Annual Financial Report

RNS Number : 1995F

Dunedin Enterprise Inv Trust PLC

18 March 2022

For release 18 March 2022

Dunedin Enterprise Investment Trust PLC ("the Company")

Year ended 31 December 2021

Dunedin Enterprise Investment Trust PLC, the private equity investment trust, announces its results for the year ended 31 December 2021.

Financial Highlights :

· Share price total return of 46.3% in the year to 31 December 2021

· Net asset value total return of 39.5% in the year to 31 December 2021

· Realisations of £38.5m in the year

· £26m returned via tender offer in November 2021

· Interim dividends totalling 28.6p per share

· Final dividend of 1.9p per share proposed for the year ended 31 December 2021

· Total of £97.9m has been returned to shareholders since the decision to wind-up the Trust

Comparative Total Return Performance

Year to 31 December 2021	Net Asset value	Share price	FTSE Small Cap (ex Inv Cos) Index
One year	39.5%	46.3%	23.0%
Three years	50.7%	64.4%	56.8%
Five years	98.6%	212.3%	67.5%
Ten years	108.5%	262.8%	258.5%

For further information please contact:

Graeme Murray

Dunedin LLP

07813 138367

Chairman's Statement

I am pleased to report further progress in terms of performance and the return of cash to shareholders.

The total return in the year to 31 December 2021 was 39.5% and 46.3% in terms of net asset value per share and share price respectively.

Your Company's net asset value per share increased from 413.9p to 558.8p in the year. This is stated after allowing for the final dividend for 2020 of 2.0p paid in May 2021 and an interim dividend for 2021 of 16.0p paid in November 2021.

The share price of 473p at 31 December 2021 represented a discount of 15.4% to the net asset value of 558.8p per share. The share price currently stands at 470p.

In November 2021 a tender offer returned £26m to shareholders. In total £29.3m was returned to shareholders this year. Since shareholders approved the decision to wind-up the Trust in May 2016 a total of £97.9m has been returned to shareholders.

Portfolio

During the year there was one follow-on investment: an additional £0.9m was invested in Incremental, an IT services provider.

A refinancing at Hawksford, a provider of services to the asset management sector, was completed in February 2021, generating proceeds of £6.8m. The realisation of U-POL, the manufacturer of automotive refinish products, was completed in September 2021, with proceeds of £22.0m. A partial sale of GPS , a market leader in payment processing technology, was completed in December 2021. Cash proceeds received from the partial realisation amounted to £14.0m and, in addition, £5.9m has been rolled into a GPS Newco.

In January 2022 the remaining investment in CitySprint, the same day courier, was realised, generating £1.5m.

Unrealised valuation increases of £21.3m were offset by decreases of £9.1m. Valuation uplifts were achieved at Red, GPS and Incremental, offset by reductions in the valuations of FRA, Weldex and Premier Hytemp. Further details are provided in the Manager's Review.

Cash, Commitments & Liquidity

The original investment periods of all funds to which the Company has made a commitment have now ended. In future the Company is only required to meet drawdowns for follow-on investments, management fees and expenses during the remainder of the life of the funds.

At 31 December 2021 the Company held cash and near cash equivalents totalling £24.4m. There are outstanding commitments to limited partnership funds of £9.8m at 31 December 2021, consisting of £9.1m to Dunedin managed funds and £0.7m to Realza.

Tender offer

A tender offer was approved by shareholders in November 2021 for 27.4% of the issued share capital at a 1.2% discount to the net asset value at 30 September 2021. Under the tender offer £26m was returned to shareholders.

Dividends

An interim dividend of 16.0p was paid in November 2021 and a second interim dividend of 12.6p will be paid in March 2022. It is proposed that a final dividend of 1.9p per share be paid on 13 May 2022. This will distribute to shareholders the net revenue profit generated by the Company during 2021.

Outlook

Although the extraordinary and deplorable events in Ukraine have clouded the economic and geo-political outlook, our portfolio companies have been relatively unaffected.

The disruption created by the pandemic was the main focus for portfolio companies during the earlier part of the period under review, the generally strong financial position of portfolio companies has provided resilience.

The Board welcomes the realisations achieved to date this year and will continue to return capital to shareholders wherever practicable and prudent following the realisation of investments.

Duncan Budge

Chairman

18 March 2022

Manager's Review

The total net assets return for the year, after taking account of dividends and capital returned to shareholders, is 39.5%.

The Company's net asset value decreased from £74.9m to £73.4m over the year. As detailed below this movement is stated following dividend payments totalling £3.3m and capital of £26.2m returned to shareholders via a tender offer in November 2021.

	£m
Net asset value at 1 January 2021	74.9
Unrealised value increases	21.3
Unrealised value decreases	(9.1)
Realised gain over opening valuation	11.2
Net income and capital movements	4.6
Net asset value prior to shareholder distributions	102.9
Dividends paid to shareholders	(3.3)
Tender offer	(26.2)
Net asset value at 31 December 2021	73.4

Portfolio Composition

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

	Valuation at 1 Jan 2021 £'m	Additions in year £'m	Disposals in year £'m	Realised movement £'m	Unrealised movement £'m	Valuation at 31 Dec 2021¹ £'m
Dunedin managed	57.8	1.5	(38.0)	10.9	11.4	43.6
Third-party managed	4.5	0.1	(0.5)	0.3	0.8	5.2
Investment portfolio	62.3	1.6	(38.5)	11.2	12.2	48.8
AAA rated money market funds	13.7	6.2	(8.1)	-	-	11.8
	76.0	7.8	(46.6)	11.2	12.2	60.6

¹ in addition the Company held net current liabilities of £12.8m

Realisations

In the year to 31 December 2021 a total of £38.5m was realised from the investment portfolio.

In February 2021 Hawksford, a leading provider of corporate, private client and fund services, completed its refinancing. Proceeds from the refinancing amounted to £6.8m, consisting of capital of £6.2m and income of £0.6m. The investment in Hawksford had been valued at £6.9m at 31 December 2020. Dunedin Enterprise retains a 3.7% interest in Hawksford which has been valued at £0.1m at 31 December 2021.

In September 2021 the realisation of U-POL, the manufacturer of automotive refinish products, including body fillers, coatings, aerosols, polishing compounds and consumables, was completed. The investment in U-POL was valued at £9.0m at 31 December 2020. Proceeds from the sale amounted to £22.0m, consisting of capital of £19.7m and income of £2.3m.

A partial sale of GPS, a market leader in payment processing technology, was completed in December 2021. The investment was valued at £14.1m at 31 December 2020. Cash proceeds received from the partial realisation amounted to £14.0m consisting of capital of £12.1m and income of £1.9m. Proceeds received were net of £4.2m carried interest which was payable by Dunedin Buyout Fund III LP. In addition, £5.9m has been rolled into GPS Newco which equates to an interest of 1.5%.

Following the year end in January 2022 the remaining investment in CitySprint, the same day courier, was realised. The investment in CitySprint has been valued at the proceeds from the transaction of £1.5m.

Investment activity

In the year to 31 December 2021 a follow-on investment of £0.9m was made in Incremental, the market-leading IT services provider which designs, implements and supports clients with ERP/CRM systems and cloud infrastructure. Further funding was provided to enable Incremental to follow its buy-and-build strategy with the acquisition of RedSpire. The RedSpire acquisition increases Incremental's market position in the financial services sector and makes it one of the largest Microsoft Dynamics partners in the UK.

A further £0.7m was drawn down by Dunedin and third-party managed funds to meet management fees and ongoing expenses.

Unrealised valuation uplifts

In the year to 31 December 2021 there were valuation uplifts generated from the following investments: RED (£11.8m), GPS (£2.4m), Incremental (£1.7m), CitySprint (£1.1m) and Realza (£0.8m).

RED, the provider of SAP contract and permanent staff, has experienced a 95% increase in maintainable EBITDA during the year. The contract side of the business in particular is performing strongly as RED recovers from the impact of COVID. The company has come through the pandemic extremely well with management prioritising cost control and cash collection and focusing on sales to well-capitalised customers globally.

Incremental, the market-leading IT services platform which designs, implements and supports clients with ERP/CRM systems and cloud infrastructure, achieved a 329% increase in EBITDA in the year. The increase in EBITDA was in part driven by the acquisition of RedSpire in January 2021. Redspire is one of the leading providers of CRM solutions to financial service companies in the UK. A further transaction was completed by Incremental in October 2021 with the acquisition of Adatis which specialises in advanced data analytics, from data management strategy and consultancy to managed services.

As noted above, CitySprint has been valued at 31 December 2021 at the proceeds received from a trade sale of the business to DPD which completed in January 2022.

The majority of the valuation uplift at Realza has been generated at Cualin, the producer of premium tomatoes, which has experienced good harvests and strong market prices during the year.

In addition, there was a release of the provision for carried interest in Dunedin Buyout Fund III LP amounting to £3.2m. The majority of this movement was a result of carried interest released on the partial sale of GPS.

Unrealised valuation reductions

In the year to 31 December 2021 there were valuation reductions at the following investments: FRA (£6.0m), Weldex (£1.6m) and Premier Hytemp (£1.5m).

FRA, the forensic accounting, data analytics and e-discovery business, experienced a slowdown in large new business wins following the COVID outbreak. A new CEO joined the company in June 2021. Management's medium-term view remains positive as they anticipate a wave of new regulatory investigations to commence in the coming year. The business has retained core talent, beyond that required for current utilisation levels, in anticipation of significant project wins in the medium term.

Weldex, the market-leading crawler crane hire business, has experienced delays in cranes going out for large construction projects and pricing pressure on rates. The investment continues to be valued on a net assets basis.

Premier Hytemp, the provider of highly engineered components to the oil and gas industry, has suffered from a weak market in 2021. The business expects that there will be a market upturn during 2022. The investment continues to be valued on a net assets basis.

Cash and commitments

The Company had outstanding commitments to limited partnership funds of £9.8m, consisting of £9.1m to Dunedin managed funds and £0.7m to Realza, the one remaining European fund.

Valuations and Gearing

The average earnings multiple applied in the valuation of the Dunedin managed portfolio was 9.7x EBITDA (2020: 9.2x). These multiples continue to be applied to maintainable profits.

Within the Dunedin managed portfolio, the weighted average gearing of the companies was 3.3x EBITDA (2020: 2.4x).

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 65%

Between 1 and 2 x EBITDA -%

Between 2 and 3 x EBITDA 6%

More than 3 x EBITDA 29%

Fund Analysis

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

Dunedin Buyout Fund II	63%
Dunedin Buyout Fund III	26%
Realza	11%

Portfolio Analysis

Detailed below is an analysis of the head office of the investment portfolio companies by geographic location as at 31 December 2020.

UK	89%
Rest of Europe	11%

Sector Analysis

Automotive	6%
Consumer products & services	4%
Financial services	11%
Industrials	7%
Support services	72%

Valuation Method

Earnings - provision	4%
Earnings - uplift	66%
Revenue - uplift	11%
Assets basis	16%
Exit value	3%

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	-%
1-3 years	-%
3-5 years	29%
>5 years	71%

Dunedin LLP

18 March 2022

Ten Largest Investments

(both held directly and via Dunedin managed funds) by value at 31 December 2021

	Approx.			Percentage
	percentage	Cost of	Directors'	of net
	of equity	investment	valuation	assets
Company name	%	£'000	£'000	%
RED	20.1	9,665	20,736	28.2
Weldex	15.1	9,505	6,672	9.1
Incremental	8.2	3,875	5,957	8.1
GPS	1.5	1,994	5,863	8.0
Realza	8.9	4,268	5,199	7.1
FRA	5.2	1,413	3,368	4.6
EV	10.6	8,321	1,864	2.5
Premier Hytemp	23.0	10,136	1,759	2.4
CitySprint	0.6	7,978	1,533	2.1
Hawksford	3.7	-	136	0.2
		57,155	53,087	72.3

Income Statement

			2021				2020
	Revenue	Capital		Total	Revenue	Capital		Total
	£'000	£'000		£'000	£'000	£'000		£'000

Investment income	4,800	-		4,800	764	-		764
Gains on investments	-	23,408		23,408	-	(5,993)		(5,993)
Total income	4,800	23,408		28,208	764	(5,993)		(5,229)
Expenses
Investment management fee	(29)	(88)		(117)	(23)	(69)		(92)
Other expenses	(384)	(23)		(407)	(372)	(30)		(402)

Profit before finance costs and tax	4,387	23,297		27,684	369	(6,092)		(5,723)
Finance costs	(10)	(32)		(42)	(24)	(71)		(95)

Profit before tax	4,377	23,265		27,642	345	(6,163)		(5,818)
Taxation	272	70		342	-	-		-

Profit for the year	4,649	23,335		27,984	345	(6,163)		(5,818)

Basic return per ordinary share
(basic & diluted)	26.56p	133.33p		159.89p	1.70p	(30.37)p		(28.67)p

The total column of this statement represents the Income Statement of the Group, prepared in accordance with the requirements of the Companies Act 2006. 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 2021

Year ended 31 December 2021

	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 2020	4,525	49,850	30,600	(16,357)	1,151	5,153	20,547	74,922
Profit for the year	-	-	15,356	7,979	-	4,649	27,984	27,984
Cancellation of capital redemption reserve	-	(49,850)	-	-	49,850	-	49,850	-
Purchase and cancellation of shares	(1,241)	1,241	(26,235)	-	-	-	(26,235)	(26,235)
Dividends paid	-	-	-	-	-	(3,258)	(3,258)	(3,258)
At 31 December 2021	3,284	1,241	19,721	(8,378)	51,001	6,544	68,888	73,413

Year ended 31 December 2020

	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 2019	5,161	49,214	34,258	(3,877)	1,151	5,840	37,372	91,747
Profit for the year	-	-	6,317	(12,480)	-	345	(5,818)	(5,818)
Purchase and cancellation of shares	(636)	636	(9,975)	-	-	-	(9,975)	(9,975)
Dividends paid	-	-	-	-	-	(1,032)	(1,032)	(1,032)
At 31 December 2020	4,525	49,850	30,600	(16,357)	1,151	5,153	20,547	74,922

Balance Sheet

As at 31 December 2021

	31 December 2021 £'000	31 December 2020 £'000
Non-current assets
Investments held at fair value	60,588	75,985

Current assets
Other receivables	297	1,057
Cash and cash equivalents	12,616	151
	12,913	1,208

Current liabilities
Other liabilities	(88)	(2,271)

Net assets	73,413	74,922

Capital and reserves
Share capital	3,284	4,525
Capital redemption reserve	1,241	49,850
Capital reserve - realised	19,721	30,600
Capital reserve - unrealised	(8,378)	(16,357)
Special distributable reserve	51,001	1,151
Revenue reserve	6,544	5,153
Total equity	73,413	74,922

Net asset value per ordinary share (basic and diluted)	558.8p	413.9p

Cash Flow Statement

for the year ended 31 December 2021

	31 December 2021 £'000	31 December 2020 £'000
Cash flows from operating activities
Profit / (loss) before tax Adjustments for:	27,642	(5,818)
(Gains) / losses on investments	(23,408)	5,993
Interest paid	42	95
Decrease in debtors	760	16
(Decrease) / increase in creditors	(2,183)	105
Net cash inflow from operating activities	2,853	391
Cash flows from investing activities
Purchase of investments	(1,550)	(2,242)
Drawdown from subsidiary	(79)	(86)
Purchase of 'AAA' rated money market funds	(6,213)	(12,683)
Sale of investments	38,547	14,414
Distribution from subsidiary	-	187
Sale of 'AAA' rated money market funds	8,100	7,537
Net cash inflows from investing activities	38,805	7,127

Tax
Tax recovered	342	-

Cash flows from financing activities
Tender offer	(26,235)	(9,975)
Dividends paid	(3,258)	(1,032)
Interest paid	(42)	(95)
Net cash outflows from financing activities	(29,535)	(11,102)

Net increase/(decrease) in cash and cash equivalents	12,465	(3,584)
Cash and cash equivalents at 1 January	151	3,735
Cash and cash equivalents at 31 December	12,616	151

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

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

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with international accounting standards 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 its 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 international accounting standards in conformity with the requirements of the Companies Act 2006;

- 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 2, 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 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 are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and 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; and

- the Strategic Report and Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

We consider the annual report and financial statements 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

18 March 2022

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 2021 or 2020. The financial information for 2020 is derived from the statutory accounts for 2020 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 2021 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 2020 and 2021 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 2021 £'000	Year to 31 December 2020 £'000

Dividends paid in the year	3,258	1,032

A final dividend of 1.9p per share for the year ended 31 December 2021 is proposed and if approved, will be paid on 13 May 2022 to shareholders on the register at close of business on 8 April 2022. The ex-dividend date is 7 April 2022.

4. Earnings per share

	Year to 31 December 2021	Year to 31 December 2020
Revenue return per ordinary share (p)	26.56	1.70
Capital return per ordinary share (p)	133.33	(30.37)
Earnings per ordinary share (p)	159.89	(28.67)
Weighted average number of shares	17,501,856	20,289,587

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 2021.

5. Principal Risks and Uncertainties (Strategic Report page 22)

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:

Coronavirus: the profitability of the Company's investments is adversely impacted due to an adverse economic impact on the UK and world economy from the Coronavirus. Mitigation: A representative of your Manager, Dunedin LLP, sits on the Board of each portfolio company. These companies hold regular board meetings at which the financial position of the company is monitored. Between board meetings there is an ongoing dialogue between the Manager and the senior management of the portfolio company. Each portfolio company monitors all risks pertinent to their businesses including the coronavirus, the potential impact these risks may have on their businesses, and develop contingency plans where appropriate. The Board and the Manager keep under regular review the liquidity available to the Company, including bank facilities, required to meet the expected outstanding commitments that will be drawn and the ongoing expenses of the Company. The Board is satisfied that the liquidity position of the Company is sufficiently strong to mitigate the threat.

Reduction in overall risk in year

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.