Annual Financial Report

RNS Number : 0725U

Dunedin Enterprise Inv Trust PLC

24 March 2023

For release 24 March 2023

Dunedin Enterprise Investment Trust PLC ("the Company")

Year ended 31 December 2022

Dunedin Enterprise Investment Trust PLC, the private equity investment trust, announces its results for the year ended 31 December 2022.

Financial Highlights :

· Share price total return of 18.5% in the year to 31 December 2022

· Net asset value total return of 21.7% in the year to 31 December 2022

· Realisations of £36.9m in the year

· £41m returned via tender offer in November 2022

· Interim dividend paid of 34.0p per share

· Final dividend of 25.0p per share proposed for the year ended 31 December 2022

· Total of £145.1m has been returned to shareholders since the decision to wind-up the Trust in 2016

Comparative Total Return Performance

Year to 31 December 2022	Net Asset value	Share price	FTSE Small Cap (ex Inv Cos) Index
One year	21.7%	18.5%	-17.3%
Three years	60.4%	58.1%	10.3%
Five years	95.2%	113.9%	11.9%
Ten years	148.4%	209.4%	130.3%

For further information please contact:

Graeme Murray

Dunedin LLP

07813 138367

Chairman's Statement

Duncan Budge, Chairman

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 202 2 was 21.7 % and 18.5 % in terms of net asset value per share and share price respectively.

Your Company's net asset value per share increased from 558.8 p to 627.1 p in the year. This is stated after allowing for dividends per share paid in the year of 48.5p, totalling £6.4m .

The share price of 509 p at 31 December 202 2 represented a discount of 1 8.8 % to the net asset value of 627.1 p per share. The share price currently stands at 562.5p.

In November 202 2 a tender offer returned £ 41 m to shareholders. In total £ 47.4 m was returned to shareholders this year. Since shareholders approved the decision to implement a managed wind-down of the Trust in May 2016 a total of £ 145.1 m has been returned to shareholders.

Your Company's net asset value decreased over the year from £73.4m to £34.5m.

Portfolio

During the year a total of £36.9m was realised from the investment portfolio.

The investment in RED, the provider of SAP contract and permanent staff, was realised generating proceeds of £24.1m and a return of 2.2x original cost. The transaction included an earn-out arrangement which is dependent upon RED achieving profit targets in the year to 31 March 2023. The earn-out has been valued at £4.0m at 31 December 2022.

The realisation of Incremental, the market-leading IT services platform, was completed in March 2022, generating proceeds of £9.1m and a return of 2.4x original cost.

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

In November 2022 Realza returned £2.9m following the sale of Dolz, a manufacturer of water pumps for the automotive industry.

Unrealised valuation increases of £ 5 .3m were offset by decreases of £ 6.0 m. Valuation uplifts were achieved at Premier Hytemp and FRA , offset by a reduction in the valuation of GPS . 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 202 2 the Company held cash and near cash equivalents amounting to £ 12 .4m. There are outstanding commitments to limited partnership funds of £9. 6 m at 31 December 202 2 , consisting of £8.9m to Dunedin managed funds and £0.7m to Realza.

Tender offer

A tender offer was approved by shareholders in November 20 22 for 58.1 % of the issued share capital at a 1. 0 % discount to the net asset value at 30 September 202 2 . Under the tender offer £ 41 m was returned to shareholders.

Dividends

An interim dividend of 34 .0p was paid in November 202 2 . It is proposed that a final dividend of 25.0p per share be paid on 19 May 202 3.

Outlook

The Board acknowledges the importance of monitoring the Company's costs as the wind-down progresses and will continue to keep under review the options available to the Company. However, in view of the Company's remaining investments and after discussions with the Manager and the Company's advisers, the Board does not currently anticipate putting formal proposals to Shareholders for a members' voluntary liquidation of the Company in the short term while the wind-down continues.

Furthermore, the Board considers maintaining the Company's listed status to be important during this stage of the wind-down, as many Shareholders would be unable to hold the Shares, or be greatly inconvenienced by holding them, if they could not be traded on the London Stock Exchange.

As the wind-down progresses, the Board will continue to assess whether the Company's current arrangements remain in the interests of Shareholders as a whole and will, of course, continue to keep Shareholders informed as to the future of the Company.

Duncan Budge

Chairman

24 March 2023

Manager's Review

The total net assets return for the year, after taking account of dividends and capital returned to shareholders, was 21.7 %.

The Company's net asset value decreased from £7 3.4 m to £ 34.5 m over the year. As detailed below this movement is stated following dividend payments totalling £ 6.4 m and capital of £ 41.5 m returned to shareholders via a tender offer in November 202 2 .

	£m
Net asset value at 1 January 2022	73.4
Unrealised value increases	5.3
Unrealised value decreases	(6.0)
Realised gain over opening valuation	5.2
Net income and capital movements	4.5
Net asset value prior to shareholder distributions	82.4
Dividends paid to shareholders	(6.4)
Tender offer	(41.5)
Net asset value at 31 December 2022	34.5

Portfolio Composition

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

	Valuation at 1 January 2022 £'m	Additions in year £'m	Disposals in year £'m	Realised movement £'m	Unrealised movement £'m	Valuation at 31 December 2022¹ £'m
Dunedin managed	43.6	0.4	(34.0)	5.3	(1.2)	14.1
Third-party managed	5.2	0.1	(2.9)	(0.1)	0.5	2.8
Investment portfolio	48.8	0.5	(36.9)	5.2	(0.7)	16.9
AAA rated money market funds	11.8	28.4	(28.6)	-	-	11.6
	60.6	28.9	(65.5)	5.2	(0.7)	28.5

¹ in addition the Company held net current assets of £ 6.0 m

Realisations

In the year to 31 December 202 2 a total of £3 6.9 m was realised from the investment portfolio.

In October 2022 the investment in RED, the provider of SAP contract and permanent staff was realised in a secondary management buy-out to AEA SBPE. The investment in RED was valued at 20.7m at 31 December 2021. Proceeds from the sale amounted to 24.1m, consisting of capital of 20.1m and income of 4.0m. The investment in RED has generated cash proceeds of £25.5m, representing a return of 2.2x original cost. Additionally, there are future potential proceeds from an earn-out arrangement which are dependent upon RED achieving profit targets in the year to 31 March 2023. The potential earn-out proceeds are valued at £4.0m at 31 December 2022.

In March 2022 Incremental, the market-leading IT services platform which designs, implements and supports clients with ERP/CRM systems and cloud infrastructure, was realised by a trade sale to Telefonica. Proceeds from the realisation amounted to £9.1m, consisting of capital of £8.4m and income of £0.7m. The investment in Incremental was valued at £6.0m at 31 December 2021 and has generated a return of 2.4x original cost.

In January 2022 the remaining investment in CitySprint, the same day courier, was realised delivering proceeds of £1.5m. Total proceeds from the original investment totalled £21.3m and generated a 2.1x return on cost of £9.8m.

In November 2022 the remaining European fund, Realza, returned £2.9m following the sale of Dolz, a manufacturer of water pumps for the automotive industry.

Investment activity

A further £0. 5 m 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 202 2 there were valuation uplifts generated from the following investments: Premier (£ 1.2 m) and FRA (£ 0.7 m) .

Premier Hytemp, the provider of highly engineered components to the oil and gas industry, has experienced a recovery in profitability following an increase in margins both in the UK and Singapore. As the market outlook improves the company is tendering for some significant contracts. The investment continues to be valued on a discounted net assets basis.

Trading at FRA, the forensic accounting, data analytics and e-discovery business, was impacted by COVID but has recovered during 2022, albeit not as yet to the levels seen pre-COVID. The uplift in valuation reflects the improved trading position.

In addition, there was a release of the provision for carried interest in Dunedin Buyout Fund III LP amounting to £ 2.8 m. The majority of this movement was a result of carried interest released on the sale of Incremental .

Unrealised valuation reductions

In the year to 31 December 202 2 there w as a valuation reduction at GPS of £5.9m .

A partial sale of GPS, a market leader in payment processing technology, was achieved in December 2021 generating a cash return of 2.2x original cost. In the year the revenue of GPS has continued to increase by 18%. However, since December 2021 the valuation multiples applied to fintech companies have suffered a significant downturn. This has resulted in no value being attributed to the remaining investment.

Cash and commitments

The Company had outstanding commitments to limited partnership funds of £9. 6 m, consisting of £8.9m 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 8.3 x EBITDA (202 1 : 9. 7 x). These multiples continue to be applied to maintainable profits.

Within the Dunedin managed portfolio, the weighted average gearing of the companies was 4.1 x EBITDA (202 1 : 3.3 x).

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 - %

Between 1 and 2 x EBITDA 32 %

Between 2 and 3 x EBITDA - %

More than 3 x EBITDA 68 %

Fund Analysis

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

Dunedin Buyout Fund II 57 %

Dunedin Buyout Fund III 27 %

Realza 16%

Portfolio Analysis

Detailed below is an analysis of the head office of the investment portfolio companies by geographic location as at 31 December 2022.

UK 85 %

Rest of Europe 15 %

Sector Analysis

Consumer products & services 14 %

Industrials 27 %

Support services 59 %

Valuation Method

Earnings - provision 10 %

Earnings - uplift 38 %

Assets basis 52 %

Dunedin LLP

24 March 2023

Total return of investments

at 31 December 2022

Company name	Original cost of investment £'000	Realised to date*¹ £'000	Directors Valuation^*2 £'000	Total return £'000
Weldex	9,505	119	6,612	6,731
FRA	6,035	5,504	4,132	9,636
Premier Hytemp	10,136	178	2,917	3,095
Realza	11,545	14,551	2,773	17,324
EV	8,321	-	1,921	1,921
GPS	8,220	18,203	-	18,203
Hawksford	6,910	7,087	-	7,087
	60,672	45,642	18,355	63,997

*¹ - dividends and capital

*² - excludes carried interest provision of £1.5m

Income Statement

			2022				2021
	Revenue	Capital		Total	Revenue	Capital		Total
	£'000	£'000		£'000	£'000	£'000		£'000

Investment income	4,951	-		4,951	4,800	-		4,800
Gains on investments	-	4,514		4,514	-	23,408		23,408
Total income	4,951	4,514		9,465	4,800	23,408		28,208
Expenses
Investment management fee	(35)	(105)		(140)	(29)	(88)		(117)
Other expenses	(380)	(13)		(393)	(384)	(23)		(407)

Profit before finance costs and tax	4,536	4,396		8,932	4,387	23,297		27,684
Finance costs	-	-		-	(10)	(32)		(42)

Profit before tax	4,536	4,396		8,932	4,377	23,265		27,642
Taxation	(37)	37		-	272	70		342

Profit for the year	4,499	4,433		8,932	4,649	23,335		27,984

Basic return per ordinary share
(basic & diluted)	36.46p	35.92p		72.38p	26.56p	133.33p		159.89p

The total column of this statement represents the Income Statement of the Group, prepared in accordance with UK-adopted International Accounting Standards. 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 2022

Year ended 31 December 2022

	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 2021	3,284	1,241	19,721	(8,378)	51,001	6,544	68,888	73,413
Profit for the year	-	-	14,276	(9,842)	-	4,499	8,933	8,933
Purchase and cancellation of shares	(1,908)	1,908	(50)	-	(41,407)	-	(41,457)	(41,457)
Dividends paid	-	-	-	-	-	(6,371)	(6,371)	(6,371)
At 31 December 2022	1,376	3,149	33,947	(18,220)	9,594	4,672	29,993	34,518

* included in the profit for the year is £4.0m relating to the deferred consideration on the sale of RED which will not qualify as distributable profit until receipt

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

Balance Sheet

As at 31 December 2022

	31 December 2022 £'000	31 December 2021 £'000
Non-current assets
Investments held at fair value	28,487	60,588

Current assets
Other receivables	5,375	297
Cash and cash equivalents	778	12,616
	6,153	12,913

Current liabilities
Other liabilities	(122)	(88)

Net assets	34,518	73,413

Capital and reserves
Share capital	1,376	3,284
Capital redemption reserve	3,149	1,241
Capital reserve - realised	33,947	19,721
Capital reserve - unrealised	(18,220)	(8,378)
Special distributable reserve	9,594	51,001
Revenue reserve	4,672	6,544
Total equity	34,518	73,413

Net asset value per ordinary share (basic and diluted)	627.1p	558.8p

Cash Flow Statement

for the year ended 31 December 2022

	31 December 2022 £'000	31 December 2021 £'000
Cash flows from operating activities
Profit before tax Adjustments for:	8,932	27,642
(Gains) on investments	(4,514)	(23,408)
Interest paid	-	42
(Increase) / decrease in debtors	(1,058)	760
Increase / (decrease) in creditors	34	(2,183)
Net cash inflow from operating activities	3,394	2,853
Cash flows from investing activities
Purchase of investments	(430)	(1,550)
Drawdown from subsidiary	(75)	(79)
Purchase of 'AAA' rated money market funds	(28,422)	(6,213)
Sale of investments	30,007	38,547
Distribution from subsidiary	2,900	-
Sale of 'AAA' rated money market funds	28,615	8,100
Net cash inflows from investing activities	32,595	38,805

Tax
Tax recovered	-	342

Cash flows from financing activities
Tender offer	(41,456)	(26,235)
Dividends paid	(6,371)	(3,258)
Interest paid	-	(42)
Net cash outflows from financing activities	(47,827)	(29,535)

Net (decrease)/increase in cash and cash equivalents	(11,838)	12,465
Cash and cash equivalents at 1 January	12,616	151
Cash and cash equivalents at 31 December	778	12,616

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 UK-adopted 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 UK-adopted international accounting standards;

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

24 March 2023

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 2022 or 2021. The financial information for 2021 is derived from the statutory accounts for 2021 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 2022 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 2021 and 2022 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 2022 £'000	Year to 31 December 2021 £'000

Dividends paid in the year	6,371	3,258

A final dividend of 25.0p per share for the year ended 31 December 2022 is proposed and if approved, will be paid on 19 May 2023 to shareholders on the register at close of business on 21 April 2023. The ex-dividend date is 20 April 2023.

4. Earnings per share

	Year to 31 December 2022	Year to 31 December 2021
Revenue return per ordinary share (p)	36.46	26.56
Capital return per ordinary share (p)	35.92	133.33
Earnings per ordinary share (p)	72.38	159.89
Weighted average number of shares	12,342,190	17,501,856

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 2022.

5. Principal Risks and Uncertainties (Strategic Report page 19)

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.