Dunedin Ent.it. Regulatory News (DNE)

EMBARGOED - 7AM FRIDAY 29 AUGUST 2013

For release 07.00am 29 August 2013

Dunedin Enterprise Investment Trust PLC

Half year ended 30 June 2013

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 2013.

Financial Highlights:

· Net asset value per share increased by 0.5% to 535.1p per share in the six months to 30 June 2013

· Realisations of £18.1m in the half year

· New investment of £10.2m in the half year

· Further £10m commitment to Dunedin Buyout Fund III LP

· £12.5m returned to shareholders by way of tender offer

Comparative Total Return Performance

*1 - taken from 31 July for ten years

For further information please contact:

Manager's Review

Results for the six months to 30 June 2013

In the six months to 30 June 2013, Dunedin Enterprise's unaudited net asset value per share increased from 532.7p to 535.1p, an increase of 0.5%. When dividends paid in the half year are included, this equates to a total return of 1.7%.

During the six months to 30 June 2013 the share price of Dunedin Enterprise increased by 1.4% from 412.38p to 418p. The FTSE Small Cap index rose by 13.5% over the same period. The share price of 418p equates to a discount of 21.9% to net asset value and has reduced from 22.6% at 31 December 2012. At the date of writing the share price stands at 408p which equates to a discount of 23.8% to net asset value per share.

In the six months to 30 June 2013 Dunedin Enterprise invested a total of £10.2m and realised £18.1m from investments.

During the half year a further commitment of £10m was made by the Trust to Dunedin Buyout Fund III LP ("DBFIII"). This takes the Trust's total commitment to £60m and will be drawn down over the next five years. This represents 19.6% of DBFIII total commitments. The Trust had outstanding commitments to limited partnership funds of £90.2m at 30 June 2013. This consists of £75.9m to Dunedin managed funds and £14.3m to European funds. It is expected that only £65m of this total commitment will be drawn.

Net asset and cash movements in the half year to 30 June 2013

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

Cash movements in the half year to 30 June 2013 can be summarised as follows:

*1 - exc Trustmarque which was drawn by DBFIII post half year end

Portfolio Composition

Dunedin Enterprise holds investments in unquoted companies through:

• Dunedin managed funds (including direct investments), and

• Third party managed funds, and

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

New investment activity

In future new investments made by the Company will be made primarily through its commitment to DBFIII. The other Dunedin managed funds (Dunedin Buyout Fund I, Dunedin Buyout Fund II and Equity Harvest Fund) have each reached the end of their investment period with any future investment made through these vehicles being for follow-on investments.

On 7 June 2013 an investment of £4.1m was made in Trustmarque Solutions ("Trustmarque") through DBFIII. DBFIII invested £20.8m for a majority stake in the company. Trustmarque has been in operation for over 25 years and manages customers' computer software and licensing from a wide range of developers including Microsoft, VMware, and McAfee. Its professional and consultative services enable organisations to optimise their IT resource, improve efficiencies and reduce costs. The business employs 180 people at three sites in York (HQ), Bracknell and Edinburgh. It currently serves over 1,200 clients including RBS, Lloyds Banking Group, Sainsbury's, the NHS, Ministry of Defence and a broad spectrum of local authorities and central government agencies.

The remaining £2.0m of investment was utilised for follow-on investments in Hawksford (£0.5m) and CGI (£0.2m) to fund acquisitions and £1.3m of management fees to the Dunedin funds.

Within the European funds £2.6m was drawn down by FSN Capital prior to the realisation of the investment. A drawdown of £1.5m was made by Innova to invest in an energy consulting and engineering company.

Realisations

In the six months to 30 June 2013 a total of £18.1m was realised from investments. The most significant realisations were Egeria (£8.4m) and FSN Capital (£9.0m). The remaining realisations were principally redemptions of loan stock.

The realisation of Egeria was disclosed in the 2012 Annual Report and the investment was valued at the exit price in those accounts. The realisation of FSN Capital generated a profit of £1.0m over the valuation at 31 December 2012.

An agreement to realise the investment in Practice Plan was signed on 13 August 2013 with Wesleyan Assurance Society. However, the transaction will not be completed and proceeds received until regulatory approval has been granted. As at 30 June 2013 the investment in Practice Plan has been valued at the agreed sale price generating an uplift of £2.7m in the half year. On completion of the sale, the investment in Practice Plan will generate capital proceeds of £8.9m and income of £5.9m, with 50% of the capital gain representing £1.6m.

Unrealised movements in valuation

Unrealised movements in portfolio company valuations in the half year totalled £2.3m. The largest increases within this total were in the valuation of Practice Plan (£2.7m), CitySprint (£1.6m) and CGI (£1.0m). There were reductions in value at Weldex (£1.7m), Premier Hytemp (£1.0m), OSS (£1.0m) and Red Commerce (£0.7m).

As stated above the investment in Practice Plan has been valued at the agreed sale price. The valuation of CitySprint has benefited from continued growth in maintainable earnings as a result of both organic growth and acquisitions combined with a reduction in net debt. The valuation of CGI has also benefited from reduced net debt and earnings growth.

Challenging trading conditions have impacted Premier Hytemp and Red Commerce leading to a reduction in valuation. The Manager is working with each of these companies to recover value for the investment. The Weldex valuation has been reduced in line with earnings. Trading at OSS has continued to decline and a full provision has been made against the investment.

The average earnings multiple applied to the valuation of the Dunedin managed portfolio was 6.8x EBITDA (31 December 2012: 7.0x) or 8.3x EBITA (31 December 2012: 8.5x). 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 2012: 2.2x) or 2.8x EBITA (31 December 2012: 2.7x). Over 60% of the debt is repayable after 2015.

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

The principal risks which the Company faces include: continued weakness and volatility in the financial markets impacting the availability of debt, investment opportunities and valuations of portfolio companies; currency movements and some portfolio companies facing difficult trading conditions, particularly in Europe.

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. The £20m revolving credit facility available to the Company has been renewed until 29 August 2014.

Distribution policy and dividends

Since the distribution policy was introduced in November 2011, the Company has returned £33.6m of capital to shareholders through three tender offers. The Company now has a further £9.0m of capital available for return to shareholders in accordance with the distribution policy. An additional £1.6m of capital is expected to be available for return following the completion of the sale of Practice Plan.

The high level of capital returned, or available for return, under the distribution policy has resulted from successful implementation of the Company's strategy. Shareholders should not expect realisations and consequent distributions to continue at this high level in the near term.

The Board is proposing that £5.5m of the capital available for return be used to make a further tender offer at a price of 475p per share. This tender offer will be subject to shareholder approval at a general meeting. A circular containing the full details of the tender offer and convening that meeting will be sent to shareholders shortly.

The balance of the capital currently available to be returned of £3.5m, together with the further £1.6m of capital available following the expected completion of the sale of Practice Plan, may be used to fund share buy-backs in the coming months or otherwise returned to shareholders in due course.

In determining the size of the tender offer, the Board has had regard to the amount of capital already returned to shareholders in the current tax year, the size of the Company's market capitalisation and the benefits of greater net asset value enhancement for continuing shareholders which may result from share buy-backs through the market.

A dividend for the year ended 31 December 2013 will be paid to shareholders in May 2014. This in part reflects the income received from disposals.

AIFMD

The Board continues to monitor regulatory changes closely and the key regulatory development affecting the Trust is the EU Alternative Investment Fund Manager's Directive ("AIFMD"). The AIFMD was implemented into UK law with effect from 22 July 2013, but with a one year transitional period to July 2014. It is the Board's intention to appoint Dunedin as AIFM of the Trust.

Board Changes

David Gamble will retire from the Board following the AGM in May 2014. Duncan Budge, who joined the Board in April 2012, has agreed to succeed him as Chairman.

Outlook

In the first six months of 2013 the Manager has experienced a strong pipeline of new investment opportunities. The Manager is principally focused on making new investments within three main sectors:- business services, financial services and industrials.

The existing portfolio continues to evolve both through organic growth and acquisitions. The Trust, through the Dunedin managed funds, finances acquisitions where appropriate. A key driver of growth from within the portfolio is to internationalise the operations of some portfolio companies to make them less reliant on a single economy. The Manager actively assists portfolio companies to achieve this.

Though the economic outlook remains uncertain companies within the portfolio are well financed to take advantage of opportunities.

Dunedin LLP

28 August 2013

Ten Largest Investments

(both held directly and via Dunedin managed funds) by value at 30 June 2013

Overview of portfolio

Analysed by category of investment

Analysed by fund

Analysed by valuation method

Analysed by geographic location

Analysed by sector

Analysed by age of investment

Consolidated Income Statement

for the six months ended 30 June 2013

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 2013

Six months ended 30 June 2013 (unaudited)

Six months ended 30 June 2012 (unaudited)

Year ended 31 December 2012 (audited)

Consolidated Balance Sheet

As at 30 June 2013

Consolidated Cash Flow Statement

for the six months ended 30 June 2013

Responsibility statement of the Directorsin 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 BoardDavid GambleChairman28 August 2013

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 2012 but is derived from those accounts. Statutory accounts for the year ended 31 December 2012 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 2012 and 30 June 2013 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. Except as described below, the accounting policies applied in these financial statements are the same as those in the Group's consolidated financial statements as at and for the year ended 31 December 2012. The following changes are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 31 December 2013.

The Group has adopted the following new standards with a date of initial application of 1 January 2013.

· IFRS 13 Fair Value Measurement

Fair Value Measurement

IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by IFRSs. In particular, it unifies the definition of fair value as the price at which an orderly transaction to sell an asset or transfer a liability would take place between market participants at the measurement date. It also replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7 Financial Instruments: Disclosures. Some of these disclosures are specifically required in interim financial statements; accordingly, the Group has included additional disclosures in this regard (see note 4).

In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value measurement guidance prospectively, and has not provided comparative information for new disclosures. Notwithstanding the above, the change has no significant impact on the measurements of the Group's assets and liabilities.

3. Dividends

4. Investments

All investments are designated fair value through profit or loss at initial recognition, therefore all gains and losses arise on investments designated at fair value through profit or loss. Given the nature of the Company's investments the fair value gains recognised in these financial statements are not considered to be readily convertible to cash in full at the balance sheet date and therefore the movement in these fair values are treated as unrealised.

Fair value hierarchy

The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

• Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.

• Level 2: Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

• Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The table below analyses financial instruments, measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorised:

The Group recognises transfers between the levels of the fair value hierarchy as of the end of the reporting period during which the transfer occurred. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the six months ended 30 June 2013.

Level 3 fair values

Details of the determination of Level 3 fair value measurements and the movements in Level 3 fair values during the six months ended 30 June 2013 are set out below:-

Valuation of investments

Unquoted investments are fair valued by the Directors in accordance with the following rules, which are consistent with the International Private Equity and Venture Capital Valuation Guidelines:

· Investments are only valued at cost for a limited period after the date of acquisition, otherwise investments are valued on one of the other basis detailed below. Generally the earnings multiple basis of valuation will be used.

· When valuing on an earnings basis, the maintainable earnings of a company are multiplied by an appropriate multiple.

· An investment may be valued by reference to the value of its net assets. This is appropriate for businesses whose value derives mainly from the underlying value of its assets rather than its earnings.

· When investments have obtained an exit (either by listing or trade sale) after the valuation date but before finalisation of the relevant accounts (interim or final), the valuation is based on the exit valuation.

· Accrued interest on loans to portfolio companies is included in valuations where there is an expectation that the interest will be received.

IFRS 13 requires disclosure, by class of financial instrument, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of the investee company. On that basis the Board believe that the impact of changing one or more of the inputs to reasonably possible alternative assumptions would not change the fair value significantly.

The Directors consider the carrying value of financial instruments in the financial statements to represent their fair value.

5. Earnings per share

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.

6. Contingent assets

Discussions are ongoing with HMRC regarding the payment of interest on a compound basis relating to the reclaim of VAT on management fees. The amount and timing of any recovery remains uncertain and accordingly no amount has been provided for in the financial statements.

7. Related party transactions

There have been no material changes to the related party transactions described in the last annual report.

ENDS