TIDMDNE
RNS Number : 1995F
Dunedin Enterprise Inv Trust PLC
18 March 2022
18 March 2022
For release 18 March 2022
Dunedin Enterprise Investment Trust PLC ("the Company")
Year ended 31 December 2021
Dunedin Enterprise Investment Trust PLC, the private equity
investment trust, announces its results for the year ended 31
December 2021.
Financial Highlights :
-- Share price total return of 46.3% in the year to 31 December 2021
-- Net asset value total return of 39.5% in the year to 31 December 2021
-- Realisations of GBP38.5m in the year
-- GBP26m returned via tender offer in November 2021
-- Interim dividends totalling 28.6p per share
-- Final dividend of 1.9p per share proposed for the year ended 31 December 2021
-- Total of GBP97.9m has been returned to shareholders since the decision to wind-up the Trust
Comparative Total Return Performance
FTSE
Small Cap
(ex Inv
Year to 31 December Net Asset Cos)
2021 value Share price Index
--------------------- ---------- ------------ -----------
One year 39.5% 46.3% 23.0%
Three years 50.7% 64.4% 56.8%
Five years 98.6% 212.3% 67.5%
Ten years 108.5% 262.8% 258.5%
For further information please contact:
Graeme Murray
Dunedin LLP
07813 138367
Chairman's Statement
I am pleased to report further progress in terms of performance
and the return of cash to shareholders.
The total return in the year to 31 December 2021 was 39.5% and
46.3% in terms of net asset value per share and share price
respectively.
Your Company's net asset value per share increased from 413.9p
to 558.8p in the year. This is stated after allowing for the final
dividend for 2020 of 2.0p paid in May 2021 and an interim dividend
for 2021 of 16.0p paid in November 2021.
The share price of 473p at 31 December 2021 represented a
discount of 15.4% to the net asset value of 558.8p per share. The
share price currently stands at 470p.
In November 2021 a tender offer returned GBP26m to shareholders.
In total GBP29.3m was returned to shareholders this year. Since
shareholders approved the decision to wind-up the Trust in May 2016
a total of GBP97.9m has been returned to shareholders.
Portfolio
During the year there was one follow-on investment: an
additional GBP0.9m was invested in Incremental, an IT services
provider.
A refinancing at Hawksford, a provider of services to the asset
management sector, was completed in February 2021, generating
proceeds of GBP6.8m. The realisation of U-POL, the manufacturer of
automotive refinish products, was completed in September 2021, with
proceeds of GBP22.0m. A partial sale of GPS , a market leader in
payment processing technology, was completed in December 2021. Cash
proceeds received from the partial realisation amounted to GBP14.0m
and, in addition, GBP5.9m has been rolled into a GPS Newco.
In January 2022 the remaining investment in CitySprint, the same
day courier, was realised, generating GBP1.5m.
Unrealised valuation increases of GBP21.3m were offset by
decreases of GBP9.1m. Valuation uplifts were achieved at Red, GPS
and Incremental, offset by reductions in the valuations of FRA,
Weldex and Premier Hytemp. Further details are provided in the
Manager's Review.
Cash, Commitments & Liquidity
The original investment periods of all funds to which the
Company has made a commitment have now ended. In future the Company
is only required to meet drawdowns for follow-on investments,
management fees and expenses during the remainder of the life of
the funds.
At 31 December 2021 the Company held cash and near cash
equivalents totalling GBP24.4m. There are outstanding commitments
to limited partnership funds of GBP9.8m at 31 December 2021,
consisting of GBP9.1m to Dunedin managed funds and GBP0.7m to
Realza.
Tender offer
A tender offer was approved by shareholders in November 2021 for
27.4% of the issued share capital at a 1.2% discount to the net
asset value at 30 September 2021. Under the tender offer GBP26m was
returned to shareholders.
Dividends
An interim dividend of 16.0p was paid in November 2021 and a
second interim dividend of 12.6p will be paid in March 2022. It is
proposed that a final dividend of 1.9p per share be paid on 13 May
2022. This will distribute to shareholders the net revenue profit
generated by the Company during 2021.
Outlook
Although the extraordinary and deplorable events in Ukraine have
clouded the economic and geo-political outlook, our portfolio
companies have been relatively unaffected.
The disruption created by the pandemic was the main focus for
portfolio companies during the earlier part of the period under
review, the generally strong financial position of portfolio
companies has provided resilience.
The Board welcomes the realisations achieved to date this year
and will continue to return capital to shareholders wherever
practicable and prudent following the realisation of
investments.
Duncan Budge
Chairman
18 March 2022
Manager's Review
The total net assets return for the year, after taking account
of dividends and capital returned to shareholders, is 39.5%.
The Company's net asset value decreased from GBP74.9m to
GBP73.4m over the year. As detailed below this movement is stated
following dividend payments totalling GBP3.3m and capital of
GBP26.2m returned to shareholders via a tender offer in November
2021.
GBPm
-------
Net asset value at 1 January 2021 74.9
Unrealised value increases 21.3
Unrealised value decreases (9.1)
Realised gain over opening valuation 11.2
Net income and capital movements 4.6
-------
Net asset value prior to shareholder distributions 102.9
Dividends paid to shareholders (3.3)
Tender offer (26.2)
-------
Net asset value at 31 December 2021 73.4
=======
Portfolio Composition
The investment portfolio can be analysed as shown in the table
below.
Valuation Valuation
at at
1 Jan Additions Disposals Realised Unrealised 31 Dec
2021 in year in year movement movement 2021(1)
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
---------- ---------- ---------- ---------- ----------- ----------
Dunedin managed 57.8 1.5 (38.0) 10.9 11.4 43.6
Third-party managed 4.5 0.1 (0.5) 0.3 0.8 5.2
---------- ---------- ---------- ---------- ----------- ----------
Investment portfolio 62.3 1.6 (38.5) 11.2 12.2 48.8
AAA rated money
market funds 13.7 6.2 (8.1) - - 11.8
---------- ---------- ---------- ---------- ----------- ----------
76.0 7.8 (46.6) 11.2 12.2 60.6
========== ========== ========== ========== =========== ==========
(1) in addition the Company held net current liabilities of
GBP12.8m
Realisations
In the year to 31 December 2021 a total of GBP38.5m was realised
from the investment portfolio.
In February 2021 Hawksford, a leading provider of corporate,
private client and fund services, completed its refinancing.
Proceeds from the refinancing amounted to GBP6.8m, consisting of
capital of GBP6.2m and income of GBP0.6m. The investment in
Hawksford had been valued at GBP6.9m at 31 December 2020. Dunedin
Enterprise retains a 3.7% interest in Hawksford which has been
valued at GBP0.1m at 31 December 2021.
In September 2021 the realisation of U-POL, the manufacturer of
automotive refinish products, including body fillers, coatings,
aerosols, polishing compounds and consumables, was completed. The
investment in U-POL was valued at GBP9.0m at 31 December 2020.
Proceeds from the sale amounted to GBP22.0m, consisting of capital
of GBP19.7m and income of GBP2.3m.
A partial sale of GPS, a market leader in payment processing
technology, was completed in December 2021. The investment was
valued at GBP14.1m at 31 December 2020. Cash proceeds received from
the partial realisation amounted to GBP14.0m consisting of capital
of GBP12.1m and income of GBP1.9m. Proceeds received were net of
GBP4.2m carried interest which was payable by Dunedin Buyout Fund
III LP. In addition, GBP5.9m has been rolled into GPS Newco which
equates to an interest of 1.5%.
Following the year end in January 2022 the remaining investment
in CitySprint, the same day courier, was realised. The investment
in CitySprint has been valued at the proceeds from the transaction
of GBP1.5m.
Investment activity
In the year to 31 December 2021 a follow-on investment of
GBP0.9m was made in Incremental, the market-leading IT services
provider which designs, implements and supports clients with
ERP/CRM systems and cloud infrastructure. Further funding was
provided to enable Incremental to follow its buy-and-build strategy
with the acquisition of RedSpire. The RedSpire acquisition
increases Incremental's market position in the financial services
sector and makes it one of the largest Microsoft Dynamics partners
in the UK.
A further GBP0.7m was drawn down by Dunedin and third-party
managed funds to meet management fees and ongoing expenses.
Unrealised valuation uplifts
In the year to 31 December 2021 there were valuation uplifts
generated from the following investments: RED (GBP11.8m), GPS
(GBP2.4m), Incremental (GBP1.7m), CitySprint (GBP1.1m) and Realza
(GBP0.8m).
RED, the provider of SAP contract and permanent staff, has
experienced a 95% increase in maintainable EBITDA during the year.
The contract side of the business in particular is performing
strongly as RED recovers from the impact of COVID. The company has
come through the pandemic extremely well with management
prioritising cost control and cash collection and focusing on sales
to well-capitalised customers globally.
Incremental, the market-leading IT services platform which
designs, implements and supports clients with ERP/CRM systems and
cloud infrastructure, achieved a 329% increase in EBITDA in the
year. The increase in EBITDA was in part driven by the acquisition
of RedSpire in January 2021. Redspire is one of the leading
providers of CRM solutions to financial service companies in the
UK. A further transaction was completed by Incremental in October
2021 with the acquisition of Adatis which specialises in advanced
data analytics, from data management strategy and consultancy to
managed services.
As noted above, CitySprint has been valued at 31 December 2021
at the proceeds received from a trade sale of the business to DPD
which completed in January 2022.
The majority of the valuation uplift at Realza has been
generated at Cualin, the producer of premium tomatoes, which has
experienced good harvests and strong market prices during the
year.
In addition, there was a release of the provision for carried
interest in Dunedin Buyout Fund III LP amounting to GBP3.2m. The
majority of this movement was a result of carried interest released
on the partial sale of GPS.
Unrealised valuation reductions
In the year to 31 December 2021 there were valuation reductions
at the following investments: FRA (GBP6.0m), Weldex (GBP1.6m) and
Premier Hytemp (GBP1.5m).
FRA, the forensic accounting, data analytics and e-discovery
business, experienced a slowdown in large new business wins
following the COVID outbreak. A new CEO joined the company in June
2021. Management's medium-term view remains positive as they
anticipate a wave of new regulatory investigations to commence in
the coming year. The business has retained core talent, beyond that
required for current utilisation levels, in anticipation of
significant project wins in the medium term.
Weldex, the market-leading crawler crane hire business, has
experienced delays in cranes going out for large construction
projects and pricing pressure on rates. The investment continues to
be valued on a net assets basis.
Premier Hytemp, the provider of highly engineered components to
the oil and gas industry, has suffered from a weak market in 2021.
The business expects that there will be a market upturn during
2022. The investment continues to be valued on a net assets
basis.
Cash and commitments
The Company had outstanding commitments to limited partnership
funds of GBP9.8m, consisting of GBP9.1m to Dunedin managed funds
and GBP0.7m to Realza, the one remaining European fund.
The original investment periods of all funds to which the
Company has made a commitment have now ended. In future the Company
is only required to meet drawdowns for follow-on investments,
management fees and expenses during the remainder of the life of
the funds.
Valuations and Gearing
The average earnings multiple applied in the valuation of the
Dunedin managed portfolio was 9.7x EBITDA (2020: 9.2x). These
multiples continue to be applied to maintainable profits.
Within the Dunedin managed portfolio, the weighted average
gearing of the companies was 3.3x EBITDA (2020: 2.4x).
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 65%
Between 1 and 2 x EBITDA -%
Between 2 and 3 x EBITDA 6%
More than 3 x EBITDA 29%
Fund Analysis
The chart below analyses the investment portfolio by investment
fund vehicle.
Dunedin Buyout Fund II 63%
Dunedin Buyout Fund III 26%
Realza 11%
Portfolio Analysis
Detailed below is an analysis of the head office of the
investment portfolio companies by geographic location as at 31
December 2020.
UK 89%
Rest of Europe 11%
Sector Analysis
Automotive 6%
Consumer products & services 4%
Financial services 11%
Industrials 7%
Support services 72%
Valuation Method
Earnings - provision 4%
Earnings - uplift 66%
Revenue - uplift 11%
Assets basis 16%
Exit value 3%
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 -%
1-3 years -%
3-5 years 29%
>5 years 71%
Dunedin LLP
18 March 2022
Ten Largest Investments
(both held directly and via Dunedin managed funds) by value at
31 December 2021
Approx. Percentage
percentage Cost of Directors' of net
of equity investment valuation assets
Company name % GBP'000 GBP'000 %
---------------- ----------- ----------- ----------- -----------
RED 20.1 9,665 20,736 28.2
Weldex 15.1 9,505 6,672 9.1
Incremental 8.2 3,875 5,957 8.1
GPS 1.5 1,994 5,863 8.0
Realza 8.9 4,268 5,199 7.1
FRA 5.2 1,413 3,368 4.6
EV 10.6 8,321 1,864 2.5
Premier Hytemp 23.0 10,136 1,759 2.4
CitySprint 0.6 7,978 1,533 2.1
Hawksford 3.7 - 136 0.2
57,155 53,087 72.3
---------------- ----------- ----------- ----------- -----------
Income Statement
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment income 4,800 - 4,800 764 - 764
Gains on investments - 23,408 23,408 - (5,993) (5,993)
---------------------------- --------- ------- -------- ----------- ---------- ----------
Total income 4,800 23,408 28,208 764 (5,993) (5,229)
Expenses
Investment management fee (29) (88) (117) (23) (69) (92)
Other expenses (384) (23) (407) (372) (30) (402)
---------------------------- --------- ------- -------- ----------- ---------- ----------
Profit before finance costs
and tax 4,387 23,297 27,684 369 (6,092) (5,723)
Finance costs (10) (32) (42) (24) (71) (95)
---------------------------- --------- ------- -------- ----------- ---------- ----------
Profit before tax 4,377 23,265 27,642 345 (6,163) (5,818)
Taxation 272 70 342 - - -
---------------------------- --------- ------- -------- ----------- ---------- ----------
Profit for the year 4,649 23,335 27,984 345 (6,163) (5,818)
---------------------------- --------- ------- -------- ----------- ---------- ----------
Basic return per ordinary
share
(basic & diluted) 26.56p 133.33p 159.89p 1.70p (30.37)p (28.67)p
The total column of this statement represents the Income
Statement of the Group, prepared in accordance with the
requirements of the Companies Act 2006. 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 2021
Year ended 31 December 2021
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
2020 4,525 49,850 30,600 (16,357) 1,151 5,153 20,547 74,922
Profit for
the year - - 15,356 7,979 - 4,649 27,984 27,984
Cancellation
of capital
redemption
reserve - (49,850) - - 49,850 - 49,850 -
Purchase and
cancellation
of shares (1,241) 1,241 (26,235) - - - (26,235) (26,235)
Dividends
paid - - - - - (3,258) (3,258) (3,258)
-------------- ---------- ------------ ---------- ------------ -------------- ---------- ---------- ----------
At 31
December
2021 3,284 1,241 19,721 (8,378) 51,001 6,544 68,888 73,413
-------------- ---------- ------------ ---------- ------------ -------------- ---------- ---------- ----------
Year ended 31 December 2020
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
2019 5,161 49,214 34,258 (3,877) 1,151 5,840 37,372 91,747
Profit for
the year - - 6,317 (12,480) - 345 (5,818) (5,818)
Purchase and
cancellation
of shares (636) 636 (9,975) - - - (9,975) (9,975)
Dividends
paid - - - - - (1,032) (1,032) (1,032)
-------------- ---------- ------------ ---------- ------------ -------------- ---------- ---------- ----------
At 31
December
2020 4,525 49,850 30,600 (16,357) 1,151 5,153 20,547 74,922
-------------- ---------- ------------ ---------- ------------ -------------- ---------- ---------- ----------
Balance Sheet
As at 31 December 2021
31 December 31 December
2021 2020
GBP'000 GBP'000
------------------------------------------- ------------ ------------
Non-current assets
Investments held at fair value 60,588 75,985
Current assets
Other receivables 297 1,057
Cash and cash equivalents 12,616 151
------------------------------------------- ------------ ------------
12,913 1,208
Current liabilities
Other liabilities (88) (2,271)
Net assets 73,413 74,922
------------------------------------------- ------------ ------------
Capital and reserves
Share capital 3,284 4,525
Capital redemption reserve 1,241 49,850
Capital reserve - realised 19,721 30,600
Capital reserve - unrealised (8,378) (16,357)
Special distributable reserve 51,001 1,151
Revenue reserve 6,544 5,153
------------------------------------------- ------------ ------------
Total equity 73,413 74,922
------------------------------------------- ------------ ------------
Net asset value per ordinary share (basic
and diluted) 558.8p 413.9p
Cash Flow Statement
for the year ended 31 December 2021
31 December 31 December
2021 2020
GBP'000 GBP'000
--------------------------------------------- ------------ ------------
Cash flows from operating activities
Profit / (loss) before tax
Adjustments for: 27,642 (5,818)
(Gains) / losses on investments (23,408) 5,993
Interest paid 42 95
Decrease in debtors 760 16
(Decrease) / increase in creditors (2,183) 105
Net cash inflow from operating activities 2,853 391
Cash flows from investing activities
Purchase of investments (1,550) (2,242)
Drawdown from subsidiary (79) (86)
Purchase of 'AAA' rated money market funds (6,213) (12,683)
Sale of investments 38,547 14,414
Distribution from subsidiary - 187
Sale of 'AAA' rated money market funds 8,100 7,537
--------------------------------------------- ------------ ------------
Net cash inflows from investing activities 38,805 7,127
Tax
Tax recovered 342 -
Cash flows from financing activities
Tender offer (26,235) (9,975)
Dividends paid (3,258) (1,032)
Interest paid (42) (95)
--------------------------------------------- ------------ ------------
Net cash outflows from financing activities (29,535) (11,102)
Net increase/(decrease) in cash and cash
equivalents 12,465 (3,584)
Cash and cash equivalents at 1 January 151 3,735
Cash and cash equivalents at 31 December 12,616 151
--------------------------------------------- ------------ ------------
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
international accounting standards 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:
- 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
international accounting standards in conformity with the
requirements of the Companies Act 2006;
- 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
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.
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; 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 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.
Duncan Budge
Chairman
18 March 2022
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 2021 or 2020. The financial information for 2020 is
derived from the statutory accounts for 2020 which have been
delivered to the Registrar of Companies. The auditor has reported
on those accounts. Their report was (i) unqualified, (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498(2) or (3) of
the Companies Act 2006. The audit of the statutory accounts for the
year ended 31 December 2021 is not yet complete. These accounts
will be finalised on the basis of the financial information
presented by the Directors in this preliminary announcement and
will be delivered to the Registrar of Companies following the
Company's annual general meeting.
2. Going Concern
The financial information for 2020 and 2021 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
2021 2020
GBP'000 GBP'000
Dividends paid in the year 3,258 1,032
------------ ------------
A final dividend of 1.9p per share for the year ended 31
December 2021 is proposed and if approved, will be paid on 13 May
2022 to shareholders on the register at close of business on 8
April 2022. The ex-dividend date is 7 April 2022.
4. Earnings per share
Year to Year to
31 December 31 December
2021 2020
Revenue return per ordinary share
(p) 26.56 1.70
Capital return per ordinary share
(p) 133.33 (30.37)
Earnings per ordinary share (p) 159.89 (28.67)
Weighted average number of shares 17,501,856 20,289,587
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 2021.
5. Principal Risks and Uncertainties (Strategic Report page 22)
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:
Coronavirus: the profitability of the Company's investments is
adversely impacted due to an adverse economic impact on the UK and
world economy from the Coronavirus. Mitigation: A representative of
your Manager, Dunedin LLP, sits on the Board of each portfolio
company. These companies hold regular board meetings at which the
financial position of the company is monitored. Between board
meetings there is an ongoing dialogue between the Manager and the
senior management of the portfolio company. Each portfolio company
monitors all risks pertinent to their businesses including the
coronavirus, the potential impact these risks may have on their
businesses, and develop contingency plans where appropriate. The
Board and the Manager keep under regular review the liquidity
available to the Company, including bank facilities, required to
meet the expected outstanding commitments that will be drawn and
the ongoing expenses of the Company. The Board is satisfied that
the liquidity position of the Company is sufficiently strong to
mitigate the threat.
Reduction in overall risk in year
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.
No change in overall risk in year
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.
Increase in overall risk in year
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
undraw commitments to limited partnership funds.
No change in overall risk in year
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. An emerging
economic risk is the conflict in Ukraine. 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. The Manager and board of each portfolio company
is keeping under review the impact of the conflict in Ukraine and
developing contingency plans/mitigating actions where
appropriate.
No change in overall risk in year
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.
No change in overall risk in year
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.
No change in overall risk in year
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.
No change in overall risk in year
6. Related Party Transactions (Notes to the Accounts page 60, note 21)
The Company has investments in Dunedin Buyout Fund II LP,
Dunedin Buyout Fund III LP and Dunedin Fund of Funds LP. Each of
these limited partnerships are managed by Dunedin. The Company has
paid a management fee of GBP0.6m (2020: GBP0.6m) in respect of
these limited partnerships. The total investment management fee
payable by the Company to the Manager is therefore GBP0.7m (2020:
GBP0.7m).
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 2021 there is a provision made within
Investments for carried interest of GBP4.3m (2020: GBP7.5m)
relating to Dunedin Buyout Fund III LP. Current executives of the
Manager are entitled to 42% of the carried interest in Dunedin
Buyout Fund III LP.
ENDS
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FR BKOBDOBKDAND
(END) Dow Jones Newswires
March 18, 2022 03:00 ET (07:00 GMT)
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