Follow-On Contribution and Restructuring

29 August 2019

Duke Royalty Limited

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

Follow-On Contribution and Restructuring with Existing Royalty Partner

Duke Royalty Limited (AIM: DUKE), a provider of alternative capital solutions to a diversified range of profitable and long-established businesses in Europe and abroad, is pleased to announce a follow-on investment of £0.25 million and restructuring of its Royalty Partner, Pearl & Dean Cinemas Limited ("the Pearl & Dean Group").

Duke has restructured its investment, which now totals £2.75 million, by moving the entire Royalty Agreement from the Pearl & Dean Group, a UK and Irish cinema advertising business, to its parent company, Step Investments Limited ("SIL").

SIL is a diversified investment vehicle with interests in several profitable and cash-generative UK and Irish businesses, spanning the media and hospitality & leisure sectors. The restructuring will therefore provide Duke with exposure across the broader SIL portfolio, increasing the security of the investment.

Highlights: 

·   The Pearl and Dean Group is the sixth Royalty Partner to receive a follow-on investment by Duke and the second Partner secured through the Capital Step acquisition

·  Investment terms remain as a perpetual royalty, with a pro-forma cash yield of approximately 18.0% on total invested capital and potential for further revenue participation depending on future growth

·  SIL will use the follow-on investment to add a new Dublin-based luxury restaurant and entertainment venue, Hyde, to its portfolio

·   Pearl & Dean Group has successfully completed a fundraise recently to restructure its debt and to fund future growth

·   The new investments into the Pearl & Dean Group and Hyde are expected to accelerate growth of these operating companies to which Duke's revenue participation is tied

·   Restructuring of this Royalty Partner increases security of Duke's investment

Royalty Partner - SIL: 

SIL's investments are focused on the media and hospitality and leisure sectors, both of which are areas of focus for Duke.    

SIL retains a majority stake in the Pearl & Dean Group, comprising the UK cinema advertiser Pearl & Dean ("P&D") and Irish sister company Wide Eye Media ("WEM"). P&D was founded in 1953 and works with a wide range of cinemas, including independent operators and large multiplex chains across the UK. WEM (formerly Carlton Screen Advertising) was founded in 1996 and has 100% market share of the Irish cinema advertising industry.  SIL also owns minority stakes in other profitable Irish media businesses.

In addition to media, SIL also has several investments in the restaurant industry in Ireland, a sector which the directors believe also lends itself favourably to the royalty industry. SIL is currently in the process of developing a luxury restaurant and entertainment venue called Hyde in central Dublin, Ireland, to add to its hospitality portfolio.

About the Financing:

As a result of its latest contribution, Duke's new exposure to SIL amounts to £2.75 million, with a pro-forma cash yield of approximately 18.0%, at the floor.  As previously announced, the investment is structured as a perpetual royalty, with the return calculated as a fixed percentage of gross revenues, subject to a floor and a cap of 30%. The commercial terms of the agreement remain the same, namely that only Hyde and the Pearl & Dean Group are included in the gross revenue calculation.  

SIL will use the additional funds from Duke principally to fit-out the Hyde restaurant and entertainment venue in central Dublin, delivering a new revenue stream to SIL.   The Pearl & Dean Group has also recently successfully raised funds, through a combination of debt and equity, to fuel future growth and to refinance its existing debt. The Pearl & Dean Group fundraise was led by The Firmament Group, a US-based provider of tailored debt and equity capital solutions to small and medium-sized enterprises.

The additional revenue anticipated from both growth initiatives are anticipated to have a positive impact on the future royalty receipts received by Duke from SIL as gross revenue grows above the floor calculation.  The restructuring gives Duke the senior position in the SIL capital structure, which includes first-ranking security over several profitable businesses within SIL, as well as security over fixed assets outside it.   

Finally, as part of this follow-on investment, Duke has secured the right, but not the obligation, to provide additional future investment into SIL as and when new growth/expansion opportunities arise. 

Neil Johnson, CEO of Duke Royalty, said:

"This investment benefits all parties concerned and reinforces Duke's reputation as a flexible and long-term funding partner for business in the UK, Europe and abroad. For Duke and its shareholders, this restructuring means that our royalty receipts are poised to benefit from multiple growth opportunities as SIL launches its new venue, Hyde, alongside the range of planned initiatives from the Pearl & Dean Group thanks to the new funds raised through The Firmament Group. This deal also enhances the value of our overall security on the investment."

Duke Royalty Portfolio

Following this follow-on investment into SIL, Duke's portfolio of core royalty investments is as follows:

***ENDS***

About Duke

For further information, please contact www.dukeroyalty.com, or contact:

About Duke Royalty

Duke Royalty Limited provides alternative capital solutions to a diversified range of profitable and long-established businesses in Europe and abroad. Duke Royalty's experienced team provide financing solutions to private companies that are in need of capital but whose owners wish to maintain equity control of their business. Duke Royalty's royalty investments are intended to provide robust, stable, long term returns to its shareholders. Duke Royalty is listed on the AIM market under the ticker DUKE and is headquartered in Guernsey.