Annual Report • Dec 31, 2013
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.
Strategic Report – Financial Highlights
| Total return per ordinary share*1 |
Net asset value per ordinary share |
10 years | Annual net asset return over | ||
|---|---|---|---|---|---|
| 2.2p | 529.3p | 8% | |||
| 25.9p 2012 |
532.7p | 2012 | |||
| Share price | Discount | Dividend per ordinary share | Ongoing charges | ||
| 436.0p | 17.6% | 16.5p | 2.8% | ||
| 412.38p 2012 |
22.6% | 2012 | 22.5p 2012*2 |
1.8% 2012 |
|
| 1 – includes dividends paid in the year 2 – includes special dividend of 16.0p |
| Comparative Total Return Peformance | One year to | Three years to | Five years to | April 2004 to |
|---|---|---|---|---|
| December 2013 % |
December 2013 % |
December 2013 % |
December 2013 % |
|
| Net asset value per ordinary share | 0.6 | 12.7 | 37.6 | 91.7 |
| Share price | 7.4 | 58.0 | 148.6 | 132.9 |
| FTSE Small Cap Index ("the Benchmark") | 43.9 | 66.3 | 206.6 | 115.0 |
| FTSE All Share Index | 20.9 | 31.2 | 94.8 | 131.0 |
Strategic Report – Chairman's Statement
Dunedin Enterprise is the only UK listed investment trust with an ongoing mandate to invest exclusively in the UK lower mid-market. It thus represents a unique opportunity to access this part of the private equity market for investors. The Company operates a Distribution Policy whereby a proportion of capital proceeds from realised investments are returned to shareholders. This aims to optimise the use of capital resources within the Company.
As at 31 December 2013 the net asset per share was 529.3p. Taking into account last year's final dividend of 6.5p, there was a total return to shareholders of 0.6%. The share price total return over the same period was 7.4%. At the time of writing the share price is 409p, a discount of 22.7% to net asset value per share.
Over the past 10 years the Company has achieved a net asset value total return of 8% per annum.
A final dividend of 16.5p per share is proposed, at a cost of £3.6m. The dividend is payable on 23 May 2014 following the AGM.
During the year the Company's investment in two European funds, Egeria and FSN Capital, was disposed of for a total consideration of £17.4m. In addition the Trust's holding in Practice Plan was sold, generating capital proceeds of £9.0m and income of £6.1m.
A distribution of £12.5m was made to shareholders via a tender offer in May 2013 at a price of 475p and a further distribution of £5.5m by way of a tender offer at 475p was made in October 2013. The balance of capital currently available for distribution under the Distribution Policy amounts to £5.2m. It is therefore proposed by the Board that £5.2m is returned to shareholders via a tender offer in May 2014 at 475p per share, as set out in Resolution 13 of the Notice of Annual General Meeting.
Since the Distribution Policy was introduced in 2011, the Company has returned £39.1m to shareholders.
Following the tender offer in May 2014 this total increases to £44.3m. This represents 28% of the net assets of the Company as at 30 September 2011, the nearest quarter end prior to the introduction of the Distribution Policy.
Included with the results for the year ended 31 December 2013 is a management performance fee of £0.5m. The performance fee relates to the successful realisation to date of three of the Company's five European funds. The basis for the fee was approved by shareholders in 2012 and is payable on 31 December 2014.
The change of emphasis away from Europe to the UK has continued successfully. During the year a further commitment was made to Dunedin Buyout Fund III, which will invest in the UK lower mid-market. This takes the Company's commitment to £60m and will be drawn down over the next four years. Following the disposal of stakes in Egeria and FSN Capital, two European funds remain in the portfolio, Realza and Innova.
At 31 December 2013 the portfolio consisted of Dunedin managed UK investments 65%, European investments 11% and cash 24%. The Company had outstanding commitments of £62.6m to Dunedin funds, £13.7m to European funds and cash or near cash of £27.9m. In addition the Company has a bank facility of £20m which expires on 27 February 2017. It is expected that £55m of the total outstanding commitments will ultimately be drawn over the remaining life of the funds. The Board is comfortable with the balance between uncalled commitments and cash resources given the expected rate of new investment.
A total of £18.5m was invested during the year of which £14.0m was invested by Dunedin funds and £4.5m drawn down by European funds. Details are contained in the Manager's Review.
03
Strategic Report – Chairman's Statement
This European Directive seeks to reduce systematic risk by regulating alternative investment fund managers ("AIFMs") responsible for managing certain investment funds (including investment trusts). The Directive was implemented on 22 July 2013 and the Financial Conduct Authority ("FCA") permits a transitional period of one year during which AIFMs must seek authorisation. Dunedin LLP is approved by the FCA as a small AIFM and has been appointed as the Company's AIFM.
The Board is concerned about the uncertainty surrounding the Independence Referendum in Scotland and will develop contingency plans as appropriate.
A number of changes to annual reporting by companies have been introduced, effective from 30 September 2013. These include the introduction of a new Strategic Report which is intended to replace the Business Review section of the Directors' Report. Other changes comprise additional Audit Committee reporting requirements and changes to the structure and voting requirements in respect of the Directors' Remuneration Report.
As announced in the interim statement, I will retire from the Board at the AGM. I have been on the Board since 2001 and have been Chairman for the past two years.
Duncan Budge, who joined the Board in 2012, will become Chairman. I have really enjoyed my time as a Director of the Trust and believe that it has a sound future, an excellent Manager and a purposeful and challenging Board.
The UK economy appears to be relatively stable and, although there are some signs of improvement, the recovery is patchy. GDP growth at the time of writing is forecast at 1.8% for 2013 and 2.4% for 2014. Unemployment is forecast to fall from 7.5% in 2013 to 7.1% in 2014. The international indicators are also pointing in a positive direction.
Continuing improvement in the economic outlook will reinforce portfolio prospects. The majority of portfolio companies are budgeting for increased profits in 2014. Your Manager seeks to invest in UK companies with growth strategies in both the UK and abroad. This in turn has resulted, inter alia, in a greater degree of internationalisation of the portfolio.
In terms of new investment, the outlook for the UK market in 2014 is for a quieter first half and busier second half of the year.
Chairman
19 March 2014
Letts Filofax Goals Premier Hytemp Weldex
CGI Davenham OSS WFEL
Capula Gardner Kee Safety Practice Plan
Hawksford
ABI AIM RSL Steeper Trustmarque Zenith
Caledonian Fernau
CitySprint Enrich etc.venues Formaplex Red Commerce Travel & General U-POL
Board of Directors
David Gamble (70)*#~
was appointed to the Board in 2001 and became Chairman in 2012. From 1993 until his retirement in 2003, he was Chief Executive of British Airways Pension Investment Management Limited. He is a non-executive Director of two further investment trusts, JPMorgan Emerging Markets Investment Trust PLC and Polar Capital Technology Trust PLC. He is also a member of the BBC Pension Trust Investment Committee. He also holds other advisory and non-executive positions.
Liz Airey (55)*#~
was appointed to the Board in 2005, and became chairman of the Audit Committee in 2009 and Senior Independent Director in 2012. She 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. She is non-executive Chairman of Unilever UK Pension Fund and a non-executive Director of Tate & Lyle PLC and Jupiter Fund Management plc.
was appointed to the Board in April 2012. He retired from his role as an Executive Director and Chief Operating Officer of RIT Capital Partners plc ("RIT") in 2011, having been appointed in 1995. He is Chairman of Spencer House Limited and a non-executive Director of Artemis Alpha Trust PLC and The World Trust Fund.
Brian Finlayson (66)*#~
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. He is a non-executive director of Latchways plc.
Federico Marescotti (57)*#~
was appointed to the Board in 2009. He is Chief Executive of Vela Capital, a specialist private equity management company. He is a non-executive Director of JP Morgan European Smaller Companies and until 2012 of Ecofin Water & Power Opportunities Investment Trust Plc. He also sits on the Board of Illy Group, a global coffee and tea retailer. 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.
* Member of the Audit Committee
~ Member of the Management Engagement Committee
The Manager
The Board has appointed Dunedin LLP to manage the Company. In addition to the Trust, Dunedin manages a European fund of funds and four limited partnership funds. The Trust has committed £60m (20%) to Dunedin's latest £306m fund, Dunedin Buyout Fund III LP.
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 a New 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 22 portfolio 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 the following characteristics:
Dunedin is authorised and regulated by the Financial Conduct Authority.
Strategic Report – Manager's Review
In the year to 31 December 2013 the net asset value per share has moved from 532.7p to 529.3p. After taking account of a final dividend for 2012 of 6.5p (paid in 2013), the movement in the year equates to a total return of 0.6%.
The Company's net asset value decreased from £137.2m to £116.3m over the year. This movement is stated following tender offers of £18.0m and dividend payments totalling £1.7m.
This movement in net assets is explained by:
| £m | |
|---|---|
| Net asset value at 1 January 2013 | 137.2 |
| Unrealised value increases | 7.7 |
| Unrealised value decreases | (7.5) |
| Realised profit over opening valuation *1 | (4.9) |
| Tender offer to shareholders (excluding costs) | (18.0) |
| Dividends paid to shareholders | (1.7) |
| Other revenue and capital movements | 3.5 |
| Net asset value at 31 December 2013 | 116.3 |
*1 – £6.1m of income was also received from the realisation of Practice Plan and recognised under "Other revenue and capital movements". This accrued income was reflected in the opening valuation of Practice Plan
In 2013 the Company undertook two tender offers. The first in May 2013 was for 10.2% of the share capital of the Company at a price of 475p per share which was a 10.8% discount to the most recently published net asset value per share as at 31 December 2012. In October 2013 there was a second tender offer undertaken by the Company at a price of 475p per share which represented a discount of 11.2% to the net asset value per share as at 30 June 2013. The total amount returned to shareholders under these tender offers amounted to £18.0m. This takes the total returned to shareholders via tender offers under the Distribution Policy to £39.1m. There remains up to £5.2m to be returned to shareholders under the Distribution Policy following the realisation of Practice Plan detailed below.
Dunedin Enterprise makes investments in unquoted companies through Dunedin managed funds. In the past the Company has made commitments to funds managed by third parties. The last such commitment was made in 2009.
The investment portfolio can be analysed as shown in the table below.
| Valuation at 1 January 2013 £'m |
Additions in year £'m |
Disposals in year £'m |
Realised movement £'m |
Unrealised movement £'m |
Valuation at 31 December 2013 £'m |
|
|---|---|---|---|---|---|---|
| Dunedin managed | 76.5 | 14.0 | (9.7) | (5.9) *2 | 0.2 | 75.1 |
| Third party managed | 25.7 | 4.5 | (17.6) | 1.0 | – | 13.6 |
| 102.2 | 18.5 | (27.3) | (4.9) | 0.2 | 88.7 |
*2 – this excludes £6.1m of income which was received from the realisation of Practice Plan which is recognised through the Income Statement
A total of £18.5m was invested in the year to 31 December 2013. Of this total, £14.0m was invested in Dunedin managed funds and £4.5m was drawn by European third party funds.
On 7 June 2013 an investment of £4.1m was made in Trustmarque Solutions ("Trustmarque") through DBFIII. DBFIII invested £20.8m for a majority stake in the company. Trustmarque has been in operation for over 25 years and manages customers' computer software and licensing from a wide range of developers including Microsoft, VMware and McAfee. Its professional and consultative services enable
organisations to optimise their IT resource, improve efficiencies and reduce costs. The business employs 180 people at three sites in York (HQ), Bracknell and Edinburgh. It currently services over 1,200 clients including RBS, Lloyds Banking Group, Sainsbury's, the NHS, Ministry of Defence and a broad spectrum of local authorities and central government agencies. A further £0.2m was invested in Trustmarque by your Company in December 2013 to fund an acquisition.
On 30 November 2013 an investment of £6.3m was made in Kee Safety through DBFIII. DBFIII invested £32m in Kee Safety, which will help enable the business to continue international expansion. Kee
Strategic Report – Manager's Review
Safety's products include fall prevention equipment, roof edge protection, barrier and guardrail systems and safe access solutions. The company employs 274 people and sells its products in over 50 countries. Headquartered in Birmingham, Kee Safety's customers range from multi-national corporations, to major contractors, distributors and installers. Demand for protective equipment is being driven by increased levels of safety regulation and enforcement around the world. The business operates sales and distribution centres in the UK, Germany, the USA and Dubai and sales offices in Canada, China, France and Poland.
A further £0.7m was invested in existing portfolio companies, Hawksford (£0.5m) and CGI (£0.2m). There were drawdowns totalling £2.7m made during the year by Dunedin managed funds for management fees.
A total of £4.5m was drawn down by three of the European funds to which the Company has made commitments. The most significant drawdowns were made by FSN Capital (£2.6m) prior to realisation, Innova (£1.7m) and Realza (£0.1m). These funds make investments in buyouts in the Pan-Nordic mid-market, Central Eastern European mid-markets and Spain and Portugal respectively. A total of six underlying companies were purchased during the year.
In the year a total of £27.3m was generated from portfolio realisations.
An agreement to sell Practice Plan to Wesleyan Assurance Society was reached in August 2013 and the transaction completed in October 2013. Total proceeds received from the investment during the year were £15.1m consisting of £9.0m of capital and £6.1m of income. This compared to a valuation of £12.1m at the start of the year. The capital gain on the transaction was £3.2m.
There was further progress made during the year in realising the European Fund investments with the sale of the Company's interest in Egeria Private Equity Fund III and FSN Capital III. The sale of Egeria was completed in February 2013 at the same value (£8.3m) as was recorded in last year's financial statements. The investment in FSN Capital was achieved in May 2013 generating proceeds of £9.0m and a value uplift in the year of £1.0m.
The remaining realisations of £1.0m consisted of loan redemptions and deferred consideration payments.
At 31 December 2013 the Company had cash and near cash balances of £27.9m all of which are denominated in sterling. The Company has a revolving credit facility with Lloyds of £20m. The term of the facility has been extended to three years with the facility expiring on
27 February 2017. The duration of the facility has been extended to ensure that all commitments to funds can be met by the Company.
A commitment of £60m was made by the Trust to Dunedin's third buyout fund. This fund has total commitments of £306m and will make investments in the UK lower mid-market over the next four years.
The Company has undrawn commitments to Dunedin managed funds of £62.6m and a further €16.5m (£13.7m) of undrawn commitments to the two remaining European funds. It is expected that £55m of the total outstanding commitments will ultimately be drawn over the remaining life of the funds.
In the year to 31 December 2013 there were valuation uplifts generated from the following investments: CitySprint (£2.7m), CGI (£2.0m), Hawksford (£1.1m) and UPOL (£0.6m).
The maintainable earnings of CitySprint, the same day courier, have increased by 20% during the year. This has been generated by its ongoing acquisition and integration of small operators and from organic growth in healthcare and inline retail fulfilment. Since Dunedin made its investment in CitySprint the company has made a total of thirteen acquisitions.
The specialist glass manufacturer, CGI, has shown a 6% increase in maintainable earnings which has been combined with a £2.9m reduction in the net external debt of the company.
Hawksford, the Jersey based provider of trust and fiduciary services, has generated an increase of 9% in maintainable earnings during the year. This has been achieved through the acquisition of operations in Switzerland and the United Arab Emirates as the company seeks to internationalise its operations.
UPOL, the manufacturer of branded automotive refinishing consumables, has generated a 5% increase in maintainable earnings combined with a reduction in net external debt of £8.3m.
The most significant valuation reductions in the year to 31 December 2013 were at Premier Hytemp (£4.0m) and Weldex (£1.4m). Premier Hytemp has suffered a reduction in demand from some key customers. In addition to this, the business has also suffered depressed margins on the supply of nickel alloy due to excess nickel supply in the market and price cutting actions from main competitors. Weldex earnings have been impacted by delays in two main contracts in the year, which are now scheduled to commence in 2014. The Manager sits on the board of each of these
07
companies and is working closely with management teams in order to restore value in these investments.
The majority portfolio companies are forecasting an increase in profits during 2014 and there are none which have any issues with banking covenants.
The average earnings multiple applied in the valuation of the Dunedin managed portfolio was 7.1x EBITDA (2012: 7.0x), or 8.0x EBITA (2012: 8.5x). These multiples continue to be applied to maintainable profits.
Within the Dunedin managed portfolio, the weighted average gearing of the companies was 2.3x EBITDA (2012: 2.2x) or 2.8x EBITA (2012: 2.7x). Analysing the portfolio gearing in more detail, the percentage of investment value represented by different gearing levels was as follows:
| 21% |
|---|
| 37% |
| 22% |
| 20% |
Of the total acquisition debt in the Dunedin managed portfolio companies the scheduled repayments are spread as follows:
| Less than one year | 14% |
|---|---|
| Between one and three years | 32% |
| More than 3 years | 54% |
The table below analyses the investment portfolio by investment fund vehicle.
| 31 December 2013 % |
31 December 2012 % |
|
|---|---|---|
| Direct | 9 | 15 |
| Dunedin Buyout Fund I | – | – |
| Dunedin Buyout Fund II | 42 | 38 |
| Dunedin Buyout Fund III | 9 | – |
| Equity Harvest Fund | 4 | 3 |
| Third Party managed | 12 | 19 |
| Cash | 24 | 25 |
Detailed below is an analysis of the investment portfolio by geographic location and cash reserves as at 31 December 2013.
| 31 December 2013 % |
31 December 2012 % |
|
|---|---|---|
| UK | 65 | 57 |
| Rest of Europe | 11 | 18 |
| Cash | 24 | 25 |
The investment portfolio of the Company is broadly diversified. At 31 December 2013 the largest sector exposure of 39% remains to the Support Services sector, a diverse sector in itself.
| 31 December 2013 % |
31 December 2012 % |
|
|---|---|---|
| Construction and building materials | 9 | 8 |
| Consumer products & services | 7 | 6 |
| Financial services | 11 | 10 |
| Healthcare | 5 | 5 |
| Industrials | 26 | 24 |
| Retail | – | 1 |
| Support services | 39 | 42 |
| Technology | 3 | 4 |
| 31 December 2013 % |
31 December 2012 % |
|
|---|---|---|
| Cost | 15 | 14 |
| Earnings – provision | 23 | 25 |
| Earnings – uplift | 50 | 53 |
| Net assets | 12 | – |
| Exit price | – | 8 |
In the vintage year table below, value is allocated to the year in which either Dunedin Enterprise or the third party manager first invested in each portfolio company.
| 31 December | 31 December | |
|---|---|---|
| 2013 | 2012 | |
| % | % | |
| <1 year | 14 | 15 |
| 1-3 years | 18 | 44 |
| 3-5 years | 37 | 12 |
| >5 years | 31 | 29 |
19 March 2014
| Percentage of equity held |
11.9% |
|---|---|
| Cost of Investment | £9.8m |
| Directors' valuation | £15.9m |
| Percentage of Dunedin Enterprise's net assets |
13.7% |
In December 2010, Dunedin Enterprise invested £9.8m in CitySprint to support the company's ongoing organic and buy and build strategy.
CitySprint is the UK's market leader in the same day delivery sector with a national network of 37 service centres. CitySprint benefits from an asset light business model with over 2,500 self-employed couriers, making the business both highly flexible and scalable.
The business splits its activities into key services of same day courier, same day logistics and International and UK overnight courier to a number of different sectors, including healthcare, online retail fulfilment and parts fulfilment such as outsourced supply chain services for engineering and servicing companies, including delivery of parts and stock forwarding. CitySprint now has the UK's largest SameDay healthcare courier network.
Since the beginning of 2013, CitySprint has made six 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 thirteen. The acquisitions were Heathrow Baggage, SameDay, The Courier Service, UK Express, Built Couriers and Dash It.
In the year to 31 December 2012, the audited operating profit of CitySprint was £9.0m (2011: £6.1m) on turnover of £101.1m (2011: £74.3m). Dunedin Enterprise's investment is held via Dunedin Buyout Fund II LP.
| Percentage of equity held |
41.4% |
|---|---|
| Cost of Investment | £9.5m |
| Directors' valuation | £8.4m |
| Percentage of Dunedin Enterprise's net assets |
7.2% |
Dunedin Enterprise first invested in CGI in 1998, in support of a management buyout of the company. Since that time 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 is a leading independent manufacturer and supplier of specialist fire glass. The company exports two thirds of its production from its base in Haydock, Merseyside.
In November 2012, CGI reinforced its European reach with the creation of CGI France – a new trading entity. Acquiring the business activities of Interver SA in France, a long established producer of fire resistant glass, CGI France will enhance the existing range of products and expand its geographic and customer reach. Located in the East of France at Seingbouse in Moselle, CGI France operates from a 120,000 sq. ft. production facility more than doubling the Group's previous manufacturing capacity.
From a customer and service perspective, the new operation will increase the efficiency of deliveries to pan-European customers while the Pyroguard portfolio will now include the complete range of E, EW and EI products for all timber, steel, aluminium, double glazed and butt joint applications.
In the year ended 31 December 2012, the audited operating profit of CGI was £1.0m (2011: £1.4m) on turnover of £13.3m (2011: £12.1m). Dunedin Enterprise's investment is held directly.
| Percentage of equity held |
8.9% |
|---|---|
| Cost of Investment | £6.2m |
| Directors' valuation | £7.9m |
| Percentage of Dunedin Enterprise's net assets |
6.8% |
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.
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 will range from €10m to €25m.
In light of the difficult economic environment in Spain the fund has been cautious to invest since final close of the fund in 2008. As at 31 December 2013 the fund has invested in four portfolio companies and was 48% drawn.
The areas of business in which the fund's four investments operate are: management and operation of dental clinics; manufacture and sale of digital photo-books; manufacture and sale of household cleaning and personal care products; tax management services to local government.
Dunedin Enterprise's investment is held via Dunedin Fund of Funds LP.
| Percentage of equity held |
16.0% |
|---|---|
| Cost of Investment | £4.3m |
| Directors' valuation | £7.9m |
| Percentage of Dunedin | 6.8% |
Percentage of Dunedin Enterprise's net assets
Dunedin Enterprise invested £3.7m in the £29m buyout of Rathbone International in October 2008. The business was renamed Hawksford following the deal. A £13.5m senior debt refinancing was concluded three weeks after completing the buyout.
Hawksford is a Jersey based provider of trust and fiduciary services to ultra-high net worth individuals and corporates. The business, which has its foundations in the mid-nineteenth century, has been built through the consolidation of high quality firms in Jersey, one of the largest global centres for offshore fiduciary services.
In the last three years the business has completed the acquisitions of Key Trust Company Limited, Trustcorp Jersey Limited, L-S&S GmbH, a Swiss boutique private wealth law firm, and the funds business of Standard Bank Dubai. These acquisitions have further enhanced Hawksford's market leading-position through additional high quality people and clients. Hawksford has recently appointed a new CEO, Maxine Rawlins, who has experience of successfully growing a multi-jurisdiction fiduciary services business. The focus of the business remains on providing excellent service and increasing client choice by growing the international footprint.
In the year to 31 December 2012, the audited operating profit of Hawksford was £3.4m (2011: £1.8m) on turnover of £18.8m (2011: £14.4m). Dunedin Enterprise's investment is held via Dunedin Buyout Fund II LP and Equity Harvest Fund LP.
| Percentage of equity held |
17.7% |
|---|---|
| Cost of Investment | £1.7m |
| Directors' valuation | £6.7m |
| Percentage of Dunedin Enterprise's net assets |
5.7% |
In December 2007, Dunedin Enterprise invested £3.1m in Formaplex. The company has redeemed £1.4m of loan stock since acquisition.
Formaplex is an advanced manufacturing services business focussed on tooling and component manufacture and other supply chain services in advanced materials (plastics and composites).
Based in Havant, near Portsmouth, Formaplex 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 long-standing, trusted relationships.
The growth in Formaplex is driven by its ability to provide innovation and outstanding service to its clients servicing the rapidly growing plastics and composites market. Formaplex recently opened new state of the art manufacturing facilities as a result of significant organic growth, increasing its production facilities from 20,000 sq. ft., in 2007 when Dunedin Enterprise invested, to 135,000 sq. ft. in 2012.
In the year to 30 June 2013, the audited operating profit of Formaplex was £5.7m (2012: £4.8m) on turnover of £33.2m (2012: £26.7m). Dunedin Enterprise's investment is held via Dunedin Buyout Fund II LP and Equity Harvest Fund LP.
| Percentage of equity held |
9.4% |
|---|---|
| Cost of Investment | £6.3m |
| Directors' valuation | £6.3m |
| Percentage of Dunedin Enterprise's net assets |
5.4% |
In December 2013, Dunedin Enterprise invested £6.3m in the tertiary management buyout of Kee Safety Limited. The investment will help enable the business to continue its international expansion.
Kee Safety is a global market leading provider of safety systems and products designed to protect people from hazards. Kee Safety is headquartered in Meriden, West Midlands and has 271 employees spread across the UK, USA, Canada, Germany, France, Poland, Dubai, China and India. Its customers range from multi-national corporations, to major contractors, distributors and installers.
The Group turns over in excess of £37m and the core product range includes fall prevention, roof edge protection, barrier and guardrail systems and safe access solutions. The products supplied by Kee Safety are patent protected and regulatory approved in the markets they serve.
Kee Safety serves a global market which is driven by; more rigorous enforcement of safety regulations; insurance and compensation policies; infrastructure replacement or upgrading; and improved focus and awareness of health and safety. Dunedin Enterprise's investment is held via Dunedin Buyout Fund III LP.
In the year to 31 December 2012, the audited operating profit of Kee Safety was £8.4m on turnover of £34.3m. Dunedin Enterprise's investment is held via Dunedin Buyout Fund III LP.
Weldex is the UK market leading crawler crane hire company. 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 and the 2012 Olympic site. The company is well placed to benefit from the rapid growth in offshore wind farm developments and UK power station construction and decommissioning.
Weldex was established in 1979 and has grown into the UK's largest crawler crane hire company. Weldex employs 102 employees and operates nationwide and overseas from its headquarters in Inverness and its depot at Alfreton. The company also supplies associated lifting equipment including wheeled cranes, forklifts, lorry loaders and trailers. It recently opened a new base established at Nigg Energy Park to undertake oil and gas decommissioning work.
In the year to 30 November 2012, the audited operating profit of Weldex was £6.2m (2011: £12.1m) on turnover of £25.2m (2011: £36.8m). Dunedin Enterprise's investment is held via Dunedin Buyout Fund II LP.
| Percentage of equity held |
5.2% |
|---|---|
| Cost of Investment | £5.7m |
| Directors' valuation | £6.2m |
| Percentage of Dunedin Enterprise's net assets |
5.4% |
U-POL is a leading independent manufacturer of automotive refinish products including body fillers, coatings, aerosols, polishing compounds and consumables. The company has an enviable 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 expand in both developed and emerging markets.
In the year to 31 December 2012, the audited operating profit of U-POL was £6.1m (2011: £7.6m) on turnover of £60.1m (2011: £58.5m). Dunedin Enterprise's investment is held via Dunedin Buyout Fund II LP.
Top Ten Investments
| 18.7% |
|---|
| £7.9m |
| £6.2m |
| 5.3% |
In July 2011, Dunedin Enterprise invested £8.0m in the management buyout of London-based Red Commerce.
Red Commerce is a global supplier of SAP experts to international corporations and consultancies. SAP stands for Systems, Applications and Products in data processing. SAP is the market leader in ERP software (Enterprise Resource Planning software), which helps companies of all sizes and industries operate more efficiently, including many of the world's largest organisations.
Red Commerce, which was founded in 2000, now has a global footprint with access to over 200,000 SAP experts in 80 countries, and offices in the UK, Germany, France, Scandinavia, Switzerland, Brazil and the US. Clients include Bosch, Johnson & Johnson and Novartis.
Named one of the best Small Companies to Work For in 2010, 2011 and 2012 by the Sunday Times Best 100, Red Commerce prides itself on outstanding customer service with an ability to access the best and most appropriate consultants to cutting edge SAP implementations, locally and globally. Business growth is expected to come from expanding the international office network and continued focus on service differentiation. Alongside this rapid organic growth plan, Red Commerce will also consider making strategic acquisitions.
Red Commerce has recently appointed a new CEO, Andy McRae, to drive expansion into new markets globally and to continue to build the company's SAP consulting service lines.
In the year to 31 March 2013, the audited operating profit of Red Commerce was £1.7m (2011: £2.9m) on turnover of £70.5m (2011: £59.8m). Dunedin Enterprise's investment is held via Dunedin Buyout Fund II LP.
| Percentage of | 3.9% |
|---|---|
| equity held | |
| Cost of Investment | £5.4m |
| Directors' valuation | £5.0m |
| Percentage of Dunedin Enterprise's net assets |
4.3% |
Innova/5 LP is private equity fund based in Warsaw which makes investments in Central Eastern Europe.
The fund invests in mid-market buyouts in businesses with an enterprise value of between €50m and €125m. It invests in Financial Services; Technology, Media, & Telecommunications (TMT); Business Services; Construction; Energy; and Industrial & Automotive.
As at 31 December 2013 the fund was invested in six portfolio companies and was 42% drawn.
The areas of business in which the fund's five investments operate are:- manufacture of bathroom sanitary ware; card processing, ATM and POS operations and e-commerce services; tower infrastructure for the provision of managed analogue and digital terrestrial TV and radio broadcasting; provision of obstetric, gynaecological and neonatal services to private hospitals; a wide range of electricity related products and services in turnkey project management and engineering; online content / marketing market.
Dunedin Enterprise's investment is held via Dunedin Fund of Funds LP.
Remaining investments
| Company Last reported |
Proportion of fully diluted capital owned |
Book cost | Valuation | Percentage of net assets |
|---|---|---|---|---|
| Description of business | % | £m | £m | % |
| Project Lennon Topco Limited (Trustmarque) 31.12.12 Provider of software management services (held via Dunedin Buyout Fund III LP) |
12.2 | 4.3 | 4.3 | 3.7 |
| Premier Hytemp Bidco Limited 31.12.12 Provider of highly engineered steel and nickel alloys and machined components for the gas and oil industry (held via Dunedin Buyout Fund II LP) |
23.0 | 8.0 | 4.0 | 3.4 |
| RSL Steeper Holdings Limited 28.02.13 Provider of prosthetic, orthotic and assistive technology products (held directly and via Dunedin Buyout Fund LP and Equity Harvest Fund LP) |
37.4 | 5.1 | 3.0 | 2.5 |
| Alta-Berkeley VI CV 31.12.12 Technology fund (held directly) |
3.0 | 0.8 | 0.3 | 0.2 |
| Add One LP 31.12.12 Technology fund (held directly) |
2.9 | 1.4 | 0.2 | 0.2 |
| Advent Private Equity Fund III LP 31.12.12 Technology fund (held directly) |
3.0 | 1.0 | 0.2 | 0.2 |
| OSS Environmental Holdings Limited 31.12.11 Waste oil collection and recycling (held directly) |
40.2 | 5.8 | – | – |
| Sycamore Topco Limited (Enrich) 31.03.12 Employee benefit consultants (held via Dunedin Buyout Fund II LP and Equity Harvest Fund LP) |
30.2 | 6.9 | – | – |
Long Term Record
| Per Ordinary Share | |||||||
|---|---|---|---|---|---|---|---|
| Ended 30 April |
Net Assets | Cash returned via tender offer |
Revenue available for ordinary shareholders |
Net asset value |
Earnings | Dividend | Share price |
| £'000 | £'000 | £'000 | p | p | p | p | |
| 1988 | 25,794 | 488 | 138.2 | 2.6 | 2.0 | 98.0 | |
| 1989 | 26,323 | 640 | 141.0 | 3.4 | 3.0 | 88.0 | |
| 1990 | 29,860 | 898 | 160.0 | 4.8 | 4.0 | 94.0 | |
| 1991 | 27,165 | 885 | 145.6 | 4.7 | 4.5 | 90.0 | |
| 1992 | 28,002 | 791 | 150.0 | 4.2 | 4.0 | 91.0 | |
| 1993 | 26,181 | 801 | 140.3 | 4.3 | 4.0 | 107.0 | |
| 1994 | 34,873 | 951 | *179.9 | 5.1 | 4.2 | 146.0 | |
| 1995 | 48,763 | 1,201 | 207.5 | 5.6 | 4.4 | 181.0 | |
| 1996 | 58,699 | 2,061 | 245.7 | 8.7 | 7.2 | 207.0 | |
| 1997 | 70,430 | 2,597 | 294.7 | 10.9 | 9.1 | 254.5 | |
| 1998 | 79,746 | 2,698 | 333.7 | 11.3 | 10.0 | 276.0 | |
| 1999 | 89,887 | 2,731 | 376.2 | 11.4 | 11.0 | 277.5 | |
| 2000 | 99,002 | 2,986 | 414.3 | 12.5 | 11.6 | 320.5 | |
| 2001 | 86,474 | 3,269 | 362.2 | 13.7 | 12.85 | 320.0 | |
| 2002 | 101,840 | 4,115 | 326.5 | 13.5 | 12.85 | 247.5 | |
| 2003 | 95,492 | 3,475 | 309.3 | 11.1 | 12.85 | 218.5 | |
| 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 |
* Restated taking account of the dilution following the issue of shares as a result of the exercise of warrants on 31 August 1994.
The Strategic Report is designed to replace and improve the narrative reporting previously included in the Business Review section of the Directors' Report. The purpose of this report is to provide shareholders with details of the Group and Company's strategy and business model as well as the principal risks and challenges the Group and Company has faced during the year under review. The report is also intended to help shareholders assess how the Directors have performed their duty to promote the success of the Group and Company during this period.
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 2012. 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 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 Investment Management Agreement is contained in the Directors' Report on pages 20 to 23.
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 mid market 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.
Going forward 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 FoF 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 Group 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 FoF 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.
Strategic Report
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.
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 Turnbull Guidance. Details of the Company's internal controls are contained in the Corporate Governance Report on pages 24 to 26.
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 27 February 2017. The facility is currently not utilised. 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 period since listing, as well as the investment outlook, are provided in the Chairman's Statement and the Manager's Review on pages 6 to 8. Details of the Company's top ten investments can be found on pages 9 to 13 with the remaining investments detailed on page 14.
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 15.
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 22, 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.
Strategic Report
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 24. 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 Investment Management Agreement are provided on page 56.
At 31 December 2013, there were four male directors and one female director on the Board. Following David Gamble's retirement on 14 May 2014 there will be three male directors and one female director. The Board's policy on diversity is set out on page 24.
By order of the Board
David Gamble Chairman
19 March 2014
Financial Statements Directors' Report
The Directors present their report and audited financial statements for the year to 31 December 2013.
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 2 to 3. The financial position of the Company, its cash flows and liquidity position are described in the Manager's Review on pages 6 to 8. 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.
At 31 December 2013, the Company's issued and paid up share capital was £5,491,727 divided into 21,966,907 fully paid up ordinary shares. During the year there were two tender offers undertaken to return realisation proceeds to members on 21 May 2013 and 22 October 2013 which reduced the issued share capital by 2,631,575 (nominal value of £657,894) and 1,156,153 (nominal value of £289,038) ordinary shares respectively. Both tender offers were undertaken at 475p per share and returned £18.0m to shareholders.
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 shareholding.
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.
A final dividend of 16.5p is to be paid to shareholders on 23 May 2014, to shareholders on the register at close of business on 2 May 2014. The ex-dividend date is 30 April 2014. The final dividend for the year to 31 December 2013 of 16.5p compares to 6.5p for 2012.
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 2013 are shown below.
| Ordinary shares |
% of issued share capital |
|
|---|---|---|
| Legal & General Group | 5,848,110 | 26.6 |
| Alliance Trust Savings | 3,214,724 | 14.6 |
| Baillie Gifford Diversified Growth Fund |
1,124,556 | 5.1 |
| Brewin Dolphin | 1,033,241 | 4.7 |
| East Riding of Yorkshire Council | 924,003 | 4.2 |
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 page 4. 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.
David Gamble will retire as Chairman on 14 May 2014 and will be succeeded by Duncan Budge. David Gamble was not involved in the selection or appointment of his successor.
In accordance with the UK Corporate Governance Code and the AIC's Code of Corporate Governance, Liz Airey and Duncan Budge will retire from the Board and, being eligible, offer themselves for re-election at the Annual General Meeting ("AGM"). Liz Airey was appointed to the Board on 1 January 2005 and has served for more than nine years and is therefore subject to annual re-election. The Board has carefully considered Liz Airey's independence and believe she retains independence of character and of judgement. Neither Liz Airey nor Duncan Budge have service contracts with the Company. Following performance evaluation, in the view of the other Directors, Liz Airey and Duncan Budge continue to perform effectively and to demonstrate commitment to the Company. The re-election of Liz Airey and Duncan Budge is recommended to shareholders as their skills and experience continues to add to the strength of the Board.
Directors' Report
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 kept up to date and the Directors are required to disclose to the Company Secretary any change to conflicts or any potential new conflicts.
The statement on Corporate Governance on pages 24 to 26 is included in the Directors' Report by reference.
The principal terms of the Company's management agreement with Dunedin are set out on page 56.
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. The Company has visibility on the allocation of carried interest.
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 Limited Partnership, the co-investment scheme continues to operate for investments made prior to May 2008.
In November 2012, the Company's shareholders approved a new performance fee in relation to the European fund investments held via Dunedin Fund of Funds LP. Dunedin is incentivised to realise the underlying investments and commitments in the underlying European fund investments based both upon the value realised compared to the third party manager's valuation and the timing of the realisation. Details of the performance fee are set out on page 56.
The Board has been considering the implications of the AIFMD and has taken advice on the best approach for the Company to comply with AIFMD. As part of this, the Board has appointed Dunedin LLP to be its alternative investment fund manager.
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 19 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.
Following their intention to gradually wind down the activity in their registered firm, KPMG Audit Plc, KPMG have proposed that an alternative entity, KPMG LLP, become the Company's auditor. Accordingly, KPMG have notified the Company that KPMG Audit Plc are not seeking reappointment and have provided a statutory statement of circumstances upon ceasing to hold office pursuant to section 519 of the 2006 Act. In accordance with section 520 of the 2006 Act, a copy of this statement is enclosed with the report and accounts. The Board has decided to put KPMG LLP forward to be appointed as auditor and a resolution concerning their appointment will be put to the forthcoming Annual General Meeting of the Company. There is no impact on the terms on which the auditor will be retained.
Financial Statements Directors' Report
The AGM of the Company will be held at 11.00 am on 14 May 2014 at The Sheraton Hotel, 1 Festival Square, Edinburgh EH3 9SR. Notice of the AGM is given on pages 57 to 60 of this report.
Resolutions 1 to 9 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 10 to 13 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 2013.
Shareholders are being asked to approve the Directors' Remuneration Policy for the three year period ending on the Company's AGM in 2017.
Resolution 3: Approve the Directors' Remuneration Report Shareholders are being asked to approve the Directors' Remuneration Report for the year ended 31 December 2013.
Shareholders are being asked to approve the Final Dividend of 16.5p per Ordinary Share for the year ended 31 December 2013. If shareholders approve the recommended Final Dividend, it will be paid on 23 May 2014 to shareholders on the Company's register of members at the close of business on 2 May 2014.
Biographical details of Liz Airey and Duncan Budge who are standing for re-election are set out on page 4. The Board recommends to Shareholders the re-election 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. KPMG Audit Plc has notified the Company that they are not seeking reappointment. It is proposed that KPMG LLP be and are hereby 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.
Resolution 9 will, if approved, give Directors a general authority to allot new shares in the Company up to an aggregate nominal amount of £1,830,575 (representing one third of the total Ordinary Share capital of the Company in issue as at 1 April 2014 (being the latest practicable date prior to the publication of this document). The authority will expire at the conclusion of the AGM of the Company to be held in 2015.
Resolution 10 will, if approved, authorise the Directors to allot new Ordinary Shares up to an aggregate nominal amount of £274,586 (representing approximately 5 per cent. of the total ordinary share capital of the Company in issue as at 1 April 2014 being the latest practicable date prior to the publication of this document) for cash without first offering such Ordinary Shares to existing shareholders pro-rata to their existing shareholdings.
The authority given under Resolution 10, which relates to the issue of new Ordinary Shares, will expire on 14 August 2015 or, if earlier, the conclusion of the AGM of the Company to be held in 2015. The Directors will only issue new Ordinary Shares pursuant to these authorities if they believe it is advantageous to the Shareholders to do so and where the issue price exceeds the last published net asset value per Ordinary Share.
The existing buy-back authority, granted at the AGM of the Company held on 17 May 2013, permits the Company to make market purchases of up to 14.99 per cent. of the Company's issued ordinary share capital as at 5 April 2013 and expires at the forthcoming AGM. The authority, 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 3,292,839 Ordinary Shares (being 14.99 per cent. of the issued share capital as at 1 April 2014). This authority will expire at the conclusion of the AGM of the Company in 2015 (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 11 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
Dunedin Enterprise Investment Trust PLC Annual Report and Accounts 2013 23
Directors' Report
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 proposes to return, in accordance with the Company's Distribution Policy, approximately £5.2m in cash realised from the sale of certain of the Company's investments to shareholders via a tender offer (the "Tender Offer") for up to 1,098,345 Ordinary Shares of 25p each, at a price of 475p per share, equivalent to a 10.3 per cent. discount to the NAV per share of 529.3p as at 31 December 2013. Under the 2006 Act, the Tender Offer requires shareholder approval. Resolution 13 relates to the Company's authority to make market purchases of its shares pursuant to the Tender Offer. A circular setting out the terms and conditions of the Tender Offer is enclosed with the Company's Annual Report and Accounts 2013. The authority will expire on the completion of the Tender Offer or, if earlier, one year from the passing of the resolution.
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 will be voting in favour of them in respect of their entire beneficial holdings of Ordinary Shares which amount, in aggregate, to 150,132 Ordinary Shares (representing approximately 0.7 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,
Chairman
Dunedin Enterprise Investment Trust PLC Annual Report and Accounts 2013 25 Dunedin Enterprise Investment Trust PLC Annual Report and Accounts 2013 24
Financial Statements Corporate Governance Report
The Board considers that the Company has complied with the provisions contained in the relevant provisions of the UK Corporate Governance Code issued by the Financial Reporting Council in September 2012 and the recommendations of the AIC's Code of Corporate Governance issued in February 2013 (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 and Executive Directors' remuneration. 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 Board consists of five non-executive Directors, all of whom the Company deems to be independent, even though the Chairman, David Gamble, has served as a Director for over nine years. David Gamble will retire as Chairman following the Annual General Meeting ("AGM").
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.
The Board determines the strategic direction of the Company. It meets at least four times a year and there is regular contact with Dunedin between these meetings. The Board has a formal schedule of matters specifically reserved for 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 Board maintains ongoing dialogue with the Company's legal advisor in relation to corporate governance matters.
There is a clear division of responsibility between the Board and Dunedin. Dunedin's role is defined within the investment management agreement. The Board and investment 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. Dunedin'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. Dunedin's ESG policy can be found at www.dunedin.com. Dunedin 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 shares held in the relevant underlying portfolio companies at the annual general meetings of these 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 that Directors retire by rotation at every third AGM or more frequently as required by the rules of the UK Corporate Governance Code and the AIC's Code of Corporate Governance. 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. An external consultant assists the Board in this evaluation where appropriate. The Board as a whole meets to assess its own performance and that of its Committees. This has been undertaken in the current year with the assistance of an independent external consultant. The Chairman undertakes an appraisal of each Director to assess their performance. 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. The Board believes that it has an appropriate balance of skills and experience, length of service and knowledge of the Company.
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.
Corporate Governance Report
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 one Management Engagement Committee meeting. There were an additional four meetings of the Board held during the year.
| Directors | Board meetings attended |
Additional Board meetings attended |
Audit Committee meetings attended |
Committee meetings attended |
Management Nomination Engagement Committee meetings attended |
|---|---|---|---|---|---|
| Liz Airey | 4 | 3 | 4 | 2 | 1 |
| Duncan Budge | 4 | 3 | 4 | 2 | 1 |
| Brian Finlayson | 4 | 2 | 4 | 2 | 1 |
| David Gamble | 4 | 4 | 4 | 2 | 1 |
| Federico Marescotti | 4 | 4 | 4 | 2 | 1 |
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.
David Gamble (Chairman) Liz Airey Duncan Budge Brian Finlayson Federico Marescotti
The Nomination Committee comprises all the independent non-executive 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 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. The Nomination Committee uses external specialist search consultants, as appropriate, to assist it in carrying out its responsibilities.
The Nomination Committee comprises all the independent non-executive Directors and is chaired by David Gamble, except when the Committee considered his succession and reviewed
his performance. In such circumstances, the Nomination Committee elects an alternative member to take the Chair. Mr Gamble was not involved in the selection and appointment of his successor to the role of Chairman.
David Gamble (Chairman) Liz Airey Duncan Budge Brian Finlayson Federico Marescotti
The Management Engagement Committee comprises all the independent non-executive Directors. The Management Engagement Committee reviews the performance of Dunedin and their compliance with the terms of the investment 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. The investment management agreement is terminable on not less than 18 months' written notice.
Liz Airey (Chairman) Duncan Budge Brian Finlayson David Gamble Federico Marescotti
The Audit Committee comprises all the independent non-executive Directors. The Directors believe that it is in the best interests of the Company that its Chairman, David Gamble, 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 27 to 28.
The Directors have overall responsibility for ensuring that there are in place systems of internal control, both financial and non-financial, 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. The Board regularly reviews financial performance and results with the Manager. The Board monitors and evaluates other service providers.
The UK Corporate Governance Code requires Directors to review and report to shareholders on the Company's system of internal control, including financial, operational and compliance controls and risk management.
Financial Statements Corporate Governance Report
The Board confirms that, since 1 January 2013 to the date of this report, appropriate procedures to review the effectiveness of the Company's system of internal control have been in place which cover all controls including financial, operational and compliance controls and risk management.
These procedures include an ongoing process for monitoring internal controls. This assessment includes a review of the significant risks faced by the Company and an assessment of their impact and likelihood. These risks are detailed in Note 20. In addition, an assessment of the effectiveness of internal controls in managing risks is conducted based on control reports received from the Manager and other relevant service providers.
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 20 to 23. 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 the shareholders at the AGM.
The Manager holds regular discussions with major 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. They can be contacted through the Company Secretary. The section entitled "Information for Investors", on pages 61 to 62, provides an overview of useful information available to shareholders.
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,
Chairman 19 March 2014 Audit Committee Report
The Audit Committee is chaired by Liz Airey and comprises all of the Directors, all of whom are independent.
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. This review included assessing how the changes to the terms of reference for the Audit Committee introduced the previous year and how the increase in the number of planned meetings from two to four had impacted the effectiveness of the Audit Committee. It concluded that the changes were working well and 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 2013 was no exception.
The Company's accounting policy for valuing unquoted investments is set out in note 2 (h) on page 43. 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 2013, 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 £76.3m of outstanding commitments; the undrawn £20m revolving credit facility with a maturity date of 27 February 2017; the future cash flow projections and the cash balances held by the Company at 31 December 2013, the Audit Committee concluded that the adoption of the going concern basis was appropriate.
Financial Statements Audit Committee Report
The Audit Committee monitored the relationship with the external auditors with a view to ensuring that they did not provide non-audit 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 2013 which comprised the provision of tax advice at a cost of £26,990, as detailed in Note 5 to the accounts. The Audit Committee is satisfied that the external auditor continues to demonstrate their independence.
The appointment of KPMG has not been put out to tender notwithstanding KPMG's tenure of 18 years, as the Audit Committee, from ongoing direct observation and indirect enquiry of the Manager, remain 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 second year for the current partner. The Committee is aware of the forthcoming changes in European legislation which are expected to limit tenure to 10 (or in some circumstances, up to 24) years and will determine the timing of a tender once the UK regulations are finalised and enacted.
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 2014 Annual General Meeting, KPMG LLP be 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 25.
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 19 March 2014
Directors' Remuneration Report
The Board presents the Directors' Remuneration report for the year ended 31 December 2013 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 33 to 34.
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) (Amendment) 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 2013.
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.
A resolution to approve this Remuneration Policy will be proposed at the Annual General Meeting of the Company to be held on 14 May 2014. If the resolution is passed, the Remuneration Policy provisions set out below will apply immediately after approval by shareholders until the next triennial shareholder vote unless shareholders approve amendments sooner. The Company does not anticipate making any signficant changes to implementation of the Remuneration Policy in the current financial year.
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. 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 re-election every three years thereafter. 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.
| 20132 £'000 |
2012 £'000 |
|
|---|---|---|
| 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.
1 The Company's Remuneration Policy (including its future policy) is contained on page 29.
2 Directors' fees may be increased, subject to the current maximum aggregate limit of £200,000 per annum stated in the Company's Articles of Association.
Financial Statements Directors' Remuneration Report
2) Directors' Remuneration Implementation Report This report is prepared in accordance with Schedule 8 of the 2013 Regulations.
The rates of Directors' fees for the financial year to 31 December 2013 were set out in the Directors' Remuneration Report contained in the Company's 2012 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 17 May 2013 and was passed by 96.3% of shareholders voting in favour of the resolution, 3.3% voting against and 0.4% abstaining.
All Directors who served during the year ended 31 December 2013 received the emoluments, in the form of fees, as described in the table below. In recognition of the additional work carried out by the Board in relation to proposals put to shareholders in November 2011 an incremental fee was made in 2012 of £10,000 to the Chairman and £5,000 to each of the other Directors. There were no such payments made in 2013.
| Annual Fees £'000 |
2013 Incremental fees £'000 |
Total £'000 |
Annual Fees £'000 |
2012 Incremental fees £'000 |
Total £'000 |
|
|---|---|---|---|---|---|---|
| Liz Airey | 29,000 | n/a | 29,000 | 27,860 | 5,000 | 32,860 |
| Duncan Budge (appointed 2 April 2012) | 23,000 | n/a | 23,000 | 17,250 | n/a | 17,250 |
| Brian Finlayson | 23,000 | n/a | 23,000 | 23,000 | 5,000 | 28,000 |
| David Gamble | 34,000 | n/a | 34,000 | 30,925 | 5,000 | 35,925 |
| Federico Marescotti | 23,000 | n/a | 23,000 | 23,000 | 5,000 | 28,000 |
| Edward Dawnay (resigned 16 May 2012) | n/a | n/a | n/a | 12,971 | 10,000 | 22,971 |
| Total | 132,000 | n/a | 132,000 | 135,006 | 30,000 | 165,006 |
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.
| 2013 £'000 |
2012 £'000 |
Difference | |
|---|---|---|---|
| Spend on Directors' fees' Distribution to shareholders: |
132,000 | 165,006 | -20% |
| (a) dividends (b) tender offer (inc costs) |
1,674,051 18,224,372 |
5,693,130 21,429,556 |
-71% -15% |
The names of the Directors and their shareholdings in the Company as at 31 December 2013 are shown in the table below. The Company has not been notified of any changes to the Directors' shareholdings between 31 December 2013 and 18 March 2014.
| 2013 £'000 |
2012 £'000 |
|---|---|
| 49,800 | 50,000 |
| 1,900 | 5,000 |
| 81,432 | 82,664 |
| 13,000 | 13,000 |
| 4,000 | 4,000 |
Directors' Remuneration Report
The graph below presents for the period from 31 December 2008 to 31 December 2013 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 29 to 31 was approved by the Board of Directors and signed on its behalf on 19 March 2014.
Chairman 19 March 2014 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
David Gamble Chairman
19 March 2014
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 2013 set out on pages 35 to 56. In our opinion:
In arriving at our audit opinion above on the financial statements, the risk of material misstatement that had the greatest effect on our audit was as follows:
Refer to pages 27 to 28 (Audit Committee Report), page 43 (accounting policy) and pages 35 to 56 (financial disclosures).
assessment of investment realisations in the period, comparing actual sales proceeds to prior year end valuations to understand the reasons for significant variances and determine whether they are indicative of bias or error in the approach to valuations;
challenging the Investment Manager on key judgements affecting investee company valuations in the context of observed industry best practice and the provisions of the International Private Equity and Venture Capital Valuation Guidelines. In particular, we focused on the appropriateness of the valuation basis selected as well as the underlying assumptions, such as discount factors, and the choice of benchmark for earnings multiples. We compared key underlying financial data inputs to external sources and investee company audited accounts and management information as applicable. We challenged the assumptions around sustainability of earnings based on the plans of the investee companies and whether these are achievable, and we obtained an understanding of existing and prospective investee company cashflows to understand whether borrowings can be serviced or refinancing may be required. Where a recent transaction is used to value any holding, we obtained an understanding of the circumstances surrounding those transactions and whether they were considered to be on an arm's-length basis and suitable as an input into a valuation. Our work included consideration of events which occurred subsequent to the year end up until the date of this audit report;
The materiality for the Group financial statements as a whole was set at £2,342,000. This has been determined with reference to a benchmark of Total Assets (of which it represents 2%). Total Assets, which is primarily composed of the Group's investment portfolio, is considered the key driver of the Group's capital and revenue performance and, as such, we believe that it is one of the principal considerations for members of the Company in assessing the financial performance of the Group.
We agreed with the Audit Committee to report to it all corrected and uncorrected misstatements we identified through our audit with a value in excess of £117,100, in addition to other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds.
Our audits 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 £112,400 to £2,338,000. These group procedures covered 100% of total
Independent Auditor's Report
group revenue, 100% of group profit before taxation and 100% of total group assets.
4. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
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:
Under the Listing Rules we are required to review:
provisions of the 2010 UK Corporate Governance Code specified for our 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 32, 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/auditscopeukco2013a, 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 19 March 2014
| Revenue | Capital | 2013 Total |
Revenue | Capital | 2012 Total |
||
|---|---|---|---|---|---|---|---|
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investment income | 3 | 6,487 | – | 6,487 | 7,362 | – | 7,362 |
| Gains/(losses) on investments | – | (4,990) | (4,990) | – | (3,788) | (3,788) | |
| Total income | 6,487 | (4,990) | 1,497 | 7,362 | (3,788) | 3,574 | |
| Expenses | |||||||
| Investment management fee | 4 | (182) | (545) | (727) | (283) | (850) | (1,133) |
| Management performance fee | 4 | (121) | (363) | (484) | – | – | – |
| Other expenses | 5 | (659) | – | (659) | (696) | – | (696) |
| Profit/(loss) before | |||||||
| finance costs and tax | 5,525 | (5,898) | (373) | 6,383 | (4,638) | 1,745 | |
| Finance costs | 6 | (133) | (399) | (532) | (109) | (327) | (436) |
| Profit/(loss) before tax | 5,392 | (6,297) | (905) | 6,274 | (4,965) | 1,309 | |
| Taxation | 7 | (634) | 506 | (128) | (473) | 528 | 55 |
| Profit/(loss) for the year | 4,758 | (5,791) | (1,033) | 5,801 | (4,437) | 1,364 | |
| Basic return per ordinary share | |||||||
| (basic & diluted) | 9 | 19.9p | (24.2)p | (4.3)p | 20.8p | (15.9)p | 4.9p |
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 | 2013 £'000 |
£'000 | 2012 £'000 |
|
|---|---|---|---|---|---|
| Non-current assets | |||||
| Investments at fair value through profit or loss | 10 | 93,043 | 109,578 | ||
| Current assets | |||||
| Other receivables | 11 | 593 | 1,301 | ||
| Cash and cash equivalents | 23,484 | 26,605 | |||
| 24,077 | 27,906 | ||||
| Current liabilities | |||||
| Other liabilities | 12 | (670) | (231) | ||
| Current tax liabilities | 12 | (183) | (55) | ||
| (853) | (286) | ||||
| Net current assets | 23,224 | 27,620 | |||
| Net assets | 116,267 | 137,198 | |||
| Capital and reserves | |||||
| Share capital | 13 | 5,492 | 6,438 | ||
| Capital redemption reserve | 14 | 2,434 | 1,488 | ||
| Capital reserve – realised | 14 | 62,832 | 81,915 | ||
| Capital reserve – unrealised | 14 | (11,649) | (6,717) | ||
| Special distributable reserve | 14 | 47,600 | 47,600 | ||
| Revenue reserve | 14 | 9,558 | 6,474 | ||
| Total equity shareholders' funds | 116,267 | 137,198 | |||
| Net asset value per share (basic & diluted) | 15 | 529.3p | 532.7p |
The financial statements were approved by the Board of Directors on 19 March 2014.
| Notes | £'000 | 2013 £'000 |
£'000 | 2012 £'000 |
|
|---|---|---|---|---|---|
| Non-current assets | |||||
| Investments at fair value through profit or loss | 10 | 80,135 | 78,193 | ||
| Subsidiary undertakings | 21 | 13,140 | 31,306 | ||
| 93,275 | 109,499 | ||||
| Current assets | |||||
| Other receivables | 11 | 593 | 1,404 | ||
| Cash and cash equivalents | 23,061 | 26,520 | |||
| 23,654 | 27,924 | ||||
| Current liabilities | |||||
| Other liabilities | 12 | (662) | (225) | ||
| (662) | (225) | ||||
| Net current assets | 22,992 | 27,699 | |||
| Net assets | 116,267 | 137,198 | |||
| Capital and reserves | |||||
| Share capital | 13 | 5,492 | 6,438 | ||
| Capital redemption reserve | 14 | 2,434 | 1,488 | ||
| Capital reserve – realised | 14 | 62,781 | 83,932 | ||
| Capital reserve – unrealised | 14 | (11,852) | (9,521) | ||
| Special distributable reserve | 14 | 47,600 | 47,600 | ||
| Revenue reserve | 14 | 9,812 | 7,261 | ||
| Total equity shareholders' funds | 116,267 | 137,198 |
The financial statements were approved by the Board of Directors on 19 March 2014.
| Notes | £'000 | 2013 £'000 |
£'000 | 2012 £'000 |
|
|---|---|---|---|---|---|
| Net cash inflow from operating activities | 16 | 5,536 | 4,393 | ||
| Servicing of finance | |||||
| Finance costs | (532) | (436) | |||
| Investing activities | |||||
| Purchase of investments | (18,458) | (19,303) | |||
| Purchase of 'AAA' rated money market funds | (17,213) | (18,412) | |||
| Sale of investments | 27,276 | 53,135 | |||
| Sale of 'AAA' rated money market funds | 20,171 | 19,586 | |||
| Net cash inflow from financial investment | 11,776 | 35,006 | |||
| Taxation | |||||
| Tax recovered | – | 8 | |||
| Financing activities | |||||
| Purchase of ordinary shares | (18,224) | (21,429) | |||
| Dividends paid | (1,674) | (5,693) | |||
| (19,898) | (27,122) | ||||
| Effect of exchange rate fluctuations on cash held | (3) | (205) | |||
| Net increase/(decrease) in cash and cash equivalents | (3,121) | 11,644 | |||
| Cash and cash equivalents at start of the year | 26,605 | 14,961 | |||
| Net increase/(decrease) in cash and cash equivalents | (3,121) | 11,644 | |||
| Cash and cash equivalents at end of the year | 23,484 | 26,605 |
| Notes | £'000 | 2013 £'000 |
£'000 | 2012 £'000 |
|
|---|---|---|---|---|---|
| Net cash inflow from operating activities | 16 | 5,112 | 285 | ||
| Servicing of finance | |||||
| Finance costs | (532) | (436) | |||
| Investing activities | |||||
| Purchase of investments | (13,992) | (11,527) | |||
| Subsidiary investment | (4,195) | (7,079) | |||
| Purchase of 'AAA' rated money market funds | (17,213) | (18,412) | |||
| Sale of investments | 4,452 | 49,379 | |||
| Subsidiary sale | 22,532 | 7,486 | |||
| Sale of 'AAA' rated money market funds | 20,171 | 19,586 | |||
| Net cash inflow from financial investment | 11,755 | 39,433 | |||
| Taxation | |||||
| Tax recovered | 103 | 8 | |||
| Financing activities | |||||
| Purchase of ordinary shares | (18,224) | (21,429) | |||
| Dividends paid | (1,674) | (5,693) | |||
| (19,898) | (27,122) | ||||
| Effect of exchange rate fluctuations on cash held | 1 | (183) | |||
| Net increase/(decrease) in cash and cash equivalents | (3,459) | 11,985 | |||
| Cash and cash equivalents at start of the year | 26,520 | 14,535 | |||
| Net increase/(decrease) in cash and cash equivalents | (3,459) | 11,985 | |||
| Cash and cash equivalents at end of the year | 23,061 | 26,520 |
| At 31 December 2013 | 5,492 | 2,434 | 62,832 | (11,649) | 47,600 | 9,558 | 108,341 | 116,267 |
|---|---|---|---|---|---|---|---|---|
| Dividends paid | – | – | – | – | – | (1,674) | (1,674) | (1,674) |
| Purchase and cancellation of shares | (946) | 946 | (18,224) | – | – | – | (18,224) | (18,224) |
| Profit/(loss) for the year | – | – | (859) | (4,932) | – | 4,758 | (1,033) | (1,033) |
| At 31 December 2012 | 6,438 | 1,488 | 81,915 | (6,717) | 47,600 | 6,474 | 129,272 | 137,198 |
| For the year ended 31 December 2013 |
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 |
| of shares Dividends paid |
(1,092) – |
– – |
1,092 – |
(21,429) – |
– – |
– – |
– (5,693) |
(21,429) (5,693) |
(21,429) (5,693) |
|---|---|---|---|---|---|---|---|---|---|
| Purchase and cancellation | |||||||||
| Cancellation of share premium account |
– | (47,600) | – | – | – | 47,600 | – | 47,600 | – |
| Profit/(loss) for the year | – | – | – | 12,232 | (16,669) | – | 5,801 | 1,364 | 1,364 |
| At 31 December 2011 | 7,530 | 47,600 | 396 | 91,112 | 9,952 | – | 6,366 | 107,430 | 162,956 |
| For the year ended 31 December 2012 |
Share capital £'000 |
Share account £'000 |
Capital premium 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 2013 | 5,492 | 2,434 | 62,781 | (11,852) | 47,600 | 9,812 | 108,341 | 116,267 |
|---|---|---|---|---|---|---|---|---|
| Dividends paid | – | – | – | – | – | (1,674) | (1,674) | (1,674) |
| Purchase and cancellation of shares | (946) | 946 | (18,224) | – | – | – | (18,224) | (18,224) |
| Profit/(loss) for the year | – | – | (2,927) | (2,331) | – | 4,225 | (1,033) | (1,033) |
| At 31 December 2012 | 6,438 | 1,488 | 83,932 | (9,521) | 47,600 | 7,261 | 129,272 | 137,198 |
| For the year ended 31 December 2013 |
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 2012 | 6,438 | – | 1,488 | 83,932 | (9,521) | 47,600 | 7,261 | 129,272 | 137,198 |
|---|---|---|---|---|---|---|---|---|---|
| Dividends paid | – | – | – | – | – | – | (5,693) | (5,693) | (5,693) |
| Purchase and cancellation of shares |
(1,092) | – | 1,092 | (21,429) | – | – | – | (21,429) | (21,429) |
| Cancellation of share premium account |
– | (47,600) | – | – | – | 47,600 | – | 47,600 | – |
| Profit/(loss) for the year | – | – | – | 13,045 | (17,689) | – | 6,008 | 1,364 | 1,364 |
| At 31 December 2011 | 7,530 | 47,600 | 396 | 92,316 | 8,168 | – | 6,946 | 107,430 | 162,956 |
| For the year ended 31 December 2012 |
Share capital £'000 |
Share account £'000 |
Capital premium 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 |
Notes to the Accounts
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 2013 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.
Where presentation guidance set out in the Statement of Recommended Practice (SORP) for investment trusts issued by the Association of Investment Companies in January 2009 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.
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 entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the financial statements from the date that control commences until the date that control ceases. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Subsidiaries are valued at fair value which is deemed to be the net asset value of the subsidiary.
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:
f. Standards, interpretations and amendments to published standards that are not yet effective and the early adoption of standards.
The following new standards, amendments to standards or interpretations are mandatory for the first time for financial years beginning on 1 January 2013 and have been endorsed for adoption by the EU. These are applicable from 1 January 2013.
IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by other IFRSs. In particular, it unifies the definition of fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. It also replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7 Financial Instruments: Disclosures.
In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value measurement guidance prospectively, and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no significant impact on the measurements of the Group or Company's assets and liabilities.
There are no other standards, amendments to standards or interpretations that are applicable in the period which have a material impact on the financial statements.
New standards and interpretations not yet adopted:-
The Group has not early adopted any standards or interpretations during 2013.
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2014 as endorsed by the EU. These where relevant will be adopted by the Group from 1 January 2014 and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below.
IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities
IFRS 10 introduces a single control model to determine whether an investee company should be consolidated. The new control model focuses on the concept of power, variability of returns and the linkage between the two.
IFRS 11 is not expected to have any impact on the Group as the Group is not involved currently in any joint arrangements. IFRS 12 brings into a single standard all the disclosure requirements about an entity's interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities.
No material changes to the consolidation of the Group are expected as a result of adopting this standard, however additional disclosures will be required by IFRS 12.
These standards are required to be applied retrospectively and are applicable for annual reporting periods beginning on or after 1 January 2014.
Amendments to IFRS 10, IFRS 11, IFRS 12 and IAS 27 Consolidation.
These amendments introduce the concept of an 'investment entity'. Where a subsidiary qualifies as an investment entity it is not required to be consolidated by the Group, but should be recorded at fair value through profit or loss. No material impact on the Group is expected from adopting these amendments.
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.
The Group has one reportable segment being investing in a portfolio of private equity funds or companies.
| 3. Income |
|
|---|---|
| Group £'000 |
Group 2013 2012 £'000 |
| Dividend income – UK | 774 721 |
| Interest income – UK 5,352 |
2,403 |
| Limited partnership income – UK | 125 3,977 |
| Limited partnership income – European | 68 – |
| 'AAA' rated money market funds | 41 80 |
| 6,360 | 7,181 |
| Arrangement fee | – 14 |
| Deposit interest* | 127 167 |
| Total income 6,487 |
7,362 |
*income arising from financial assets that are not investments designated as fair value through profit or loss.
| Revenue £'000 |
Capital £'000 |
Group 2013 Total £'000 |
Revenue £'000 |
Capital £'000 |
Group 2012 Total £'000 |
|
|---|---|---|---|---|---|---|
| Investment management fee | 182 | 545 | 727 | 283 | 850 | 1,133 |
| Management performance fee | 121 | 363 | 484 | – | – | – |
| 303 | 908 | 1,211 | 283 | 850 | 1,133 |
Dunedin provides investment management and general administration services to the Company. The terms of the management fee arrangements are detailed on page 56. The management performance fee is related to the realisation of the European fund investments as detailed on page 56 .
Profit/(loss) on ordinary activities before taxation is shown after charging the following amounts:
| Group | Group | |
|---|---|---|
| 2013 | 2012 | |
| £'000 | £'000 | |
| Directors fees | 132 | 165 |
| Administration expenses | 466 | 464 |
| Fees payable to the auditor: | ||
| Fees payable to the Company's auditor for audit of Company's annual accounts | 22 | 21 |
| 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 | 5 |
| Tax compliance services | 19 | 28 |
| Tax advisory services | 8 | 7 |
| 659 | 696 |
The Company does not directly employ any staff.
| Revenue £'000 |
Capital £'000 |
Group 2013 Total £'000 |
Revenue £'000 |
Capital £'000 |
Group 2012 Total £'000 |
|
|---|---|---|---|---|---|---|
| On bank loans and overdraft: | ||||||
| Repayable in less than 5 years | 100 | 299 | 399 | 78 | 233 | 311 |
| Banking facility arrangement fee | 33 | 100 | 133 | 31 | 94 | 125 |
| 133 | 399 | 532 | 109 | 327 | 436 |
The interest paid represents a fee on an undrawn facility.
| Revenue £'000 |
Capital £'000 |
Group 2013 Total £'000 |
Revenue £'000 |
Capital £'000 |
Group 2012 Total £'000 |
|
|---|---|---|---|---|---|---|
| (a) Analysis of charge/(credit) for the year: |
||||||
| UK corporation tax at 23.25% (2012: 24.5%) | 634 | (506) | 128 | 584 | (528) | 56 |
| Prior year adjustment | – | – | – | (111) | – | (111) |
| 634 | (506) | 128 | 473 | (528) | (55) |
The UK corporation tax rate was 24% until 31 March 2013 and 23% from 1 April 2013 giving an effective tax rate of 23.25% (2012 – effective tax rate of 24.5%). The tax assessed for the year is lower than the rate of corporation tax. The differences are explained below.
| Group 2013 £'000 |
Group 2012 £'000 |
|
|---|---|---|
| Total return on ordinary activities before tax | (905) | 1,309 |
| UK Corporation Tax at 23.25% (2012: 24.5%) | (210) | 321 |
| Effects of: | ||
| Capital (gains)/losses not subject to corporation tax | 1,160 | 928 |
| Dividends not subject to corporation tax | (180) | (177) |
| Non taxable partnership income and expenses | (381) | (690) |
| Prior year adjustment | – | (111) |
| Excess management expenses brought forward utilised | (261) | (326) |
| 128 | (55) |
At 31 December 2013, the Company had net surplus management expenses of £2,688,000 (2012: £2,949,000) 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 2013 £'000 |
Group 2012 £'000 |
|
|---|---|---|
| Final dividend for the year ended 31 December 2012 – 6.5p paid 24 May 2013 | 1,674 | – |
| Final dividend for the year ended 31 December 2011 – 5.0p paid 25 May 2012 | – | 1,355 |
| Special dividend for the year ended 31 December 2012 – 16.0p paid 28 September 2012 | – | 4,338 |
| 1,674 | 5,693 |
The final dividend has not been included as a liability in these financial statements. 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 2013 £'000 |
Group 2012 £'000 |
|
|---|---|---|
| Final dividend for the year ended 31 December 2013 – 16.5p to be paid on 23 May 2014 | 3,624 | – |
| Final dividend for the year ended 31 December 2012 – 6.5p paid on 24 May 2013 | – | 1,674 |
| Special dividend for the year ended 31 December 2012 – 16.0p paid on 28 September 2012 | – | 4,338 |
| 3,624 | 6,012 |
The returns per ordinary share are based on the following figures:
| Group 2013 £'000 |
Group 2012 £'000 |
|
|---|---|---|
| Revenue return | 4,758 | 5,801 |
| Capital return | (5,791) | (4,437) |
| (1,033) | 1,364 | |
| Weighted average number of shares in issue | 23,894,866 | 27,582,091 |
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 2013 £'000 |
Group 2012 £'000 |
|
|---|---|---|
| Direct | 10,932 | 21,616 |
| Dunedin Buyout Fund LP | 193 | 395 |
| Dunedin Buyout Fund II LP | 49,191 | 50,890 |
| Dunedin Buyout Fund III LP | 10,625 | – |
| Equity Harvest Fund LP | 4,822 | 4,453 |
| Dunedin Fund of Funds LP | 12,908 | 24,894 |
| 'AAA' rated money market funds | 4,372 | 7,330 |
| 93,043 | 109,578 |
On a look through basis Dunedin Enterprise's investments are detailed below.
| Group 2013 £'000 |
Company 2013 £'000 |
Group 2012 £'000 |
Company 2012 £'000 |
|
|---|---|---|---|---|
| Unlisted UK investments | 75,763 | 75,763 | 77,354 | 70,863 |
| Unlisted European investments | 12,908 | – | 24,894 | – |
| 'AAA' rated money market funds | 4,372 | 4,372 | 7,330 | 7,330 |
| 93,043 | 80,135 | 109,578 | 78,193 |
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.
Valuation of financial instruments
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:
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Level 1 | ||
| 'AAA' rated money market funds | 4,372 | 7,330 |
| Level 2 | – | – |
| Level 3 | ||
| Unlisted investments | 88,671 | 102,248 |
| 93,043 | 109,578 |
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.
| Group | Level 3 UK Unlisted £'000 |
Level 3 European Unlisted £'000 |
Level 1 'AAA rated money market funds £'000 |
Total £'000 |
|---|---|---|---|---|
| Book cost at 31 December 2012 | 85,159 | 23,806 | 7,330 | 116,295 |
| Unrealised appreciation/(depreciation) | (7,805) | 1,088 | – | (6,717) |
| Valuation at 31 December 2012 | 77,354 | 24,894 | 7,330 | 109,578 |
| Purchases at cost | 13,992 | 4,466 | 17,213 | 35,671 |
| Sales – proceeds | (9,676) | (17,600) | (20,171) | (47,447) |
| Sales – realised gains/(losses) on sales | (1,447) | 1,620 | – | 173 |
| Increase/(decrease) in unrealised appreciation | (4,460) | (472) | – | (4,932) |
| Valuation at 31 December 2013 | 75,763 | 12,908 | 4,372 | 93,043 |
| Book cost at 31 December 2013 | 88,028 | 12,292 | 4,372 | 104,692 |
| Closing unrealised depreciation | (12,265) | 616 | – | (11,649) |
| Company | Level 3 UK Unlisted £'000 |
Level 1 'AAA' rated money market funds £'000 |
Total £'000 |
|---|---|---|---|
| Book cost at 31 December 2012 | 79,884 | 7,330 | 87,214 |
| Unrealised appreciation/(depreciation) | (9,021) | – | (9,021) |
| Valuation at 31 December 2012 | 70,863 | 7,330 | 78,193 |
| Purchases at cost | 13,992 | 17,213 | 31,205 |
| Sales – proceeds | (4,452) | (20,171) | (24,623) |
| Sales – realised losses on sales | (1,395) | – | (1,395) |
| Increase/(decrease) in unrealised appreciation | (3,245) | – | (3,245) |
| Valuation at 31 December 2013 | 75,763 | 4,372 | 80,135 |
| Book cost at 31 December 2013 | 88,029 | 4,372 | 92,401 |
| Closing unrealised depreciation | (12,266) | – | (12,266) |
There have not been any movements between the levels of the fair value hierarchy during the year.
| Group | UK Unlisted £'000 |
European Unlisted £'000 |
European Listed £'000 |
'AAA rated money market funds £'000 |
Total £'000 |
|---|---|---|---|---|---|
| Book cost at 31 December 2011 | 94,460 | 20,226 | 15,025 | 8,504 | 138,215 |
| Unrealised appreciation/(depreciation) | 10,876 | (419) | (505) | – | 9,952 |
| Valuation at 31 December 2011 | 105,336 | 19,807 | 14,520 | 8,504 | 148,167 |
| Purchases at cost | 11,527 | 7,776 | – | 18,412 | 37,715 |
| Sales – proceeds | (34,913) | (3,756) | (14,466) | (19,586) | (72,721) |
| Sales – realised gains/(losses) on sales | 14,085 | (440) | (559) | – | 13,086 |
| Increase/(decrease) in unrealised appreciation | (18,681) | 1,507 | 505 | – | (16,669) |
| Valuation at 31 December 2012 | 77,354 | 24,894 | – | 7,330 | 109,578 |
| Book cost at 31 December 2012 | 85,159 | 23,806 | – | – | 116,295 |
| Closing unrealised depreciation | (7,805) | 1,088 | – | – | (6,717) |
| Company | Level 3 UK |
Level 3 European |
Level 1 'AAA rated money market |
|
|---|---|---|---|---|
| Unlisted £'000 |
Listed £'000 |
funds £'000 |
Total £'000 |
|
| Book cost at 31 December 2011 | 89,185 | 15,025 | 8,504 | 112,714 |
| Unrealised appreciation/(depreciation) | 10,927 | (505) | – | 10,422 |
| Valuation at 31 December 2011 | 100,112 | 14,520 | 8,504 | 123,136 |
| Purchases at cost | 11,527 | – | 18,412 | 29,939 |
| Sales – proceeds | (34,913) | (14,466) | (19,586) | (68,965) |
| Sales – realised losses on sales | 14,085 | (559) | – | 13,526 |
| Increase/(decrease) in unrealised appreciation | (19,948) | 505 | – | (19,443) |
| Valuation at 31 December 2012 | 70,863 | – | 7,330 | 78,193 |
| Book cost at 31 December 2012 | 79,884 | – | 7,330 | 87,214 |
| Closing unrealised depreciation | (9,021) | – | – | (9,021) |
| Group | Company | Group | Company | |
|---|---|---|---|---|
| 2013 | 2013 | 2012 | 2012 | |
| £'000 | £'000 | £'000 | £'000 | |
| Realised gains/(losses) based on cost | 173 | (2,138) | 13,086 | 13,526 |
| Unrealised appreciation/(depreciation) recognised in prior years | (5,081) | (2,298) | (11,873) | (12,516) |
| Increase/(decrease) in unrealised depreciation Other movements |
(4,908) 149 (231) |
(4,436) (33) (243) |
1,213 (4,796) (205) |
1,010 (5,173) (183) |
| (4,990) | (4,712) | (3,788) | (4,346) |
Included within unlisted investments are investments valued at £64,445,994 (2012: £76,502,329) where the Company's interest is between 20% and 50% of the equity. These have not been accounted for as associates for the reason set out in note 2(b). These investments are listed below.
(a) At 31 December 2013, 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 |
Operating profit/(loss) for year £'000 |
|---|---|---|---|---|---|---|
| CGI Group Holdings Limited | England | 41.4 | 41.4 | 31.12.12 | (507) | 1,026 |
| Dunedin Buyout Fund II LP | Scotland | 29.7 | 29.7 | 31.12.12 | n/a | n/a |
| Equity Harvest Fund LP | England | 47.4 | 47.4 | 31.12.12 | n/a | n/a |
| OSS Environmental Holdings Limited | England | 40.2 | 40.2 | 31.12.11 | 2,333 | 1,288 |
| Premier Hytemp Bidco Limited | Scotland | – | 23.0 | n/a | n/a | n/a |
| RSL Steeper Holdings Limited | England | 22.8 | 37.4 | 28.2.13 | 5,387 | 485 |
| Sycamore Topco Limited | England | – | 30.2 | 31.3.13 | (5,283) | (3,172) |
(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 |
| Dunedin Buyout Fund LP | Scotland | 13.0 | 13.0 |
| Dunedin Buyout Fund III LP | Scotland | 19.6 | 19.6 |
| Dunedin Claret Limited | England | – | 18.7 |
| Formaplex Group Limited | England | – | 17.7 |
| Hawksford International Limited | Jersey | – | 16.0 |
| Project Lennon Topco Limited | England | – | 12.2 |
| 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 2013 £'000 |
Company 2013 £'000 |
Group 2012 £'000 |
Company 2012 £'000 |
|
|---|---|---|---|---|
| Prepayments and accrued income | 593 | 593 | 1,301 | 1,301 |
| Amounts due from subsidiary undertakings | – | – | – | 103 |
| 593 | 593 | 1,301 | 1,404 |
| Group 2013 |
Company 2013 |
Group 2012 |
Company 2012 |
|
|---|---|---|---|---|
| £'000 | £'000 | £'000 | £'000 | |
| Accruals | 670 | 662 | 231 | 225 |
| Corporation Tax | 183 | – | 55 | – |
| 853 | 662 | 286 | 225 |
A revolving credit facility of £20m is available to the Company until 27 February 2017. The rate of interest on the revolving credit facility is 3% above LIBOR.
| Group & Company |
Group & Company |
|||
|---|---|---|---|---|
| Nominal | 31 December | Nominal | 31 December | |
| No. | 2013 | No. | 2012 | |
| Allotted, called-up and fully paid ordinary shares: | '000 | £'000 | '000 | £'000 |
| At 1 January 2013 | 25,754 | 6,438 | 30,122 | 7,530 |
| Repurchased during the year | (3,787) | (946) | (4,368) | (1,092) |
| At 31 December 2013 | 21,967 | 5,492 | 25,754 | 6,438 |
The capital of the Company is managed in accordance with its investment policy and objectives which are detailed in the Strategic Report on page 17.
The Company repurchased 3,787,728 ordinary shares in the year to 31 December 2013 (2012: 4,367,745) at a cost of £18,224,372 (2012: £21,429,556). The nominal value of these shares was £946,932 and represented 14.7% of the issued share capital. At 19 March 2014 no ordinary shares have been repurchased since 31 December 2013. 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.
| Group | 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 2012 | 6,438 | 1,488 | 47,600 | 81,915 | (6,717) | 6,474 | 129,272 | 137,198 |
| Net revenue for the year | – | – | – | – | – | 4,758 | 4,758 | 4,758 |
| Purchase and cancellation of shares | (946) | 946 | – | (18,224) | – | – | (18,224) | (18,224) |
| Transfer on disposal of investments | – | – | – | 5,081 | (5,081) | – | – | – |
| Net gain/(loss) on realisation | – | – | – | (4,908) | – | – | (4,908) | (4,908) |
| of investments | ||||||||
| Revaluation movements | – | – | – | – | 149 | – | 149 | 149 |
| Management fees charged to capital | – | – | – | (908) | – | – | (908) | (908) |
| Finance costs charged to capital | – | – | – | (399) | – | – | (399) | (399) |
| Dividends paid | – | – | – | – | – | (1,674) | (1,674) | (1,674) |
| Tax effect of capital items | – | – | – | 506 | – | – | 506 | 506 |
| Other movements | – | – | – | (231) | – | – | (231) | (231) |
| At 31 December 2013 | 5,492 | 2,434 | 47,600 | 62,832 | (11,649) | 9,558 | 108,341 | 116,267 |
| 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 2012 | 6,438 | 1,488 | 47,600 | 83,932 | (9,521) | 7,261 | 129,272 | 137,198 |
| Net revenue for the year | – | – | – | – | – | 4,225 | 4,225 | 4,225 |
| Purchase and cancellation of shares | (946) | 946 | – | (18,224) | – | – | (18,224) | (18,224) |
| Transfer on disposal of investments | – | – | – | 2,298 | (2,298) | – | – | – |
| Net gain/(loss) on realisation of investments | – | – | – | (4,436) | – | – | (7,164) | (7,164) |
| Revaluation movements | – | – | – | – | (33) | – | (33) | (33) |
| Management fees charged to capital | – | – | – | (653) | – | – | (653) | (653) |
| Finance costs charged to capital | – | – | – | (399) | – | – | (399) | (399) |
| Dividends paid | – | – | – | – | – | (1,674) | (1,674) | (1,674) |
| Tax effect of capital items | – | – | – | 506 | – | – | 506 | 506 |
| Other movements | – | – | – | (243) | – | – | (243) | (243) |
| At 31 December 2013 | 5,492 | 2,434 | 47,600 | 62,781 | (11,852) | 9,812 | 108,341 | 116,267 |
* – these reserves are non-distributable
The net asset value per share is calculated on shareholders' funds of £116,267,328 (2012: £137,198,082) and on 21,966,907 ordinary shares in issue at the year end (2012: 25,754,635).
| Group 2013 £'000 |
Company 2013 £'000 |
Group 2012 £'000 |
Company 2012 £'000 |
|
|---|---|---|---|---|
| Profit/(loss) before tax | (905) | (1,033) | 1,309 | 1,251 |
| Losses on investments | 4,990 | 4,712 | 3,788 | 4,346 |
| Interest paid | 532 | 532 | 436 | 436 |
| Decrease/(increase) in debtors | 708 | 708 | (942) | (1,066) |
| Increase/(decrease) in creditors | 439 | 437 | (198) | (4,682) |
| Other non cash movements | (228) | (244) | – | – |
| Net cash inflow from operating activities | 5,536 | 5,112 | 4,393 | 285 |
There were outstanding capital commitments of £76.3m (2012: £86.2m) in respect of investments at the end of the year.
There were no contingent liabilities at the year end (2012: £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 9 to 14 . The Company's overall market positions are monitored by the Manager on an ongoing basis and by the Board quarterly.
76.3% (2012: 74.5%) of the Company's net assets 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 2013 would have increased the net assets of the Company by £4.7m (2012: £5.1m).
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 2013 | Fixed | Floating | Nil | |
|---|---|---|---|---|
| Currency | rate £'000 |
rate £'000 |
rate £'000 |
Total £'000 |
| Sterling | 65,466 | 27,856 | 10,297 | 103,619 |
| Euro | 8,732 | – | 4,176 | 12,908 |
| Total | 74,198 | 27,856 | 14,473 | 116,527 |
| 31 December 2012 | Fixed rate |
Floating rate |
Nil rate |
Total |
|---|---|---|---|---|
| Currency | £'000 | £'000 | £'000 | £'000 |
| Sterling | 66,541 | 33,935 | 10,813 | 111,289 |
| Euro | 17,036 | – | 7,858 | 24,894 |
| Total | 83,577 | 33,935 | 18,671 | 136,183 |
The fixed rate assets comprise fixed rate lendings to investee companies. Fixed rate lendings have a weighted average interest rate of 9% per annum (2012: 9%) and a weighted average life to maturity of 4.1 years (2012: 4.0 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 fixed 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:
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Unquoted investments | 88,671 | 102,248 |
| AAA rated cash OEICs | 4,372 | 7,330 |
| Cash deposits | 23,484 | 26,605 |
| Total | 116,527 | 136,183 |
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. 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.
| 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 |
Dunedin Enterprise Co-Investment |
Dunedin | Total £'000 |
|
|---|---|---|---|---|
| Funds LP £'000 |
Limited £'000 |
LP £'000 |
||
| Valuation at 31 December 2012 | 24,972 | 6,333 | 1 | 31,306 |
| Net capital movements | (12,853) | (5,483) | – | (18,336) |
| Valuation movements | 879 | (709) | – | 170 |
| Valuation at 31 December 2013 | 12,998 | 141 | 1 | 13,140 |
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 borne a management fee of £2.0m (2012: £0.9m) in respect of these limited partnerships. The total investment management fee payable by the Company to the Manager is therefore £2.7m (2012: £2.0m).
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 Managers 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 the economic interest of the Manager is aligned with that of the limited partner investors by co-investing in this fund.
Brian Finlayson has an interest in the Manager's Incentive Scheme and received £2,614 from that scheme during 2013. Brian Finlayson was previously employed by the Manager and retired in 2002. As at 31 December 2013 the remaining value in the Manager's Incentive Scheme attributable to Brian Finlayson is £nil.
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 contract is 18 months. The 18 month notice period reflects the long-term nature of the private equity asset class and the detailed involvement of the Manager in investee companies which therefore requires greater continuity.
In November 2012 Shareholders approved a new performance fee. Under the terms of the performance fee the Manager is incentivised to achieve a realisation of investments held in the Fund of Funds Limited Partnership which contains the investment in European Funds. The performance fee is based upon realisations achieved up to 31 December 2014 and is up to a maximum of 1.5% of Aggregate Gross Proceeds received from the realisation of the investments plus the associated undrawn original commitments from which the Company is released. The level of the performance fee payable is dependent upon the timing of the realisations and how the value realised compares to the most recent valuation undertaken by the third party manager.
Dunedin Enterprise Investment Trust PLC Annual Report and Accounts 2013 58 Dunedin Enterprise Investment Trust Annual Report and Accounts 2013 57
Notice of Annual General Meeting Notice of Annual General Meeting
Notice is hereby given that the thirty ninth Annual General Meeting of the shareholders of Dunedin Enterprise Investment Trust PLC will be held at 11.00 am on 14 May 2014 at The Sheraton Hotel, 1 Festival Square, Edinburgh EH3 9SR for the following purposes:
To consider and, if thought fit, pass the following resolutions. Resolutions 1 to 9 will be proposed as ordinary resolutions and resolutions 10 to 13 will be proposed as special resolutions.
to allot equity securities for cash as if Section 561 of the Act did not apply to any such allotment, provided that this power is limited:
and shall expire on 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 issued, revoked or renewed prior to such time save that the Company may, before this authority expires or is replaced, make an offer or agreement which would or might require equity securities to be allotted after such expiry or replacement and the Directors may allot equity securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired or, as the case may be, been replaced.
stipulated by Article 5(1) of the regulation entitled the 'Buy-Back and Stabilisation Regulation';
By Order of the Board
Secretary 2 April 2014
Registered Office: Saltire Court, 20 Castle Terrace, Edinburgh EH1 2EN
59
these paragraphs can only be exercised by shareholders of the Company.
message (a "CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear UK & Ireland Limited's specifications, and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer's agent (ID RA19) by 11.00 am on 12 May 2014. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.
You may not use any electronic address provided either in this Notice of Meeting or any related documents (including the Form of Proxy) to communicate with the Company for any purposes other than those expressly stated.
Shareholders who prefer to register the appointment of their proxy electronically via the internet can do so through Equiniti's website at www.sharevote.co.uk where full instructions on the procedure are given. The Voting ID, Task ID and Shareholder Reference Number printed on the Form of Proxy will be required in order to use this electronic proxy appointment system. Alternatively, shareholders who have already registered with Equiniti's online portfolio service, Shareview, can appoint their proxy electronically by logging on to their portfolio at www.shareview.co.uk and then clicking on the link to vote. The on screen instructions give details on how to complete the appointment process. A proxy appointment made electronically will not be valid if sent to any address other than those provided or if received after 11.00am on 12 May 2014.
60
Notice of Annual General Meeting
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.
Alliance Trust Savings – Individual Savings Account (ISA) is a low-cost, tax-efficient savings vehicle. Since 6 April 2013, the ISA subscription limit has been £11,520 for anyone eligible to invest, rising to £15,000 from 6 April 2014. The annual administration charge for an Alliance Trust Savings ISA is £75 plus VAT.
Alliance Trust Savings – Investment Dealing Account (IDA) offers a simple means of investing in Dunedin Enterprise. The annual administration charge for an Alliance Trust Savings IDA is £75+ VAT.
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 regular monthly payments is £1.50.
Investors may also make one-off 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 we consider our IDA and ISA to be medium to long term investments, 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 Email [email protected]
Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA Telephone: UK 0871 384 2440*; International +44 121 415 7047 Textel/hard of hearing line: UK 0871 384 2255*; International +44 121 415 7028 Website: www.shareview.co.uk
* calls to this/these numbers are charged at 8p per minute plus network extras. 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 61 to 62 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. It is authorised and regulated by the Financial Conduct Authority whose address is 25 The North Colonnade, Canary Wharf, London E14 5HS firm reference number 116115. It 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
Preliminary figures and final dividend for the year announced.
Report and accounts published.
May
Annual General Meeting held and payment of final dividend.
August
Interim report for half year to 30 June published.
David Gamble, Chairman Liz Airey Duncan Budge Brian Finlayson 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 0871 384 2440
Lloyds TSB Bank plc
Solicitors
Dundas & Wilson CS LLP
KPMG Audit Plc
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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