Earnings Call: H2 2023

Jul 13, 2023

Good afternoon and welcome to the Duke Capital Limited full-year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated in the right-hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Neil Johnson, CEO. Good afternoon to you, sir. Good afternoon, and good afternoon, everyone. Glad to be with you and present our fiscal year 2023 financial results. With me is the Chief Financial Officer, Hugo Evans. Good afternoon, everyone. Let's skip to some slides. Hopefully, we have some shareholders that have been with us before in previous IMC events and other webinars. We'd like to start with a little bit of the corporate overview and what exactly we do for any newcomers. You might have seen these slides before, but what I'm actually wanting to do is overlay verbally some of the things that are new that we're seeing, the trends in the industry and where Duke Royalty fits into the universe of alternative financing. The overview right here is really what we call corporate royalties, and we'll get into the product in a second, are really a hybrid between private credit and private equity for SME businesses. We're looking for owner-operators who want to maintain control of their businesses, but they're longstanding, profitable companies, but have a need for capital. What this means for our investors and our shareholders is that we look at life with three pillars of what we're trying to achieve. The number one pillar is capital preservation. We are senior secured loans to these companies, and we have alignment with the owners, and we'll get into that. This is one of the unique aspects of the Duke Royalty model, is that we have a long-term investment horizon. The second bucket, the second pillar of our investment thesis is our attractive dividend yield. Some of you may say that's the first thing that you like. For us, we get paid from month one, and we have a quarterly dividend payment. We have since our inception over six years ago, and our current annualized dividend is GBP 0.028, which gives us an over 8% dividend yield. Third, and something that as the company has matured and as our portfolio matured, we've talked more about is not just a credit portfolio. We're not just a lender. We want this hybrid. We want these private equity kickers to our NAV, and that comes from the buyouts. This is going to be a feature. Occasionally, companies will buy out and refinance Duke out of their capital stack. What happens is we have a buyout premium, a cash kicker. Some call it a fee. We also are building a portfolio of minority equity positions in some of the companies, and Hugo Evans will go into how we account for that and how they're valued. That's the product and why the investment thesis is so promising. The other things I'd like to touch on is we have 62 now operating companies underlying our 14 royalty partners. One of the use cases is buy and builds for companies. In fiscal 2023, we invested GBP 26 million in the portfolio. We added two new royalty partners, and that was cautious deployments based on the economic headwinds and everything that all investors have had to live with over the last 12 months. We're really proud of this set of results because they are record results on a lot of our KPIs. We've had 11 quarters in a row of increasing recurring cash flow. Fiscal 2023 saw our recurring free cash flow up 51% and up 30% per share. Inflation is a big topic. We have annual adjustments on the cash that we receive from our royalty partners. That is based on their revenue performance, which is the nod to royalties. In fiscal 2023, out of 10 adjustments that we had, the new ones, of course, don't adjust right away. We saw eight adjustments at the maximum possible adjustment, which is 6% of their cash, that we got a +6% adjustment. Unlike other forms of royalties, we actually, if we do our job right, and so far so good, we have an accretion and an appreciation in our valuations. Unlike other forms of royalties, like mining and oil and gas, eventually you run out of oil in the ground. They are depreciating assets. We actually have appreciating assets, as we can show you today. You may have seen this before. We call it a long-term participating loan, so let's not confuse what we do with traditional or IP royalties. We're an SME lender, and what we like to say is that we have two features to the capital that we give to business owners. Number one is a corporate mortgage. You're taking out a mortgage on your corporation. Just like homeowners leverage their house and take out a mortgage over 30 years, you're paying down amortization and interest. After the end of the mortgage, the end of term, which is a very, very long time, you own your house. There's no bullet repayment. We have done the exact same thing for business owners, and that is a real key feature that no one else that we bump into in the U.K. and Irish market is doing. We're not just a lender. The second component, again, this hybrid between credit, not as a credit product, a hybrid of private equity, is our variable returns and our royalty, our adjustments based on revenue. We have this second component, which we believe, and Hugo will go into how that manifests for our investors, is that annual adjustment that we win and take risks with the business owner that we will win if their revenue goes up. We also participate in that growth. As a slight equity owner, we also will reduce our payments in troubling times if their revenue goes down. That is a collar of ±6%, so we don't take a 1-for-1. If a company is growing 20%, for example, we would cap out our adjustment factor +6% in currency terms. What it means for our investors and all of us here on the phone, because I'm a big investor myself, and Hugo, we're incentivized to grow with the companies. We're partners. We call them royalty partners because, for a long period of time, we're like permanent capital to them, and we succeed with them, including our equity stakes. That is the product. A couple things that everyone asks is, just like your home mortgage, the bank only provides you the capital that you can afford to pay. We do the same thing, and we typically have a 4x EBITDA coverage ratio, which means that we're taking half or less of the cash flow of the business. Again, we're not going to be 90% of the cash flow. We want to be partners with these business owners. If it's 50/50, they get the capital they need to keep growing. We'll talk about some of our portfolio companies and what they've done with our capital. The second thing, and last thing I want to say is, just like your home mortgage, you don't have to live in your home for 30 years. You can actually buy us out. We ask for within the first three years, you don't buy us out unless you're selling your company. After three years, for any reason, just like your bank loan, you can refinance us out. That triggers the buyout premium, that triggers the equity stake sale, and it's always in the control of the business owner. They love the control that we give them on their business, and ultimately, we don't ask for our capital back, which is very important. This slide tells it all. That right in the middle there, that refinancing risk row, none. No refinancing risk for royalties. Just like debt, we have events of default and covenants on what they can do and can't do, because we are a senior secured loan. All other debt providers are short-term. That means within five years, they're going to ask for their capital back. You need to give them back their GBP 10 million or whatever you borrowed from them, and that is a significant risk for business owners, especially in these times. Think about all the headlines right now in the U.K. mortgage, when you're coming up for refinancing your mortgage. Refinancing risk for business owners who've lived through 2008, 2009, lived through COVID, they realize that the banks aren't there for them when times get tough, and what they want is their capital back, which really exposes business owners and is really a risk for them losing their company. On the private equity side, if you're selling your business, you want to sell your business, we don't want to buy your business. We want to partner with those successful business owners who actually don't want to sell their business. That's another feature for Duke Royalty. Again, this slide I'm actually proud to say has not changed in six years. We're still looking for the same things. We still have the preferred sectors where it's service-oriented, where we have old economy businesses, been around for a long time, no startups, no risk in biotech and the next big thing that nine out of 10 times won't happen. These businesses and business owners have lived through ups and downs in the economy and that's why, when we get to our portfolio, we're pretty happy that they are weathering this latest storm. I wish one of these presentations I could say there isn't a storm. We're still looking forward to those days, but we're happy with our portfolio when we get to it. I would say on this slide, again, something different is our initial cash distribution, and we've always had this range. Because the Bank Rate now is 5%, we haven't just said, oh, by the way, instead of saying 13%, we're now saying 18% as an initial cash distribution. Like a lot of our competitors, like a lot of business owners, we'll go to other alternative finance and they have this leverage. We have equity and we're in it for the long term. We're at the top end of that range, but that range has not changed. We can get into that from questions and whatnot, but that is what's very, I'm proud to say, has given us a big competitive edge in the market today. Lastly, before I turn it over to Hugo, is we're here and we wanted to reiterate how our model benefits investors and why buy Duke Royalty? At the end of the day, there's a lot of companies to buy. In the AIM market, there's not too many that have outperformed us, but I tell you the key tenets of what we're trying to achieve, and the first one is this annuity-like revenue stream, and that pays the dividend. That is what we're trying to get a very visible long-term revenue stream from our royalty partners, and I'm going to steal Hugo's thunder here, but what we have now is GBP 800 million of contractual revenue from those 14 companies over the 27 years. That is the sum of every corporate royalty that we have that is going to come back to us if they don't buy it out, and Hugo will go into that. The second is, as I said before, these are not depreciating assets. We have a compounding opportunity through the participation in the growth. That is the private equity side. We have a little bit of credit, and we have a little bit of equity. I won't steal Hugo's thunder on the operational gearing, but we're very proud of what we've been able to achieve in reducing the percentage of our op costs. Occasional buyouts, we're going to get to that and what that means for investors as our portfolio matures, and we get buyouts. Again, diversification of risk is something I did not want to start a company that is only investing in one sector. Mining, if gold goes up and gold goes down and all we have is gold, there's something that is outside of the Management's control. We have a diversification of industries, a diversification of countries, even a diversification of currencies. That is a buffer and that is a good portfolio management. For all the portfolio managers out there, we're pretty proud of where we've gotten the portfolio diversified. The last thing is that we're committed to a healthy quarterly dividend. Our goal is as we grow, and we're going to get to the numbers, but we want to increase that dividend over time while still decreasing the payout ratio. Right now, with 13 consecutive increases in the Bank of England rate, and we have some leverage on our portfolio, that is impeding our ability to increase the dividend every quarter. I want to get to the numbers. We're very proud of them. They're record numbers. Why don't we do that now? Hugo, over to you. Thanks, everyone. Thank you, Neil. I'll go through the finances with you. I think it's fair to say FY 2023 for us was a strong year, without being spectacular. I think in the current macro headwinds, I think it was very important to exercise caution. I think you'll see in the results that, as Neil said, we've got a lot of record KPIs across the board. Our balance sheet's strengthened, cash flow is good, and the dividend is well covered. For those of you that don't know us or don't know me and haven't heard me speak before, I will always focus on cash flow KPIs really for two reasons. First of all, one, the income statement is skewed by sort of fair value and mark-to-market movements on the royalty portfolio. In our opinion, doesn't necessarily provide a true indicator of the operating performance of our business. Secondly, obviously, Neil's talked about our quarterly dividend, which we're very proud of, and really it's the cash coverage that provides that quarterly dividend. Really for those two reasons why I tend to focus specifically on the cash KPIs, as well as obviously we'll come onto the balance sheets as well. I don't generally tend to go into any detail regarding the income statements. As you'll see on this slide, FY 2023 cash KPIs all very steadily increasing. All except that one metric on the top right-hand side, free cash flow per share, which I'll come onto in a minute. Obviously you can see here, total cash revenue up from GBP 18.4 million-GBP 21.9 million. Probably more importantly is the recurring cash revenue has increased 50% from GBP 14.9 million-GBP 21.8 million. Really it's actually this year that you can start to see the importance of that recurring line, and we've never really seen it before, but last year we had GBP 3 and a half million of buyout premiums and equity realizations. Despite that, you can see the top line cash only has gone up, but the difference in the recurring cash revenue is significant. I think that really shows the strength of the financial year that we've had. Moving on to the free cash flow, you can see free cash flow, which ultimately is what pays our dividend, increasing from GBP 12.1-GBP 13.1. You'll see free cash flow per share has dropped a little bit from GBP 0.035 down to GBP 0.033. Now really two reasons for that. Firstly, as I said, the buyout premium. We took GBP three and a half million of buyout premiums in equity realizations in FY 2022, sorry, but none in FY 2023. That 3.5p, GBP three and a half million equates to almost 1p of free cash flow. Removing that, you'll see, and I'll come onto the recurring, why the recurring free cash flow's gone up. Also, and we can't shy away from it, as Neil mentioned, we do have leverage in the portfolio and the Bank of England interest rates have gone up significantly. We have had a little bit of margin squeeze there. The main reason for that drop in free cash flow per share is that lack of buyout premiums. That's really why the bottom two right-hand charts, the recurring free cash flow and the recurring free cash flow per share, are so important because it's really that that does drive our dividend and is what we base our dividend on. To see those increasing significantly year-on-year is very important. Certainly, it's those two charts that actually I'm probably most proud of for FY 2023. Neil touched briefly on the operating leverage of the business, and I'm sure those of you who've seen us before will have seen a slide similar to this before. Really what I wanted to just focus on was that continuing reduction in the operating leverage. We're a fairly small business in terms of headcount. There are only nine of us in the business. Yet as a result, we maintain a fairly healthy margin. You can see, though, those operating costs, fixed operating costs as a percentage of recurring cash revenue, falling significantly over the last four years, now down to 11%. I would expect that to fall below 10% in FY 2024. Just touching on that, really, I could also expect going forwards, what will you see? Well, I genuinely believe, and Neil believes that we can double that recurring cash line up to GBP 40 million with only having to put a small amount of additional OpEx onto that line. Really, really highly operationally leveraged. That leads on obviously to being able to pay out a large portion of our cash as dividends. You'll see the stats at the bottom there. We've currently to date paid out GBP 0.151 of dividends. As Neil said, a GBP 0.028 annualized dividend currently, and we would like to see that increase steadily over the next two or three years. Again, Neil's mentioned the Bank of England interest rates, probably the high level slightly negating the ability to increase that dividend in the short term. We take a very long-term horizon. Our loans are 30 years, and we take a much longer-term horizon on this as well. I think you could expect to see further increases in the dividend when the Bank of England interest rates finally stabilize and possibly start to reduce. Moving on to the balance sheet, you'll see the fair value of the royalty portfolio and the equity portfolio increasing. Now, of course, you would expect to see a degree of increase given that we did raise GBP 20 million of equity capital during the financial year back in May 2022. That is also driven by a small amount of fair value uplifts. Actually, I'll note there was a pre-submitted question saying that we had taken -GBP 9.1 million of fair value movements. Actually, it's the opposite. We took +GBP 9.1 million of fair value uplift, of which part of that was on the royalty portfolio, circa GBP 7 million, and the remainder on the equity portfolio. That's really driven by what Neil sort of talked about, those +6 positive adjustments, 6% positive adjustments on eight out of the 10 royalty portfolios. There was also a bit of currency movement in the U.S. dollar-denominated investments. Fairly steady. The fair value of the portfolio is now sitting about 6% above cost. You'll never see outside of a black swan event like COVID. You'll never see significant mark-to-market movements on the portfolio. They're generally small, 2%-3% max each year up or down, depending on how the portfolio is performing. As I said, this year we took GBP 7 million of uplift on the royalty portfolio and a small uplift in the equity portfolio as well. We're starting to show we now have 11 equity stakes actually in the portfolio. I think over time, and a lot of those are in these buy-and-build businesses, which actually don't have very much equity value on day one. Over time, you'll start to hopefully see that equity value grow. Net asset value per share obviously increased. We've finally gone above GBP 0.40, which is very pleasing. Somebody also submitted a question asking how we value our NAV. Well, look, the NAV is simply just the net assets of the business, and the NAV per share, obviously just the net assets divided by the number of shares. Very positive to see that NAV per share increasing, and long may it continue. Going to introduce a couple of new slides now, which I haven't shown before. Neil talked about at the beginning that Duke is a sort of a hybrid between private credit and private equity, and this slide really tries to put that into numbers. You'll see the private credit side comes from the cash return to date. Across the current portfolio, we've currently received almost GBP 60 million of revenue against GBP 180 million of capital invested. Apologies. That's my doorbell. Over 30% of the portfolio cash return to date. We're currently running at about, I think Q1 we did GBP 6 million of quarterly revenue. Annualized, that's GBP 24 million of annualized cash revenue. On that run rate, it would only take another five years for the current portfolio for cash to be fully returned. On the private equity side, we talk about the buyout premiums, and sort of the uplift that we get at the end when these investments exit. Not only can you see the unrealized fair value currently on the royalty and equity portfolio is GBP 203 million, but we have GBP 40 million+ of buyout premiums currently in the current portfolio that aren't valued in our NAV. There's significant equity upside as and when these investments exit. It's also worth noting that actually the royalty portfolio is fairly well discounted. The average discount rate is actually about 16.5%. A fairly prudent approach to valuing the royalty portfolio. Just to touch quickly on the equity portfolio, I value that based on a forward-looking EBITDA against the market multiple. Very similar to how private equity would value their investments. Lastly, looking at really sort of our growing cash revenue. What can you expect for the next year or two? The line you'll see is the level of deployments. Now, as we talked about, we have taken a fairly cautious approach to deployments in FY 2023, given the macro headwinds. We deployed GBP 26 million of capital against GBP 75 million the year before. Obviously, there was a bit of a COVID bump in FY 2022. The current liquidity of the business is circa GBP 50 million. If we were to deploy all of that, you can realistically expect FY 2024 to be in the region of about GBP 28 million of cash revenue. Actually on an annualized basis, that will look closer to GBP 30 million. As we deploy, and we're sort of hopeful of a more positive level of deployments this year as our pipeline's looking strong given the increase in interest rates. Really, Neil actually did steal my thunder annoyingly, because I wanted to leave you with these two numbers, actually. On the current portfolio, we have over GBP 800 million of contracted revenue back to us over the next, it says here, 27+ years. It's over 30 years from obviously the most recent investment. That's GBP 800 million of contractual cash revenue. If we were to fully deploy down on our liquidity and invest the remaining GBP 50 million, that would equal over GBP 1 billion of contractual revenue. I think it's fair to say, all being well, our dividend is fairly well covered for the next 30 years. That's all from the finance stuff. I will pass you back over to Neil to run through some portfolio highlights. Thanks, Hugo. It must be commented how focused you were when your doorbell was going off. Well done. Yeah. Many apologies for that. want to give you some highlights of our royalty partners and really just talk about the state of the portfolio. I think the first thing that we've said in our public statements, we're getting paid by 94% of our contractual revenue right now. That actually hasn't changed in a couple of years. Why it's not 100% is Trimite, and again, if you've been with us before, during COVID, there was four forbearance agreements that we entered into. I am happy to say that three of them are out. Trimite is only paying us half of what they should. We are accruing the balance, so we feel that it's stored value, not lost value. The issue that Trimite has been faced with is they were in the middle of a consolidation from different plants. This is an industrial coatings company that's been around for 80 years. They used our capital to buy another plant, and we wanted to consolidate the operations, and COVID has delayed doing that. Now, having said that, the consolidation is happening right now. It should be complete by September. This is mission-critical coatings for very big industrial companies, including Perkins and Cummins, and we paint jet engine airplanes. I'm on the board of the company, so we're very involved in ensuring that there's no disruption to the customer as we're moving equipment around. That is being executed right now, and Trimite is scheduled to go back up to full payments in due course. Overall, you look at our portfolio and we are in defensive, we're in business-to-business industries, not a lot of consumer-facing, U.K.-facing consumer industries. The one that would be closest is Miriad. Just to refresh everyone's memory, Miriad is the U.K.'s largest distributor of RV and caravan parts. There's over 18,000 parts they have in a big warehouse in the Midlands. They service both OEMs, so for new builds, and they also provide secondary products for existing individuals. They can buy new kit for their caravans. Miriad does both. Right now, discretionary spending in this industry is low, so they're trending under their budget for this year. They certainly had a very good COVID bounce, the kind of the sugar rush after COVID, the staycations. They did very well. What we're seeing is a reversion to the mean. They have a lot of buffer to pay us. Again, they're paying us 100%. There's no credit risk in this company or across the portfolio that we see. Again, those pillars of what we're looking for, as long as we're the senior secured, that mortgage. I think one of the new questions was about do you take general security or is it specific? No, it is general. We are fixed and floating, secured over the assets of the business. When there is other debt in these companies, that's for the inventory lines. Very cheap capital against the inventory. If they do have a mortgage, a real mortgage against a piece of property, we have intercreditor agreements, and they're the ones that are only on a specific asset, and we have the general security. That is where we find ourselves. We are certainly like business owners, and you can see the percentage of equity stakes. We have something in most of these companies. We get monthly management accounts. We hold board calls, and we sit on the boards of these companies or observer rights. Through COVID, we did the exact same thing. This is like a slow-moving train. It's like a normal economic downturn. Again, these business owners have been through things like this before, so there's no surprises here. Everyone, even the Bank of England, is worried about how long inflation is at these elevated levels and what that means for our economy. I can tell you that we have been working with all these business owners for two years now. We had supply chain issues in 2021. We had inflationary issues in 2022. What they love about our capital is even though inflation means that this year they were up 6%, we aren't choking these companies by doubling their interest costs if we were like any other lender. We feel that it's a long-term partnership. We have good controls, good information in these businesses. When we have to get active, like Trimite, we were instrumental in changing a couple of the senior leaders, like the finance function. It's very important to get that right. Again, the portfolio is stable. We're not worried about the credit risk. We have these companies paying us, and we look, as I said in the Annual Report, cautiously optimistic. No one can predict the future, but as we've seen through COVID, as we've seen through the last six years of us building this business, we are able to withstand economic downturns. We're happy when our portfolio is performing like this. We're in a business-to-business mission-critical. One of the new companies this year, I should mention, New Path Fire and Security. Those are business security, monitoring of the business, the fire regulations, fire extinguishers, supplying all these for businesses that are mission-critical, and they're regulated. We have companies like that that we feel very good about. Tristone is in specialist care. They're being paid by the councils. That is an essential service. On we go. Most of these companies have been around us, as you can see in our portfolio, for 2+ years. We're happy where the portfolio is right now. Our couple other slides is it's not just 14 companies. A company like Lynx, that we've been partners with since 2017, has nine different companies in all different industries and even has some Danish exposure, U.K. exposure, and all business-to-business companies. There are a number of different industries that we're exposed to. I better let Hugo talk about these numbers. Go ahead, Hugo. Yeah, thanks, Neil. We added in this slide. A lot of our investors have sort of been asking to see what is the life cycle of the investment and how have your exits sort of returned. Really, we've had six exits to date. As you can see, a range of IRRs. What you would generally expect to see from our portfolio is if an investment was held to term and just paid us our monthly coupon for 30 years, you would expect an IRR of around 16%. When we add a buyout premium on top of that, you would hopefully push that up into sort of circa 20%, early 20%s. All being well, as I said, a lot of these we have equity premiums on, equity stakes in, and that hopefully should juice the return at the end even further up into the high 20s. Now, obviously, a lot of the degree of, I suppose, how good the IRR is depends on how quickly really that buyout happens. The earlier the buyout happens, really, the higher the IRR. Really what you can see from these exits is that actually happening. Berkeley, where we just had the royalty, 16.2% IRR, going up to 22% on Xtremepush. Actually, Xtremepush, to be fair, is the only one where we have held a warrant in the business despite the exit. The two orange ones, Welltel and BHP, both of those we did have equity in. Both of those have returned over 25% IRRs, which is great. There are the two sort of outliers. Temarca was a Dutch riverboat cruising business that was one of our first investments. It seemed like a great investment at the time, and then COVID sadly hit. As you can imagine, it was not a great business to be in with COVID when the whole sector shut down for 12 months. As senior secured lenders, we were able to step in, take ownership of those riverboats, and we sold them on to the largest riverboat operator in Europe. We actually came away with just a -1.4% IRR. Actually, to be honest, that's probably one of the investments we get the most credit for. Good. I'll let Neil explain Instor for you, given that was his rather short-lived investment. It was obviously a very, very healthy return. Again, it's an outlier and not really indicative of what we'd expect from our portfolio. Yeah. Thanks, Hugo. That was our second new royalty partner in the fiscal 2023. We had got introduced to the company late last year. What had actually happened, which needs some explaining because we don't like, and we keep repeating that we are not used as bridge loan lenders, it does look like we only had a two or three-month investment in Instor. It all makes sense when this is explained. We facilitated a management buyout, and the CEO that was the CEO from 2014, five years later, which was 2019, four years ago, wanted to buy the business. He struck a deal with the owner that ended up pulling back and not having day-to-day involvement in the company. That deal was struck in 2019. The deal that they had was that the purchase price would be out of the profits of the business for a long period of time. 2020 looked like a good deal, but actually what happened to the company now that Jack, the CEO, had full control over the company, he brought in a partner, and they actually established a very good growth trajectory, 2021, 2023, 2022, and this year as well. Late last year, it became apparent to Jack, and that was relayed to us, that he would like to accelerate this long tail of buyout and just consummate the transaction, get his hands on 100% of the shares by paying out quickly the 2019 purchase price. That's what happened earlier this year. We're, again, patting ourselves on the back, what a great deal this is because it was so profitable. What came next was that Jack had someone wanting to buy the company, a private equity wanting to buy the company, and I believe it was at a multiple of the 2019 purchase price. He got control of the company. Everyone acted morally. That deal was done and that deal was consummated. Jack then, with our capital, he is free to control the company, sell the company, and he acted on that private equity buyout that returned us, as it says, over 200%. We had a GBP 1.8 million buyout premium coming back to us with our whole principal. It was a great deal for us, but it only makes sense in the context of that was four years in the making. I would expect four years, the sweet spot for building equity value in any one of our companies is going to be 4-7 years. We believe that exits will be a feature, and maybe one and possibly two in 2024. I think the global economy has to normalize, and because a lot of the companies that are going to sell out of our portfolio are going to be bought by private equity or trade buyers, everyone needs to feel confident about the future before a lot of transactions are going to happen. We're not in control of the exits, but again, as Hugo said, normalized, what we would see is that our credit product and our hybrid private equity product will bump those IRRs into the low to high 20s. I'd say, we're demonstrating what we said at slide one, which is protect your capital, give people a dividend while we're all waiting for the heydays and the good days, and build that equity in this private equity hybrid model that we have and show some good IRRs and growth in our NAV. We're happy for everyone in the Instor transaction, including our shareholders. Looking to the future, what we already have announced, Q1 of fiscal 2024, which has ended June 30th, of course, because we have a March year-end. The last three months was again another record, and this time passing GBP 2 million a month of recurring revenue. Again, looking out that for 318 months is very pleasing and very visible to all our shareholders. We talked about the Instor, more dividend. We can talk about that when we get to the questions. The pipeline, everyone asks about the pipeline. There are some good questions about why aren't we increasing our headline rates. To be assured, the headline rate is only one of a number of levers that we can and do negotiate with business owners. One that is a one-off, and we actually didn't insist on arrangement fees, and this is pretty typical if you're a business owner and know refinancing fees, and you've got exit fees, you've got an arrangement fee at the front. Bank managers, that's how they get paid, is they give you fees every time you want to do something else. We'd traditionally not done that. To supplement in this rising interest rates, arrangement fees of 1%-2% are normalized across the industry, and we've implemented those to supplement the discrepancy between our debt costs and our initial rate. We also think of a 30-year product. We are going to get those adjustment factors, and that 14% entry rate will go up to 14% or over 15% in a couple of years. We're very confident about that. We also will ask for other cookies on the back end and the buyouts to really enhance the returns that all Duke shareholders will get in the life cycle of these investments. I say the headline rate is only one component. I say that our competitiveness in that will give us bigger and better breadth of companies to invest in. We will be investing more. All things being equal, what we're seeing right now is we're more confident in distribution and in deployments in fiscal 2024 than we were in the outbreak of the war and the rapid escalation of interest rates from the Bank of England. Everyone was cautious, and we're no different, and that's because we're a good shepherd of your capital. We have an opportunity here. Our product is designed for bad times and good times, and we believe that we'll put more deployments out to keep increasing that cash generation and that recurring cash flow. We're proud of all our shareholders, and we do things like this because individual shareholders are very important to us. You can see how Hargreaves Lansdown and Interactive Investor are an increasing percentage of our shareholder base, mixed in with maybe some names that you've heard of from Allianz, and M&G, and AXA Framlington, and Premier Miton. We need to cater to all the investors. There was a question about how fast are we going to increase the dividend, where we think the dividend is. The increase of our debt cost, when we get to GBP 100 million, if we had a risk-free rate of 0, we could put another pence of dividend and still have a lower dividend payout ratio than we do now. That is the cautionary tale. When those interest rates go down, it'll be reversing where we are. The free cash flow will accelerate. Right now it's being curtailed by this increasing in the Bank of England rate. We still have GBP 50 million of free dry powder to invest, and we're looking forward to accelerating our deployments. Fairfax, if anyone doesn't know, that is an insurance company. It is from Canada, right down the street from me in Toronto here. They are GBP 95 billion, or GBP 90 billion of assets. They are a long-term and very supportive capital provider to us, and we really think of them as a strategic partner of the company. Finally, before we turn it over to questions, again, we're not going to belabor this. Capital preservation is number one. We don't see credit risk in our portfolio. We have a dividend yield. We have maintained it. We haven't cut it. Our payout ratio is going down, so that gives us a buffer and more strength to increase that in the future. The upside from buyouts, we've demonstrated that this year with Instor. Hugo talked about our high operating leverage. Now this year, we'll be under 10% of our recurring cash flow, and we love that number. We're going to get to GBP 1 billion of recurring contractual revenue here, hopefully this time next year, and that's due to our strong investment pipeline. Thank you very much everyone for your attention, and we can turn it over to the moderator for questions. Neil, Hugo, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab, which is situated on the top right corner of your screen. Just while the company take a few moments to review those questions that have been submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your Investor Dashboard. As you can see, we've received a number of questions throughout today's presentation, and if I could just hand back to you just to read out those questions and give responses to where it is appropriate to do so, I'll pick up from you at the end. Yeah. Thanks, Ali. As you said, there are a number of questions. We won't have time to answer every single one, but of course, once this is finished, we'll ensure we do answer all the questions fully. I can probably just touch on a few of them quickly and cover off some of the shorter ones. Chris A, since rates started to rise in the autumn, have you seen a change in inquiries straight pipeline? In simple terms, yes. I think as Neil touched on, we haven't necessarily increased our base rate, and as a result, I think we've come increasingly more and more competitive against the other products that are in the market. Naturally, as you could expect, the pipeline is a lot fuller. We've had a lot more inquiries, and hence why we're confident that we'll be able to push out more money and deploy more capital in FY 2024. Also, Peter asked, "Do you have any board seats? Does this depend on the equity holding?" Not really. Yes, we do, is the simple answer. We have board seats on pretty much I think all bar one, where we have an observer status, but we insist on absolute minimum observer status on the board. Generally speaking, yes, we have board seats across the portfolio. We have great visibility over management's accounts and forecasts, and our interaction with the underlying royalty partners is very close. We see ourselves as a strategic partner with them, not just as a credit lender. I've got one here. Paul L. says, "Where are you finding opportunities you haven't before, business area or geography?" Paul, you will notice that Instor and Creō-Tech, Atlas, we're all U.S.-based companies. We have actually, over the last couple of years, done a lot of business development in the U.S. where our initial portfolio was very U.K.-centric and Ireland. We have had a concerted effort now, since 2021, to bring U.S. deals into our company. I think that's really paying dividends right now. Sorry for the pun, but the U.S. economy is a lot stronger than the U.K. We have another opportunity that we are pursuing in the U.S., so watch this space would be my comment. We're not looking at any other business areas. These are service companies, kind of asset light, but longstanding profitable companies. Yeah. There's one here from Ken B., "I believe that Duke is the largest shareholder, at least one of the partners. Is this not creating a conflict of interest?" We are not the largest shareholder in any of these businesses. We always maintain that we are minimally diluted. We'll never take anything more than 30% at the absolute max. We're never the largest shareholder in these businesses. We make a point. We don't want to control these businesses. We want the owners to stay in control, in control of the exit, in control of the strategic decisions. We're just there to sit in the background and help where needed. Mark B, just a question on clarifying the 13.5% repayment. Yes, Mark, well, welcome to Duke Royalty Presentation. It is something that does need explaining. Please go to our website where we have different explainer videos and whatnot. Ultimately 13.5%, there is an amortization schedule that does not change. That uplift is additional interest you would say because the principal amortizes at the exact same rate. It is that cash adjustment without changing the base kind of corporate mortgage product. When it goes down, you're not accelerating the payments or delaying the payments. It'll always be 30 years. You can always get out of it after three years non-call. That extra 6% is really profit for us and our shareholders. Just a few more. Quite a few questions from Peter. Thank you for these. You've asked, just following up on what Neil was talking about in terms of our starting rate. You've asked, is it sustainable given the increase in the margin of the interest rates? As I've said, we see ourselves as a long-term partner. Our product is 30 years. We take a much longer term view. Yes, interest rates have risen fairly aggressively in the last 12 months. We don't see this as a sort of long-term increase. I mean, it seems to change every day, but all being well, we'll see interest rates come back down, probably not back down to what they were, but certainly sort of 2%-3% maybe in the next couple of years. Now, if we increase our rate up to 15% and then we get two or three positive adjustments, suddenly we're sitting at 18%, which just isn't sustainable, and we'll see a slew of buybacks across the portfolio, which will give us a bit of a sugar rush and a kicker at the end. We are a long-term partner, so really it's for that reason that we haven't increased the interest rate. Rather, we prefer to become more competitive and deploy more capital at the higher end of our range, which is sort of 13.5%-14%. I think we're going to conclude here, but there's been a couple things that I'd like to touch on. It's just the disconnect between the share price and the improving fundamentals of the company. I do identify with that and something that, as a CEO, all I can control and what we do every day is control what we can control. That is the fundamentals of the business, the increasing cash flow and ensuring that those building blocks that we talked about are following through. When the risk-free rate goes up, our dividend yield, which I think is one of the key drivers of our day-to-day share price, our dividend yield will go up as well. We have been trading historically at 5%-6% dividend yield, and now it's 8%+. I think that disconnect will, as we are right now, I think what our thought process is that will unwind itself when interest rates go down, when there is more confidence about the future, the economy, and interest rates coming down. We're not living in a bubble. There's a lot of different competing investment products out there and as it pains me to know, I think our good efforts will be rewarded. It does depend on a number of factors outside our control. I think, just like Canaccord's target price is over GBP 0.50 a share, I think we will be rewarded in the long term. Up until then, we are going to continue to pay us our dividends and pay all our shareholders the dividends every quarter. You get paid to wait for better times. We're really proud of these results. We're very happy that you all are shareholders, and any other questions that can get you to be shareholders, please put it in the Q&A. We'll see you again next time. Thank you so much. Thank you very much, everyone. Perfect. Neil, Hugo, thank you for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the Management Team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the Management Team of Duke Capital Limited, we'd like to thank you for attending today's presentation, and good afternoon to you all.