Half-year 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 announce its interim results for the six-months ended 30 September 2024 ("Interim 2025").

Financial Highlights

• Recurring cash revenue* totalled £12.7 million, an increase of 4% on Interim 2024 (£12.2 million)
• Total cash revenue of £13.5 million, down 4% from the prior period (Interim 2024: £14.1 million)
• Free cash flow** of £5.9 million, down 26% from Interim 2024 (£7.9 million) - fewer investment exits delivered in the current period compared to Interim 2024
• Cash dividends of 1.40 pence per share paid to shareholders (Interim 2024: 1.40 pence per share)

Operational Highlights

• Deployed over £15 million of capital into existing Capital Partners
• Completed a £23.5 million fundraise post period end to support portfolio M&A and progress Duke's third party, non-dilutive funding strategy to accelerate scale
• Positive outlook with a number of buy and build opportunities in the portfolio's pipeline and a diversified portfolio positioned for continued resilience

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

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

Nigel Birrell, Chairman of Duke Capital, said:

"During the first six months of FY 2025, we have continued to prove our ability to deliver. We continue to increase recurring cash revenue, driven by the team's successful execution on several growth opportunities. This is testament to the quality of the portfolio we have established and the significant potential it holds for continued capital appreciation. With a strong, well-funded balance sheet and numerous growth opportunities under review, we have a positive outlook for the months ahead. The private credit and direct lending markets continue to go from strength to strength and we have confidence that our diversified portfolio is well positioned for continued resilience. We look forward to updating the markets on our progress."

CHAIRMAN'S REPORT

Dear Shareholder,

During the six-month period, I am pleased to report that Duke Capital has continued to build on its consistent track record of delivery, particularly in terms of increasing its quarterly recurring cash revenue. Notably, the Company completed seven follow-on investments during the period to enable our capital partners to deliver on their buy and build strategies, deploying over £15 million of capital and resulting in an increase in the maturity and profitability of the underlying portfolio. It is our belief that this maturing of the portfolio, with Duke "staying in for longer", will benefit shareholders by positioning us to attract higher EBITDA multiples upon exit. As has been the case for the past two and a half years, the growth we delivered during the period was funded by non-dilutive means, drawing down on the Company's debt line with Fairfax alongside the reinvestment of proceeds from the high IRR exits we have achieved.

Building on the strategic review we undertook in the last financial year, we have been developing a long-term funding strategy which is not reliant on raising equity via the UK public equity markets. Alongside a unique and compelling product, we now have an almost eight-year track record of resilience which clearly showcases the highly attractive fundamentals of our business model in terms of the exposure it offers to a unique segment of the private markets and the strong recurring cash revenue and free cash flow it supports.

This underpins the Board's belief that the time is right to move towards a third-party capital model and as such, we intend to raise future additional capital via new Managed Account / Joint Venture structures. The clear benefits of this strategy will be to eliminate cash drag, deliver accretive fee-based revenue and reduce Duke's dependence on the UK public equity markets, thereby minimising dilution and enabling us to execute on strategic growth opportunities more rapidly and at scale. With this in mind, during the period, Duke engaged a placement agent to approach potential capital providers and, as previously announced, has received indicative term sheets from Tier-1 capital providers on potential new funding, with further term sheets expected.

In the meanwhile, as we progress towards this goal, we took the strategic decision to undertake a targeted fundraise via the public markets post period end. This decision was not taken lightly and reflected the near-term investment opportunities and requirements from inside the Company's existing portfolio specifically in relation to Duke's buy and build platforms. The fundraising included an offer to our retail shareholder base and delivered £23.5 million of new funding by way of a Placing, Subscription, Retail Offer and Broker Option. The proceeds will be used to provide additional capital to our current partners, enabling them to deliver bolt-on M&A to build their EBITDA and increasing our equity participation where possible.

Outlook

With a strong, well-funded balance sheet and numerous growth opportunities we maintain a positive outlook for the months ahead, albeit we recognise the need for caution in relation to the UK economy. Positively, we have witnessed good growth in our Irish and North American partners and have confidence that our diversified portfolio is well positioned to continue its resilience. The private credit and direct lending markets continue to go from strength to strength, and we have a clear strategy to meaningfully drive future scale. I would like to take this opportunity to thank our shareholders, team and advisers for their continued support.

Nigel Birrell

Chairman

CONDENSED CONSOLIDATED STATEMENT OF CASHFLOWS

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

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

NOTES TO THE FINANCIAL STATEMENTS

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.

Throughout the period, the "Group" comprised Duke Capital Limited and its wholly owned subsidiaries; Duke Royalty UK Limited, Duke Capital US Holdings, Inc and Duke Capital Employee Benefit Trust.

Significant accounting policies

2.1 Basis of preparation

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

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into the UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK-adopted international accounting standards in its consolidated financial statements on 1 April 2021. There was no impact or changes in accounting from the transition.

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting, as adopted for use in the UK.

The accounting policies adopted in the preparation of the interim Condensed Consolidated Financial Statements are consistent with those followed in the preparation of the Consolidated Financial Statements of the Group for the year ended 31 March 2024.

No new or revised standards or interpretations that have become effective during the period ended 30 September 2024 have had a material effect on the financial statements of the Group.

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

2.2 Going concern

In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. After making enquiries and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the near future.

The cash flow needs of the Group have been assessed taking account the need for further funding for any of the existing hybrid credit partners and the ongoing working capital needs of the business against the current cash and liquidity of the Group.

2.3 Material accounting policies

In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are relevant. 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 the revision and future periods, if the revision affects both current and future periods.

The principal accounting policies applied in the presentation of the condensed consolidated interim financial statements of Duke Capital, including the critical accounting judgements made by the Directors and the key sources of estimation, are consistent with those followed in the preparation of the Group's Annual Report and consolidated financial statements for the year ended 31 March 2024 and have been consistently applied throughout the period ended 30 September 2024.

Finance Costs

Income tax

The Company has been granted exemption from Guernsey taxation. The Company's subsidiary in the UK is 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 14). 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 due diligence 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 are 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 14 (30 September 2023: 15, 31 March 2024: 14) capital partners. 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 except for 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 loan investments comprise secured loans advanced to two entities (30 September 2023: two, 31 March 2024: two) in connection with the Group's hybrid credit investments.

The loans comprise fixed rate loans of £5,382,000 (30 September 2023: £4,872,000, 31 March 2024: £5,382,000) which bear interest at rates of between 0% and 5% (30 September 2023: 0% and 15%, 31 March 2024: 0% and 5%).

The loans mature as follows:

Loan investment net 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' loan investments by stage:

The credit risk profile of the investments has not increased materially and they remain Stage 1 assets. No ECLs have been charged in the period on these assets as they are not deemed material.

The following table analyses Group's provision for ECL's by stage for the period ended 30 September 2024:

Equity investments

Equity investments are financial assets held at FVTPL.

The Group's equity investments comprise unlisted shares and warrants in 12 of its capital partners (30 September 2023: 12, 31 March 2024: 13).

The Group also still holds one (30 September 2023: two, 31 March 2024: two) unlisted investment in mining entities from its previous investment objectives. The Board does not consider there to be any future cash flows from the remaining investments and they are fully written down to nil value.

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

Hybrid credit debt liabilities

Hybrid credit debt liabilities are financial liabilities held at FVTPL.

At 30 September 2024, £10,000,000 was undrawn on the facility (30 September 2023: £37,000,000, 31 March 2024: £27,000,000).

At 30 September 2024, £964,000 of unamortised fees were outstanding (30 September 2023: £1,247,000, 31 March 2024: £1,103,000).

The table below sets out an analysis of net debt and the movements in net debt for the period ended 30 September 2024, the prior period and the year ended 31 March 2024.

Equity-settled share-based payments

Warrant reserve

There were no movements in the warrant reserve during the period:

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 period to 30 September 2024, an expense of £277,000 (30 September 2023: £277,000, 31 March 2024: £554,000) was recognised through finance costs in relation to the warrants.

At 30 September 2024, 41,615,000 (30 September 2023: 41,615,000, 31 March 2024: 41,615,000) warrants were outstanding and exercisable at a weighted average exercise price of 45 pence (30 September 2023: 46 pence, 31 March 2024: 45 pence). The weighted average remaining contractual life of the warrants outstanding was 3.26 years (30 September 2023: 4.26 years, 31 March 2024: 3.45 years).

Share-based payment reserve

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

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.

No share options were granted during the period to 30 September 2024 and there were nil options outstanding and exercisable at 30 September 2024 (30 September 2023: 200,000, 31 March 2024: nil).

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.

6,226,000 performance share awards (PSAs) were granted during the period to 30 September 2024 (30 September 2023: 3,663,000, 31 March 2024: 3,663,000).

At 30 September 2024, 13,684,000 (30 September 2023: 9,726,000, 31 March 2024: 9,726,000) PSAs were outstanding. The weighted average remaining vesting period of these awards outstanding was 2.38 years (30 September 2023: 1.49 years, 31 March 2024: 1.30 years).

Distributable reserves

Under Guernsey law, the Company can pay dividends provided it satisfies the solvency test prescribed by the Companies (Guernsey) Law, 2008. The solvency test considers whether the Company is able to pay its debts when they fall due, and whether the value of the Company's assets is greater than its liabilities. The Company satisfied the solvency test in respect of the dividends declared in the period.

Dividends

The following interim dividends have been recorded in the period to 30 September 2024, 31 March 2024 and 30 September 2023:

On 27 September 2024, the Company approved a further quarterly cash dividend of 0.70 pence per share, totalling £2,923,000, which was paid on 12 October 2023.

Deferred tax

Total

£000s

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 tax losses.

Related parties

Directors' fees

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

Other related party transactions

The following amounts were paid to related parties during the period 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 include fees relating to remuneration of staff residing in North America.

Dividends

The following dividends were paid to related parties:

1 Includes dividends paid to Abinvest Corporation, a wholly owned subsidiary of Abingdon Capital Corporation, and 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 periods ended 30 September 2024, 31 March 2024 and 30 September 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% (30 September 2023: -6.0% to 6.0%, 31 March 2024: -6.0% to 6.0%) and the range of risk-adjusted discount rates is 14.7% to 17.7% (30 September 2023: 14.7% to 17.4%, 31 March 2024: 14.7% to 17.7%)

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 (30 September 2023: 5.3x to 10.0x, 31 March 2024: 4.2x to 8.0x).

Hybrid credit participation instruments

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% (30 September 2023: -6.0% to 6.0%, 31 March 2024: -6.0% to 6.0%) and the range of risk-adjusted discount rates is 16.3% to 17.3% (30 September 2023: 16.3% to 17.4%, 31 March 2024: 16.3% to 17.7%).

Events after the financial reporting date

Dividends

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

On 22 November 2024, the Group announced the successful placement of 85,454,636 new shares at a price of 27.5p per share, raising new capital of £23.5 million.