Investments have been valued by the directors in compliance with the principles of IAS 39 ‘Financial Instruments: Recognition and Measurement’ and the International Private Equity and Venture Capital Valuation Guidelines as recommended by the BVCA.
Principles of valuation of unlisted investments
Investments are stated at amounts considered by the directors to be a reasonable assessment of their fair value, subject to the requirement to apply a degree of caution in making the necessary estimates. Fair value is the amount at which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. In estimating fair value, the directors use a methodology which is appropriate in light of the nature, facts and circumstances of the investment and its materiality in the context of the total investment portfolio.
All investments are valued according to one of the following bases:
Investments are only valued at transaction value for a limited period after the date of acquisition, otherwise investments are valued on one of the other bases described above, and generally the earnings multiple basis of valuation will be used unless this is inappropriate, as in the case of certain asset-based businesses.
When valuing on an earnings multiple basis, profits before interest and tax of the current year will normally be used, depending on whether or not more than six months of the accounting period remain and the predictability of future profits. Such profits will be adjusted to a maintainable basis, taxed at the full corporation tax rate and multiplied by an appropriate and reasonable price/earnings multiple. This is normally related to comparable quoted companies or recent transactions, with adjustments made for points of difference between the comparator and the company being valued, in particular for risks, earnings growth prospects and surplus assets or excess liabilities. Where a company is loss-making, or the value is derived mainly from the underlying value of its assets rather than its earnings, the valuation may be calculated with regard to the underlying net assets. Where there has been a subsequent recent investment by a third party in a new financing round that is deemed to be at arm’s length this may be used as the basis of valuation. In cases where an exit is actively being sought, then any offers from potential purchasers would be relevant in assessing the valuation of an investment and are taken into account in arriving at the valuation.
Where appropriate, a marketability discount in the range of 10% to 30% may be applied to the investment valuation, based on the likely timing of an exit, the influence over that exit, the likelihood of achieving conditions precedent to that exit and general market conditions.
When investments have obtained an exit after the valuation date but before finalisation of Candover’s relevant accounts (interim or final), the valuation is based on the exit valuation adjusted where appropriate for changes in circumstances and discounting for the time value of money.
In arriving at the value of an investment, the percentage ownership is calculated after taking into account any dilution through outstanding warrants, options and performance related mechanisms.
Principles of valuation of listed investments
Investments are valued at the bid price last recorded on the balance sheet date without discount.
Valuation review procedures
Valuations are initially prepared by the relevant investment executive. These valuations are then subject to review by senior management and external auditors, prior to approval by the directors.