Annual Financial Report

RNS Number : 3260I

Dunedin Enterprise Inv Trust PLC

20 March 2018

 

                                        20 March 2018

For release 20 March 2018

Dunedin Enterprise Investment Trust PLC ("the Company")

Year ended 31 December 2017

Dunedin Enterprise Investment Trust PLC, the private equity investment trust, announces its results for the year ended 31 December 2017.

Financial Highlights:

·     Share price total return of 74.8% in the year to 31 December 2017

·     Net asset value total return of 23.9% in the year to 31 December 2017

·     Realisations of £66.9m in the year

·     New investment of £9.8m in the year

·     Exit of Steeper, Blackrock, Alpha, Kee Safety and Innova during the year

·     £20.6m returned via B shares in December 2017

·     Further £10.3m returned via B shares in February 2018

·     Interim dividend of 13.5p paid in December 2017

·     Final dividend of 5.5p per share proposed for the year ended 31 December 2017

Comparative Total Return Performance

Year to 31 December 2017	Net Asset value	Share price	FTSE Small Cap (ex Inv Cos) Index
One year	23.9%	74.8%	15.6%
Three years	27.2%	61.8%	47.0%
Five years	27.2%	46.2%	105.8%
Ten years	44.8%	75.5%	126.7%

For further information please contact:

Graeme Murray Dunedin LLP   0131 225 6699 0131 718 2310            07813 138367

Corinna Osborne / Emily Weston Equity Dynamics 07825 326 440 / 07825326442 [e-mail] [e-mail]

Chairman's Statement

In the year to 31 December 2017 your Company's net asset value total return was 23.9%. This performance was generated principally from the realisations of Blackrock, Alpha and Kee Safety together with strong trading performances from other portfolio companies.

The share price performance was particularly pleasing this year with a total return to shareholders of 74.8%. This was boosted by a return of capital to shareholders of 100p per share and the payment of dividends of 31p.

The Company's net asset value per share decreased from 503.3p to 489.2p during the year after taking account of the return of capital and dividends.

Following the year end, in February 2018 a second return of capital reduced the net asset value per share by a further 50p to 439.2p. This means that a total of 181p has been distributed to shareholders since the beginning of 2017.

Following this strong performance, the discount at which the shares trade has reduced from 39.2% at the end of 2016 to 13.5%, based on a net asset value per share of 439.2p and a current share price of 380p.

Realisations

There were five significant realisations during the year to 31 December 2017.

In August 2017 there was a successful realisation of Blackrock, the provider of independent expert witnesses to dispute and litigation resolution in the construction sector. Total proceeds from the sale amounted to £12.9m, representing an uplift of £2.9m (29%) over the valuation of £10.0m at 31 December 2016. The investment delivered a return of 2.8x and an IRR of 60%.

There were two further realisations achieved in October 2017.

Alpha, the leading global asset and wealth management consulting firm, was realised in its entirety on the listing of the company on the AIM market. The investment was originally made only in February 2016. Total proceeds from the sale amounted to £16.7m, representing an uplift of £9.6m (135%) on the valuation of £7.1m at 31 December 2016, a 2.1x return and an IRR of 55%.

Kee Safety, the market leading provider of collective fall protection and safety systems, was also sold in October 2017. Total proceeds from the sale amounted to £15.9m, representing an uplift of £6.1m (62%) on the valuation of £9.8m at 31 December 2016, a 3.0x return and an IRR of 35%.

In December 2017 the investment in Innova/5, one of the two remaining European funds, was realised. Innova/5 invests in mid-market buyouts in Central Eastern Europe. The sale of the interest in the fund was achieved at net asset value, realising proceeds of £10.2m, which represents an IRR of 7%.

As previously reported at the interim stage, we successfully realised our investment in Steeper, a world leading manufacturer and supplier of prosthetic limbs, in February 2017 for £10.1m. The overall return was 1.9x, representing an IRR of 7%. Steeper was valued at the realised proceeds at 31 December 2016.

Portfolio

A new investment of £6.0m was made in Forensic Risk Alliance ("FRA"), an international consultancy business which provides forensic accounting, data analytics and e-discovery expertise to help businesses manage risk in an increasingly regulated global environment.

The trading performance of the remaining portfolio has been strong during the year. Unrealised valuation increases of £12.9m were partially offset by decreases of £5.8m. Valuation uplifts were achieved by Pyroguard, FRA, Red and Kingsbridge. Each of these businesses is trading well as a result of strong organic growth. The most significant valuation reduction in the year to 31 December 2017 was the decline of £1.2m of the holding in CitySprint.

In addition to these valuation changes a provision of £4.0m has been established during the year for carried interest arising in Dunedin Buyout Fund III LP as a result of its strong performance following these successful realisations and valuation uplifts.

Commitments & Liquidity

The Company had outstanding commitments to limited partnership funds of £44.3m at 31 December 2017. This consisted of £42.0m to Dunedin managed funds and £2.3m to the European funds. Assuming these funds are held to maturity, it is estimated that only £27m of this total commitment will be drawn over the remaining life of the funds.

At 31 December 2017 the Company held cash balances of £32.9m. This balance was reduced by a second return of capital to shareholders of £10.3m on 16 February 2017 which reduced the cash balance to £22.6m. The Company has a revolving credit facility with Lloyds of £20m which was undrawn at 31 December 2017 and is available until 31 May 2018. The Board and the Manager keep the cash and commitment position of the Company 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 £10m.

B Share Scheme

Shareholders approved the introduction of a B Share Scheme in May 2017 which established a cost-effective method of returning capital to shareholders. Following the realisations of Blackrock, Alpha and Kee Safety, £20.6m was returned to shareholders in December 2017. This was achieved by the issue of 2 B Shares of 50p for every 1 ordinary share held. The B Shares were immediately redeemed, and proceeds distributed to shareholders on 15 December 2017.

Following the realisation of Innova/5 on 22 December 2017, the Board decided to make a second return of capital by way of the issue of B shares. 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.

The Board intends to continue with this policy of returning capital to shareholders following realisations and after taking account of outstanding commitments.

Dividends

Following the realisations noted above, an interim dividend of 13.5p per share was paid to shareholders on 15 December 2017 amounting to £2.8m.  It is proposed that a final dividend of 5.5p per share be paid on 17 May 2018 to distribute the remaining income generated from the portfolio in the year.

Outlook

The Board will continue to maximise shareholder value through the orderly wind-down of the remaining investments held by the Company. This policy has served shareholders well during the year under review. The Board is aware that the secondary market for interests in private equity funds has been buoyant for some time. We regularly review whether shareholders' interests would be best served by realising our fund interests in this way or whether continuing to hold them is likely to provide better returns.

The Board is encouraged by the pricing of the realisations achieved during the year and the improving trading performance of the portfolio.

Duncan Budge

Chairman

20 March 2018

Manager's Review

The total net asset return to shareholders in the year to 31 December 2017 was 23.9%. This is stated after taking account of a final dividend for 2016 of 17.5p (paid in May 2017), an interim dividend for 2017 of 13.5p (paid in December 2017) and a redemption of B shares equivalent to 100p (paid in December 2017).

The net asset value per share in the year to 31 December 2017 decreased from 503.3p to 489.2p. Following the year end in February 2018 a second issue and redemption of B shares reduced the net asset value per share by a further 50p to 439.2p.

The Company's net asset value decreased from £103.9m to £101.0m over the year. As detailed below this movement is stated following dividend payments totalling £6.4m and capital of £20.6m returned to shareholders via the issue and redemption of B shares.

	£m
Net asset value at 1 January 2017	103.9
Unrealised value increases	12.9
Unrealised value decreases	(5.8)
Realised gain over opening valuation	13.4
Dividends paid to shareholders	(6.4)
B share redemption	(20.6)
Net income and capital movements	3.6
Net asset value at 31 December 2017	101.0

 

Portfolio Composition

The investment portfolio can be analysed as shown in the table below.

	Valuation at 1 January 2017 £'m	Additions in year £'m	Disposals in year £'m	Realised movement £'m	Unrealised movement £'m	Valuation at 31 December 2017 £'m
Dunedin managed	81.5	9.4	(53.1)	12.4	7.0	57.2
Third party managed	22.3	0.4	(13.8)	1.0	0.1	10.0
AAA rated money market funds	1.0	42.1	(19.6)	-	-	23.5
	104.8	51.9	(86.5)	13.4	7.1	90.7

 

New Investment Activity

In March 2017, the Company made an investment of £6.0m through the Dunedin Buyout Fund III in Forensic Risk Alliance ("FRA"). FRA is an international consultancy business that provides forensic accounting, data analytics and e-discovery expertise to help businesses manage risk 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 multi-national corporates seeking advice to help navigate regulatory scrutiny, effect compliant cross-border data transfer and manage risk.

A further investment of £0.5m was made in Premier Hytemp, the provider of highly engineered steel and nickel alloys and components for the oil and gas industry, to provide ongoing working capital support.

Realisations

In February 2017, Steeper, the leading supplier of rehabilitation services including prosthetic, orthotic and electronic assistive devices and services, was realised. Proceeds received on realisation amounted to £10.1m consisting of capital of £7.7m and income of £2.4m. Total proceeds received over the life of the investment amounted to £10.4m making the overall return to Dunedin Enterprise from the investment 1.9x the original investment of £5.6m. Steeper was valued at the realised proceeds at 31 December 2016.

In August 2017, Blackrock, the provider of independent expert witnesses for large construction projects, was realised. Total proceeds from the sale amounted to £12.9m consisting of capital of £12.8m and income of £0.1m. This represents an uplift of £2.9m over the valuation of £10.0m at 31 December 2016. The original cost of the investment was £4.9m and, over its life, a total of £13.9m has been received by Dunedin Enterprise, representing a 2.8x return and an IRR of 60%.

In October 2017, Alpha, the leading global asset and wealth management consulting business, was realised following a listing of the company on the AIM market. Total proceeds from the sale amounted to £16.7m consisting of capital of £15.6m and income of £1.1m. This represents an uplift of £9.6m when compared to the valuation of £7.1m at 31 December 2016. The original cost of the investment was £8.1m and over the life of the investment a total of £16.7m was received by Dunedin Enterprise representing a 2.1x return and an IRR of 55%.

Kee Safety, the market leading provider of collective fall protection and safety systems, was also realised in October 2017. Total proceeds from the sale amounted to £15.9m consisting of capital of £15.2m and income of £0.7m. This represents an uplift of £6.1m when compared to the valuation of £9.8m at 31 December 2016. The original cost of the investment was £6.3m and over the life of the investment a total of £18.8m was received by Dunedin Enterprise representing a 3.0x return and an IRR of 35%.

One of the two European funds, Innova/5, was fully realised via a secondary transaction in December 2017. Total proceeds received from the sale of Innova/5 during the year amounted to £10.2m which compares to a valuation of £8.7m at 31 December 2016.

The remaining European fund, Realza, realised GTT, the provider of tax management services to local public entities in Spain, during the year. This was one of the largest investments held by Realza generating proceeds of £3.6m and returning 3.2x original cost.

Cash and commitments

As at 31 December 2017 the Company had cash and near cash balances of £32.9m all of which was denominated in Sterling. The cash and near cash balance was reduced by £10.3m following the issue and redemption of B shares in February 2018. The Company has a revolving credit facility with Lloyds Bank of £20m which is available until 31 May 2018. The Board and Manager keep the cash and commitment position of the Company 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 £10m.

At 31 December 2017 the Company had undrawn commitments totalling £44.3m. These undrawn commitments are split between Dunedin managed funds of £42.0m and a further €2.6m (£2.3m) of undrawn commitments to the European funds. It is expected that only £27m of the total outstanding commitments will ultimately be drawn over the remaining life of the funds.

This outstanding commitment increased following the realisations as, under the terms of the relevant limited partnership agreement, the original cost of realised investments becomes recallable for the following twelve months.

Unrealised valuation uplifts

In the year to 31 December 2017 there were valuation uplifts generated from the following investments: Pyroguard (£3.8m), FRA (£3.2m), Red (£2.7m) and Kingsbridge (£2.3m).

Pyroguard, the manufacturer and distributor of fire resistant glass, has resolved production problems experienced last year.  Strong demand for its products during the year has resulted in a 94% increase in maintainable EBITDA (maintainable EBITDA being EBITDA for the last twelve months adjusted for exceptional items).

FRA has experienced a strong demand for its services since the buyout was completed in March 2017. The company has significantly outperformed its business plan with maintainable EBITDA increasing by 32% during this period. Growth has been driven by a number of significant project wins.

Red, the supplier of SAP software experts on both a contract and permanent basis, has experienced a strong demand for its services particularly in the contracting division. This has resulted in an increase in maintainable EBITDA during the year from £0.1m to £3.0m.

Kingsbridge, the provider of insurance services to contractors, has experienced strong organic growth during the year resulting in maintainable EBITDA increasing by 25%. The Kingsbridge Contractor Insurance Division has produced record levels of new business in the latter part of 2017.

Unrealised valuation reductions

The most significant valuation reduction in the year to 31 December 2017 was at CitySprint (£1.2m).

CitySprint has experienced a slow-down in its core business during the year as a result of a softening of the market and increased competitive pressures. The result has been a 5% reduction in maintainable EBITDA. Management is taking action to re-focus the business on higher margin sales lines.

A provision of £4.0m has also been established during the year for carried interest arising in Dunedin Buyout Fund III. This limited partnership has a hurdle rate of 8% which was achieved during the year following the successful exits of Blackrock, Kee Safety and Alpha in addition to the valuation uplifts achieved at FRA and Kingsbridge.

Valuations and Gearing

The average earnings multiple applied in the valuation of the Dunedin managed portfolio was 7.6x EBITDA (2016: 8.6x), or 9.3x EBITA (2016: 10.2x). These multiples continue to be applied to maintainable profits.

Within the Dunedin managed portfolio, the weighted average gearing of the companies was 3.1x EBITDA (2016: 3.3x) or 3.7x EBITA (2016: 3.8x).

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	47%
Between 1 and 2 x EBITDA	-%
Between 2 and 3 x EBITDA	-%
More than 3 x EBITDA	53%

Of the total acquisition debt in the Dunedin managed portfolio companies the scheduled repayments are spread as follows:

Less than one year	9%
Between one and two years	8%
Between two and three years	6%
More than three years	77%

 

Fund Analysis

The chart below analyses the investment portfolio by investment fund vehicle.

Direct	13%
Dunedin Buyout Fund II	51%
Dunedin Buyout Fund III	19%
Equity Harvest Fund	3%
Third Party managed	14%

 

Portfolio Analysis

Detailed below is an analysis of the investment portfolio by geographic location as at 31 December 2017.

UK	87%
Rest of Europe	13%

Sector Analysis

The investment portfolio of the Company is broadly diversified. At 31 December 2017 the largest sector exposure of 42% remains to the diverse Support Services sector.

Automotive	6%
Construction and building materials	11%
Consumer products & services	4%
Financial services	23%
Healthcare	1%
Industrials	12%
Support services	42%
Technology	1%

Valuation Method

Earnings - provision	30%
Earnings - uplift	54%
Assets basis	15%
Exit value	1%

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	13%
1-3 years	20%
3-5 years	3%
>5 years	64%

Dunedin LLP

20 March 2018

Ten Largest Investments   

(both held directly and via Dunedin managed funds) by value at 31 December 2017

	Approx.			Percentage
	percentage	Cost of	Directors'	of net
	of equity	investment	valuation	assets
Company name	%	£'000	£'000	%
Hawksford	17.8	5,637	10,420	10.3
Weldex	15.1	9,504	9,611	9.5
Realza	8.9	7,818	9,601	9.5
FRA	5.4	6,035	9,256	9.2
Pyroguard	41.7	9,450	8,114	8.0
CitySprint	5.1	7,308	6,825	6.8
Kingsbridge	12.7	4,114	6,647	6.6
U-POL	5.0	5,657	3,907	3.9
Red	20.1	9,962	2,667	2.6
Formaplex	17.7	1,732	2,126	2.1
		67,217	69,174	68.5

 Income Statement

				2017						2016
	Revenue		Capital		Total		Revenue		Capital		Total
	£'000		£'000		£'000		£'000		£'000		£'000
Investment income	4,589		-		4,589		8,126		-		8,126
Gains/(losses) on investments	-		20,573		20,573		-		(4,115)		(4,115)
Total income	4,589		20,573		25,162		8,126		(4,115)		4,011
Expenses
Investment management fee	(26)		(77)		(103)		(30)		(91)		(121)
Other expenses	(490)		(63)		(553)		(604)		-		(604)
Profit/(loss) before finance costs and tax	4,073		20,433		24,506		7,492		(4,206)		3,286
Finance costs	(94)		(284)		(378)		(127)		(382)		(509)
Profit/(loss) before tax	3,979		20,149		24,128		7,365		(4,588)		2,777
Taxation	(52)		55		3		(449)		449		-
Profit for the year	3,927		20,204		24,131		6,916		(4,139)		2,777
Basic return per ordinary share
(basic & diluted)	19.0p		97.9p		116.9p		33.5p		(20.0)p		13.5p

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 2017

Year ended 31 December 2017

	Share capital £'000	Capital redemption reserve £'000	Capital Reserve realised £'000	Capital reserve - unrealised £'000	Special Distributable Reserve £'000	Revenue account £'000	Total retained earnings £'000	Total equity £'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

Year ended 31 December 2016

	Share capital £'000	Capital redemption reserve £'000	Capital Reserve realised £'000	Capital reserve - unrealised £'000	Special Distributable Reserve £'000	Revenue account £'000	Total retained earnings £'000	Total equity £'000
At 31 December 2015	5,161	2,765	38,492	5,271	47,600	5,138	96,501	104,427
Profit/(loss) for the year	-	-	10,712	(14,851)	-	6,916	2,777	2,777
Dividends paid	-	-	-	-	-	(3,303)	(3,303)	(3,303)
At 31 December 2016	5,161	2,765	49,204	(9,580)	47,600	8,751	95,975	103,901

Balance Sheet

As at 31 December 2017

	31 December 2017 £'000	31 December 2016 £'000
Non-current assets
Investments held at fair value	90,690	104,816
Current assets
Other receivables	1,032	105
Cash and cash equivalents	9,441	90
	10,473	195
Current liabilities
Other liabilities	(175)	(1,110)
Net assets	100,988	103,901
Capital and reserves
Share capital	5,161	5,161
Capital redemption reserve	23,409	2,765
Capital reserve - realised	57,936	49,204
Capital reserve - unrealised	(18,752)	(9,580)
Special distributable reserve	26,956	47,600
Revenue reserve	6,278	8,751
Total equity	100,988	103,901
Net asset value per ordinary share (basic and diluted)	489.2p	503.3p

Cash Flow Statement

for the year ended 31 December 2017

	31 December 2017 £'000	31 December 2016 £'000
Cash flows from operating activities
Profit/(loss) Adjustments for:	24,128	2,777
Gains/(losses) on investments	(20,573)	4,115
Interest paid	378	509
(Increase)/decrease in debtors	(927)	62
Increase/(decrease) in creditors	(935)	126
Net cash from operating activities	2,071	7,589
Cash flows from investing activities
Purchase of investments	(9,393)	(22,392)
Drawdown from subsidiary	(385)	(2,777)
Purchase of 'AAA' rated money market funds	(42,117)	(6,003)
Sale of investments	53,142	25,165
Distribution from subsidiary	13,794	1,504
Sale of 'AAA' rated money market funds	19,658	5,000
Net cash used in investing activities	34,699	497
Taxation
Tax recovered	3	-
Cash flows from financing activities
Redemption of B shares	(20,644)	-
Dividends paid	(6,400)	(3,303)
Interest paid	(378)	(509)
Repayment of loan facility	-	(4,700)
	(27,422)	(8,512)
Net increase/(decrease) in cash and cash equivalents	9,351	(426)
Cash and cash equivalents at 1 January	90	511
Effect of exchange rate fluctuations on cash held	-	5
Cash and cash equivalents at 31 December	9,441	90

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they 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 3, 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 Parent 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 issuer, together with a description of the principal risks and uncertainties that they face.

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

20 March 2018

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 2017 or 2016. The financial information for 2016 is derived from the statutory accounts for 2016 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 2017 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 2016 and 2017 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  December 2017 £'000		Year to 31  December 2016 £'000
Dividends paid in the year		6,400		3,303

A final dividend of 5.5p per share for the year ended 31 December 2017 will be paid on 17 May 2018 to shareholders on the register at close of business on 27 April 2018.  The ex-dividend date is 26 April 2018.

4.         Earnings per share

	Year to 31 December 2017	Year to 31 December 2016
Revenue return per ordinary share (p)	19.0	33.5
Capital return per ordinary share (p)	97.9	(20.0)
Earnings per ordinary share (p)	116.9	13.5
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 2017:

5.         Principal Risks and Uncertainties (Strategic Report pages 24-25)

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:

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 undraw 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 page 60, note 21)

The Company has investments in Dunedin Buyout Fund LP, 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 £1.5m (2016: £2.2m) in respect of these limited partnerships. The total investment management fee payable by the Company to the Manager is therefore £1.6m (2016: £2.3m).

A Manager's Incentive Scheme ("the Scheme") was introduced from 1 May 1999. Under the terms of the Scheme qualifying directors and investment executives of Dunedin were entitled to purchase 7.5% of the equity shares (and, occasionally, other financial instruments) in each of the directly held investments subscribed for by the Company. This scheme has now been replaced by the arrangements noted below.

Since the Company began investing in Dunedin Buyout Funds ("the Funds") executives of the Manager have been entitled to participate in a carried interest scheme via the Funds. Performance conditions are applied whereby any gains achieved through the carried interest scheme associated with the Funds are conditional upon a certain minimum return having been generated for the limited partner investors. Additionally, within Dunedin Buyout Fund II LP and Dunedin Buyout Fund III LP the economic interest of the Manager is aligned with that of the limited partner investors by co-investing in this fund.

As at 31 December 2017 there is a provision made within Investments for carried interest of £4.0m relating to Dunedin Buyout Fund III LP and £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% in Equity Harvest Fund LP.

Brian Finlayson has an interest in the carried interest scheme of Dunedin Buyout Fund LP and received £3,874 from that scheme during 2017. Brian Finlayson was previously employed by the Manager and retired in 2002. As at 31 December 2017 the remaining value in this scheme attributable to Brian Finlayson is £360.

ENDS

 

END

 

 

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