Interim Results

RNS Number : 1556L

Dunedin Enterprise Inv Trust PLC

31 August 2012

 

EMBARGOED - 7AM FRIDAY 31 AUGUST

For release                                                          07.00am                                               31 August 2012

Dunedin Enterprise Investment Trust PLC

Half year ended 30 June 2012

Dunedin Enterprise Investment Trust PLC, the private equity investment trust which specialises in investing in mid-market buyouts, announces its results for the half year ended 30 June 2012.

Financial Highlights:

·     Net asset value per share increased by 7.6% to 582.2p per share in the six months to 30 June 2012

·     Realisations of £40.9m in the half year

·     New investment of £3.0m in the half year

·     £25m commitment to Dunedin's next fund

·     Intention to commit up to a further £25m

·     Tender offer undertaken for £14.3m

·     Tender offer proposed for £6.8m

·     Special dividend of 16p per share declared

·     £1.6m available to fund share buy-backs

Comparative Total Return Performance

Periods to 30 June 2012	Net Asset value*1	Share price	FTSE Small Cap (ex Inv Cos) Index
Six months	8.6%	9.3%	13.4%
One year	11.9%	-5.6%	-6.4%
Three years	45.8%	23.5%	40.3%
Five years	20.2%	-18.8%	-26.3%
Ten years	131.2%	99.1%	40.0%

^*1 - taken from 30 April for five and ten years

The Trust achieved top quartile net asset value total return performance among its peers over the 12 months ended 30 June 2012

The Trust's net asset value total return outperformed its benchmark, the FTSE Small Cap (ex inv cos) over one year, three years, five years and ten years

For further information please contact:

Graeme Murray Dunedin LLP    0131 225 6699 0131 718 2310   07813 138367

Corinna Osbourne Equity Dynamics Limited 07825 326 440 [e-mail]

Chairman's Statement

One of the principal reasons for the change of strategy approved by shareholders in November 2011 was the need to address the substantial discount of the share price to net asset value.  The Trust is now focussing primarily on investments managed by Dunedin in the UK as well as returning cash from realisations to shareholders in accordance with its distribution policy.

The first step in this process was the sale of the Trust's stake in SWIP Private Equity Fund of Funds II PLC ("SWIP") for £14.5m, which represented a discount of 8% on the most recently published net asset value prior to sale.  Following this realisation a tender offer for 10% of the share capital at a price of 475p resulted in the return of £14.3m to shareholders. 

During the first half of the year the Trust's investments in Capula and WFEL were sold generating capital proceeds of £25.5m.  The gain over cost generated by these realisations amounted to £10.2m.  Following the half year end the investment in Capiton, one of the European funds, was realised for £3.3m generating an uplift of £0.2m on the valuation as at 31 December 2011.

As a result there is outstanding some £13.9m for distribution to shareholders, representing £8.4m of capital and £5.5m of income.  The Board accordingly has resolved to pay £4.3m by way of a special dividend of 16p per share on 28 September 2012 to shareholders on the register at 7 September 2012.  In addition the Board proposes to recommend a tender offer to shareholders for 5% of the issued share capital at a price of 500p per share.  This would represent a discount to net asset value per share after payment of the dividend of 12%.  The balance of the capital currently available to be returned may be used to fund share buy-backs in the coming months or will be otherwise returned to shareholders in due course in accordance with the distribution policy.

In order to continue to deliver on the strategy approved by shareholders, the Trust committed £25m in March 2012 to the UK lower mid-market through Dunedin's next buyout fund.  Following the successful realisations achieved this year, the Trust intends to commit a further amount of up to £25m to Dunedin's next fund, bringing the Trust's total potential commitment to the new fund to £50m.  Dunedin Buyout Fund II LP, to which the Trust committed £75m in 2006, is substantially invested and gross realised returns to date have generated 2.6 times money invested.

Following shareholder approval, the Court approved the cancellation of the Share Premium Account on 15 March 2012.  The balance has been transferred to a special reserve.

The Trust has increased the size of its revolving credit facility to £20m in order to provide greater flexibility.  The facility, which is currently undrawn, is available until 31 August 2013.

David Gamble

Chairman

Manager's Review

Results for the six months to 30 June 2012

In the six months to 30 June 2012, Dunedin Enterprise's unaudited net asset value per share increased from 541.0p to 582.2p, an increase of 7.6%.  When dividends paid in the half year are included, this equates to a total return of 8.6%.

During the six months to 30 June 2012 the share price of Dunedin Enterprise increased by 7.8% from 313.5p to 338.0p.  The FTSE Small Cap index rose by 11.5% over the same period. The share price of 338p equates to a discount of 41.9% to net asset value and has reduced from 41.9% at 31 December 2011.  At the date of writing the share price stands at 371.75p which equates to a discount of 36.1% to net asset value per share.  Discounts throughout the sector generally remain high.

In the six months to 30 June 2012 Dunedin Enterprise invested a total of £3.0m and realised £40.9m from investments.  Realisations in the half year generated a gain of £1.8m over opening valuations.

The Company had outstanding commitments to limited partnership funds of £76.0m at 30 June 2012.  This consists of £49.8m to Dunedin managed funds and £26.2m to European funds.  Outstanding commitments are stated following the sale of Capiton in August 2012.

Net asset and cash movements in the half year to 30 June 2012

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

	£'m
Net asset value at 31 December 2011	163.0
Unrealised value increases	7.9
Unrealised value decreases	(3.6)
Realised gain over opening valuation	1.8
Dividends paid to shareholders	(1.4)
Tender offer to shareholders	(14.3)
Other movements	4.4
Net asset value at 30 June 2012	157.8

Cash movements in the half year to 30 June 2012 can be summarised as follows:

	£'m
Cash and near cash balances at 31 December 2011		23.5
Investments made		(3.0)
Investments realised		40.9
Tender offer to shareholders		(14.3)
Dividends paid to shareholders		(1.4)
Operating activities		3.4
Cash and near cash balances at 30 June 2012	49.1

Portfolio Composition

Dunedin Enterprise holds investments in unquoted companies through:

•    Dunedin managed funds (including direct investments),

•    third party managed funds, and

•    legacy technology funds.

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

	Valuation	Additions	Disposals	Realised	Unrealised	Valuation
	at 31-12-11	in half year	in half year	movement	movement	at 30-06-12
	£'m	£'m	£'m	£'m	£'m	£'m
Dunedin managed	103.9	1.6	(25.6)	1.9	4.0	85.8
Third party managed	19.8	1.4	(0.5)	-	0.4	21.1
SWIP	14.5	-	(14.5)	(0.1)	0.1	-
Legacy technology funds	1.5	-	(0.3)	-	(0.2)	1.0
	139.7	3.0	(40.9)	1.8	4.3	107.9

In the half year a total of £3.0m was invested by Dunedin Enterprise. The majority of new investment was made into Dunedin managed investments.  A further £1.0m was invested in Enrich as the Trust continued to support the operations of the company and £0.2m was invested in Hawksford to finance the company's acquisition strategy.  The remaining £0.4m was drawndown for management fees by Dunedin managed funds.

A total of £1.4m was drawn down by European funds to which the Company has made commitments.  The most significant drawdown was made by FSN Capital III LP (£0.8m) for an investment in a leading Norwegian women's retailer. 

In the six months to 30 June 2012 a total of £40.9m was realised from investments. The most significant realisations were SWIP (£14.5m), WFEL (£14.0m) and Capula (£11.5m).  The proceeds realised from SWIP were returned to shareholders via a tender offer in April 2012. 

WFEL was sold to KMW, a German land defence systems provider.  In addition to the capital proceeds, income totalling £3.2m was received taking the total realised to £17.2m.  This compares to a valuation of capital and accrued interest at 31 December 2011 of £12.2m.

Capula was sold to Imtech, a Dutch listed company.  In addition to the capital proceeds, income totalling £2.3m was received taking the total realised to £13.8m.  This compares to a valuation of capital and accrued interest at 31 December 2011 of £11.5m.

Unrealised movements in valuation

Unrealised movements in portfolio company valuations in the half year totalled £4.3m. The largest increases within this total were in the valuation of Formaplex (£2.7m), CGI (£1.4m), etc.venues (£0.8m) and Hawksford (£0.6m).  The net movement on the European fund investments was £0.3m.  There were reductions in value at Enrich (£1.0m) and Red Commerce (£0.5m).

Formaplex is benefitting from strong demand in its Import Tooling and Composites divisions as well as for the new Foxhound vehicle supplied to the UK MoD.  This has led to a 50% increase in the level of maintainable earnings.  The valuation of CGI has benefitted from an increased multiple applied to the valuation on the back of an expanded product offering from the company and also a lower level of debt.  The maintainable earnings of etc.venues have increased by 13% due to a combination of successful new venue openings and existing venues continuing to trade strongly.  Hawksford's acquisition strategy has led to an increase in maintainable earnings of 41%.

Maintainable earnings at Red Commerce have been impacted by a softening in the market and costs associated with its expansion into the USA and Brazil.  Further funding has been provided to Enrich as the company continues to find trading difficult.  This additional funding has been fully provided against.

The average earnings multiple applied to the valuation of the Dunedin managed portfolio was 6.9x EBITDA (31 December 2011: 6.8x) or 8.4x EBITA (31 December 2011: 8.1x). These multiples are applied to the maintainable earnings of portfolio companies.  Within the Dunedin managed portfolio, the weighted average gearing of the companies was 2.3x EBITDA (31 December 2011: 2.1x) or 2.8x EBITA (31 December 2011: 2.5x).

The portfolio continues to be valued in accordance with the International Private Equity Venture Capital valuation guidelines.

The principal risks which the Company faces include continued weakness and volatility in the financial markets, currency movements and some portfolio companies facing difficult trading conditions.

The Board and the Manager remain satisfied with the balance between cash resources and outstanding commitments to limited partnership funds given the expected rate of new investment and therefore continues to adopt a going concern basis in preparing the half year report and accounts.

Outlook

Investment activity in the UK buyout market in the £10m to £100m range has held up in 2012 with 54 deals completed in the first half of 2012 compared to a total of 98 for the whole of 2011.  Dunedin continues to pursue investment opportunities.  There remains substantial competition for deals both from the Private Equity sector and from trade buyers.

Exit activity in this part of the market also compares well with 132 exits achieved in the first half of 2012 (a total of 268 for the whole of 2011).  The majority have been achieved either through trade sales or secondary buyouts.

The economic background remains challenging.  It is however encouraging to note that the Dunedin managed portfolio remains well positioned with 10 out of 12 companies forecasting increased profits in 2012.

 

Dunedin LLP

Ten Largest Investments     

(both held directly and via Dunedin managed funds) by value at 30 June 2012

	Approx.			Percentage
	percentage	Cost of	Directors'	of net
	of equity	investment	valuation	assets
Company name	%	£'000	£'000	%
CitySprint (UK) Group Limited	11.9	9,838	11,314	7.2
Practice Plan Holdings Limited	26.2	5,602	11,270	7.1
OSS Environmental Holdings Limited	40.2	5,951	9,998	6.4
Red Commerce Limited	18.7	7,878	8,997	5.7
etc.venues Group Limited	27.9	3,388	8,838	5.6
Weldex (International) Offshore Holdings Limited	15.1	9,505	8,029	5.1
C.G.I. Group Holdings Limited	41.4	8,509	7,015	4.4
Formaplex Group Limited	17.7	1,732	6,180	3.9
Hawksford International Limited	16.0	3,839	5,892	3.7
Egeria Private Equity Fund III LP	3.4	4,521	5,702	3.6
		60,763	83,235	52.7

Overview of portfolio

Analysed by category of investment

	30 June 2012 %	31 December 2011 %
Dunedin managed	55	70
Third party managed	13	13
Legacy technology funds	1	1
Cash	31	16

Analysed by valuation method

	30 June 2012 %	31 December 2011 %
Cost/written down	5	8
Earnings - provision	19	15
Earnings - uplift	73	77
Exit value	3	-

Analysed by geographic location

	30 June 2012 %	31 December 2011 %
UK	80	84
Rest of Europe	20	16

Analysed by sector

	30 June 2012 %	31 December 2011 %
Construction and building materials	8	6
Consumer products & services	4	3
Financial services	8	6
Healthcare	3	3
Industrials	13	19
Retail	1	-
Support services	57	60
Technology, media & telecoms	6	3

Analysed by deal type

	30 June 2012 %	31 December 2011 %
Management buyouts/buyins	99	99
Technology	1	1

Analysed by age of investment

	30 June 2012 %	31 December 2011 %
<1 year	10	12
1-3 years	35	30
3-5 years	17	9
>5 years	38	49

Consolidated Income Statement

for the six months ended 30 June 2012

	Unaudited Six months ended	Unaudited Six months ended	Audited Year ended
	30 June 2012	30 June 2011	31 December 2011

	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investment income	6,077	-	6,077	1,028	-	1,028	2,102	-	2,102
Gains on investments	-	5,890	5,890	-	9,591	9,591	-	13,404	13,404
Total Income	6,077	5,890	11,967	1,028	9,591	10,619	2,102	13,404	15,506
Expenses
Investment management fees	(155)	(465)	(620)	(169)	(507)	(676)	(345)	(1,036)	(1,381)
VAT on investment management fee	-	-	-	-	-	-	185	556	741
Other expenses	(367)	(223)	(590)	(325)	-	(325)	(677)	(111)	(788)
Profit before finance costs and tax	5,555	5,202	10,757	534	9,084	9,618	1,265	12,813	14,078
Finance costs	(50)	(150)	(200)	(14)	(43)	(57)	(38)	(114)	(152)
Profit before tax	5,505	5,052	10,557	520	9,041	9,561	1,227	12,699	13,926
Taxation	(322)	295	(27)	(156)	103	(53)	80	195	275
Profit for the period	5,183	5,347	10,530	364	9,144	9,508	1,307	12,894	14,201
Earnings per ordinary share (basic & diluted)	17.9p	18.4p	36.3p	1.2p	30.3p	31.5p	4.3p	42.8p	47.1p

The Total column of this statement represents the Income Statement of the Group, prepared in accordance with International Financial Reporting Standards as adopted by the EU. 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.

Consolidated Statement of Changes in Equity

for the six months ended 30 June 2012

Six months ended 30 June 2012 (unaudited)

	Share capital £'000	Share premium £'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 2011	7,530	47,600	396	91,112	9,952	-	6,366	107,430	162,956
Profit/(loss) for the half year	-	-	-	8,436	(3,089)	-	5,183	10,530	10,530
Cancellation of share premium account	-	(47,600)	-	-	-	47,600	-	47,600	-
Purchase and cancellation of shares	(753)	-	753	(14,308)	-	-	-	(14,308)	(14,308)
Dividends paid	-	-	-	-	-	-	(1,355)	(1,355)	(1,355)
At 30 June 2012	6,777	-	1,149	85,240	6,863	47,600	10,194	149,897	157,823

Six months ended 30 June 2011 (unaudited)

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital Reserve realised £'000	Capital reserve - unrealised £'000	Revenue account £'000	Total retained earnings £'000	Total equity £'000
At 31 December 2010	7,544	47,600	382	96,460	(8,109)	6,206	94,557	150,083
Profit/(loss) for the half year	-	-	-	(4,219)	13,363	364	9,508	9,508
Dividends paid	-	-	-	-	-	(1,147)	(1,147)	(1,147)
At 30 June 2011	7,544	47,600	382	92,241	5,254	5,423	102,918	158,444

Year ended 31 December 2011 (audited)

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital Reserve realised £'000	Capital reserve - unrealised £'000	Revenue account £'000	Total retained earnings £'000	Total equity £'000
At 31 December 2010	7,544	47,600	382	96,460	(8,109)	6,206	94,557	150,083
Profit/(loss) for the year	-	-	-	(5,167)	18,061	1,307	14,201	14,201
Purchase and cancellation of shares	(14)	-	14	(181)	-	-	(181)	(181)
Dividends paid	-	-	-	-	-	(1,147)	(1,147)	(1,147)
At 31 December 2011	7,530	47,600	396	91,112	9,952	6,366	107,430	162,956

Consolidated Balance Sheet

As at 30 June 2012

	Unaudited 30 June 2012 £'000	Unaudited 30 June 2011 £'000	Audited 31 December 2011 £'000
Non-current assets
Investments held at fair value	120,299	157,009	148,167
Current assets
Other receivables	993	110	359
Cash and cash equivalents	36,763	1,876	14,961
	37,756	1,986	15,320
Total assets	158,055	158,995	163,487
Current liabilities
Other liabilities	(102)	(94)	(428)
Current tax liabilities	(130)	(457)	(103)
Net assets	157,823	158,444	162,956
Capital and reserves
Share capital	6,777	7,544	7,530
Share premium	-	47,600	47,600
Capital redemption reserve	1,149	382	396
Capital reserve - realised	85,240	92,241	91,112
Capital reserve - unrealised	6,863	5,254	9,952
Special distributable reserve	47,600	-	-
Revenue reserve	10,194	5,423	6,366
Total equity	157,823	158,444	162,956
Net asset value per ordinary share (basic and diluted)	582.2p	525.0p	541.0p

Consolidated Cash Flow Statement

for the six months ended 30 June 2012

	Unaudited 30 June 2012 £'000	Unaudited 30 June 2011 £'000	Audited 31 December 2011 £'000
Operating activities
Profit before tax	10,557	9,561	13,926
(Gains) on investments	(5,890)	(9,591)	(13,404)
Interest paid	200	57	152
(Increase) / decrease in debtors	(634)	131	(118)
(Decrease) in creditors	(326)	(6,176)	(5,842)
Tax recovered	-	27	-
Net cash inflow/(outflow) from operating activities	3,907	(5,991)	(5,286)
Servicing of finance
Interest paid	(200)	(57)	(152)
Investing activities
Purchase of investments	(3,041)	(6,901)	(17,197)
Purchase of 'AAA' rated money market funds	(13,603)	(10,744)	(22,398)
Sale of investments	40,905	12,230	18,367
Sale of 'AAA' rated money market funds	9,497	10,309	38,778
Net cash inflow from investing activities	33,758	4,894	17,550
Financing activities
Purchase of ordinary shares	(14,308)	-	(181)
Dividends paid	(1,355)	(1,147)	(1,147)
Net cash (outflow) from financing activities	(15,663)	(1,147)	(1,328)
Net increase / (decrease) in cash and cash equivalents	21,802	(2,301)	10,784
Cash and cash equivalents at the start of the period	14,961	4,177	4,177
Net increase / (decrease) in cash and cash equivalents	21,802	(2,301)	10,784
Cash and cash equivalents at the end of the period	36,763	1,876	14,961

Responsibility statement of the Directors
in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

-        the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

-        the interim management report includes a fair review of the information required by:

(a)      DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b)      DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

By Order of the Board
David Gamble
Chairman
30 August 2012

Notes to the Accounts

1.       Unaudited Interim Report

The financial information contained in this report does not constitute the Company's statutory accounts for the year ended 31 December 2011 but is derived from those accounts.  Statutory accounts for the year ended 31 December 2011 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 financial statements for the six months ended 30 June 2011 and 30 June 2012 have not been audited.

2.       Basis of Preparation

This condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

The annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU.  As required by the Disclosure and Transparency Rules of the Financial Services Authority, the condensed set of financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the group's published consolidated financial statements for the year ended 31 December 2011.

3.       Dividends

	Six months to 30 June 2012 £'000	Six months to 30 June 2011 £'000	Year to 31 December 2011 £'000
Dividends paid in the period	1,355	1,147	1,147

A special dividend of 16p per share is payable on 28 September 2012 to shareholders on the register at 7 September 2012.  The ex-dividend date is 5 September 2012.

4.         Earnings per share

	Six months to 30 June 2012 £'00	Six months to 30 June 2011 £'000	Year to 31 December 2011 £'000
Revenue return per ordinary share (p)	17.9	1.2	4.3
Capital return per ordinary share (p)	18.4	30.3	42.8
Earnings per ordinary share (p)	36.3	31.5	47.1
Weighted average number of shares	28,996,928	30,177,380	30,173,462

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.

5.       Contingent assets

Following the repayment of VAT on management fees received in 2011 discussions are ongoing with HMRC regarding the payment of interest on a compound basis. The amount and timing of any recovery remains uncertain and accordingly no amount has been provided for in the financial statements.

ENDS

 

END

 

 

IR SDSFUSFESEDA