Duke Capital (LSE:DUKE) — Full Year Results

0:01 Good afternoon, and welcome to the DUKE CAPITAL LIMITED full year results investor presentation. Throughout the presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and 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 in a position to answer every question it receives to the meeting itself. However, the company can 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 to everyone and, happy Canada Day, July 1. We are very pleased. I'm here with, our CFO, Hugo Evans to to run through our fiscal year end, results presentation.

0:49 I'll do, some overview and then hand off to Hugo for, the finance section. And then we have some other bits of the portfolio and other bits as well that we'd like to some

1:02 messages for you. So welcome, everyone. Just as a there's an overview of of what DUKE CAPITAL is. You know, we are a leading provider of a of a unique hybrid capital solution. We have been listed since 2017. And those of you who have, been with us on our journey, before today will know, you know, our investment pillars, what we're achieving and and guide us as our philosophy is to have capital preservation as one pillar. We also offer investors an attractive yield through our quarterly dividends and also upside through our exits.

1:58 And I think fiscal twenty twenty four has shown all three of those investment pillars working to the investors' advantage. We currently have 15 capital partners or royalty partners, as we used to say, and invested capital of GBP $214,000,000. We have had some exits we'll talk about and how that affects our financial results as well as our philosophy. And I won't steal Hugo's thunder about our record results, but we're very pleased on the last twelve months. Our annual dividend is right now 2.8p per share in the year, and equity stakes have increased.

2:51 Significantly, what we'll talk about today is make the case how we believe, you know, our hybrid credit product, the equity part of that hybrid, has significant upside. So you will hear and I want to explain now about our refreshed, messaging. However, what has stayed the same and and what is, is new and and how we why we did it and, and and how we intend to, continue, with both taking ownership, equity ownership as well as our our, our product of direct lending to the lower and mid market.

3:36 So let's get into that. I think stepping back, you can see the rise of private credit. And this really was, the direct lending segments of private credit, has really, blossomed since, since really the, the the the credit crisis, the great the great recession of two thousand and eight, 2009. And, you know, direct lending is the the darker piece of the pie, and the pie is significantly increasing, but also where we sit in that pie. And, you know, we have, I've always talked, about, you know, our product in the terms of being a corporate royalty.

4:27 And we talked about being a corporate mortgage with with, with revenue linkage. So we're gonna we're gonna go back to that. But but ultimately, we have been a direct lender, to the lower mid market, since our inception. So nothing is changing. But, but just looking at the at now private credit becoming, more mainstream in investors and also business owners' understanding of of their options, we're we're really pleased that we made a tweak to our messaging so we can be better understood by both investors and business owners.

5:17 So this also is something you've heard me say, before if you've been on any of our investor presentations. You know, it's a hybrid between private credit and private equity. What we do is right in the middle, of those four columns. We do have the thirty year amortizing senior secured loan. We do have fees upon exit or exit fees. We've talked to you around our intensive due diligence When we invest, that is very much like private equity. We don't do a lot of deals, but we have McKinsey and Company to help us with the commercial due diligence, and we have our team of experts here getting completing deals.

6:11 We do take board seats. We are very much relationship based. We know a lot about these companies that we have monthly financials from, sit on the boards, etcetera. So we're very active. However, we keep the, control of the company, the exit, the timing of the exit and the strategy in the in the business owner's hands. So we don't do what's on the other the the two columns on the side, you know, we're not a floating rate, we're not mezzanine or junior lending. And on the other side, on the private equity, you know, we don't have a fund, so we have to realize exits by selling the company again. We don't need that, you know, and we don't have to force an exit.

7:08 We can really choose when we exit and the business owners can choose when we exit. In terms of where we sit in, kind of the ecosystem, I would say, on the left hand side, we're not, a venture debt provider. And and on the right hand side, we're we're not competing against the majority, I would say, of private credit, which is EBITDA above £10,000,000 and revenue up to a billion pounds, that would be the middle market, very competitive, they're usually private equity owned companies. And so we're sitting right in the middle.

7:56 These are steadily revenue growth, but not hyper growth. They've been around for a lot of market cycles. We have owner operated, I. E, you know, non sponsored, non private equity sponsored businesses.

8:13 And what's important to business owners is that they retain control of their of their company. And and that's why they would choose DUKE CAPITAL over selling to a, to to another company or choosing short term, debt that they have to get on the refinancing treadmill of of debt every every couple of years. So we're the long term solution, but yet, they receive capital and retain control. Our, this this hasn't changed, but I would like to explain our our hybrid product in in slightly a different way. You've heard us talk about a corporate mortgage that we that we have that is on the on the top of the left hand box. It's a fixed rate loan that amortizes slowly over thirty years. And that is one of the most important aspects of DUKE's product is that there is no refinancing risk because that elongated amortization, timeline, allows the company to service our obligations or service its obligations to DUKE, through the existing cash flow of the company.

9:41 And that never has to, you know, be faced with high amortization payments that they cannot repay. So that also kind of buttressed with a variable rate preference share, which you've heard us talk about, you know, the participating loan or, for example, the corporate royalty, which which, has the has the rate that fluctuates once per year and adjusts up or down 6% in currency terms, once per year based on the revenue growth or decline of the business.

10:29 And so that hasn't changed as well. But basically what we have always given to business owners is is this two part debt, corporate mortgage and and another instrument that is the variable rate. So, you know, we want to give our investors, as we talk about our hybrid capital product, is these are its component parts. The other component parts, have always have always had exit fees or, redemption premiums, etcetera. That is that is that bucket. And and then the minority equity stakes. And And so we've always had these four components.

11:18 And what we want to talk about today after the finance section is really how those bottom two buckets align our interests with the business owner and make sure that when there is a success, of, of the business and it's successful exit or transaction that, that DUKE, participates into that, into that success. And, so, you know, we're not just we just don't want to be bucketed as a as a cash flow and dividend payer. You know, we we also want to participate in the growth of our companies when there is transaction.

12:06 And those and that transaction is always, you know, our philosophy is to be aligned with the business owners and the management, and so that will not change. For our investors, I won't belabor this slide. I think all of you after the last few years will know we have a highly predictable revenue stream. Unfortunately, probably too predictable because know, nothing is a surprise when we when we come to the finance presentations like this. But boring is the new exciting as I like to say. So exits have the upside potential. We'll get get to that as I've explained.

12:56 And then the lower mid market, these are companies that you cannot buy on the stock exchange. They're very resilient economically. We look at cycles that they have been through in the 'eight, the, you know, the '90s and most of our companies have been around for thirty to fifty years. And then the attractive risk return profile. And I think this is very important because there is some risk in our in what we do, absolutely. But remember our investment pillars of the first one being capital preservation. And we're happy to go through the balance sheet and the NAV that we're doing good job on that. And so now it's all about how to mitigate the risks, but also deliver these returns.

13:52 And fiscal 'twenty four will show how we do that and that actually is good segue. Good segue into finance. Thank you, Neil. Good afternoon, everyone. I think I'll just dive straight into it, really. You know, it's we feel a a very successful FY '24 for DUKE as I'll go through a lot of growth across all of our sort of core metrics. Indeed, you know, the majority of them showing sort of record numbers this year. So, you know, I'm particularly pleased to present these some numbers to you. I'll start off, obviously, cash revenue there at the top left of $30,300,000 Actually, a record growth for us based in terms of total number and growth up from $2,022,000,000 in in FY 2023.

14:43 But it's not only the top line, it's the recurring number as well as gone up up to 24,300,000 up from '22 again. And then feeding down through into the lowdown in the in the cash flow statement, free cash flow number. Now this is obviously one of the ones I do always highlight is it's fundamental to our ability to pay out quarterly dividends. So very pleasing to see the free cash flow number there are up close to 18,000,000 up from 12.8 in in the prior year. Boy, we'll see by the the investment assets, which we'll we'll come on to a little bit. Free cash flow per share up to 4.34 per share. That's up from 3.2 last year. And that's particularly significant when you look at the graph next with the dividend per share. So we paid out 2.8 p of dividends during FY 2024.

15:35 So, well covered from that free cash flow per share. I'll probably take this opportunity actually to answer a number of pre submitted questions to be given and actually quite a few of them focused on the dividend asking about you know, given the fact that free cash flow was 4.3 p, are we looking to increase that dividend in the short term? I think my answer would be in the very short term. I think it's probably unlikely. You know, we are still in a very high interest rate environment, Sonya still up north of 5%.

16:09 DUKE is currently sitting at a nine percent yield, very, very healthy dividend yield. And I think if anything, we would like to put more back into the portfolio to try and generate some capital growth rather than increasing the dividend in the short term. Having said that, obviously, Sonya starts to come down, we're all expecting, hopefully, some good news, if not in in in August, then maybe September on that front. Once we see a longer term prospects of continuous interest rate falls, then it's a conversation that myself, Neil, and Charlie will have with the board. We sit down every obviously as a quarterly dividend payers, we sit down every quarter and discuss that dividend. So, you know, as the interest rates come down, that will be a conversation that we will have in the future. So do I see an increase in dividend in the very near future? Probably not.

16:59 Longer term, that will be for discussion as and when rates fall. Lastly, just looking at that bottom right one. I didn't normally talk about the income statement, but I think it is important this year given and, again, there have been a couple of questions talking about, you know, the fall in in income. What I would highlight this year is that the fair value movements have have played a significant part in the income statement. So last year, you would see sort of 20,000,000 of of profit after tax as opposed to sort of close to 11.5 this year. So what I've done on the right hand side really is strip out those fair value movements, and you'll actually see. So the adjusted earnings per share number really is a is a much better reflection of the core operating performance of this business.

17:44 That's not to hide from from the fair value movements, but these are noncash movements which fluctuate year on year according to sort of the growth forecast of the business. Now, obviously, know, it's been a pretty difficult twelve, eighteen months from a macro perspective. And unsurprisingly, you know, you would have seen a slight pullback in some of the sort of growth forecasts of the businesses. And that particularly my fair value models are particularly sensitive to the next twelve months growth rates. So the reason you'll see there was a 4,700,000 fair value fall on the hybrid credit portfolio. You know, that that relates to only sort of two, two and a half percent of the overall value of the portfolio. So fairly minimal, but that was against the 9,000,000 increase in FY '23.

18:31 And hence why in the income statement, you will see that net income has fallen.

18:39 Moving on. Most of you have sort of followed us more in the last three or four years. You'll probably have seen this slide before, but just to sort of talk about that, the operating leverage of the business. You know, we are in terms of personnel, we're we're a fairly small business, only 10 of us. We try to keep our fixed operating costs sort of low and stable, and that's really reflected now. And you can see that sort of the the OpEx as a percentage of our recurring cash revenues falling fairly materially over the last four years from from 22% in FY twenty down to 12% in FY twenty four. And how do think I'd like to see by FY twenty six that will be dropping below 10%? For the keener item like you, you will see a small uptick in FY twenty four versus the prior year. Really, that's because, you know, we've taken the opportunity in FY twenty four to to invest in the business. I think every business reaches an inflection point. At some point, as you're growing, you do need to invest a little bit more into the business to be able to create a base for the next stage of growth. I think we've done that in FY twenty four. We've hired three new associates to bulk up the investment team to help with the the portfolio monitoring and allow our sort of senior principals to focus more on business development.

19:55 Moving on to the balance sheet, you'll see the top left graph talking showing the investment portfolio. As you see, the hybrid credit portfolio has increased from $2.00 $2,000,000 to $2.10 oh, sorry. The cost is $2.00 $2,000,000 against the fair value of $2.10. Fair value has increased circa $20,000,000 from the prior year, and we've sort of net investments of about $2,025,000,000 dollars into the portfolio, 42,000,000 in and 17,000,000 coming out from exit. Decent growth. As I said, there was a small write down on that book, so probably not quite as significant as in prior years in terms of the growth. And that's reflected in the NAV per share, which has remained pretty stable, 40.3p a share last year versus 79.8p this year. So only 0.5 p decrease driven, as I said, probably by that by those fair value decreases in the investments.

20:56 What I would like to just point out there on the equity book, the equity book now valued at $15,900,000 against the $5,700,000 cost. So I think that's where hopefully, you know, further down the line is we have the ability to take larger equity stakes in businesses. Would expect hopefully, you would expect to see that equity fair value increase more materially over the next sort of two to five years. And also just touching on the right hand side, as we grow, you would expect to see sort of our it's really showing the evolution of the size of our investments growing as well. Part of that really is, I would say, two different sides to that. There's the buy and build strategy that we a number of investments are buy and build. So naturally, you'd expect to see the size of those investments growing. But also as we grow as a company, our day one ticket size of it have have increased. And, hopefully, you will see it on the on the very last day of of the financial year, which we announced April 2 of our largest UK investment to date into Integra, which was 14,500,000.

22:03 And then finally, just to touch on the on sort of the hybrid credit returns. We've currently got 208,000,000 of of capital invested. Now I will point out that slightly different number to the the 240,000,000 that that Neil mentioned on the first page only because this table doesn't include FairMed, which is in partial exit at the moment. So we've got a partial repayment prior to year end and expecting the final repayment to that in the next couple of weeks. So that's the reason for the difference from this slide to the to to what Neil mentioned a little bit earlier. But what you can see is the annuity like revenue streams that is our fixed corporate mortgage bearing fruit. Dollars $2.00 8,000,000 of capital invested and we've already got $73,000,000 of cash revenue returned back from that portfolio. And that's obviously we'll probably never go too high because of we've got the Integra, Mr. Glasshouse, New Pathos at the bottom that we've only recently invested and only showing a small return today.

23:02 But what you'll see is the portfolio matures close to the top. LIMITS now has returned back

23:20 On the right hand side, two columns showing indicative cash on cash returns. That's just to say if everyone was to repay us tomorrow, what that cash on cash return would look like. And it's really highlighting, We've often talked about the the upsides on exit being the the exit premiums and the and the equity. The exit premiums here, can show you. Currently, about 45,000,000 of exit premiums, which are barely valued in our NAV. And that if you everyone was to buy back tomorrow including the premium, that would increase the cash on cash return from 1.4 times to 1.7 times. So it can just show you the impact of those exit premiums. Overall, one number that I haven't put in here, contractual cash flows. I think we've mentioned this before, but across the portfolio, we currently have a 900,000,000 of contractual cash flows. That is if every investment held itself to maturity over the next thirty years. Between that time, we'd get over 900,000,000 back of current contractual cash flows.

24:21 So just to summarize, I think a really good FY twenty four record cash revenue at the top line, record free cash flow. We're paying out a healthy dividend at 2.8 p. That's a 9% yield, but a a very healthy covered dividend. And the business, I think, you know, generally very, very happy with all of those metrics and a and a good financial year '24. It's always a lot easier to present these numbers when you've had a had a good year.

24:48 Back to Neil on the portfolio. Great. Yes, as Hugo said, we've done Integrum. I would we're not going to belabor all of these. I think the portfolio is in good shape. We're going to talk about growth and things. And as Hugo mentioned, what happens in the inflationary environment and economic growth when that slows, our NAV will come down. And so we've had that. I think The UK part of our portfolio is under more stress than the other parts. You can see that from the last few deals, we've done U. S. And Canadian deals. And so we have part of our portfolio in Ireland.

25:51 There's a big portion of LIMITED that is now in Denmark. So we have diversified away from just a UK portfolio.

26:02 We're bullish on The UK long term. It's a very resilient market. Even the London Stock Exchange that has had its contractors or detractors in recent times. I've been around this market since 1999 when I came to The UK and it certainly is one of the most resilient economies and stock exchanges in the world. And, you know, we it is a cyclical business that we are in and this feels like a very,

26:47 long cycle to the wrong side of the economic cycle as I'll say. But overall, the portfolio has these are all longstanding fundamentally profitable businesses. We know them very well. We sit on all the boards and we have our strategy of focusing on management buyouts as we've done Glasshouse and Integrum just recently and buy and builds. And buy and builds are, for example, NewPath Fire and Security that we've added to the portfolio, Tristone in the healthcare.

27:39 And so why don't I flip to this slide because we have the 15, those 15 companies in the last slide, but actually, you know, what we do is we have 71 underlying operating companies. And so we actually have the embedded diversification of a much larger and broader portfolio. So we like to show this slide and we're very actually pleased of this slide because, this slide was a blank piece of paper when started in 2017. So to come and be able to, you know, contract with now 23 different businesses with eight exits and be able to help companies and further invest in the companies that we do have, and we do sit on the board of and know very well.

28:39 To continue to build them, is very pleasing. And, you know, we are maturing as a portfolio, I. E, some of these companies have been with us since 2017, 2018. And, we're going to show you in a little bit, you know, why why DUKE CAPITAL, has a real, great, possibility and and future exits and our future is really in alignment with these business owners. We have a real embedded, we have upsides that are embedded in this portfolio that I'm we're very excited about.

29:34 Yeah. So we talked about obviously the exits and how they can increase our IRRs, etcetera. But what I really want to show is, you know, the the core product and the assets and how they create the overall IRR of this business. The left hand graph, just to highlight, is very much illustrative. You know, these numbers can change, but what we hope to see is over the life of of these investments, the the hybrid credit investment, which combines the fixed loan and the preference share, will generally return an IRR of circa 15%.

30:07 You know, normally, a blended yield, we start on day one somewhere between 1314%, and then we'd expect to see a degree of growth through that adjusting preference share and continuing to 15%. The exit premiums and the equities, now I've I've put that 5% for each. Now, of course, this is very much dependent a on timings of exits. So, you know, the earlier the exit, the higher the exit premium percentage is gonna be. But the and again, with the equity, very much dependent on on the percentage that DUKE goes the timing of that exit. What I would highlight on the equity, obviously, now is when we the repositioning we went through in in Feb March now allows us. We changed our accounting policy and I will not bore you with the technical details.

30:54 But suffice to say, we've moved to IFRS 10 accounting. What that means, it means we're allowed to take more than 30% equity stakes in our underlying investments without having to consolidate into our financials. Now we weren't in a position to do that prior to prior to the repositioning.

31:13 But now, opportunistically, when it makes sense for us, we can. And what that means is, hopefully, we can then boost that that sort of gold five percent box at 5%. We can boost that up higher to try and get the the IRR seen higher. The right hand side really shows you puts that into actual exits that we've had. We've had eight today, and you can really see, you know, the larger the higher end of those well held BHP fabricat, all investments where we held held that actually stays. Fabricat, had a which was one of the most recent exits. We had a 30% equity stake, and that delivered us an IRR of 36%.

31:49 I'll ignore in store because that was a one off. Obviously, it's really good for us, but it was very much a one off transaction that Neil can give you a little bit more color on, But it was only around for three months. So that's what I mean by the timing of the exits. You know, they can get boosted significantly by shorter shorter investment horizons. But I think overall, those eight assets really show sort of the breadth of how we invest, you know, the credits only products. You've got Barclays there at the top and the dark. It's our blue FairMed and extreme push. We also have the exit premium pushes those IRRs up closer to 20%, and then the the Axiom top pushes them up to 25 and north of 25%. Just very briefly, obviously, you'll sort of notice the one that is in the minus. I'm sure if you've heard us talk before over the last three years, you'll remember the riverboat the riverboat company that we invested in right at the start and obviously struggled during COVID.

32:41 I mean, ultimately, when your entire industry shuts down for twelve months and revenue goes from, you know, fairly material to nothing, it's very difficult. So actually, that's probably the one of the investments that we hopefully get given the most credit for for getting out of at such a very, very small IRR loss. Well, it prove the model. But even the Tamarque, the riverboat cruise is capital preservation. So we took possession of the riverboats and sold them on and got essentially our money back. And on in store, this is getting the upside, keeping the exit timing in the hands of the owners and and but winning with with the winners and aligning ourselves with the management.

33:38 This this CEO of of in store actually made a deal with the owners. So this was a management buy but the equity deal was struck four years before he came to us and asked us to finance. So the he had a deal that was four years in the making before we got involved. And then when we did, it, it turned out that, that he was in a rush to complete that deal, that four year old deal, get his hands on all the stock because he had improved the financial position of the company so much in those four years that he could then sell it on and on a windfall profit.

34:27 So it was a windfall for us, but it was also a windfall for him and he did a good job by fixing the buy price of in store right around the pandemic. And you can imagine the difference. So that was a win win. So that comes to what some new slides. And there's two slides, but I think the better slide here is really just to highlight what we talked about right on the start and and what Hugo mentioned with our change in our accounting policies, how we can how we can better benefit the the investors by taking over 30% of of any company.

35:13 Now the hallmarks of DUKE, since our inception is is two things. One is that we, have a debt product, you know, that capital preservation as our investment pillar. And so we leave with a debt product and we get paid, that pays our dividend. That's not going away. And then the second hallmark from day one has been alignment with the business owners. And we want to win and we want to continue to be partners. You know, that's what we call them. So we kind of forge these long term partnerships. But United Glass Group, everyone who's been a shareholder of DUKE given has known about this company and on our new website.

36:03 Please check that out at dukecapital.com. It has actually a case study of Mark Harrison, and you can see inside walls of the United Glass Birmingham site. So Mark and we partnered in 2018. And by 2024, he's been working there for a number of times, wanted to take some chips off the table, derisk his life because when you're a business owner, you get your paycheck from the company as well as your net worth from the company. And so he's not unlike any other business owner.

36:51 He was wanting to either sell a business, which, you know, before this interest rate cycle started, was showing some private equity interest was was being shown, however, never materialized. And what we did earlier this year is really actually acquire a large stake of shares from the CEO. And that allowed DUKE to stay with this investment for longer instead of him choosing to sell the whole thing and then DUKE would be refinanced out and whatnot. So essentially, we're swapping the equity stakes. He's now minority and we're majority, but the decision making and day to day operations are exactly the same.

37:46 And and, you know, the alignment the alignment is still is still intact. So that's the top half of this slide, a little narrative on the decision making there. But the bottom half is really understanding and showing in numbers, you know, what we what we want, to achieve. And, listen, this isn't going to be, you know, tomorrow, but what this is what we're building. And if you harken back on that slide that I said, you know, we're not like venture debt, and we're not trying to compete with middle market. What we actually are doing is trying to get people like Mark to to build their companies up from a nice little business of 2 or 3 or £4,000,000 EBITDA and build them up to a £10,000,000 EBITDA, 8,000,000 to £10,000,000 EBITDA on that on that end of the scale, so that they will be able to, have both multiple expansion as well as, of course, the value of the equity that improves with an expanding EBITDA number.

39:03 So if you can look at the pro form a right in the middle, if we deploy, that's DUKE deploying £25,000,000 ultimately into upper United Glass, we're not there yet. We can we can illustrate, let's say, five operating companies, with a EBITDA of £8,000,000 that, you you can see the EBITDA multiples from 4,000,000 when you're a small company to 7,000,000 when you're a much bigger company. And therefore, the enterprise value of $56,000,000, equals an equity value of 26,000,000 So that would be our 5,000,000 capital $25,000,000 sorry, of capital. The extra $5,000,000 there would be like mortgage and CIB facility that we have in all our companies.

40:01 So the small amount of other debt. And, and so the equity value of 26,000,000, really now favors, the DUKE equity value because of the higher equity stake. And so on the right hand side of this of this page, you know, this is this is the returns to our shareholders. And, you know, we, that that manage this company, we're also aligned with your share with our shareholders because we have big equity stakes. And so this is a win win for us. We put in GBP 25,000,000 received over the life of investment. We're just illustrating this. Again, this is, this is not what we're, we're, saying is going to happen, but this is over an eight year period of of our of our company. Just for illustrative stake safe, 18,100,000 of cash received.

41:02 We do have an exit premium, of £5,800,000. That's a percentage of the 25. And then the equity value is that is that ballast, you know, that, the gold bar at the top that will allow us to get a very healthy, IRR, for, of 28% over illustratively this eight year period living with a company. And that pays our dividend, that cash received of a life of the investment, you know, it's really that hybrid credit product that we can get paid and we get paid while we wait for that exit and that equity value and exit premium to materialize for very healthy IRRs.

41:57 And that really encapsulates our mission here at DUKE CAPITAL to be a hybrid debt and equity type product. And this in numbers is what we're achieving. You know, Fabricant, we've put that really in practice this year. And, you know, I think the difference between a Fabrikat, and what we're illustrating here is really the size of the top number. The £25,000,000, versus what Fabrikat was £6,400,000. So that so if we can triple the size of our companies, we're going to triple the exits and the premiums, and the equity values that we can also, return to the shareholders.

42:56 We'll have some time for questions. I won't go over this, but you know, we we we value all shareholders. We have a strong retail following. We do things like this to appeal, make sure that all investors are up to date with with what's happening inside our company, and and we're we're happy to do that. You know, Hargrave, LIMITED, LIMITED, INTERACTED INVESTORS, and these are the people that that are increasing their their stakes in in the company and AJ Bell. So we're very pleased with that. The directors, management, insiders have a big stake as well as some very good names. And also Fairfax Financial is our our senior lender. It's a it's a $90,000,000,000 Canadian insurance company that has a lot of a lot of investments around the world.

43:48 Yeah. In summary, I I'm going to, not read the page here. I'm gonna kind of answer some of the questions I know are on your mind, then we'll turn it over. We know that with a great set of results, one of the things that we're all cognizant of is that the stock price is in a very nice narrow band, but but sideways instead of, you know, up into the right. And, and I would I would I thought that the Cavendish note that some of you might not have was was actually a very interesting analysis.

44:38 And and the tagline was geared to the macro. And I'm going to say that, you know, there over the last two years that when our share price has gone sideways, you know, there's been three macro headwinds. One is obviously increasing interest rates, which then allow, if you're getting 5% or 4% of the bank, you know, our dividend yield increases. We've got a nice healthy 8.8% dividend yield, but that used to be 6%. And as interest rates fall, that yield compression will happen. And the math says if we have a 7% dividend yield with our existing dividend, the stock would be 40p.

45:27 That is what a 7% dividend yield is. And that's one of the headwinds that we have been faced with in the last two years. We're if you can get five in the bank, you're not going pay 7 DUKE royalty. And as that unwinds, so will the compression that will boost the stock price. And the second is, as we talked about the economic growth in The UK, that has that has an effect. The inflation and economic growth, you know, we're we're in high inflation and that we're we're we're having some economic headwinds. As those abate, that will increase our NAV by improving the growth rates of our companies and therefore the net asset value also goes up and that will filter into the results of our companies.

46:29 And then number three, which I think is very important and some of the comments that we've had is the third headwind that we have been faced with is an outflow of funds from The UK small cap fund management sector. And so our shareholders have had redemptions for over three years every single month, which means that they have to sell things, they have to build cash for redemptions, they have to sell stocks. And that put pressure on the prices of their investments, including DUKE royalty. And with that unwinding of that macro headwind will improve and allow our institutional shareholders to be able to buy stocks instead of having to sell them. And so we're hoping and anticipating all three of those macros. That's what Kevin Cavendish analyst Stephen Barrett was talking about, about being geared to the macro. So we look forward to that in the near future.

47:44 Okay. We'll hand it back. Perfect. Thanks very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. But just saw the company take a few moments to view the questions that have been submitted today. I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. As you can see, have received a number of questions both pre submitted and throughout today's presentation. And now Hugo, if I could just hand back to you just to read out the questions and give responses where it's appropriate to do so. And I'll pick up from you both at the end. Yes. I can definitely knock a couple of the pre submitted questions on the head. I think we've hopefully answered the question on the dividend. I've got one question here. Why did Charles Cannon Brook resign from United Glass, which is given Neil's discussion about the equity values prior to making a large investment through DUKE CAPITAL.

48:39 That's quite neat. And Charlie resigned in a couple of years ago purely to allow another DUKE member, one of the investment principles onto the board. And actually, Juddi went back on the board when we took a majority active stake. So DUKE now has two people on the board at UGG. We answered the question on the dividend. And also, I've asked her a question, can you please explain why profit has fallen by 8,000,000? I can see the increased finance costs and the balance sheet shows the fall in hybrid credit investment income. Again, hopefully, outlined that was due to the fair value falls on the hybrid credit portfolio against the 9,000,000 increase in the prior year. So hopefully a number of those questions are now answered. Okay.

49:25 I'm trying to read and answer. Did you want me to go over? On the growth, yeah. Oh, yeah. I mean, listen, I think we're also coupling a number of different things. Is there how do you propose to move the stock price? There was one that you intend to grow between 30 to 32 share price range. A of that I wanted to answer and I have answered in the summary geared to the macro. I mean, we I said in my CEO statement, after fiscal twenty four is that, you know, in the last twelve months, we've had to focus on what we can control.

50:12 And that's our portfolio, our communications to our shareholders, you know, and ensuring the dividend is covered, etcetera, because those are fundamentally and and then the exits and and having and having and showing the model that works in in growing, both the hybrid credit as well as the equity side of our businesses. That's what we've been focused on and that is what we have delivered in this fiscal twenty four. What we cannot what is outside of our control are those three macro things that have all been conspiring against us and certainly every small cap stock in The UK would feel the same. So I've I'm we're not going to go through every one individually, but that that knocks off a number of different pre pre Pre submitted. Pre submitted.

51:10 Got a question here from James S. Could you please provide some details on your cost of funding fixed versus floating duration covenants, etcetera? Thank you. So our debt facility is currently, as Neil said in that shareholders tab, is with Fairfax Financial Holdings. We have a $100,000,000 facility, which we took out in January 2023. So we're eighteen months into that facility. The cost of that is Sonia plus five. So as, you know, as interest rates come down, we would obviously, our cost of funding will come down as well. So, you know, just to put into perspective, once we're fully drawn at a 100,000,000, you know, a 2% fall in interest rates down from five and a quarter down sort of three and a quarter would give an extra 2,000,000 in saving in interest for our shareholders. So that's why we sort of I touched on the fact that as interest rates come down, then there's a potential conversation to have about the dividend as we have more cash.

52:11 So it's either do we pay out more in dividends or do we invest more back into the portfolio? The duration of that I said is, as I said, is five years. So that would be up in three and a half years time. I'm not gonna go into the actual details of our covenants, but suffice to say they are they are light. Certainly, we refinanced that back in January last year, and I went from north of 15 core covenants down to three. So it's what you would expect in terms of sort of LTV value, debt service coverage and liquidity. I'm going to there's one here, the free cash flow per share, what was without the realization. So this is very important and one of the things that, you know, going back to the dividend, can you get that can you get that number?

53:01 Either recurring free cash flow per share. Yes. So the I mean, the recurring free cash recurring free cash flow per share was 3.5p per share. So, you know, again, an an increase on it was sort of flat on on the prior year because we we obviously saw a, you know, significant increase from from the buyouts. But again, against the $2,800,000,000 is that recurring free cash flow number that there is a course that's covering our our quarterly dividend and it was it was again higher than the 2.8, significantly higher than 2.8 dividends that we paid out. And and therein lies, you know, another another another consideration when when we're setting the dividend. We have buyouts, which pushes up our free cash flow, but we're actually monitoring our coverage by our recurring revenue, not by the buyouts, because we don't want to increase our dividend one year because we have buyouts and then have to cut it again the next year because we don't have buyouts.

54:05 So we're going to have a steady look at the cash flow, recurring cash flow to set our dividend and that is going up. But we're wanting to make sure that those macro factors are going in our favor before we're going to increase that. Steve asked us what capacity do you have to make further investments? At what stage will there need to be a further equity raise? Steve, what we had, obviously, as I just discussed, a 100,000,000 on our on our on our debt facility, we were drawn to 73,000,000 at year end. So that gives us 27,000,000 in liquidity on the on the on the debt line along with 3,000,000 cash at year end. So 30,000,000 liquidity at that point.

54:55 Future liquidity, obviously, and and the need for equity raise will very much be driven by by the assets because as you can imagine, currently, of the assets we've had in the fabric cat while a very, very healthy IRR was one of our smallest investments. If you take Intech for instance, which we're now invested north of 25,000,000, If we get an asset on intake and on in tech with an an exit premium, you know, and some equity, you know, potentially you're you're getting sort of 30,000,000 back in one go. And that will obviously take a lot longer to reinvest and redeploy and we'll push out the need for any further equity raise. So it is fairly dependent on the potential of getting exits over the next twelve to eighteen months. I've got we did have one kind of adjacent question to the dividend and also, you know, the future, which is buying back of shares.

55:55 And listen, we are an investment company. And so those those exit fees and equities, you know, we want to go back into the portfolio to increase the net asset value per share, the NAV per share. And so we you know, although buying back the shares reduces the share count, so therefore could increase the share price in the short term, you know, again, you know, the interest rates haven't gone down to the Bank of England yet, you know, that's going to rerate the stock buying back shares. We'd rather put it back into the portfolio where we're getting, you know, very nice IRRs in our exits. So that's our chosen strategy, so no buybacks.

56:47 I've got one other one that I've got off the top of my head before I'll pass it back to you. The downside of taking an increased equity stakes. And, you know, I like this question because it is very thoughtful And also, you know, the philosophy, I think, you know, you can there is a downside or a risk of losing that alignment with the business owners, I. E. Being, you know, trying to be the business owner and trying to own and manage the company. You know, we are we're not going to lose that alignment, And I think that is something that we're working hard to do. So the Mark Harrison example of ensuring that he's well incentivized to to do, but also not too short term focused by saying, you know, this is this is something that I have to derisk my life over.

57:55 In other in other times, you know, we were going to take the majority of but ensure that the right people have the minority equity. And so we need to make sure that we incentivize the right people the right way, who are managing all our businesses. And, so that's on a case by case basis. But, you know, the philosophy, that potential risk of losing that alignment, our philosophy is if you have alignment with the business owners and the management, you can continue to get some outsized performance. That's probably possibly the last question, think, given the time. But Philip M says, is DUKE considered a qualifying business asset for IHT purposes or not in your opinion? In my opinion, no, it's not. We're an investor. Unfortunately, I wish it were I wish we were because I think it would it would help us significantly.

58:58 But as an investment company on end, the advice we've been given is no. Ultimately, until you actually take it up with HMRC, we'll not we we don't know. HMRC will not give you a a clear black and white yes or no, unfortunately. So I can't give you a a cost and guarantee, but the advice we've been given is no. Perfect. Neil, Hugo, I'd just like to thank you for answering those questions that you can for investors. Of course, the company can review all the questions submitted today. We'll publish those responses on the investor meet company platform. But just before redirecting investors to you with their feedback, which is particularly important to you both, Neil, could I maybe just ask you for a few closing comments? Well, again, happy Canada Day, and thank you.

59:45 Thanks to all our shareholders and hopefully prospective shareholders learned something. We're here and we do value your feedback and input as shareholders and we value, you know, having you put your faith in in us and and our company. So thank you very much for your attendance. Yeah. Thank you, Robert. Perfect. Thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will then take a few members to complete, but it should 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.