Annual Report • Dec 31, 2018
Annual Report
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Annual Report & Accounts 2018
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 conduct an orderly realisation of its assets, to be effected in a manner that seeks to achieve a balance between maximising the value of the Company's investments and progressively returning cash to shareholders.
References in this report and accounts to 'Dunedin Enterprise' or to 'the Company' or the 'Trust' mean Dunedin Enterprise Investment Trust PLC References to 'Dunedin' or to 'the Manager' or to the 'Investment Manager' mean Dunedin LLP
Strategic Report – Financial Highlights
Net asset value total return per ordinary share
6.4% 23.9% 2017
Share price total return per ordinary share
9.4% 74.8% 2017
Dividend per ordinary share Discount
2.0p 19.0p 2017
Ongoing charges
1.5% 1.9% 2017
*1 – after return of capital of 100p per share
*2 – in 2011 the investment policy of the Company was changed and distribution policy introduced
| Comparative Total Return Peformance | One year to December 2018 % |
Three years to December 2018 % |
Five years to December 2018 % |
Ten years to December 2018 % |
|---|---|---|---|---|
| Net asset value per ordinary share | 6.4 | 35.3 | 34.6 | 85.1 |
| Share price | 9.4 | 91.4 | 49.0 | 270.5 |
| FTSE Small Cap Index ("the Benchmark") | -13.8 | 12.2 | 23.3 | 278.1 |
| FTSE All-Share Index | -9.8 | 18.9 | 21.0 | 135.8 |
Net asset value per ordinary share
412.9p*1 489.2p 2017
Share price
328p 396.5p 2017
20.6% 18.9% 2017
Returned to shareholders from 2012
£109.0m*2
Strategic Report – Financial Highlights
| 2012 £m |
2013 £m |
2014 £m |
2015 £m |
2016 £m |
2017 £m |
2018 £m |
|
|---|---|---|---|---|---|---|---|
| Analysis of total assets: | |||||||
| Dunedin managed | 76.5 | 75.1 | 84.0 | 93.1 | 81.5 | 57.2 | 64.8 |
| European Funds | 24.9 | 12.9 | 12.7 | 16.0 | 22.0 | 9.6 | 10.2 |
| Other | 2.2 | 1.2 | 0.8 | 0.4 | 0.4 | 1.5 | 6.1 |
| Cash | 33.9 | 27.9 | 9.9 | 0.6 | 1.1 | 32.9 | 5.7 |
| Total assets | 137.5 | 117.1 | 107.4 | 110.1 | 105.0 | 101.2 | 86.8 |
| Cash returned to shareholders: | |||||||
| Capital returned | 21.1 | 18.0 | 5.2 | 0.7 | – | 20.6 | 20.6 |
| Dividends paid | 5.7 | 1.7 | 3.6 | 1.0 | 3.3 | 6.4 | 1.1 |
| Return to shareholders | 26.8 | 19.7 | 8.8 | 1.7 | 3.3 | 27.0 | 21.7 |
| Cumulative return to shareholders | 26.8 | 46.5 | 55.3 | 57.0 | 60.3 | 87.3 | 109.0 |
Strategic Report – Chairman's Statement
In the year to 31 December 2018 your Company's net asset value total return was 6.4%, generated from both valuation uplifts and realisations.
The relative share price performance was pleasing with a total return to shareholders of 9.4%. This was boosted by a return of capital to shareholders of 100p per share and the payment of a 5.5p dividend.
In terms of share price the Company has been one of the best performing investment trusts over the past two years.
The Company's net asset value per share decreased from 489.2p to 412.9p during the year after taking account of the return of capital and dividends. Since 2012, following a change of investment policy, a total of £109m has been returned to shareholders by way of capital and dividends.
The discount at which the shares trade was 20.6% at the end of the year, based on a net asset value per share of 412.9p and a share price of 328p.
Since the year end the share price has increased by a further 13.4% to 372p.
In September 2018 there was a successful realisation of Pyroguard, the specialist fire resistant glass manufacturer. Total proceeds from the sale amounted to £9.3m, representing an uplift of £1.2m (15%) over the valuation of £8.1m at 31 December 2017. The investment delivered a return of 5.9x and an IRR of 35%.
In addition, deferred proceeds of £1.7m were received from Steeper and £0.6m from Trustmarque.
Two realisations were received from the European private equity fund, Realza: a £1.0m repayment of loan stock was received from Dolz, the automotive pump manufacturer; in January 2019 Litalsa, a provider of services for metal can and closure manufacturers, was realised generating proceeds of £3.9m, representing a return of 2.9x original cost and an IRR of 26%. At 31 December 2018 Litalsa has been valued at the realised proceeds received in January 2019.
Two new investments were made in the year by the Dunedin managed fund to which your Company has an outstanding commitment. In June 2018, £6.4m was invested in GPS, the global payments processor which supports a number of digital banks, challenger banks, fintechs and financial institutions. In November 2018 £3.0m was invested in Incremental, a Glasgowheadquartered, market-leading IT services business.
Overall the trading performance of the portfolio has been strong during the year. Unrealised valuation increases of £9.1m were partially offset by decreases of £4.3m. Valuation uplifts were achieved by FRA, RED, Kingsbridge and EV, all of which are trading well as a result of strong organic growth. The most significant valuation reduction in the year to 31 December 2018 was the decline of £1.9m in the value of the holding in Formaplex.
At the year end the Company had outstanding commitments to limited partnership funds of £19.4m, which consisted of £18.8m to Dunedin managed funds and £0.6m to Realza, the remaining European fund. Assuming these funds are held to maturity, it is estimated that only some £11.5m of this total outstanding commitment will be drawn over the remaining life of the funds.
The investment periods of all funds to which the Company has made a commitment have now ended. In future the Company will only be required to meet drawdowns for follow-on investments, management fees and ongoing expenses during the remainder of the funds' life.
04 Dunedin Enterprise Investment Trust PLC Annual Report and Accounts 2018
Strategic Report – Chairman's Statement
At 31 December 2018 the Company held cash balances of £5.7m. In addition we have a revolving credit facility with Lloyds Bank of £10m which was undrawn at 31 December 2018 and is available until 31 May 2019. The Board and the Manager keep the cash and commitment position under regular review. It is the Board's intention to extend the revolving credit facility by a further year but at a lower level of £5m.
Shareholders received two returns of capital via the B Share Scheme during the year, representing a total of £20.6m or 100p per share.
Following the realisation of Innova/5 in December 2017, £10.3m was returned in February 2018. This was achieved by the issue of 1 B share of 50p for every 1 ordinary share held. The B shares were immediately redeemed, and proceeds of £10.3m were distributed to shareholders on 16 February 2018.
Following the realisation of Pyroguard in September 2018, a further £10.3m was returned to shareholders in October 2018 by way of the issue of 1 B share of 50p for every 1 ordinary share held. The B shares were immediately redeemed, and proceeds of £10.3m were distributed to shareholders on 23 October 2018.
It is proposed that a final dividend of 2.0p per share be paid on 16 May 2019. This will distribute to shareholders the net profit generated by the Company during 2018.
There remains significant uncertainty regarding the final outcome of Brexit. While the Board does not expect there to be any significant impact from Brexit on the operations of the Company itself, each of our portfolio companies has developed plans to cater for a variety of outcomes which will be continually reviewed as the course of Brexit negotiations become clearer.
More generally, the Board welcomes the improvement in the trading performance of a number of portfolio companies and the returns which have been delivered for shareholders by the underlying investment performance of the portfolio and the returns of capital.
Chairman
18 March 2019
Board of Directors
Status: Independent Non-Executive Director and Chairman of the Board, Nomination Committee and Management Engagement Committee
Length of service: Appointed a Director on 2 April 2012 and became Chairman on 14 May 2014.
Experience: Duncan Budge was an Executive Director and Chief Operating Officer of RIT Capital Partners plc ("RIT") between 1995 and 2011. He was previously a director of J. Rothschild Capital Management Limited, a wholly owned subsidiary of RIT. He also spent six years with Lazard Brothers & Co. Ltd.
Committee membership: Audit Committee, Nomination Committee and Management Engagement Committee.
All other public company directorships: Artemis Alpha Trust plc (Chairman), Lowland Investment Company plc, Lazard World Trust Fund, Biopharma Credit plc and Menhaden Capital plc
Other directorships: Asset Value Investors Limited
Employment by the Manager: None
Other connections with Company or Manager: None
Shared Directorships with any other Company Directors: None
Shareholding in Company: 46,850 Shares
Status: Independent Non-Executive Director
Length of service: Appointed a Director on 1 January 2007
Last re-elected to the Board: 10 May 2018
Experience: Brian Finlayson was appointed to the Board on 1 January 2007 and has served as a Director for more than nine years. He has over thirty years of experience in both private equity and corporate finance. He worked with Dunedin Capital Partners Limited before retiring from the company in 2002. He has held numerous non-executive director positions in private equity backed businesses both whilst unlisted and subsequently on listing. Please refer to page 27 for the Board's assessment of Brian Finlayson's independence.
Committee membership: Audit Committee, Nomination Committee and Management Engagement Committee.
All other public company directorships: None
Other directorships: None
Employment by the Manager: None
Other connections with Company or Manager: Brian Finlayson held a small interest in the carried interest of Dunedin Buyout Fund LP as set out on page 63. The Dunedin Buyout Fund LP has now been liquidated.
Shared Directorships with any other Company Directors: None
Shareholding in Company: 148,052 Shares
Status: Independent Non-Executive Director, Chairman of the Audit Committee and Senior Independent Director
Length of service: Appointed a Director on 1 June 2015
Last re-elected to the Board: 10 May 2018
Experience: Angela Lane has worked as an independent director and adviser to a number of private companies and private equity firms. Previously Angela spent 18 years working in private equity at 3i after qualifying as an ACA at PwC. Angela has extensive experience of business and financial services, healthcare, travel and aviation, media, consumer goods and infrastructure.
Committee membership: Audit Committee, Nomination Committee and Management Engagement Committee
All other public company directorships: Pacific Horizon Investment Trust PLC Other directorships: Huntswood CTC (Chairman), Astbury Marsden & Partners Limited Employment by the Manager: None Other connections with Company or Manager: None
Shared Directorships with any other Company Directors: None Shareholding in Company: 17,473 Shares
Status: Independent Non-Executive Director
Length of service: Appointed a Director on 11 May 2017
Last re-elected to the Board: 10 May 2018
Experience: Michael is employed by Lind Invest as an investment manager. Michael has experience of investing in private equity funds, including in listed private equity companies and the secondary market.
Committee membership: Audit Committee, Nomination Committee and Management Engagement Committee
All other public company directorships: None
Other directorships: None
Employment by the Manager: None
Other connections with Company or Manager: Lind Invest is an independent Danish investment group which currently holds an interest of 12.6% in the Company
Shared Directorships with any other Company Directors: None
Shareholding in Company: 4,900 Shares
The Manager
The Company is an Alternative Investment Fund (AIF) under the EU's Alternative Investment Fund Managers' Directive ("AIFMD"). Its Alternative Investment Fund Manager ("AIFM") is Dunedin LLP. Dunedin LLP became a full scope AIFM on 25 May 2016.
In addition to the Company, Dunedin manages three limited partnership funds and a European fund of funds. The Company committed £60m to Dunedin's most recent £306m fund, Dunedin Buyout Fund III LP in 2012, representing a 20% interest.
Dunedin provides equity finance for management buyouts and management buyins with a transaction size of £20m – £100m. It is an independent private equity house, owned by the partners, operating throughout the UK from offices in Edinburgh and London. It has an investment team comprising twelve investment professionals. Six of the partners have worked together for more than seventeen 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 particular expertise in the industrial, business services and financial services sectors, completing 61 portfolio follow-on acquisitions since 2011 to drive the growth and internationalisation of its investee businesses.
Dunedin targets buyout investments where it can partner with management teams to build better businesses. Dunedin provides the knowledge, skills and finance to help the companies it backs to develop and attain their full potential. It targets businesses with many of the following characteristics:
Dunedin is authorised and regulated by the Financial Conduct Authority.
The total net asset total return to shareholders in the year to 31 December 2018 was 6.4%. This is stated after taking account of a final dividend for 2017 of 5.5p (paid in May 2018) and two B share redemptions equivalent in total to 100p (paid in February 2018 and October 2018).
The net asset value per share in the year to 31 December 2018 decreased from 489.2p to 412.9p.
The Company's net asset value decreased from £101.0m to £85.2m over the year. As detailed below this movement is stated following a dividend payment of £1.1m and capital of £20.6m returned to
shareholders via the issue and redemption of B shares in February 2018 and October 2018.
| £m | |
|---|---|
| Net asset value at 1 January 2018 | 101.0 |
| Unrealised value increases | 9.1 |
| Unrealised value decreases | (4.3) |
| Realised gain over opening valuation | 1.4 |
| Net income and capital movements | (0.3) |
| Net asset value prior to shareholder | |
| distributions | 106.9 |
| Dividends paid to shareholders | (1.1) |
| B share redemption | (20.6) |
| Net asset value at 31 December 2018 | 85.2 |
The investment portfolio can be analysed as shown in the table below.
| Valuation at 1 January 2018 £'m |
Additions in year £'m |
Disposals in year £'m |
Realised movement £'m |
Unrealised movement £'m |
Valuation at 31 December 20181 £'m |
|
|---|---|---|---|---|---|---|
| Dunedin managed | 57.2 | 14.0 | (11.3) | 1.4 | 3.5 | 64.8 |
| Third party managed | 10.0 | 0.2 | (1.0) | – | 1.3 | 10.5 |
| Investment portfolio | 67.2 | 14.2 | (12.3) | 1.4 | 4.8 | 75.3 |
| AAA rated money market funds | 23.5 | – | (21.4) | – | – | 2.1 |
| 90.7 | 14.2 | (33.7) | 1.4 | 4.8 | 77.4 |
1 in addition the Company held net assets of £7.8m
In June 2018, the Company made an investment of £6.4m through Dunedin Buyout Fund III LP in GPS, the global payments processor which supports a number of digital banks, challenger banks, fintechs and financial institutions. GPS is a market leader in issuer processing, enabling next generation payment technology. It provides a single, global integrated platform, GPS Apex, that powers and enables functionality of next generation fintech payment companies. GPS employs circa 150 people based in London and Newcastle.
In December 2018, the Company invested £3.0m in Incremental through Dunedin Buyout Fund III LP. Incremental is a Glasgow-headquartered, market leading IT services business. It was formed following the acquisitions of First eBusiness Solutions in December 2016 and GAP Consulting in June 2018. The business helps its clients to design, implement and manage their IT infrastructure needs which include ERP, CRM, cyber security and digital applications. With a headcount of 135, Incremental has three main delivery sites in Glasgow, Inverurie and Northwich and sales offices in London and Manchester.
There were follow-on investments made in Formaplex (£1.5m), Hawksford (£1.1m), EV (£0.6m) and Premier Hytemp (£0.4m).
In September 2018, Pyroguard, the specialist fire resistant glass manufacturer, was realised. Total proceeds from the sale amounted to £9.3m consisting of capital of £8.7m and income of £0.6m. The proceeds received represent an uplift of £1.2m when compared to the valuation of £8.1m at 31 December 2017. The original cost of the investment was £3.8m and over the
life of the investment a total of £22.5m was received by Dunedin Enterprise representing a 5.9x return and an IRR of 35%.
Deferred proceeds of £1.7m were received from Steeper, the leading supplier of rehabilitation services including prosthetic, orthotic and electronic assistive devices and services. Further deferred proceeds of £0.6m were received from Trustmarque, the provider of software management services.
There was a £1.0m repayment of loan stock from within the Realza portfolio following a recapitalisation of Dolz, the automotive pump manufacturer.
Following the year end in January 2019 there was a further realisation from the Realza portfolio. Litalsa, the provider of printing and varnishing services for metal can and closure manufacturers, was realised generating proceeds of £3.9m which represent a return of 2.9x original cost and an IRR of 26%. At 31 December 2018 Litalsa has been valued at the realised proceeds received in January 2019.
In the year to 31 December 2018 there were valuation uplifts generated from the following investments: FRA (£3.6m), RED (£2.2m), Kingsbridge (£1.3m) and EV (£0.6m).
FRA, the international forensic consultancy business, has continued to experience a strong demand for its services over the year, boosted by new client wins and an expansion in the scale of current client work. Over the course of 2018 maintainable EBITDA (maintainable EBITDA being EBITDA for the last twelve months adjusted for exceptional items) has increased by 19%. During 2018 FRA has opened new offices in New York, Dallas, Philadelphia, and Helsinki. Following the year end FRA undertook a refinancing of its bank debt resulting in £1.5m being returned to Dunedin Enterprise.
RED, the supplier of SAP software experts on both a contract and permanent basis, has again shown strong growth in its contracting division. The contracting division has performed well in the UK, Germany and the US markets, benefitting from an experienced and knowledgeable team of consultants. This has resulted in a 15% increase in maintainable EBITDA.
Kingsbridge, the provider of insurance services to contractors, has also continued to show strong organic growth. This has resulted from the company expanding and enhancing the product range, diversifying the distribution channels and building its market profile and reputation. As a result maintainable EBITDA increased by 16% in the year. Following the year end Kingsbridge undertook a refinancing of its bank debt resulting in £3.2m being returned to Dunedin Enterprise.
EV, the provider of high-performance cameras for the oil and gas industry, has shown a 25% increase in maintainable EBITDA. The company has benefitted from an increasing oil price during the course of the year.
The Realza portfolio showed an unrealised movement of £1.5m. The majority of this uplift was generated from an uplift in the valuation of Litalsa which was realised in January 2019, details of which are noted above.
The most significant valuation reduction in the year to 31 December 2018 was at Formaplex (£1.9m). The maintainable EBITDA has suffered in the year from a number of lost and delayed orders. This has in part been caused by the controversy surrounding diesel cars and their emission levels. Profits have also been impacted by the costs associated with the move to the new 120,000sqft Voyager Park facility.
The Company had outstanding commitments to limited partnership funds of £19.4m. The outstanding commitment position consisted of £18.8m to Dunedin managed funds and £0.6m to Realza, the one remaining European fund. Assuming these funds are held to maturity, it is estimated that only some £11.5m of this total outstanding commitment will be drawn over the remaining life of the funds.
The original investment periods of all funds to which the Company has made a commitment have now ended. In future the Company will only be required to meet drawdowns for follow-on investments, management fees and expenses during the remainder of the funds' life.
The Company has a revolving credit facility with Lloyds Bank of £10m which was undrawn at 31 December 2018 and is available until 31 May 2019. The Board and the Manager keep the cash and commitment position under regular review. It is the Board's intention to extend the revolving credit facility by a further year but at a lower level of £5m.
Your Manager has a representative on the Board of each Dunedin managed portfolio company. Portfolio companies hold regular board meetings. The board of each portfolio company has assessed the impact of Brexit on their business and developed contingency plans to mitigate a variety of Brexit outcomes. These contingency plans will be kept under constant review as the outcome of the Brexit negotiations becomes clearer.
The average earnings multiple applied in the valuation of the Dunedin managed portfolio was 8.2x EBITDA (2017: 7.6x), or 9.4x EBITA (2017: 9.3x). These multiples continue to be applied to maintainable profits.
Within the Dunedin managed portfolio, the weighted average gearing of the companies was 2.7x EBITDA (2017: 3.1x) or 3.1x EBITA (2017: 3.7x).
Analysing the portfolio gearing in more detail, the percentage of investment value represented by different gearing levels was as follows:
| Less than 1 x EBITDA | 41% |
|---|---|
| Between 1 and 2 x EBITDA | –% |
| Between 2 and 3 x EBITDA | 11% |
| More than 3 x EBITDA | 48% |
Of the total acquisition debt in the Dunedin managed portfolio companies the scheduled repayments are spread as follows:
| Less than one year | 11% |
|---|---|
| Between one and two years | 7% |
| Between two and three years | 9% |
| More than three years | 73% |
The chart below analyses the investment portfolio by investment fund vehicle.
Detailed below is an analysis of the investment portfolio by geographic location as at 31 December 2018.
The investment portfolio of the Company is broadly diversified. At 31 December 2018 the largest sector exposure of 49% remains to the diverse Support Services sector.
In the vintage year chart below, current value is allocated to the year in which either Dunedin Enterprise or the third-party manager first invested in each portfolio company.
Dunedin LLP 18 March 2019 Top Ten Investments
| Percentage of equity held |
5.4% |
|---|---|
| Cost of Investment | £6.0m |
| Directors' valuation | £12.9m |
| Percentage of Dunedin Enterprise's net assets |
15.1% |
FRA is an international consultancy that provides forensic accounting, data analytics and e-discovery expertise, helping businesses respond to regulatory investigations in an increasingly regulated global environment.
FRA works on some of the largest and most complex regulatory investigations globally. Its clients are typically blue-chip multinational corporates seeking advice to help navigate regulatory scrutiny, effect compliant cross-border data transfer, and manage risk. The company has offices in London, Providence (Rhode Island), Paris, Dallas, New York, Helsinki and Washington DC. It also runs data centres near each office location as well as in Montreal and Zurich.
FRA services a large and growing global market driven by increasing regulatory activity and scrutiny at an international level. Data volume and complexity is growing rapidly, benefiting FRA in terms of the quantity of data storage, analysis and cross-border data protection rules that must be navigated. FRA's strong organic growth is driven by exceptional client service, a strong reputation among regulators, law firms and corporates, long term engagements and growth in the team of forensic accountants, eDiscovery experts and data analysts.
Regarded as a leading authority in its niche, FRA is seeing demand for its services grow more and more as regulation and enforcement increase globally. The investigation projects are increasingly being supplemented with three-year monitorships of corporations subject to regulatory oversight. Strong relationships with the in-house legal counsel at corporate clients, and with referring law firms, opens up new business opportunities – which FRA is well placed to take advantage of, with its reputation for independence and integrity with regulatory bodies. The strategy is to develop FRA's international reach by recruiting talent into existing offices whilst opening new offices to access further talent pools or expand client relationships.
The successful expansion of FRA was reliant on accelerating its recruitment drive for talented people around the world, particularly in the US. This was the only way the business would meet ever increasing client demand. Dunedin has helped by getting directly involved in the sourcing and selection process, and filling some of the company's most senior positions. These included a Chairman with global consulting and private equity experience, a Chief Operating Officer and Chief Growth Officer; and two Financial Controllers.
In the period to 31 December 2017, the EBITDA of FRA was £13.3m on turnover of £39.8m.
Top Ten Investments
| Percentage of equity held |
17.8% |
|---|---|
| Cost of Investment | £6.7m |
| Directors' valuation | £11.2m |
| Percentage of Dunedin Enterprise's net assets |
13.1% |
Hawksford is a leading international provider of corporate, private client and funds services. The business offers a comprehensive range of services to, and solutions for, trusts, companies, foundations, partnerships, family offices and investment funds.
During 2018 Hawksford completed the acquisitions of P&P, a Hong Kong based trust business; and the corporate services division of audit and accountancy practice SH Landes. The P&P acquisition increased Hawksford's Asian presence, giving the company new representation in China and Japan, building on its existing presence in Singapore and Hong Kong. Hawksford's international clients will now have access to a greater depth of services across Asia, while P&P clients will be able to utilise Hawksford's wider services in other locations. As a result of the SH Landes acquisition, Hawksford will be able to provide specialist corporate services from its central London offices.
Hawksford presented an opportunity to invest in a cash generative company with a stable core business, high levels of repeat business and very good long term client structures and relationships. There was a clear opportunity to create value through increased operational efficiency and marketing capability, proactive business development, international expansion into new geographies and an acquisition strategy in a highly fragmented sector.
Growth is expected to be delivered through continued international expansion and continuing the proactive buy-and-build strategy. Dunedin has played a significant role in identifying, evaluating and funding bolt-on acquisitions and Hawksford has a strong pipeline of these acquisition opportunities.
To date Hawksford has completed seven major acquisitions in Jersey, the UK, the Middle East and the Far East and further extended the company's global reach in the Far East by opening an office in Hong Kong in 2015. These acquisitions have further enhanced Hawksford's market leading-position through additional high-quality people and clients. The focus of the business remains on providing excellent service and increasing client choice by growing the international footprint.
Dunedin organised and led the recruitment of the current CEO. The financial management of the company has also been strengthened with the appointment of a new Finance Director. To prepare for the next phase of growth highly experienced Heads of the Private Client, Funds and Corporate Service businesses have also been appointed.
In the year to 31 December 2017, the EBITDA of Hawksford was £6.5m (2016: £6.1m) on turnover of £24.6m (2016: £22.4m).
Top Ten Investments
Realza Capital FCR is a Spanish private equity fund making investments in Spain and Portugal. The fund is limited to investing 15% of commitments in Portugal. Dunedin Enterprise's investment is held via Dunedin Fund of Funds LP.
The fund invests in companies with leading market positions and attractive growth prospects either through organic growth or through subsequent merger & acquisition activity. Realza seeks to invest in companies with an Enterprise Value normally ranging from €20m to €100m.
The fund's typical equity investment ranges from €10m to €25m.
A €15m commitment was made to Realza in 2008. This commitment was made in accordance with the Trust's investment policy of investing in limited partnership funds with a European investment remit which invested in transactions of a similar nature and size to Dunedin.
To date Realza has drawn down 95% of commitments. The fund has made seven investments of which four have been realised. The areas of business in which the fund's remaining investments operate are the: -
To date there has been four realisations achieved by the fund, including the realisation of Litalsa in January 2019, generating a multiple on original cost of 2.9x. The remaining investments in Realza, excluding Litalsa, are valued at 1.4x cost.
Top Ten Investments
| Percentage of | 15.1% |
|---|---|
| equity held Cost of Investment |
£9.5m |
| Directors' valuation | £9.6m |
| Percentage of Dunedin Enterprise's net assets |
11.3% |
Weldex is a market-leading crawler crane hire business in the UK, with the tenth largest lifting capacity globally. It serves the offshore wind, oil & gas, commercial construction and infrastructure markets. Its cranes, including two of the largest in the UK, have been used in a number of significant construction projects including Heathrow Terminal 5, the iconic arch at the Wembley Stadium, the 2012 Olympic site and Crossrail. More recent projects include erecting a Mitsubishi wind turbine at the offshore test facility at Hunterston, North Ayrshire, and refurbishing the blast furnace at the Tata steel works in Scunthorpe.
Weldex was established in 1979 and has grown into the UK's largest crawler crane hire company. The company employs over 100 staff and operates nationwide and overseas from its headquarters in Inverness and its depot at Alfreton. The company provides its customers with an established team of fully accredited operators, site managers and service engineers and also supplies associated lifting equipment including wheeled cranes, forklifts, lorry loaders and trailers.
Weldex is a market-leading business serving the renewables and power generation market, where growth is driven by the developing UK energy gap and EU legislation on climate change. The offshore wind installation infrastructure is supply constrained and Weldex services this niche. There are strong barriers to entry: high capital expenditure, long lead times to source cranes, the need for experienced operators, and Weldex's reputation.
Value creation is expected to be generated through continued investment in the crawler crane fleet to meet demand in Weldex's targeted sectors. Key growth areas are in renewable energy infrastructure, power generation and industrial and commercial construction.
Weldex has continued to invest in its core fleet. A new independent nonexecutive Chairman was appointed in 2014 with extensive international experience. This breadth of experience compliments the existing management team's operational expertise.
In the year to 30 November 2017, the EBITDA of Weldex was £11.4m (2016: £10.4m) on turnover of £23.1m (2016: £21.1m).
Top Ten Investments
| Percentage of equity held |
12.4% |
|---|---|
| Cost of Investment | £4.1m |
| Directors' valuation | £7.9m |
| Percentage of Dunedin Enterprise's net assets |
9.3% |
Kingsbridge is a market-leading, FCA-regulated specialist insurance intermediary with two divisions: a contractor insurance division and a corporate brokerage division. Founded in 2007, the business offers various insurance products specifically designed for the contractor market and has enjoyed strong growth.
There is a significant and growing market opportunity for contractor insurance, with contractors becoming an increasingly prevalent component of the UK workforce. Long-term growth in demand points towards a broad-based workforce shift as more people embrace flexible working. Kingsbridge is a high growth, high margin, cash generative and innovative insurance services firm with an impressive financial growth track record. Kingsbridge Contractor Insurance is the clear market leader in the specialist provision of insurance for contractors and freelancers.
Kingsbridge has achieved strong organic growth in both revenue and profit, driven by growing referrals from large affinity partners. It is a highly cash generative business as working capital and capital expenditure needs are modest. In addition to the organic growth, the business has made two strategic acquisitions broadening its digital distribution channels.
In December 2018, the business successfully completed the acquisition of InsurTech pioneer Dinghy, an online provider of PI and related insurances to the UK freelance/creative sector. This was the second acquisition that Kingsbridge made in 12 months, the first was Larsen Howie, a specialist online provider of insurance and IR35 and tax related services.
A new CEO joined in September 2017 in line with the agreed succession plan at the point of investment. The business has seen enhanced operational efficiency through IT and best practice; a greater focus on brand and marketing; and the introduction of new products for market.
A new Chairman has also been appointed along with an experienced CFO.
In the year to 31 January 2018, the EBITDA of Kingsbridge was £4.3m (2017: £3.1m) on turnover of £12.5m (2017: £10.0m).
Top Ten Investments
| Percentage of equity held |
5.2% |
|---|---|
| Cost of Investment | £7.3m |
| Directors' valuation | £6.4m |
| Percentage of Dunedin Enterprise's net assets |
7.5% |
CitySprint is the UK's largest national time-critical and same-day distribution network. It benefits from an asset-light business model with over 3,000 self-employed couriers, making the business both highly flexible and scalable. It operates from 40 service centres in the UK and handles over ten million critical same-day deliveries a year.
CitySprint offers a range of services including SameDay Courier, UK Overnight and International courier services, as well as more complex logistics services. It services a number of different sectors, including healthcare, online retail fulfilment and parts fulfilment such as outsourced supply chain services for engineering and servicing companies. CitySprint now has the UK's largest same-day healthcare courier network.
CitySprint has a unique, highly scalable business model with a sustainable competitive advantage. It is entirely differentiated from next day courier businesses where the market is much more competitive and made up of larger organisations. The company's market-leading technology platform underpins its asset-light business model. It exploits opportunities in new markets such as pharmacy, healthcare and e-retail and is active in the development of new products and market-leading technology, particularly in the retail and healthcare divisions. It has a highly experienced management team with a track record in Buy and Build and organic growth.
The company is achieving good revenue and profit growth through its very active buy-and-build and organic growth strategies. The business is focussing on building out its technology platform.
During 2017, CitySprint made three 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 30.
In February 2016 Dunedin Enterprise realised its investment in CitySprint with a portion of the proceeds being rolled over into a newco. The realisation of CitySprint valued the company at £175m and generated proceeds of £26.1m for Dunedin Enterprise. This compares to a valuation at 30 September 2015 of £23.2m. The proceeds were split between capital of £22.8m and income of £3.3m. The proceeds represented a return of 2.75 times over five years on the original investment of £9.8m when taking account of income previously received.
In the eleven months to 31 December 2017, the EBITDA of CitySprint was £18.0m (2016: £17.4m) on turnover of £172.3m (2016: £157.8m).
Top Ten Investments
| Percentage of equity held |
8.2% |
|---|---|
| Cost of Investment | £6.4m |
| Directors' valuation | £6.4m |
| Percentage of Dunedin Enterprise's net assets |
7.5% |
GPS is a UK headquartered payments processing business providing customers with leading edge payment processing and ancillary services. Customers include new emerging fintech or challenger banks, offering a significantly differentiated proposition for their clients; as well as specialist payment firms serving the travel, insurance and foreign exchange markets. It offers a best in class, scalable payment processing platform with flexibility, innovative features and an accelerated speed to market for new market entrants. It has over 100 clients, including many UK fintech and challenger banks, and is seeing significant growth opportunities from emerging overseas challenger banks as they seek to disrupt their own domestic banking markets.
GPS has a large and growing addressable market. Challenger banks and fintech companies needing leading edge payment processing services are being created in all major geographical markets. Many are seeking help from GPS as they start to disrupt their own domestic markets. As the winners emerge, the volume of payments that they generate also increases, thereby adding further volume of processing to the GPS platform. In general, the payments market is growing globally through a reduction in the use of cash and an increase in the use of mobile methods of payment (e.g. phones and 'tap to pay' debit cards).
GPS has an increasingly international target market, with recent client wins in Europe and Australia. Significant opportunities are also being pursued in North America and Asia.
Growth is expected to come through a strategy of geographic expansion and investment to maintain the company's leading-edge technological position.
Significant progress has been made in helping the company prioritise its key opportunities and invest in improving its main functional business areas, thereby creating strong foundations to support the growth that is expected in this market. Key talent has been sourced and added to the company at all levels, including a Chairman, a Chief Financial Officer and numerous operating and technology focussed hires. Key new management and operating systems have been introduced to the company to help it as it grows.
Top Ten Investments
| Percentage of equity held |
20.1% |
|---|---|
| Cost of Investment | £9.7m |
| Directors' valuation | £4.5m |
| Percentage of Dunedin Enterprise's net assets |
5.3% |
RED is a global supplier of SAP contract and permanent staff to international corporations and consultancies. SAP is the market leader in ERP software (Enterprise Resource Planning), which enables companies of all sizes and industries to operate more efficiently, including many of the world's largest organisations.
Red, which was founded in 2000, now has a global footprint with access to over 200,000 candidates in 80 countries, and has offices in the UK, Germany, Switzerland and the USA.
SAP earnings are forecast to grow at 7% per annum over the next five years, driving the ongoing requirement for highly skilled consultants to implement, maintain and upgrade systems. Red has a strong customer base and good visibility of earnings.
Business growth is expected to come from expanding the international office network and continued focus on outstanding client service.
Dunedin led the search for a new CEO who joined the business in May 2018. The new CEO, is an experienced and highly successful recruitment leader with significant international experience gained with private and publicly listed recruitment businesses, including technology recruitment.
In the year to 31 March 2018, the EBITDA of Red was £3.4m (2017: £1.3m) on turnover of £123.6m (2017: £105.8m).
Top Ten Investments
| Percentage of equity held |
5.0% |
|---|---|
| Cost of Investment | £5.7m |
| Directors' valuation | £3.6m |
| Percentage of Dunedin Enterprise's net assets |
4.3% |
U-POL is a leading independent manufacturer of automotive refinish products including body fillers, coatings, aerosols, polishing compounds and consumables. Included in the product range is RAPTOR™, a tough protective coating product which can be used over a multitude of surfaces. Sales of RAPTOR™ continue to grow strongly and the business is exploring opportunities to sell this product into adjacent sectors.
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.
U-POL has a market leading position in the UK and growing market share in other large markets such as the USA. It enjoys a good competitive position globally. Growth was expected through expansion of its range and increased market share in new and existing markets.
U-POL is focussing on products with high growth potential. The company's portfolio of products has been rationalised and rebranded to give a more coherent offering to both the professional and DIY markets. A strong retail offering has been developed.
A new Chairman, Supply Chain Director and President of North America have been appointed during 2018. In August 2016 a re-financing of the business was undertaken with Dunedin Enterprise receiving proceeds of £2.6m.
In the year to 31 December 2017, the EBITDA of U-POL was £10.8m (2016: £13.2m) on turnover of £68.2m (2016: £68.9m).
Top Ten Investments and remaining investments
| Percentage of equity held |
8.2% |
|---|---|
| Cost of Investment | £3.0m |
| Directors' valuation | £3.0m |
| Percentage of Dunedin Enterprise's net assets |
3.5% |
Incremental is a market-leading, UK-focused IT services business which helps its clients to design, implement and manage their IT infrastructure needs, including ERP, CRM, cyber security and digital applications. Incremental's mission is to enable government and industry to digitally transform their businesses, one step at a time. Incremental has three main delivery sites in Glasgow, Inverurie and Northwich supported by sales offices in London and Manchester. The business has a headcount of 135.
Incremental has a large addressable market which is growing strongly, particularly in the ERP and CRM space. The transition from on-site servers to the Cloud is driving businesses to transform their IT systems and strategies.
Incremental is an established robust platform business operating in a highly fragmented market. Incremental has demonstrated strong organic growth which will be enhanced through acquisitions to increase geographic presence, provide new service lines and enter new end sector verticals.
Since the investment in November 2018, Dunedin has been working closely with management to identify and review potential acquisition targets. A COO has been recruited into the business.
| Company Last reported |
Proportion of fully diluted |
Percentage of net |
||
|---|---|---|---|---|
| Description of business | capital owned % |
Book cost £m |
Valuation £m |
assets % |
| EV 31.03.18 Provider of high performance ruggedised video cameras and engineers that are used to analyse problems in oil and gas wells |
10.6 | 8.1 | 2.2 | 2.6 |
| Premier Hytemp 30.08.18 Provider of highly engineered steel and nickel alloys and machined components for the gas and oil industry |
20.8 | 10.1 | 1.9 | 2.3 |
| Formaplex 30.06.17 Provider of tooling and lightweight component solutions |
19.4 | 3.2 | 1.7 | 2.0 |
| Alta-Berkeley VI 31.12.18 Technology fund |
3.0 | 0.6 | 0.2 | 0.2 |
| Add One 31.12.18 Technology fund |
2.9 | 1.2 | 0.2 | 0.2 |
Long Term Record
| Cash returned to shareholders |
Per Ordinary Share | |||||||
|---|---|---|---|---|---|---|---|---|
| Group Ended 31 December |
Net assets | pence per share |
Revenue available for ordinary shareholders |
Net asset value |
Earnings | Dividend | Share price | |
| £'000 | £'000 | p | £'000 | p | p | p | p | |
| 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 | 70.0 | 5,801 | 532.7 | 20.8 | 22.5 | 412.38 |
| 2013 | 116,267 | 17,992 | 72.3 | 4,758 | 529.3 | 19.9 | 16.5 | 436.0 |
| 2014 | 106,556 | 5,217 | 23.7 | 980 | 510.6 | 4.6 | 4.7 | 352.4 |
| 2015 | 104,427 | 695 | 3.3 | (628) | 505.8 | (3.0) | – | 321.5 |
| Company* Ended 31 December |
||||||||
| 2016 | 103,901 | – | – | 6,916 | 503.3 | 33.5 | 33.5 | 306.0 |
| 2017 | 100,988 | 20,644 | 100.0 | 3,927 | 489.2 | 19.0 | 19.0 | 396.5 |
| 2018 | 85,235 | 20,644 | 100.0 | 177 | 412.9 | 0.9 | 2.0 | 328.0 |
* from 2016 the financial statements are no longer prepared on a consolidated basis but instead with subsidiaries carried at fair value
This Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.
The Company carries on business as an investment trust. The last accounting period for which the Company has been treated as approved as an investment trust by HM Revenue & Customs was for the year ended 31 December 2017. In the opinion of the Directors, the Company has conducted its affairs during the period under review, and subsequently, so as to meet the eligibility conditions in Section 1158 of the Corporation Taxes Act 2010 and the ongoing requirements for approved companies in Chapter 3 of Part 2 of the Investment Trust (Approved Company) (Tax) Regulations 2011 (Statutory Instruments 2011/2999).
The Board has contractually delegated the management of the investment portfolio to the Manager, Dunedin LLP ("Dunedin"). A summary of the terms of the Alternative Investment Fund Management Agreement is contained in the Directors' Report on page 28.
The existing Investment Objective and Investment Policy of the Company are detailed below.
The Company's investment objective is to conduct an orderly realisation of its assets, to be effected in a manner that seeks to achieve a balance between maximising the value of the Company's investments and progressively returning cash to Shareholders.
The Company's investment policy is to invest primarily in private equity investments, either through private equity funds managed by Dunedin or directly.
The Company may not make any new investments save that: (i) investment may be made to honour commitments to funds under existing contractual arrangements; (ii) further investment may be made into the Company's direct investments in order to preserve the value of such investments; and (iii) realised cash may be invested in liquid cash-equivalent securities, including shortdated corporate bonds, government bonds, cash funds or bank cash deposits pending its return to Shareholders in accordance with the Company's investment objective.
No more than 10 per cent. of the Company's total assets may be invested in any single cash equivalent instrument or placed on deposit with any single institution, except that this limit does not apply to investment in government bonds, which shall be unconstrained.
The use of gearing shall be limited to the investment of up to £20m of borrowed funds or, if less, 20 per cent. of the Company's NAV (measured at the time of drawdown).
The Company will not invest in other listed closed-end investment funds.
The Company will continue to comply with the requirements of UK investment trust legislation and the restrictions imposed on closed-ended investment funds by the Listing Rules in force from time to time.
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 per cent. of gross asset value.
The Board carries out a regular and robust review of the risk environment in which the Company operates. The Board acknowledge that it is responsible for risk management systems, which have been in place for the year under review, and for reviewing their effectiveness. There is an ongoing process for identifying, evaluating and managing the principal risks faced by the Company and they are regularly reviewed by the Board. The principal risks and uncertainties identified by the Board which might affect the Company's business model and future performance, and the steps taken with a view to their mitigation, are as follows:
Brexit: the profitability of the Company's investments is adversely impacted due to an adverse economic impact on the UK economy from a no-deal Brexit and restricted access to European markets. Mitigation: Brexit has been an ongoing board agenda item for all our portfolio companies. Each portfolio company has developed plans to cater for a variety of outcomes from the Brexit negotiations. These plans will be continually revisited as the course of the Brexit negotiations becomes clearer.
Investment and liquidity risk: the Company's investments are in small and medium-sized unquoted companies, which by their nature entail a higher level of risk and lower liquidity than investments in large quoted companies. Mitigation: the Manager aims to limit the risk attaching to the portfolio as a whole by closely monitoring individual holdings, including the appointment of investor directors to the board of portfolio companies. The Board reviews the portfolio, including the schedule of projected exits, with the Manager on a regular basis with a view to ensuring that the orderly realisation process is progressing.
Portfolio concentration risk: following the adoption of the Company's revised investment policy in May 2016 the portfolio will become more concentrated as investments are realised and cash is returned to shareholders. This will increase the proportionate impact of changes in the value of individual investments on the value of the Company as a whole. The Directors' valuation of the Company's investments represents their best assessment of the fair value of the investments as at the valuation date and the amounts eventually realised from such investments may be more or less than the Directors' valuation. Mitigation: the Directors and Manager keep the changing composition of the portfolio under review and focus closely on those holdings which represent the largest proportion of total value.
Financial risk: most of the Company's investments involve a medium to long term commitment and many are relatively illiquid. Strategic Report
Mitigation: the Directors consider it appropriate to finance the Company's activities through borrowing on a short-term basis. Accordingly, the Board seeks to ensure that the availability of cash reserves and bank borrowings matches the forecast cash flows of the Company both on a base and stress case basis given the level of undrawn commitments to limited partnership funds.
Economic risk: events such as economic recession or general fluctuations in stock markets and interest rates may affect the valuation of portfolio companies and their ability to access adequate financial resources, as well as affecting the Company's own share price and discount to net asset value. Mitigation: the Company invests in a diversified portfolio of investments spanning various sectors and maintains access to sufficient cash reserves to be able to provide additional funding to portfolio companies should this become necessary.
Credit risk: the Company holds a number of financial instruments and cash deposits and is dependent on counterparties discharging their commitment. Mitigation: the Directors review the creditworthiness of the counterparties to these investments and cash deposits and seek to ensure there is no undue concentration of credit risk with any one party.
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 movements in foreign currency exchange rates. Mitigation: Currency risk is monitored by the Manager on an ongoing basis and on a quarterly basis by the Board.
Internal control risk: the Company's assets could be at risk in the absence of an appropriate internal control regime. Mitigation: the Board regularly reviews the system of internal controls, both financial and non-financial, operated by the Company and the Manager. These include controls designed to ensure that the Company's assets are safeguarded and that proper accounting records are maintained.
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 the use of gearing shall be limited to £20m of borrowed funds or, if less, 20 per cent. of the Company's NAV (measured at the time of drawdown).
The Company currently has a £10m revolving credit facility with Lloyds Bank plc which expires on 31 May 2019. There are standard bank covenants attached to the facility including a minimum net asset value covenant of £50m which the Board monitors on an ongoing basis.
An outline of the performance, market background, investment activity and portfolio during the year under review and the performance over the past 10 years, as well as the investment outlook, are provided in the Chairman's Statement on pages 3 and 4 and the Manager's Review on pages 8 to 11. Details of the Company's top ten investments can be found on pages 12 to 21 with the remaining investments detailed on page 21.
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 are as follows:
Details of the KPIs are shown on pages 1 and 2.
The Board recognises that it is in the long-term interests of shareholders to reduce discount volatility and believes that the prime driver of discounts over the longer term is performance. As outlined on page 29, the Board intends to seek renewal of its annual share buyback authority. The Board does not intend to issue a precise discount target at which shares might be bought back as it believes that the announcement of specific targets would be likely to hinder the successful execution of a buyback policy.
As an investment trust, the Group has no direct social, community or employee responsibilities. Dunedin, with the support of the Board, does however take environmental, social and governance factors and human rights issues into consideration with regard to investment decisions made on behalf of the Company. The Company has no employees and no requirement to report separately on this area, as the management of the portfolio has been delegated to Dunedin. Details of the Alternative Investment Fund Management Agreement are provided on page 28.
At 31 December 2018, there were three male directors and one female director on the Board. The Board's policy on diversity is set out on page 32.
By order of the Board
Chairman 18 March 2019
The Directors present their report and audited financial statements for the year to 31 December 2018.
The Manager of the Company is Dunedin LLP ("Dunedin"). The Board is independent of Dunedin. The Company's registration number is SC052844.
The financial statements have not been prepared on a going concern basis, since the Company's current objective is to conduct an orderly realisation of the investment portfolio and return cash to shareholders. No adjustments were necessary to the investment valuations or other assets and liabilities included in the financial statements as a consequence of the change in the basis of preparation.
In accordance with the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over the three-year period to 31 December 2021. The Directors consider that for the purpose of their assessment it is not practical or meaningful to look forward over a period of more than three years. Furthermore, the Directors deem that this reflects a balance between assessing the Company's prospects over the longer term and the uncertainties inherent in looking out further than three years. The Board recognises that the Company's bank facility expires in May 2019. The Manager is in ongoing discussions with the Bank and it is the current intention to extend the bank facility by a further year but at a lower level of £5.0m.
The Board has taken account of the Company's current position and carried out a robust assessment of the principal risks and uncertainties facing the Company and the mitigating actions as identified in the Strategic Report. The Board also considered the major factors which effect the economic, regulatory and political environment.
The assessment also considered: -
These metrics are subject to sensitivity analysis which involves flexing a number of the main assumptions underlying the forecasts. The principal factors which were stress tested being the: -
The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period to 31 December 2021.
At 31 December 2018, the Company's issued and paid up share capital was £5,161,015.50 divided into 20,644,062 fully paid up ordinary shares.
The rights attaching to the Company's shares are set out in the Company's Articles of Association (which may be amended by special resolution) and they are also supplemented by (and are subject to) relevant provisions of the Companies Act 2006 ("2006 Act") and other legislation applying to the Company from time to time.
On a winding-up, after meeting the liabilities of the Company, the surplus assets will be paid to ordinary shareholders in proportion to their shareholdings.
The ordinary shares carry a right to receive dividends which are declared from time to time by an ordinary resolution of the Company (up to the amount recommended by the Directors) and to receive any interim or special dividends which the Directors may resolve to pay.
A final dividend of 2.0p is to be paid to shareholders on 16 May 2019, to shareholders on the register at close of business on 26 April 2019. The ex-dividend date is 25 April 2019.
Each ordinary shareholder present in person or by proxy is entitled to one vote on a show of hands and, on a poll, to one vote for every share held.
Following the approval by shareholders on 11 May 2017, the Directors have the ability to capitalise sums standing to the credit of certain of the Company's reserves in accordance with the Articles of Association and use such capitalised amounts to allot and issue as fully paid up B shares of 50 pence each. The quantum and timing of any issue is at the discretion of the Directors. Any B shares issued will be redeemable at the option of the Company and it is expected that any redemption will occur shortly after each date of issue of B shares, when all of the B shares then in issue will be compulsorily redeemed and cancelled in accordance with their terms for an amount not exceeding the amount treated as paid up on the B shares.
When in issue, B shares do not provide the holder with any voting rights. B shares carry a limited right to a dividend; however, due to the very short time B shares will be in existence if issued, no dividend is ever likely to become payable. On a return of capital on a winding up, the holders of any B shares in issue will be entitled to 50 pence per B share held by them, in priority to any payment to the holders of every other class of shares in the Company.
The significant holdings in the Company's ordinary share capital which have been notified to the Company as at 31 December 2018 are shown below.
| Ordinary shares |
% of issued share capital |
|
|---|---|---|
| Alliance Trust Savings | 2,782,908 | 13.5 |
| Lind Invest | 2,598,613 | 12.6 |
| Barwon Investment Partners | 1,500,000 | 7.3 |
| Baillie Gifford Diversified Growth Fund |
1,461,877 | 7.1 |
| Miton Asset Management | 1,230,687 | 6.0 |
| East Riding of Yorkshire Council | 1,000,000 | 4.8 |
| Hargreaves Lansdown | 970,074 | 4.7 |
| LGT Capital Management | 792,000 | 3.8 |
| Castellain Capital | 705,000 | 3.4 |
Following the end of the financial year the Company was informed that the shareholding of Baillie Gifford Diversified Growth Fund has reduced to 737,641 (3.6%). There have been no other changes notified since the end of the financial year.
Details of the current Directors of the Company are shown on pages 5 to 6. All Directors are considered to be independent. No contract or arrangement existed during the period in which any of the Directors had a material interest. No Director has a service contract with the Company. Following a detailed review by the Board of each of the Directors other commitments, both public and private, it is considered that each has sufficient time available to undertake their duties as a Director of the Company.
In accordance with the UK Corporate Governance Code, changes to the Chairman's other significant commitments require to be disclosed and explained. The Chairman's other directorships are noted on page 5. The Directors have carefully considered the Chairman's other directorships and consider that the Chairman effectively manages his commitments and has sufficient time to meet what is expected of him as Chairman of the Company. The Chairman's attendance at Board and Committee meetings is outlined in the relevant table on page 32. The table shows that the Chairman has attended each Board and Committee meeting held during the year. The Directors believe this demonstrates that the Chairman continues to allocate sufficient time to the Company and continues to discharge his responsibilities effectively.
Angela Lane, Duncan Budge, Brian Finlayson and Michael Meyer Jensen will retire from the Board and, being eligible, offer themselves for re-election at the Annual General Meeting ("AGM").
Brian Finlayson was appointed to the Board on 1 January 2007 and has served for more than nine years. He has over thirty years of experience in both private equity and corporate finance. He worked with Dunedin Capital Partners Limited before retiring from the company in 2002. He has held numerous non-executive director positions in private equity backed businesses both whilst unlisted and subsequently on listing. The Directors have carefully considered Brian Finlayson's independence and believe that notwithstanding his historic connections with the Manager's
group and the number of years he has served as a Director, he retains independence of character and of judgement. The Directors do not consider that there are relationships or circumstances which are likely to affect Brian Finlayson's judgement. Given the long-term nature of private equity investments the Board considers it a significant benefit to the Company for Directors of the Company not to be subject to any overall limit on tenures.
Michael Meyer Jensen was appointed to the board in May 2017. Although he is not a shareholder representative, he is an employee of Lind Invest, a significant shareholder which currently holds an interest of 12.6% in the Company. The Directors have carefully considered Michael Meyer Jensen's independence and believe that, notwithstanding his employment by Lind, he is independent. The Directors are satisfied that the procedures in place as regards conflicts of interest, as set out on page 28, are sufficiently robust to ensure that Michael Meyer Jensen avoids a situation whereby he could be conflicted. In addition, Michael Meyer Jensen is aware of his duties to act independently of Lind Invest and in a way that would be most likely to promote the success of the Company for the benefit of its shareholders as a whole.
Following performance evaluation, in the view of the other Directors, Angela Lane, Duncan Budge, Brian Finlayson and Michael Meyer Jensen continue to perform effectively and to demonstrate commitment to the Company. The re-election of Angela Lane, Duncan Budge, Brian Finlayson and Michael Meyer Jensen is recommended to shareholders as their skills and experience continue to add to the strength of the Board.
Duncan Budge has been a Director of the Company since 2 April 2012 and Chairman since 14 May 2014. The Nomination Committee has resolved that it is in the best interests of the Company that there should be no limit on the length of tenure of the Chairman; however this position will be subject to annual review. The Nomination Committee took a number of factors into consideration when arriving at this conclusion, including the fact that private equity investments by their nature are long term investments where an accumulated knowledge of the investments is beneficial to their supervision. Additionally, the Company is in a wind-down process which was approved by shareholders in May 2016. At the time the wind-down was approved, the Directors indicated that the process would take at least seven years to complete and the Nomination Committee consider it beneficial for there to be consistency of chairmanship during this period.
The Company maintains insurance in respect of directors' liabilities in relation to their acts on behalf of the Company.
In line with market practice and the Company's Articles of Association, the Company has agreed to indemnify the Directors in respect of costs, charges, liabilities, damages and expenses, arising out of any claims or proposed claims made for negligence, default, breach of duty, breach of trust or otherwise, or relating to any application under section 1157 of the Companies Act 2006 ("2006 Act"), in connection with the performance of their duties as Directors of the Company. The indemnities would also provide financial support from the Company should the level of cover provided by the Directors' & Officers' insurance maintained by the Company be exhausted.
Under the 2006 Act, a Director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the Company's interests. The 2006 Act allows directors of public companies to authorise conflicts and potential conflicts, where appropriate, where the articles of association contain provisions to this effect. The Company's Articles of Association give the Directors authority to approve such situations.
The Company maintains a register of Directors' conflicts of interest which have been disclosed and approved by the other Directors. The register is reviewed at each Board meeting and the Directors are required to disclose to the Company Secretary any change to conflicts or any potential new conflicts. Where a conflict of interest arises, the Director concerned will not participate in any discussions or decisions in that area.
Michael Meyer Jensen has a potential conflict regarding his employment and arrangements with Lind Invest, which currently holds an interest of 12.6% in the Company. This conflict has been formally disclosed and approved by the Board. Michael Meyer Jensen is prevented from participating in any discussions or decisions where this conflict is relevant.
Michael Meyer Jensen has been made aware of his duties as a director of the Company including the restrictions placed on him regarding the sharing of confidential information concerning the Company with Lind Invest or any other party.
The statement on Corporate Governance on pages 31 to 33 is included in the Directors' Report by reference.
The principal terms of the Company's management agreement with Dunedin are set out on page 64.
The Board has 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.
Dunedin Managed Funds and Dunedin Fund of Funds LP operate carried interest schemes. Dunedin executives participate in these carried interest schemes.
Although the co-investment scheme for Dunedin executives, under which selected Dunedin executives invested their own funds in ordinary shares alongside direct investments by the Company, has ceased it continues to operate for investments made prior to May 2008.
Reference is made to note 20 on page 61 which sets out a description of the financial instruments and associated risks.
Dunedin LLP is appointed as Corporate Company Secretary pursuant to the Alternative Investment Fund Management Agreement, details of which are set out on page 64.
The Company does not have a fixed life.
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 Company has a zero-tolerance policy towards the facilitation of tax evasion. The investment manager also adopts a zerotolerance approach and has policies and procedures in place to prevent and detect the facilitation of tax evasion.
The statement on social, community, environmental and human rights policy on page 25 is included in the Strategic Report by reference.
The Company is an investment company and has no employees. The Directors are satisfied that, to the best of their knowledge, the Company's principal suppliers, which are listed on the inside back cover of this report, comply with the provisions of the UK Modern Slavery Act 2015.
The Company does not undertake activities in the field of research and development.
All of the Company's activities are outsourced to third parties.
As such it does not have any physical assets, property, employees or operations of its own and does not generate any greenhouse gas or other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
The Directors confirm that so far as each Director is aware there is no relevant audit information of which the Company's external auditors are unaware. Each Director has also taken all reasonable steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the external auditors are aware of that information.
The External Auditor, KPMG LLP, has indicated its willingness to continue in office and a resolution re-appointing them and authorising the Directors to fix their remuneration will be proposed as resolutions 8 and 9 at the forthcoming Annual General Meeting.
The Manager's Review on pages 8 to 11 details all post balance sheet events.
The AGM of the Company will be held at the offices of CMS Cameron McKenna Nabarro Olswang LLP, Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2EN on 8 May 2019 at 2.00 pm. Notice of the AGM is given on pages 65 to 67 of this report.
Resolutions 1 to 9 and 11 and 12 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, 13 and 14 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 2018.
Shareholders are being asked to approve the Directors' Remuneration Report set out pages 36 to 38 for the year ended 31 December 2018.
Shareholders are being asked to approve the Final Dividend of 2.0p per Ordinary Share for the year ended 31 December 2018. If shareholders approve the recommended Final Dividend, it will be paid on 16 May 2019 to shareholders on the Company's register of members at the close of business on 26 April 2019.
The Directors standing for re-election and their biographical details are set out on pages 5 to 6. 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. It is proposed that KPMG LLP be and are hereby re-appointed auditors of the Company and will hold office from the conclusion of this meeting until the conclusion of the next general meeting at which accounts are laid before the Company, and that their remuneration be fixed by the Directors.
The Directors are seeking approval to amend the Articles of Association of the Company to reduce the nominal value of unissued B shares from 50 pence to 1 pence and change the Articles of Association of the Company accordingly (the "New Articles of Association"). This amendment is sought in order to give the Company greater flexibility in the amount that can be returned to shareholders via an issue of B shares as the Company continues with its managed wind down and the Company's assets diminish further.
The full terms of the New Articles of Association will be available for inspection from 29 March 2019 until close of the AGM at the offices of CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon Street, London, EC4N 6AF and at the AGM for at least 15 minutes before and during the meeting.
On 11 May 2017, the directors were granted the authority by shareholders to capitalise, from time to time, sums standing to the credit of certain of the Company's reserves and apply such sums in paying up in full, up to 400,000,000 B shares (the "Capitalisation Authority"), meaning up to £200,000,000 could be returned to shareholders. If the adoption of the New Articles of Association pursuant to resolution 10 is approved, reducing the nominal value of future B shares to one pence, the Capitalisation Authority will require to be increased in order to give the Company the ability to return up to £200,000,000 as originally approved by shareholders in May 2017. Since returns of capital have already been made to shareholders, there is £158,711,876 of such authority remaining. Therefore, resolution 11 (which is conditional upon resolution 10 being passed) seeks authority for the Directors to capitalise, from time to time, sums standing to the credit of certain of the Company's reserves and to apply such sums in paying up in full up to 15,871,187,600 B shares, being the aggregate number of B Shares of 1 pence each which would enable the Company to return up to £158,711,876 to shareholders.
Resolution 12 will, if approved, give Directors a general authority to allot and issue B shares, from time to time up to an aggregate nominal amount of £158,711,876 (being the remainder of the aggregate total of £200,000,000 that may be allotted (as approved on 11 May 2017), following the allotment of B shares on 4 December 2017, 5 February 2018 and 9 October 2018) on a pro rata basis to the holders of Ordinary Shares by way of bonus issue. The authority will expire at the conclusion of the AGM of the Company to be held in 2020. Passing this resolution will ensure that the directors continue to have the ability to issue redeemable B shares to shareholders upon further realisations. The Company does not at present hold any shares in treasury.
The existing buy-back authority, granted at the AGM of the Company held on 10 May 2018, permits the Company to make market purchases of up to 14.99 per cent. of the Company's issued ordinary share capital as at 28 March 2018 and expires at the forthcoming AGM. The authority, under Resolution 13, 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 3,094,545 Ordinary Shares (being 14.99 per cent. of the issued share capital as at 28 March 2019 the latest practicable date prior to publication of this notice). This authority will expire at the conclusion of the AGM of the Company in 2020 (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 (excluding expenses) 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; (ii) the price of the last independent trade on the trading venue where the purchase is carried out; and (iii) the highest current independent purchase bid on that venue. 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. The effect of any cancellation would be to reduce the number of shares in issue. 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 14 seeks to renew this shareholder approval. The approval will be effective until the Company's next AGM, when it is intended that a similar resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Directive before it can call a general meeting on 14 days' notice. The Directors only intend to call a general meeting on less than 21 days' notice where the proposals are time sensitive and the short notice would clearly be an advantage to shareholders as a whole.
The Board considers that all the resolutions to be considered at the AGM are in the best interests of the Company and the shareholders as a whole. Your Board intends to vote in favour of them in respect of their entire beneficial holdings of Ordinary Shares which amount, in aggregate, to 217,275 Ordinary Shares (representing approximately 1.1 per cent. of the ordinary share capital of the Company in issue) and unanimously recommends that you do so as well.
By order of the Board,
Duncan Budge Chairman 18 March 2019
Financial Statements Corporate Governance Report
The Board considers that the Company has complied with the relevant provisions contained in the UK Corporate Governance Code issued by the Financial Reporting Council ("FRC") in April 2016 and the recommendations of the AIC's Code of Corporate Governance issued in July 2016 (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 Board has noted the publication of the revised UK Corporate Governance Code by the FRC and the AIC Code which the Company will be required to report against for the year ending 31 December 2019.
The UK Corporate Governance Code includes provisions relating to the role of the Chief Executive, Executive Directors' remuneration and the need for an internal audit function. For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers that these provisions are not relevant to the position of the Company, which is an externally managed investment company. The Company has not, therefore, reported further in respect of these provisions.
The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
The Board consists of four non-executive Directors, all of whom the Company deems to be independent, even though Brian Finlayson has served as a Director for over nine years.
On appointment, new Directors are provided with an induction programme which is tailored to the particular circumstances of the appointee. Following appointment, the Chairman regularly reviews and agrees with Directors, as appropriate, their training and development needs as necessary to enable them to discharge their duties taking account of company specific matters and industry issues.
The Board determines the strategic direction of the Company. It meets at least four times a year and there is regular contact with Dunedin (the "Manager") between these meetings. There is a formal schedule of matters specifically reserved for Board decision. The schedule of matters is reviewed regularly by the Board. The Directors also have access to any information, the advice and services of the Company Secretary and, if required, external advice at the expense of the Company. The Company Secretary is also responsible for ensuring good information flows between all parties. The Board maintains ongoing
dialogue with the Company's legal adviser in relation to corporate governance matters.
The Directors have considered their duties under section 172 of the Companies Act 2006 in promoting the success of the Company for the benefit of the stakeholders who are, in the main, the Company's shareholders. The Directors have taken into consideration the likely consequences of any decision in the long term; the need to foster the Company's business relationships with Dunedin and the Company's advisers; the desirability of the Company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the Company.
There is a clear division of responsibility between the Board and the Manager. The Manager's role is defined within the Alternative Investment Fund Management Agreement. The Board and the Manager have agreed clearly defined investment criteria and specific levels of authority. Reports on these issues, including performance statistics, investment valuations and management accounts, are submitted to the Board at each meeting. The Manager's evaluation procedure and financial analysis of the companies within the portfolio includes detailed research and appraisal, and also takes into account environmental policies and social, ethical, human rights and other business issues.
The Manager's environmental, social and governance policy can be found at www.dunedin.com. The Manager also supports the principles of the UK Stewardship Code and implements these where applicable. As an institutional investor, the Company recognises its responsibility that the companies in which it invests should aspire to appropriate levels of corporate governance. As a matter of policy, the Company aims to utilise its votes in respect of shares held in the relevant underlying portfolio companies at the annual general meetings of these companies. In the year to 31 December 2018 the Company voted in favour of all resolutions put forward at the annual general meetings of portfolio companies.
The Company's Articles of Association require that all Directors are subject to retirement by rotation and, given this and that all of the Directors are non-executive directors, the Board does not consider it necessary for the Directors to be appointed for a fixed term as recommended by provision B.2.3 of the UK Corporate Governance Code. The Board's policy on tenure is to adopt best practice in line with the requirement of the UK Corporate Governance Code for FTSE 350 companies, for all Directors to retire and, if appropriate, stand for annual re-election at each AGM. The Board does not feel that it would be appropriate to adopt a policy whereby Directors serve for a limited period as the historical knowledge of the portfolio is a key benefit. Any Directors appointed to the Board since the previous AGM also retire and stand for election.
The Board undertakes a formal annual evaluation of its own performance and that of its committees and individual Directors, including the Chairman. The most recent evaluation was carried
Corporate Governance Report
out in November 2018 and the next evaluation is planned to take place in November 2019. An external consultant has assisted the Board in this evaluation from time to time. The Board as a whole meets to assess its own performance and that of its Committees. The Chairman undertakes a review of each Director to assess their performance. The non-executive Directors, led by the Senior Independent Director, are responsible for performance evaluation of the Chairman. The review considers, amongst other things, the balance of skills of the Board and its diversity, the contribution of individual Directors and the overall effectiveness of the Board and its committees. Each individual Director's training requirements are reviewed as part of the annual evaluation process. The Board believes that it has an appropriate balance of skills and experience, length of service, diversity (including gender) and knowledge of the Company.
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 table below details the number of Board, Audit, Nomination and Management Engagement Committee meetings attended by each Director. During the year there were four Board meetings, four Audit Committee meetings, two Nomination Committee meetings and two Management Engagement Committee meetings.
| Directors | Board meetings attended |
Audit Committee meetings attended |
Nomination Committee meetings attended |
Management Engagement Committee meetings attended |
|---|---|---|---|---|
| Duncan Budge | 4 | 4 | 2 | 2 |
| Brian Finlayson | 4 | 4 | 2 | 2 |
| Michael Meyer Jensen | 4 | 4 | 2 | 2 |
| Angela Lane | 4 | 4 | 2 | 2 |
| Federico Marescotti (resigned 9 May 2018) |
1 | 1 | – | – |
There are three committees of the Board: the Nomination Committee, the Management Engagement Committee and the Audit Committee. 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.
Due to the size of the Board, the Board has not established a separate Remuneration Committee and, as a whole, fulfils the function of the remuneration committee.
Duncan Budge (Chairman) Brian Finlayson Michael Meyer Jensen Angela Lane
The Nomination Committee comprises all the independent nonexecutive directors. The Nomination Committee is responsible for identifying and nominating to the Board new Directors and for considering whether existing Directors should be re-elected. The Nomination Committee is also responsible for monitoring the composition, size and structure of the overall Board. The Nomination Committee aims to maintain an appropriate balance of skills and experience within the Board and, together with the Board, supports the principle of diversity in the boardroom. Given the small size of the Board, it is not considered appropriate for the Company to have set targets or quotas in relation to diversity; candidates are assessed in relation to the relevant needs of the Company at the time of the appointment. The Nomination Committee is responsible for ensuring that any recruitment process takes account of the Company's diversity policy. From time to time, the Nomination Committee uses external specialist search consultants, as appropriate, to assist it in carrying out its responsibilities.
The Nomination Committee is chaired by Duncan Budge, except when this committee considers his succession and reviews his performance. In such circumstances, the Nomination Committee elects an alternative member to take the Chair. The Nomination Committee met twice in the year.
Members: Duncan Budge (Chairman) Brian Finlayson Michael Meyer Jensen Angela Lane
The Management Engagement Committee comprises all the independent non-executive Directors. The Management Engagement Committee reviews the performance of the Manager and its compliance with the terms of the Alternative Investment Fund Management Agreement. The terms and conditions of the Manager's appointment, including an evaluation of performance and fees, are reviewed by the Management Engagement Committee on an annual basis.
Angela Lane (Chairman) Duncan Budge Brian Finlayson Michael Meyer Jensen
The Audit Committee comprises all the independent nonexecutive Directors. The Directors believe that it is in the best interests of the Company that its Chairman, Duncan Budge, is a member of the Committee. The Board is satisfied that the Audit Committee has the necessary skills and experience to operate effectively. The Audit Committee Report is set out on pages 34 to 35.
Corporate Governance Report
The Directors have overall responsibility for ensuring that there are systems of internal control in place, both financial and nonfinancial, and for reviewing their effectiveness. The purpose of the internal financial controls is to ensure that proper accounting records are maintained, the Company's assets are safeguarded and the financial information used within the business and for publication is accurate and reliable. Such a system can provide reasonable, but not absolute assurance against material misstatement or loss.
Under the terms of the management agreement the day-to-day management and operation of the Company has been delegated to the Manager. Clear lines of accountability have been established between the Board and the Manager. The Board and the Manager have agreed clearly defined investment criteria, specified levels of authority and exposure limits. The Manager is responsible for the design, implementation and maintenance of controls and procedures to safeguard the assets of the Company and to manage its affairs properly. The system extends to financial, operational and compliance controls and risk management. The Board reviews the financial reports and performance statistics, including projections and management accounts from the Manager on a regular basis. Annually the Audit Committee carries out an assessment of internal risks and controls. In carrying out its review, the Audit Committee has regard to the activities of the Manager, including its risk management, compliance function and whistle-blowing policies, and the Independent Auditors.
On the basis of this work, the Board confirms that there is an ongoing process for identifying, evaluating and managing any significant business and operational risks faced by the Company and the Board has carried out a review of the effectiveness of this process. This process has been in place for the year ended 31 December 2018 and up to the date of the annual report and accounts.
The Audit Committee considers, and the Board agrees that an internal audit function is not required by the Company as the internal control systems operated by the Manager provide sufficient assurance of the effectiveness of internal controls.
All shareholders have the opportunity to attend in person 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 29 to 30. Separate resolutions are proposed for each substantive issue. Both the Board and representatives of the Manager are available to answer shareholders' questions at the AGM. Proxy voting figures are announced to shareholders at the AGM.
The Chairman and Manager hold regular discussions with substantial shareholders, the feedback from which is greatly valued by the Board. In addition, the Chairman and Directors are available to enter into dialogue and correspondence with shareholders regarding the progress and performance of the Company at any point during the year. They can be contacted at the registered office address of the Company noted on page 72. Additionally, the Chairman can be contacted via email at [email protected]. All correspondence received from shareholders is passed directly to the Chairman.
The Senior Independent Director is available to shareholders if their concerns have not been resolved through the normal channels or where these are inappropriate.
All communications by the Company with shareholders are approved by the Board.
The Company's website is www.dunedinenterprise.com. The Manager's presentation to shareholders will be available on the website after the AGM.
The Articles of Association of the Company may be amended by special resolution of the the Company.
Reference is made on page 25 of the Strategic Report for further information on share buy-backs.
Reference is made on page 27 of the Director's Report for further information on the Company's significant shareholders.
By order of the Board,
Chairman 18 March 2019 Audit Committee Report
The Audit Committee is chaired by Angela Lane 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 once 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 partner.
The Audit Committee met four times during the year under review. The main agenda item discussed at each of these meetings was the valuation of portfolio investments.
During the year the Audit Committee carried out a review of its terms of reference and its own effectiveness. It concluded that the Audit Committee is satisfactorily fulfilling its terms of reference and is operating effectively.
The significant issue considered by the Audit Committee during the year in relation to the financial statements of the Company was the valuation of unquoted investments.
The Company's accounting policy for valuing unquoted investments is set out in note 4 on page 52. 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 differences were identified by the auditor.
The current investment policy of the Company is to conduct an orderly realisation of its assets leading ultimately to the liquidation of the Company. It was concluded that the financial statements should not be prepared on a going concern basis. No adjustments were necessary to the investment valuations or other assets and liabilities included in the financial statements as a consequence of the basis of preparation. The auditor's report contains an "emphasis of matter" paragraph referring to the nongoing concern basis of preparation.
The Audit Committee monitored the relationship with the external auditor with a view to ensuring that it did not provide non-audit services to the Company that had the potential to impair or appear to impair the independence of its audit role. In light of the restrictions of the FRC's Ethical Standard placed on the provision of non-audit services by the Company's auditor, the Audit Committee's policy is that no tax services will be provided by the auditor and that any other proposed non-audit services will require pre-approval by the Audit Committee. There were no
Audit Committee Report
non-audit services provided to the Company by the external auditor during the year ended 31 December 2018.
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. The Audit Committee is satisfied that the external auditor continues to demonstrate its independence.
The appointment of KPMG has not been put out to tender notwithstanding KPMG's tenure of 23 years, as the Audit Committee, from ongoing review of the external auditor's work and effectiveness, and indirect enquiry of the Manager, remains satisfied that KPMG continue to provide a high-quality audit and effective independent challenge in carrying out their responsibilities. Under EU regulations KPMG are permitted to undertake the audit of the Company until the year ended 31 December 2022. The Committee will keep KPMG's appointment under ongoing review. The current audit partner is Philip Merchant, appointed on 11 May 2016 and now in his third year. Under the rotation requirements of the FRC ES, the KPMG LLP audit partner will rotate every five years. Philip Merchant is in his third year.
During the year the Committee completed an external auditor performance evaluation questionnaire. The Committee reviewed and discussed the results of the questionnaire. Having considered these matters and the effectiveness of the external auditor, the Audit Committee has recommended to the Board that, subject to shareholder approval at the 2019 Annual General Meeting, KPMG LLP be re-appointed as external auditor for the forthcoming year.
The Company does not have an internal audit function. The Committee believes this is appropriate as all of the Company's management functions are delegated to the Manager which has its own internal control and risk monitoring arrangements. A report on these arrangements is prepared by the Manager and submitted to the Audit Committee which it reviews on behalf of the Board to support the Directors' responsibility for overall internal control as set out in the Governance Report on page 33.
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 18 March 2019
Directors' Remuneration Report
This report has been prepared by the Directors in accordance with the requirements of Section 420 of the Companies Act 2006. A resolution to approve the report will be proposed at the Annual General Meeting.
The Company's independent auditor, KPMG LLP, is required to give an opinion on certain information included in this report, as indicated below. The auditor's report on these and other matters is set out on pages 40 and 45.
On behalf of the Board and in accordance with Part 2 of Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013 ("2013 Regulations"), the Chairman confirms that there have been no major decisions taken on Directors' remuneration and no substantial changes relating to Directors' remuneration made during the previous financial year to 31 December 2018.
This Report provides details of the remuneration policy for the Directors of the Company and is the same in all material respects as the policy put into practice by the Board. All Directors are non-executive, appointed under the terms of their letters of appointment and under the same terms as in force at the date of their appointment.
This Remuneration Policy was approved by a resolution of the Company's shareholders at the Annual General Meeting of the Company held on 11 May 2017 and was passed by 98.55% (7,361,780 votes) of shareholders voting in favour of the resolution and 1.45% (108,401 votes) voting against. Its provisions are applicable until the next triennial shareholder vote in 2020. The Remuneration Policy remains unchanged from that approved by shareholders in 2017. The Remuneration Policy provisions set out below will apply until the next triennial shareholder vote unless shareholders approve amendments sooner. The Company does not intend making any significant changes to implementation of the Remuneration Policy in the current financial year.
Due to the size of the Board, 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 and all new Directors of the Company are entitled to such rates of annual fees, together with any incremental fees payable in recognition of any Director's additional time commitment, as the Board at its discretion shall from time to time determine, subject to the aggregate annual fees not exceeding an amount set by shareholders through the Articles of Association currently set at
£200,000, and reimbursement of reasonable fees and expenses incurred by them in the performance of their duties. The level of fees paid to Directors is determined by assessing their time commitment and responsibilities in fulfilling their roles. The Chairman of the Board, Chairman of the Audit Committee and Senior Independent Director are paid higher fees, reflecting the greater amount of time spent on the Company's business. As well as monitoring the approach by similar investment trusts to fees, suitable external advice is sought where appropriate.
In line with the majority of investment trusts, no component of any Director's remuneration is subject to performance factors, introductory fees or an exit payment. Additionally, Directors are not eligible for pension benefits, share options, long-term incentive schemes or other benefits. As the Company has no employees, no consideration needs to be given to employment conditions in setting Directors' pay. Subject to the triennial shareholder vote, the Company has not sought shareholder views on its remuneration policy.
It is the Company's policy that Directors do not have service contracts. The terms of their appointment provide that in line with the provisions set by the Articles of Association, a Director shall retire and be subject to election by shareholders at the first Annual General Meeting after their appointment and stand for re-election every three years thereafter. However, it is the policy of the Board that Directors are re-elected annually. The terms also provide that a Director may be removed from office with a notice period of three months. No compensation is payable for loss of office.
The Company indemnifies Directors in respect of costs, charges, liabilities, damages and expenses, arising out of any claims or proposed claims made for negligence, default, breach of duty, breach of trust or otherwise, or relating to any application under Section 1157 of the Companies Act 2006, in connection with the performance of their duties as Directors of the Company.
| 20181 £ |
2017 £ |
|
|---|---|---|
| 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 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.
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 2018 were set out in the Directors' Remuneration Report contained in the Company's 2017 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 10 May 2018 and was passed by 99.8% (9,358,299 votes) of shareholders voting in favour of the resolution, 0.2% (20,381 votes) voting against.
The Company does not anticipate making any significant changes to implementation of the Remuneration Policy in the current financial year.
All Directors who served during the year ended 31 December 2018 received the emoluments, in the form of fees, as described in the table below.
| 2018 Annual Fees £ |
2017 Annual Fees £ |
|
|---|---|---|
| Duncan Budge | 34,000 | 34,000 |
| Brian Finlayson | 23,000 | 23,000 |
| Angela Lane | 27,946 | 26,000 |
| Michael Meyer Jensen | – | – |
| Federico Marescotti | ||
| (resigned 10 May 2018) | 9,286 | 26,000 |
| Total | 94,232 | 109,000 |
The fees noted above represent the entire remuneration paid to Directors. Michael Meyer Jensen has waived his right to be paid a Director's fee.
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.
| 2018 | 2017 | ||
|---|---|---|---|
| £ | £ | Difference | |
| Spend on Directors' fees | 94,232 | 109,000 | -14% |
| Distributions to shareholders: | |||
| (a) dividends | 1,135,422 | 6,399,659 | -82% |
| (b) B share redemption | |||
| (inc costs) | 20,752,834 | 20,707,689 | 2% |
The names of the Directors and their shareholdings in the Company as at 31 December 2018 are shown in the table below. The shareholdings of connected persons to the Directors are included in the figures below.
| 2018 # |
2017 # |
|
|---|---|---|
| Duncan Budge | 46,850 | 46,850 |
| Brian Finlayson | 126,052 | 126,052 |
| Michael Meyer Jensen | 4,900 | 4,900 |
| Angela Lane | 15,000 | 15,000 |
The Company has been notified of the following changes to the Directors' shareholdings between 31 December 2018 and 18 March 2019. Brian Finlayson purchased 22,000 ordinary shares on 1 February 2019 and Angela Lane purchased 2,473 ordinary shares on 5 February 2019.
In accordance with the Company's articles of association, no Director is required to hold any shares in the Company by way of qualification.
Directors' Remuneration Report
The graph below presents for the period from 31 December 2008 to 31 December 2018 the total shareholder returns 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 36 to 38 was approved by the Board of Directors and signed on its behalf on 18 March 2019.
Chairman 18 March 2019 Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with IFRSs as adopted by the EU and applicable law.
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 Company and of its profit or loss for that period. In preparing these financial statements, the directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company 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.
We confirm that to the best of our knowledge:
We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
Chairman 18 March 2019
To the members of Dunedin Enterprise Investment Trust PLC
We have audited the financial statements of Dunedin Enterprise Investment Trust plc ("the Company") for the year ended 31 December 2018 which comprise the Income Statement, Balance Sheet, Cash Flow Statement, Statement of Changes in Equity and the related notes, including the accounting policies in note 2.
In our opinion the financial statements:
We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee.
We were appointed as auditor by the shareholders on 27 July 1995. The period of total uninterrupted engagement is for the 23 financial years ended 31 December 2018. We have fulfilled our ethical responsibilities under, and we remain independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.
| Overview | ||
|---|---|---|
| Materiality: financial statements as a whole |
£0.87m (2017: £1.01m) | 1% (2017: 1%) of Total Assets |
| Risk of material misstatement | vs 2017 | |
| Recurring risk | Valuation of unquoted investments |
◄► |
| New risk | The impact of uncertainties due to the UK exiting the European Union on our audit |
New |
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
The impact of uncertainties due to the UK exiting the European Union on our audit
Refer to pages 24 and 25 (principal risks), page 26 (viability statement), page 4 (Chairman's Statement)
uncertainty: All audits assess and challenge the reasonableness of estimates, in particular as described in valuation of unquoted investments below, and related disclosures and the appropriateness of the going concern basis of preparation of the financial statements. All of these depend on assessments of the future economic
Unprecedented levels of
environment and the Company's future prospects and performance.
In addition, we are required to consider the other information presented in the Annual Report including the principal risks disclosures and the viability statement and to consider the directors' statement that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
Brexit is one of the most significant economic events for the UK and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown.
Our procedures included:
Our results: As reported under valuation of unquoted investments, we found the resulting estimates and related disclosures in respect of the degree of estimation and sensitivity to key assumptions made when valuing the unquoted investments to be acceptable. We also found disclosures in relation to going concern to be acceptable. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.
| The risk | Our response | |
|---|---|---|
| Valuation of unquoted investments (£75.3 million; 2017: £67.2 million) Refer to pages 34 to 35 (Audit Committee Report), pages 50 to 53 (accounting policy) and pages 56 to 59 and 61 (financial disclosures) |
Subjective valuation: 86.8% of the Company's total assets (by value) is held in investments where no quoted market price is available. Unquoted investments are measured at fair value, which is established in accordance with the International Private Equity and Venture Capital Valuation Guidelines by using measurements of value such as prices of recent orderly transactions, earnings multiples and net assets. There is a significant risk over valuation of these investments. |
Our procedures included: • Historic comparisons: 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 company's approach to valuations; • Methodology choice: In the context of observed industry best practice and the provisions of the International Private Equity and Venture Capital Valuation Guidelines, we challenged the appropriateness of the valuation basis selected; • Our valuation experience: Challenge the investment manager on key judgements affecting investee company valuations, such as discount factors and the choice of benchmark earnings multiples. We compared key underlying financial data inputs to external sources, 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. Our work included consideration of events which occurred subsequent to the year end until the date of this audit report; • Assessing transparency: Consideration of the
appropriateness, in accordance with relevant accounting standards, of the disclosures in respect of unquoted investments and the effect of changing one or more inputs to reasonably possible alternative valuation assumptions.
Our results: We found the Company's valuation of unquoted investments to be acceptable (2017: acceptable).
Materiality for the financial statements as a whole was set at £0.87m (2017: £1.01m), determined with reference to a benchmark of total assets, of which it represents 1% (2017: 1%).
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £43,000 (2017: £50,600), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified above and was all performed at the investment manager's offices in Edinburgh.
We draw your attention to the disclosure made in note 1 to the financial statements which explains that the financial statements have not been prepared on the going concern basis for the reason set out in that note. Our opinion is not modified in respect of this matter.
The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.
Based solely on our work on the other information:
In our opinion the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:
Under the Listing Rules we are required to review the Viability Statement. We have nothing to report in this respect.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgments that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Company's longer-term viability.
We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
We have nothing to report in these respects.
As explained more fully in their statement set out on page 39, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or other irregularities (see below) or error, and to issue our opinion in
an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities.
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, through discussion with the directors and the manager (as required by auditing standards) and discussed with the directors and the manager the policies and procedures regarding compliance with laws and regulations.
We communicated identified laws and regulations throughout our team and remained alert to any indications of noncompliance throughout the audit.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), and its qualification as an Investment Trust under UK tax legislation, any breach of which could lead to the Company losing various deductions and exemptions from UK corporation tax, and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the Company is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: the Listing Rules and certain aspects of company legislation recognising the financial and regulated nature of the Company's activities and its legal form. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and management and inspection of regulatory and legal correspondence, if any. These limited procedures did not identify actual or suspected non-compliance.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
45
Financial Statements Independent Auditor's Report
In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
18 March 2019
| 2018 | 2017 | ||||||
|---|---|---|---|---|---|---|---|
| Notes | Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| Investment income | 5 | 778 | – | 778 | 4,589 | – | 4,589 |
| Gains on investments | – | 6,269 | 6,269 | – | 20,573 | 20,573 | |
| 778 | 6,269 | 7,047 | 4,589 | 20,573 | 25,162 | ||
| Expenses | |||||||
| Investment management fee | 6 | (49) | (148) | (197) | (26) | (77) | (103) |
| Other expenses | 7 | (448) | (113) | (561) | (490) | (63) | (553) |
| Profit before finance costs and tax | 281 | 6,008 | 6,289 | 4,073 | 20,433 | 24,506 | |
| Finance costs | 8 | (66) | (197) | (263) | (94) | (284) | (378) |
| Profit before tax | 215 | 5,811 | 6,026 | 3,979 | 20,149 | 24,128 | |
| Taxation | 9 | (38) | 38 | – | (52) | 55 | 3 |
| Profit for the year | 177 | 5,849 | 6,026 | 3,927 | 20,204 | 24,131 | |
| Basic return per ordinary share | |||||||
| (basic & diluted) | 11 | 0.86p | 28.33p | 29.19p | 19.02p | 97.87p | 116.89p |
The total column of this statement represents the Income Statement of the Company, 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.
The notes on pages 50 to 63 form part of the financial statements.
| Notes | £'000 | 2018 £'000 |
£'000 | 2017 £'000 |
|
|---|---|---|---|---|---|
| Non-current assets | |||||
| Investments at fair value through profit or loss | 12 | 77,431 | 90,690 | ||
| Current assets | |||||
| Other receivables | 13 | 5,731 | 1,032 | ||
| Cash and cash equivalents | 3,645 | 9,441 | |||
| 9,376 | 10,473 | ||||
| Current liabilities | |||||
| Other liabilities | 14 | (1,572) | (175) | ||
| (1,572) | (175) | ||||
| Net current assets | 7,804 | 10,298 | |||
| Net assets | 85,235 | 100,988 | |||
| Capital and reserves | |||||
| Share capital | 15 | 5,161 | 5,161 | ||
| Capital redemption reserve | 16 | 23,409 | 23,409 | ||
| Capital reserve – realised | 16 | 58,063 | 57,936 | ||
| Capital reserve – unrealised | 16 | (13,030) | (18,752) | ||
| Special distributable reserve | 16 | 6,312 | 26,956 | ||
| Revenue reserve | 16 | 5,320 | 6,278 | ||
| 85,235 | 100,988 | ||||
| Net asset value per share | 412.9p | 489.2p |
The financial statements were approved by the Board of Directors on 18 March 2019.
The notes on pages 50 to 63 form part of the financial statements. The accompanying notes form an integral part of these financial statements.
| £'000 | 2018 £'000 |
£'000 | 2017 £'000 |
|
|---|---|---|---|---|
| Cash flows from operating activities | ||||
| Profit before tax | 6,026 | 24,128 | ||
| Adjustments for: | ||||
| Gains on investments | (6,269) | (20,573) | ||
| Interest paid | 263 | 378 | ||
| Increase in debtors | (4,699) | (927) | ||
| Increase/(decrease) in creditors | 1,398 | (935) | ||
| Net cash from operating activities | (3,281) | 2,071 | ||
| Cash flows from investing activities | ||||
| Purchase of investments | (13,942) | (9,393) | ||
| Drawdown from subsidiary | (162) | (385) | ||
| Purchase of 'AAA' rated money market funds | (47) | (42,117) | ||
| Sale of investments | 11,251 | 53,142 | ||
| Distribution from subsidiary | 1,014 | 13,794 | ||
| Sale of 'AAA' rated money market funds | 21,413 | 19,658 | ||
| Net cash used in investing activities | 19,527 | 34,699 | ||
| Taxation | ||||
| Tax recovered | – | 3 | ||
| Cash flows from financing activities | ||||
| Redemption of B shares | (20,644) | (20,644) | ||
| Dividends paid | (1,135) | (6,400) | ||
| Interest paid | (263) | (378) | ||
| (22,042) | (27,422) | |||
| Net increase/(decrease) in cash and cash equivalents | (5,796) | 9,351 | ||
| Cash and cash equivalents at 1 January | 9,441 | 90 | ||
| Cash and cash equivalents at 31 December | 3,645 | 9,441 |
The notes on pages 50 to 63 form part of the financial statements.
| At 31 December 2018 | 5,161 | 23,409 | 58,063 | (13,030) | 6,312 | 5,320 | 56,665 | 85,235 |
|---|---|---|---|---|---|---|---|---|
| Dividends paid | – | – | – | – | – | (1,135) | (1,135) | (1,135) |
| B shares redeemed during the year | (20,644) | 20,644 | – | – | (20,644) | – | (20,644) | (20,644) |
| B shares issued during the year | 20,644 | (20,644) | – | – | – | – | – | – |
| Profit/(loss) for the year | – | – | 127 | 5,722 | – | 177 | 6,026 | 6,026 |
| At 31December 2017 | 5,161 | 23,409 | 57,936 | (18,752) | 26,956 | 6,278 | 72,418 | 100,988 |
| For the year ended 31 December 2018 |
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 |
| For the year ended 31 December 2017 |
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 31December 2016 | 5,161 | 2,765 | 49,204 | (9,580) | 47,600 | 8,751 | 95,975 | 103,901 |
| Profit/(loss) for the year | – | – | 29,376 | (9,172) | – | 3,927 | 24,131 | 24,131 |
| B shares issued during the year | 20,644 | – | (20,644) | – | – | – | (20,644) | – |
| B shares redeemed during the year | (20,644) | 20,644 | – | – | (20,644) | – | (20,644) | (20,644) |
| Dividends paid | – | – | – | – | – | (6,400) | (6,400) | (6,400) |
| At 31 December 2017 | 5,161 | 23,409 | 57,936 | (18,752) | 26,956 | 6,278 | 72,418 | 100,988 |
The notes on pages 50 to 63 form part of the financial statements.
Dunedin Enterprise Investment Trust PLC ('the Company') is a company incorporated and registered in the United Kingdom. The principal activity of the Company is that of a closed-ended investment trust within the meaning of Section 1158 of the Corporation Tax Act 2010 and its investment objective and policy is detailed in the Strategic Report.
The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ('IFRSs') which comprise standards and interpretations issued by the International Accounting Standards Board ('IASB'), and as applied in accordance with the provisions of the Companies Act 2006.
The annual financial statements have also been prepared in accordance with the AIC Statement of Recommended Practice for the Financial Statements of Investment Trust Companies and Venture Capital Trusts issued in November 2014 and updated in February 2018 with consequential amendments ('the SORP'). Where presentation guidance set out in the SORP is consistent with the requirements of IFRSs, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
The financial statements are presented in pounds sterling, rounded to the nearest thousand.
The financial statements have not been prepared on a going concern basis, since the Company's current objective is to conduct an orderly realisation of the investment portfolio and return cash to shareholders. Following the Director's assessment, no adjustments were deemed necessary to the investment valuations or other assets and liabilities included in the financial statements as a consequence of the change in the basis of preparation.
The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable in the circumstances, the results of which form the basis of making 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 period if the revision affects both current and future periods.
Judgements made by management in the application of IFRS that have a significant effect on the Financial Statements and significant estimates are disclosed in note 4.
Subsidiaries are entities over which the Company has control. The Company controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Company reassesses whether it has control if there are changes to one or more elements of control. This includes circumstances in which protective rights held (e.g. those resulting from a lending relationship) become substantive and lead to the Company having power over an entity.
As discussed in note 1, as at 31 December 2018 the Company has one subsidiary, a 100% controlling interest in Dunedin Funds of Fund LP ("FoF LP"). Under IFRS 10 'Consolidated Financial Statements', qualifying entities that meet the definition of an investment entity are not required to prepare consolidated financial statements and instead account for subsidiaries at fair value through profit or loss. The Directors deem the Company to be an investment entity and therefore the Company does not consolidate its subsidiary but instead carries it at fair value through profit or loss.
To qualify as an investment entity, the following criteria must be met by the entity: -
However, the absence of one or more of these characteristics does not prevent the entity from qualifying as an investment entity, provided all other characteristics are met and the entity otherwise meets the definition of an investment entity:
The Company meets all of the defined criteria of an investment entity and consequently the Directors deem that the Company is an investment entity.
FoF LP does not meet all the defined criteria of an investment entity as it is 100% owned by the Company. However, the Directors deem it is nevertheless an intermediate investment entity as the Company (which holds 100% of the interests in each entity) has a number of investors.
Therefore as the Company meets the requirements of an investment entity, the Company accounts for its subsidiary at fair value through profit or loss in accordance with IAS 39 "Financial Statements: Recognition and Measurement". The Investments at fair value through profit or loss carried in the Balance Sheet include the Company's investment in FoF LP. See note 12 for more detail on the investments held at fair value through profit or loss.
Accounting standards require that if an investment entity is the parent of another investment entity, the parent shall also provide the additional disclosures required by IFRS 12 'Disclosure of Interests in Other Entities'. These disclosures are set out in note 21.
The Company 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 Company's portfolio with a view to the ultimate realisation of capital gains. These investments are accounted for at fair value through profit and loss rather than being consolidated.
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:
capital in order to reflect the Directors' expected long-term view of the nature of the investment returns of the Company.
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.
The Company classifies its financial assets and liabilities in the following categories: at fair value through profit or loss; and financial assets and liabilities at amortised cost. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition by management.
The financial assets comprise private equity investments and an investment in Dunedin Fund of Funds LP. The assets in this category are classified as non-current.
These assets and liabilities are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They comprise other receivables, cash and cash equivalents and other payables.
Other receivables comprise prepayments and accrued income and are classified as current assets if receipt is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current assets.
Cash and cash equivalents comprise demand deposits with banks and are subject to an insignificant risk of changes in value.
Other payables comprise accruals and are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Purchases and sales of financial assets are recognised on the date of the transaction (the date on which the Company commits to purchase or sell the asset). Investments are initially recognised at fair value, being the consideration paid and are subsequently measured at fair value as determined by the Directors.
Fair value is defined as the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. The Directors based the fair value of investments based on information received from the Manager. The Manager's assessment of fair value of investments is determined in accordance with IFRS 13 'Fair Value Measurement'.
Gains or losses arising from changes in the fair value for the 'investments at fair value through profit or loss' are presented in the Income Statement within 'gains/(losses) on investments' in the period in which they arise.
Financial liabilities at amortised cost consist of other payables. Other payables are initially recognised at fair value net of transaction costs incurred and classified as current. All purchases of financial liabilities are recorded on trade date, being the date on which the Company becomes party to the contractual requirements of the financial liability. Unless otherwise indicated the carrying amounts of the Company's financial liabilities approximate to their fair values.
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 Company'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 Directors are of the opinion that the Company is engaged in a single segment business, being investing in a portfolio of private equity funds or companies.
In the current financial year the Company has applied a number of new standards, amendments to standards and interpretations.
IFRS 9 – Financial Instruments 2014 replaces IAS 39 and introduces new requirements for the classification and measurement of financial assets and financial liabilities, impairment for financial liabilities, impairment for financial assets and general hedge accounting. The Company measures all balance sheet items at fair value, there are no impaired assets and, does not enter into general hedge accounting. There is no material impact on the Company in relation to the adoption of this standard.
IFRS 15 – Revenue from Contracts with Customers specifies how and when an entity should recognise revenue and enhances the nature of revenue disclosures. Due to the nature of the Company's revenue streams from financial instruments there is no material impact on the Company in relation to the adoption of this standard.
At the date of authorisation of these Financial Statements, the following standards and interpretations have not yet been applied in these Financial Statements since they were in issue but not yet effective.
IFRS 16 Leases (effective 1 January 2019) specifies how to faithfully represent lease transactions and provide a basis for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. There will be no material impact on the Company's financial statements as the Company does not have any leases.
The preparation of financial statements requires the use of estimates, assumptions and judgements. These estimates, assumptions and judgements affect the reported amounts of assets and liabilities, at the reporting date. While estimates are based on best judgement using information and financial data available, the actual outcome may differ from these estimates. The key sources of estimation and uncertainty relate to the fair valuation of the unlisted investments.
It's the Company's judgement that it meets the definition of an investment entity within IFRS 10. The criteria which define an investment entity are as follows:
The Board has agreed with the recommendations of the Audit Committee that the Company meet the definition of an investment entity as it satisfies each of the criteria above and that this accounting treatment better reflects the Company's activities as an investment trust. Specifically, as an investment trust, the Company's principal activity is portfolio investment and the investment objective of the Company (stated in the Strategic Report on page 24) is to conduct an orderly realisation of its assets, to be effected in a manner that seeks to achieve a balance between maximising the value of the Company's investments and progressively returning cash to Shareholders.
The key judgements in the fair valuation process are: -
(i) the Managers' determination of the appropriate application of the International Private Equity and Venture Capital guidelines ("IPEV") to each unlisted investment; and
(ii) the Directors' consideration of whether each fair value is appropriate following detailed review and challenge.
The judgement applied in the selection of the methodology used (see 4(c) below) for determining the fair value of each unlisted investment can have a significant impact upon the valuation.
The key estimate in the financial statements is the determination of the fair value of the unlisted investments by the Managers for consideration by the Directors. This estimate is key as it significantly impacts the valuation of the unlisted investments at the balance sheet date. The fair valuation process involves estimates using inputs that are unobservable (for which market data is unavailable). Fair value estimates are cross-checked to alternative estimation methods where possible to improve the robustness of the estimate. As the valuation outcomes may differ from the fair value estimates a price sensitivity analysis is provided in Market Risk Sensitivity in note 20 on pages 61 to 63 illustrate the effect on the financial statements of an over or under estimation of fair values. The risk of an over or under estimation of fair values is greater when methodologies are applied using more subjective inputs.
The determination of fair value by the Manager involves key assumptions dependent upon the valuation methodology used. As explained below, the primary methodologies applied are i) Earnings Multiple, ii) Net Assets and iii) Price of Recent Investment. The multiples approach involves more subjective inputs than the other approaches and therefore presents a greater risk of over or under estimation.
The key assumptions for the Earnings Multiple approach are that the selection of comparable companies (chosen on the basis of their business characteristics) and using either historic or forecast revenues provide a reasonable basis for identifying the enterprise value of an investment in determining its fair value. Other assumptions include the appropriateness of the discount applied to the earnings multiple in recognition of the reduced liquidity of the investment.
The key assumption for the Price of Recent Investment method is that the prices used remain a reasonable proxy for fair value typically for a period of up to six months from the date of the relevant transaction. As the time from the reference transaction increases, the valuation is cross-checked to a Earnings Multiple based method to ensure reasonableness.
The key assumption for a Net Asset method is that for certain businesses the value of its net assets is a more appropriate method to determine its fair value. A discount will be applied to the net assets depending upon the nature of the underlying assets. The discount applied to assets has been cross-checked to independent valuers or external transactions.
Unlisted investments are valued at fair value by the Directors following a detailed review and appropriate challenge of the
valuations proposed by the Managers. The Managers' unlisted investment policy applies methodologies consistent with the IPEV guidelines. The principal methodologies applied are marketbased approaches and are follows: -
The nature of the unlisted portfolio currently will influence the valuation methodology applied.
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.
| 2018 | 2017 | |
|---|---|---|
| £'000 | £'000 | |
| Dividend income – UK | – | 967 |
| Interest income – UK | 603 | 635 |
| Limited partnership income – UK | 101 | 2,807 |
| 'AAA' rated money market funds | 47 | 17 |
| Other income | 1 | 159 |
| 752 | 4,585 | |
| Deposit interest* | 26 | 4 |
| Total income | 778 | 4,589 |
* income arising from financial assets that are not investments designated as fair value through profit or loss.
| Revenue £'000 |
Capital £'000 |
2018 Total £'000 |
Revenue £'000 |
Capital £'000 |
2017 Total £'000 |
|
|---|---|---|---|---|---|---|
| Investment management fee | 49 | 148 | 197 | 26 | 77 | 103 |
Dunedin provides investment management and general administration services to the Company. The terms of the management fee arrangements are detailed on page 64.
Profit/(loss) on ordinary activities before taxation is shown after charging the following amounts:
| 2018 | 2017 | |
|---|---|---|
| £'000 | £'000 | |
| Auditors remuneration | 29 | 34 |
| Director fees | 94 | 109 |
| Legal fees | 28 | 41 |
| Printing and postage | 34 | 43 |
| Broker fees | 20 | 30 |
| Registrar fees | 18 | 16 |
| Regulatory fees | 44 | 26 |
| Depositary fees | 40 | 41 |
| Other | 94 | 107 |
| Irrecoverable VAT | 47 | 43 |
| 448 | 490 |
The Company does not directly employ any staff. The expense disclosed above relating to auditor's remuneration is the total for the Company. A breakdown of auditor's remuneration between audit and non-audit services provided to the Company and subsidiaries is included below. Expenses incurred in relation to the issue of B shares amounted to £108,773 (2017: £63,627).
| 2018 | 2017 | |
|---|---|---|
| £'000 | £'000 | |
| Fees payable to the auditor: | ||
| Fees payable to the Company's auditor for the audit of the Company's financial statements | 25 | 24 |
| Fees payable for other services: | ||
| The audit of the Company's subsidiaries pursuant to legislation | 4 | 4 |
| Total audit fees | 29 | 28 |
| Non-audit services | ||
| Audit related assurance services | – | 6 |
| Total non-audit fees | – | 6 |
| Total fees payable to the auditor by the Company and its subsidiaries | 29 | 34 |
| Revenue £'000 |
Capital £'000 |
2018 Total £'000 |
Revenue £'000 |
Capital £'000 |
2017 Total £'000 |
|
|---|---|---|---|---|---|---|
| On bank loans and overdraft: | ||||||
| Repayable in less than 5 years | 58 | 174 | 232 | 81 | 244 | 325 |
| Banking facility arrangement fee | 8 | 23 | 31 | 13 | 40 | 53 |
| 66 | 197 | 263 | 94 | 284 | 378 |
| Revenue £'000 |
Capital £'000 |
2018 Total £'000 |
Revenue £'000 |
Capital £'000 |
2017 Total £'000 |
|
|---|---|---|---|---|---|---|
| (a) Analysis of charge/(credit) for the year: | ||||||
| UK corporation tax at 19% (2017: 19.25%) | 38 | (38) | – | 55 | (55) | – |
| Prior year adjustment | – | – | – | (3) | – | (3) |
| 38 | (38) | – | 52 | (55) | (3) |
The UK corporation tax rate was 19% throughout the year (2017 – effective tax rate of 19.25%).
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2016 (on 7 September 2016). These include reductions to the main rate to reduce the rate to 17% from 1 April 2020.
The tax assessed for the year is lower than the rate of corporation tax. The differences are explained below.
| 2018 | 2017 | |
|---|---|---|
| £'000 | £'000 | |
| Total return on ordinary activities before tax | 6,026 | 24,128 |
| UK Corporation Tax at 19% (2017: 19.25%) | 1,145 | 4,645 |
| Effects of: | ||
| Capital (gain) not subject to corporation tax | (1,191) | (3,960) |
| Expenses not deductible | 18 | – |
| Non-taxable partnership income and expenses | (50) | (754) |
| Excess management expenses utilised | 78 | 69 |
| Prior year adjustment | – | (3) |
| – | (3) |
At 31 December 2018, the Company had net surplus management expenses of £5,780,000 (2017: £5,994,000) 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:
| 2018 £'000 |
2017 £'000 |
|
|---|---|---|
| Final dividend for the year ended 31 December 2017 – 5.5p paid 17 May 2018 | 1,135 | – |
| Interim dividend for the year ended 31 December 2017 – 13.5p paid 15 December 2017 | – | 2,787 |
| Final dividend for the year ended 31 December 2016 – 17.5p paid 18 May 2017 | – | 3,613 |
| 1,135 | 6,400 |
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.
| 2018 £'000 |
2017 £'000 |
|
|---|---|---|
| Final dividend for the year ended 31 December 2018 – 2.0p to be paid on 16 May 2019 | 413 | – |
| Final dividend for the year ended 31 December 2017 – 5.5p to be paid on 17 May 2018 | – | 1,135 |
| Interim dividend for the year ended 31 December 2017 – 13.5p paid on 15 December 2017 | – | 2,787 |
| 413 | 3,922 |
The returns per ordinary share are based on the following figures:
| 2018 £'000 |
2017 £'000 |
|---|---|
| Revenue return 177 Capital return 5,849 |
3,927 20,204 |
| 6,026 | 24,131 |
| Weighted average number of shares in issue 20,644,062 |
20,644,062 |
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 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.
| 2018 | 2017 |
|---|---|
| £'000 | £'000 |
| Direct 319 |
8,884 |
| Dunedin Buyout Fund LP – |
34 |
| Dunedin Buyout Fund II LP 35,714 |
33,800 |
| Dunedin Buyout Fund III LP 27,246 |
12,882 |
| Equity Harvest Fund LP 1,851 |
2,023 |
| 10,200 Dunedin Fund of Funds LP |
9,600 |
| 75,330 | 67,223 |
| 'AAA' rated money market funds and cash deposits 2,101 |
23,467 |
| 77,431 | 90,690 |
On a look through basis Dunedin Enterprise's investments are detailed below.
| 2018 £'000 |
2017 £'000 |
|
|---|---|---|
| Unlisted UK investments | 65,130 | 57,623 |
| Unlisted European investments | 10,200 | 9,600 |
| 'AAA' rated money market funds and cash deposits | 2,101 | 23,467 |
| 77,431 | 90,690 |
Funds realised from listed and unlisted investments have been utilised to make investments in 'AAA' rated money market funds.
Valuation of financial instruments
The Company 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:
| 2018 £'000 |
2017 £'000 |
|
|---|---|---|
| Level 1 | ||
| 'AAA' rated money market funds and cash deposits | 2,101 | 23,467 |
| Level 2 | – | – |
| Level 3 | ||
| Unlisted investments | 75,330 | 67,223 |
| 77,431 | 90,690 |
The following shows a reconciliation from the beginning to the end of the year for fair value measurements in Level 1 and Level 3 of the fair value hierarchy.
| Level 3 | Level 3 | Level 1 'AAA rated money |
||
|---|---|---|---|---|
| UK Unlisted £'000 |
European Unlisted £'000 |
market funds £'000 |
Total £'000 |
|
| Book cost at 31 December 2017 | 78,394 | 7,581 | 23,467 | 109,442 |
| Unrealised appreciation/(depreciation) | (20,771) | 2,019 | – | (18,752) |
| Valuation at 31 December 2017 | 57,623 | 9,600 | 23,467 | 90,690 |
| Purchases at cost | 13,942 | 162 | 47 | 14,151 |
| Sales – proceeds | (11,251) | (1,014) | (21,413) | (33,678) |
| Sales – realised gain on sales | 546 | – | – | 546 |
| Increase in unrealised appreciation | 4,270 | 1,452 | – | 5,722 |
| Valuation at 31 December 2018 | 65,130 | 10,200 | 2,101 | 77,431 |
| Book cost at 31 December 2018 | 81,631 | 6,729 | 2,101 | 90,461 |
| Closing unrealised appreciation/(depreciation) | (16,501) | 3,471 | – | (13,030) |
There have not been any movements between the levels of the fair value hierarchy during the year.
| 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 2016 | 96,002 | 17,386 | 1,008 | 114,396 |
| Unrealised appreciation/(depreciation) | (14,148) | 4,568 | – | (9,580) |
| Valuation at 31 December 2016 | 81,854 | 21,954 | 1,008 | 104,816 |
| Purchases at cost | 9,393 | 385 | 42,117 | 51,895 |
| Sales – proceeds | (53,142) | (13,794) | (19,658) | (86,594) |
| Sales – realised gain on sales | 26,141 | 3,604 | – | 29,745 |
| Increase in unrealised depreciation | (6,623) | (2,549) | – | (9,172) |
| Valuation at 31 December 2017 | 57,623 | 9,600 | 23,467 | 90,690 |
| Book cost at 31 December 2017 | 78,394 | 7,581 | 23,467 | 109,442 |
| Closing unrealised appreciation/(depreciation) | (20,771) | 2,019 | – | (18,752) |
| 2018 £'000 |
2017 £'000 |
|---|---|
| 546 Realised gains based on cost |
29,745 |
| Unrealised (appreciation)/depreciation recognised in prior years 812 |
(16,373) |
| 1,358 | 13,372 |
| 4,910 Increase in unrealised appreciation |
7,201 |
| Other movements | 1 – |
| Total gains on investments 6,269 |
20,573 |
Included within unlisted investments are investments valued at £37,565,540 (2017: £45,109,058) where the Company's interest is between 20% and 50% of the equity. These investments have been accounted for at fair value through profit or loss as set out in Note 2(a).
(a) At 31 December 2018, the Company held between 20% and 50% of the allotted share capital of the following companies:
| Name | Country of incorporation or registration |
% of equity held |
% of equity held directly and through funds |
Latest available accounts |
Share capital & reserves £'000 |
EBITDA £'000 |
|---|---|---|---|---|---|---|
| Dunedin Buyout Fund II LP | Scotland | 29.7 | 29.7 | 31.12.18 | n/a | n/a |
| Equity Harvest Fund LP | England | 47.4 | 47.4 | 31.12.18 | n/a | n/a |
| Premier Hytemp Topco Limited | Scotland | – | 20.8 | 30.09.17 | (16,756) | (981) |
| Red Topco Limited | England | – | 20.1 | 31.03.18 | (24,273) | 3,425 |
(b) Other interests of 10% or more of any class of allotted share capital:
| Country of incorporation |
% of equity | % of equity held directly and |
|
|---|---|---|---|
| Name | or registration | held directly | through funds |
| Batson Topco Limited | England | – | 12.4 |
| Dunedin Buyout Fund III LP | Scotland | 19.6 | 19.6 |
| EV Holdings Limited | England | – | 10.6 |
| Formaplex Group Limited | England | – | 19.4 |
| Hawksford International Limited | Jersey | – | 17.8 |
| Weldex (International) Offshore Holdings Limited | Scotland | – | 15.1 |
Equity percentages shown are fully diluted, based on the latest audited accounts available, to take account of options and warrants which have been issued, and conversion rights.
| 2018 £'000 |
2017 £'000 |
|
|---|---|---|
| Prepayments | 66 | 135 |
| Other debtors | 5,665 | 897 |
| 5,731 | 1,032 |
| 2018 £'000 |
2017 £'000 |
|
|---|---|---|
| Accruals | 83 | 175 |
| Other creditors | 1,489 | – |
| 1,572 | 175 |
A revolving credit facility of £10m is available to the Company until 31 May 2019. The rate of interest on the revolving credit facility is 2.5% above LIBOR.
Ordinary Shares
| Nominal | 31 December | Nominal | 31 December | |
|---|---|---|---|---|
| No. | 2018 | No. | 2017 | |
| '000 | £'000 | '000 | £'000 | |
| Allotted, called-up and fully paid ordinary shares: At 1 January 2018 and 31 December 2018 |
20,644 | 5,161 | 20,644 | 5,161 |
B Shares Nominal 31 December Nominal 31 December No. 2018 No. 2017 '000 £'000 '000 £'000 Allotted, called-up and fully paid B shares: At 1 January 2018 – – – – Issued during the year 41,288 20,644 41,288 20,644 Repurchased during the year (41,288) (20,644) (41,288) (20,644) At 31 December 2018 – – – –
The capital of the Company is managed in accordance with its investment policy and objectives which are detailed in the Strategic Report on page 24.
During the year ended 31 December 2018, 20,644,062 B shares were issued fully paid by way of bonus issue at nominal value of 50p per share on 5 February 2018. These B Shares were redeemed at their nominal value on 5 February 2018 at cost of £10.3m.
On 9 October 2018 a further 20,644,062 B shares were issued fully paid by way of bonus issue at a nominal value of 50p per share on 9 October 2018. These B shares were redeemed at their nominal value on 9 October 2018 at cost of £10.3m.
At 18 March 2019 no ordinary shares have been repurchased since 31 December 2018. 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.
| Share Capital |
Capital reserve |
Special redemption distributable reserve |
Capital reserve – realised |
Capital reserve – unrealised |
Revenue account |
Total retained earnings |
Total equity |
|
|---|---|---|---|---|---|---|---|---|
| Company | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| At 31 December 2017 | 5,161 | 23,409 | 26,956 | 57,936 | (18,752) | 6,278 | 72,418 | 100,988 |
| Issue of B shares | 20,644 | (20,644) | – | – | – | – | – | – |
| Redemption of B shares | (20,644) | 20,644 | (20,644) | – | – | – | (20,644) | (20,644) |
| Net revenue for the year | – | – | – | – | – | 177 | 177 | 177 |
| Transfer on disposal of investments | – | – | – | (812) | 812 | – | – | – |
| Net gain/(loss) on realisation of investments | – | – | – | 1,359 | – | – | 1,359 | 1,359 |
| Revaluation movements | – | – | – | – | 4,910 | – | 4,910 | 4,910 |
| Management fees charged to capital | – | – | – | (148) | – | – | (148) | (148) |
| Finance costs charged to capital | – | – | – | (197) | – | – | (197) | (197) |
| Dividends paid | – | – | – | – | – | (1,135) | (1,135) | (1,135) |
| Tax effect of capital items | – | – | – | 38 | – | – | 38 | 38 |
| Other movements | – | – | – | (113) | – | – | (113) | (113) |
| At 31 December 2018 | 5,161 | 23,409 | 6,312 | 58,063 | (13,030) | 5,320 | 56,665 | 85,235 |
The net asset value per share is calculated on shareholders' funds of £85,235,463 (2017: £100,988,087) and on 20,644,062 ordinary shares in issue at the year end (2017: 20,644,062).
There were outstanding capital commitments of £19.4m (2017: £44.3m) in respect of investments at the end of the year.
Outstanding capital commitments are as noted below: -
| 2018 £'000 |
2017 £'000 |
|
|---|---|---|
| Dunedin Buyout Fund II LP | 5,135 | 7,039 |
| Dunedin Buyout Fund III LP | 13,679 | 34,904 |
| Equity Harvest Fund LP | – | – |
| Innova/5 LP | – | 1,547 |
| Realza Capital FCR | 602 | 761 |
| 19,416 | 44,251 |
There were no contingent liabilities at the year end (2017: £nil).
The Company's financial instruments comprise ordinary shares, fixed and floating interest rate investments, cash balances and liquid resources. The Company holds financial assets in accordance with its investment policy to invest in unquoted companies both directly and through specialist vehicles. Investments are valued at fair value. For quoted stocks this is at bid price unless this is not considered to be an accurate representation of fair value. In respect of unquoted investments, these are fair valued by the Directors using rules consistent with International Private Equity and Venture Capital Valuation Guidelines. The fair value of all other financial assets and liabilities is represented by their carrying value in the Balance Sheet.
The Company's investing activities expose it to types of risk that are associated with the financial instruments and the market in which it invests. The most important types of financial risk to which the Company is exposed are market risk, interest rate risk, credit risk, liquidity risk and currency risk. The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Company are discussed below.
Market risk – the risk that the value of a financial instrument will change as a result of changes to market prices is one that is fundamental to the Company's objective. The portfolio is continually monitored to ensure an appropriate balance of risk and reward in order to achieve the Company's objective. Some of the risk can be mitigated by diversifying the portfolio across business sectors, asset classes and regions. Details of the Company's investment portfolio at the balance sheet date are disclosed in the schedule of investments on pages 12 to 22. The Company's overall market positions are monitored by the Manager on an ongoing basis and by the Board quarterly.
88% (2017: 74%) of the Company's net assets are invested in unquoted companies. The fair value of the unlisted companies is influenced by estimates, assumptions and judgements made in the fair valuation process (see note 4 on pages 52 to 53). A sensitivity analysis is provided below which recognises that the valuation methodologies employed involve different levels of subjectivity in their inputs. The sensitivity analysis below applies a wider range of input variable sensitivity to the earnings multiple methodology as it involves more significant subjective estimation than the recent transaction or net asset value method (the risk of over or under estimation is higher due to the greater subjectivity involved, for example, in selecting the most relevant measure of maintainable earnings and identifying comparable multiples and the level of discount applied to those multiples).
| Fair value of investments £'000 |
Variable Input Sensitivty (%) |
Impact £'000 |
% of Net Assets |
|
|---|---|---|---|---|
| Earnings multiple | 48,699 | ±10 | ±7,334 | ±8.6 |
| Net assets | 23,761 | ±20 | ±6,284 | ±7.4 |
| Recent transaction | 9,350 | ±10 | ±935 | ±1.1 |
| As at 31 December 2017 |
| Fair value of investments £'000 |
Variable Input Sensitivty (%) |
Impact £'000 |
% of Net Assets |
|
|---|---|---|---|---|
| Earnings multiple | 50,918 | ±10 | ±7,984 | ±7.9 |
| Net assets | 21,084 | ±20 | ±6,044 | ±6.0 |
| Recent transaction | – | ±10 | – | – |
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 2018 | Fixed | Nil | ||
|---|---|---|---|---|
| Currency | rate £'000 |
rate £'000 |
rate £'000 |
Total £'000 |
| Sterling | 61,868 | 5,746 | 2,943 | 70,557 |
| Euro | 4,964 | – | 5,555 | 10,519 |
| Total | 66,832 | 5,746 | 8,498 | 81,076 |
| 31 December 2017 | Fixed | Floating | Nil | |
| Currency | rate £'000 |
rate £'000 |
rate £'000 |
Total £'000 |
| Sterling | 56,778 | 32,907 | 409 | 90,094 |
| Euro | 4,675 | – | 5,362 | 10,037 |
| Total | 61,453 | 32,907 | 5,771 | 100,131 |
The fixed rate assets comprise fixed rate lendings to investee companies. Fixed rate lendings have a weighted average interest rate of 9% per annum (2017: 9%) and a weighted average life to maturity of 2.7 years (2017: 2.5 years). The floating rate assets consist of cash and "AAA" rated cash OEIC's. The nil interest rate bearing assets represent the equity content of the investment portfolio. Interest rate risk is managed on an ongoing basis by the Manager and on a quarterly basis by the Board.
Due to the relatively short period to maturity of the floating rate investments held within the portfolio, it is considered that an increase or decrease of 25 basis points in interest rates as at the reporting date would not have had a significant effect on the Group's net assets or total return for the period.
Credit risk – credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The portfolio consists of the following financial instruments:
| 2018 £'000 |
2017 £'000 |
|
|---|---|---|
| Unquoted debt | 66,832 | 61,453 |
| AAA rated cash OEICs | 2,101 | 23,467 |
| Cash deposits | 3,645 | 9,441 |
| Total | 72,578 | 94,361 |
Investment in unquoted companies either directly, via Dunedin managed funds or via third party managed funds (both limited partnership funds and quoted stocks) is by its nature subject to potential credit losses. The Company's exposure to any one entity is carefully monitored. The unquoted investment portfolio is further diversified by asset class, sector and region. Liquid assets (cash deposits and AAA rated cash OEIC's) are divided between a number of different financial institutions, each of whose credit rating is assessed. Credit risk is monitored by the Manager on an ongoing basis and on a quarterly basis by the Board.
Liquidity risk – the Company has significant investments in unquoted companies which are inherently illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these companies at an amount close to its fair value in order to meet its liquidity requirements. The Company manages its liquid investments to ensure sufficient cash is available to meet contractual commitments and also seeks to have cash or readily convertible investments available to meet other short term financial needs. The Company has access to a £10m borrowing facility. Liquidity risk is monitored by the Manager on an ongoing basis and on a quarterly basis by the Board.
Currency risk – the Company is exposed to currency risk as a result of investing in companies and funds denominated in euros. The sterling value of these investments can be influenced by movement's in foreign currency exchange rates. Currency risk is monitored by the Manager on an ongoing basis and on a quarterly basis by the Board.
At 31 December 2018, if Sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the Financial Statement amounts. The analysis is performed on the same basis for 2017.
| 2018 £'000 |
2017 £'000 |
|
|---|---|---|
| Euro | 348 | 529 |
| Total | 348 | 529 |
Details of the undertakings which were unconsolidated subsidiaries held at 31 December 2018 and 31 December 2017 are listed below:
| Name: | Dunedin Fund of Funds LP | |
|---|---|---|
| Direct or indirect holding: | Direct | |
| Country of incorporation: | Scotland | |
| Principal activity: | Private equity fund of funds | |
| Proportion of share: | 100% |
| Dunedin Fund of Funds LP £'000 |
|
|---|---|
| Valuation at 31 December 2017 | 9,600 |
| Net capital movements | (852) |
| Valuation movements | 1,452 |
| Valuation at 31 December 2018 | 10,200 |
The Company has investments in Dunedin Buyout Fund II LP, Dunedin Buyout Fund III LP, Dunedin Fund of Funds LP and Equity Harvest Fund LP. Each of these limited partnerships are managed by Dunedin. The Company has paid a management fee of £0.7m (2017: £1.5m) in respect of these limited partnerships. The total investment management fee payable by the Company to the Manager is therefore £0.9m (2017: £1.6m).
Since the Company began investing in Dunedin Buyout Funds ("the Funds") executives of the Manager have been entitled to participate in a carried interest scheme via the Funds. Performance conditions are applied whereby any gains achieved through the carried interest scheme associated with the Funds are conditional upon a certain minimum return having been generated for the limited partner investors. Additionally, within Dunedin Buyout Fund II LP and Dunedin Buyout Fund III LP the economic interest of the Manager is aligned with that of the limited partner investors by co-investing in this fund.
As at 31 December 2018 there is a provision made within Investments for carried interest of £5.1m (2017: £4.0m) relating to Dunedin Buyout Fund III LP and £1.4m (2017: £1.3m) relating to Equity Harvest Fund LP. Current executives of the Manager are entitled to 85% of the carried interest in Dunedin Buyout Fund III LP and 14% of the carried interest in Equity Harvest Fund LP.
Brian Finlayson has an interest in the carried interest scheme of Dunedin Buyout Fund and received £749 from that scheme during 2018. The Dunedin Buyout Fund has now been liquidated.
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 |
| Direct investments in individual companies | 1.5 per cent on the value of investments |
| Dunedin Managed Funds | Same fees as paid by third party investors in such Funds |
| Third party managed funds | 1.5 per cent on value of investments |
| Listed private equity funds | 1.5 per cent on the value of investments |
| Cash | 0.5 per cent on cash balances not committed to funds through the Dunedin Fund of Funds LP |
The notice period on the alternative investment fund management agreement is 12 months. No compensation payment is payable by the Company to the Manager on termination except where: (i) the Company notifies the Manager of an intended breach of, or change to, any value of the agreed thresholds and profiles and in the opinion of the Manager, the intended breach or proposed change in value is such that it would cause the Manager to be in breach of, or otherwise become unable to comply with, its obligations under the AIFMD Rules; or (ii) the Manager notifies the Company of any proposed change to any value of the agreed thresholds and profiles expressly required by the FCA and the Company does not agree to the proposed change, in which case the Manager is entitled to receive an amount equal to the remuneration it would have received had the full 12 months' termination notice been given.
Notice of Annual General Meeting
Notice is hereby given that the forty-fourth Annual General Meeting of the shareholders of Dunedin Enterprise Investment Trust PLC will be held at 2.00 pm on 8 May 2019 at the offices of CMS Cameron McKenna Nabarro Olswang LLP, Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2EN for the following purposes:
To consider and, if thought fit, pass the following resolutions. Resolutions 1 to 9, 11 and 12 will be proposed as ordinary resolutions and resolutions 10, 13 and 14 will be proposed as special resolutions.
(v) the Company may make a contract to purchase shares under the authority hereby conferred prior to the expiry of such authority and may make a purchase of shares pursuant to any such contract notwithstanding such expiry.
That a general meeting other than an annual general meeting may be called at not less than 14 clear days' notice.
By Order of the Board
Secretary 28 March 2019
Registered Office: Saltire Court, 20 Castle Terrace, Edinburgh EH1 2EN
votes of the other joint holder(s). Seniority is determined by the order in which the names of the joint holders appear in the Company's register of members in respect of the joint holding (the first named being the most senior).
Notice of Annual General Meeting
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
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.
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 is available on the Company website www.dunedinenterprise.com or on the Alliance Trust Savings website www.alliancetrustsavings.co.uk or else on various websites such as www.trustnet.com.
Investors can buy and sell shares in an investment trust directly through a stockbroker or indirectly through a lawyer, accountant or other professional adviser. However, in order to facilitate investment in the Company, arrangements have been put in place for Dunedin Enterprise to be part of the Alliance Trust Savings products. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.
Details of the Alliance Trust Savings products are noted below: Alliance Trust Savings – Individual Savings Account (ISA) is a taxefficient savings vehicle. Since 6 April 2017 the ISA subscription limit has been £20,000. The monthly administration charge for an Alliance Trust Savings ISA is £10.
Alliance Trust Savings – Investment Dealing Account (IDA) offers a means of investing in Dunedin Enterprise outside a tax efficient wrapper. The monthly administration charge for an Alliance Trust Savings IDA is £10.
Investors may make regular monthly payments (minimum £50 per month) or invest occasional lump sums (minimum £50 in both the ISA and IDA). The charge for online regular monthly payments is £1.50 and £5 for offline payments instructed by post. Investors may also make one-off investments by dealing online or by post/telephone. There is a maximum online dealing charge of £9.99 and a postal/telephone dealing charge of £50 to buy and sell shares within an IDA/ISA.
Investors can transfer in shares to their IDA or ISA from other providers. They can also have their dividends re-invested and request to receive income from dividends to their bank account. Although Alliance Trust Savings consider the IDA and ISA to be a medium to long term investment, there is no restriction on how long an investor need invest and investors can choose to close their account by instructing Alliance Trust Savings in writing at any time. In common with other schemes of this type, all investments are held in nominee accounts. Investors have full voting and other rights of share ownership.
For information relating to the above savings plans please contact:
PO Box 164 8 West Marketgait Dundee DD1 9YP
Telephone 01382 573737 Website www.alliancetrustsavings.co.uk Email [email protected]
For information regarding a shareholding not held through a savings plan, please contact:
Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA
Telephone: 0371 384 2440 International: +44 121 415 7047 Website: www.shareview.co.uk
Information for Investors
Risk factors you should consider prior to investing:
Other Important Information: The information contained on pages 68 to 69 has been issued by Alliance Trust Savings Limited, which is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.
The Company is managed by Dunedin and marketed by Alliance Trust Savings Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.
Glossary of Terms and Definitions
A fund which acquires stakes in established unquoted companies.
The amount committed by the Company to a fund investment, whether or not such amount has been advanced in whole or in part by or repaid in whole or in part to the Company.
A return that an investor in a private equity fund receives.
A portion of a commitment which is called to pay for an investment.
Earnings before interest expense, taxes, depreciation and amortisation.
The value of the financial instruments representing ownership interests in a company plus the net financial debt of the company.
The value of the Company's assets and cash held less any liabilities for which the Company is responsible divided by the number of shares in issue.
The NAV total return is calculated by adding dividends and capital returned in the period to the increase or decrease in the net asset value. The dividends or capital returned are assumed to be re-invested in the quarter that the dividend or capital return is paid.
Management fees and all other recurring operating expenses that are payable by the Company excluding the costs of purchasing and selling investments, finance costs, taxation, non-recurring costs and costs of returning capital to shareholders, expressed as a percentage of the average net asset value during the period.
The amount by which the market price per share of an investment company is either higher (premium) or lower (discount) than the NAV per share, expressed as a percentage of the NAV per share.
The purchase or sale of an investment and its undrawn commitment (if any) to a fund or collection of fund interests in the market.
The repurchase by the Company of its own shares which will reduce the number of shares on the market.
The share price total return is calculated by adding dividends and capital returned in the period to the increase or decrease in the share price. The dividends or capital returned are assumed to be re-invested on the day the share price goes es-dividend.
See page 25 for details of the Company's key performance indicators ("KPI's") and how the Directors assess some of these Alternative Performance Measures.
AIFMD Disclosures (unaudited)
Dunedin is required to make certain periodic disclosures to investors in accordance with the Alternative Investment Fund Managers Directive ("AIFMD"). Those disclosures that are required to be made pre-investment are included within a preinvestment disclosure document ("PIDD") which can be found on the www.dunedinenterprise.com. There have been no material changes to the disclosures contained within the PIDD since first publication on 6 March 2017.
The periodic disclosures as required under the AIFMD to investors are made below:
The table below sets out the current maximum permitted limit and actual level of leverage for the Company.
| Gross Method |
Commitment Method |
|
|---|---|---|
| Maximum level of leverage | 1.2:1 | 1.2:1 |
| Actual level as at 31 December 2018 | 1:1 | 1:1 |
There have been no breaches of the maximum level during the period and no changes to the maximum level of leverage employed by the Company. There is no right of re-use of collateral or any guarantees granted under the leveraging arrangement.
Changes to the information required to be disclosed to investors under AIFMD will be notified via a regulatory news service without undue delay.
Financial Calendar and Corporate Information
Announcements, dividend payments and the issue of the annual and interim reports for the year ended 31 December 2018 and half year end 30 June 2019 can be expected in the months shown below:
Year end results and final dividend for the year announced.
Report and accounts published.
May
Annual General Meeting held and payment of final dividend.
September
Interim report for half year to 30 June published.
A preliminary announcement of unaudited net asset value for each quarter will be made around one month following the quarter end.
Duncan Budge, Chairman ([email protected]) Brian Finlayson Michael Meyer Jensen Angela Lane
www.dunedinenterprise.com Email [email protected]
Dunedin LLP Saltire Court 20 Castle Terrace Edinburgh EH1 2EN Tel 0131 225 6699 Fax 0131 718 2300 Email [email protected] Website www.dunedin.com Registered No. 52844 Scotland
Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA Tel 0371 384 2440
Lloyds TSB Bank plc
CMS Cameron McKenna Nabarro Olswang LLP
Auditor KPMG LLP
Saltire Court 20 Castle Terrace Edinburgh EH1 2EN
Telephone + 44 (0)131 225 6699 Facsimile + 44 (0)131 718 2300
www.dunedinenterprise.com
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