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View the PDF of the accounts for 2008
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Manager's Review
In the year to 31 December 2008 the Company’s net
asset value decreased from £159.9m to £130.8m. This
equates to a decrease of 18.1% in the net asset value per
share from 529.5p to 433.4p. This decrease in net assets
is explained by:
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.
New Investment Activity
A total of £19.3m was invested in portfolio companies in
the year to 31 December 2008.
As previously discussed in the Interim Report, the largest
investment in the year was £8.5m in the recapitalisation of
CGI Group. This investment was made in March 2008
and enabled the Company to re-invest in CGI Group in
the form of high yielding loan stock.
In October 2008 a total of £3.8m was invested in
Hawksford International Limited. This followed the £23.5m
buyout of Rathbone International from Rathbone
Brothers Plc. On acquisition, the business was
immediately renamed Hawksford International.
The company is based in Jersey and designs, establishes
and administers trusts, foundations, family offices, companies and private trust companies for high and ultra
high net worth individuals and corporate clients on a
global basis.
As approved by shareholders at the general meeting held
in May 2008, the Company’s exposure to European funds
has been increased.
A total of £4.3m was invested in the private equity
investments which are held through third party managed
funds. Two new fund commitments have been made since
the Interim Report adding to the existing commitments
made to FSN Capital III and Realza Capital Fondo FCR.
A commitment of €10m was made to Egeria Private Equity
Fund III, a €290m buyout fund that focuses on the
Netherlands. The manager of Egeria is an independent
company wholly owned by its partners and has an
investment team of nine, operating from Amsterdam. The
fund will invest in small and mid market buyouts with an
Enterprise Value between €50m and €200m. The fourth
commitment made is €15m to Innova/5 LP a €450m mid
market buyout fund focusing in Central and Eastern
Europe. The Innova management company is based in
Warsaw, has a team of 14 and is privately owned by the
investment manager. The fund will invest in growth
orientated buyouts where the underlying company has an
Enterprise Value in the range of €50m to €125m.
A total of four commitments have been made to European
funds with total commitments of €52.7m. As at
31 December 2008 €4.9m of this has been drawndown.
The total commitments which the Company had to
Dunedin managed funds, European funds and other
legacy funds totalled £104.4m at 31 December 2008. It is
expected that the rate of drawdown by these funds will
be slower than was originally anticipated. As stated in the
Circular to Shareholders dated 9 April 2008, the Company
initially committed £100m in aggregate to the Dunedin
Managed Fund of Funds Limited Partnership and the
Co-Investment Limited Partnership to be invested in subfunds
during the period ending 31 December 2009 (“the
Initial Period’’). Given current market conditions, the Board
has agreed in principle with the Manager to allow any
balance of the initial commitment not committed during
the Initial Period to be available to the Manager as a
commitment until 31 December 2010 or such later date
as the Board may from time to time agree.
Investment Disposals
A total of £27.7m was received from investments
disposed of during the year to 31 December 2008.
As discussed in the Interim Report the largest disposal in
the year was the £11.0m realised by the Company on
the recapitalisation of CGI Group in March 2008. This
represented an uplift of £2.4m on the valuation of CGI
Group at 31 December 2007. To date the investment in
CGI Group has returned a multiple of over three times the
original investment, which was made in 1998. In February
2008, deferred proceeds of £2.7m were received from the
sale of Caledonian Building Systems which occurred in
April 2006. This investment has returned in excess of six
times the original cost.
In October 2008, the investment in Gardner Group was
realised in a secondary buyout by Carlyle. An initial
investment was made in Gardner in 2003. Since 2003,
Gardner has experienced difficult trading conditions during
which time the investment was fully provided against and
additional funding was provided by Dunedin to the
company. Following a change of management, the
company has emerged as a centre of manufacturing
excellence for the aviation industry. From a total investment
of £5.6m, Gardner company has returned £5.3m of capital
and £2.8m of income, representing a 1.4 times return.
A total of £3.3m of loan stock was redeemed by Capula,
Formaplex and Fernau during the year. A further £4.2m
was generated from the proceeds of realisations within the
LGV1, 4 and 5 limited partnership funds. This represents a
return £0.5m below the opening valuation of these
investments at the beginning of the year. The shortfall is
accounted for by one investment made in Craegmoor, the
provider of residential care for people with learning
disabilities and for the elderly. This investment was valued
by LGV at £1.6m at 31 December 2007 but was realised
for £0.7m during the year.
Unrealised Movements in Valuation
In the year to 31 December 2008 strong trading
performances at both OSS Environmental and Fernau
have led to valuation uplifts of £1.9m and £1.5m
respectively.
However, the year to 31 December 2008 is characterised
by significant valuation reductions being made against
investment values in the second half of the year. The
Company’s portfolio of unquoted investments is valued in
accordance with the International Private Equity and
Venture Capital Portfolio Guidelines. By marking the
portfolio valuation to market at 31 December 2008, as has
been done every year, it has been necessary to reflect
significant reductions in stock market price earning
multiples in the Company’s valuations. Investment
valuations have been reduced by £35.2m in the year to
31 December 2008. Within the Dunedin managed portfolio
of investments provisions have totalled £23.9m. This
represents a 45% reduction in value against the adjusted
opening valuation at the beginning of the year. Within this
valuation reduction companies which contributed to the
movement have experienced an average profit reduction of
7% in the year. However, the main element contributing to
the valuation fall is an average decrease in the price
earnings multiple applied in valuing portfolio companies of
35% (as opposed to 32% for the Dunedin managed
portfolio as a whole).
The most significant valuation movements within the
Dunedin managed portfolio have been at CGI Group
(PBITA of £5.1m – increased by 4%, price earnings
multiple decreased by 38%), and WFEL (PBITA of £5.6m– increased by 24%, price earnings multiple decreased by
26%). Both companies are trading ahead of last year but have been impacted by the fall in price earnings multiples.
Trading at ABI, the static caravan manufacturer, has been
adversely impacted by the economic climate. This has led
us to reduce the valuation of this investment by £3.4m.
Trading at Enrich is behind original plan and when
combined with a reduction in price earnings multiples, this
has led to a provision of £3.3m in this investment.
The other significant valuation movement is within the
European quoted stocks where the valuation of these
investments has been reduced by £7.7m in the year to
31 December 2008. During the year these Euro listed
stocks have experienced the following share price falls:
The share price of SWIP Private Equity Fund of Funds had
fallen by 12.5% in the year to 31 December 2008. The
portfolio of fund assets held within SWIP Private Equity
Fund of Funds is valued on a quarterly basis and the latest
published valuation was based upon reports by the
underlying funds to 30 September 2008. A 20% discount
has therefore been applied by Dunedin to the
31 December 2008 share price to reflect the estimated
reduction in investment valuations that will have occurred
since 30 September 2008.
Euro Hedge
The total exposure of the Company to Euro denominated
investments is €33.2m. This currency position was hedged
in October 2007. In the year to 31 December 2008 one of
the hedge positions expired with a cost to the Company of
£2.7m. The Company continues to hedge its Euro
denominated investments and a charge of £7.9m has
been made to the capital account relating to the hedge
positions following a fall in the value of Sterling against
the Euro. Conversely, the value of Euro denominated
stocks has benefited from the Sterling : Euro exchange
movement by £7.4m.
Investment Income
In the year to 31 December 2008 there were significant
income receipts from both Gardner Group and OSS
Environmental. The receipt from Gardner Group followed
the realisation of the investment and the receipt of rolled
up interest. A strong trading performance from OSS
Environmental has enabled the company to pay loan stock
interest arrears. These two receipts have contributed to an
increase in investment income during the year from £4.3m
to £12.5m and have necessitated the payment of a
special dividend of 14.6p per share in order to maintain
compliance with section 842 of the Income and Corporation Taxes Act 1988 tests.
Geographic Distribution
At 31 December 2008, 67% of the investment portfolio
of £73.4m was based in the UK, with 27% in Continental
Europe and 6% elsewhere. The increasing exposure
to Europe follows the investment in European quoted
private equity funds and both the sale and reduced
valuation of UK investments.
Sector Analysis
The investment portfolio of the Company is broadly
diversified. At 31 December 2008 the largest sector
exposure of 39% remains to the Support Services sector,
a diverse sector in itself.
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.
Valuation Method
The movement in valuation methodology applied to the
portfolio reflects the decrease in price earnings multiples.
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.
Dunedin Capital Partners Limited
26 February 2009
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