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Dunedin Enterprise makes progress on wind-up

Dunedin Enterprise (DNE) has announced its annual results for the year ended 31 December 2021. The trust, which is in wind-up, had realisations of £38.5m during the year and returned £26m via a tender offer in November 2021 (27.4% of the issued share capital at a 1.2% discount to the net asset value). Its share price total return was 46.3% during the year, while its NAV total return was 46.3%. Interim dividends of 28.6p per share have been paid and the board is proposing a final dividend of 1.9p per share. The trust returned £29.3m to shareholders during the year and, since the decision to wind-up the trust was taken, DNE has returned a total of £97.9m to shareholders.

DNE’s board says that the trust’s portfolio companies have been relatively unaffected by the events in Ukraine. The disruption created by the pandemic was the main focus for its portfolio companies during the earlier part of 2021 and the generally strong financial position of its portfolio companies has provided resilience.

Portfolio activity

During the year, DNE made one follow-on investment – an additional £0.9m was invested in Incremental, an 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 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, generating proceeds of £22.0m. A partial sale of GPS, which DNE describes as a market leader in payment processing technology, was completed in December 2021. Cash proceeds received by DNE from this partial realisation were £14.0m and, in addition, £5.9m has been rolled into a GPS Newco.

In January 2022, DNE’s 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.

Cash, Commitments & Liquidity

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 as at 31 December 2021, consisting of £9.1m to Dunedin managed funds and £0.7m to Realza, the one remaining European fund. It should be noted that the original investment periods of all of the funds to which it has made a commitment to have now ended. DNE is now only required to meet drawdowns for follow-on investments, management fees and expenses during the remainder of the life of the funds. During the period, 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. DNE’s maangers say that 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 IT services platform, 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.

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

The year saw valuation reductions for 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. DNE’s managers say that 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 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.

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