Final Results

RNS Number : 6462H

Dunedin Enterprise Inv Trust PLC

25 February 2010

 



EMBARGOED - 7AM THURSDAY 25 FEBRUARY

For release                                                          07.00am                                               25 February 2010

Dunedin Enterprise Investment Trust PLC

Annual financial report announcement for the year ended 31 December 2009

Dunedin Enterprise Investment Trust PLC, the private equity investment trust which specialises in investing in mid-market buyouts, announces its results for the year ended 31 December 2009.

Financial Highlights:

·     Net asset value per share decreased by 6.1% to 407.1p per share

·     Net asset value per share fell 0.6% when dividends are added back

·     Total dividend for the year of 2.5p per share

·     New investment of £7.1m in the year

·     Realisations of £9.4m in the year

Comparative Performance

Periods to 31 December 2009	Net Asset value*1	Share price	FTSE Small Cap (ex Inv Cos) Index	FTSE All Share (ex Inv Cos) Index
One year	-6.1	26.3	52.7	24.7
Three years	-24.9	-42.3	-41.8	-17.8
Five years	-2.2	-23.0	-16.7	14.7
Ten years	-1.7	-16.9	-25.8	-8.3

^*1 - taken from 30 April for three, five and ten years

For further information please contact:

Brian Scouler Director Dunedin Capital Partners Limited           0131 225 6699 07811 262 796   [e-mail]

Jane Kirby / Corinna Osborne Directors Equity Dynamics Limited 07825 326 441/ 440 [e-mail] / [e-mail]

Notes to Editors

Dunedin Enterprise Investment Trust PLC ("the Company") is managed by Dunedin Capital Partners Limited ("Dunedin"). Dunedin Capital Partners Limited is an independent private equity company owned by its directors. It specialises in providing equity finance for management buyouts and management buyins with a transaction size of £10 million to £75 million. It operates throughout the United Kingdom from its offices in Edinburgh and London.  Dunedin Capital Partners is itself the result of a management buyout which took place in 1996.

Dunedin Enterprise's investment objective is to achieve substantial long term growth in its assets through capital gains from its investments.  For more information on Dunedin Enterprise, its portfolio and investment approach, please visit our website www.dunedinenterprise.com.  Investors can buy shares in the company through regular savings and PEP/ISA  plans.  For further information, call the Aberdeen Asset Managers helpline on 0500 00 00 40 or visit their website at www.dunedinenterprisetrust.co.uk.

Chairman's Statement

Looking back to last year, it is now clear that concerns over listed private equity investment trusts' outstanding commitments, portfolio valuations and gearing levels were largely overstated and that Dunedin Enterprise's share price suffered unduly as a result of this. At one point, the market capitalisation of the Trust was less than the value of the cash and listed investments. Discounts across the listed private equity sector have subsequently narrowed,  although they are still comparatively high, as more sensible analysis has prevailed and the Managers have sought to highlight the relative financial strength of Dunedin Enterprise. The discount of the share price to net asset value decreased during 2009 from 51.3% to 34.5% and now stands at 22.3%. The share price of the Company increased from 211p to 266.5p over the same period, a rise of 26.3%, and as at the date of this statement was 316.25p.

During the year to 31 December 2009, net assets decreased by 6.1% from £130.8m to £122.9m. The major element of this reduction was the payment of a special dividend in May 2009 which was the result of exceptional income receipts in the previous year. Excluding total dividend payments of £7.2m, representing 5.5% of opening net asset value, the fall in net assets was 0.6%.

The Managers continue to value the investment portfolio using the same methods and assumptions as in previous years, and marking valuations to market in accordance with International Private Equity Valuation guidelines.

The value of the Trust's investments has remained steady as the two main drivers of valuation, namely portfolio profitability and earnings multiples have experienced contrasting fortunes. Some portfolio companies will be reporting lower profits for 2009 and these have been reflected in the valuations at 31 December 2009. However, the effect of this has been offset by higher earnings multiples in a recovering quoted market.

During the year a total of £7.1m was invested. £2.9m was invested by Dunedin or in Dunedin managed funds and £4.0m was invested in new European third party managed funds for investments, with the balance drawn by legacy technology funds.

In a difficult market for realisations, I am pleased to note the very successful sale of Fernau Avionics in February 2009 which realised a return of three times cost in a period of 19 months.

Dividends

An interim dividend of 0.5p was paid on 31 August 2009. A final interim dividend of 2.0p per share is to be paid, making a total dividend for the year of 2.5p. The reduction in the dividend from last year reflects a combination of more investments structured with a rolled up yield, a lower yield from cash balances, and continued difficult trading conditions being experienced by portfolio companies, and was predicted in the half year report.

The dividend has been calculated at a level to ensure that the Company meets the requirements of UK tax legislation to maintain its investment trust status. The final interim dividend will be paid on 31 March 2010. There will be no final dividend thereafter paid this year. As previously advised, the Company will in future make a single final annual dividend payment, calculated with reference to the tax legislation. The first such dividend will be payable following the AGM in May 2011.

Portfolio

The portfolio at 31 December 2009 consisted of investments made by the Company, directly or through Dunedin managed funds (28.3%), listed private equity (21.1%), third party managed funds (5.0%), legacy technology funds (1.8%) and cash or near cash (43.8%). It is worthy of note that our top ten investments by value now includes the first of the five European private equity funds to which we have made commitments.

At the year end, Dunedin Enterprise had outstanding commitments of £106.7m to limited partnership funds, split evenly between Dunedin managed funds and European third party managed funds. The present expectation is that these commitments will be drawn down over a number of years.

Cash reserves at the end of the year end totalled £53.7m, together with listed private equity holdings of £26.0m.

The Trust has an undrawn revolving credit facility of £39m which falls for renewal at the end of April 2010. Our financial projections indicate that we do not expect to require borrowing facilities for the foreseeable future.  We do not believe that current banking markets would offer attractive facilities and we will therefore not be renewing our current facilities when they expire.

Both the Board and the Managers are comfortable with the uncalled commitments given the expected rate of new investment.

Market Conditions and Outlook

2009 was a year in which the Managers' focus was firmly on protecting the value of the investment portfolio. Working closely with portfolio company management teams and external consultants, strategies were revised, operational improvements were made and banking facilities re-structured as appropriate.

Our portfolio companies are now more optimistic about the prospects for recovery, with the majority of 2010 budgets ahead of 2009 results and gearing at conservative levels.

Dunedin managed funds in the UK made no new investments in 2009 as there was a significant decline in M&A activity and vendor price expectations were often too high for businesses of insufficient quality. Bank debt remained difficult to source with leverage multiples reduced, and new facilities priced with significantly higher margins.

Nevertheless, the Company continues to be in a strong financial position with cash balances making up a significant proportion of net asset value and we expect to see an increase in new investment in the current year. Investments will be structured with a higher element of equity and less debt, and the focus of the Managers will be on improving the profitability of portfolio companies as the main driver of returns.

I noted last year that the programme of fund commitments would be slower than had been expected, and this has indeed been the case. We have expanded our European third party managed programme with a new commitment in Germany in the second half of 2009, and we continue to look at new opportunities.

Other Matters

We are watching closely the progress of the draft European directive on Alternative Investment Fund Management and we have made our own direct representations to push towards a more appropriate regime for listed private equity managers.

I would draw your attention to the new Dunedin Enterprise website www.dunedinenterprise.com which will allow us to create greater awareness of the Trust, and enhance communications with current and potential shareholders and others in the wider market. The new website contains information on the Trust, its share price and financial performance, and details of its investment portfolio. I would welcome comment from shareholders or other interested parties by contacting [e-mail]

Bruce Patrick, who has been a Director of Dunedin Enterprise since 2003, will retire from the Board at the end of the AGM in May 2010. The Board and I would like to thank him for his valuable help and input.

Federico Marescotti joined the Board of Dunedin Enterprise in June 2009 and is obliged to offer himself for election at the AGM. He is a strong addition to the Board and I firmly support his election.

Finally, I wish to congratulate the Managers on the latest in a series of awards, for Small Buyout House of the Year at the "Unquote" British Private Equity Awards 2009.

Edward Dawnay,

Chairman

24 February 2010

Manager's Review

In the year to 31 December 2009 the Company's net asset value decreased from £130.8m to £122.9m. This equates to a decrease of 6.1% in the net asset value per share from 433.4p to 407.1p. This decrease in net assets is explained by:

	£'m
Net asset value at 1 January 2009	130.8
Unrealised value increases	8.9
Unrealised value decreases	(14.7)
Realised profit over opening valuation	3.8
Realised profit on hedge over opening valuation	1.1
Other revenue and capital movements	0.2
Dividends paid to shareholders	(7.2)
Net asset value at 31 December 2009	122.9

Portfolio Composition

Dunedin Enterprise makes investments in unquoted companies through:

• Dunedin managed funds (including direct investments),

• third party managed funds,

• listed private equity companies, and

• legacy technology funds.

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

	Valuation	Additions	Disposals	Realised	Unrealised	Valuation
	at 01-01-09	in year	in year	movement	movement	at 31-12-09
	£'m	£'m	£'m	£'m	£'m	£'m
Dunedin managed	39.3	2.9	(8.0)	3.6	(3.1)	34.7
Third party managed	3.7	4.0	(0.8)	-	(0.7)	6.2
Listed private equity	27.2	-	(0.2)	0.2	(1.2)	26.0
Legacy technology funds	3.2	0.2	(0.4)	-	(0.8)	2.2
	73.4	7.1	(9.4)	3.8	(5.8)	69.1

New Investment Activity

A total of £7.1m was invested in the year to 31 December 2009. Of this, £2.9m was invested by Dunedin or in Dunedin managed funds, and £4.0m was drawndown by third party European funds.

One new commitment was made to third party managed funds, €15m to Capiton IV LP in Germany, taking the total to five funds. Capiton operates in the German speaking buyout market, including Germany, Austria and Switzerland, where its focus is on transactions in the lower end of the mid-market. The fund size is €350m.  The manager was originally established in 1999 as an MBO of the captive private equity investment manager of a German insurance company. Capiton operates with an investment team of 16 professionals and is based in Berlin.

Five commitments have been made to European funds, with total commitments of £61m out of the shareholder-approved commitment of £100m. Of the committed sum of £61m, £8.2m has been drawn at 31 December 2009.

Within the remaining four funds, FSN Capital III (Nordic) has completed five investments, Realza Capital Fund FCR (Spain) has completed two, with both Egeria Fund III (Holland) and Innova/5 (Eastern Europe) yet to make their first investment.

As noted in the Manager's Review last year, the rate of commitment to new funds remains slower than originally expected, and it is now not expected that the £100m commitment will be placed before 31 December 2010, but will be extended beyond that.

Investment Disposals

A total of £9.4m was received from investments disposed of during the year to 31 December 2009.

As advised in the Interim Report, the largest disposal was the sale of Fernau Avionics to Moog Controls Ltd in February 2009. From an initial investment of £2.5m, Dunedin Enterprise realised income and capital totalling £7.7m, representing a return of over three times and an IRR of 92% within a period of less than two years.

The Euro hedging facilities expired in October 2009 and were not renewed. These resulted in a realised gain of £1.1m over the 31 December 2008 valuation, but a cash outlay of £8.6m.

Unrealised Movements in Valuation

In the year to 31 December 2009 the largest single uplift in the unrealised value came from WFEL, where strong trading contributed to an increase of £3.6m.

Offsetting this, however, was a fall of £5.3m in the valuation of Capula, with a full provision being made against the cost of this investment at 31 December 2009. The company's customer base, largely the utilities, have slowed their capital expenditure dramatically and this has reduced the profitability of the business significantly.

Within the rest of the Dunedin managed portfolio valuations have remained relatively flat as reduced 2009 earnings have been offset by higher valuation multiples, driven by a recovery in quoted markets. One investment worth highlighting is OSS Environmental which, after a record trading year in 2008, found market conditions against them for most of 2009, but made a strong recovery towards the end of the year to regain most of its 31 December 2008 value, having been subject to a full provision at the half year.

A recovery in trading at CGI also allowed a provision at the half year to be partially reversed.

There was a strong recovery in the values of the European quoted stocks, amounting to a £2.0m in total. During the year these Euro listed stocks have experienced the following share price rises (in Euros):

GIMV	+17.8%
DBAG	+37.2%
Dinamia Capital Privado	+10.3%
CapMan	+41.1%

The euro share price of SWIP Private Equity Fund of Funds fell by 30% in the year to 31 December 2009, the largest part of which had been recognised in our 31 December 2008 valuation where a discount of 20% of the quoted share price was applied by the Manager. The current valuation is based on the 30 September 2009 bid price and no material movement is expected when the 31 December 2009 net asset value is announced.

Valuations and Gearing

The average earnings multiple applied in the valuation of the Dunedin managed portfolio was 4.7 x EBITDA, or 5.8 x EBITA.

Within this portfolio, the weighted average gearing of the companies was 2.3 x EBITDA, or 2.8 x EBITA.

Analysing the portfolio gearing further, the percentage of total enterprise value represented by different gearing levels was as follows:

Less than 1 x EBITDA	22%
Between 1 and 2 x EBITDA	21%
Between 2 and 3 x EBITDA	24%
More than 3 x EBITDA	33%

Investment Income

The Company's income receipts fell to a very low level compared with the previous year which had benefitted from exceptional receipts from two portfolio companies.

It has already been highlighted that both current and future income receipts are expected to be lower due to increasing use of rolled-up yield in investment structuring, low interest rates and more difficult trading conditions in the portfolio companies.

The dividend policy is to pay such a dividend that allows the Company to maintain compliance with Section 842 of the Income and Corporation Taxes Act 1988 tests.  A final interim dividend is to be paid of 2.0p, taking the total dividend for the year to 2.5p. This will be paid on 31 March 2010.

With effect from the financial year ended 31 December 2010, only a single final dividend will be paid on shareholders approval of the audited annual accounts.

Geographic Distribution

At 31 December 2009, 58% of the investment portfolio of £69.1m was based in the UK, with 35% in Continental Europe and 7% elsewhere. The increasing exposure to Europe follows the new commitments to third party European funds and the sale of a UK investment.

	31 December 2009 %	31 December 2008 %
UK	58	67
Rest of Europe	35	27
USA	6	5
Rest of World	1	1

Sector Analysis

The investment portfolio of the Company is broadly diversified. At 31 December 2009 the largest sector exposure of 37% remains to the Support Services sector, a diverse sector in itself.

	31 December 2009 %	31 December 2008 %
Automobiles and parts	3	2
Construction and building materials	3	3
Consumer products & services	7	6
Financial services	7	6
Healthcare	4	2
Leisure and hotels	2	6
Industrials	25	20
Pharma, medical, biotech	3	4
Real Estate	2	2
Support services	37	39
Technology	7	10

Deal Type

The portfolio of investments continues to be predominantly weighted towards MBO/MBI's. Exposure to technology, life sciences and real estate arises from third party managed funds.

	31 December 2009 %	31 December 2008 %
Management buyouts/buyins	88	84
Technology	7	10
Life Sciences	3	4
Real Estate	2	2

Valuation Method

	31 December 2009 %	31 December 2008 %
Cost	3	14
Earnings - provision	33	34
Earnings - uplift	26	15
Bid price	38	37

Year of Investment

In the vintage year table below, value is allocated to the year in which either Dunedin Enterprise or the third party manager first invested in each portfolio company.

	31 December 2009 %	31 December 2008 %
<1 year	9	17
1-3 years	22	35
3-5 years	41	24
>5 years	28	24

Dunedin Capital Partners Limited

24 February 2010

Ten Largest Investments     

(both held directly and via Dunedin managed funds) by value at 31 December 2009

	Approx.			Percentage
	percentage	Cost of	Directors'	of net
	of equity	investment	valuation	assets
Company name	%	£'000	£'000	%
SWIP Private Equity Fund of Funds II PLC	4.0	15,025	12,579	10.2
Practice Plan Holdings Limited	26.1	10,402	10,141	8.3
WFEL Holdings Limited	23.2	6,869	7,084	5.8
etc.venues Group Limited	27.9	3,316	5,222	4.2
OSS Environmental Holdings Limited	41.8	6,185	4,774	3.9
GIMV	0.6	4,971	4,569	3.7
Deutsche Beteiligungs AG	2.0	4,999	4,162	3.4
Hawksford International Limited	16.0	3,676	3,343	2.7
FSN Capital III LP	3.3	3,165	3,027	2.5
CapMan Oy	2.4	4,852	2,394	1.9
		63,460	57,295	46.6

Consolidated Income Statement

for the year ended 31 December 2009

	Audited			Audited
	2009			2008
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income	2,005	-	2,005	12,533	-	12,533
Losses on investments	-	(777)	(777)	-	(35,167)	(35,167)
Total Income	2,005	(777)	1,228	12,533	(35,167)	(22,634)
Expenses
Investment management fees	(244)	(732)	(976)	(358)	(1,073)	(1,431)
VAT on investment management fees	-	-	-	538	1,613	2,151
Other expenses	(743)	-	(743)	(627)	-	(627)
Profit/(loss) before finance costs and tax	1,018	(1,509)	(491)	12,086	(34,627)	(22,541)
Finance costs	(54)	(160)	(214)	(54)	(162)	(216)
Profit/(loss) before tax	964	(1,669)	(705)	12,032	(34,789)	(22,757)
Taxation	(238)	250	12	(3,207)	(109)	(3,316)
Profit/(loss) for the year	726	(1,419)	(693)	8,825	(34,898)	(26,073)
Earnings per ordinary share (basic & diluted)	2.4p	(4.7p)	(2.3p)	29.2p	(115.6p)	(86.4p)

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.

Consolidated Statement of Changes in Equity

for the year ended 31 December 2009

Year ended 31 December 2009 (audited)

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital Reserve realised £'000	Capital reserve - unrealised £'000	Revenue account £'000	Total retained earnings £'000	Total equity £'000
At 31 December 2008	7,544	47,600	382	108,451	(45,387)	12,187	75,251	130,777
Profit/(loss) for the year	-	-	-	(5,800)	4,381	726	(693)	(693)
Dividends paid	-	-	-	-	-	(7,228)	(7,228)	(7,228)
At 31 December 2009	7,544	47,600	382	102,651	(41,006)	5,685	67,330	122,856

Year ended 31 December 2008 (audited)

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital Reserve realised £'000	Capital reserve - unrealised £'000	Revenue account £'000	Total retained earnings £'000	Total equity £'000
At 31 December 2007	7,551	47,600	375	112,586	(14,517)	6,352	104,421	159,947
Profit/(loss) for the year	-	-	-	(4,028)	(30,870)	8,825	(26,073)	(26,073)
Dividends paid	-	-	-	-	-	(2,990)	(2,990)	(2,990)
Repurchase of own shares	(7)	-	7	(107)	-	-	(107)	(107)
At 31 December 2008	7,544	47,600	382	108,451	(45,387)	12,187	75,251	130,777

Consolidated Balance Sheet

As at 31 December 2009

	Audited 2009 £'000	Audited 2008 £'000
Non-current assets
Investments held at fair value	118,243	140,919
Current assets
Other receivables	471	342
Cash and cash equivalents	4,620	665
	5,091	1,007
Current liabilities
Other liabilities	(108)	(123)
Current tax liabilities	(370)	(1,347)
Other financial liabilities	-	(9,679)
	(478)	(11,149)
Net current assets / (liabilities)	4,613	(10,142)
Net assets	122,856	130,777
Capital and reserves
Share capital	7,544	7,544
Share premium	47,600	47,600
Capital redemption reserve	382	382
Capital reserve - realised	102,651	108,451
Capital reserve - unrealised	(41,006)	(45,387)
Revenue reserve	5,685	12,187
Total equity	122,856	130,777
Net asset value per ordinary share (basic and diluted)	407.1p	433.4p

Consolidated Cash Flow Statement

for the year ended 31 December 2009

	Audited 2009 £'000	Audited 2008 £'000
Net cash inflow/(outflow) from operating activities	142	12,495
Servicing of finance
Finance costs	(214)	(216)
Investing activities
Purchase of investments	(7,050)	(19,291)
Purchase of 'AAA' rated money market funds	(31,672)	(100,441)
Maturity of exchange hedge	(8,599)	(2,680)
Sale of investments	9,443	27,734
Sale of 'AAA' rated money market funds	50,100	57,320
Net cash inflow/(outflow) from investing activities	12,222	(37,358)
Taxation
Tax paid	(967)	(2,206)
Financing activities
Repurchase of ordinary shares	-	(107)
Dividends paid	(7,228)	(2,990)
Net cash outflow from financing activities	(7,228)	(3,097)
Net increase/(decrease) in cash and cash equivalents	3,955	(30,382)
Cash and cash equivalents at the start of the year	665	31,047
Net increase/(decrease) in cash and cash equivalents	3,955	(30,382)
Cash and cash equivalents at the end of the year	4,620	665

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 are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements on the same basis.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:

• 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; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Under the Disclosure and Transparency Rules the Directors confirm that to the best of their knowledge:

• 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 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 it faces.

By Order of the Board

Edward Dawnay

Chairman

24 February 2010

Notes to the Accounts

1. Preliminary Results

The financial information contained in this report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006 and has not been delivered to the Registrar of Companies.  The information for the year ended 31 December 2008 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 31 December 2008 have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under the Companies Act 2006.

2. Dividends

	2009 £'000	2008 £'000
Dividends paid in the year	7,228	2,990

The final interim dividend of 2.0p for the year ended 31 December 2009 and will be paid on 31 March 2010 to shareholders on the register at close of business on 5 March 2010.  The ex-dividend date is 3 March 2010.

3. Earnings per share

	2009 £'000	2008 £'000
Revenue return per ordinary share (p)	2.4	29.2
Capital return per ordinary share (p)	(4.7)	(115.6)
Earnings per ordinary share (p)	(2.3)	(86.4)
Weighted average number of shares	30,177,380	30,187,231

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/(loss) in the period as shown in the consolidated income statement.

4.  Principal risks

The Company's investing activities expose it to types of risk that are associated with the financial instruments and the market in which it invests.  The most important types of financial risk to which the Company is exposed are market risk, interest rate risk, credit risk, liquidity risk and currency risk.  The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Company are discussed below.

Market risk - the risk that the value of a financial instrument will change as a result of changes to market prices is one that is fundamental to the Company's objective.  The portfolio is continually monitored to ensure an appropriate balance of risk and reward in order to achieve the Company's objective.  Some of the risks can be mitigated by diversifying the portfolio across business sectors, asset classes and regions.

Interest rate risk - some of the Company's financial assets are interest bearing, at both fixed and variable rates.  As a result the Company is subject to exposure to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates.

The fixed rate assets comprise fixed rate lendings to investee companies. Fixed rate lendings have a weighted average interest rate of 9% per annum (2008: 9%) and a weighted average life to maturity of 4.3 years (2008: 5.0 years). The floating rate assets consist of cash and "AAA" rated cash OEIC's. The nil interest rate bearing assets represent the equity content of the investment portfolio. Interest rate risk is managed on an ongoing basis by the Manager and on a quarterly basis by the Board.

Due to the relatively short period to maturity of the fixed rate investments held within the portfolio, it is considered that an increase or decrease of 25 basis points in interest rates as at the reporting date would not have had a significant effect on the Group's net assets or total return for the period.

Credit risk - credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Investment in unquoted companies either directly, via Dunedin managed funds or via third party managed funds (both limited partnership funds and quoted stocks) is by its nature subject to potential credit losses. The Company's exposure to any one entity is carefully monitored. The Company complies with the Section 842 of the Income and Corporation Taxes Act 1988 requirement for investment trusts not to invest more than 15% of the portfolio in the securities of any one company at the time of initial or subsequent investment. The unquoted investment portfolio is further diversified by asset class, sector and region. Liquid assets (cash deposits and AAA rated cash OEIC's) are divided between a number of different financial institutions, each of whose credit rating is assessed. Credit risk is monitored by the Manager on an ongoing basis and on a quarterly basis by the Board.

Liquidity risk - the Company has significant investments in unquoted companies which are inherently illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these companies at an amount close to its fair value in order to meet its liquidity requirements. The Company manages its liquid investments to ensure sufficient cash is available to meet contractual commitments and also seeks to have cash or readily convertible investments available to meet other short term financial needs. Liquidity risk is monitored by the Manager on an ongoing basis and on a quarterly basis by the Board.

Currency risk - the Company is exposed to currency risk as a result of investing in companies and funds denominated in euros. The sterling value of these investments can be influenced by movement's in foreign currency exchange rates. Currency risk is monitored by the Manager on an ongoing basis and on a quarterly basis by the Board.

ENDS

 

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