For release                                                                                                                                           16 September 2021

Dunedin Enterprise Investment Trust PLC

Half year ended 30 June 2021

Dunedin Enterprise Investment Trust PLC, the private equity investment trust which specialises in investing in UK mid-market buyouts, announces its results for the half year ended 30 June 2021.

Financial Highlights:

·   Net asset value total return: 20.5% reflecting the realisation of U-POL after the half year end

·   Net asset value per share at 30 June 2021: 496.5p (413.9p at 31/12/20), after 2.0p dividend

·   Share price at 30 June 2021: 344.0p (336p at 31/12/20) and 416p at 15 September 2021

·   Realisations: £6.8m in the half year

·   £126m returned to shareholders since 2012

Comparative Total Return Performance (%)

For further information please contact:

Chairman's Statement

The total return in the half year to 30 June 2021 was 20.5% in terms of net asset value per share. This is stated after allowing for a final dividend for 2020 of 2.0p paid in May 2021. The net asset value per share increased from 413.9p to 496.5p in the half year reflecting the U-POL realisation announced in July. 

The share price total return of 3.0% during the period under review does not reflect the impact of the U-POL realisation which was announced after the half year end. 

The share price of 344p at 30 June 2021 represented a discount of 30.7% to the net asset value of 496.5p per share. The share price currently stands at 416p, representing a discount of 16.2%.

Portfolio

The refinancing at Hawksford, a leading provider of corporate, private client and fund services, was completed in February 2021 generating proceeds of £6.9m.  The investment was valued at £6.9m at 31 December 2020.

Following the half year end a legally binding agreement was entered into for the realisation of U-POL, the manufacturer of automotive refinish products.  The transaction was subject to regulatory approval and completed on 15 September 2021.  Proceeds from the sale, including £0.4m repaid by the company during the half year, amounted to £22.0m, representing an uplift of £13.0m on the valuation at 31 December 2020 and a return of 4.4 times cost.

An agreement was also entered into following the half year for the realisation of CitySprint, the same day courier.  This transaction is subject to regulatory approval and is expected to complete in the second half of 2021.  The investment in CitySprint has been valued at the expected proceeds of £1.5m.  The investment in CitySprint has generated a return of 2.1 times cost.

Overall, the trading performance of the portfolio has largely recovered from the impact of the coronavirus. Unrealised valuation increases totalling £22.6m were offset by value decreases of £6.6m. The valuation uplift was primarily generated from the realisation of U-POL.  There were also valuation uplifts at RED and GPS, offset by reductions in the valuations of FRA, Weldex and Premier Hytemp. Further details are provided in the Manager's Review.

During the half year there was one follow-on investment of £0.9m in Incremental, a provider of IT services.

Cash, Commitments & Liquidity

At 30 June 2021 the Company held cash and near cash equivalents totalling £19.1m. There are outstanding commitments to limited partnership funds of £11.9m at 30 June 2021, consisting of £11.1m to Dunedin managed funds and £0.8m to Realza.

In view of the cash balances held by the Company, the Board decided not to renew the £5m bank facility at 31 May 2021.

Tender Offer

The Company will hold cash balances of c£40m on completion of the U-POL and CitySprint realisations.  There remain outstanding commitments to limited partnership funds of £11.9m.  The Board has decided to retain sufficient cash reserves to meet outstanding commitments in full.  Following receipt of proceeds from the U-POL realisation it is the Board's intention to undertake a Tender Offer.  Further details of the Tender Offer will be issued in due course.

Dividends

A final dividend of 2.0p per share relating to the year ended 31 December 2020 was paid to shareholders in May 2021, amounting to £0.4m.

Outlook

While the disruption created by the pandemic has continued to be a focus for our portfolio companies during the period under review, their generally strong financial position has provided some protection. The Board welcomes the realisations achieved in the year to date and looks forward to being in a position to return cash to shareholders in the second half of 2021, building on the £126m which has already been returned to shareholders since 2012.

Duncan Budge

16 September 2021

Manager's Review

Results for the six months to 30 June 2021

In the six months to 30 June 2021, the net asset value per share total return was 20.5%, after taking account a dividend paid for 2020 of 2.0p per share (paid in May 2021). This compares with an increase in the FTSE Small Cap Index (ex Inv. Cos) over the same period of 28.5%.

In the six months to 30 June 2021 the Company invested a total of £1.4m and realised £6.8m from investments.

Net asset and cash movements in the half year to 30 June 2021

The movement in net asset value is summarised in the table below:-

Cash movements in the half year to 30 June 2021 can be summarised as follows:-

Portfolio composition and movements

Dunedin Enterprise holds investments in unquoted companies through:-

•           Dunedin managed funds, and

•           Third party managed funds.

The portfolio movements can be analysed as shown in the table below:-

Realisations

In the half year a total of £6.8m was realised from the portfolio of investments.

In February 2021 Hawksford, a leading provider of corporate, private client and fund services, completed its refinancing. Completion of the transaction had been subject to regulatory approval.  Proceeds from the refinancing amounted to £6.9m, consisting of capital of £6.3m and income of £0.6m. The investment in Hawksford was valued at £6.9m at 31 December 2020.  Dunedin Enterprise retains a 5% interest in Hawksford.  No value has been attributed to this at 30 June 2021.

Following the half year end in July 2021 a legally binding agreement was entered into to realise U-POL, the manufacturer of automotive refinish products, including body fillers, coatings, aerosols, polishing compounds and consumables.  The transaction was subject to regulatory approval and completed on 15 September 2021.  The investment in U-POL was valued at £9.0m at 31 December 2020.  Proceeds from the sale, including redemptions of loan stock since 31 December 2020, amounted to £22.0m, consisting of capital of £19.7m and income of £2.3m.  A total of £24.6m has been generated from the investment compared to an original cost of £5.7m, a return of 4.4 times cost.

An agreement was entered into in August 2021 to realise the remaining investment in CitySprint, the same day courier.  The transaction is subject to regulatory approval and is expected to complete in the second half of 2021.  The investment in CitySprint has been valued at the expected proceeds from the transaction of £1.5m.  A total of £21.3m has been generated from the investment compared to an original cost of £10.5m, a return of 2.1 times cost.

Investment activity

During the six months to 30 June 2020 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 £0.3m was drawn down by Dunedin and third-party managed funds to meet management fees and ongoing expenses.

Unrealised movements in valuations

Unrealised valuation increases in the half year amounted to £22.6m. There were valuation uplifts at U-POL (£13.0m), RED (£4.8m) and GPS (£2.0m).

As noted above, a legally binding contract was entered into to realise U-POL, the manufacturer of automotive refinish products, which completed on 15 September 2021.  The realisation was achieved on the back of a 44% increase in maintainable EBITDA in the half year. Proceeds from the sale amounted to £22.0m compared to a valuation of £9.0m at 31 December 2020.

RED, the provider of SAP contract and permanent staff, has experienced an 47% increase in maintainable EBITDA during the half year.  Both the contract and permanent sides of the business are performing strongly. The company has come through the coronavirus pandemic extremely well with management prioritising cost control and cash collection and focusing on sales to well-capitalised customers globally.

GPS, a market leader in payment processing technology, has shown revenue growth of 16% in the half year to 30 June 2021. Transaction levels have started to increase following the ending/relaxation of European lockdowns.  The restrictions currently being placed on travel will continue to impact the growth of the company.  In spite of the restrictions imposed as a result of coronavirus GPS achieved revenue growth of 28% in 2020.

The principal valuation reductions were at FRA (£3.6m), Weldex (£1.7m) and Premier Hytemp (£1.1m).

FRA, the forensic accounting, data analytics and e-discovery business, continues to experience a slowdown in new business wins following the coronavirus 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 months.  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 over the past eighteen months.  The business expects that there will be a market upturn in Q4 of 2021. The investment continues to be valued on a net assets basis.

The average earnings multiple applied to the valuation of the Dunedin managed portfolio was 9.5x EBITDA (31 December 2020: 9.2x). These multiples are applied to the maintainable earnings of portfolio companies. Within the Dunedin managed portfolio, the weighted average gearing of the companies was 3.2x EBITDA (31 December 2020: 2.4x).

The portfolio continues to be valued in accordance with the International Private Equity Venture Capital valuation guidelines (www.privateequityvaluation.com).

Dunedin LLP

16 September 2021

Ten Largest Investments

by value at 30 June 2021

*   - accounting book cost.  Original investment in 2010 of £9.8m.  Total proceeds of £26.1m were received from a secondary buyout in 2016.  Cash proceeds of £18.8m were received and the balance of £7.3m was rolled into a CitySprint newco.  A further £0.7m was invested in 2019.

Total return of ten largest investments

at 30 June 2021

*   - dividends and capital.

Top ten investments (held via funds and direct investments)

U-POL

Percentage of equity held         5.0%

Cost of Investment                 £5.3m

Directors' valuation              £21.6m

Percentage of net assets          24.0%

U-POL is a leading independent manufacturer of automotive refinish products including body fillers, coatings, aerosols, polishing compounds and consumables. Included in the product range is RAPTOR™, a tough protective coating product which can be used over a multitude of surfaces. Sales of RAPTOR™ continue to grow steadily and the business is exploring opportunities to sell this product into adjacent sectors.

From its UK manufacturing base in Wellingborough, U-POL exports a range of products to 120 countries worldwide. The company has a strong market position in the UK and a growing position in other large markets such as the USA, the Far East, the Middle East, Africa and Russia.

In August 2016 a re-financing of the business was undertaken with Dunedin Enterprise receiving proceeds of £2.6m.

In July 2021 a legally binding agreement was entered to realise the investment in U-POL. The transaction was subject to regulatory approval and completed on 15 September 2021.

GPS

Percentage of equity held         8.5%

Cost of Investment                 £8.2m

Directors' valuation              £16.1m

Percentage of net assets          17.9%

Global Processing Services ("GPS") is a UK headquartered payments processing business providing customers with leading edge payment processing and ancillary services. Customers include new emerging fintech or challenger banks, offering a significantly differentiated proposition for their clients; as well as specialist payment firms serving the travel, insurance and foreign exchange markets. It offers a best in class, scalable payment processing platform with flexibility, innovative features and an accelerated speed to market for new market entrants. It has over 200 clients, including many UK fintech and challenger banks, and is seeing significant growth opportunities from emerging overseas challenger banks as they seek to disrupt their own domestic banking markets.

GPS has a large and growing addressable market. Challenger banks and fintech companies needing leading edge payment processing services are being created in all major geographical markets. Many are seeking help from GPS as they start to disrupt their own domestic markets. As the winners emerge, the volume of payments that they generate also increases, thereby adding further volume of processing to the GPS platform. In general, the payments market is growing globally through a reduction in the use of cash and an increase in the use of mobile methods of payment (e.g. phones and 'tap to pay' debit cards).

GPS has an increasingly international target market, with recent client wins in Europe, Hong Kong and Australia. It has recently signed a strategic Partnership with Visa to provide fintech clients with payments technology in the Asia Pacific region. It has also been selected by Mastercard as its chosen processing partner in its Fintech Express Programme. In 2020 GPS was selected by the Department for International Trade (DIT) to become a London Export Champion.

RED

Percentage of equity held       20.1%

Cost of Investment                 £9.7m

Directors' valuation              £13.7m

Percentage of net assets          15.3%

RED is a global supplier of SAP contract and permanent staff to international corporations and consultancies. SAP is the market leader in ERP software (Enterprise Resource Planning), which enables companies of all sizes and industries to operate more efficiently, including many of the world's largest organisations. The SAP after sales service market is estimated to be $20bn per annum.

RED, which was founded in 2000, now has a global footprint with access to over 200,000 candidates in 80 countries, and has offices in the UK, Germany, Switzerland and the USA.

RED has a highly scalable business model. Growth is expected to come from deeper penetration of the existing client base, development of new clients, continued focus on service differentiation and increasing market share in existing geographical markets. Additional growth opportunities include expansion to support high growth technologies complementary to SAP.

Weldex

Percentage of equity held       15.1%

Cost of Investment                 £9.5m

Directors' valuation                £6.5m

Percentage of net assets            7.3%

Weldex is a market-leading crawler crane hire business in the UK, with the tenth largest lifting capacity globally. It serves the offshore wind, oil & gas, commercial construction and infrastructure markets. Its cranes, including some of the largest in the UK, have been used in a number of significant construction projects including Heathrow Terminal 5, the iconic arch at the Wembley Stadium, the 2012 Olympic site and Crossrail. A recent project was the Viinamaki Wind Farm in Finland where cranes were supplied for the installation of the highest all steel wind turbines to date.

Weldex was established in 1979 and has grown into the UK's largest crawler crane hire company. The company employs over 100 staff and operates nationwide and overseas from its headquarters in Inverness and its depot at Alfreton. The company provides its customers with an established team of fully accredited operators, site managers and service engineers and also supplies associated lifting equipment including wheeled cranes, forklifts, lorry loaders and trailers.

FRA

Percentage of equity held         5.2%

Cost of Investment                 £1.4m

Directors' valuation                £5.8m

Percentage of net assets            6.5%

FRA is an international consultancy business that provides forensic accounting, data analytics and e-discovery expertise, helping businesses respond to major regulatory investigations in an increasingly regulated global environment.

FRA works on some of the largest and most complex regulatory investigations globally. Its clients are typically blue-chip multinational corporates seeking advice to help navigate regulatory scrutiny, effect compliant cross border data transfer, and manage risk. The company has offices in London, Dallas, New York, Washington DC, Paris and Zurich. It also runs data centres near each office location as well as in Montreal. The strategy is to develop FRA's international reach by recruiting talent into existing offices whilst opening new offices to access further talent pools or expand client relationships.

Two refinancings of the business have been undertaken with Dunedin Enterprise receiving proceeds of £5.5m

Realza Capital

Percentage of equity held         8.9%

Cost of Investment                 £4.2m

Directors' valuation                £4.8m

Percentage of net assets            5.4%

Realza Capital FCR is a Spanish private equity fund making investments in Spain and Portugal. The fund is limited to investing 15% of commitments in Portugal. Dunedin Enterprise's investment is held via Dunedin Fund of Funds LP.

The fund invests in companies with leading market positions and attractive growth prospects either through organic growth or through merger & acquisition activity. Realza seeks to invest in companies with an enterprise value normally ranging from €20m to €100m. The fund's typical equity investment ranges from €10m to €25m.

Realza has two investments remaining: -

•           a manufacturer of water pumps for the automotive industry; and

•           a producer of premium tomatoes.

Incremental

Percentage of equity held         8.2%

Cost of Investment                 £3.9m

Directors' valuation                £4.7m

Percentage of net assets            5.2%

Incremental is a digital technology services company which helps public sector, not for profit and commercial organisations transform their ERP and CRM systems with Microsoft technologies. It is a Microsoft Inner Circle Partner, putting it in the top 1% of partners worldwide, and also provides Microsoft Power Platform, Modern Workplace, Azure and data services. Its customer base includes Admiral, Virgin Money and the NHS. With a growing customer base in the public sector, not for profit, manufacturing and professional services, Incremental is also increasingly seeing success in the financial services market.

Incremental has three main delivery sites in Glasgow, Inverurie and Manchester. The business has a headcount of 135.

Incremental has a large addressable market which is growing strongly, particularly in the ERP and CRM space. The transition from on-site servers to the Cloud is driving businesses to transform their IT systems and strategies.

Premier Hytemp

Percentage of equity held       23.0%

Cost of Investment               £10.1m

Directors' valuation                £2.2m

Percentage of net assets            2.4%

Premier Hytemp is a global market leader in the manufacture and supply of engineered metal solutions. It is a specialist in the provision of low alloy and nickel alloy steel components for the upstream oil and gas industry. Its components are used in complex engineered assemblies required to extract and control the flow of oil and gas from new reserves, often sub-sea.

Premier Hytemp is headquartered in Edinburgh with manufacturing facilities in Singapore and Malaysia and specialist metal procurement and metallurgy services in Edinburgh.

EV

Percentage of equity held       10.6%

Cost of Investment                 £8.3m

Directors' valuation                £1.9m

Percentage of net assets            2.1%

EV is a UK headquartered, global market leader in the provision of high performance, video cameras and other visualisation technology used to analyse problems in oil and gas wells.

It offers a highly specialist service, providing skilled engineers to operate its cameras in the most difficult down-hole conditions. The high-resolution video images produced by EV's cameras allow oil and gas well operators to identify and solve problems rapidly. EV is based in Aberdeen, Houston and Norwich. It has a further presence in seventeen worldwide locations across Northern Europe, Canada, USA, West Africa, the Middle East, Asia and Australasia. The business employs more than 100 staff.

EV has a significant technological competitive edge operating in a predominantly untapped global market and is a global leader in this field. The business has technological competitive advantage around imaging (it has the only camera that can provide a 360 degree, top-to-toe perspective of well performance and integrity in HD colour) and around operating conditions (the cameras can operate under extremes of heat, pressure and visibility). EV has a strong, committed management team and a good reputation with its customers.

CitySprint

Percentage of equity held         0.6%

Cost of Investment                 £8.0m

Directors' valuation                £1.5m

Percentage of net assets            1.7%

CitySprint is the UK's largest national time-critical and same day distribution network. It benefits from an asset-light business model with over 3,000 self-employed couriers, making the business both highly flexible and scalable. It operates from 40 service centres in the UK and handles over ten million critical same day deliveries a year.

CitySprint offers a range of services including SameDay Courier, UK Overnight and International courier services, as well as more complex logistics services. It services a number of different sectors, including healthcare, online retail fulfilment and parts fulfilment such as outsourced supply chain services for engineering and servicing companies. During the period of Dunedin's investment, CitySprint has completed 29 acquisitions. CitySprint now has the UK's largest same day healthcare courier network.

In February 2016 the investment in CitySprint was partially realised in a sale to LDC. On completion Dunedin Enterprise received proceeds totalling £26.1m of which £22.8m was capital and £3.3m was loan interest. A total of £7.3m has been rolled into a CitySprint Newco alongside LDC, resulting in net cash proceeds received of £18.8m by Dunedin Enterprise. Dunedin Enterprise retains a 0.8% interest in the Newco.

In August 2021 an agreement was entered to realise the remaining investment in CitySprint.  The transaction is subject to regulatory approval and is expected to complete in the second half of 2021.

Overview of Portfolio

Fund Analysis

Dunedin Buyout Fund II                                                 63%

Dunedin Buyout Fund III                                                30%

Realza                                                                               7%

Geographic Location

UK                                                                                  94%

Rest of Europe                                                                  6%

Valuation Method

Earnings - provision                                                         3%

Earnings - uplift                                                             37%

Revenue - uplift                                                             20%

Assets basis                                                                     11%

Exit value                                                                        29%

Sector Analysis

Automotive                                                                       3%

Consumer products & services                                         3%

Financial services                                                            21%

Industrials                                                                       33%

Support services                                                              40%

Year of Investment

1-3 years                                                                           6%

3-5 years                                                                         28%

>5 years                                                                          66%