TIDMDNE
RNS Number : 0953T
Dunedin Enterprise Inv Trust PLC
18 March 2019
18 March 2019
For release 18 March 2019
Dunedin Enterprise Investment Trust PLC ("the Company")
Year ended 31 December 2018
Dunedin Enterprise Investment Trust PLC, the private equity
investment trust, announces its results for the year ended 31
December 2018.
Financial Highlights:
-- Share price total return of 9.4% in the year to 31 December 2018
-- Net asset value total return of 6.4% in the year to 31 December 2018
-- Realisations of GBP12.3m in the year
-- New investment of GBP14.2m in the year
-- Exit of Pyroguard during the year
-- GBP10.3m returned via B shares in February 2018
-- Further GBP10.3m returned via B shares in October 2018
-- Total of GBP109m returned to shareholders since 2012
-- Final dividend of 2.0p per share proposed for the year ended 31 December 2018
Comparative Total Return Performance
FTSE
Small Cap
(ex Inv
Year to 31 December Net Asset Cos)
2018 value Share price Index
--------------------- ---------- ------------ -----------
One year 6.4% 9.4% -13.8%
Three years 35.3% 91.4% 12.2%
Five years 34.6% 49.0% 23.3%
Ten years 85.1% 270.5% 278.1%
For further information please contact:
Graeme Murray Corinna Osborne / Emily Weston
Dunedin LLP Equity Dynamics
0131 225 6699 07825 326 440 / 07825326442
0131 718 2310 corinna@equitydynamics.co.uk
07813 138367 emily@equitydynamics.co.uk
Chairman's Statement
In the year to 31 December 2018 your Company's net asset value
total return was 6.4%, generated principally from both valuation
uplifts and realisations.
The relative share price performance was pleasing this year 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 in investment
policy, a total of GBP109m 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.
Realisations
In September 2018 there was a successful realisation of
Pyroguard, the specialist fire resistant glass manufacturer. Total
proceeds from the sale amounted to GBP9.3m, representing an uplift
of GBP1.2m (15%) over the valuation of GBP8.1m at 31 December 2017.
The investment delivered a return of 5.9x and an IRR of 35%.
In addition, deferred proceeds of GBP1.7m were received from
Steeper and GBP0.6m from Trustmarque.
Two realisations were received from the European private equity
fund, Realza: a GBP1.0m 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 GBP3.9m, 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.
Portfolio
Two new investments were made in the year by the Dunedin managed
fund to which your Company has an outstanding commitment. In June
2018, GBP6.4m was invested in GPS, the global payments processor
which supports a number of digital banks, challenger banks,
fintechs and financial institutions. In November 2018 GBP3.0m was
invested in Incremental, a Glasgow-headquartered, market-leading IT
services business.
Overall the trading performance of the portfolio has been strong
during the year. Unrealised valuation increases of GBP9.1m were
partially offset by decreases of GBP4.3m. 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 GBP1.9m in the value of the holding in Formaplex.
Commitments & Liquidity
At the year end the Company had outstanding commitments to
limited partnership funds of GBP19.4m, which consisted of GBP18.8m
to Dunedin managed funds and GBP0.6m to Realza, the remaining
European fund. Assuming these funds are held to maturity, it is
estimated that only some GBP11.5m 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.
At 31 December 2018 the Company held cash balances of GBP5.7m.
In addition we have a revolving credit facility with Lloyds Bank of
GBP10m 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 GBP5m.
B Share Scheme
Shareholders received two returns of capital via the B Share
Scheme during the year, representing a total of GBP20.6m or 100p
per share
Following the realisation of Innova/5 in December 2017, GBP10.3m
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 GBP10.3m were distributed to
shareholders on 16 February 2018.
Following the realisation of Pyroguard in September 2018, a
further GBP10.3m 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
GBP10.3m were distributed to shareholders on 23 October 2018.
Dividends
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.
Outlook
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 the 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.
Duncan Budge
Chairman
18 March 2019
Manager's Review
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 GBP101.0m to
GBP85.2m over the year. As detailed below this movement is stated
following a dividend payment of GBP1.1m and capital of GBP20.6m
returned to shareholders via the issue and redemption of B shares
in February 2018 and October 2018.
GBPm
-------------------------------------------------- ------
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 distribution 106.9
Dividends paid to shareholders (1.1)
B share redemption (20.6)
Net asset value at 31 December 2018 85.2
-------------------------------------------------- ------
Portfolio Composition
The investment portfolio can be analysed as shown in the table
below.
Valuation
at Valuation at
1 January Additions Disposals Realised Unrealised 31 December
2018 in year in year movement movement 2018
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm (*1)
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 GBP7.8m
New Investment Activity
In June 2018, the Company made an investment of GBP6.4m 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 GBP3.0m 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 (GBP1.5m),
Hawksford (GBP1.1m), EV (GBP0.6m) and Premier Hytemp (GBP0.4m).
Realisations
In September 2018, Pyroguard, the specialist fire resistant
glass manufacturer, was realised. Total proceeds from the sale
amounted to GBP9.3m consisting of capital of GBP8.7m and income of
GBP0.6m. The proceeds received represent an uplift of GBP1.2m when
compared to the valuation of GBP8.1m at 31 December 2017. The
original cost of the investment was GBP3.8m and over the life of
the investment a total of GBP22.5m was received by Dunedin
Enterprise representing a 5.9x return and an IRR of 35%.
Deferred proceeds of GBP1.7m were received from Steeper, the
leading supplier of rehabilitation services including prosthetic,
orthotic and electronic assistive devices and services. Further
deferred proceeds of GBP0.6m were received from Trustmarque, the
provider of software management services.
There was a GBP1.0m 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 GBP3.9m 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.
Unrealised valuation uplifts
In the year to 31 December 2018 there were valuation uplifts
generated from the following investments: FRA (GBP3.6m), RED
(GBP2.2m), Kingsbridge (GBP1.3m) and EV (GBP0.6m).
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 GBP1.5m 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 GBP3.2m 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 GBP1.5m.
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.
Unrealised valuation reductions
The most significant valuation reduction in the year to 31
December 2018 was at Formaplex (GBP1.9m). 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.
Cash and commitments
The Company had outstanding commitments to limited partnership
funds of GBP19.4m. The outstanding commitment position consisted of
GBP18.8m to Dunedin managed funds and GBP0.6m to Realza, the one
remaining European fund. Assuming these funds are held to maturity,
it is estimated that only some GBP11.5m 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
GBP10m 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 GBP5m.
Brexit
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 become clearer.
Valuations and Gearing
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%
Fund Analysis
Detailed below is an analysis of the investment portfolio by
investment fund vehicle.
Dunedin Buyout Fund II 48%
Dunedin Buyout Fund III 36%
Equity Harvest Fund 3%
Third Party managed 13%
Portfolio Analysis
Detailed below is an analysis of the investment portfolio by
geographic location as at 31 December 2018.
UK 88%
Rest of Europe 12%
Sector Analysis
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.
Automotive 4%
Consumer products & services 4%
Financial services 31%
Industrials 12%
Support services 49%
Valuation Method
Cost 11%
Earnings - provision 23%
Earnings - uplift 45%
Assets basis 16%
Exit value 5%
Year of Investment
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.
<1 year 11%
1-3 years 26%
3-5 years 13%
>5 years 50%
Dunedin LLP
18 March 2019
Ten Largest Investments
(both held directly and via Dunedin managed funds) by value at
31 December 2018
Approx. Percentage
percentage Cost of Directors' of net
of equity investment valuation assets
Company name % GBP'000 GBP'000 %
-------------- ----------- ----------- ----------- -----------
FRA 5.4 6,035 12,874 15.1
Hawksford 17.8 6,746 11,181 13.1
Realza 8.9 6,729 10,200 12.0
Weldex 15.1 9,505 9,611 11.3
Kingsbridge 12.4 4,112 7,932 9.3
CitySprint 5.2 7,308 6,382 7.5
GPS 8.2 6,357 6,357 7.5
Red 20.1 9,665 4,530 5.3
U-POL 5.0 5,657 3,628 4.3
Incremental 8.2 2,992 2,992 3.5
65,106 75,687 88.9
-------------- ----------- ----------- ----------- -----------
Income Statement
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment income 778 - 778 4,589 - 4,589
Gains/(losses) on investments - 6,269 6,269 - 20,573 20,573
------------------------------ ------- ------- ------- ------- ------- -------
Total income 778 6,269 7,047 4,589 20,573 25,162
Expenses
Investment management fee (49) (148) (197) (26) (77) (103)
Other expenses (448) (113) (561) (490) (63) (553)
------------------------------ ------- ------- ------- ------- ------- -------
Profit/(loss) before finance
costs and tax 281 6,008 6,289 4,073 20,433 24,506
Finance costs (66) (197) (263) (94) (284) (378)
------------------------------ ------- ------- ------- ------- ------- -------
Profit/(loss) before tax 215 5,811 6,026 3,979 20,149 24,128
Taxation (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) 0.86p 28.33p 29.19p 19.02p 97.87p 116.89p
The total column of this statement represents the Income
Statement of the Group, prepared in accordance with International
Financial Reporting Standards as adopted by the EU. The
supplementary revenue and capital columns are both prepared under
guidance published by the Association of Investment Companies. All
items in the above statement derive from continuing operations.
All income is attributable to the equity shareholders of Dunedin
Enterprise Investment Trust PLC.
Statement of Changes in Equity
for the year ended 31 December 2018
Year ended 31 December 2018
Capital Capital Capital Special Total
Share redemption Reserve reserve Distributable Revenue retained Total
capital reserve realised - Reserve account earnings equity
GBP'000 GBP'000 GBP'000 unrealised GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
--------------- ---------- ----------- ---------- ------------ -------------- ---------- ---------- ----------
At 31 December
2017 5,161 23,409 57,936 (18,752) 26,956 6,278 72,418 100,988
Profit/(loss)
for the year - - 127 5,722 - 177 6,026 6,026
B shares
issued during
the
year 20,644 (20,644) - - - - - -
B shares
redeemed
during
the year (20,644) 20,644 - - (20,644) - (20,644) (20,644)
Dividends paid - - - - - (1,135) (1,135) (1,135)
--------------- ---------- ----------- ---------- ------------ -------------- ---------- ---------- ----------
At 31 December
2018 5,161 23,409 58,063 (13,030) 6,312 5,320 56,665 85,235
--------------- ---------- ----------- ---------- ------------ -------------- ---------- ---------- ----------
Year ended 31 December 2017
Capital Capital Capital Special Total
Share redemption Reserve reserve Distributable Revenue retained Total
capital reserve realised - Reserve account earnings equity
GBP'000 GBP'000 GBP'000 unrealised GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
--------------- ---------- ----------- ---------- ------------ -------------- ---------- ---------- ----------
At 31 December
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
--------------- ---------- ----------- ---------- ------------ -------------- ---------- ---------- ----------
Balance Sheet
As at 31 December 2018
31 December 31 December
2018 2017
GBP'000 GBP'000
------------------------------------------- ------------ ------------
Non-current assets
Investments held at fair value 77,431 90,690
Current assets
Other receivables 5,731 1,032
Cash and cash equivalents 3,645 9,441
------------------------------------------- ------------ ------------
9,376 10,473
Current liabilities
Other liabilities (1,572) (175)
Net assets 85,235 100,988
------------------------------------------- ------------ ------------
Capital and reserves
Share capital 5,161 5,161
Capital redemption reserve 23,409 23,409
Capital reserve - realised 58,063 57,936
Capital reserve - unrealised (13,030) (18,752)
Special distributable reserve 6,312 26,956
Revenue reserve 5,320 6,278
------------------------------------------- ------------ ------------
Total equity 85,235 100,988
------------------------------------------- ------------ ------------
Net asset value per ordinary share (basic
and diluted) 412.9p 489.2p
Cash Flow Statement
for the year ended 31 December 2018
31 December 31 December
2018 2017
GBP'000 GBP'000
-------------------------------------------- ------------ ------------
Cash flows from operating activities
Profit/(loss)
Adjustments for: 6,026 24,128
Gains/(losses) on investments (6,269) (20,573)
Interest paid 263 378
(Increase)/decrease 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
Effect of exchange rate fluctuations on - -
cash held
Cash and cash equivalents at 31 December 3,645 9,441
-------------------------------------------- ------------ ------------
Statement of Directors' Responsibilities in respect of the
Annual Report and the Financial Statements
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 their profit or
loss for that period. In preparing these financial statements, the
Directors are required to:
- select suitable accounting policies and then apply them
consistently;
- make judgments and estimates that are reasonable and
prudent;
- state whether they have been prepared in accordance with IFRSs
as adopted by the EU;
- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
- use 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. As explained in note 2, the
Directors do not believe that it is appropriate to prepare these
financial statements on a going concern basis.
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
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.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the company taken as a whole; and
- the Strategic Report and Directors' Report includes a fair
review of the development and performance of the business and the
position of the Company, together with a description of the
principal risks and uncertainties that it faces.
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.
Duncan Budge
Chairman
18 March 2019
Notes to the Accounts
1. Preliminary Results
The financial information contained in this report does not
constitute the Company's statutory accounts for the years ended 31
December 2018 or 2017. The financial information for 2017 is
derived from the statutory accounts for 2017 which have been
delivered to the Registrar of Companies, and those for 2018 will be
delivered in due course. The auditor has reported on those
accounts. Their report was (i) unqualified, (ii) without qualifying
their report, included an emphasis of matter referring to note 1 to
the financial statements explaining that the financial statements
have not been prepared on a going concern basis for the reason set
out in that note and (iii) did not contain a statement under
section 498(2) or (3) of the Companies Act 2006.
2. Going Concern
The financial information for 2017 and 2018 has 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 information as a consequence of the change in the basis
of preparation.
3. Dividends
Year to 31 Year to 31
December December
2018 2017
GBP'000 GBP'000
Dividends paid in the year 1,135 6,400
---------- ----------
A final dividend of 2.0p per share for the year ended 31
December 2018 will be paid 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.
4. Earnings per share
Year to Year to
31 December 31 December
2018 2017
Revenue return per ordinary share
(p) 0.86 19.02
Capital return per ordinary share
(p) 28.33 97.87
Earnings per ordinary share (p) 29.19 116.89
Weighted average number of shares 20,644,062 20,644,062
The earnings per share figures are based on the weighted average
numbers of shares set out above. Earnings per share is based on the
revenue profit in the period as shown in the consolidated income
statement.
References to page numbers and notes in the disclosures below
are to page numbers and notes to the annual report and accounts of
the Company for the year ended 31 December 2018.
5. Principal Risks and Uncertainties (Strategic Report)
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 for 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.
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 match 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.
6. Related Party Transactions (Notes to the Accounts)
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 GBP0.7m (2017:
GBP1.5m) in respect of these limited partnerships. The total
investment management fee payable by the Company to the Manager is
therefore GBP0.9m (2017: GBP1.6m).
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 GBP5.1m (2017: GBP4.0m)
relating to Dunedin Buyout Fund III LP and GBP1.4m (2017: GBP1.3m)
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% in Equity Harvest Fund LP.
Brian Finlayson has an interest in the carried interest scheme
of Dunedin Buyout Fund LP and received GBP749 from that scheme
during 2018 (2017: GBP3,874). The Dunedin Buyout Fund LP has now
been liquidated.
7. Glossary of Terms and Definitions and Alternative Performance Measures
Buy-out fund
A fund which acquires stakes in established unquoted
companies.
Commitment
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.
Distribution
A return that an investor in a private equity fund receives.
Draw down
A portion of a commitment which is called to pay for an
investment.
EBITDA
Earnings before interest expense, taxes, depreciation and
amortisation.
Enterprise value (EV)
The value of the financial instruments representing ownership
interests in a company plus the net financial debt of the
company.
Net Asset Value ("NAV") per Ordinary Share
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.
NAV Total Return
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.
Ongoing Charges
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.
Premium/Discount
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.
Secondary transaction
The purchase or sale of an investment and its undrawn commitment
(if any) to a fund or collection of fund interests in the
market.
Share buy-back transaction
The repurchase by the Company of its own shares which will
reduce the number of shares on the market.
Share price total return
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.
ENDS
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UBVKRKSAOAAR
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March 18, 2019 03:01 ET (07:01 GMT)
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