Dunedin Ent.it. Regulatory News (DNE)

For release 21 September 2020

Dunedin Enterprise Investment Trust PLC

Half year ended 30 June 2020

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 2020.

Financial Highlights:

· Net asset value total return: -13.4%

· Share price total return: -29.4%

· Net asset value per share at 30 June 2020: 379.8p (444.4p at 31/12/19), after 5.0p dividend

· Share price at 30 June 2020: 263p (376p at 31/12/19)

· Realisations: £13.9m in the half year

· Proposed tender offer of £10m

· £115.6m 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 2020 was -13.4% and -29.4% in terms of net asset value per share and share price respectively. This is stated after allowing for a final dividend for 2019 of 5.0p paid in May 2020. Your Company's net asset value per share decreased from 444.4p to 378.9p in the half year.

The share price of 263p at 30 June 2020 represented a discount of 30.6% to the net asset value of 378.9p per share. The share price currently stands at 309p.

Coronavirus

The significant disruption resulting from the coronavirus has affected each of our portfolio companies to varying degrees. Your Manager has representation on the Board of each portfolio company and maintains regular contact to monitor the impact on trading and financial stability. Each company has implemented plans to mitigate the impact of the coronavirus, including furlough schemes, redundancies, re-negotiation of banking terms and payment holidays on HP contracts.

Portfolio

During the half year there were two follow-on investments. An additional £0.6m was invested in Red, the supplier of SAP software experts, and £0.4m in GPS, the payments processing platform.

Kingsbridge, the provider of insurance services to contractors, was realised generating £10.4m and a return of 3.2 times original cost. A refinancing was completed at FRA, the forensic accounting, data analytics and e-discovery business, generating proceeds of £4.0m. Following the half year end a refinancing was completed at Hawksford, a leading provider of corporate, private client and fund services, generating proceeds of £6.9m. The refinancing is subject to regulatory approval which is expected to take around six months.

Overall, the trading performance of the portfolio has been impacted by the coronavirus and the resulting disruption to economic activity. Unrealised valuation increases of £4.2m were offset by value decreases of £16.5m. Valuation uplifts were achieved at GPS, Premier Hytemp and Incremental, offset by reductions in the valuations of Formaplex, Hawksford, FRA, EV, Red and U-POL. Further details are provided in the Manager's Review.

Cash, Commitments & Liquidity

At 30 June 2020 the Company held cash and near cash equivalents totalling £25m. There are outstanding commitments to limited partnership funds of £21.0m at 30 June 2020, consisting of £20.2m to Dunedin managed funds and £0.8m to Realza. In July 2020 a further £0.9m was drawn down by Dunedin Buyout Fund II LP leaving outstanding commitments of £20.1m. Assuming these funds are held to maturity, it is estimated that only £9m of this total outstanding commitment will be drawn over the remaining life of the funds to meet follow-on investments and ongoing expenses.

The Company has a revolving credit facility with Lloyds Bank of £5m which was undrawn at 30 June 2020 and is available until 31 May 2021.

Tender Offer

The Board is proposing to undertake a tender offer of £10m in November 2020. Shareholders will be provided with details of the tender offer in mid-October. The tender offer replaces the B Share scheme previously operated by the Company as the preferred route for making capital distributions as the Company now has insufficient capital reserves available to issue B shares for new consideration.

The amount being returned is prudent but appropriate taking into account the uncertainties prevalent at this time.

Dividends

A final dividend of 5.0p per share relating to the year ended 31 December 2019 was paid to shareholders in May 2020 amounting to £1.0m.

Outlook

The disruption and ongoing uncertainty created by the pandemic continues to be the main focus for portfolio companies. While each portfolio company has implemented plans, where possible, to address this threat, the generally strong financial position of portfolio companies has provided some protection.

Whilst there is continued uncertainty regarding the UK's ongoing relationship with the EU, the Board does not expect there to be any significant impact from Brexit on the operations of the Company. Each portfolio company has developed contingency plans to mitigate a variety of Brexit scenarios. 

The Board welcomes the realisations achieved to date this year and will continue to return capital to shareholders wherever practicable following the realisation of investments.

Duncan Budge

21 September 2020

Manager's Review

Results for the six months to 30 June 2020

In the six months to 30 June 2020, the net asset value per share total return was -13.4%, after taking account of dividends paid for 2019 of 5.0p per share (paid in May 2020). This compares with a decrease in the FTSE Small Cap Index (ex Inv. Cos) over the same period of 23.9%.

In the six months to 30 June 2020 the Company invested a total of £1.5m and realised £13.9m from investments.

Net asset and cash movements in the half year to 30 June 2020

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

Cash movements in the half year to 30 June 2020 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:-

Investment activity

During the six months to 30 June 2020 a follow-on investment of £0.6m was made in RED, the supplier of SAP software experts, to provide working capital support. A further £0.4m was invested in GPS, the payments processing business, to facilitate the company's ongoing development of its payments processing platform.

A further £0.3m was drawn down by Dunedin and third-party managed funds to meet management fees and ongoing expenses.

Realisations

In the half year a total of £13.9m was realised from the portfolio of investments.

In March 2020 Kingsbridge, the provider of insurance services to contractors, was realised. A total of £10.4m was received by Dunedin Enterprise consisting of £10.2m capital and £0.2m income. The investment was valued at this level at 31 December 2019. The investment was originally made in May 2016 at a cost of £4.2m. Over the lifetime of the investment Dunedin Enterprise realised proceeds of £13.6m which represents a return of 3.2x cost. The transaction includes a two year earn-out which may generate further proceeds for the Company; no value has been placed on this.

In February 2020 a further refinancing of FRA, the forensic accounting, data analytics and e-discovery business, was completed. A total of £4.0m was received by Dunedin Enterprise, consisting of £3.5m capital and £0.5m income. This was the second refinancing undertaken by FRA. A total of £5.5m has been generated from the two re-financings which compares to an original cost of £6.0m.

Following the half year end in August 2020 Hawksford, a leading provider of corporate, private client and fund services, completed a refinancing. Proceeds from the re-financing will amount to £6.9m, consisting of capital of £6.3m and income of £0.6m. The investment in Hawksford was valued at £6.9m at 30 June 2020. Proceeds from the refinancing are dependent upon regulatory approval being received in both Jersey and Singapore. This is expected to take around six months. Dunedin Enterprise will also retain a 5% interest in Hawksford.

Unrealised movements in valuations

Unrealised valuation increases in the half year amounted to £4.2m. There were valuation uplifts at GPS (£1.0m), Premier Hytemp (£0.4m) and Incremental (£0.4m). There was also a reduction in the carried interest payable on Dunedin Buyout Fund III and Equity Harvest Fund totalling £2.0m.

GPS has shown revenue growth of 7% in the year to date. This is in spite of the impact of coronavirus on the level of revenue generating transactions. The company has been protected from coronavirus by agreements which stipulate a base level of fee income and new business wins. The company continues to accelerate its investment in technology and developing its presence in Singapore and the Asia-Pacific. This will help it to secure key market opportunities and larger, more established clients.

Premier Hytemp, the provider of highly engineered components to the oil and gas industry, has achieved revenue growth of 49% in the year to date. In spite of the fall in the oil price during coronavirus the company has seen a strong order book in both the UK and Singapore.

Incremental, the provider of design, implementation and management of IT infrastructures, has shown revenue growth of 10% in the year to date. Although the company has grown revenue over the past 12 months margins have been impacted by an accelerated investment in staff numbers. The company currently has a record high order book which reflects a desire from customers to move increasingly towards a cloud/digital based IT environment post coronavirus.

The principal valuation reductions were at Formaplex (£3.1m), Hawksford (£3.1m), FRA (£2.6m), EV (£2.5m), Red (£2.0m) and U-POL (£1.5m)

Formaplex, the provider of tooling and lightweight components, principally services high end automotive producers. As a result of the coronavirus the factories of automotive producers have been closed for periods of between one and three months. The factories are now reopening but at much reduced levels of production. This has had a direct impact on trading at Formaplex where management are managing costs closely, including redundancies and staff furlough. Given the reduction in the profitability of the company the valuation has reverted to a net assets basis, leading to a reduction in value

Hawksford has been valued at the proceeds to be received from a refinancing of the company undertaken in August 2020 which is dependent upon regulatory approval. This is expected to take around six months. Dunedin Enterprise will also retain a 5% interest in Hawksford. No value has been attributed to this at 30 June 2020.

FRA has experienced a slowdown in new business wins during the coronavirus outbreak. Utilisation rates have been lower than normal, leading management to take actions to rationalise costs including utilisation of the furlough scheme, staff redundancies and the closure of one office. FRA has continued to win new work although the start date for new projects in some cases has been delayed by the impact of coronavirus.

EV, the provider of high performance, video cameras and other visualisation technology used in the oil and gas industry, has experienced a significant impact to trading from the fall in the price of oil. Turnover has decreased 46% in the year to date. Management has taken action to reduce costs, learning the lessons from previous periods of oil price volatility. The company has also successfully re-negotiated the terms of its banking package.

Red has experienced an 8% drop in net fee income in the year to date. The contract side of the business has held up well; however a number of new projects have been put on hold for the time being. The permanent appointment side of the business, which typically represents 14% of net fee income, has been significantly impacted by the coronavirus with companies reluctant to make permanent appointments until the full impact of the virus is known.

U-POL, the manufacturer of automotive refinish products, has experienced a 12% drop in revenue in the year to date. The impact of distributors and car body shops being closed due to coronavirus has been partially offset by online and retail sales in the US.

The average earnings multiple applied to the valuation of the Dunedin managed portfolio was 9.0x EBITDA (31 December 2019: 9.1x). These multiples are applied to the maintainable earnings of portfolio companies. Within the Dunedin managed portfolio, the weighted average gearing of the companies was 2.9x EBITDA (31 December 2019: 2.8x).

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

Coronavirus

The Coronavirus has created significant disruption around the world which, to varying degrees, has had an impact on each of the portfolio companies. Your Manager has representation on the Board of each portfolio company. Regular contact is maintained with the portfolio companies to monitor the impact of the coronavirus on trading and financial stability. Each portfolio company has developed a contingency plan to mitigate the impact of the coronavirus and the measures implemented have included: staff being placed on furlough, redundancies, re-negotiation of banking terms and payment holidays on HP contracts. The contingency plans will continue to evolve as the impact of the coronavirus becomes clearer

Brexit

Your Manager has a representative on the Board of each Dunedin managed portfolio company which meets regularly and continues to assess the impact of Brexit on their business, developing contingency plans to mitigate a variety of Brexit scenarios. These plans are kept under constant review as the outcome of Brexit negotiations evolve.

Dunedin LLP

21 September 2020

Ten Largest Investments

by value at 30 June 2020

Total return of ten largest investments

at 30 June 2020

*1 - dividends and capital

Top ten investments (held via funds and direct investments)

FRA

Percentage of equity held 5.2%

Cost of Investment £1.4m

Directors' valuation £12.3m

Percentage of net assets 15.7%

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, Helsinki and Stockholm. It also runs data centres near each office location as well as in Montreal and Zurich.

In January 2019 a refinancing of the business was undertaken with Dunedin Enterprise receiving proceeds of £1.8m. FRA was then refinanced for the second time in February 2020, returning a further £4m in proceeds.

GPS

Percentage of equity held 8.5%

Cost of Investment £7.7m

Directors' valuation £11.5m

Percentage of net assets 14.7%

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 100 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 and Australia. It has recently signed a strategic Partnership with Visa to provide fintech clients with payments technology in the Asia Pacific region.

Weldex

Percentage of equity held 15.1%

Cost of Investment £9.5m

Directors' valuation £8.3m

Percentage of net assets 10.6%

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.

RED

Percentage of equity held 20.1%

Cost of Investment £10.3m

Directors' valuation £7.9m

Percentage of net assets 10.1%

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.

Hawksford

Percentage of equity held 17.8%

Cost of Investment £6.7m

Directors' valuation £6.9m

Percentage of net assets 8.9%

Hawksford is a leading international provider of corporate, private client and funds services. The business offers a comprehensive range of services to, and solutions for, trusts, companies, foundations, partnerships, family offices and investment funds.

During 2018 Hawksford completed the acquisitions of P&P, a Hong Kong based trust business; and the corporate services division of audit and accountancy practice SH Landes. The P&P acquisition increased Hawksford's Asian presence, giving the company new representation in China and Japan, building on its existing presence in Singapore and Hong Kong. Hawksford's international clients now have access to a greater depth of services across Asia, while P&P clients are able to utilise Hawksford's wider services in other locations. As a result of the SH Landes acquisition, Hawksford can now provide specialist corporate services from its central London offices.

To date Hawksford has completed six major acquisitions in Jersey, the Middle East and the Far East and further extended the company's global reach in the Far East by opening an office in Hong Kong in 2015. These acquisitions have further enhanced Hawksford's market leading position through additional high-quality people and clients. The focus of the business remains on providing excellent service and increasing client choice by growing the international footprint.

Refinancing undertaken in August 2020 which is subject to regulatory approval.

Realza Capital

Percentage of equity held 8.9%

Cost of Investment £4.3m

Directors' valuation £4.7m

Percentage of net assets 6.0%

Realza Capital

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.

U-POL

Percentage of equity held 5.0%

Cost of Investment £5.7m

Directors' valuation £4.4m

Percentage of net assets 5.7%

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.

Premier Hytemp

Percentage of equity held 23.0%

Cost of Investment £10.1m

Directors' valuation £3.0m

Percentage of net assets 3.8%

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 revenues, often sub-sea.

As a result of the oil and gas downturn Premier has diversified into some other markets including Nuclear, Marine and Aerospace.

Premier Hytemp is headquartered in Edinburgh with manufacturing facilities in Edinburgh, Singapore and Malaysia

Incremental

Percentage of equity held 8.2%

Cost of Investment £3.0m

Directors' valuation £2.0m

Percentage of net assets 2.5%

Incremental is a market-leading, UK-focused IT services business which helps its clients to design, implement and manage their IT infrastructure needs, including ERP, CRM, cyber security and digital applications. Incremental's mission is to enable government and industry to digitally transform their businesses, one step at a time. Incremental has three main delivery sites in Glasgow, Inverurie and Northwich supported by sales offices in London 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.

EV

Percentage of equity held 10.6%

Cost of Investment £8.3m

Directors' valuation £1.1m

Percentage of net assets 1.4%

EV is the global market leader in high definition visualisation technology for the oil and gas industry, producing cameras and other 'big data' sensors for diagnosing and analysing problems in oil and gas wells. In April 2016, EV acquired Epidote, a software company specialising in presenting and analysing oil and gas well integrity data. This move has enabled EV to diagnose problems in oil and gas wells faster and more effectively. The acquisition has allowed EV to enhance its technological offer, with the aim of reducing costs and improving results for its clients.

Based in Aberdeen, Houston and Norwich, EV continues to expand, and currently serves blue-chip clients in more than 35 countries across Europe, Canada, the USA, West Africa, the Middle East, Asia and Australasia. With a significant technological competitive edge, the company operates in a predominantly untapped global market, where there is opportunity to broaden its products and services.

Overview of Portfolio

Fund Analysis

Dunedin Buyout Fund II 53%

Dunedin Buyout Fund III 36%

Equity Harvest Fund (Dunedin managed) 3%

Realza 8%

Geographic Location

UK 92%

Rest of Europe 8%

Valuation Method

Earnings - provision 25%

Earnings - uplift 27%

Revenue - uplift 18%

Assets basis 19%

Exit value 11%

Sector Analysis

Automotive 4%

Consumer products & services 3%

Financial services 30%

Industrials 14%

Support services 49%

Year of Investment

1-3 years 21%

3-5 years 20%

>5 years 59%

Statement of Comprehensive Income

for the six months ended 30 June 2020

The Total column of this statement represents the Income Statement of the Company, 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 income is attributable to the equity shareholders of Dunedin Enterprise Investment Trust PLC.

Statement of Changes in Equity

for the six months ended 30 June 2020

Six months ended 30 June 2020 (unaudited)

Six months ended 30 June 2019 (unaudited)

Year ended 31 December 2019 (audited)

* - see note 8Balance Sheet

As at 30 June 2019

* - see note 8Cash Flow Statement

for the six months ended 30 June 2020

Statement of Principal Risks and Uncertainties

The Directors have an ongoing process for identifying, evaluating and managing principal risks, emerging risks and uncertainties of the Company. The principal risks faced by the Company related to the Company's investment activities and these are set out below: -

· Coronavirus

· Brexit

· investment and liquidity risk

· portfolio concentration risk

· financial risk

· economic risk

· credit risk

· currency risk

· internal control risk

Information on each of these risks, and an explanation of how they are managed, is on page 25 of the Company's Annual Report for the year ended 31 December 2019.

The Company's principal risks, emerging risks and uncertainties have not changed materially since the date of the Annual Report and are not expected to change materially for the remaining six months of the Company's financial year.

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' and give a true and fair view of the assets, liabilities, financial position and profit of the Company;

- the Chairman's Statement and Manger's Review (together constituting the Interim Management Report) include a fair review of the information required by the Disclosure and Transparency Rules ('DTR') 4.2.7R, being an indication of the important events that have occurred during the first six months of the financial year and their impact on the financial statements;

- the Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and

- the condensed set of financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board,

Duncan Budge

Chairman

21 September 2020Notes to the Accounts

1. Unaudited Interim Report

The comparative financial information contained in this report for the year ended 31 December 2019 does not constitute the Company's statutory accounts but is derived from those accounts. Statutory accounts for the year ended 31 December 2019 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 2019 and 30 June 2020 have not been audited.

2. Basis of Preparation

These condensed set of financial statements for the six months ended 30 June 2019 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (FCA) and IAS 34 'Interim Financial Reporting'. They do not include all the information required by International Financial Reporting Standards (IFRS) in full annual financial statements and should be read in conjunction with the Annual Report and Accounts for the year ended 31 December 2019.

In May 2016 shareholders approved a change in the investment policy of the Company. The Company's new investment objective is to conduct an orderly realisation of its relatively illiquid assets, to be effected in a manner that seeks to achieve a balance between maximising the value of its assets and progressively returning cash to shareholders. As it is likely this process, which is expected to have a duration of several years, will ultimately lead to the liquidation of the Company, these financial statements have not been prepared on a going concern basis. No adjustments were necessary to the investment valuations or other assets and liabilities included in the financial statement as a consequence of the change in the basis of preparation.

.

3. Income

4. Dividends

5. Investments

All investments are designated fair value through profit or loss at initial recognition, therefore all gains and losses that arise on investments are 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 Company 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 Company 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 2020.

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 2020 are set out below:-

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 2019 are set out below:-

Details of the determination of Level 3 fair value measurements and the movements in Level 3 fair values during the year ended 31 December 2019 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.

6. 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.

7. Related party transactions

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

8. Restatement

An accounting prior year adjustment has been made, which impacts the years ending 31 December 2017 to 31 December 2019. The Circular issued to shareholders in April 2017 stated that the intention was for B shares to be paid up for "new consideration", and the restatement is to correct the accounting entries that should have been made to reflect this. The restatement has no impact on the net asset value of the Company in any of the periods covered by the adjustment. The impact of the restatement is shown in the table below.

ENDS