Duke Royalty to pay scrip dividend for June quarter
Duke Capital Limited
31.20p
11:00 26/04/24
Alternative capital provider Duke Royalty updated the market on Thursday, saying that it has been working with its royalty partners to understand the impact of the Covid-19 coronavirus pandemic on its businesses, and to ensure that they were provided with support to trade through the period.
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The AIM-traded firm claimed that “by design”, its long-term capital was structured to be aligned with its royalty partners, their owners and managers through the ups and downs of economic cycles.
While the impacts to its portfolio were inevitable during the pandemic, its management said it was pleased with the ongoing resilience demonstrated by its portfolio as a whole.
Through its diversified portfolio, Duke said it had exposure to a range of sectors, some of which were impacted to a greater extent by the pandemic than others, such as hospitality and leisure.
In certain situations where Covid-19 had the greatest impact, Duke said it had chosen to either accrue, capitalise or equitise its monthly cash payments in the short term, with the intention of alleviating the negative cash flow impacts for its royalty partners.
Still, cash revenue received in April totalled more than £0.6m, and that level of monthly cash revenue was expected to be maintained through the quarter ended 30 June.
While that is below the £1m cash receipts of March, Duke noted that the reduction had not been waived or lost by Duke, but rather had resulted from its restructuring, with the expectation that the shortfall would be made up in subsequent periods as trading improves.
“Based on the proactive cost cutting measures that were put in place by Duke in March, the company estimates that its annual operating cost base is currently running at approximately £1.8m,” the board said in its statement.
“Therefore, it is pleasing to note that the company's first quarter cash receipts will likely exceed its entire 2021 annual operating cost budget, thereby highlighting the high margin and cash generative nature of Duke's business model.”
The company said its liquidity position also remained “strong”, with cash on hand of more than £3m and additional liquidity of around £18m via its revolving line of credit with Honeycomb Investment Trust.
Duke said it expected to make additional investments into its existing royalty partners over the coming months, both to provide financial support and to provide acquisition capital in certain circumstances.
“While it is too early to make any definite forecasts, Duke remains cautiously optimistic that its royalty partners will be able to successfully navigate through this unique period of uncertainty and Duke looks forward to being able to report on a more normalised trading environment in due course.”
In light of the lower cash receipts expected in the short term, and the likely follow-on investments that it intended to make into its existing royalty partners in the coming months, its board said it was prudent to retain cash as much as possible to support its portfolio.
To that end, for the upcoming June quarter, Duke said it would pay shareholders a scrip dividend instead of its normal cash dividend, with the exact amount to be announced in the normal timing cycle of mid-June.
Since 2017, Duke has paid out more than £12.7m in cash dividends, and said it intended to revert to the payment of cash when a more normalised trading environment returns.
“While we face an unexpected business environment, royalty companies are designed to withstand downside economic shocks,” said chief executive officer Neil Johnson.
“Duke Royalty benefits from both low operating costs and senior security in our investments, while limiting the downside adjustment in any given year.
“Our short-term priority is to support our royalty partners in order to protect our portfolio, while helping the long-term future of each company.”
Johhnson said that, like most lenders in the market, the company had made its contribution towards the fight against the virus by way of restructuring some of the repayment terms where necessary.
“I would like to take this opportunity to thank our royalty partners, some of which have also altered their business to contribute in the quest to overcome Covid-19, for the resilience they have shown in recent weeks.
“Our commitment to our shareholders is also steadfast.
“Currently, the board believes cash conservation is prudent, which has been the response of most businesses during this pandemic.”
However, rewarding shareholders through dividends remained a priority, so Johnson said the firm would continue the dividend through a scrip arrangement.
“Given the strong financial performance we delivered ahead of the outbreak, I believe we will move out of this extraordinary time having demonstrated the resilience of our model, the benefits of our capital over short dated bank debt, and the strength of our support for our partners in overcoming this unique trading period.”
At 1348 BST, shares in Duke Royalty were up 26.32% at 24p.