Dunedin Enterprise Inv Trust PLC Annual Financial Report (8151B)

TIDMDNE

RNS Number : 8151B

Dunedin Enterprise Inv Trust PLC

06 April 2017

Dunedin Enterprise Investment Trust PLC (the "Company")

2016 Annual Report

Copies of the annual report and accounts for the year ended 31 December 2016 have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM and on the Company's website (www.dunedinenterprise.com).

The Disclosure Guidance and Transparency Rules (DTR 6.3.5(2)) require certain information to be disclosed upon publication of the annual report and accounts. Accordingly, in addition to the information set out in the announcement of the final results for the year ended 31 December 2016 on 20 March 2017, the following disclosures are made. 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 2016:

Principal Risks and Uncertainties (Strategic Report pages 25-26)

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.

Related Party Transactions (Notes to the Accounts page 59, 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 GBP2.2m (2015: GBP2.4m) in respect of these limited partnerships. The total investment management fee payable by the Company to the Manager is therefore GBP2.3m (2015: GBP2.5m).

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 2016 there is a provision made within Investments for carried interest of GBP1.3m relating to Equity Harvest Fund LP and GBP0.2m relating to Dunedin Buyout Fund LP. Current executives of the Manager are entitled to 46% of the carried interest in Equity Harvest Fund LP and 60% in Dunedin Buyout Fund LP.

Brian Finlayson has an interest in the carried interest scheme of Dunedin Buyout Fund LP and received GBPnil from that scheme during 2016. Brian Finlayson was previously employed by the Manager and retired in 2002. As at 31 December 2016 the remaining value in this scheme attributable to Brian Finlayson is GBP3,874.

Enquiries

Graeme Murray Dunedin LLP T: 0131 225 6699

Sue Inglis Cantor Fitzgerald Europe T: 020 7894 8016

This information is provided by RNS

The company news service from the London Stock Exchange

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April 06, 2017 06:19 ET (10:19 GMT)