere for growth capital. Consequently, the private credit market, particularly direct lending, had to evolve and expand significantly for capital solutions such as Duke's unique product offering to become more widely accepted in the SME sector.

In light of the rapid evolution of our sector, our conversations with business owners highlighted that the term 'royalty' was no longer helpful given that over the past seven years traditional royalty companies in the mining, music and pharmaceutical sectors have proliferated. As such, we took the decision to undertake a strategic review of our positioning in the marketplace during the period, aimed at ensuring that our unique offering is communicated to business owners and stakeholders in a way which provides greater clarity and improves comparison when evaluating a broad array of financing options.

This process led to our decision to rename our business to Duke Capital and to reframe our direct lending offering as 'hybrid capital', reflecting the fact that our financing solution blends features of private equity and private credit products, and is more flexible than traditional debt or equity alone.

While our core product and investing policy and investment criteria remain the same, making the features of our product more easily relatable versus other financing options gives us a bigger opportunity to engage with more business owners who are used to thinking in either 'debt' or 'equity'. So far, it is very pleasing to be able to report that the universal reaction to the rebranding has been very positive.

Outlook

With a solid portfolio of opportunities and strengthened liquidity from recent buyouts, we are poised to seize new growth opportunities. Coupled with a clear message for the SME community, we are confident that we are in an ideal position to capitalise on a highly attractive market opportunity and as such, have enlarged our investment team with three new hires during the period.

This confidence will be boosted further when the economic backdrop improves and interest rates finally decrease, given the positive impact this will have on our bottom line as a result of lower interest costs on our Fairfax credit facility. An improved interest rate environment will also make Duke's strong dividend yield relatively more attractive compared to what is available to investors in the market and should boost the demand picture in the UK economy further.

I would like to take this opportunity to thank shareholders for their support during the period and look forward to keeping them updated during the months ahead.

Nigel Birrell

Chairman

CEO's Statement

During FY24, the Company has been focused on what we can control, while the macro-economic headwinds continue and fiscal policies are given time to produce the desired effects. Therefore, we have redoubled our efforts on our capital partners' performance, maintained high standards for new partners, and reviewed Duke's competitive landscape and positioning in our market. I am pleased to say that FY24 has been rewarding, in both the Company's strategic progression and the team's delivery.

In contrast to FY23, where we exercised caution in our approach to new deployments in light of rapidly changing macroeconomic conditions, FY24 presented opportunities to deploy capital with favourable returns. Combined with three investment exits during the year, this led to record highs across a number of the Company's core KPIs.

We have been at the forefront of the UK direct lending movement for seven years now and during this time, BlackRock estimates that direct lending globally has increased over six-fold to US$650 billion, making it the largest segment of the private credit market. As such, it has been fantastic to witness how the levels of understanding and acceptance of private credit from the SME community have increased since our IPO, providing us with a stronger opportunity than ever.

At the same time, as with any rapidly expanding market opportunity, the terminology and sub-sectors have evolved just as fast.

A strategic evolution of our message

In response to this, we took the decision to undertake a strategic review of our positioning in the market. This confirmed that Duke's core product has a strong and attractive market differentiation due to its long duration and low amortisation qualities, while our growing pipeline confirmed that these were credentials which resonate with business owners.

Our first realisation is that many competitors use SME to describe a wide range of company sizes, from startups to quite sizeable businesses. However, we have always focused on companies with positive EBITDA between £2 and £10 million. While they are SME businesses, they are also more specifically defined as the lower mid-market in the private capital world. We have always preferred to partner with people who both owned and operated their businesses, as opposed to work with 'sponsors' or private equity owners. This focus has benefits of having less competition to win deals, and having greater confidence in evaluating the partner's performance. Since our focus remains on having constructive engagement with management teams and receiving timely financial information from each of our capital partners, we would rather have a partnership with the people who go to work and create the profits every day.

On bringing together the insights that our team had gathered through their hundreds of conversations with business owners over the years, we decided that moving away from describing ourselves as a royalty business would ensure that we had a bigger opportunity to engage with more business owners who are used to thinking in either 'debt' or 'equity'. It was also evident to us that business owners were increasingly savvy about non-bank alternatives, which allowed us to simplify and clarify our solution for them. Having the term 'private credit' enter the mainstream ensured that our new positioning would be well received.

Therefore, as Nigel outlines, we have reframed our product as 'hybrid capital', which we define as a financing solution that blends the best features of private equity and private credit and is more flexible than traditional debt or equity alone. It was pleasing to involve the entire team with this messaging process, building in their feedback and to the feedback of our combined network to unveil Duke Capital. The outcome of this process has emboldened the team's conversations, equipping them with a refined, pertinent message, and a new website which speaks directly to business owners and is aligned with the way they think about capital.

While our core product, investing policy and investment criteria are not changing - we still invest in long-standing, profitable, private businesses, providing an evergreen capital solution that is ideally suited to fund MBOs and buy-and-build strategies - a name change to Duke Capital made total sense. With these developments now delivered, we are confident that we can more easily convey the attributes of our financing solution to business owners and investors and build on our momentum.

At the same time, we also announced our decision to create additional flexibility to take equity ownership in our partners over 30% if and when situations necessitate or there is clear rationale to do so for our shareholders. While our investment approach remains the same - unlike private equity, we are not looking to take control of the business or force an exit - this will benefit investors by enabling Duke in certain circumstances to continue longer with our best performing partners and ensure our capital growth is maximised. Our capital partners will continue to benefit from our unique 'corporate mortgage' debt product with equity-like attributes which align our success with the success of the business.

We have already taken advantage of this change, announcing in March 2024 that we had increased our equity stake in existing capital partner United Glass Group ("UGG") from 30.0% to 73.8%. This was facilitated through a £2.9 million secondary share purchase from existing shareholders and aligns with our vision to deepen our engagement with our high-performing portfolio companies. Indeed, we have been invested in UGG since 2018 and during this time the management team has proven itself to be a highly successful partner, driving solid growth in the business despite an array of macro-economic challenges along the way. Their long-standing track record and strong potential for future growth meant that it made perfect sense to increase our equity stake in the business.

Building on our track record of delivering above-average returns from exits

The past 12 months have seen us deliver three successful and profitable exits, bringing the total number of exits delivered since inception to eight. Our model allows investors to reap the benefits of any outsized returns and with each of them delivering above average IRRs, we are delighted with this result.

These exits also provided us with £23 million of additional liquidity for future deployment, as well as excellent case studies as to how our capital can empower business owners to grow their business without re-financing risk while retaining control of any re-financing timing.

In particular, Fabrikat is a real success story for Duke and a great example of how our capital is a perfect fit for individuals seeking to execute an MBO. Our capital allowed long-standing employees to step up into large equity ownership positions within a strong business. With Duke's capital, the vendors were satisfied there was a fair price for the business, but more importantly they could leave the business in the hands of the next tier management. Now empowered, the employees-turned-majority owners delivered three years of exceptional financial results, and garnered the attention from larger industry players. Now as majority owners, with Duke as a minority owner and Board member, they sought our counsel with the negotiations, and a sale was consummated in March 2024, creating value for all stakeholders.

Executing on our robust pipeline

Over the 12 months under review, we secured two new partners and delivered four follow-on investments into existing capital partners, deploying £46m in total and diversifying our revenue base. The first new capital partner is Glasshouse Products, LLC ("Glasshouse"), which was founded in 2002 and provides custom glass solutions, and the US$11.5 million in financing we provided has facilitated a management buyout. Notably, we backed the founder's son to buy back the business from a conglomerate who deemed it 'non-core', restoring the firm literally and figuratively to a family business. This perfectly illustrates the types of situations that we seek, and which would not fit banks and other large credit institutions' strict and rigid criteria.

In March, we also entered into a £14.5 million financing agreement (announced 2 April) with a newly formed entity to enable them to acquire Integrum Care - Clearbrook Limited trading as Integrum Care Group ("Integrum"). Integrum operates six elderly nursing care homes in Kent and East Sussex. At the same time, we became a 49% equity shareholder in the business, building strong alignment.

Because our capital is regularly used to deliver buy and build strategies for our partners, as at 31 March 2024, we had exposure to 71 underlying companies, owned by our 15 capital partners, across Europe and North America. In total, our current capital invested amounts to £210m across 16 companies. The diversification of our portfolio reduces risk and aligns with our three core investment pillars: capital preservation, attractive dividend yield, and to provide upside upon exits. Ultimately, we ensure that our shareholders have safe exposure to a broad range of sectors through our investments in profitable, long-standing businesses. In doing so, our innovative 'corporate mortgage' offers unique exposure to private markets, providing exposure to resilient and profitable privately-owned businesses, while providing enhanced downside protection on our shareholders' principal.

Expanding our team and our origination reach

Our management team and investment committee has more than 100 years of investing experience and includes deal originators with deep relationships in the lower mid-market investment community. During the period, we were pleased to welcome three new members of our investment team to support in delivering new investments. This was in light of the growth of the business, as well as the rapidly expanding market opportunity we continue to observe. The additional support is also paramount given that we have increased our geographic spread over recent years. We now have good origination in three G7 countries, UK, Canada and the United States, and are therefore not bound by UK deals alone.

Finance Review

Cash Flow

The financial results for FY24 represent a strong operating performance and I am pleased to report that the Company's total cash revenue, being cash distributions from our capital partners, cash gains from the sale of equity investments and exit premiums, grew to a record £30.3 million during the financial year under review, a 38% increase over the £21.9 million generated in FY23.

The performance benefitted from three exits during the year (Instor, Fabrikat and Fairmed). However, the Company's recurring cash revenue, which relates to the annuity-like monthly cash revenue streams that Duke receives from its capital partners, also grew to £24.3 million in FY24, up from the £21.8 million in FY23.

Free cash flow, which management defines as its core KPI, also saw strong growth during FY24, increasing to £17.9 million, up from £12.8 million in FY23, a 40% increase. Free cash flow per share rose 35% from 3.21 pence per share to 4.34 pence per share. These material uplifts demonstrate the benefits to Duke when there are investment exits. While the Company's recurring free cash flow ensures the quarterly dividend is covered, the exit premiums and equity proceeds provide additional cash to reinvest back into the portfolio.

Income Statement

Total income, which includes non-cash fair value movements on the Company's investment portfolio, fell to £25.6 million from £31.0 million in FY23, while profit after tax dropped to £11.6 million from £19.5 million in FY23. However, both FY24 and FY23 figures were impacted by material fair value movements with FY24 experiencing a £4.5 million fair value loss across the investment portfolio versus a £9.1 million gain in FY23. The table below seeks to present a truer reflection of the underlying performance of the business by stripping out these non-cash movements, as well as other non-core elements, to provide an adjusted earnings figure which represents a truer reflection of the underlying performance of the business.

Adjusted earnings of £20.0 million on FY24 represents a 61% increase over FY23, while adjusted earnings per share climbed from 3.13 pence per share in FY23 to 4.85 pence per share in FY24.

Balance Sheet

Liquidity in the business remained strong with cash on the balance sheet standing at £2.9 million at 31 March 2024. With £27 million remaining undrawn on Duke's facility with Fairfax, the Company had £30 million of available liquidity at financial year end.

The total value of the investment portfolio continued to grow in FY24, with fair value reaching £232 million, split across hybrid credit, term credit and equity investments.

Dividend

Duke maintained a 0.70 pence quarterly dividend throughout FY24, equating to an annualised dividend of 2.80 pence, in line with FY23. With free cash flow per share of 4.34 pence per share, the dividend remains well covered.

Outlook - careful delivery on an exciting opportunity

Since listing in 2017, we have established a track record of delivering attractive risk-adjusted returns across market cycles and achieving above-average returns on exits. We have achieved this through careful selection of investment opportunities, partnering only with long-standing, profitable businesses which have demonstrated resilience in difficult markets.

This mantra remains true, and while we continue to apply an extra dose of caution as the macro-economic headwinds continue to prevail, we are balancing this with ensuring we are on the front-foot to execute on the increased number of prospective deals available to us in this higher interest rate environment.

Our ability to execute new deals is strengthened by our liquidity position, strengthened team, unique investment product and geographic reach. We have invested in new digital technologies to accelerate our operations and to assist with international deal origination.

While we navigate some of the hardest times in the UK small cap public markets for decades, our business prospects remain solid and we start FY25 with renewed optimism around Duke's position in the private capital marketplace with our unique hybrid capital product. The public markets are cyclical, and we believe that London remains a world class financial market. These factors contribute to our continued belief over the market cycle our business model is attractive to public investors, both retail and institutional.

I would like to round off by thanking the team, our advisers, capital partners and our shareholders for their support during the period, and for their positive feedback to our strategic review. It has been highly rewarding to reflect closely on how we can leverage our business to have a positive impact on all of these stakeholders and we look forward to building on our track record during FY 2025.

Neil Johnson

Chief Executive Officer

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 MARCH 2024

The Consolidated Financial Statements on pages 32 to 35 were approved and authorised for issue by the Board of Directors on 26 June 2024 and were signed on its behalf by Directors Maree Wilms and Matthew Wrigley

Consolidated Statement of Changes in Equity

FOR THE YEAR ENDED 31 MARCH 2024

Share-based

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 31 MARCH 2024

General Information

Duke Capital Limited ("Duke Capital" or the "Company") is a company limited by shares, incorporated in Guernsey under the Companies (Guernsey) Law, 2008. Its shares are traded on the AIM market of the London Stock Exchange. The Company's registered office is shown on page 71

Throughout the year, the "Group" comprised Duke Capital Limited and its wholly owned subsidiaries; Duke Royalty UK Limited and Duke Capital Employee Benefit Trust and Duke Royalty US Holdings, Inc which was incorporated in the year. During the year Capital Step Holdings Limited, Capital Step Investments Limited, Capital Step Funding Limited, and Capital Step Funding 2 Limited were dissolved.

Significant accounting policies

2.1 Basis of preparation

The Consolidated Financial Statements of the Group have been prepared in accordance with UK adopted international accounting standards, and applicable Guernsey law, and reflect the following policies, which have been adopted and applied consistently.

During the year, the Group adopted IFRS 10 Consolidated Financial Statements. IFRS 10 requires entities that meet the definition of an investment entity within the standard to account for those controlled entities within the Groups' direct investment portfolio as held at fair value through profit or loss ("FVTPL") and to not be consolidated into the financial statements. The main purpose and activity of Duke Royalty US Holdings, Inc (Incorporated in United States of America, July 2023) is to provide services that related to the investment entity (Duke) activities and therefore is held at FVTPL.

Subsidiaries that provide investment related services or engage in permitted investment related activities with investees, continue to be consolidated unless they are also investment entities.

An investment entity is one which:

• obtains funds from investors for the purpose of providing them with investment management services
• invests funds solely for returns from capital appreciation/investment income, and
• measures and evaluates the performance of substantially all of its investment on a fair value basis

In accordance with IFRS 10 the consolidated financial statements include the financial statements of the company and service entities controlled by the company made up to the reporting date. Control is achieved where the company has the power over the potential investee as a result of voting or other rights, has rights to positive or negative variable returns from its involvement with the investee and has the ability to use its power over the investee to affect significantly the amount of its returns.

The following subsidiaries are deemed service entities and are consolidated in the group financial statements:

• Duke Royalty UK Limited
• Duke Capital Employee Benefit Trust

Under IFRS12 paragraph 19A, the following subsidiaries have classified as investment entities under IFRS10 and therefore not consolidated:

The Consolidated Financial Statements have been prepared on a going concern basis and under the historical cost basis, except for the following:

• Hybrid credit investments - measured at fair value through profit or loss
• Equity investments - measured at fair value through profit or loss
• Hybrid credit participation liabilities - measured at fair value through profit or loss

The Directors consider that the Group has adequate financial resources to enable it to continue operations for a period of no less than 12 months from the date of approval of the consolidated financial statements. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the consolidated financial statements.

Presentation of statement of cash flows

The Board considers cash flow to be the most important measure of the Group's performance and subsequently has presented its Consolidated Statement of Cash Flows before the Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position.

There have been no changes to the classification of any of the cash flows or to the overall cash movements.

Presentation of statement of comprehensive income

In order to better reflect the activities of a hybrid credit financing company, the Consolidated Statement of Comprehensive Income includes additional analysis, splitting the Group's income by investment type.

2.2 New Accounting Standards, interpretations and amendments from 1 January 2023 adopted by the Group

The below new standards, amendments to standards and interpretations were effective for the current period, and with the exception of the Disclosure of Accounting Policies (Amendment to IAS 1) has not had a significant impact on the consolidated financial statements. The Disclosure of Accounting Policies amendment generated a review of and reduction in the accounting policy disclosures so that only the material accounting policy information is now provided. Accounting policy information is material if, when considered together with other information included in an entity's consolidated financial statements, it can reasonably be expected to influence decisions that the primary users of the consolidated financial statements make on the basis of those consolidated financial statements.

2.3 New Accounting Standards, interpretations and amendments issued but not yet effective

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 Going concern

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

FY24 continued to present a challenging operating environment for Duke's capital partners. Despite this, Duke's strategic focus on providing long-term, secured lending to established and profitable owner-operated businesses has proven to be a safeguard against these economic challenges. Moreover, the very low amortisation payments of Duke's product in the early years have alleviated some of the short-term liquidity concerns of our hybrid credit partners, allowing them to focus on managing their businesses rather than having to refinance their debts during unfavourable times.

The directors continue to closely monitor the impact of these macroeconomic headwinds on the Group's trading activities and cashflows, but do not consider that there will be any significant effect on the ability of the Group to continue in business and meet liabilities as they fall due.

Bearing in mind the nature of the Group's recurring revenue streams and after assessing the 12-month forecasts, combined with the available headroom in terms of the refinanced debt facility in place should it be required, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the consolidated financial statements.

2.5 Basis of consolidation

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.

2.6 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 cashflow, as calculated under IFRS, and therefore no reconciliation is required between the measure of performance used by the Board and that contained in these Consolidated Financial Statements.

For management purposes, the Group's investment objective is to focus on one main operating segment, which is to invest in a diversified portfolio of hybrid credit finance and related opportunities. At the end of the period the Group has 15 investments into this segment and has derived income from them. Due to the Group's nature, it has no customers.

2.7 Foreign currency

Functional and presentation currency

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

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the reporting date.

Foreign exchange gains and losses relating to the financial assets and financial liabilities carried at fair value through profit or loss are presented in the Consolidated Statement of Comprehensive Income within 'hybrid credit investment, 'term credit investment income' and 'equity investment income'.

Foreign exchange gains and losses relating to cash and cash equivalents are presented in the Consolidated Statement of Comprehensive Income within 'Net foreign currency movement'. This has been presented below operating costs as this best reflects the true nature of the balance.

2.8 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. Where transaction costs are in respect of loans, these are offset using the effective interest method.

2.9 Income tax

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 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.

2.10 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 ("FVTPL"); and
• those to be measured at amortised cost

At initial recognition, the Group measures a financial asset at its fair value, plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss.

Financial assets held at amortised cost

Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. These assets are subsequently measured at amortised cost using the effective interest method.

The Group's financial assets held at amortised cost include term credit investments, trade and other receivables and cash and cash equivalents.

Expected Credit Loss ("ECL") allowance for financial assets measured at amortised cost

Impairment of financial assets is calculated using a forward-looking expected credit loss (ECL) model. ECLs are an unbiased probability weighted estimate of credit losses determined by evaluating a range of possible outcomes. They are measured in a manner that reflects the time value of money and uses reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

The Group recognises an allowance for ECLs for all debt instruments not held at fair value through profit or loss. Assets held at fair value through profit or loss are not subject to impairment.

IFRS 9 establishes a three-stage approach for impairment of financial assets:

• Stage 1 - when a financial asset is first recognised, it is assigned to Stage 1. If there is no significant increase in credit risk from initial recognition, the financial asset remains in Stage 1. Stage 1 also includes financial assets where the credit risk improved and the financial asset has been reclassified back from Stage 2. For financial assets in Stage 1, a 12-month ECL is recognised;
• Stage 2 - when a financial asset has experienced a significant increase in credit risk since initial recognition, the asset is classified as Stage 2. Stage 2 also includes financial assets where the credit risk improved and the financial asset has been reclassified back from Stage 3. For financial assets in Stage 2, a lifetime ECL is recognised;
• Stage 3 - that where there is objective evidence of impairment and the financial asset is considered to be in default, or otherwise credit-impaired, it is moved to Stage 3. For financial assets in Stage 3, a lifetime ECL is recognised and interest income is recognised on a net basis.

In relation to the above

• Lifetime ECL is defined as ECLs that result from all possible default events over the expected behavioural life of a financial instrument
• 12-month ECL is defined as the portion of lifetime credit loss that will result if a default occurs in the 12 months after the reporting, weighted by the probability of that default occurring

The measurement of ECLs is primarily based on the product of the instrument's probability of default ("PD"), loss given default ("LGD"), and exposure at default ("EAD"), taking into account the value of any collateral held or other mitigants of loss and including the impact of discounting using the effective interest rate.

• The PD represents the likelihood of a borrower defaulting on its financial obligation, either over the next 12 months ("12-month PD"), or over the remaining lifetime ("Lifetime PD") of the obligation
• EAD is based on the amounts the Group expects to be owed at the time of default, over the next 12 months ("12-month EAD") or over the remaining lifetime ("Lifetime EAD")
• LGD represents the Group's expectation of the extent of loss on a defaulted exposure

The ECL is determined by estimating the PD, LGD, and EAD for each individual exposure. These three components are multiplied together and adjusted for the likelihood of survival. This effectively calculates an ECL.

The measurement ECLs for each stage and the assessment of significant increases in credit risk considers economic information about past events and current conditions as well as reasonable and supportable forward-looking information. When determining whether the credit risk profile has materially increased, the Group specifically reviews the debt covenant positions of each company. If the debt service coverage ratio falls below zero and the Group does not have sufficient liquidity to cover 12 months of debt obligations, the investment will be deemed to be in default and a lifetime ECL allowance will be provided for.

As with any forecasts and economic assumptions, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected. Other forward-looking considerations, such as the impact of any regulatory, legislative or political changes, have also been considered, but no adjustment has been made to the ECL for such factors. This is reviewed and monitored for appropriateness on an annual basis.

Financial assets at FVTPL

Hybrid credit investments are debt instruments classified at FVTPL under IFRS 9. The return on these investments is linked to a fluctuating revenue stream and thus, whilst the business model is to collect contractual cash flows, such cash flows are not solely payments of principal and interest. Such assets are recognised initially at fair value and remeasured at each reporting date. The change in fair value is recognised in profit or loss and is presented within 'hybrid credit investment income' in the Consolidated Statement of Comprehensive Income. The fair value of these financial instruments is determined using discounted cash flow analysis. Further details of the methods and assumptions used in determining the fair value can be found in note 23.

Investments in equity instruments are classified at FVTPL. The Group subsequently measures all equity investments at fair value and the change in fair value is recognised in profit or loss and is presented within the 'equity investment income' in the Consolidated Statement of Comprehensive Income. Dividends from such investments are recognised in profit or loss when the Group's right to receive payments is established.

Derecognition of financial assets

A financial asset (in whole or in part) is derecognised either (i) when the Group has transferred substantially all the risks and rewards of ownership; or (ii) when it has neither transferred nor retained substantially all the risks and rewards and when it no longer has control over the assets or a portion of the asset; or (iii) when the contractual right to receive cash flow has expired. Any gain or loss on derecognition is taken to other income/expenses in the Consolidated Statement of Comprehensive Income as appropriate.

Financial liabilities

All financial liabilities are initially recognised at fair value. Unless otherwise indicated the carrying amounts of the Group's financial liabilities are approximate to their fair values.

Financial liabilities measured at amortised cost

These consist of borrowings and trade and other payables. These liabilities are initially recognised at fair value, net of transaction costs incurred, and subsequently carried at amortised cost using the effective interest rate method.

Financial liabilities at FVTPL

Financial liabilities at FVTPL comprise hybrid credit 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 hybrid credit financing arrangements. Under this agreement services are provided in exchange for a percentage of gross royalties' receivable. These instruments are classified at FVTPL on the basis that the liability is linked to the Group's hybrid credit investments. Such liabilities are recognised initially at fair value with the costs being recorded immediately in profit or loss as 'hybrid credit 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 'hybrid credit investment income'. The fair value of these financial instruments is determined using discounted cash flow analysis. Further details of the methods and assumptions used in determining the fair value can be found in note 23.

Derecognition of financial liabilities

A financial liability (in whole or in part) is derecognised when the Group has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on derecognition is taken to other income/expenses in the Consolidated Statement of Comprehensive Income.

Equity Instruments

Financial instruments issued by the Group are treated as equity if the holder has only a residual interest in the assets of the Group after the deduction of all liabilities. The Company's Ordinary Shares are classified as equity instruments.

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

2.11 Share-based payments

The Group operates an equity settled Share Option Plan and a Long-Term Incentive Plan for its Directors and key advisers.

The fair value of awards granted under the above plans are recognised in profit or loss with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the awards granted:

• including any market performance conditions (e.g., the entity's share price);
• excluding the impact of any service and non-market performance vesting conditions (e.g., increase in cash available for distribution, remaining a director for a specified time period); and
• including the impact of any non-vesting conditions.

The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.

The Group also settles a portion of expenses by way of share-based payments. These expenses are settled based on the fair value of the service received as an expense with the corresponding amount increasing equity. All expenses recognised in the year in relation to the Group's Share Option and Long-Term Incentive Plan schemes are recognised through the share-based payment reserve.

2.12 Reserves

Equity comprises the following:

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

Other reserves comprises the following:

• Warrant reserve was created in connection with the issue of share warrants. Further warrants were issued during the year ended 31 March 2023. These allow the owner to subscribe for a fixed number of equity shares at a fixed price, and have therefore been classified as equity in accordance with IAS 32 paragraph 16.
• Share-based payment reserve represents equity-settled share-based employee remuneration as detailed in note 2.11
• Retained losses represents cumulative retained losses
• Critical accounting estimates

The preparation of the Consolidated Financial Statements in conformity with IFRS requires management to make 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 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 estimates and assumptions that may cause a material adjustment to the carrying amount of assets and liabilities are:

Fair value of hybrid credit investments

Hybrid credit 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 hybrid credit 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 hybrid credit investments and have made adjustments to the discount rates and estimated revenue growth where necessary. Further details of the carrying values, methods, assumptions and sensitivities used in determining the fair value can be found in note 23.

Fair value of hybrid credit participation liabilities

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

Fair value of equity investments

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

Auditor's remuneration

Administration and personnel

The table below splits out administration and personnel costs.

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.

Basic earnings per share is calculated by dividing total comprehensive income for the period by the weighted average number of shares in issue throughout the period, excluding treasury shares (see Note 17).

Diluted earnings per share represents the basic earnings per share adjusted for the effect of dilutive potential shares issuable on exercise of share options under the Company's share-based payment schemes, weighted for the relevant period.

Adjusted earnings per share

Adjusted earnings represent the Group's underlying performance from core activities. Adjusted earnings is the total comprehensive income adjusted for unrealised and non-core fair value movements, non-cash items and transaction-related costs, including hybrid credit participation fees, together with the tax effects thereon. Given the sensitivity of the inputs used to determine the fair value of its investments, the Group believes that adjusted earnings is a better reflection of its ongoing financial performance.

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

The Group's hybrid credit investment assets comprise hybrid credit financing agreements with 15 (31 March 2023: 15) investees. Under the terms of these agreements the Group advances funds in exchange for annualised hybrid credit 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.

Term credit investments

Term credit investments are financial assets held at amortised cost with the exception of the £2.2 million loan issued at 0% interest. The impact of discounting is immaterial to the Consolidated Financial Statements. The below table shows both the loans at amortised cost and fair value.

The Group's term credit investments comprise secured loans advanced to two entities (2023 - two) in connection with the Group's hybrid credit investments.

The loans comprise fixed rate loans of £5,382,000 (31 March 2023: £4,652,000) which bear interest at rates of between 0% and 5% (2023: 0% and 15%). The Group has no variable rate loans at the year end (2023: no variable rate loans at year end). The total interest receivable during the year was £453,000 (31 March 2023: £339,000).

The term credit investments mature as follows:

Term credit investment income on the face of the consolidated statement of comprehensive income comprises:

ECL Analysis

• liquidity and cash flows of the underlying businesses
• security strength
• covenant cover
• balance sheet strength

The disclosure below presents the gross and net carrying value of the Group' credit investments by stage:

The credit risk profile of the investments has not increased materially and they remain Stage 1 assets. Minor expected credit losses have been charged for the Stage 1 assets.

The following table analyses Group's provision for ECL's by stage:

Equity investments

Equity investments are financial assets held at FVTPL.

During the year, Fabrikat was sold for total proceeds of £3.9 million. This includes a realised gain of £1.6 million and aggregated unrealised gains of £2.3 million since the investment was purchased for £3,000 for a total realised gain of £3.9 million.

The Group's net equity investments comprise unlisted shares and in 13 capital partners (31 March 2023: 11).

The Group has two (31 March 2023: two) unlisted investments in mining entities from its previous investment objectives.

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

Hybrid credit debt liabilities

Hybrid credit debt liabilities are financial liabilities held at fair value through profit or loss.

In January 2023, the Group entered into a new credit facility agreement with Fairfax Financial Holdings Limited and certain of its subsidiaries ("Fairfax") and issued Fairfax 41,615,134 warrants. Refer to Note 18 for details. The facility term is up to £100m to replace Duke's existing £55m million term and revolving facilities. The credit facility has a five-year term, expiring in January 2028 with a bullet repayment on expiry and no amortisation payments during the five-year term. Furthermore, the interest rate is equal to SONIA plus 5.00% per annum, which represents a 225bps improvement on Duke's previous rate of SONIA plus 7.25%.

At 31 March 2024, £27,000,000 was undrawn on the facility (31 March 2023: £42,000,000).

At 31 March 2024, £2,125,000 (31 March 2023: £2,679,000) of unamortised warrant costs remained outstanding.

At 31 March 2024, £1,103,241 (31 March 2023: £1,391,000) of unamortised legal costs and fees remained outstanding.

The table below sets out an analysis of net debt and the movements in net debt for the year ended 31 March 2024 and prior year.

The goodwill has not been assessed for impairment on the basis of materiality.

Share capital

Equity-settled share-based payments

Warrant reserve

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

Warrants

The warrants expire in January 2028 and have an exercise price of 45 pence. As per IFRS 2, the warrants have been valued using the Black Scholes model. A total expense of £2,771,000 has been capitalised and will be amortised over the life of the warrants. In the year to 31 March 2024, an expense of £554,000 (2023: £92,000) was recognised through finance costs in relation to the warrants.

At 31 March 2024, 43,990,000 (31 March 2023: 43,990,000) warrants were outstanding and exercisable at a weighted average exercise price of 45 pence (31 March 2023: 45 pence). The weighted average remaining contractual life of the warrants outstanding was 3.45 years (31 March 2023: 4.56 years).

Share-based payment reserve

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

Share option scheme

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 four per cent of the Company's Ordinary Shares in issue from time to time. Options vest immediately and lapse five years from the date of grant.

In October 2023, the 200,000 options outstanding and exercisable at 31 March 2023 lapsed. Therefore there were nil options outstanding and exercisable at 31 March 2024.

Share Options

(000)

Long Term Incentive Plan

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 1 October 2020, 6,665,000 PSAs were granted to Directors and key personnel with a fair value of £1,093,478. An expense of £364,493 was recognised in Administration and Personnel costs in the Consolidated Statement of Comprehensive Income.

On 3 January 2021, 1,000,000 PSAs were granted to Directors and key personnel with a fair value of £164,063. An expense of £54,688 was recognised in Administration and Personnel costs in the Consolidated Statement of Comprehensive Income.

On 1 October 2021, 2,108,000 PSAs were granted to Directors and key personnel with a fair value of £671,926. An expense of £223,771 was recognised in Administration and Personnel costs in the Consolidated Statement of Comprehensive Income.

On 1 October 2022, 3,954,700 PSA's were granted to Directors and key personnel with a fair value of £840,376. An expense of £139,935 was recognised in Administration and Personnel costs in the Consolidated Statement of Comprehensive Income.

On 28 July 2023, 3,662,900 PSA's were granted to Directors and key personnel with a fair value of £892,834. An expense of £223,209 was recognised in Administration and Personnel costs in the Consolidated Statement of Comprehensive Income.

At 31 March 2024, 9,725,600 (31 March 2023: 13,727,000) PSAs were outstanding. The weighted average remaining vesting period of these awards outstanding was 1.3 years (2023 - 1.2 years).

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.

Dividends

The following interim dividends have been recorded in the periods to 31 March 2023 and 31 March 2024:

A further quarterly dividend was paid post year end, refer to Note 25 for details.

Rights to dividends have been waived in respect of shares held by the Group's Employee Benefit Trust (see note 17).

Deferred tax

The temporary differences for deferred tax are attributable to:

A deferred tax asset has been recognised as it is expected that future available taxable profits will be available against which the Group can use against the current year tax losses.

Related parties

Directors' fees

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

Fees relating to Charles Cannon Brookes are paid to Arlington Group Asset Management Limited.

Directors' fees include the following expenses relating to awards granted under the Group's Long Term Incentive Plan (see note 18):

At 31 March 2024, no Directors' fees were outstanding (2023: no fees outstanding).

Investment Committee fees

The Group's Investment Committee assists in analysing and recommending potential hybrid credit 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:

Investment Committee fees include the following expenses relating to awards granted under the Group's Long Term Incentive Plan (see note 18):

Support services administration fees

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

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, office rental and assisting the Board with the selection, execution and monitoring of capital partners and investment performance. Abingdon fees also includes fees relating to remuneration of staff residing in North America.

Share options and LTIP awards

The Group's related parties, either directly or beneficially, held share options issued under the Group's share option scheme and Long-Term Incentive Plan as follows:

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

2 Includes dividends paid to Arlington Group Asset Management

Fair value measurements

Fair value hierarchy

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:

The following table presents the changes in level 3 items for the years ended 31 March 2024 and 31 March 2023:

Valuation techniques used to determine fair values

Valuation processes

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

Annual adjustment factors for hybrid credit investments and hybrid credit participation liabilities

Discount rates for financial assets and financial liabilities

EBITDA multiples

These multiples are based on comparable market transactions.

Forward looking EBITDA

Valuation inputs and relationships to fair value

Hybrid credit investments

The unobservable inputs are the annual adjustment factor and the discount rate. The range of annual adjustment factors used is -6.0% to 6.0% (2023: -6.0%% to 6.0%) and the range of risk-adjusted discount rates is 14.7% to 17.7% (2023: 14.7% to 17.7%).

An increase in the annual revenue growth rates (subject to the collars set under the terms of the hybrid credit financing agreements) of 5% would increase the fair value by £1,160,000 (2023: £929,000).

A reduction in the discount rate of 25 basis points would increase the fair value by £2,369,000 (2023: £2,289,000).

A decrease in the annual revenue growth rates (subject to the collars set under the terms of the hybrid credit financing agreements) of 5% would decrease the fair value by £1,362,000 (2023: £1,263,000).

An increase in the discount rate of 25 basis points would decrease the fair value by £2,616,000 (2023: £2,230,000).

Equity investments

The unobservable inputs are the EBITDA multiples and forward looking EBITDA. The range of EBITDA multiples used is 4.2x to 8.0x (2023: 5.3x to 10.0x).

An increase in the EBITDA multiple of 25 basis points would increase fair value by £1,687,000 (2023: £1,378,000).

A decrease in the EBITDA multiple of 25 basis points would decrease fair value by £1,971,000 (2023: £1,378,000).

An increase in the forward looking EBITDA of 5% would increase the fair value by £2,086,000 (2023: £1,575,000).

A decrease in the forward looking EBITDA of 5% would decrease fair value by £2,406,000 (2023: £1,575,000).

Hybrid credit participation instruments

The unobservable inputs are the annual adjustment factor and the discount rate used in the fair value calculation of the hybrid credit investments. The range of annual adjustment factors used is -6.0% to 6.0% (2023: 0.4% to 6.0%) and the range of risk-adjusted discount rates is 16.3% to 17.7% (2023: 16.3% to 17.3%).

An increase in the annual adjustment factor (subject to the collars set under the terms of the hybrid credit financing agreements) of 5% would increase the fair value of the liability by £5,000 (2023: £5,000).

A reduction in the discount rate of 25 basis points would increase the fair value of the liability by £12,000 (2023: £9,000).

A decrease in the annual adjustment factor (subject to the collars set under the terms of the hybrid credit financing agreements) of 5% would decrease the fair value of the liability by £4,000 (2023: £9,000).

An increase in the discount rate of 25 basis points would decrease the fair value of the liability by £12,000 (2023: £14,000).

Financial risk management

The Group's hybrid credit financing activities expose it to various types of risk that are associated with the investee companies to which it provides hybrid credit 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 other 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.

Principal financial instruments

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 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:

If Sterling strengthens by 5% against the Euro, the net Euro-denominated assets would reduce by £654,000 (2023: £844,000). Conversely, if Sterling weakens by 5% the assets would increase by £722,000 (2023: £932,000).

If Sterling strengthens by 5% against the US Dollar, the net US Dollar-denominated assets would reduce by £1,247,000 (2023: £1,228,000). Conversely, if Sterling weakens by 5% the assets would increase by £1,378,000 (2023: £1,357,000).

If Sterling strengthens by 5% against the Canadian Dollar, the net Canadian Dollar-denominated assets would reduce by £745,000 (2023: £606,000). Conversely, if Sterling weakens by 5% the assets would increase by £824,000 (2023: £670,000).

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 hybrid credit investments, which are carried at fair value through profit or loss, and its borrowings, which are subject to an interest charge of one-month UK SONIA +5.00%. The Group's hybrid credit investments have a fair value at the reporting date of £210,948,000 (31 March 2023: £191,333,000). A sensitivity analysis in respect of these assets is presented in note 23.

The Group's borrowings at the reporting date are £69,772,000, see Note 15 (31 March 2023: £53,930,000). A movement in the rate of SONIA of 100bps impacts loan interest payable by £697,000 (31 March 2023: £539,000).

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 hybrid credit 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 hybrid credit investments is presented in note 23.

Credit risk

The Group's maximum exposure to credit risk is as follows:

Hybrid credit investments

The hybrid credit investments relate to the Group's 15 hybrid credit financing agreements. At the reporting date, there was £7,492,000 of hybrid credit cash payments outstanding (31 March 2023: £4,423,000) from five capital partners (31 March 2023: three). Of this, £58,000 (31 March 2023: £nil) was received in the month post year-end. Payment plans are being agreed to recover the £7,434,000 from all five capital partners over the next five years.

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 Board on a semi-annual basis. 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 hybrid credit investments which can be called upon if the counterparty is in default under the terms of the agreement.

Term credit investments

The Group's term credit investments are held at amortised cost. All loans have been reviewed by the directors. The Board considered the credit risk, both at issue and at the year-end, and has determined that there have been no significant movements. Consequently, any loss allowance is limited to 12 months' expected losses and such allowances are considered to be immaterial.

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:

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 £27,000,000 (2023: £42,000,000 (see note 15).

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

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.

Events after the financial reporting date

Dividends

On 12 April 2024 the Company paid a quarterly dividend of 0.70 pence per share.

New hybrid credit investments

On 3 May 2024, the Group announced a £4,000,000 follow-on investment into BVPA (Ireland) Limited.

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