Chairman's Review

During the year to 31 December 2008, net assets decreased by 18.1% from £159.9m to £130.8m. Inclusive of dividends paid during the year, Dunedin Enterprise achieved a total return of –16.6%. Over the same period,the benchmark index, the FTSE Small Cap, fell by 50.4%. The share price of the Company has decreased from 415.75p to 211p over the same period, a fall of 49.2%, and as at the date of this statement was 216.5p. The discount of the share price to net asset value has increased over the year from 21.5% to 51.3%.

The fall in net asset value has been significant in recent months and reflects the fall in comparable quoted multiples used in our investment valuations. Over the year there has been a decrease of 32% in the price earnings multiples used in valuing portfolio companies. The Managers have remained consistent in their valuation bases, using the same methods and assumptions as in previous years, and the full effect of marking valuations to market at 31 December 2008 is reflected in the numbers.

Portfolio

The portfolio at 31 December 2008 consisted of investments made by Dunedin, directly or through its managed funds (27.8%), listed private equity (19.2%), third party managed funds (2.6%), legacy technology funds (2.3%) and cash or near cash (48.1%). At the year end, Dunedin Enterprise had outstanding commitments of £104.4m to limited partnership funds and cash or near cash resources of £68.2m. In addition the Company had undrawn banking facilities of £39.0m, meaning that all outstanding commitments can be met from current resources or facilities. It is not expected that the Company will need to utilise its bank facilities during the current year.

During the year a total of £19.3m was invested; £14.9m was invested by Dunedin or in Dunedin managed funds, £4.3m was invested in third party managed funds and £0.1m was provided to legacy technology funds. A further £2.7m was paid on the expiry of a currency hedge position.

Following shareholder approval to increase the Company’s exposure to similar markets across Europe, commitments have been made to four new private equity funds in Spain, Holland, Poland and the Nordic Region during the year.

Realisations for the year totalled £27.7m. A detailed account is contained in the Manager’s Review.

Dividends

The Board is recommending a final dividend of 8.85p per share making a total dividend for the year of 11.25p.

In addition, the Board has also resolved to pay a special bonus dividend of 14.6p per share to shareholders on the same date as payment of the final dividend. This special dividend results from the receipt of accrued dividend and loan interest income from the investment portfolio, which the Trust is obliged to distribute. Both the final and special dividend will be paid on 15 May 2009.

Market Conditions and Outlook

The current market is the most difficult for many years and the problems in the banking markets and wider economy affect both the current investment portfolio and new investment and realisation opportunities.

The Managers are working closely with investee companies to protect and maintain value. Most investee companies are trading satisfactorily. The Company’s prudent approach to gearing levels in the past now stands it in good stead.

There are very few transactions taking place at present and a significant uplift in new investment activity or realisations is not expected until stability and liquidity return to the debt markets. New opportunities will continue to be looked at on a very selective and careful basis. The drawdown of funds to which commitments have been made will be very much slower than originally expected.

Looking forward, your Company is well positioned, with significant cash resources and a level of commitments to new funds that can be met from current facilities.

Edward Dawnay,
Chairman
26 February 2009