Annual Report • Dec 31, 2015
Annual Report
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Dunedin Enterprise Investment Trust PLC specialises in the provision of private equity finance. Private equity is medium to long term finance provided in return for an equity stake in established, potentially high growth, private companies.
The Company's investment objective is to achieve substantial long term capital growth in its assets through capital gains from its investments.
References in this report and accounts to 'Dunedin Enterprise' or to 'the Company' or to 'the Parent Company' or to 'the Group' or the 'Trust' mean Dunedin Enterprise Investment Trust PLC
References to 'Dunedin' or to 'the Manager' or to the 'Investment Manager' mean Dunedin LLP 'EBITDA' means – operating profit pre depreciation and amortisation.
Strategic Report – Financial Highlights
0.0% -0.4% 2014
Cash returned to shareholders
£0.7m £5.2m 2014
Share price
321.5p 352.4p 2014
Total return per ordinary share Net asset value per ordinary share
505.8p 510.6p 2014
Annualised net asset total return over 10 years
3.5%
5.7% 2014
Discount
36.4% 31.0% 2014
Dividend per ordinary share
0p*1 4.7p 2014 Ongoing charges
2.9% 2.9% 2014
*1 an interim dividend for the year ended 31 December 2016 of 16p will be paid on 18 May 2016
| Comparative Total Return Peformance | ||||
|---|---|---|---|---|
| One year to December 2015 % |
Three years to December 2015 % |
Five years to December 2015 % |
Ten years to December 2015 % |
|
| Net asset value per ordinary share | 0.0 | 0.0 | 12.0 | 39.6*2 |
| Share price | -7.5 | -16.4 | 23.0 | -6.4 |
| FTSE Small Cap-Index ("the Benchmark") | 13.0 | 58.2 | 82.9 | 75.7 |
| FTSE All-Share Index | 0.8 | 23.0 | 33.5 | 71.2 |
*2 Ten years from 31 October 2005
Strategic Report – Financial Highlights
| Per Ordinary Share | |||||||
|---|---|---|---|---|---|---|---|
| Ended 30 April |
Net assets | Cash returned to shareholders |
Revenue available for ordinary shareholders |
Net asset value |
Earnings | Dividend | Share price |
| £'000 | £'000 | £'000 | p | p | p | p | |
| 2004 | 105,687 | – | 2,846 | 344.0 | 9.2 | 8.57 | 258.0 |
| 2005 | 126,423 | – | 3,184 | 416.3 | 10.4 | 9.0 | 346.0 |
| 2006 | 151,304 | – | 4,236 | 498.2 | 13.9 | 11.45 | 457.75 |
| 2007 | 163,717 | – | 3,727 | 541.9 | 12.3 | 10.7 | 462.0 |
| Ended 31 December |
|||||||
| 2007 | 159,947 | – | 2,516 | 529.5 | 8.3 | 7.5 | 415.75 |
| 2008 | 130,777 | – | 8,825 | 433.4 | 29.2 | 25.85 | 211.0 |
| 2009 | 122,856 | – | 726 | 407.1 | 2.4 | 2.5 | 266.5 |
| 2010 | 150,083 | – | 1,125 | 497.3 | 3.7 | 3.8 | 300.0 |
| 2011 | 162,956 | – | 1,307 | 541.0 | 4.3 | 5.0 | 313.5 |
| 2012 | 137,198 | 21,086 | 5,801 | 532.7 | 20.8 | 22.5 | 412.38 |
| 2013 | 116,267 | 17,992 | 4,758 | 529.3 | 19.9 | 16.5 | 436.0 |
| 2014 | 106,556 | 5,217 | 980 | 510.6 | 4.6 | 4.7 | 352.4 |
104,427 695 (628) 505.8 (3.0) – 321.5
Strategic Report – Chairman's Statement
In the year to 31 December 2015 your Company's net asset value per share was largely unchanged at 505.8p. After allowing for last year's final dividend of 4.7p, the total return to shareholders was 0.0%, while the share price total return was -7.5%. This represents another period of disappointing performance.
On 18 February 2016 we announced the successful realisation of our largest investment, CitySprint, the same-day delivery business, for 2.75x our original investment. Further details of this transaction appear below. At the same time we announced that the Board had decided that it would be in the interests of shareholders for your Company to be wound down in an orderly process over time. This decision was taken after consulting the largest shareholders and our professional advisers. A separate circular will be posted to shareholders with the Annual Report containing further information on these proposals, on which shareholders will be asked to vote.
Following this combined announcement, the share price reacted positively, increasing by some 14% to 335p. The share price at 17 March 2016 stands at 331p a discount of 35% to the net asset value of 505.8p per share.
There was one new investment during the year. An investment of £4.9m was made in Blackrock Programme Management which provides independent expert witness and construction consulting services for large, international projects. Follow-on investments were also made into RED, Premier Hytemp and Steeper.
Trading performance of the portfolio has again been mixed. Valuation uplifts were achieved by CitySprint, Hawksford, the fiduciary services business and Kee Safety, the provider of safety equipment. Each of these businesses is trading well as a result of growth,
achieved both organically and by acquisition. As EV and Premier Hytemp supply services to the oil industry, trading at both has been significantly impacted by the reduction in the price of oil. Both are actively reducing their cost base to align this more closely to market conditions. Pyroguard has been impacted by production difficulties during the year at its French site, which have now been resolved.
Since the year end the Company has made a significant realisation as well as a new investment.
On 18 February 2016 the Company achieved a partial realisation of CitySprint through a sale to LDC. On completion Dunedin Enterprise received proceeds totalling £26.1m of which £22.8m is capital and £3.3m is loan interest. A total of £7.3m has been rolled into a CitySprint "Newco" alongside LDC for a 5% interest, resulting in net cash proceeds received of £18.8m by Dunedin Enterprise. The overall return to Dunedin Enterprise at 18 February 2016 was 2.75 times the original investment of £9.8m over five years.
On 5 February 2016 a new investment of £7.0m was made in Alpha Financial Markets. Alpha is the leading global asset and wealth management consulting firm. Founded in London in 2003, Alpha has grown rapidly and is now the global market leader in providing specialist consultancy services to blue chip asset managers and their third party administrators.
In the year to 31 December 2015 income received by the Company fell as a result of there being no significant realisations. It is therefore proposed not to pay a final dividend for the year ended 31 December 2015. However, following the partial realisation of CitySprint in February 2016, which generated a receipt of £3.3m of income, it is proposed that an interim dividend for the year ended 31 December 2016 of 16p per share be paid on 18 May 2016.
As reported at the half year, a share buy-back was undertaken for 1.1% of the Company's share capital. The share buy-back cost £0.7m and was undertaken at 309.8p, a 39% discount to the latest announced net asset value per share, following weakness in the share price as a result of the Company's removal from the FTSE All-Share Index due to a reduction in its market capitalisation. This required shareholders who were index tracker funds to dispose of their shares. Cantor, the Company's broker, was able to place the majority of these shares in the market with the Company undertaking a share buy-back for the balance.
As already set out in the Interim Report, I am pleased that Angela Lane has joined the Board. She was appointed to the Board on 1 June 2015. Angela has worked in private equity for a number of years and her skills and experience will be of great benefit to the Board.
Liz Airey, having been a member of the Board since 1 January 2005, will retire from the Board at the AGM in May 2016. In addition to being a Director of the Company, Liz Airey has also chaired the Audit Committee since 2009 and been the Senior Independent Director since 2012. I should like to thank her, on behalf of shareholders, for her very substantial contribution to the Company over the years. We have been fortunate to have had access to her expertise and wish her well for the future.
Angela Lane will chair the Audit Committee with effect from 17 March 2016. Federico Marescotti will take over the duties of the Senior Independent Director from the AGM in May 2016.
Proposals regarding a managed wind-down of the Company will be posted to shareholders with the Annual Report and voted upon at a General Meeting following the Annual General Meeting.
Subject to the shareholder vote, your Company will begin a new phase with the winding down of its activities and the realisation of its assets over time, aiming to maximise value for shareholders.
The June vote on the UK's membership of the EU is likely to lead to a period of uncertainty. However, the environment continues to be favourable for realising good private equity assets and particularly those which offer the potential for strong profit growth. The investment portfolio is relatively mature and a number of our investee companies offer interesting prospects for realisation.
Chairman
17 March 2016
Board of Directors
Duncan Budge (60)
Status: Independent Non-Executive Director and Chairman of the Board, Nomination Committee and Management Engagement Committee
Length of service: Appointed a Director on 2 April 2012 and became Chairman on 14 May 2014
Last re-elected to the Board: 14 May 2014
Experience: Duncan Budge was an Executive Director and Chief Operating Officer of RIT Capital Partners plc ("RIT") between 1995 and 2011. He was previously a director of J. Rothschild Capital Management Limited, a wholly owned subsidiary of RIT. He also spent six years with Lazard Brothers & Co. Ltd.
Committee membership: Audit Committee, Nomination Committee and Management Engagement Committee.
All other public company directorships: Artemis Alpha Trust plc (Chairman), Lowland Investment Company plc, The World Trust Fund and
Other directorships: Spencer House Limited (Chairman) and Asset Value Investors Ltd
Menhaden Capital plc
Employment by the Manager: None
Other connections with Company or Manager: None
Shared Directorships with any other Company Directors: None
Shareholding in Company: 35,900 Shares
Liz Airey (57)
Status: Independent Non-Executive Director, Chairman of the Audit Committee and Senior Independent Director
Length of service: Appointed a Director on 1 January 2005
Last re-elected to the Board: 13 May 2015
Experience: Liz Airey has over 30 years' experience in banking, corporate advisory and finance. She was Finance Director of Monument Oil and Gas plc from 1990 to 1999.
Committee membership: Audit Committee, Nomination Committee and Management Engagement Committee.
All other public company directorships: Jupiter Fund Management plc (Chairman) and Tate and Lyle plc (Senior Independent Director)
Other directorships: N/A
Employment by the Manager: None
Other connections with Company or Manager: None
Shared Directorships with any other Company Directors: None
Shareholding in Company: 50,000 Shares
Status: Independent Non-Executive Director
Length of service: Appointed a Director on 1 January 2007
Last re-elected to the Board: 13 May 2015
Experience: Brian Finlayson was appointed to the Board in 2007. He has over thirty years of experience in private equity and corporate finance. He was appointed Managing Director of Dunedin Capital Partners in 1990, becoming Deputy Chairman in 1999, retiring in 2002.
Committee membership: Audit Committee, Nomination Committee and Management Engagement Committee.
All other public company directorships: N/A
Other directorships: N/A
Employment by the Manager: None
Other connections with Company or Manager: Previously Managing Director and Deputy Chairman of Dunedin Capital Partners retiring in 2002
Shared Directorships with any other Company Directors: None
Shareholding in Company: 107,809 Shares
Board of Directors
Status: Independent Non-Executive Director
Length of service: Appointed a Director on 1 June 2009
Last re-elected to the Board: 17 May 2013
Experience: Federico Marescotti is Chief Executive of Vela Capital, a specialist private equity management company. He sits on the Board of JP Morgan European Smaller Companies and he is a Board member of Gruppo Illy, the leading Italian luxury coffee brand. He is an international adviser to ADCO International GMBH. Until 2012 he sat on the Board of AIFI, the Italian Private Equity and Venture Capital Association, and chaired the Infrastructure Committee, and until 2012 was a non-executive Director of Ecofin Water & Power Opportunities Investment Trust Plc.
Committee membership: Audit Committee, Nomination Committee and Management Engagement Committee.
All other public company directorships: JP Morgan European Smaller Companies.
Other directorships: Gruppo Illy
Employment by the Manager: None
Other connections with Company or Manager: None
Shared Directorships with any other Company Directors: None
Shareholding in Company: 10,000 Shares
Angela Lane (53)
Status: Independent Non-Executive Director
Length of service: Appointed a Director on 1 June 2015
Experience: Angela Lane has worked as an independent director and advisor to a number of private companies and private equity firms. She is also on the investment committee of Altitude Partners LLP, a private equity investor in SME businesses based in Southern England and a Governor of Sherborne School. Previously Angela spent 18 years working in private equity at 3i after qualifying as an ACA at PwC. Angela has extensive experience of business and financial services, healthcare, travel and aviation, media, consumer goods and infrastructure.
Committee membership: Audit Committee, Nomination Committee and Management Engagement Committee
All other public company directorships: N/A
Other directorships: Huntswood CTC (Chairman), Bournemouth Water and Astbury Marsden
Employment by the Manager: None
Other connections with Company or Manager: None
Shared Directorships with any other Company Directors: None
Shareholding in Company: Nil
The Manager
The Board has appointed Dunedin LLP to manage the Company. In addition to the Company, Dunedin manages four limited partnership funds and a European fund of funds. The Company has committed £60m (20%) to Dunedin's most recent £306m fund, Dunedin Buyout Fund III LP in 2012.
Dunedin provides equity finance for management buyouts and management buyins with a transaction size of £20m – £100m. It is an independent private equity house, owned by the partners, operating throughout the UK from offices in Edinburgh and London. It has an investment team comprising sixteen investment professionals. Seven of the Partners have worked together for more than ten years, giving it an unrivalled depth of experience in the UK lower mid-market buyout market.
Dunedin focuses on a number of sectors, using its depth of knowledge to understand the market drivers and to build relationships with management teams, key industry participants and influencers. The firm has enjoyed particular success in the industrial, business services and financial services sectors, completing 30 portfolio follow-on acquisitions since 2011 in order to drive the growth and internationalisation of its investee businesses.
Dunedin targets buyout investments where it can partner with management teams to build better businesses. Dunedin provides the knowledge, skills and finance to help the companies it backs to develop and attain their full potential. It targets businesses with many of the following characteristics:
Dunedin is authorised and regulated by the Financial Conduct Authority.
In the year to 31 December 2015 the net asset value per share has declined from 510.6p to 505.8p. After taking account of a final dividend for 2014 of 4.7p (paid in 2015), the movement in the year equates to a total return of 0.0%.
The Trust's net asset value decreased from £106.6m to £104.4m over the year. This movement is stated following a share buyback of £0.7m and dividend payments totalling £1.0m.
This movement in net assets can be explained as follows:
| £m | |
|---|---|
| Net asset value at 1 January 2015 | 106.6 |
| Unrealised value increases | 15.6 |
| Unrealised value decreases | (12.3) |
| Realised loss over opening valuation*1 | (2.3) |
| Share buy-back | (0.7) |
| Dividends paid to shareholders | (1.0) |
| Other revenue and capital movements | (1.5) |
| Net asset value at 31 December 2015 | 104.4 |
*1 – There were drawdowns totalling £2.3m made during the year by Dunedin managed funds for management fees and operating expenses.
*2 – management fees paid to Dunedin managed funds
A total of £14.5m was invested in the year to 31 December 2015. Of this total, £10.3m was invested in Dunedin managed funds and £4.2m was drawn down by European third party funds.
In March 2015 an investment of £4.9m was made in Blackrock Programme Management ("Blackrock PM"). Blackrock PM is a professional services firm that provides independent expert witness and construction consulting services for large, international construction projects. The company is headquartered in London and is widely recognised as a market leader, employing individual directors who are experts in their field. Blackrock PM has worked on an extensive range of projects around the globe including airports, roads,
railways, power stations, process plants, manufacturing facilities, health and educational facilities and commercial buildings.
During the year three follow–on investments were made. A further investment of £2.5m was made in RED, the IT staffing business, to assist with working capital and a re-setting of bank covenants. There was a follow-on investment of £0.3m made in Premier Hytemp, the provider of components to the oil and gas industry. Premier Hytemp's products are utilised in oil exploration. This area of the oil sector has been hit particularly hard by the reduction in the price of oil and the company required additional funding to support ongoing working capital requirements. Your Manager is working closely with the management of Premier
In June 2015 Dunedin Enterprise no longer qualified for inclusion in the FTSE All-Share index due to a reduction in the market capitalisation of the Company. This resulted in a number of tracker funds being required to dispose of their shareholding within a short period of time, resulting in downward pressure on the share price. The majority of these shares were placed with the assistance of the Company's brokers. The balance of shares remaining (£0.7m) were bought back by the Company at a price of 309.8p, a discount of 39% to the net asset value as at 31 December 2014.
Dunedin Enterprise makes investments in unquoted companies through Dunedin either directly or via its managed funds. In the past the Company has made commitments to funds managed by third parties. The last such commitment was made in 2009 and, following the policy change in November 2011, no further commitments will be made to funds managed by third parties.
Hytemp to ensure that the cost base of the company matches expected future revenues.
A further £0.3m was invested in Steeper, the provider of prosthetic, orthotic and assistive technology products and services, to assist with a factory improvement programme. The company, which operates from factories in Leeds, was subsequently hit by the recent flooding in the north west of England causing significant damage to the operating capabilities of the business. The company is currently re-evaluating its strategic options but in the meantime is being assisted by insurance payments covering both damage to property and plant & machinery as well as business interruption.
Following the year end in February 2016 an investment of £7.0m was made in Alpha Financial Markets ("Alpha"). Founded in London in 2003, Alpha has grown rapidly and is now the global market leader in providing specialist consultancy services to blue chip asset and wealth managers and their third party administrators. Alpha has over 200 consultants deployed across six major financial centres (London, Paris, New York, Boston, The Hague & Luxembourg), working on behalf of more than 130 top asset and wealth management clients. Alpha currently advises three quarters of the top 50 global asset managers.
Within the European funds, £2.7m was drawn down by Realza Capital and £1.5m by Innova/5.
Realza made two new investments in the year. In March 2015 an investment of £1.4m was made in Litalsa, a provider of packaging finishes. Realza also invested £1.3m in Cualin Quality, a leading producer of premium tomatoes.
Innova made one new investment in the year. In December 2015 an investment of £1.2m was made in Pekaes S.A. Pekaes is one of the leading integrated logistics operators in Poland. Its services are delivered through a fully outsourced fleet.
During the year a total of £3.3m was generated from portfolio realisations. £1.7m was realised from Enrich following the successful outcome of the court case against the vendor of the business.
A total of £1.0m was returned from Innova/5. This was primarily the result of a successful IPO of the internet portal service provider Wirtualna Polska on the Polish stock exchange with a partial realisation of the stock on flotation. A further distribution of £0.4m was made by Realza as a result of strong cash generation by GTT, the provider of management services to local public entities in Spain.
Following the year end, in February 2016, the investment in CitySprint was partially realised. On completion Dunedin Enterprise received proceeds totalling £26.1m of which £22.8m is capital and £3.3m is loan interest. A total of £7.3m has been rolled into a CitySprint "Newco" alongside LDC, resulting in net cash proceeds received of £18.8m by Dunedin Enterprise. Dunedin Enterprise retains a 5% interest in the newco. The overall return to Dunedin Enterprise at 18 February 2016 was 2.75 times the original investment of £9.8m over five years.
As at 31 December 2015 the Company had cash and near cash balances of £0.6m all of which are denominated in Sterling. The Company has a revolving credit facility with Lloyds of £20m of which £4.7m was drawn at the year end. The net cash position of the Company at the year end was therefore overdrawn by £4.1m. The £20m facility from Lloyds has been extended to 31 May 2018.
Following the sale of CitySprint and after taking account of the investment in Alpha, other follow-on investments and operating expenses, the Company has net cash of £4.6m.
At 31 December 2015 the Company had undrawn commitments totalling £50.2m. Following the investment activity in 2016 noted above, as at the date of this report the Company had undrawn commitments to Dunedin managed funds of £35.7m and a further €6.0m (£4.4m) of undrawn commitments to the two remaining European funds. It is expected that £21m of the total outstanding commitments will ultimately be drawn over the remaining life of the funds.
In the year to 31 December 2015 there were valuation uplifts generated from the following investments: CitySprint (£7.2m), Hawksford (£4.2m) and Kee Safety (£2.1m).
The valuation of CitySprint has been based upon the value of the transaction completed in February 2016.
The maintainable earnings of Hawksford have increased by 6% during the year and net external debt has been reduced by £3.4m. The EBITDA multiple applied to the valuation has been increased from 7x to 8.5x to reflect recent transactions in the sector, where multiples of 9x-10x have been paid.
The maintainable earnings of Kee Safety have increased by 25% during the year, generated from both organic growth and the bolt-on acquisition of five companies based in the UK, Ireland Holland and the US. The acquisitions have resulted in an increase in net bank debt of £5.4m.
The most significant valuation reductions in the year to 31 December 2015 were at EV (£4.9m), Premier Hytemp (£2.7m) and Pyroguard (£1.5m).
The maintainable earnings of both EV and Premier Hytemp have been impacted by the reduced oil price and the consequent reduced level of demand and lower margins. Premier Hytemp supplies the oil exploration sector whilst EV primarily supplies the production side of the oil industry. Both companies have taken actions to significantly reduce their cost base in light of the prevailing market conditions. EV has been valued on an earnings basis whilst Premier Hytemp is valued on a discounted net assets basis.
The maintainable earnings of Pyroguard have decreased by 19% during the year. The company has experienced production difficulties at its French operation which resulted in reworking/wastage costs and product discounting. The production problems in France have now been resolved.
The majority of portfolio companies are budgeting an increase in maintainable earnings during 2016.
A provision of £1.4m has also been established during the year for carried interest arising in the Equity Harvest Fund. This 2002 limited partnership fund has a hurdle rate of 7% which was achieved during the year following a period of valuation growth of its investment portfolio.
Included within portfolio company valuations is accrued interest of £11.6m (2014: £9.1m), of which £3.2m relates to CitySprint.
The average earnings multiple applied in the valuation of the Dunedin managed portfolio was 8.4x EBITDA (2014: 7.6x), or 9.8x EBITA (2014: 9.3x). These multiples continue to be applied to maintainable profits.
The basis for the valuation of Weldex has been changed from an earnings to an assets basis. An assets basis of valuation is commonly used to value plant hire businesses. In deriving a valuation for Weldex the assets of the company have been valued at book value.
Within the Dunedin managed portfolio, the weighted average gearing of the companies was 2.3x EBITDA (2014: 2.2x) or 2.6x EBITA (2014: 2.7x). Analysing the portfolio gearing in more detail, the percentage of investment value represented by different gearing levels was as follows:
| Less than 1 x EBITDA | 14% |
|---|---|
| Between 1 and 2 x EBITDA | 58% |
| Between 2 and 3 x EBITDA | 15% |
| More than 3 x EBITDA | 13% |
Of the total acquisition debt in the Dunedin managed portfolio companies the scheduled repayments are spread as follows:
| 25% |
|---|
| 33% |
| 9% |
| 33% |
The chart below analyses the investment portfolio by investment fund vehicle.
Detailed below is an analysis of the investment portfolio by geographic location as at 31 December 2015.
The investment portfolio of the Company is broadly diversified. At 31 December 2015 the largest sector exposure of 43% remains to the diverse Support Services sector.
In the vintage year chart below, current value is allocated to the year in which either Dunedin Enterprise or the third party manager first invested in each portfolio company.
Dunedin LLP 17 March 2016 Top Ten Investments
| Percentage of equity held |
11.9% |
|---|---|
| Cost of Investment | £9.8m |
| Directors' valuation | £26.1m |
| Percentage of Dunedin Enterprise's net assets |
25.0% |
Value creation The company is achieving good revenue and profit growth through its very active buy and build and organic growth strategies. It continues to assess an active pipeline of acquisition opportunities.
Since the beginning of 2015, CitySprint has made four acquisitions to expand its reach and consolidate its position as the UK's leading private same day distribution company, bringing the number of acquisitions made since Dunedin's buyout to 21. The 2015 acquisitions were Crisis Courier Solutions, CJ's Logistics Solutions, Worldwide Logistics & Distribution and Bexley Couriers. These acquisitions bring significant economies of scale and growth in market share. CitySprint has continued to invest in operational and commercial resource to provide a platform for growth.
In the year to 31 December 2014, the EBITDA of CitySprint was £13.5m (2013: £12.4m) on turnover of £129.0m (2013: £112.7m).
CitySprint is the UK's largest national time critical and same day distribution network. It benefits from an asset light business model with over 3,000 self-employed couriers, making the business both highly flexible and scalable. It operates from 40 service centres in the UK and can deliver to over 87% of mainland UK population within 60 minutes. It handles over ten million critical same day deliveries a year, providing flexible, reliable and cost-effective solutions.
CitySprint offers a range of services including SameDay Courier, UK Overnight and International courier services, as well as more complex logistics services. It services a number of different sectors, including healthcare, online retail fulfilment and parts fulfilment such as outsourced supply chain services for engineering and servicing companies. CitySprint now has the UK's largest same day healthcare courier network.
CitySprint has a unique, highly scalable business model with a sustainable competitive advantage. It is entirely differentiated from next day courier businesses where the market is much more competitive and made up of larger organisations. The company's market leading technology platform underpins its asset light business model. It exploits opportunities in new markets such as pharmacy, healthcare and e-retail and is active in the development of new products and market leading technology, particularly in the retail and healthcare divisions. It has a highly experienced management team with a track record in Buy and Build and organic growth.
Top Ten Investments
| Percentage of equity held |
17.8% |
|---|---|
| Cost of Investment | £5.6m |
| Directors' valuation | £13.0m |
| Percentage of Dunedin Enterprise's net assets |
12.5% |
Hawksford is a leading international provider of corporate, private client and funds services. The business offers a comprehensive range of services and solutions to and for trusts, companies, foundations, partnerships, family offices and investment funds.
In the last four years the company has completed the acquisitions of Key Trust Company Limited, Trustcorp Jersey Limited, the funds business of Standard Bank Dubai and Janus Corporate Solutions. These acquisitions have further enhanced Hawksford's market leading-position through additional high quality people and clients. The focus of the business remains on providing excellent service and increasing client choice by growing the international footprint.
Hawksford presented an opportunity to invest in a cash generative company with a stable core business, high levels of repeat business and very good long term client relationships. There was a clear opportunity to create value through increased operational efficiency and marketing capability, proactive business development, international expansion into new geographies and an acquisition strategy in a highly fragmented sector.
Growth is expected to be delivered through continued international expansion and continuing the proactive buy-and-build strategy. Dunedin has played a significant role in identifying, evaluating and funding bolt on acquisitions and Hawksford has a strong pipeline of these acquisition opportunities.
Since the management buyout in October 2008, Hawksford has completed five acquisitions, the latest being Janus Corporate Solutions in Singapore. This followed Hawksford's expansion in Jersey and the Middle East and extended the company's global reach into the Far East, where it opened an office in Hong Kong in 2015. Hawksford continues to assess acquisition opportunities.
Dunedin was actively involved in the recruitment of the new CEO. The management team has been further strengthened with the appointment of a new Finance Director and Operations Director.
In the year to 31 December 2014, the EBITDA of Hawksford was £4.1m (2013: £5.6m) on turnover of £21.5m (2013: £19.6m).
Top Ten Investments
| Percentage of | 8.9% |
|---|---|
| equity held Cost of Investment |
£8.8m |
| Directors' valuation | £9.7m |
| Percentage of Dunedin Enterprise's net assets |
9.3% |
Realza Capital FCR is a Spanish private equity fund making investments in Spain and Portugal. The fund is limited to investing 15% of commitments in Portugal. Dunedin Enterprise's investment is held via Dunedin Fund of Funds LP.
The fund invests in companies with leading market positions and attractive growth prospects either through organic growth or through subsequent merger & acquisition activity. Realza seeks to invest in companies with an Enterprise Value normally ranging from €20m to €100m. The fund's typical equity investment ranges from €10m to €25m.
A €15m commitment was made to Realza in 2008. This commitment was made in accordance with the Trust's investment policy of investing in limited partnership funds with a European investment remit which invested in transactions of a similar nature and size to Dunedin.
To date Realza has drawn down 92% of commitments. The fund has made seven investments to date. The areas of business in which the fund's seven investments operate are the:-
To date there has been one realisation achieved by the fund. Hofmann, the manufacturer and seller of digital photo-books was realised in 2014 generating a multiple on original cost of 2.3x. The remaining investments are valued at 1.4x cost.
Top Ten Investments
| Percentage of equity held |
15.1% |
|---|---|
| Cost of Investment | £9.5m |
| Directors' valuation | £9.6m |
| Percentage of Dunedin Enterprise's net assets |
9.2% |
Weldex is a market leading crawler crane hire business in the UK, with the 11th largest lifting capacity globally. It serves the offshore wind, oil and gas and commercial construction markets. Its cranes, including two of the largest in the UK, have been used in a number of significant construction projects including Heathrow Terminal 5, the iconic arch at the new Wembley Stadium, the 2012 Olympic site and Crossrail. More recent projects include erecting a Mitsubishi wind turbine at the offshore test facility at Hunterston, North Ayrshire; and refurbishing the blast furnace at the Tata steel works in Scunthorpe.
Weldex was established in 1979 and has grown into the UK's largest crawler crane hire company. The company employs over 100 staff and operates nationwide and overseas from its headquarters in Inverness and its depot at Alfreton. The company provides its customers with an established team of fully accredited operators, site managers and service engineers and also supplies associated lifting equipment including wheeled cranes, forklifts, lorry loaders and trailers.
Weldex is a market leading business serving the renewables and power generation market, where growth is driven by the developing UK energy gap and EU legislation on climate change. The offshore wind installation infrastructure is supply constrained and Weldex services this niche. There are strong barriers to entry: high capital expenditure; long lead times to source cranes; the need for experienced operators; and Weldex's reputation.
Value creation is expected to be generated through continued investment in the crawler crane fleet to meet demand in Weldex's targeted sectors. Key growth areas are in renewable energy infrastructure, oil and gas, power generation and industrial and commercial construction.
Weldex has continued to invest in its core fleet. A new independent nonexecutive Chairman was appointed in 2014, with extensive international experience. This breadth of experience compliments the existing management team's operational expertise.
In the year to 30 November 2014, the EBITDA of Weldex was £17.3m (2013: £13.1m) on turnover of £31.7m (2013: £23.1m).
Top Ten Investments
Kee Safety is a UK headquartered global market leading provider of collective fall protection, safety systems and solutions. The business has 271 employees spread across the UK, USA, Canada, Germany, France, Poland, Dubai, China and India and sells its products in more than 50 countries. Its core patent protected product range includes modular barrier systems, guardrails, access platforms, safety gates and specialist fixings. The business has multiple routes to market through an international direct sales force, direct to OEM, online and through the distributor channel. Kee Safety's customers range from multi-national corporations, to major contractors, distributors and installers.
Kee Safety services a large growing market, driven by more rigorous enforcement and awareness of health and safety regulations. It has a proven management team supported by regional managing directors in each of its main geographies. Its strong margins are driven by world class service, with 98% of orders available for immediate dispatch and a low cost supply base in China.
Further growth is expected through geographic expansion in existing and new territories and bolt-on acquisitions. The business will continue to use a multi route to market model to accelerate growth. Margins will be increased through process engineering, price management and the further deployment of its low cost supply chain.
Organic growth at Kee Safety continues and the business has made seven acquisitions since Dunedin invested. During 2015 Kee Safety completed five acquisitions, opened an office in Singapore and developed new product lines including next generation wire systems and safety gates.
In the year ended 31 December 2014, the EBITDA of Kee Safety was £11.1m, on turnover of £40.5m.
Top Ten Investments
| Percentage of equity held |
41.7% |
|---|---|
| Cost of Investment | £9.5m |
| Directors' valuation | £6.5m |
| Percentage of Dunedin Enterprise's net assets |
6.3% |
Since Dunedin Enterprise first invested in CGI the company has been through two refinancings allowing Dunedin Enterprise to realise a total of £14.5m in capital and income to date from this investment. CGI, trading under the Pyroguard brand, is a leading designer, manufacturer and supplier of specialist fire resistant glass. The company serves the construction markets in the UK, Ireland, France, Holland, Scandinavia, Eastern Europe and the Middle East from its manufacturing bases in Haydock, UK and Seingbouse, France. Significant recent projects completed by CGI include the installation of fire resistant glass at Here East (the multipurpose redevelopment of the former 2012 Olympic site); the Biomedicum medical facility in Stockholm; the Paris Expo redevelopment project; and Zaanstad Prison in the Netherlands.
CGI operates in a highly regulated market which creates strong barriers to entry. Pyroguard is manufactured using a patented process which has certain advantages over its competitors such as flexibility, cost and immediate delivery. Pyroguard produces clear glass which is taking market share from wired glass. Fire regulations throughout Europe are becoming stricter and standards demanded by insurance companies are rising, which are advantageous to CGI.
CGI has followed a commercial strategy which combines acquisition with organic growth. In 2012 it acquired Interver SA, the French-based manufacturer of fire glass products. The focus for the business going forward is to sell directly to product users rather than to distributors as was the case historically. A number of direct projects have been won recently allowing CGI to demonstrate its future project credentials.
CGI has invested in people expanding both its European sales team as well as its R&D team. The business has also appointed consultants to improve factory and process efficiencies which has resulted in significant cost savings.
In the year ended 31 December 2014, the EBITDA of CGI was £2.4m (2013: £2.9m) on turnover of £15.8m (2013: £17.0m).
| Percentage of equity held |
17.7% |
|---|---|
| Cost of Investment | £1.7m |
| Directors' valuation | £6.5m |
| Percentage of Dunedin Enterprise's net assets |
6.2% |
Formaplex is a market leading provider of tooling and lightweight component solutions to a range of attractive high-growth end markets. It has a market-leading position in the UK premium automotive and motorsport sectors, with a rapidly growing share of the UK and European high-volume automotive, defence, aerospace and industrial markets. It operates from three state-of-the-art UK manufacturing facilities with a strong network of European and Asian supply partners. The business has an enviable blue chip customer base with which it has developed longstanding, trusted relationships.
Formaplex presented an opportunity to professionalise processes and structures and to diversify into new sectors and geographies. Formaplex has established a highly differentiated offering through its ability to offer a fully integrated service from tool design and manufacture, through to final component manufacture, finishing and delivery. Customers recognise its expertise in tooling design and ability to deliver innovative solutions. This design is then supported by modern, high quality manufacturing and delivery, underpinned by rigorous project management. This results in high precision tools which are delivered on-time and once in use, enable customers to achieve consistently accurate performance rates which protect their own quality standards and programme timings.
The growth of Formaplex is expected to be driven by underlying growth in demand, particularly in the premium automotive and aerospace segment; the trend towards automotive model proliferation and shorter model cycles, both of which drive demand for additional tooling volumes; and legislative requirements to reduce emissions and improve fuel efficiency. The latter of these trends means an increased usage of lightweight materials and components and, as a result, increased penetration of Formaplex's products on vehicles and aircraft.
Formaplex's growth has been positively impacted by continual investment in the UK's automotive sector and increased international demand for UK premium car brands. The business has also found opportunities to extend its lightweight components into new sectors such as aerospace and defence. Formaplex's current facilities are now at maximum capacity and a lease has been signed for the new 'Voyager Park' facility, near Cosham. This 120,000 square feet property will be Formaplex's fourth manufacturing facility and is expected to be operational by the end of May 2016.
During the Trust's investment the EBITDA of Formaplex has increased from £3.1m to £7.0m.
In the year to 30 June 2014, the EBITDA of Formaplex was £7.0m (2013: £7.8m) on turnover of £38.7m (2013: £33.2m).
Top Ten Investments
| Percentage of equity held |
3.9% |
|---|---|
| Cost of Investment | £6.9m |
| Directors' valuation | £6.3m |
| Percentage of Dunedin Enterprise's net assets |
6.1% |
Innova/5 LP is €380.8m private equity fund based in Warsaw which makes investments in Central Eastern Europe. Dunedin Enterprise's investment is held via Dunedin Fund of Funds LP.
The fund invests in mid-market buyouts in businesses with an enterprise value of between €50m and €125m. Its investment focus is Financial Services; Technology, Media, & Telecommunications (TMT); Business Services; Construction; Energy; and Industrial & Automotive.
A €15m commitment was made to Innova in 2010. This commitment was made in accordance with the Trust's investment policy of investing in limited partnership funds with a European investment remit which invested in transactions of a similar nature and size to Dunedin.
To date Innova has drawn down 54% of commitments. The fund has made eight investments to date. The areas of business in which the fund's eight investments operate are:-
To date there has been one full realisation achieved by the fund and two partial realisations. Emitel, the provider of managed analogue digital TV and radio broadcaster, was realised in 2014 generating a multiple on original cost of 2.0x. Both Marmite and Wirtualna Polska have been partially realised, Wirtualna Polska has returned 2.6x cost to date and Marmite 0.3x.
| Percentage of equity held |
7.8% |
|---|---|
| Cost of Investment | £4.9m |
| Directors' valuation | £5.8m |
| Percentage of Dunedin Enterprise's net assets |
5.6% |
Blackrock PM is a professional services firm that provides independent expert witness and construction consulting services for large, international construction projects. The company has developed a growing practice in independently assessing the precise reasons for and cost involved in the dispute. These skills are in short supply in Europe, the Middle East and Asia.
Blackrock PM is a high margin, cash generative, professional services firm, well positioned in an attractive market niche, serving an international client base. Blackrock has built one of the strongest and most universally admired teams in its sector and is seen as the best incubator for talent in the market.
Blackrock serves a growing global construction market and cases of litigation are increasing within the sector.
Dunedin is working in conjunction with management to develop and implement an IT strategy, build out the human resource function, develop a marketing plan and source and execute acquisition opportunities. Dunedin drove the appointment of a new Chairman and CFO.
The business is trading well with 65% EBITDA growth in 2014 and 11% sales growth.
Top Ten Investments
| Percentage of equity held |
5.2% |
|---|---|
| Cost of Investment | £5.7m |
| Directors' valuation | £5.3m |
| Percentage of Dunedin Enterprise's net assets |
5.1% |
U-POL is a leading independent manufacturer of automotive refinish products including body fillers, coatings, aerosols, polishing compounds and consumables. Included in the product range is RAPTOR™, a tough protective coating product which can be used over a multitude of surfaces. Sales of RAPTOR™ continue to grow steadily and the business is exploring opportunities to sell this product into adjacent sectors.
The company has a good reputation for product quality and innovation, which is the key to its global success. From its UK manufacturing base in Wellingborough, U-POL exports a range of products to 120 countries worldwide. The company has a strong market position in the UK and a growing position in other large markets such as the USA, the Far East, the Middle East, Africa and Russia. Its growth strategy is to continue expanding in both developed and emerging markets.
U-POL sells primarily through intermediate distributors but has built brand recognition and loyalty with end-users which are largely comprised of car repair outlets.
U-POL has a market leading position in the UK and growing market share in other large markets such as the USA. It enjoys a good competitive position globally. Growth was expected through expansion of its range and increased market share in new and existing markets.
U-POL is focussing on products with high growth potential. Further growth is expected to be achieved through expansion in both developed and emerging markets.
A new Chairman, CEO and Marketing Director were appointed during 2015 to accelerate the company's growth.
In the year to 31 December 2014, the EBITDA of U-POL was £12.5m (2013: £15.2m) on turnover of £58.5m (2013: £62.5m).
Remaining investments
| Company Last reported |
Proportion of fully diluted |
Percentage of net |
||
|---|---|---|---|---|
| Description of business | capital owned % |
Book cost £m |
Valuation £m |
assets % |
| Steeper 28.02.15 |
37.4 | 5.3 | 3.9 | 3.8 |
| Provider of prosthetic, orthotic and assistive technology products | ||||
| EV | 10.5 | 7.1 | 3.6 | 3.4 |
| 31.03.14 | ||||
| Provider of high performance ruggedized video cameras and engineers that are used to analyse problems in oil and gas wells |
||||
| Red 31.03.15 |
20.1 | 10.7 | 2.4 | 2.3 |
| Global provider of SAP software experts to international corporations and consultancies |
||||
| Premier Hytemp 30.09.15 |
20.7 | 8.9 | 2.1 | 2.1 |
| Provider of highly engineered steel and nickel alloys and machined components for the gas and oil industry |
||||
| Alta-Berkeley VI 31.12.14 |
3.0 | 0.7 | 0.2 | 0.2 |
| Technology fund | ||||
| Add One 31.12.14 |
2.9 | 1.2 | 0.1 | 0.1 |
| Technology fund | ||||
| Advent Private Equity Fund III 31.12.14 |
3.0 | 1.0 | 0.1 | 0.1 |
| Technology fund |
This Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.
The Company carries on business as an investment trust. The last accounting period for which the Company has been treated as approved as an investment trust by HM Revenue & Customs was for the year ended 31 December 2014. In the opinion of the Directors, the Company has conducted its affairs during the period under review, and subsequently, so as to meet the eligibility conditions in Section 1158 of the Corporation Taxes Act 2010 and the ongoing requirements for approved companies in Chapter 3 of Part 2 of the Investment Trust (Approved Company) (Tax) Regulations 2011 (Statutory Instruments 2011/2999).
The Board has contractually delegated the management of the investment portfolio to the Manager, Dunedin LLP ("Dunedin"). A summary of the terms of the Alternative Investment Fund Management Agreement is contained in the Directors' Report on page 27.
The existing Investment Objective and Investment Policy of the Company are detailed below. A circular is being sent to shareholders along with the Annual Report which is seeking approval from shareholders to change both the Investment Objective and Investment Policy. If shareholders approve the proposed changes, there will be a managed wind down of the Company and, subject to retaining sufficient cash to meet the Company's working capital requirements, net proceeds from realisations will be returned to shareholders. Shareholders should refer to the circular for the proposed changes.
The Company's objective is to target a rate of return on equity in excess of 8% per annum over the long-term. The Company aims to achieve its investment objective by investing principally in private equity funds managed by Dunedin.
Dunedin Enterprise is the only UK listed investment trust with an ongoing mandate to invest exclusively in the UK lower midmarket. It thus represents a unique opportunity to access this part of the private equity market for investors. The Company adopted a Distribution Policy on 28 November 2011. Under the Distribution Policy at least 50% of the capital gains made on realisation of the Company's investments in UK lower midmarket buyout funds will be used to fund share buy-backs, tender offers, returns of capital or other distributions to shareholders. In respect of any sale of the Company's investments in existing third party managed funds, a substantial proportion of the net sales proceeds will be used to fund share buy-backs, tender offers, returns of capital and other distributions to shareholders.
In 2011 the Company changed its investment policy so that in future it will invest only in direct private equity investments or via private equity funds managed by Dunedin.
The Company does not intend to make any new commitments to, or any new investments (other than investments resulting from existing commitments) in private equity funds managed by managers other than Dunedin. Investments in the existing European Funds Portfolio may be held to maturity, with any associated outstanding commitments being met when called,
although the Directors reserve the right to sell all or any such investments, together with any associated outstanding commitments, prior to maturity, if they believe that this is in the best interests of shareholders.
Accordingly, the mix of investments by the Company among direct investments and investments via private equity funds managed by Dunedin or by managers other than Dunedin will vary from time to time. In the medium to long term, the exposure to the European Funds Portfolio will decrease as the funds in the portfolio mature or the Group's interests in them are sold.
Ultimately, the Company will invest in private equity funds managed by Dunedin, specialising in the provision of equity finance for management buyouts, management buyins and growing businesses in the UK lower mid-market (i.e. businesses with an enterprise value typically in the region of £20m – £100m). It is anticipated that the Company may also make direct investments in the form of co-investments alongside private equity funds managed by Dunedin in which the Company is also invested.
Not more than 15% of net asset value (measured at the date of investment) will be invested, directly or indirectly, in any single company or group of companies (measured at the date of investment). Investments are made across a range of business sectors. Investments are structured to deliver capital growth for the Company using a variety of financial instruments, including ordinary shares, preference shares, loan stock and mezzanine debt, either directly or through commitments to limited partnership funds.
The Company does not invest in other listed closed-end investment funds. Cash balances are held either on cash deposit or in gilts or cash liquidity funds.
The Company invests principally through commitments made to funds managed by Dunedin. Dunedin has a clear strategy of maintaining a focused investment approach throughout different economic cycles. This distinct investment strategy has allowed Dunedin to concentrate on its core strengths of acquiring businesses and driving value to maximise returns for investors.
Dunedin has concentrated on buyouts in the UK, in which it takes a controlling position to enable it to drive value through active portfolio management in partnership with management teams. Dunedin operates in the most active segment of the UK buyout market, which it believes is less competitive due to the high volume of investment opportunities per market participant. In addition, investing at the small end of the market allows Dunedin to acquire high quality companies at reasonable entry multiples and the opportunity to grow the businesses and sell them on to a larger, more international pool of buyers.
Each fund which Dunedin raises invests in a portfolio of around 10 companies. Dunedin's investment strategy is to focus on market-leading small to medium sized businesses with strong growth strategies and which have a low public profile. This distinct approach to constructing portfolios is founded on Dunedin's experience of identifying growth strategies which are uncorrelated to the UK economy. The growth of many of Dunedin's portfolio companies is generated internationally. This brings the added benefit of attracting more international buyers at the point of exit.
The wider portfolio is carefully constructed to diversify portfolio risk exposure. Dunedin focuses on ensuring that portfolio companies have a low level of correlation to one another.
The Board has during the year reviewed the principal risks facing the Trust. In addition to the risks faced by all investment trusts, namely, regulatory, reputational, operational and financial, the Board believes that the principal risks faced by the Company are:
The Board seeks to mitigate the internal risks by setting policy, regularly reviewing performance, enforcing contractual obligations and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies rigorously the principles detailed in the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting. Details of the Company's internal controls are contained in the Corporate Governance Report on pages 30 to 32.
In common with most investment companies, the Company may borrow to finance further investment. Although the Company is permitted by its Articles of Association to borrow an amount equal to the amount paid up on the issued share capital and the total amounts standing to the credit of the capital and revenue reserves of the Company, the Board's policy is that financial gearing will not exceed 40% of gross asset value.
The Company currently has a £20m revolving credit facility with Lloyds Bank plc which expires on 31 May 2018. There are standard bank covenants attached to the facility including a minimum net asset value covenant.
An outline of the performance, market background, investment activity and portfolio during the year under review and the performance over the past 10 years, as well as the investment outlook, are provided in the Chairman's Statement on pages 3 and 4 and the Manager's Review on pages 8 to 11. Details of the Company's top ten investments can be found on pages 12 to 21 with the remaining investments detailed on page 22.
At each Board meeting the Directors consider a number of performance indicators to assess the Company's success in achieving its objectives, which include both absolute and relative performance compared to the market indices and peer group. The key performance indicators ('KPIs') used to measure the progress and performance of the Company over time are established industry measures and are as follows:
Details of the KPIs are shown on pages 1 and 2.
The Board recognises that it is in the long term interests of shareholders to reduce discount volatility and believes that the prime driver of discounts over the longer term is performance. As outlined on page 28, the Board intends to seek renewal of its annual share buyback authority. The Board does not intend to issue a precise discount target at which shares might be bought back as it believes that the announcement of specific targets would be likely to hinder the successful execution of a buyback policy.
As an investment trust, the Group has no direct social, community, or employee responsibilities. Dunedin, with the support of the Board, does however take environmental, social and governance factors and human rights issues into consideration with regard to investment decisions made on behalf of the Company. Further information on Dunedin's policy on sustainable and responsible investing is provided on page 30. The Company has no employees and no requirement to report separately on this area, as the management of the portfolio has been delegated to Dunedin. Details of the Alternative Investment Fund Management Agreement are provided on page 27.
At 31 December 2015, there were three male directors and two female directors on the Board. The Board's policy on diversity is set out on page 30.
By order of the Board
Chairman 17 March 2016
The Directors present their report and audited financial statements for the year to 31 December 2015.
The Manager of the Company is Dunedin LLP ("Dunedin"). The Board is independent of Dunedin. The Company's registration number is SC052844.
The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement on pages 3 to 4. The financial position of the Company, its cash flows and liquidity position are described in the Manager's Review on pages 8 to 11. In addition, note 20 to the financial statements includes the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities and its exposures to credit risk and liquidity risk.
The Company has the appropriate level of financial resources. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully.
After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
In accordance with the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over the three year period to 31 December 2018. The Directors consider that for the purpose of their assessment it is not practical or meaningful to look forward over a period of more than three years. Furthermore, the Directors deem that this reflects a balance between assessing the Company's prospects over the longer term and the uncertainties inherent in looking out further than three years. This period is considered appropriate as it covers the expiration of the current bank facility in May 2018.
The Board has taken account of the Company's current position and carried out a robust assessment of the principal risks and uncertainties facing the Company and the mitigating actions as identified in the Strategic Report. The Board also considered the major factors which effect the economic, regulatory and political environment.
The assessment also took into account:-
• a proposed change to the Investment Objective of the Company.
These metrics are subject to sensitivity analysis which involves flexing a number of the main assumptions underlying the forecasts. The principal factors which were stress tested being the:-
The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 31 December 2018.
At 31 December 2015, the Company's issued and paid up share capital was £5,161,016 divided into 20,664,062 fully paid up ordinary shares. During the year a buyback was undertaken which reduced the issued share capital by 224,500 (nominal value of £56,125) ordinary shares.
The rights attaching to the Company's shares are set out in the Company's Articles of Association (which may be amended by special resolution) and they are also supplemented by (and are subject to) relevant provisions of the Companies Act 2006 ("2006 Act") and other legislation applying to the Company from time to time.
On a winding up, after meeting the liabilities of the Company, the surplus assets will be paid to ordinary shareholders in proportion to their shareholdings.
The ordinary shares carry a right to receive dividends which are declared from time to time by an ordinary resolution of the Company (up to the amount recommended by the Directors) and to receive any interim or special dividends which the Directors may resolve to pay.
It is not proposed to pay a dividend for the year ended 31 December 2015. However, following the partial realisation of CitySprint in February 2016 it is proposed that an interim dividend for the year ended 31 December 2016 of 16p is to be paid to shareholders on 18 May 2016, to shareholders on the register at close of business on 29 April 2016. The ex-dividend date is 28 April 2016.
Each ordinary shareholder present in person or by proxy is entitled to one vote in a show of hands and, on a poll, to one vote for every share held.
The significant holdings in the Company's ordinary share capital which have been notified to the Company as at 31 December 2015 are shown below.
| Ordinary shares |
% of issued share capital |
|
|---|---|---|
| Legal & General Group | 4,791,765 | 23.2 |
| Alliance Trust Savings | 2,922,842 | 14.2 |
| Baillie Gifford Diversified Growth Fund |
1,061,877 | 5.1 |
| East Riding of Yorkshire Council | 990,000 | 4.8 |
| Hargreaves Lansdown | 625,372 | 3.0 |
There have been no changes notified in respect of the above holdings, and no new holdings notified, since the end of the financial year.
Details of the current Directors of the Company are shown on pages 5 to 6. All Directors are considered to be independent. No contract or arrangement existed during the period in which any of the Directors had a material interest. No Director has a service contract with the Company. Notwithstanding the Directors' other appointments it is considered that each has sufficient time available to undertake their duties as a Director of the Company.
In accordance with the UK Corporate Governance Code, changes to the Chairman's other significant commitments require to be disclosed and explained. The Chairman's other directorships are noted on page 5. Since 19 March 2015 Duncan Budge has been appointed to the boards of Menhaden Capital plc and Asset Value Investors Ltd. The Directors have carefully considered the Chairman's other directorships and consider that the Chairman effectively manages his commitments and has sufficient time to meet what is expected of him as Chairman of the Company. The Chairman's attendance at Board and Committee meetings is outlined in the relevant table on page 31. The table shows that the Chairman has attended each Board and Committee meeting held during the year. The Directors believe this demonstrates that the Chairman continues to allocate sufficient time to the Company and continues to discharge his responsibilities effectively.
In accordance with the UK Corporate Governance Code and the AIC's Code of Corporate Governance, Angela Lane offers herself for election to the Board. Duncan Budge, Brian Finlayson and Federico Marescotti will retire from the Board and, being eligible, offer themselves for re-election at the Annual General Meeting ("AGM"). Brian Finlayson was appointed to the Board on 1 January 2007 and has served for more than nine years and is therefore subject to annual re-election. The Board has carefully considered Brian Finlayson's independence and believe he retains independence of character and of judgement. Following performance evaluation, in the view of the other Directors, Angela Lane, Duncan Budge, Brian Finlayson and Federico Marescotti continue to perform effectively and to demonstrate
commitment to the Company. The election of Angela Lane and the re-election of Duncan Budge, Brian Finlayson and Federico Marescotti is recommended to shareholders as their skills and experience continues to add to the strength of the Board.
Liz Airey will retire from the Board at the Annual General Meeting.
The Company maintains insurance in respect of directors' liabilities in relation to their acts on behalf of the Company.
In line with market practice and the Company's Articles of Association, the Company has agreed to indemnify the Directors in respect of costs, charges, liabilities, damages and expenses, arising out of any claims or proposed claims made for negligence, default, breach of duty, breach of trust or otherwise, or relating to any application under section 1157 of the Companies Act 2006 ("2006 Act"), in connection with the performance of their duties as Directors of the Company. The indemnities would also provide financial support from the Company should the level of cover provided by the Directors' & Officers' insurance maintained by the Company be exhausted.
Under the 2006 Act, a Director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the Company's interests. The 2006 Act allows directors of public companies to authorise conflicts and potential conflicts, where appropriate, where the articles of association contain provisions to this effect. The Company's Articles of Association give the Directors authority to approve such situations.
The Company maintains a register of Directors' conflicts of interest which have been disclosed and approved by the other Directors. The register is reviewed at each Board meeting and the Directors are required to disclose to the Company Secretary any change to conflicts or any potential new conflicts. Where a conflict of interest arises, the Director concerned will not participate in any discussions or decisions in that area.
The statement on Corporate Governance on pages 30 to 32 is included in the Directors' Report by reference.
The principal terms of the Company's management agreement with Dunedin are set out on page 61.
The Board has thoroughly reviewed Dunedin's investment policy and process. The review covered the performance of the investment manager, their management process, investment style, resources and risk controls. The Board is satisfied with the results of the review and is therefore of the opinion that the continuing appointment of Dunedin on the terms agreed is in the interests of shareholders as a whole. Such a review is carried out on an annual basis.
In 2008, the Company's shareholders approved management incentive arrangements and the introduction of two investment classes within the overall assets of the Company, the Fund of Funds LP and the Co-Investment LP. The Company is a limited partner in both partnerships as are Dunedin executives who invest in each of these partnerships as a limited partner. Dunedin is the general partner of each partnership.
Dunedin Managed Funds, Dunedin Fund of Funds LP, and Dunedin Co-Investment LP operate carried interest schemes. Dunedin executives participate in these carried interest schemes.
Although the co-investment scheme for Dunedin executives, under which selected Dunedin executives invested their own funds in ordinary shares alongside direct investments by the Company, has been replaced by the new Co-investment LP, the co-investment scheme continues to operate for investments made prior to May 2008.
Dunedin LLP is appointed as Corporate Company Secretary pursuant to the Alternative Investment Fund Management Agreement, details of which are set out on page 61.
The Company does not have a fixed life. It is not expected that this will change under proposals regarding a new Investment Objective which are being put to shareholders.
The Company has a zero tolerance policy towards bribery and is committed to carrying out business fairly, honestly and openly. The investment manager also adopts a zero tolerance approach and has policies and procedures in place to prevent and detect bribery.
The statement on social, community, environmental and human rights policy on page 25 is included in the Directors' Report by reference.
All of the Company's activities are outsourced to third parties.
As such it does not have any physical assets, property, employees or operations of its own and does not generate any greenhouse gas or other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
The Directors confirm that so far as each Director is aware there is no relevant audit information of which the Company's external auditors are unaware. Each Director has also taken all reasonable steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the external auditors are aware of that information.
The External Auditor, KPMG LLP, have indicated their willingness to continue in office and a resolution re-appointing them and authorising the Directors to fix their remuneration will be
proposed as resolutions 7 and 8 at the forthcoming Annual General Meeting.
The AGM of the Company will be held at The Waldorf Astoria Edinburgh – The Caledonian, Princes Street, Edinburgh, EH1 2AB. Notice of the AGM is given on pages 62 to 64 of this report.
Resolutions 1 to 8 will be proposed as ordinary resolutions. This means that for each of those resolutions to be passed, more than half of the votes cast must be in favour of the resolution. Resolutions 9 to 10 will be proposed as special resolutions. This means that for each of those resolutions to be passed, at least three-quarters of the votes cast must be in favour of the resolution. Each of these resolutions is being proposed to comply with the Company's Articles of Association and to obtain certain authorities required under the 2006 Act from shareholders.
Shareholders are being asked to receive the audited accounts for the year ended 31 December 2015.
Shareholders are being asked to approve the Directors' Remuneration Report set out pages 35 to 37 for the year ended 31 December 2015.
Biographical details of Angela Lane who is standing for election are set out on page 6. The Board recommends to Shareholders the election of Angela Lane, who the Board regards as possessing the requisite skills and attributes to make a significant contribution in her role.
Biographical details of Duncan Budge, Brian Finlayson and Federico Marescotti who are standing for re-election are set out on pages 5 to 6. The Board recommends to Shareholders the reelection of the Directors, each of whom the Board regards as possessing the requisite skills and attributes to continue making significant contributions in their respective roles.
The Company is required to appoint auditors at each general meeting at which accounts are presented to shareholders. It is proposed that KPMG LLP be and are hereby re-appointed auditors of the Company and will hold office from the conclusion of this meeting until the conclusion of the next general meeting at which accounts are laid before the Company, and that their remuneration be fixed by the Directors.
The existing buy-back authority, granted at the AGM of the Company held on 13 May 2015, permits the Company to make market purchases of up to 14.99 per cent. of the Company's issued ordinary share capital as at 2 April 2015 and expires at the forthcoming AGM. The authority, under Resolution 9, if conferred, will only be exercised if, in the Directors' opinion, a repurchase would be in the best interests of shareholders as a
whole and would result in an increase in the net asset value per Ordinary Share for the remaining shareholders.
The Directors propose to renew the authority at this year's AGM, and seek authority to purchase up to 3,096,609 Ordinary Shares (being 14.99 per cent. of the issued share capital as at 31 March 2016). This authority will expire at the conclusion of the AGM of the Company in 2017 (or, if earlier, the date following 15 months from this year's AGM). Purchases of Ordinary Shares will only be made through the market for cash at prices below the prevailing net asset value per Ordinary Share. Under the Listing Rules of the Financial Conduct Authority, the maximum price that can be paid is not more than the higher of (i) 5 per cent. above the average market values of the ordinary shares for the five business days before the day on which the purchase is made and (ii) that stipulated by Article 5 (i) of the Buy-back and Stabilisation Regulation. The minimum price that may be paid will be 25p per share (being the nominal value of a share). Ordinary shares that are purchased will be cancelled. In making purchases, the Company will deal only with member firms of the London Stock Exchange.
The Shareholder Rights Directive ("Directive") was implemented in the UK in August 2009. One of the requirements of the Directive is that all general meetings must be held on 21 days'
notice unless shareholders agree to a shorter notice period. Resolution 10 seeks to renew this shareholder approval. The approval will be effective until the Company's next AGM, when it is intended that a similar resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Directive before it can call a general meeting on 14 days' notice. The Directors only intend to call a general meeting on less than 21 days' notice where the proposals are time sensitive and the short notice would clearly be an advantage to shareholders as a whole.
The Board considers that all the resolutions to be considered at the AGM are in the best interests of the Company and the shareholders as a whole. Your Board intend to vote in favour of them in respect of their entire beneficial holdings of Ordinary Shares which amount, in aggregate, to 203,709 Ordinary Shares (representing approximately 1.0 per cent. of the ordinary share capital of the Company in issue) and unanimously recommends that you do so as well.
By order of the Board,
Duncan Budge Chairman
Corporate Governance Report
The Board considers that the Company has complied with the relevant provisions contained in the UK Corporate Governance Code issued by the Financial Reporting Council in September 2014 and the recommendations of the AIC's Code of Corporate Governance issued in February 2015 (the "AIC Code") by reference to the AIC Corporate Governance Guide for investment companies ("the AIC Guide") throughout this accounting period with the exception of the matters noted below.
The AIC Code and the AIC Guide can both be found on the AIC website (www.theaic.co.uk) and a copy of the UK Corporate Governance Code can be found at www.frc.org.uk.
The UK Corporate Governance Code includes provisions relating to the role of the Chief Executive, Executive Directors' remuneration and the need for an internal audit function. For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers that these provisions are not relevant to the position of the Company, which is an externally managed investment company. The Company has not, therefore, reported further in respect of these provisions.
The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
The Board consists of five non-executive Directors, all of whom the Company deems to be independent, even though both Liz Airey, the Senior Independent Director, and Brian Finlayson have served as a Director for over nine years. Liz Airey will retire from the Board at the AGM on 11 May 2016.
On appointment, new Directors are provided with an induction programme which is tailored to the particular circumstances of the appointee. Following appointment, the Chairman regularly reviews and agrees with Directors, as appropriate, their training and development needs as necessary to enable them to discharge their duties taking account of company specific matters and industry issues.
The Board determines the strategic direction of the Company. It meets at least four times a year and there is regular contact with Dunedin (the "Manager") between these meetings. There is a formal schedule of matters specifically reserved for Board decision. The schedule of matters is reviewed regularly by the Board. The Directors also have access to any information, the advice and services of the Company Secretary and, if required, external advice at the expense of the Company. The Company Secretary is also responsible for ensuring good information flows between all parties. The Board maintains ongoing dialogue with the Company's legal adviser in relation to corporate governance matters.
There is a clear division of responsibility between the Board and the Manager. The Manager's role is defined within the Alternative Investment Fund Management Agreement. The Board and the Manager have agreed clearly defined investment criteria and specific levels of authority. Reports on these issues, including performance statistics, investment valuations and management accounts, are submitted to the Board at each meeting. The Manager's evaluation procedure and financial analysis of the companies within the portfolio includes detailed research and appraisal, and also takes into account environmental policies and social, ethical, human rights and other business issues. The Manager's ESG policy can be found at www.dunedin.com. The Manager also supports the principles of the UK Stewardship Code and implements these where applicable. As an institutional investor, the Company recognises its responsibility that the companies in which it invests should aspire to appropriate levels of corporate governance. As a matter of policy, the Company aims to utilise its votes in respect of shares held in the relevant underlying portfolio companies at the annual general meetings of these companies. In the year to 31 December 2015 the Company voted in favour of all resolutions put forward at the annual general meetings of portfolio companies.
The Company's Articles of Association require that all Directors are subject to retirement by rotation and, given this and that all of the Directors are non-executive directors, the Board does not consider it necessary for the Directors to be appointed for a fixed term as recommended by provision B.2.3 of the UK Corporate Governance Code. The Board's policy on tenure is to adopt best practice in line with the requirement of the UK Corporate Governance Code for FTSE 350 companies, for all Directors to retire and, if appropriate, stand for annual re-election at each AGM. The Board does not feel that it would be appropriate to adopt a policy whereby Directors serve for a limited period as the historical knowledge of the portfolio is a key benefit. Any Directors appointed to the Board since the previous AGM also retire and stand for election.
The Board undertakes a formal annual evaluation of its own performance and that of its committees and individual Directors, including the Chairman. The most recent evaluation was carried out in November 2015 and the next evaluation is planned to take place in November 2016. An external consultant assists the Board in this evaluation at least every three years. The Board as a whole meets to assess its own performance and that of its Committees. The Chairman undertakes an appraisal of each Director to assess their performance. The non-executive Directors, led by the Senior Independent Director, are responsible for performance evaluation of the Chairman. The appraisals consider, amongst other things, the balance of skills of the Board and its diversity, the contribution of individual Directors and the overall effectiveness of the Board and its committees. Each individual Director's training requirements are reviewed as part of the annual evaluation process. The Board believes that it has an appropriate balance of skills and experience, length of service, diversity (including gender) and knowledge of the Company.
Corporate Governance Report
The Board supports diversity in the boardroom and is of the opinion that appointments to the Board should be made taking into account a number of different criteria, including diversity of gender, background and personal attributes, alongside the appropriate skill set, experience and expertise. The Board ensures that any recruitment process reflects this view.
The table below details the number of Board, Audit, Nomination and Management Engagement Committee meetings attended by each Director. During the year there were four Board meetings, four Audit Committee meetings, two Nomination Committee meetings and two Management Engagement Committee meetings.
| Audit Committee meetings attended |
Nomination Committee meetings attended |
Management Engagement Committee meetings attended |
|
|---|---|---|---|
| 4 | 2 | 2 | |
| 4 | 2 | 2 | |
| 4 | 2 | 2 | |
| (appointed 1 June 2015) | 3 | 1 | 1 |
| Federico Marescotti | 4 | 2 | 2 |
| Board meetings attended 4 4 4 3 4 |
There are three committees of the Board: the Nomination Committee, the Management Engagement Committee and the Audit Committee. The Board considers that, given the size of the Board, it would be unnecessarily burdensome to establish separate Nomination, Management Engagement and Audit Committees which did not involve the entire Board and believes that this enables all Directors to be kept fully informed of any issues that arise. The terms of reference for each committee are available on the Company's website. A report of the activity of each committee is set out below.
The Board has not established a separate Remuneration Committee and, as a whole, fulfils the function of the remuneration committee.
Duncan Budge (Chairman) Liz Airey Brian Finlayson Angela Lane Federico Marescotti
The Nomination Committee comprises all the independent nonexecutive directors. The Nomination Committee is responsible for identifying and nominating to the Board new Directors and for considering whether existing Directors should be re-elected. The Nomination Committee is also responsible for monitoring the composition, size and structure of the overall Board. The Nomination Committee aims to maintain an appropriate balance of skills and experience within the Board and, together with the Board, supports the principle of diversity in the boardroom. Given the small size of the Board, it is not considered appropriate for the Company to have set targets or quotas in relation to diversity; candidates are assessed in relation to the relevant needs of the Company at the time of the appointment. The Nomination Committee is responsible for ensuring that any recruitment process takes account of the Company's diversity policy. The Nomination Committee uses external specialist search consultants, as appropriate, to assist it in carrying out its responsibilities.
The Nomination Committee is chaired by Duncan Budge, except when this committee considers his succession and reviews his performance. In such circumstances, the Nomination Committee elects an alternative member to take the Chair. The Nomination Committee met twice and included the search for a new nonexecutive Director. External specialist search consultants, Trust Associates, assisted the Committee with this task. Trust Associates have no connection to the Company.
Duncan Budge (Chairman) Liz Airey Brian Finlayson Angela Lane Federico Marescotti
The Management Engagement Committee comprises all the independent non-executive Directors. The Management Engagement Committee reviews the performance of the Manager and its compliance with the terms of the Alternative Investment Fund Management Agreement. The terms and conditions of the Manager's appointment, including an evaluation of performance and fees, are reviewed by the Management Engagement Committee on an annual basis.
Liz Airey (Chairman) Duncan Budge Brian Finlayson Angela Lane Federico Marescotti
The Audit Committee comprises all the independent nonexecutive Directors. The Directors believe that it is in the best interests of the Company that its Chairman, Duncan Budge, is a member of the Committee. The Board is satisfied that the Audit Committee has the necessary skills and experience to operate effectively. The Audit Committee Report is set out on pages 33 to 34.
Corporate Governance Report
The Directors have overall responsibility for ensuring that there are systems of internal control in place, both financial and nonfinancial, and for reviewing their effectiveness. The purpose of the internal financial controls is to ensure that proper accounting records are maintained, the Company's assets are safeguarded and the financial information used within the business and for publication is accurate and reliable. Such a system can provide reasonable, but not absolute assurance against material misstatement or loss.
Under the terms of the management agreement the day-to-day management and operation of the Company has been delegated to the Manager. Clear lines of accountability have been established between the Board and the Manager. The Board and the Manager have agreed clearly defined investment criteria, specified levels of authority and exposure limits. The Manager is responsible for the design, implementation and maintenance of controls and procedures to safeguard the assets of the Company and to manage its affairs properly. The system extends to financial, operational and compliance controls and risk management. The Board reviews the financial reports and performance statistics, including projections and management accounts from the Manager on a regular basis. Annually the Audit Committee carries out an assessment of internal risks and controls. In carrying out its review, the Audit Committee has regard to the activities of the Manager, including their risk management, compliance function and whistle-blowing policies, and the Independent Auditors.
On the basis of this work, the Board confirms that there is an ongoing process for identifying, evaluating and managing any significant business and operational risks faced by the Company and that this process has been in place for the year ended 31 December 2015 and up to the date of the annual report and accounts.
The Audit Committee considers and the Board agrees that an internal audit function is not required by the Company as the internal control systems operated by the Manager provide sufficient assurance over the effectiveness of internal controls.
All shareholders have the opportunity to attend and vote at the AGM. The notice of the AGM sets out the business of the meeting and items of business are explained in the Directors' Report on pages 26 to 29. Separate resolutions are proposed for each substantive issue. Both the Board and representatives of the Manager are available to answer shareholders' questions at the AGM. Proxy voting figures are announced to shareholders at the AGM.
The Chairman and Manager hold regular discussions with substantial shareholders, the feedback from which is greatly valued by the Board. In addition, the Chairman and Directors are available to enter into dialogue and correspondence with shareholders regarding the progress and performance of the Company at any point during the year. They can be contacted at the registered office address of the Company noted on page 67. Additionally the Chairman can be contacted via email at [email protected]. All correspondence received from shareholders is passed directly to the Chairman.
The Senior Independent Director is available to shareholders if their concerns are concerns which contact through the normal channels of Chairman or other Directors has failed to resolve or for which such contact is inappropriate.
All communications by the Company with shareholders are approved by the Board.
The Company's website is www.dunedinenterprise.com. The Manager's presentation to shareholders will be available on the website after the AGM.
By order of the Board,
Duncan Budge
Chairman 17 March 2016
Dunedin Enterprise Investment Trust PLC Annual Report and Accounts 2015 33
Audit Committee Report
The Audit Committee is chaired by Liz Airey and comprises all of the Directors, all of whom are independent. Liz Airey will retire from the Board and Audit Committee at the AGM. The Audit Committee will be chaired by Angela Lane following Liz Airey's retiral.
The Audit Committee's principal responsibilities are:
The Audit Committee has a schedule which sets out its annual work programme to ensure it covers the areas within its remit appropriately. It met four times during the year to carry out its responsibilities and senior representatives of the investment manager ("the Manager") attended the meetings as required by the Audit Committee. The external auditors attended the Audit Committee's meetings twice in the year and met with the Audit Committee without representatives of the Manager being present. In between meetings, the Audit Committee chairman maintains ongoing dialogue with the Manager and the external audit lead partner.
During the year the Audit Committee carried out a review of its terms of reference and its own effectiveness. It concluded that the Audit Committee is satisfactorily fulfilling its terms of reference and is operating effectively.
The significant issue considered by the Audit Committee during the year in relation to the financial statements of the Company is usually the valuation of unquoted investments and 2015 was no exception.
The Company's accounting policy for valuing unquoted investments is set out in note 2 (h) on page 50. The Audit Committee reviewed and challenged the valuations prepared by the Manager taking account of the latest available information about the Company's investments and the Manager's knowledge of the underlying companies through their ongoing monitoring, position on portfolio company boards and participation on fund advisory committees. The Audit Committee satisfied itself that the valuation of investments had been carried out consistently with prior accounting periods, or that any change in valuation basis was appropriate, and in accordance with published industry guidelines.
The external auditors explained the results of their review of the procedures undertaken by the Manager for the valuation. On the basis of their audit work, no material adjustments were identified by the auditor.
Given the illiquid nature of the Company's underlying investments, going concern will always be a matter of focus for the Board and Audit Committee. As regards the year ended 31 December 2015, the Audit Committee considered the Board's obligation to satisfy itself as to the appropriateness of the adoption of the going concern assumption as a basis for preparing the financial statements. Taking into account the £50.2m of outstanding commitments; the remaining £15.3m of the £20.0m revolving credit facility with a maturity date of 31 May 2018; the future cash flow projections and the cash balances held by the Company at 31 December 2015, the Audit Committee concluded that the adoption of the going concern basis was appropriate.
Audit Committee Report
The Audit Committee monitored the relationship with the external auditors with a view to ensuring that they did not provide nonaudit services to the Company that had the potential to impair or appear to impair the independence of their audit role. The Board has approved a policy which recognises that it will be appropriate and cost effective for the external auditors to provide certain specified categories of non-audit services and has determined that fees in excess of £50,000 for taxation services and £20,000 for non-taxation services require prior approval by the Audit Committee.
The external auditor, KPMG, has provided details of other relationships it has with the Manager and confirmed to the Board that in its opinion it is independent of the Manager. The Audit Committee has reviewed the independence and objectivity of the external auditor and has reviewed the non-audit services provided by the external auditor for the financial year ended 31 December 2015 which comprised the provision of tax services at a total cost of £29,000, as detailed in Note 5 to the accounts. The Audit Committee is satisfied that the external auditor continues to demonstrate its independence.
The appointment of KPMG has not been put out to tender notwithstanding KPMG's tenure of 20 years, as the Audit Committee, from ongoing review of the external auditors work and effectiveness, and indirect enquiry of the Manager, remains satisfied that KPMG continue to provide a high quality audit and effective independent challenge in carrying out their responsibilities. Following professional guidelines, the partner rotates after five years and this is the fifth year for the current partner. During the year the Committee considered the impact of European legislation which is expected to limit the tenure of the Company's auditor to a maximum of 10 years. If the audit is put out for public bid, the member state may allow the auditor to continue for a maximum of 20 years. The Committee will
recommend to the Board the timing of a tender once the UK regulations are finalised and enacted. The Committee will be considering the timing for a tender in due course.
During the year the Committee completed an external auditor performance evaluation questionnaire. The Committee reviewed and discussed the results of the questionnaire. Having considered these matters and the effectiveness of the external auditor, the Audit Committee has recommended to the Board that, subject to shareholder approval at the 2016 Annual General Meeting, KPMG LLP be re-appointed as external auditor for the forthcoming year.
The Company does not have an internal audit function. The Committee believes this is appropriate as all of the Company's management functions are delegated to the Manager which has its own internal control and risk monitoring arrangements. A report on these arrangements is prepared by the Manager and submitted to the Audit Committee which it reviews on behalf of the Board to support the Directors' responsibility for overall internal control as set out in the Governance Report on page 30.
The Company does not have a whistleblowing policy and procedure in place. The Company delegates this function to the Manager who is regulated by the FCA and has such policies in place. The Audit Committee has been informed by the Manager that these policies meet the industry standards and no whistleblowing took place during the year.
Chairman of the Audit Committee 17 March 2016
Directors' Remuneration Report
The Board presents the Directors' Remuneration report for the year ended 31 December 2015 which has been prepared in accordance with sections 420-422 of the Companies Act 2006. In addition, following the publication by the Department of Business, Innovation and Skills (BIS) of final remuneration disclosure regulations effective from 1 October 2013, the report now comprises a Remuneration Policy Report, which is subject to a triennial binding shareholder vote, and a Remuneration Policy Implementation Report, which will be subject to an annual advisory shareholder vote.
The law requires the Company's auditor to audit certain of the disclosures provided. Where disclosures have been audited, this is indicated. The auditors' opinion is included in their report on pages 39 to 40.
On behalf of the Board and in accordance with Part 2 of Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013 ("2013 Regulations"), the Chairman confirms that there have been no major decisions taken on Directors' remuneration and no substantial changes relating to Directors' remuneration made during the previous financial year to 31 December 2015.
This Report provides details of the remuneration policy for the Directors of the Company and is the same in all material respects as the policy put into practice by the Board. All Directors are non-executive, appointed under the terms of their letters of appointment and under the same terms as in force at the date of their appointment.
This Remuneration Policy was approved by a resolution of the Company's shareholders at the Annual General Meeting of the Company held on 14 May 2014 and was passed by 98.4% of shareholders voting in favour of the resolution, 1.6% voting against and 0.0% abstaining. Its provisions will apply until the next triennial shareholder vote unless the Company's shareholders approve amendments sooner.
The Board as a whole fulfils the function of the Remuneration Committee and considers any change in the Directors' remuneration policy, as well as implementation of that policy. A separate Committee has therefore not been established. The Company's Directors are all independent of the Manager.
The non-executive Directors of the Company are entitled to such rates of annual fees, together with any incremental fees payable in recognition of any Director's additional time commitment, as the Board at its discretion shall from time to time determine, subject to the aggregate annual fees not exceeding an amount set by shareholders through the Articles of Association currently set at £200,000, and reimbursement of reasonable fees and expenses incurred by them in the performance of their duties. The level of fees paid to Directors is determined by assessing their time commitment and responsibilities in fulfilling their roles.
The Chairman of the Board, Chairman of the Audit Committee and Senior Independent Director are paid higher fees, reflecting the greater amount of time spent on the Company's business. As well as monitoring the approach by similar investment trusts to fees, suitable external advice is sought where appropriate.
In line with the majority of investment trusts, no component of any Director's remuneration is subject to performance factors, introductory fees or an exit payment. Additionally, Directors are not eligible for pension benefits, share options, long-term incentive schemes or other benefits. As the Company has no employees, no consideration needs to be given to employment conditions in setting Directors' pay. Subject to the triennial shareholder vote, the Company has not sought shareholder views on its remuneration policy.
It is the Company's policy that Directors do not have service contracts. The terms of their appointment provide that in line with the provisions set by the Articles of Association, a Director shall retire and be subject to election by shareholders at the first Annual General Meeting after their appointment and stand for reelection every three years thereafter. However, it is the policy of the Board that Directors are re-elected annually. The terms also provide that a Director may be removed from office with a notice period of three months. No compensation is payable for loss of office.
The Company indemnifies Directors in respect of costs, charges, liabilities, damages and expenses, arising out of any claims or proposed claims made for negligence, default, breach of duty, breach of trust or otherwise, or relating to any application under Section 1157 of the Companies Act 2006, in connection with the performance of their duties as Directors of the Company.
| 20152 £ |
2014 £ |
|
|---|---|---|
| Chairman fee | 34,000 | 34,000 |
| Non-executive Director base fee | 23,000 | 23,000 |
| Additional fee for chair of the | ||
| Audit Committee | 3,000 | 3,000 |
| Additional fee for Senior | ||
| Independent Director | 3,000 | 3,000 |
The fees noted above represent the entirety of fees paid to Directors.
Directors' Remuneration Report
The rates of Directors' fees for the financial year to 31 December 2015 were set out in the Directors' Remuneration Report contained in the Company's 2014 Annual Report and Accounts. A non-binding ordinary resolution proposing adoption of the Remuneration Report was put to shareholders at the Company's Annual General Meeting held on 13 May 2015 and was passed by 95.7% of shareholders voting in favour of the resolution, 3.9% voting against and 0.4% abstaining.
The Company does not anticipate making any significant changes to implementation of the Remuneration Policy in the current financial year.
All Directors who served during the year ended 31 December 2015 received the emoluments, in the form of fees, as described in the table below.
| 2015 Annual Fees £ |
2014 Annual Fees £ |
|
|---|---|---|
| Liz Airey | 29,000 | 29,000 |
| Duncan Budge | 34,000 | 29,924 |
| Brian Finlayson | 23,000 | 23,000 |
| David Gamble (retired 14 May 2014) | – | 12,641 |
| Federico Marescotti | 23,000 | 23,000 |
| Angela Lane (joined 1 June 2015) | 13,417 | – |
| Total | 122,417 | 117,565 |
The fees noted above represent the entire remuneration paid to Directors.
As required by the 2013 Regulations, to allow shareholders to assess the relative importance of expenditure on pay, the table below demonstrates the total remuneration paid to the Directors compared to the distributions to shareholders by way of dividend and any other significant distributions and payments.
| £ | £ | Difference |
|---|---|---|
| 122,417 | 117,565 | +4% |
| 980,822 | 3,624,540 | -73% |
| – | 5,309,395 | -100% |
| 700,304 | – | +100% |
| 2015 | 2014 |
The names of the Directors and their shareholdings in the Company as at 31 December 2015 are shown in the table below. The Company has not been notified of any changes to the Directors' shareholdings between 31 December 2015 and 17 March 2016. The shareholding of connected persons to the Directors are disclosed where appropriate.
| 2015 # |
2014 # |
|
|---|---|---|
| Liz Airey | 50,000 | 50,000 |
| Duncan Budge | 35,900 | 15,900 |
| Brian Finlayson | 107,809 | 90,809 |
| Angela Lane | – | – |
| Federico Marescotti | 10,000 | 4,000 |
Directors' Remuneration Report
The graph below presents for the period from 31 December 2010 to 31 December 2015 the total shareholder return compared to the total return on the FTSE Small Cap (ex-investment companies) and the FTSE All Share (ex-investment companies). These indices are chosen for comparative purposes only.
The Directors' Remuneration Report on pages 35 to 37 was approved by the Board of Directors and signed on its behalf on 17 March 2016.
Chairman 17 March 2016 Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements on the same basis.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Under the Disclosure and Transparency Rules the Directors confirm that to the best of their knowledge:
On behalf of the Board
Chairman 17 March 2016 Independent Auditors' Report
1. Our opinion on the financial statements is unmodified We have audited the financial statements of Dunedin Enterprise Investment Trust PLC for the year ended 31 December 2015 set out on pages 41 to 61. In our opinion:
In arriving at our audit opinion above on the financial statements the risk of material mis-statement that had the greatest effect on our audit was as follows:
Refer to page 33 (Audit Committee Report), page 50 (accounting policy) and pages 53 to 56 (financial disclosures)
variances and determine whether they are indicative of bias or error in the company's approach to valuations;
The materiality for the Group financial statements as a whole was set at £1,097,000 (2014: £2,100,000), determined with reference to a benchmark of total assets, of which it represents 1%, reflecting industry consensus levels (2014: 2%).
We report to the Audit Committee any corrected and uncorrected identified misstatements exceeding £54,800, in addition to other identified misstatements that warrant reporting on qualitative grounds.
Our audit of the four components of the Group were performed by the group audit team at the Investment Manager, Dunedin LLP's, head office in Edinburgh to materiality levels set individually for each component, which ranged from £1,000,000 to £1.
These group procedures covered 100% of total group revenue, 100% of group profit before taxation and 100% of total group assets.
Independent Auditors' Report
4. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to:
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
Under the Listing Rules we are required to review:
We have nothing to report in respect of the above responsibilities.
As explained more fully in the Directors' Responsibilities Statement set out on page 38 the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the company's members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.
Chartered Accountants Edinburgh 17 March 2016
| Notes | Revenue £'000 |
Capital £'000 |
2015 Total £'000 |
Revenue £'000 |
Capital £'000 |
2014 Total £'000 |
|
|---|---|---|---|---|---|---|---|
| Investment income | 3 | 196 | — | 196 | 1,711 | – | 1,711 |
| Gains/(losses) on investments | — | 853 | 853 | – | (1,218) | (1,218) | |
| Total income | 196 | 853 | 1,049 | 1,711 | (1,218) | 493 | |
| Expenses | |||||||
| Investment management fee | 4 | (95) | (285) | (380) | (104) | (311) | (415) |
| Management performance fee | 4 | — | — | — | 7 | 22 | 29 |
| Other expenses | 5 | (599) | — | (599) | (633) | – | (633) |
| Profit/(loss) before finance costs and tax |
(498) | 568 | 70 | 981 | (1,507) | (526) | |
| Finance costs | 6 | (130) | (388) | (518) | (138) | (413) | (551) |
| Profit/(loss) before tax | (628) | 180 | (448) | 843 | (1,920) | (1,077) | |
| Taxation | 7 | — | — | — | 137 | 162 | 299 |
| Profit/(loss) for the year | (628) | 180 | (448) | 980 | (1,758) | (778) | |
| Basic return per ordinary share | |||||||
| (basic & diluted) | 9 | (3.0)p | 0.8p | (2.2)p | 4.6p | (8.3)p | (3.7)p |
The total column of this statement represents the Income Statement of the Group, prepared in accordance with International Financial Reporting Standards as adopted by the EU. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.
All income is attributable to the equity shareholders of Dunedin Enterprise Investment Trust PLC.
| Notes | £'000 | 2015 £'000 |
£'000 | 2014 £'000 |
|
|---|---|---|---|---|---|
| Non-current assets | |||||
| Investments at fair value through profit or loss | 10 | 109,374 | 98,371 | ||
| Current assets | |||||
| Other receivables | 11 | 167 | 269 | ||
| Cash and cash equivalents | 573 | 8,726 | |||
| 740 | 8,995 | ||||
| Current liabilities | |||||
| Other liabilities | 12 | (987) | (810) | ||
| Loan facility | 12 | (4,700) | – | ||
| (5,687) | (810) | ||||
| Net current (liabilities)/assets | (4,947) | 8,185 | |||
| Net assets | 104,427 | 106,556 | |||
| Capital and reserves | |||||
| Share capital | 13 | 5,161 | 5,217 | ||
| Capital redemption reserve | 14 | 2,765 | 2,709 | ||
| Capital reserve – realised | 14 | 38,639 | 47,552 | ||
| Capital reserve – unrealised | 14 | 4,957 | (3,436) | ||
| Special distributable reserve | 14 | 47,600 | 47,600 | ||
| Revenue reserve | 14 | 5,305 | 6,914 | ||
| Total equity shareholders' funds | 104,427 | 106,556 | |||
| Net asset value per share (basic & diluted) | 15 | 505.8p | 510.6p |
The financial statements were approved by the Board of Directors on 17 March 2016.
| 2015 | 2014 | ||||
|---|---|---|---|---|---|
| Notes | £'000 | £'000 | £'000 | £'000 | |
| Non-current assets | |||||
| Investments at fair value through profit or loss | 10 | 93,331 | 85,670 | ||
| Subsidiary undertakings | 21 | 16,102 | 13,392 | ||
| 109,433 | 99,062 | ||||
| Current assets | |||||
| Other receivables | 11 | 167 | 267 | ||
| Cash and cash equivalents | 511 | 8,031 | |||
| 678 | 8,298 | ||||
| Current liabilities | |||||
| Other liabilities | 12 | (984) | (804) | ||
| Loan facility | 12 | (4,700) | — | ||
| (5,684) | (804) | ||||
| Net current (liabilities)/assets | (5,006) | 7,494 | |||
| Net assets | 104,427 | 106,556 | |||
| Capital and reserves | |||||
| Share capital | 13 | 5,161 | 5,217 | ||
| Capital redemption reserve | 14 | 2,765 | 2,709 | ||
| Capital reserve – realised | 14 | 38,492 | 47,177 | ||
| Capital reserve – unrealised | 14 | 5,271 | (2,805) | ||
| Special distributable reserve | 14 | 47,600 | 47,600 | ||
| Revenue reserve | 14 | 5,138 | 6,658 | ||
| 104,427 | 106,556 |
The financial statements were approved by the Board of Directors on 17 March 2016.
| Notes | £'000 | 2015 £'000 |
£'000 | 2014 £'000 |
|
|---|---|---|---|---|---|
| Net cash inflow from operating activities | 16 | 4,196 | 1,355 | ||
| Servicing of finance | |||||
| Finance costs | (518) | (551) | |||
| Investing activities | |||||
| Purchase of investments | (14,513) | (16,025) | |||
| Purchase of 'AAA' rated money market funds | (6,707) | (13,395) | |||
| Sale of investments | 3,286 | 6,108 | |||
| Sale of 'AAA' rated money market funds | 7,840 | 16,629 | |||
| Net cash (outflow) from financial investment | (10,094) | (6,683) | |||
| Taxation | |||||
| Tax recovered | — | 116 | |||
| Financing activities | |||||
| Purchase of ordinary shares | (700) | (5,309) | |||
| Dividends paid | (981) | (3,624) | |||
| (1,681) | (8,933) | ||||
| Effect of exchange rate fluctuations on cash held | (56) | (62) | |||
| Net (decrease) in cash and cash equivalents | (8,153) | (14,758) | |||
| Cash and cash equivalents at start of the year | 8,726 | 23,484 | |||
| Net (decrease) in cash and cash equivalents | (8,153) | (14,758) | |||
| Cash and cash equivalents at end of the year | 573 | 8,726 |
| Notes | £'000 | 2015 £'000 |
£'000 | 2014 £'000 |
|
|---|---|---|---|---|---|
| Net cash inflow from operating activities | 16 | 4,459 | 1,048 | ||
| Servicing of finance | |||||
| Finance costs | (518) | (551) | |||
| Investing activities | |||||
| Purchase of investments | (10,328) | (11,610) | |||
| Subsidiary investment | (3,232) | (3,841) | |||
| Purchase of 'AAA' rated money market funds | (6,707) | (13,395) | |||
| Sale of investments | 1,798 | 2,609 | |||
| Subsidiary sale | 865 | 2,726 | |||
| Sale of 'AAA' rated money market funds | 7,840 | 16,629 | |||
| Net cash (outflow) from financial investment | (9,764) | (6,882) | |||
| Taxation | |||||
| Tax recovered | — | 292 | |||
| Financing activities | |||||
| Purchase of ordinary shares | (700) | (5,309) | |||
| Dividends paid | (981) | (3,624) | |||
| (1,681) | (8,933) | ||||
| Effect of exchange rate fluctuations on cash held | (16) | (4) | |||
| Net (decrease) in cash and cash equivalents | (7,520) | (15,030) | |||
| Cash and cash equivalents at start of the year | 8,031 | 23,061 | |||
| Net (decrease) in cash and cash equivalents | (7,520) | (15,030) | |||
| Cash and cash equivalents at end of the year | 511 | 8,031 |
| At 31 December 2015 | 5,161 | 2,765 | 38,639 | 4,957 | 47,600 | 5,305 | 96,501 | 104,427 |
|---|---|---|---|---|---|---|---|---|
| Dividends paid | – | – | – | – | – | (981) | (981) | (981) |
| Purchase and cancellation of shares | (56) | 56 | (700) | – | – | – | (700) | (700) |
| Profit/(loss) for the year | – | – | (8,213) | 8,393 | – | (628) | (448) | (448) |
| At 31 December 2014 | 5,217 | 2,709 | 47,552 | (3,436) | 47,600 | 6,914 | 98,630 | 106,556 |
| For the year ended 31 December 2015 |
capital £'000 |
Capital Share redemption reserve £'000 |
Capital reserve – realised £'000 |
Capital unrealised £'000 |
Special reserve – distributable reserve £'000 |
Revenue account £'000 |
Total retained earnings £'000 |
Total equity £'000 |
| At 31 December 2014 | 5,217 | 2,709 | 47,552 | (3,436) | 47,600 | 6,914 | 98,630 | 106,556 |
|---|---|---|---|---|---|---|---|---|
| Dividends paid | – | – | – | – | – | (3,624) | (3,624) | (3,624) |
| Purchase and cancellation of shares | (275) | 275 | (5,309) | – | – | (5,309) | (5,309) | |
| Profit/(loss) for the year | (9,971) | 8,213 | – | 980 | (778) | (778) | ||
| At 31 December 2013 | 5,492 | 2,434 | 62,832 | (11,649) | 47,600 | 9,558 | 108,341 | 116,267 |
| For the year ended 31 December 2014 |
capital £'000 |
Capital Share redemption reserve £'000 |
Capital reserve – realised £'000 |
Capital unrealised £'000 |
Special reserve – distributable reserve £'000 |
Revenue account £'000 |
Total retained earnings £'000 |
Total equity £'000 |
| At 31 December 2015 | 5,161 | 2,765 | 38,492 | 5,271 | 47,600 | 5,138 | 96,501 | 104,427 |
|---|---|---|---|---|---|---|---|---|
| Dividends paid | – | – | – | – | – | (981) | (981) | (981) |
| Purchase and cancellation of shares | (56) | 56 | (700) | – | – | – | (700) | (700) |
| Profit/(loss) for the year | – | – | (7,985) | 8,076 | – | (539) | (448) | (448) |
| At 31 December 2014 | 5,217 | 2,709 | 47,177 | (2,805) | 47,600 | 6,658 | 98,630 | 106,556 |
| For the year ended 31 December 2015 |
capital £'000 |
Capital Share redemption reserve £'000 |
Capital reserve – realised £'000 |
Capital unrealised £'000 |
Special reserve – distributable reserve £'000 |
Revenue account £'000 |
Total retained earnings £'000 |
Total equity £'000 |
| At 31 December 2014 | 5,217 | 2,709 | 47,177 | (2,805) | 47,600 | 6,658 | 98,630 | 106,556 |
|---|---|---|---|---|---|---|---|---|
| Dividends paid | – | – | – | – | – | (3,624) | (3,624) | (3,624) |
| Purchase and cancellation of shares | (275) | 275 | (5,309) | – | – | – | (5,309) | (5,309) |
| Profit/(loss) for the year | – | – | (10,295) | 9,047 | – | 470 | (778) | (778) |
| At 31 December 2013 | 5,492 | 2,434 | 62,781 | (11,852) | 47,600 | 9,812 | 108,341 | 116,267 |
| For the year ended 31 December 2014 |
capital £'000 |
Capital Share redemption reserve £'000 |
Capital reserve – realised £'000 |
Capital unrealised £'000 |
Special reserve – distributable reserve £'000 |
Revenue account £'000 |
Total retained earnings £'000 |
Total equity £'000 |
Dunedin Enterprise Investment Trust PLC (the "Company") is a company domiciled in the United Kingdom. The consolidated financial statements of the Company for the year ended 31 December 2015 comprise the Company and its subsidiaries (together referred to as the "Group").
The Group and Company financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs) and its interpretations adopted by the International Accounting Standards Board (IASB).
The principal accounting policies adopted by the Group and Company are set out below. The Company has taken advantage of the exemption provided under Section 408 of the Companies Act 2006 not to publish its income statement and related notes.
The Statement of Recommended Practice for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Trust Companies in November 2014 ('the SORP') is applicable for accounting periods commencing on or after 1 January 2015. Where presentation guidance set out in the SORP is consistent with the requirements of IFRSs, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. There are no significant changes to the Company's accounting policies or disclosures as a result of the adoption of the SORP.
The financial statements are presented in pounds sterling, rounded to the nearest thousand.
The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The most significant estimate is the valuation of unlisted investments which is described in note 2(h) below.
The Directors have reviewed forecasts which show the financial position, cash flow and liquidity forecasts for the Company and its subsidiaries. The Directors are confident that they show that the Group will have sufficient resources to meet its liabilities as they fall due. Accordingly the Directors believe that it remains appropriate to prepare the financial statements on a going concern basis.
Subsidiaries are investees controlled by the Company. The Company controls an investee if it is exposed to, or has the rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Company reassesses whether it has control if there are changes to one or more elements of control. This includes circumstances in which protective rights held (e.g. those resulting from a lending relationship) become substantive and lead the Company having power over an investee.
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date when control ceases.
Intra-group balances and transactions, and any unrealised income and expenses (except for currency transaction gains or losses) arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Subsidiaries are valued at fair value which is deemed to be net asset value.
The Group holds a number of investments in entities over which it has significant influence which meet the definition of associates in IAS 28 Investment in Associates. The Group has adopted the 'Investment Entities' amendment to IFRS 10 'Consolidated Financial Statements' which requires a qualifying investment entity to account for investments in associates at fair value through profit or loss.
To qualify, an entity is required to meet the following tests:
In addition, an investment entity has the following characteristics:
The Company meets the requirements of an 'investment entity' and therefore accounts for its investments in associates at fair value through profit or loss. Further details are provided in note 10.
The Company has consolidated its holdings in the entities listed in note 21 for the purposes of these consolidated financial statements as these entities provide investment related services to the Company and are viewed as being simply an extension of the investment entity's investing activities.
The Group holds a number of investments in entities over which it has significant influence which meet the definition of associates in IAS28 Investment in Associates. The Company has taken advantage of the exemption from applying IAS28 as these investments are held as part of the Group's portfolio with a view to the ultimate realisation of capital gains. These investments are accounted for at fair value through profit and loss.
The revenue column of the income statement includes all income and expenses except for the realised and unrealised profit and loss on investments and the proportion of management fee and finance costs charged to capital which are included in the capital column.
Dividends receivable on quoted equity shares are brought into account on the ex-dividend basis. Dividends receivable on equity shares where no ex-dividend date is applicable are brought into account when the Group's right to receive payment is established. Interest income is accounted for on an effective yield basis except where there is uncertainty as to whether the interest will be received.
All expenses are accounted for on an accruals basis. Expenses are charged to the revenue column within the Income Statement except that:
Cash and cash equivalents comprise current deposits with banks. These are subject to an insignificant risk of changes in value and are held for the purpose of meeting short term cash commitments rather than for investment or other purposes.
Purchases and sales of investments are recognised at the date of transaction. The Group's investments have been designated by the Directors as fair value through profit or loss and are carried at fair value as determined by the Directors.
Listed investments are valued at bid price unless this is not considered to be an accurate representation of fair value. Unquoted investments are fair valued by the Directors in accordance with the following rules, which are consistent with the International Private Equity and Venture Capital Valuation Guidelines:
Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and are then transferred to the unrealised capital reserve.
Gains or losses on investments realised in the year that have been recognised in the Income Statement are transferred to the realised capital reserve. In addition, any prior unrealised gains or losses on such investments are transferred from the unrealised capital reserve to the realised capital reserve on disposal of the investment.
Gains and losses arising from changes in fair value are considered to be realised only to the extent that they are readily convertible to cash in full on the balance sheet date.
Corporation tax payable is provided on taxable profits at the current rate. Any tax relief obtained on expenses is allocated between capital and revenue on the assumption that expenses charged to revenue are matched first against taxable revenue items. Tax relief is only reflected in capital to the extent that additional expenses are utilised from capital to reduce or eliminate the Group's tax liability.
Deferred taxation is provided on the balance sheet liability method on all temporary differences, calculated at the rate at which it is estimated that tax will be payable.
Due to the Company's status as an investment company, and its intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or on disposal of investments.
Dividends payable are recognised as a distribution and recorded in the Statement of Changes in Equity when they become a liability of the Company.
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the income statement.
3. Income
The Group has one reportable segment being investing in a portfolio of private equity funds or companies.
The amendment to IFRS 13 'Fair Value Measurement' clarifying the portfolio exception in IFRS 13 is mandatory for annual reporting periods beginning on or after 1 January 2015 and has been endorsed for adoption by the EU. The amendment is not considered to have an impact on the Group.
There are no other standards, amendments to standards or interpretations that are applicable in the year which have a material impact on the Group.
A number of new accounting standards and amendments to accounting standards have been issued by the IASB, however have not been endorsed by the EU. The following may be relevant to the Group.
Current revenue recognition accounting standards have led to inconsistencies in accounting for similar transactions and inadequate disclosures. IFRS 15 specifies comprehensive principles on whether, how much and when an entity should recognise revenue from customer contracts. Given that the Group has no customer contracts, it is not expected that this standard will have an effect on the Group.
| Group 2015 £'000 |
Group 2014 £'000 |
|
|---|---|---|
| Interest income – UK | 47 | 47 |
| Limited partnership income – UK | 124 | 842 |
| Limited partnership income – European | – | 707 |
| 'AAA' rated money market funds | 3 | 9 |
| Other income | 12 | 28 |
| 186 | 1,633 | |
| Deposit interest* | 10 | 78 |
| Total income | 196 | 1,711 |
* income arising from financial assets that are not investments designated as fair value through profit or loss.
| Revenue £'000 |
Capital £'000 |
Group 2015 Total £'000 |
Revenue £'000 |
Capital £'000 |
Group 2014 Total £'000 |
|
|---|---|---|---|---|---|---|
| Investment management fee | 95 | 285 | 380 | 104 | 311 | 415 |
| Management performance fee | – | – | – | (7) | (22) | (29) |
| 95 | 285 | 380 | 97 | 289 | 386 |
Dunedin provides investment management and general administration services to the Company. The terms of the management fee arrangements are detailed on page 61.
Profit/(loss) on ordinary activities before taxation is shown after charging the following amounts:
| Group | Group | |
|---|---|---|
| 2015 £'000 |
2014 £'000 |
|
| Directors fees | 122 | 118 |
| Administration expenses | 418 | 450 |
| Fees payable to the auditor: | ||
| Fees payable to the Company's auditor for audit of Company's annual accounts | 23 | 22 |
| Fees payable to the Company's auditor for other services: | ||
| The audit of the Company's subsidiaries pursuant to legislation | 6 | 6 |
| Audit related assurance services | 6 | 6 |
| Tax compliance services | 20 | 21 |
| Tax advisory services | 4 | 10 |
| 599 | 633 |
The Company does not directly employ any staff.
| Revenue £'000 |
Capital £'000 |
Group 2015 Total £'000 |
Revenue £'000 |
Capital £'000 |
Group 2014 Total £'000 |
|
|---|---|---|---|---|---|---|
| On bank loans and overdraft: | ||||||
| Repayable in less than 5 years | 105 | 313 | 418 | 100 | 299 | 399 |
| Banking facility arrangement fee | 25 | 75 | 100 | 38 | 114 | 152 |
| 130 | 388 | 518 | 138 | 413 | 551 |
The interest paid represents a fee on an undrawn facility.
| Revenue £'000 |
Capital £'000 |
Group 2015 Total £'000 |
Revenue £'000 |
Capital £'000 |
Group 2014 Total £'000 |
|
|---|---|---|---|---|---|---|
| (a) Analysis of charge/(credit) for the year: | ||||||
| UK corporation tax at 20.25% (2014: 21.5%) | – | – | – | 162 | (162) | – |
| Prior year adjustment | – | – | – | (299) | – | (299) |
| – | – | – | (137) | (162) | (299) |
The UK corporation tax rate was 21% until 31 March 2015 and 20% from 1 April 2015 giving an effective tax rate of 20.25% (2014 – effective tax rate of 21.5%). The tax assessed for the year is lower than the rate of corporation tax. The differences are explained below.
| Group 2015 £'000 |
Group 2014 £'000 |
|
|---|---|---|
| Total return on ordinary activities before tax | (448) | (1,077) |
| UK Corporation Tax at 20.25% (2014: 21.5%) | (91) | (232) |
| Effects of: | ||
| Capital (loss)/gain not subject to corporation tax | 173 | 262 |
| Non taxable partnership income and expenses | – | 21 |
| Prior year adjustment | – | (299) |
| Excess management expenses not utilised | (82) | (51) |
| – | (299) |
At 31 December 2015, the Company had net surplus management expenses of £3,557,000 (2014: £2,392,000) in respect of which a deferred tax asset has not been recognised. This is because the Company is not expected to generate taxable income in a future period in excess of deductible expenses of that future period and, accordingly, it is unlikely that the Company will be able to reduce future liabilities through the use of existing surplus expenses.
Amounts recognised as distributions to equity holders in the year:
| Group 2015 £'000 |
Group 2014 £'000 |
|
|---|---|---|
| Final dividend for the year ended 31 December 2014 – 4.7p paid 22 May 2015 | 981 | – |
| Final dividend for the year ended 31 December 2013 – 16.5p paid 23 May 2014 | – | 3,624 |
| 981 | 3,624 |
There is no final dividend proposed for the year ended 31 December 2015. The total dividend paid and proposed in respect of the financial year, which is the basis upon which the requirements of Section 1158 of the Corporation Tax Act 2010 are considered, is noted below.
| Group 2015 £'000 |
Group 2014 £'000 |
|
|---|---|---|
| Final dividend for the year ended 31 December 2014 – 4.7p paid on 22 May 2015 | – | 981 |
| – | 981 |
The returns per ordinary share are based on the following figures:
| Group 2015 £'000 |
Group 2014 £'000 |
|
|---|---|---|
| Revenue return Capital return |
(628) 180 |
980 (1,758) |
| (448) | (778) | |
| Weighted average number of shares in issue | 20,750,515 | 21,277,808 |
All investments are designated fair value through profit or loss at initial recognition, therefore all gains and losses arise on investments designated at fair value through profit or loss. Given the nature of the Company's investments the fair value gains recognised in these financial statements are not considered to be readily convertible to cash in full at the balance sheet date and therefore the movement in these fair values are treated as unrealised.
The Company is a limited partner in Dunedin Buyout Fund, Dunedin Buyout Fund II, Dunedin Buyout Fund III, Equity Harvest Fund and Dunedin Fund of Funds LP. The table below details Dunedin Enterprise's investment holdings by fund entity.
| Group 2015 £'000 |
Group 2014 £'000 |
|
|---|---|---|
| Direct | 9,332 | 10,916 |
| Dunedin Buyout Fund LP | 250 | 245 |
| Dunedin Buyout Fund II LP | 59,964 | 51,799 |
| Dunedin Buyout Fund III LP | 18,849 | 15,835 |
| Equity Harvest Fund LP | 4,931 | 5,737 |
| Dunedin Fund of Funds LP | 16,043 | 12,701 |
| 'AAA' rated money market funds | 5 | 1,138 |
| 109,374 | 98,371 |
On a look through basis Dunedin Enterprise's investments are detailed below.
| Group 2015 £'000 |
Company 2015 £'000 |
Group 2014 £'000 |
Company 2014 £'000 |
|
|---|---|---|---|---|
| Unlisted UK investments | 93,326 | 93,326 | 84,532 | 84,532 |
| Unlisted European investments | 16,043 | – | 12,701 | – |
| 'AAA' rated money market funds | 5 | 5 | 1,138 | 1,138 |
| 109,374 | 93,331 | 98,371 | 85,670 |
Funds realised from listed and unlisted investments have been utilised to make investments in 'AAA' rated money market funds. The Board intends to realise these investments as and when new unlisted investment opportunities arise.
The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
The table below analyses financial instruments, measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorised:
| 2015 | 2014 | |
|---|---|---|
| £'000 | £'000 | |
| Level 1 | ||
| 'AAA' rated money market funds | 5 | 1,138 |
| Level 2 | – | – |
| Level 3 | ||
| Unlisted investments | 109,369 | 97,233 |
| 109,374 | 98,371 |
IFRS 13 requires disclosure, by class of financial instrument, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of the investee company. On that basis the Board believe that the impact of changing one or more of the inputs to reasonably possible alternative assumptions would not change the fair value significantly. The following shows a reconciliation from the beginning to the end of the year for fair value measurements in Level 1 and Level 3 of the fair value hierarchy.
| Level 3 UK Unlisted |
Level 3 European Unlisted |
Level 1 'AAA rated money market funds |
Total | |
|---|---|---|---|---|
| Group | £'000 | £'000 | £'000 | £'000 |
| Book cost at 31 December 2014 | 86,889 | 13,780 | 1,138 | 101,807 |
| Unrealised appreciation/(depreciation) | (2,357) | (1,079) | – | (3,436) |
| Valuation at 31 December 2014 | 84,532 | 12,701 | 1,138 | 98,371 |
| Purchases at cost | 10,328 | 4,185 | 6,707 | 21,220 |
| Sales – proceeds | (1,798) | (1,488) | (7,840) | (11,126) |
| Sales – realised gains/(losses) on sales | (7,484) | – | – | (7,484) |
| Increase/(decrease) in unrealised appreciation | 7,748 | 645 | – | 8,393 |
| Valuation at 31 December 2015 | 93,326 | 16,043 | 5 | 109,374 |
| Book cost at 31 December 2015 | 87,935 | 16,477 | 5 | 104,417 |
| Closing unrealised appreciation/(depreciation) | 5,391 | (434) | – | 4,957 |
| Company | Level 3 UK Unlisted £'000 |
Level 1 'AAA' rated money market funds £'000 |
Total £'000 |
|---|---|---|---|
| Book cost at 31 December 2014 | 86,889 | 1,138 | 88,027 |
| Unrealised appreciation/(depreciation) | (2,357) | – | (2,357) |
| Valuation at 31 December 2014 | 84,532 | 1,138 | 85,670 |
| Purchases at cost | 10,328 | 6,707 | 17,035 |
| Sales – proceeds | (1,798) | (7,840) | (9,638) |
| Sales – realised losses on sales | (7,484) | – | (7,484) |
| Increase in unrealised appreciation | 7,748 | – | 7,748 |
| Valuation at 31 December 2015 | 93,326 | 5 | 93,331 |
| Book cost at 31 December 2015 | 87,935 | 5 | 87,940 |
| Closing unrealised appreciation/(depreciation) | 5,391 | – | 5,391 |
There have not been any movements between the levels of the fair value hierarchy during the year.
| Level 3 | Level 3 | Level 1 'AAA rated money |
||
|---|---|---|---|---|
| Group | UK Unlisted £'000 |
European Listed £'000 |
market funds £'000 |
Total £'000 |
| Book cost at 31 December 2013 | 88,028 | 12,292 | 4,372 | 104,692 |
| Unrealised appreciation/(depreciation) | (12,265) | 616 | – | (11,649) |
| Valuation at 31 December 2013 | 75,763 | 12,908 | 4,372 | 93,043 |
| Purchases at cost | 11,610 | 4,415 | 13,395 | 29,420 |
| Sales – proceeds | (2,609) | (3,499) | (16,629) | (22,737) |
| Sales – realised gains/(losses) on sales | (10,140) | 572 | – | (9,568) |
| Increase/(decrease) in unrealised appreciation | 9,908 | (1,695) | – | 8,213 |
| Valuation at 31 December 2014 | 84,532 | 12,701 | 1,138 | 98,371 |
| Book cost at 31 December 2014 | 86,889 | 13,780 | 1,138 | 101,807 |
| Closing unrealised appreciation/(depreciation) | (2,357) | (1,079) | – | (3,436) |
| Company | Level 3 UK Unlisted £'000 |
Level 1 'AAA' rated money market funds £'000 |
Total £'000 |
|---|---|---|---|
| Book cost at 31 December 2013 | 88,028 | 4,372 | 92,400 |
| Unrealised appreciation/(depreciation) | (12,265) | – | (12,265) |
| Valuation at 31 December 2013 | 75,763 | 4,372 | 80,135 |
| Purchases at cost | 11,610 | 13,395 | 25,005 |
| Sales – proceeds | (2,609) | (16,629) | (19,238) |
| Sales – realised losses on sales | (10,140) | – | (10,140) |
| Increase in unrealised appreciation | 9,908 | – | 9,908 |
| Valuation at 31 December 2014 | 84,532 | 1,138 | 85,670 |
| Book cost at 31 December 2014 | 86,889 | 1,138 | 88,027 |
| Closing unrealised appreciation/(depreciation) | (2,357) | – | (2,357) |
| Group 2015 £'000 |
Company 2015 £'000 |
Group 2014 £'000 |
Company 2014 £'000 |
|
|---|---|---|---|---|
| Realised gains/(losses) based on cost | (7,484) | (7,484) | (9,568) | (10,140) |
| Unrealised appreciation/(depreciation) recognised in prior years | 5,181 | 5,181 | 5,843 | 5,843 |
| (2,303) | (2,303) | (3,725) | (4,297) | |
| Increase/(decrease) in unrealised appreciation | 3,212 | 2,895 | 2,370 | 3,204 |
| Other movements | (56) | (16) | 137 | 195 |
| Total gains/(losses) on investments | 853 | 576 | (1,218) | (898) |
Included within unlisted investments are investments valued at £75,573,644 (2014: £69,951,437) where the Company's interest is between 20% and 50% of the equity. These investments have been accounted for at fair value through profit or loss as set out in Note 2(a).
Significant interests
(a) At 31 December 2015, the Company held between 20% and 50% of the allotted share capital of the following companies:
| Name | Country of incorporation or registration |
% of equity held |
% of equity held directly and through funds |
Latest available accounts |
Share capital & reserves £'000 |
EBITDA £'000 |
|---|---|---|---|---|---|---|
| CGI Group Holdings Limited | England | 41.7 | 41.7 | 31.12.14 | (675) | 2,378 |
| Dunedin Buyout Fund II LP | Scotland | 29.7 | 29.7 | 31.12.15 | n/a | n/a |
| Equity Harvest Fund LP | England | 47.4 | 47.4 | 31.12.15 | n/a | n/a |
| Premier Hytemp Topco Limited | Scotland | – | 20.7 | 30.09.15 | (6,257) | 818 |
| Red Topco Limited | England | – | 20.1 | 31.03.15 | (17,017) | 183 |
| Steeper Holdings Limited | England | 22.8 | 37.4 | 28.02.15 | 5,097 | 2,439 |
(b) Other interests of 10% or more of any class of allotted share capital:
| Name | Country of incorporation or registration |
% of equity held directly |
% of equity held directly and through funds |
|---|---|---|---|
| CitySprint (UK) Group Limited | England | – | 11.9 |
| EV Holdings Limited | England | – | 10.5 |
| Dunedin Buyout Fund LP | Scotland | 13.0 | 13.0 |
| Dunedin Buyout Fund III LP | Scotland | 19.6 | 19.6 |
| Formaplex Group Limited | England | – | 17.7 |
| Hawksford International Limited | Jersey | – | 17.8 |
| Weldex (International) Offshore Holdings Limited | Scotland | – | 15.1 |
Equity percentages shown are fully diluted, based on the latest audited accounts available, to take account of options and warrants which have been issued, and conversion rights.
| Group 2015 £'000 |
Company 2015 £'000 |
Group 2014 £'000 |
Company 2014 £'000 |
|
|---|---|---|---|---|
| Prepayments and accrued income | 167 | 167 | 269 | 267 |
| 167 | 167 | 269 | 267 |
| Group 2015 £'000 |
Company 2015 £'000 |
Group 2014 £'000 |
Company 2014 £'000 |
|
|---|---|---|---|---|
| Accruals | 987 | 984 | 810 | 804 |
| Revolving Credit Facility | 4,700 | 4,700 | – | – |
| 5,687 | 5,684 | 810 | 804 |
A revolving credit facility of £20m is available to the Company until 31 May 2018. The rate of interest on the revolving credit facility is 2.5% above LIBOR.
| Nominal No. '000 |
Group & Company 31 December 2015 £'000 |
Nominal No. '000 |
Group & Company 31 December 2014 £'000 |
|
|---|---|---|---|---|
| Allotted, called-up and fully paid ordinary shares: | ||||
| At 1 January 2015 | 20,869 | 5,217 | 21,967 | 5,492 |
| Repurchased during the year | (225) | (56) | (1,098) | (275) |
| At 31 December 2015 | 20,644 | 5,161 | 20,869 | 5,217 |
The capital of the Company is managed in accordance with its investment policy and objectives which are detailed in the Strategic Report on page 24.
The Company repurchased 224,500 ordinary shares in the year to 31 December 2015 (2014: 1,098,345) at a cost of £700,305 (2014: £5,309,395). The nominal value of these shares was £56,125 and represented 1.0% of the issued share capital. At 18 March 2016 no ordinary shares have been repurchased since 31 December 2015. The Directors exercise the power to make repurchases only where they believe a repurchase is in the interests of the members as a whole and will result in an increase in the net asset value per ordinary share. The Company does not hold any shares in treasury.
| Capital | Special | Capital | Capital | Total | ||||
|---|---|---|---|---|---|---|---|---|
| Group | Share Capital £'000 |
reserve* £'000 |
redemption distributable reserve £'000 |
reserve – realised* £'000 |
reserve – unrealised* £'000 |
Revenue account £'000 |
retained earnings £'000 |
Total equity £'000 |
| At 31 December 2014 | 5,217 | 2,709 | 47,600 | 47,552 | (3,436) | 6,914 | 98,630 | 106,556 |
| Net revenue for the year | – | – | – | – | – | – | – | – |
| Purchase and cancellation of shares | (56) | 56 | – | (700) | – | – | (700) | (700) |
| Transfer on disposal of investments | – | – | – | (5,181) | 5,181 | – | – | – |
| Net gain/(loss) on realisation of investments | – | – | – | (2,303) | – | – | (2,303) | (2,303) |
| Revaluation movements | – | – | – | – | 3,212 | – | 3,212 | 3,212 |
| Management fees charged to capital | – | – | – | (285) | – | – | (285) | (285) |
| Finance costs charged to capital | – | – | – | (388) | – | – | (388) | (388) |
| Dividends paid | – | – | – | – | – | (981) | (981) | (981) |
| Loss in the year | – | – | – | – | – | (628) | (628) | (628) |
| Other movements | – | – | – | (56) | – | – | (56) | (56) |
| At 31 December 2015 | 5,161 | 2,765 | 47,600 | 38,639 | 4,957 | 5,305 | 96,501 | 104,427 |
| Company | Share Capital £'000 |
Capital reserve* £'000 |
Special redemption distributable reserve £'000 |
Capital reserve – realised* £'000 |
Capital reserve – unrealised* £'000 |
Revenue account £'000 |
Total retained earnings £'000 |
Total equity £'000 |
|---|---|---|---|---|---|---|---|---|
| At 31 December 2014 | 5,217 | 2,709 | 47,600 | 47,177 | (2,805) | 6,658 | 98,630 | 106,556 |
| Net revenue for the year | – | – | – | – | – | – | – | – |
| Purchase and cancellation of shares | (56) | 56 | – | (700) | – | – | (700) | (700) |
| Transfer on disposal of investments | – | – | – | (5,181) | 5,181 | – | – | – |
| Net gain/(loss) on realisation of investments | – | – | – | (2,303) | – | – | (2,303) | (2,303) |
| Revaluation movements | – | – | – | – | 2,895 | – | 2,895 | 2,895 |
| Management fees charged to capital | – | – | – | (97) | – | – | (97) | (97) |
| Finance costs charged to capital | – | – | – | (388) | – | – | (388) | (388) |
| Dividends paid | – | – | – | – | – | (981) | (981) | (981) |
| Loss in the year | – | – | – | – | – | (539) | (539) | (539) |
| Other movements | – | – | – | (16) | – | – | (16) | (16) |
| At 31 December 2015 | 5,161 | 2,765 | 47,600 | 38,492 | 5,271 | 5,138 | 96,501 | 104,427 |
* – these reserves are non-distributable
The net asset value per share is calculated on shareholders' funds of £104,427,010 (2014: £106,555,617) and on 20,644,062 ordinary shares in issue at the year end (2014: 20,868,562).
| Group 2015 £'000 |
Company 2015 £'000 |
Group 2014 £'000 |
Company 2014 £'000 |
|
|---|---|---|---|---|
| Profit/(loss) before tax | (448) | (448) | (1,077) | (1,068) |
| Gains/(losses) on investments | (853) | (591) | 1,218 | 898 |
| Interest paid | 518 | 518 | 551 | 551 |
| Decrease in debtors | 102 | 100 | 324 | 326 |
| Increase in creditors | 4,877 | 4,880 | 140 | 142 |
| Other non cash movements | – | – | 199 | 199 |
| Net cash inflow from operating activities | 4,196 | 4,459 | 1,355 | 1,048 |
There were outstanding capital commitments of £50.2m (2014: £63.8m) in respect of investments at the end of the year.
Outstanding capital commitments are as noted below:-
| 2015 £'000 |
2014 £'000 |
|
|---|---|---|
| Dunedin Buyout Fund I LP | 195 | 730 |
| 9,296 Dunedin Buyout Fund II LP |
12,326 | |
| Dunedin Buyout Fund III LP 34,780 |
40,908 | |
| Equity Harvest Fund LP | – | 224 |
| Innova/5 LP 5,058 |
5,800 | |
| Realza Capital FCR | 885 | 3,805 |
| 50,214 | 63,793 |
There were no contingent liabilities at the year end (2014: £Nil).
Discussions are ongoing with HMRC regarding the payment of interest on a compound basis relating to the reclaim of VAT on management fees. The amount and timing of any recovery remains uncertain and accordingly no amount has been provided for in the financial statements.
The Company's financial instruments comprise ordinary shares, fixed and floating interest rate investments, cash balances and liquid resources. The Company holds financial assets in accordance with its investment policy to invest in unquoted companies both directly and through specialist vehicles. Investments are valued at fair value. For quoted stocks this is at bid price unless this is not considered to be an accurate representation of fair value. In respect of unquoted investments, these are fair valued by the Directors using rules consistent with International Private Equity and Venture Capital Valuation Guidelines. The fair value of all other financial assets and liabilities is represented by their carrying value in the Balance Sheet.
The Company's investing activities expose it to types of risk that are associated with the financial instruments and the market in which it invests. The most important types of financial risk to which the Company is exposed are market risk, interest rate risk, credit risk, liquidity risk and currency risk. The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Company are discussed below.
Market risk – the risk that the value of a financial instrument will change as a result of changes to market prices is one that is fundamental to the Company's objective. The portfolio is continually monitored to ensure an appropriate balance of risk and reward in order to achieve the Company's objective. Some of the risk can be mitigated by diversifying the portfolio across business sectors, asset classes and regions. Details of the Company's investment portfolio at the balance sheet date are disclosed in the schedule of investments on pages 12 to 22. The Company's overall market positions are monitored by the Manager on an ongoing basis and by the Board quarterly.
100% (2014: 98.8%) of the Company's investments are in unquoted companies held at fair value. Valuation methodology includes the application of an appropriate multiple to maintainable earnings. A 5% increase in the valuations of unquoted investments at 31 December 2015 would have increased the net assets of the Company by £5.5m (2014: £4.9m).
Interest rate risk – some of the Company's financial assets are interest bearing, at both fixed and variable rates. As a result the Company is subject to exposure to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. The table below analyses the Company's financial assets and details the weighted average interest rate and life of fixed rate lending.
| 31 December 2015 | Fixed rate £'000 |
Floating rate £'000 |
Nil rate £'000 |
Total |
|---|---|---|---|---|
| Currency | £'000 | |||
| Sterling | 70,955 | 578 | 22,371 | 93,904 |
| Euro | 10,929 | – | 5,114 | 16,043 |
| Total | 81,884 | 578 | 27,485 | 109,947 |
| 31 December 2014 Currency |
Fixed | Floating | Nil | |
|---|---|---|---|---|
| rate | rate | rate | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Sterling | 68,918 | 9,864 | 15,614 | 94,396 |
| Euro | 8,966 | – | 3,735 | 12,701 |
| Total | 77,884 | 9,864 | 19,349 | 107,097 |
| 31 December 2015 | Fixed | Floating | Nil | |
|---|---|---|---|---|
| Currency | rate £'000 |
rate £'000 |
rate £'000 |
Total £'000 |
| Sterling | 70,955 | 578 | 22,371 | 93,904 |
| Euro | 10,926 | – | 5,114 | 16,040 |
| Total | 81,881 | 578 | 27,485 | 109,944 |
| 31 December 2014 | Fixed rate |
Floating rate |
Nil rate |
Total |
|---|---|---|---|---|
| Currency | £'000 | £'000 | £'000 | £'000 |
| Sterling | 68,918 | 9,864 | 15,614 | 94,396 |
| Euro | 8,962 | – | 3,735 | 12,697 |
| Total | 77,880 | 9,864 | 19,349 | 107,093 |
The fixed rate assets comprise fixed rate lendings to investee companies. Fixed rate lendings have a weighted average interest rate of 9% per annum (2014: 9%) and a weighted average life to maturity of 2.9 years (2014: 3.6 years). The floating rate assets consist of cash and "AAA" rated cash OEIC's. The nil interest rate bearing assets represent the equity content of the investment portfolio. Interest rate risk is managed on an ongoing basis by the Manager and on a quarterly basis by the Board.
Due to the relatively short period to maturity of the floating rate investments held within the portfolio, it is considered that an increase or decrease of 25 basis points in interest rates as at the reporting date would not have had a significant effect on the Group's net assets or total return for the period.
Credit risk – credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The portfolio consists of the following financial instruments:
| Group | Company | |||
|---|---|---|---|---|
| 2015 £'000 |
2014 £'000 |
2015 £'000 |
2014 £'000 |
|
| Unquoted investments | 109,369 | 97,233 | 109,428 | 97,229 |
| AAA rated cash OEICs | 5 | 1,138 | 5 | 1,138 |
| Cash deposits | 573 | 8,726 | 511 | 8,726 |
| Total | 109,947 | 107,097 | 109,944 | 107,093 |
Investment in unquoted companies either directly, via Dunedin managed funds or via third party managed funds (both limited partnership funds and quoted stocks) is by its nature subject to potential credit losses. The Company's exposure to any one entity is carefully monitored. The unquoted investment portfolio is further diversified by asset class, sector and region. Liquid assets (cash deposits and AAA rated cash OEIC's) are divided between a number of different financial institutions, each of whose credit rating is assessed. Credit risk is monitored by the Manager on an ongoing basis and on a quarterly basis by the Board.
Liquidity risk – the Company has significant investments in unquoted companies which are inherently illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these companies at an amount close to its fair value in order to meet its liquidity requirements. The Company manages its liquid investments to ensure sufficient cash is available to meet contractual commitments and also seeks to have cash or readily convertible investments available to meet other short term financial needs. The Company has access to a £20m borrowing facility. Liquidity risk is monitored by the Manager on an ongoing basis and on a quarterly basis by the Board.
Currency risk – the Company is exposed to currency risk as a result of investing in companies and funds denominated in euros. The sterling value of these investments can be influenced by movement's in foreign currency exchange rates. Currency risk is monitored by the Manager on an ongoing basis and on a quarterly basis by the Board.
The risks faced by the Group and the Company are not considered to be materially different.
| 21. Subsidiary undertakings |
|
|---|---|
| Name of Subsidiary | Dunedin Enterprise Limited |
| % of Equity invested | 100% |
| Type of entity | Limited Company |
| Activity | Private equity investment |
| Name of Subsidiary | Dunedin Fund of Funds LP |
| % of Equity invested | 100% |
| Type of entity | Limited Partnership |
| Activity | Private equity investment |
| Name of Subsidiary | Dunedin Co-Investment Fund LP |
| % of Equity invested | 99% |
| Type of entity | Limited Partnership |
| Activity | Private equity investment |
| Dunedin Fund of Funds LP £'000 |
Dunedin Limited £'000 |
Dunedin Enterprise Co-Investment LP £'000 |
Total £'000 |
|
|---|---|---|---|---|
| Valuation at 31 December 2014 | 13,374 | 17 | 1 | 13,392 |
| Net capital movements | 2,383 | – | – | 2,383 |
| Valuation movements | 343 | (16) | – | 327 |
| Valuation at 31 December 2015 | 16,100 | 1 | 1 | 16,102 |
The Company has investments in Dunedin Buyout Fund LP, Dunedin Buyout Fund II LP, Dunedin Buyout Fund III LP and Equity Harvest Fund LP. Each of these limited partnerships are managed by Dunedin. The Company has paid a management fee of £2.1m (2014: £2.2m) in respect of these limited partnerships. The total investment management fee payable by the Company to the Manager is therefore £2.2m (2014: £2.6m).
A Manager's Incentive Scheme ("the Scheme") was introduced from 1 May 1999. Under the terms of the Scheme qualifying directors and investment executives of Dunedin were entitled to purchase 7.5% of the equity shares (and, occasionally, other financial instruments) in each of the directly held investments subscribed for by the Company. This scheme has now been replaced by the arrangements noted below.
Since the Company began investing in Dunedin Buyout Funds ("the Funds") executives of the Manager have been entitled to participate in a carried interest scheme via the Funds. Performance conditions are applied whereby any gains achieved through the carried interest scheme associated with the Funds are conditional upon a certain minimum return having been generated for the limited partner investors. Additionally, within Dunedin Buyout Fund II LP and Dunedin Buyout Fund III LP the economic interest of the Manager is aligned with that of the limited partner investors by co-investing in this fund.
As at 31 December 2015 there is a provision made within Investments for carried interest of £1.4m relating to Equity Harvest Fund LP and £0.1m relating to Dunedin Buyout Fund LP. Current executives of the Manager are entitled to 46% of the carried interest in Equity Harvest Fund LP and 60% in Dunedin Buyout Fund LP.
Brian Finlayson has an interest in the carried interest scheme of Dunedin Buyout Fund LP and received £nil from that scheme during 2015. Brian Finlayson was previously employed by the Manager and retired in 2002. As at 31 December 2015 the remaining value in this scheme attributable to Brian Finlayson is £1,545.
Management fees
The terms of the management fees are:-
| Vehicle | Fee |
|---|---|
| Fund of Funds Limited Partnership | 1.5 per cent on the value of investments plus 0.5 per cent on undrawn commitments to third party funds |
| Co-investment Limited Partnership | 1.5 per cent on the value of investments |
| Direct investments in individual companies | 1.5 per cent on the value of investments |
| Dunedin Managed Funds | Same fees as paid by third party investors in such Funds |
| Third party managed funds | 1.5 per cent on value of investments |
| Listed private equity funds | 1.5 per cent on the value of investments |
| Cash | 0.5 per cent on cash balances not committed to funds through the Dunedin Fund of Funds LP |
The notice period on the alternative investment fund management agreement is 12 months. No compensation payment is payable by the Company to the Manager on termination except where: (i) the Company notifies the Manager of an intended breach of, or change to, any value of the agreed thresholds and profiles and in the opinion of the Manager, the intended breach or proposed change in value is such that it would cause the Manager to be in breach of, or otherwise become unable to comply with, its obligations under the AIFMD Rules; or (ii) the Manager notifies the Company of any proposed change to any value of the agreed thresholds and profiles expressly required by the FCA and the Company does not agree to the proposed change, in which case the Manager is entitled to receive an amount equal to the remuneration it would have received had the full 12 months' termination notice been given.
Dunedin Enterprise Investment Trust PLC Annual Report and Accounts 2015 62
Notice of Annual General Meeting
Notice is hereby given that the forty-first Annual General Meeting of the shareholders of Dunedin Enterprise Investment Trust PLC will be held at 11.00 am on 11 May 2016 at The Waldorf Astoria Edinburgh – The Caledonian, Princes Street, Edinburgh, EH1 2AB for the following purposes:
To consider and, if thought fit, pass the following resolutions. Resolutions 1 to 8 will be proposed as ordinary resolutions and resolutions 9 to 10 will be proposed as special resolutions.
(iii) the maximum price (exclusive of expenses) which shall be paid for an ordinary share shall be not more than the higher of an amount equal to 105 per cent of the average of the middle market quotations for an ordinary share taken from and calculated by reference to the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the shares are purchased and the amount stipulated by Article 5(1) of the regulation entitled the 'Buy-Back and Stabilisation Regulation';
(iv) the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution (or, if earlier, the date which is 15 months after the passing of this resolution) unless the authority is varied, revoked or renewed prior to such time; and
By Order of the Board
Secretary 1 April 2016
Registered Office: Saltire Court, 20 Castle Terrace, Edinburgh EH1 2EN
Notice of Annual General Meeting
Spencer Road, Lancing, West Sussex BN99 6DA. The notes to the Form of Proxy explain how to direct your proxy how to vote on each resolution or withhold their vote.
the conduct of the audit, which shareholders intend to raise at the Annual General Meeting. The Company becomes required to place such a statement on the website once a) members with at least 5% of the total voting rights of the Company or b) at least 100 members who are entitled to vote and on whose shares an average sum per member of at least £100 has been paid, have submitted such a request to the Company. Members seeking to do this should write to the Company at its registered office providing their full name and address.
CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The CREST manual can be viewed at www.euroclear.com.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
Information for Investors
Dunedin Enterprise is managed by Dunedin. Dunedin is authorised and regulated by the Financial Conduct Authority. All enquiries in relation to Dunedin Enterprise, other than those related to Alliance Trust Savings Limited products, should be directed to Dunedin at Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2EN or [email protected].
The Company's share price appears under the heading 'Investment Companies' in The Financial Times, and other national newspapers. Prices are also available on the Company website www.dunedinenterprise.com or on the Alliance Trust Savings website www.alliancetrustsavings.co.uk or else on various websites such as www.trustnet.com.
Investors can buy and sell shares in an investment trust directly through a stockbroker or indirectly through a lawyer, accountant or other professional adviser. However, in order to facilitate investment in the Company, arrangements have been put in place for Dunedin Enterprise to be part of the Alliance Trust Savings products. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.
Alliance Trust Savings – Individual Savings Account (ISA) is a low-cost, tax-efficient savings vehicle. Since 6 April 2015 the ISA subscription limit has been £15,240. The quarterly administration charge for an Alliance Trust Savings ISA is £18.75.
Alliance Trust Savings – Investment Dealing Account (IDA) offers a means of investing in Dunedin Enterprise outside a tax efficient wrapper. The quarterly administration charge for an Alliance Trust Savings IDA is £18.75.
Investors may make regular monthly payments (minimum £50 per month) or invest occasional lump sums (minimum £50 in both the ISA and IDA). The charge for online regular monthly payments is £1.50 and £5 for offline payments. Investors may also make oneoff investments by dealing online or by post/telephone. There is
an online dealing charge of £12.50 and a postal/telephone dealing charge of £40 to buy and sell shares within an IDA/ISA.
Investors can transfer in shares to their IDA or ISA from other providers. They can also have their dividends re-invested and request to receive income from dividends to their bank account. Although Alliance Trust Savings consider the IDA and ISA to be a medium to long term investment, there is no restriction on how long an investor need invest and investors can choose to close their account by instructing Alliance Trust Savings in writing at any time. In common with other schemes of this type, all investments are held in nominee accounts. Investors have full voting and other rights of share ownership.
For information relating to the above savings plans please contact:
PO Box 164 8 West Marketgait Dundee DD1 9YP
Telephone: 01382 573737 Website: www.alliancetrustsavings.co.uk Email: [email protected]
For information regarding a shareholding not held through a savings plan, please contact:
Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA
Telephone: 0871 384 2440* International: +44 121 415 7047 Textel/hard of hearing line: 0871 384 2255* International: +44 121 415 7028 Website: www.shareview.co.uk
* Lines are open 8.30am to 5.30pm, Monday to Friday.
Information for Investors
Risk factors you should consider prior to investing:
The information contained on pages 65 to 66 has been issued by Alliance Trust Savings Limited, which is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.
The Company is managed by Dunedin and marketed by Alliance Trust Savings Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.
Financial Calendar and Corporate Information
Announcements, dividend payments and the issue of the annual and interim reports for the year ended 31 December 2015 and half year end 30 June 2016 can be expected in the months shown below:
Preliminary figures and final dividend for the year announced.
Report and accounts published.
Annual General Meeting held and payment of interim dividend.
Interim report for half year to 30 June published.
Duncan Budge, Chairman ([email protected]) Liz Airey Brian Finlayson Angela Lane Federico Marescotti
www.dunedinenterprise.com Email [email protected]
Dunedin LLP Saltire Court 20 Castle Terrace Edinburgh EH1 2EN Tel 0131 225 6699 Fax 0131 718 2300 Email [email protected] Website www.dunedin.com Registered No. 52844 Scotland
Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA Tel 0371 384 2440
Lloyds TSB Bank plc
CMS Cameron McKenna LLP
KPMG LLP
Saltire Court 20 Castle Terrace Edinburgh EH1 2EN
Telephone +44 (0)131 225 6699 Facsimile +44 (0)131 718 2300
www.dunedinenterprise.com
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