TIDMIII
RNS Number : 6442W
3i Group PLC
16 November 2017
16 November 2017
3i Group plc announces half-year results
to 30 September 2017
Another good first half performance
-- Continued progression in NAV per share to 652 pence (31 March
2017: 604 pence), after payment of the 18.5 pence FY2017 final
dividend, and a total return of GBP655 million or 11% of opening
shareholders' funds
-- Private Equity performed well, with strong performances from
Action, Scandlines, ATESTEO, Audley Travel, Basic-Fit, Q Holding
and Aspen Pumps contributing to its gross investment return of
GBP715 million
-- Completed four new Private Equity investments totalling
GBP514 million in Hans Anders, Formel D, Lampenwelt and Cirtec
Medical
-- Significant growth of the third-party Infrastructure fund
management business, including the addition of GBP830 million of
assets under management in two new European infrastructure
funds
-- Announced our first North American infrastructure investment, Smarte Carte
-- Strong balance sheet supported the increase in investment
activity, resulting in net debt of GBP48 million at 30 September
2017. Good pipeline of investments and realisations in progress,
which are expected to complete in the second half
-- Interim dividend of 8.0 pence in line with our dividend policy
Simon Borrows, 3i's Chief Executive, commented:
"This was another good half for 3i. We used our strong balance
sheet to invest in some attractive and well-priced businesses in
Private Equity and added GBP830 million of assets under management
in Infrastructure. Our Private Equity portfolio has been
transformed over recent years and is on track to deliver another
year of strong growth."
Summary financial highlights under the Investment basis
3i prepares its statutory financial statements in accordance
with International Financial Reporting Standards as adopted by the
European Union ("IFRS"). However, we continue to report using a
non-GAAP "Investment basis" as we believe it aids users of our
report to assess the Group's underlying operating performance. The
investment basis (which is unaudited) is an alternative performance
measure ("APM") and is described at the end of the Financial
review. Total return and net assets are the same under the
Investment basis and IFRS and we provide a reconciliation of our
Investment basis financial statements to the IFRS statements in the
"Reconciliation of the Investment basis to IFRS" section.
Six months to/as Six months to/as 12 months to/as
at 30 September at 30 September at 31 March
Investment basis 2017 2016(1) 2017
================================================ ================= ================= ================
Total return(2) GBP655m GBP1,006m GBP1,592m
% return on opening shareholders' funds(2) 11% 23% 36%
Dividend per ordinary share 8.0p 8.0p 26.5p
================================================ ================= ================= ================
Proprietary capital return
Realisation proceeds GBP374m GBP666m GBP1,005m
Uplift over opening book value(3) GBP53m/20% GBP51m/9% GBP38m/5%
Money multiple(4) 2.7x 2.3x 3.6x
Gross investment return GBP746m GBP1,109m GBP1,755m
As a percentage of opening 3i portfolio value 13% 25% 40%
Proprietary capital balance sheet
Cash investment GBP572m GBP430m GBP638m
3i portfolio value GBP6,584m GBP5,207m GBP5,675m
Gross debt GBP575m GBP844m GBP575m
Net (debt)/cash GBP(48)m GBP187m GBP419m
Liquidity GBP877m GBP1,360m GBP1,323m
Diluted net asset value per ordinary share 652p 551p 604p
================================================ ================= ================= ================
1 The sale of our Debt Management business completed on 3 March 2017. The FY2017 total return
attributed to the business sold to Investcorp was classified as discontinued operations and
the results for the six months to/as at 30 September 2016 have been re-presented. Unless stated,
all balances are on continuing operations.
2 Total return and % return on opening shareholders' funds include discontinued operations.
3 Uplift over opening book value excludes refinancings.
4 Cash proceeds over cash invested. For partial realisations, the valuation of any remaining
investment is included in the multiple.
Disclaimer
These half-year results have been prepared solely to provide information to shareholders.
They should not be relied on by any other party or for any other purpose. These half-year
results may contain statements about the future, including certain statements about the future
outlook for 3i Group plc and its subsidiaries ("3i" or "Group"). These are not guarantees
of future performance and will not be updated. Although we believe our expectations are based
on reasonable assumptions, any statements about the future outlook may be influenced by factors
that could cause actual outcomes and results to be materially different.
Enquiries:
Silvia Santoro, Investor Relations Director 020 7975 3258
Kathryn Van Der Kroft, Communications Director 020 7975 3021
A PDF copy of this release can be downloaded from www.3i.com/investor-relations
For further information, including a live videocast of the results presentation at 10.00am
on 16 November 2017, please visit www.3i.com
Half-year report
Chief Executive's review
Introduction
This was another good half for 3i. Both our divisions have made
progress with Private Equity investing in a number of attractive
businesses and Infrastructure raising two third-party funds.
The total return in the first half was GBP655 million (September
2016: GBP1,006 million), or 11% on opening shareholders' funds, and
NAV per share increased to 652 pence (31 March 2017: 604 pence),
after the payment of the FY2017 final dividend of 18.5 pence. Our
Private Equity portfolio delivered good earnings growth and a gross
investment return of GBP715 million (September 2016: GBP989
million). 3i Infrastructure plc's ("3iN") share price increased to
194 pence (31 March 2017: 189 pence), which, together with dividend
and advisory fee income, underpinned a good contribution from our
Infrastructure business. We saw a material uplift in investment
activity in Private Equity, completing four new investments, added
GBP830 million of assets under management to our two new European
infrastructure funds and announced our first North American
infrastructure investment.
Continued strong progress in Private Equity
3i's Private Equity portfolio has been transformed in recent
years and its international investments, particularly in northern
Europe and North America, now account for c.90% of the total by
value.
Action has been a stand out contributor to 3i's results for the
last few years and it is an exceptional investment. After six years
under 3i's management, Action's revenue continues to grow at sector
leading levels. The opportunity for further significant growth is
considerable and the Action team has embarked on a strategic
initiative to put in place an organisation capable of handling over
2,700 stores and EUR10 billion of turnover per annum. This
initiative encompasses continued rapid expansion of both its store
and distribution network while further strengthening country
management and essential backbone structures across all key
functions. In the current year alone, Action has opened two new
distribution centres in France and Germany as well as making
further investment in the Moissy distribution centre in south east
Paris that opened last year. This major initiative will weigh on
margin development at Action in the near term but should facilitate
material scale benefits in due course.
The compounding benefit of Action's strong growth means that we
are now valuing our holding at over GBP2.0 billion (31 March 2017:
GBP1.7 billion) despite not changing the earnings multiple that we
use in our valuation. The valuation for this half includes 111 new
stores. Action opened its 1,000(th) store in October and plans to
have opened in excess of 230 stores by the end of this calendar
year. Action's 2017 operating performance, together with this
further material step up in its store opening programme, is on
track to deliver another significant value increase for 3i this
financial year.
But the 3i story is not only about Action. Since 2012, we have
invested c.GBP2 billion in an attractive portfolio of Private
Equity investments, four of which we presented at our Private
Equity capital markets seminar in September 2017. This portfolio is
well positioned to benefit from secular global trends in automation
and electrification (automotive), outsourcing (medical devices and
B2B service providers) and value for money retail. We are
continuing to see the benefits of our sector and geographic focus
as it provides demonstrable competitive advantage in the
origination of new and further investment.
In the first six months of the year, we invested GBP514 million
in four companies: Hans Anders, Lampenwelt, Formel D and Cirtec
Medical. Where possible, our aim is to avoid highly competitive
auction processes. Instead, we actively seek out companies within
our target markets and sectors and build relationships with
management long before any auction process starts. This was very
effective, for example, in sourcing our investments in Ponroy Santé
("Ponroy") and Lampenwelt. These recent investments are in highly
rated sectors, reflecting their significant growth potential, and
they complement the portfolio that we have built since 2012.
International growth and bolt-on and strategic M&A are
essential features of our investment strategy and key to delivering
at least our 2x cash return objective. Recent acquisitions in our
portfolio ranged from smaller strategic add-ons, such as ATESTEO's
acquisition of Straesser, to transformative acquisitions, such as Q
Holding's purchase of Degania. In many cases, the portfolio company
is able to fund these acquisitions without the need for further 3i
capital. Over the last six months, for example, Aspen Pumps
completed two strategically important acquisitions using its own
cash flow.
Ponroy has the opportunity to participate in the strong growth
and consolidation of the highly fragmented consumer healthcare
sector. In September 2017, we announced Ponroy's first acquisition,
ERSA Group ("Aragan"), a designer and distributor of premium
pharmaceutical food supplements. This acquisition will strengthen
Ponroy's presence in the pharmacy channel, which represents more
than half of the food supplement market in France. In addition,
Ponroy's existing international subsidiaries and distributors
should provide an additional growth channel for Aragan.
Technology advances and globalisation are having a greater and
greater impact on every commercial sector and we remain very
focused on buying companies that can thrive in this fast-changing
environment.
Enhancing our infrastructure platform
We have two broad priorities in Infrastructure. First, we are
focused on our advisory relationship with 3iN and the active
management of its portfolio. Second, we have also launched
complementary fund management initiatives in Europe and North
America in order to build fund management profit for the Group.
After last year's exceptional level of investment activity in
3iN, our main priority this year is to ensure first class asset
management for those recent investments. Although the pipeline for
further investment is good, our experience in Europe over the last
few months is one of extremely competitive processes completed by
both new and existing infrastructure investors in very short time
frames. In such an environment, maintaining a selective and
disciplined approach is critical.
Outside of 3iN, the Infrastructure team had a busy first half of
fund launches. We closed two new European infrastructure funds and
established a number of good relationships with important
investors. In March 2017, we launched our North American
infrastructure investment platform to complement and extend 3i's
European presence. In October 2017, we announced our first US
infrastructure investment in Smarte Carte, a leading concessionaire
of essential infrastructure equipment, which we have funded from
our own balance sheet. Although our US team has only been with us
for a short while, it has already identified an interesting
pipeline of potential new opportunities. These infrastructure
initiatives will provide an important contribution to operating
cash profit in due course.
Balance sheet and dividend
A consequence of this half's step up in investment is that we
closed the half year with net debt of GBP48 million (31 March 2017:
net cash of GBP419 million). In addition to the investment in
Smarte Carte (which is expected to complete before our financial
year end), we have a number of acquisitions for our Private Equity
portfolio in the pipeline. However, we expect the second half to be
different from the six months to September, with higher realisation
and refinancing proceeds and lower levels of investment across the
Group.
In line with our dividend policy, we have decided to pay an
interim dividend of 8.0 pence, which is half of our 16.0 pence base
dividend. This interim dividend will be paid to investors on 10
January 2018.
Outlook
This was another good half for 3i and these results are a
further demonstration that 3i's strategy is capable of delivering
consistently good returns. We used our strong balance sheet to
invest in some attractive and well-priced businesses in Private
Equity and added GBP830 million of assets under management in
Infrastructure. Our Private Equity portfolio has been transformed
over recent years and is on track to deliver another year of strong
growth.
Simon Borrows
Chief Executive
Business review
Private Equity
Private Equity continued to perform strongly, with good
performance from Action, Scandlines, Q Holding, ATESTEO, Audley
Travel and Aspen Pumps contributing to unrealised value growth of
GBP517 million (September 2016: GBP643 million). In addition, we
completed a number of realisations, such as Mémora and MKM, and
made four new investments. The ongoing weakness in sterling against
the euro in particular contributed to GBP84 million of foreign
exchange gains (September 2016: GBP268 million) and, in total, we
generated a gross investment return of GBP715 million, or 15% on
the opening portfolio (September 2016: GBP989 million or 26%) in
the first half.
Investment activity
We had a very busy start to FY2018 and invested GBP514 million
in four companies: two disruptive European retailers; a B2B German
service business focused on the automotive sector; and a US
manufacturer of medical devices. In May 2017 we closed a GBP104
million investment in Lampenwelt, the largest European online
specialist retailer in the lighting space, as well as a GBP172
million investment in Hans Anders, a value for money optical
retailer based in the Benelux. In July 2017 we invested GBP135
million in Formel D, a global service provider to the automotive
and component supply industry based in Germany and brought in CITIC
Capital as a co-investor to facilitate Formel D's expansion in
China. Finally, in August 2017 we closed a GBP103 million
investment in Cirtec Medical, a leading provider of outsourced
medical device design, engineering and manufacturing, headquartered
in North America.
Table 1: Private Equity cash investment in the six months to 30
September 2017
Proprietary
Total capital
investment investment
Investment Type Business description Date GBPm GBPm
================ =============== ========================================= ============= =========== ============
Lampenwelt New Online lighting specialist retailer May 2017 105 104
Hans Anders New Value for money optical retailer May 2017 173 172
Quality assurance service provider for
Formel D New the automotive industry July 2017 153 135
Cirtec Medical New Outsourced medical device manufacturing August 2017 103 103
Distributor of consumable medical
OneMed Further (M&A) products, devices and technology May 2017 6 3
BoConcept Over-funding Urban living brand July 2017 (11) (11)
================ =============== ========================================= ============= =========== ============
Total Private Equity investment 529 506
============================================================================ ============= =========== ============
Realisations activity
As market conditions remained favourable, we completed the sale
of some of our older investments, such as Mémora, MKM and Óticas
Carol, our last remaining investment in Brazil. The sale of Mémora,
the Iberian funeral services provider, generated proceeds of GBP119
million and a 1.4x money multiple, which was a good result from
this 2008 investment. We also took advantage of supportive equity
markets to sell our quoted holding in Dphone and a portion of our
stake in Refresco Gerber.
Where appropriate, we will refinance our strongest assets when
market conditions and trading performance allow. In July 2017,
Scandlines completed a EUR1 billion refinancing, which resulted in
GBP50 million of proceeds for 3i.
In total, we generated proceeds of GBP350 million (September
2016: GBP654 million). Realised profits of GBP53 million
represented an uplift over opening value, excluding refinancings,
of 21% (September 2016: GBP52 million and 9%). At 30 September
2017, the portfolio included 37 assets and two quoted stakes (31
March 2017: 37 assets and three quoted stakes).
Table 2: Private Equity realisations in the six months to 30
September 2017
31 March 3i Profit/(loss) Uplift Money
on
Calendar 2017 realised in the opening Residual multiple
Country/ year value(1) proceeds period(2) value(2) Value over
Investment region invested GBPm GBPm GBPm GBPm cost(3) IRR
--------------- ---------- ----------- --------- --------- -------------- --------- --------- --------- ------
Full realisations
Mémora Spain 2008 86 119 32 37% -- 1.4x 4%
MKM UK 2006 68 70 2 3% -- 5.9x 19%
Óticas
Carol Brazil 2013 19 27 9 50% -- 1.9x 15%
Dphone Hong Kong 2006 21 26 6 30% -- 2.2x 7%
Foster and
Partners UK 2007 34 33 (1) (3)% -- 1.8x 9%
Partial realisations(1,) (3)
Refresco
Gerber Benelux 2010 14 16 2 14% 23 2.0x 12%
Other n/a n/a 3 5 -- n/a 34 n/a n/a
Refinancings
Denmark/ 2007/
Scandlines(4) Germany 2013 50 50 -- -- n/a n/a n/a
Deferred consideration
Other n/a n/a -- 4 3 n/a -- n/a n/a
=============== ========== =========== ========= ========= ============== ========= ========= ========= ======
Total Private Equity
realisations 295 350 53 18% 57 2.7x n/a
=========================== =========== ========= ========= ============== ========= ========= ========= ======
1 For partial realisations, 31 March 2017 value represents the opening
value of the stake disposed.
2 Cash proceeds in the period over opening value realised.
3 Cash proceeds over cash invested. For partial realisations, the valuation
of any remaining investment is included in the multiple.
4 Scandlines' residual value, money multiple and IRR have been excluded
for commercial reasons.
Portfolio performance
The portfolio performed strongly in the first half and generated
unrealised value growth of GBP517 million (September 2016: GBP643
million).
Table 3: Unrealised profits on the revaluation of Private Equity
investments(1)
in the six months to 30 September
2017 2016
GBPm GBPm
------------------------------------------ ----- -----
Earnings based valuations
Performance 283 282
Multiple movements 59 300
Other bases
Other movements in unquoted investments 145 5
Quoted portfolio 30 56
========================================= ===== =====
Total 517 643
========================================== ===== =====
1 More information on our valuation methodology, including definitions
and rationale, is included in our Annual report and accounts 2017 on
pages 158 to 159.
Performance
The strong performance of investments valued on an earnings
basis resulted in an increase in value of GBP283 million (September
2016: GBP282 million). The largest contributor to the increase was
Action. At 30 September 2017, Action was valued using run-rate
earnings to 10 September 2017, the closest period end to 3i's. As
at 30 September 2017, Action's post discount run-rate multiple was
unchanged at 16.0x and the resulting valuation was GBP2,009 million
(31 March 2017: GBP1,708 million) representing 35% of the Private
Equity portfolio value at 30 September 2017 (31 March 2017:
35%).
We continue to see good earnings growth in investments made post
the 2012 review. Over the last five years, we have built a
portfolio of attractive, mid-market companies in our target sectors
with good potential for organic and inorganic growth. Q Holding is
a manufacturer of highly engineered critical components and
finished devices for the automotive and medical device sectors.
Following its transformational acquisition of Degania in December
2016, Q Holding has increased its scale and global footprint
materially to create a combined business with a greater focus on
healthcare. In addition, the underlying automotive business is
performing well and, as a result, Q Holding's revenue has doubled
under our ownership to date.
ATESTEO continued to perform well over the period as it
delivered a number of growth initiatives and improvements to its
systems and processes, leading to operational and financial
out-performance. It is now a world leader in global testing and
inspection with a clear competitive advantage in lab-based testing.
In addition, in September 2017 ATESTEO completed its acquisition of
Straesser, a leading player in road testing and vehicle
test-driving services.
A number of our older investments are benefiting from improved
macro-economic trends in their markets. AES Engineering is a
leading UK-based manufacturer of mechanical seals. AES exports its
niche and highly specialised products globally and is experiencing
strong demand for its seals and support systems, as well as from
customers extending the life of their plants rather than building
new ones.
Overall, 91% of the top 20 assets by value in our portfolio grew
their earnings in the period (September 2016: 87%). We continue to
see some portfolio company specific weakness. Schlemmer experienced
operational challenges in its US business which affected project
delivery and hence earnings growth in the first six months of the
year. Earnings remain subdued for those assets exposed to the oil
and gas after-market (JMJ and Dynatect) and to weaker consumer
sentiment (Christ). In total, three investments were valued using
forecast earnings at 30 September 2017 (31 March 2017: one),
representing 3% of the Private Equity portfolio by value (31 March
2017: 2%).
Table 4: Portfolio earnings growth of the top 20 Private Equity
assets(1)
3i carrying value
at 30 September 2017
Last 12 months' (LTM) earnings growth Number of companies GBPm
====================================== ==================== =====================
<0% 4 455
0 - 9% 7 1,483
10 - 19% 3 485
20 - 29% 3 2,336
>30% 3 529
====================================== ==================== =====================
1 This represents 93% of the Private Equity portfolio by value (31 March 2017: 91%). This excludes
ACR because earnings are not its relevant measure.
Net debt across the portfolio increased to 3.5x EBITDA (31 March
2017: 3.3x) principally due to the refinancing of Scandlines in
July 2017. Table 5 shows the ratio of net debt to EBITDA by
portfolio value at 30 September 2017.
Table 5: Ratio of net debt to EBITDA(1)
3i carrying value
at 30 September 2017
Ratio of net debt to EBITDA Number of companies GBPm
============================ ==================== =====================
<1x 2 94
1 - 2x 4 391
2 - 3x 4 573
3 - 4x 6 2,680
4 - 5x 7 1,266
---------------------------- -------------------- ---------------------
1 This represents 88% of the Private Equity portfolio by value (31 March
2017: 87%). Quoted holdings and companies with net cash are now excluded
from the calculation.
Multiple movements
The increase in value of GBP59 million due to multiples
(September 2016: GBP300 million increase) reflected a modest
re-rating of a small number of our investments where their recent
performance justified a review. The prior period increase included
the effect of a re-rating of Action in June 2016. We consider a
number of factors such as relative performance, investment size,
comparable recent transactions and exit plans when setting
valuation multiples. Consistent with this, we selected multiples
that were lower than the comparable set in 15 out of the 24
companies (31 March 2017: 14 out of 22) valued on an earnings
basis, taking into account the current strength of equity
markets.
The run-rate multiple used to value Action remained unchanged at
16.0x post liquidity discount at 30 September 2017 (31 March 2017:
16.0x). Excluding Action, the weighted average EBITDA multiple
increased to 11.5x before liquidity discount (31 March 2017: 10.6x)
and was 10.8x after liquidity discount (31 March 2017: 9.9x). The
increase in the weighted average multiple reflects the recent
investment in companies in higher rated sectors, such as Cirtec and
Lampenwelt, and the sale of assets held at lower multiples.
The pre-discount multiples used to value the portfolio ranged
between 3.5x and 16.8x (31 March 2017: 5.0x to 16.8x) and the post
discount multiples ranged between 3.4x and 16.0x (31 March 2017:
4.8x to 16.0x).
Other movements in unquoted investments
Other includes the valuation increase on assets valued on a
discounted cash flow basis and those valued on industry metrics
such as price to book.
Quoted portfolio
The Private Equity quoted portfolio generated an unrealised
value gain of GBP30 million (September 2016: GBP56 million gain).
The gain was principally due to Basic-Fit, whose share price
increased to EUR18.70 at 30 September 2017 (31 March 2017:
EUR16.27) following the announcement of strong interim results,
which highlighted its continued growth in clubs and revenue and a
confident outlook for the remainder of its financial year.
Table 6: Quoted portfolio movements for the six months to 30
September 2017
Opening Closing
value Disposals Unrealised value at
at 1 April at opening value Other 30 September
2017 book value movement movements(1) 2017
Investment IPO date GBPm GBPm GBPm GBPm GBPm
================= ============= =========== =========== =========== ============= =============
Dphone July 2014 21 (21) -- -- --
Refresco Gerber March 2015 32 (14) 2 3 23
Basic-Fit June 2016 184 -- 28 6 218
================= ============= =========== =========== =========== ============= =============
237 (35) 30 9 241
================================ =========== =========== =========== ============= =============
1 Other movements include foreign exchange.
Table 7: Private Equity assets by geography
3i carrying value
at 30 September 2017
3i office location Number of companies GBPm
==================== ==================== =====================
Benelux 6 2,683
France 2 190
Germany 7 1,539
UK 6 588
US 4 422
Other 14 270
-------------------- -------------------- ---------------------
Total 39 5,692
==================== ==================== =====================
Assets under management
Consistent with the increase in our proprietary capital
valuations, the value of Eurofund V ("EFV") increased in the period
and the Fund had a gross fund money multiple at 30 September 2017
of 2.3x (31 March 2017: 2.2x).
Investments made since the 2012 strategic review, including the
further investment in Scandlines, are making good progress. The
investments made between 2013 and 2016 had a sterling multiple of
1.9x at 30 September 2017 (31 March 2017: 1.7x).
The value of 3i's Proprietary Capital increased to GBP5.7
billion in the period (31 March 2017: GBP4.8 billion). The value of
the portfolio including third-party capital increased to EUR9.1
billion (31 March 2017: EUR8.1 billion).
Infrastructure
Infrastructure generated a gross investment return of GBP32
million or 5% on the opening portfolio (September 2016: GBP90
million, 17%) principally from the Group's 34% holding in 3iN. The
3iN share price increased by 3% in the period to close at 194 pence
on 30 September 2017 (31 March 2017: 189 pence). Overall, we
recognised GBP19 million of unrealised value growth on our 3iN
investment and GBP13 million of dividend income (September 2016:
GBP80 million of unrealised value growth and GBP10 million of
dividend income).
Investment adviser to 3iN
The 3iN portfolio continued to perform well and 3iN generated a
total return on opening NAV of 7% in the period (September 2016:
5%), ahead of its stated target total return of between 8 and 10%
to be delivered over the medium term.
In the first half, the team focused on managing the 3iN
portfolio actively and embedding the six investments made in
FY2017. Although the team is reviewing a good number of new
investment opportunities, there is very strong demand for
infrastructure assets from both existing competitors and new
entrants into the sector. As a result, the team remains disciplined
on price and focused on maintaining a balanced and carefully
selected portfolio for 3iN.
Under the terms of the investment advisory agreement, 3iN paid
an advisory fee of GBP13 million to 3i (September 2016: GBP11
million) with the increase attributable to new investment activity
in FY2017.
Table 8: Unrealised profits/(losses) on the revaluation of
Infrastructure investments(1)
in the six months to 30 September
2017 2016
---------------------- ----- -----
GBPm GBPm
====================== ===== =====
Quoted 19 80
Other (includes DCF) 3 (4)
====================== ===== =====
Total 22 76
====================== ===== =====
1 More information on our valuation methodology, including definitions and rationale, is included
in our Annual report and accounts 2017 on pages 158 to 159.
Fund management
We launched several initiatives in the first half to complement
our 3iN mandate and generate increased cash income for 3i in the
medium term. In June 2017, we closed the c.GBP700 million 3i
Managed Infrastructure Acquisitions LP and invested GBP30 million
into the fund alongside two pension funds, ATP and APG. The fund
holds investments in East Surrey Pipelines, Belfast City Airport,
HerAmbiente and a number of discrete PPP projects. In April 2017,
we announced the first close of the 3i European Operational
Projects Fund and raised EUR155 million, including a EUR40 million
commitment from 3i. 3i invested GBP13 million in this fund in July
2017 to enable it to purchase the majority of the PPP assets held
by 3i's existing BEIF II fund. In October 2017, we announced the
first acquisition by our US infrastructure team in Smarte Carte,
the leading provider of self-service luggage carts, electronic
lockers, commercial strollers and massage chairs at more than 2,500
locations worldwide.
Assets under management and advisory agreement
Infrastructure AUM increased to GBP3.6 billion (31 March 2017:
GBP2.9 billion) principally due to the new fund management
initiatives launched in the period, as well as to 3iN's share price
increase.
Table 9: Assets under management and advisory agreement
Fund Close date Fund size 3i Remaining 3i % invested at AUM Fee income
commitment commitment September earned in
/share the period
2017 GBPm GBPm
--------------------------- ------------ ---------- ----------- ------------- -------------- ------ -----------
3iN(1) Mar 07 n/a GBP670m n/a n/a 1,995 13
3i Managed Infrastructure
Acquisitions Fund Jun 17 GBP698m GBP35m GBP5m 64% 662 2
3i European Operational
Projects Fund(2) Apr 17 EUR155m EUR40m n/a 38% 52 --
BIIF May 08 GBP680m n/a n/a 90% 542 2
BEIF II Jul 06 GBP280m n/a n/a 97% 13 --
India Infrastructure Fund Mar 08 US$1,195m $250m $35m 73% 145 2
Other various various various n/a n/a 206 2
Total 3,615 21
----------------------------------------- ---------- ----------- ------------- -------------- ------ -----------
1 Value based on the share price at 30 September 2017.
2 Numbers based on the first close of the fund.
Financial review
Financial performance
3i delivered a gross investment return of GBP746 million
(September 2016: GBP1,109 million) driven by strong unrealised
value growth, especially from Action and Scandlines, and the
uplifts from the realisations of Mémora and Óticas Carol.
3i generated a total return of GBP655 million, or a profit on
opening shareholders' funds of 11%, in the first half (September
2016: GBP1,006 million including discontinued operations, or 23%).
As a result, the diluted NAV per share at 30 September 2017
increased to 652 pence (31 March 2017: 604 pence) after the payment
of the final FY2017 dividend of GBP178 million, or 18.5 pence per
share (September 2016: GBP154 million, 16.0 pence per share).
Table 10: Total return
Six months to Six months to 12 months to
30 September 30 September 31 March
2017 2016(1) 2017
Investment basis GBPm GBPm GBPm
===================================================================== ============== ============== =============
Realised profits over value on the disposal of investments 53 51 38
Unrealised profits on the revaluation of investments 539 731 1,342
Portfolio income
Dividends 22 24 50
Interest income from investment portfolio 49 19 50
Fees receivable 10 1 6
Foreign exchange on investments 73 283 269
===================================================================== ============== ============== =============
Gross investment return 746 1,109 1,755
Fees receivable from external funds 24 23 46
Operating expenses (58) (54) (117)
Interest income 1 1 2
Interest paid (18) (25) (49)
Foreign exchange movements (21) 9 28
Other income 1 8 10
===================================================================== ============== ============== =============
Operating profit before carried interest 675 1,071 1,675
Carried interest
Carried interest and performance fees receivable 64 203 279
Carried interest and performance fees payable (81) (302) (434)
==================================================================== ============== ============== =============
Operating profit from continuing operations 658 972 1,520
Income taxes - (2) 3
Re-measurements of defined benefit plans (3) (19) (22)
===================================================================== ============== ============== =============
Total comprehensive income: continuing operations
("Total return from continued operations") 655 951 1,501
===================================================================== ============== ============== =============
Total comprehensive income from discontinued operations, net of tax
("Total return from discontinued operations") -- 55 91
===================================================================== ============== ============== =============
Total comprehensive income ("Total return") 655 1,006 1,592
===================================================================== ============== ============== =============
Total return on opening shareholders' funds 11% 23% 36%
===================================================================== ============== ============== =============
1 Comparatives have been re-presented throughout the Financial review
to reflect the classification of the Group's Debt Management business
sold to Investcorp as discontinued operations and the residual Debt
Management investments as continuing operations at 30 September 2016.
Realised profits
We sold a number of assets from our older vintages and realised
profits on disposal of GBP53 million (September 2016: GBP51
million) and proceeds totalling GBP374 million (September 2016:
GBP666 million). Private Equity generated GBP350 million of the
proceeds and all of the profits on disposal. Group realisations,
excluding refinancings, were achieved at an uplift over opening
value of 20%, and reflect the sales of Mémora, Dphone and Óticas
Carol. MKM was valued at imminent sale at 31 March 2017 and
therefore substantially all of its uplift to sale was recognised in
FY2017.
Unrealised value movements
The unrealised value movement of GBP539 million (September 2016:
GBP731 million) was principally due to strong earnings growth in a
number of our Private Equity assets including Action, ATESTEO and Q
Holding. The unrealised value growth is lower than in the prior
period as those results included a re-rating of Action's valuation
in June 2016.
Table 11: Unrealised profits on revaluation of investments
for the six months to 30 September
2017 2016
GBPm GBPm
================ ===== =====
Private Equity 517 643
Infrastructure 22 76
Other -- 12
================ ===== =====
Total 539 731
================ ===== =====
Further information on the Private Equity and Infrastructure
valuations is included in the business line sections.
Portfolio income
Portfolio income increased to GBP81 million in the period
(September 2016: GBP44 million) principally as a result of an
increase in loan interest income receivable from five of the new
Private Equity investments completed in the last 12 months (12
months to September 2016: three new investments). The majority of
this interest income is non-cash. We recognised GBP10 million of
fee income (September 2016: GBP1 million) due to transaction fees
generated from our increased investment activity in the last six
months together with a reduction in abort costs incurred on
prospective transactions relative to the comparable period last
year. Dividend income was GBP22 million (September 2016: GBP24
million).
Operating expenses
Operating expenses increased by 7% to GBP58 million in the first
six months (September 2016: GBP54 million) principally due to a
planned increase in staff costs as we invest to support our
origination and asset management capability. Consistent with
guidance given at the full year results in May 2017, we continue to
expect that operating expenses for the year will be approximately
double the FY2017 second half costs of GBP63 million.
Operating cash loss
Table 12: Operating cash loss for the six months to 30
September
2017 2016
GBPm GBPm
======================================= ===== =====
Third-party capital fees 24 23
Cash portfolio fees 8 2
Cash portfolio dividends and interest 23 33
======================================= ===== =====
Cash income 55 58
Cash operating expenses (71) (65)
======================================= ===== =====
Operating cash loss (16) (7)
======================================= ===== =====
3i's cash expenses exceeded its cash income by GBP16 million in
the period (September 2016: GBP7 million). Cash income was GBP55
million (September 2016: GBP58 million) with the increase in
transaction fees offset by the reduction in cash interest received.
Cash operating expenses incurred during the period increased to
GBP71 million (September 2016: GBP65 million) principally due to
higher variable compensation costs.
Net interest payable
Gross interest payable decreased to GBP18 million (September
2016: GBP25 million), following repayment of the EUR331 million
bond in March 2017. Interest receivable was GBP1 million (September
2016: GBP1 million).
Carried interest and performance fees
We receive carried interest from third-party funds and pay a
portion to participants in our carry plans. We also pay carried
interest to participants in plans relating to our proprietary
capital invested.
Table 13: Carried interest and performance fees for the six
months to 30 September
Consolidated statement of comprehensive income 2017 2016
GBPm GBPm
================================================== ===== ======
Carried interest and performance fees receivable
Private Equity 64 203
================================================== ===== ======
Total 64 203
================================================== ===== ======
Carried interest and performance fees payable
Private Equity (81) (302)
================================================== ===== ======
Total (81) (302)
================================================== ===== ======
Net carried interest payable (17) (99)
================================================== ===== ======
The continued good performance of Action and Scandlines, the
largest investments in our Private Equity fund EFV, led to a
corresponding increase in carried interest receivable from EFV and
GBP63 million was recognised in the first six months (September
2016: GBP199 million). This is calculated assuming that the
portfolio was realised at the 30 September 2017 valuation. The
fund's gross multiple was 2.3x at 30 September 2017 (31 March 2017:
2.2x).
In Private Equity, we typically accrue carried interest payable
at between 10% and 15% of gross investment return. The majority of
assets by value are now held in schemes that would have met their
performance hurdles, assuming that the portfolio was realised at
the 30 September 2017 valuation. We accrued carried interest
payable of GBP81 million (September 2016: GBP302 million) for
Private Equity in the period, of which GBP29 million relates to the
team's share of carried interest receivable from EFV (September
2016: GBP153 million).
Carried interest is paid to participants when the performance
hurdles are passed in cash terms and then only when the cash
proceeds are actually received following a realisation, refinancing
event or other cash distribution. During the period, GBP21 million
was paid to participants in the Private Equity plans (September
2016: GBP61 million).
Overall, the effect of the income statement charge, the cash
payment as well as the currency translation meant that the balance
sheet carried interest and performance fees payable increased to
GBP766 million (31 March 2017: GBP685 million) and the receivable
increased to GBP436 million (31 March 2017: GBP366 million).
Table 14: Carried interest and performance fees
Consolidated statement of financial position 30 September 31 March
2017 2017
GBPm GBPm
================================================== ============= =========
Carried interest and performance fees receivable
Private Equity 434 359
Infrastructure -- 4
Other 2 3
================================================== ============= =========
Total 436 366
================================================== ============= =========
Carried interest and performance fees payable
Private Equity (736) (650)
Infrastructure (30) (35)
Total (766) (685)
================================================== ============= =========
Net foreign exchange movements
At 30 September 2017, 75% of the Group's assets were denominated
in euros or US dollars (31 March 2017: 71%). The Group recorded a
total net foreign exchange gain of GBP52 million during the period
(September 2016: GBP292 million gain) as sterling continued to
weaken against the euro due to the political and economic
uncertainty created by the UK's upcoming exit from the European
Union.
The Group is a long-term investor and does not hedge its foreign
currency denominated portfolio. Flows from currency realisations
are matched with currency investments where possible. We may use
short-term contracts, typically to hedge investments and
realisations between signing and completion.
The net foreign exchange gain also reflects the translation of
non-portfolio net assets, including non-sterling cash held at the
balance sheet date.
Table 15: Net assets and sensitivity by currency at 30 September
2017
Net 1% Net gain
assets sensitivity /(loss)
FX rate GBPm % GBPm GBPm
============== ======== ======= ==== ============ =========
Sterling n/a 1,326 21% n/a --
Euro 1.1344 3,968 63% 39 105
US dollar 1.3398 778 12% 8 (51)
Danish krone 8.4411 145 2% 1 4
Other n/a 103 2% n/a (6)
-------------- -------- ------- ---- ------------ ---------
Total 6,320 52
============== ======== ======= ==== ============ =========
Pension
The latest triennial valuation for the Group's UK defined
benefit scheme was completed on 25 September 2017, based on the
scheme's position at 30 June 2016. The outcome was an actuarial
deficit of GBP50 million but it was agreed that it was not
necessary for the Group to make any immediate contributions to the
plan, taking into account the volatile market conditions at the
valuation date (immediately after the UK EU referendum), and
improvements in market conditions and liability management actions
implemented since then. As part of this valuation, the Group has
agreed to pay up to GBP50 million to the scheme if its gearing
increases above 20%, gross debt above GBP1 billion, or net assets
fall below GBP2 billion. The scheme also benefits from a contingent
asset arrangement, details of which are provided in Note 9 of this
Half-year report and on page 131 of our Annual report and accounts
2017. If the gearing, gross debt or net asset limits noted are
reached, the Group may be required to increase the potential cover
provided by the contingent arrangement until the gearing, gross
debt or net assets improve.
On an IAS 19 basis, there was a GBP3 million re-measurement loss
on the Group's pension scheme during the period (September 2016:
GBP19 million loss) and the pension scheme remains in a surplus of
GBP120 million (31 March 2017: GBP121 million).
Tax
The Group's parent company is an approved investment trust
company for UK tax purposes, which provides it with a tax exemption
for capital profits. This ensures that shareholders do not suffer
double taxation of their investment returns. The majority of the
Group's returns are capital returns for tax purposes (realised
profits and fair value movements) and are therefore substantially
non-taxable. As a result, the Group's tax charge in the period was
nil (September 2016: GBP2 million tax charge).
Other assets
The balance of the Debt Management investments not sold to
Investcorp in March 2017 are detailed below. The value reduced in
the period principally due to sterling strengthening against the US
dollar. We invested GBP23 million into the Global Income Fund to
replace a loan facility, arranged by 3i prior to the disposal of
the business, which expired in the period. Separately, we redeemed
GBP23 million of our holding in the period and the majority of the
remaining investment since the period end.
Table 16: Debt Management investments
Consolidated statement Currency 31 March Investment Divestment Unrealised Other 30 September
of financial position 2017 value movements(1) 2017
GBPm GBPm GBPm GBPm GBPm GBPm
========================= ========== ========= =========== =========== =========== ============== =============
CLO equity retained EUR/US$ 50 -- -- -- (4) 46
Global Income Fund US$ 79 23 (23) -- (6) 73
Senior Loan Fund US$ 8 -- -- -- -- 8
Other EUR 1 -- (1) -- -- --
========================= ========== ========= =========== =========== =========== ============== =============
Total 138 23 (24) -- (10) 127
===================================== ========= =========== =========== =========== ============== =============
1 Other movements include foreign exchange.
Balance sheet
Table 17: Simplified consolidated balance sheet
30 September 2017 31 March 2017
GBPm GBPm
================================================== ================== ==============
Investment portfolio value 6,584 5,675
-------------------------------------------------- ------------------ --------------
Gross Debt (575) (575)
Cash 527 994
-------------------------------------------------- ------------------ --------------
Net (debt)/cash (48) 419
Carried interest and performance fees receivable 436 366
Carried interest and performance fees payable (766) (685)
Other net assets 114 61
================================================== ================== ==============
Net assets 6,320 5,836
================================================== ================== ==============
Gearing(1) 1% nil
-------------------------------------------------- ------------------ --------------
1 Gearing is net debt as a percentage of net assets.
Due to the increased level of investment activity in the first
half (GBP572 million) and to the payment of the FY2017 dividend of
GBP178 million, the Group had net debt of GBP48 million at 30
September 2017 (31 March 2017: net cash GBP419 million). The
investment portfolio value increased to GBP6,584 million at 30
September 2017 (31 March 2017: GBP5,675 million) as unrealised
value growth of GBP539 million and cash investment offset the book
value of realisations in the period. Further information on
investments and realisations is included in the Private Equity and
Infrastructure business reviews.
Liquidity
Liquidity reduced to GBP877 million at 30 September 2017 (31
March 2017: GBP1,323 million) and comprised cash and deposits of
GBP527 million (31 March 2017: GBP994 million) and undrawn
facilities of GBP350 million (31 March 2017: GBP329 million).
Gearing increased to 1% at 30 September 2017 (31 March 2017:
nil).
Alternative Performance Measures ("APMs")
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed APMs.
The APMs that we use may not be directly comparable with those used
by other companies. Our Investment basis is itself an APM.
The explanation of and rationale for the Investment basis and
its reconciliation to IFRS is provided at the beginning of the
"Reconciliation of the Investment basis to IFRS" section. The table
below defines our additional APMs and should be read in conjunction
with the Annual report and accounts 2017.
APM Purpose Calculation Reconciliation to
IFRS
======================= ========================= =========================== ==============================
Gross investment A measure of the It is calculated The equivalent balances
return as a percentage performance of our as the gross investment under IFRS and the
of opening portfolio proprietary investment return, as shown reconciliation to
value portfolio. For further in the Investment the Investment basis
information see basis Consolidated are shown in the
the Group KPIs in statement of comprehensive Reconciliation of
our Annual report income, as a % of the consolidated
and accounts 2017. the opening portfolio statement of comprehensive
value. income and the Reconciliation
of the consolidated
statement of financial
position respectively.
======================= ========================= =========================== ==============================
Cash realisations Cash proceeds from The cash received The equivalent balance
our investments from the disposal under IFRS and the
support our returns of investments in reconciliation to
to shareholders, the period as shown the Investment basis
as well as our ability in the Investment is shown in the
to make new investments. basis Consolidated Reconciliation of
For further information cash flow statement. the consolidated
see the Group KPIs cash flow statement.
in our Annual report
and accounts 2017.
======================= ========================= =========================== ==============================
Cash investment Making new investments The cash paid to The equivalent balance
with our proprietary acquire investments under IFRS and the
capital is the primary in the period as reconciliation to
driver of the Group's shown on the Investment the Investment basis
ability to deliver basis Consolidated is shown in the
attractive returns. cash flow statement. Reconciliation of
For further information the consolidated
see the Group KPIs cash flow statement.
in our Annual report
and accounts 2017.
======================= ========================= =========================== ==============================
Operating cash By covering, as The cash income The equivalent balance
profit/(loss) far as possible, from the portfolio under IFRS and the
the cash cost of (interest, dividends reconciliation to
running the business and fees) together the Investment basis
with cash income, with fees received is shown in the
we reduce the potential from external funds Reconciliation of
dilution of capital less cash operating the consolidated
returns. For further expenses as shown cash flow statement.
information see on the Investment
the Group KPIs in basis Consolidated
our Annual report cash flow statement.
and accounts 2017. The calculation
is shown in Table
12 of the Financial
review.
======================= ========================= =========================== ==============================
Net cash/(net debt) A measure of the Cash and cash equivalents The equivalent balance
financial risk in plus deposits less under IFRS and the
the Group's balance loans and borrowings reconciliation to
sheet. as shown on the the Investment basis
Investment basis is shown in the
Consolidated statement Reconciliation of
of financial position. the consolidated
statement of financial
position.
======================= ========================= =========================== ==============================
Gearing A measure of the Net debt (as defined The equivalent balance
financial risk in above) as a % of under IFRS and the
the Group's balance the Group's net reconciliation to
sheet. assets under the the Investment basis
Investment basis. is shown in the
It cannot be less Reconciliation of
than zero. the consolidated
statement of financial
position.
======================= ========================= =========================== ==============================
Principal risks and uncertainties
3i's risk appetite statement, approach to risk management and
governance structure are set out in the Risk section of the Annual
report and accounts 2017, which can be accessed on the Group's
website at www.3i.com.
The principal risks to the achievement of the Group's strategic
objectives for the remaining six months of its financial year are
unchanged from those reported on pages 50 to 53 of the Annual
report and accounts 2017 and summarised below. This is not a
comprehensive list of all potential risks and uncertainties faced
by the Group, but rather a summary of the risks which it currently
believes may have a significant impact on its performance and
future prospects.
External - Risks arising from external factors including
political, legal, regulatory, economic and competitor changes which
affect the Group's operations. There has been a significant amount
of uncertainty in the global economy over the last year and, more
recently, due to the negotiations on the UK's upcoming exit from
the EU. Although we cannot be immune to wider market conditions and
political instability, our well-funded balance sheet and portfolio
of international companies position us well as the wider
implications of the negotiations unfold. As a result, we do not
consider Brexit on its own to be a principal risk to the Group.
Investment - Risks in respect of specific asset investment
decisions, the subsequent performance of an investment or exposure
concentrations across business line portfolios.
Operational - Risks arising from inadequate or failed processes,
people and systems or from external factors affecting these. We
continue to review and improve our governance and controls to
protect our information and operational infrastructure.
The Half-year report provides an update on 3i's strategy and
business performance, as well as on market conditions, which is
relevant to the Group's overall risk profile and should be viewed
in the context of the Group's risk management framework and
principal risks as disclosed in the Annual report and accounts
2017.
Reconciliation of the Investment basis to IFRS
Background to Investment basis numbers used in the Half-year
report
The Group makes investments in portfolio companies directly,
held by 3i Group plc, and indirectly, held through intermediate
holding company and partnership structures ("investment entity
subsidiaries"). It also has other operational subsidiaries which
provide services and other activities such as employment,
regulatory activities, management and advice ("trading
subsidiaries"). The application of IFRS 10 requires us to fair
value a number of investment entity subsidiaries. This fair value
approach, applied at the investment entity subsidiary level,
effectively obscures the performance of our proprietary capital
investments and associated transactions occurring in the investment
entity subsidiaries. The financial effect of the underlying
portfolio companies and fee income, operating expenses and carried
interest transactions occurring in investment entity subsidiaries
are aggregated into a single value.
As a result we include a separate non-GAAP "Investment basis"
consolidated statement of comprehensive income, financial position
and cash flow to aid understanding of our results. The Investment
basis is an APM and the Chief Executive's review, Business review
and Financial review are also prepared using the Investment basis,
as we believe it provides a more understandable view of our
performance. Total return and net assets are equal under the
Investment basis and IFRS; the Investment basis is simply a "look
through" of IFRS 10 to present the underlying performance.
A more detailed explanation of the effect of IFRS 10 is provided
in the Annual report and accounts 2017 on page 38.
Reconciliation between Investment basis and IFRS
A detailed reconciliation from the Investment basis to IFRS
basis of the consolidated statement of comprehensive income,
consolidated statement of financial position and consolidated cash
flow statement is shown in the "Reconciliation of the Investment
basis to IFRS" section.
Reconciliation of consolidated statement of comprehensive
income
Six months to 30 September 2017 Six months to 30 September 2016
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis(5) adjustments(5) basis(5)
(unaudited) (unaudited)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
============================ ======= =========== ============ ============ =========== =============== ============
Realised profits over value
on the disposal of
investments 1,2 53 (40) 13 51 (44) 7
Unrealised profits
on the revaluation of
investments 1,2 539 (363) 176 731 (639) 92
Fair value movements
on investment entity
subsidiaries 1 - 396 396 - 671 671
Portfolio income
Dividends 1,2 22 (6) 16 24 (6) 18
Interest income from
investment portfolio 1,2 49 (39) 10 19 (17) 2
Fees receivable 1,2 10 1 11 1 3 4
Foreign exchange on
investments 1,4 73 (66) 7 283 (222) 61
============================= ====== =========== ============ ============ =========== =============== ============
Gross investment return 746 (117) 629 1,109 (254) 855
============================= ====== =========== ============ ============ =========== =============== ============
Fees receivable from
external funds 1,3 24 - 24 23 - 23
Operating expenses 1,3 (58) - (58) (54) 1 (53)
Interest income 1 - 1 1 - 1
Interest paid (18) - (18) (25) - (25)
Exchange movements 1,4 (21) 37 16 9 26 35
Income from investment
entity subsidiaries 1 - 11 11 - - -
Other income 1 - 1 8 - 8
============================= ====== =========== ============ ============ =========== =============== ============
Operating profit before
carried interest 675 (69) 606 1,071 (227) 844
============================= ====== =========== ============ ============ =========== =============== ============
Carried interest
Carried interest and
performance
fees receivable 1,3 64 - 64 203 2 205
Carried interest and
performance
fees payable 1,3 (81) 67 (14) (302) 228 (74)
====================== ====== =========== ============ ============ =========== =============== ============
Operating profit from
continuing operations 658 (2) 656 972 3 975
============================= ====== =========== ============ ============ =========== =============== ============
Income taxes 1,3 - 1 1 (2) - (2)
============================= ====== =========== ============ ============ =========== =============== ============
Profit for the period from
continuing operations 658 (1) 657 970 3 973
============================= ====== =========== ============ ============ =========== =============== ============
Profit for the period from
discontinued operations - - - 55 (5) 50
============================= ====== =========== ============ ============ =========== =============== ============
Profit for the period 658 (1) 657 1,025 (2) 1,023
============================= ====== =========== ============ ============ =========== =============== ============
Other comprehensive income/(expense)
that may be reclassified to the
income statement:
Exchange differences
on translation of
foreign operations 1,4 - 1 1 - (3) (3)
Other comprehensive expense
that will not be
reclassified to the income
statement:
Re-measurement of
defined
benefit plans (3) - (3) (19) - (19)
====================== ====== =========== ============ ============ =========== =============== ============
Other comprehensive expense
for the period from
continuing operations (3) 1 (2) (19) (3) (22)
============================= ====== =========== ============ ============ =========== =============== ============
Other comprehensive income
for the period from
discontinued operations - - - - 5 5
============================= ====== =========== ============ ============ =========== =============== ============
Total comprehensive income
for the period ("Total
return") 655 - 655 1,006 - 1,006
============================= ====== =========== ============ ============ =========== =============== ============
Notes:
1 Applying IFRS 10 to the consolidated statement of comprehensive income
consolidates the line items of a number of previously consolidated
subsidiaries into a single line item called fair value movements on
investment entity subsidiaries. In the Investment basis accounts we
have disaggregated these line items to analyse our total return as
if these investment entity subsidiaries were fully consolidated, consistent
with prior periods. The adjustments simply reclassify the consolidated
statement of comprehensive income of the Group, and the Total return
is equal under the Investment basis and the IFRS basis.
2 Realised profits, unrealised profits and portfolio income shown in
the IFRS accounts only relate to portfolio companies that are held
directly by 3i Group plc and not those portfolio companies that are
held through investment entity subsidiaries. Realised profits, unrealised
profits and portfolio income in relation to portfolio companies held
through investment entity subsidiaries are aggregated into the single
fair value movement on investment entity subsidiaries line. This is
the most significant reduction of information in our IFRS accounts.
3 Other items aggregated into the fair value movements on investment
entity subsidiaries line include fees receivable from external funds,
audit fees, custodian fees, bank charges, other general and administration
expenses, carried interest and tax.
4 On the Investment basis, the impact of the translation of foreign subsidiaries
is included within the line items foreign exchange on investments and
exchange movements rather than as a separate line item as required
under IFRS. On an IFRS basis, the revaluation of assets and liabilities
held by investment entity subsidiaries is reflected in the fair value
movements on investment entity subsidiaries rather than being reflected
as exchange movements.
5 Comparatives for the six months ended 30 September 2016 have been re-presented
to show the results of the retained Debt Management assets, previously
shown as discontinued operations, as continuing operations. See Note
11.
Reconciliation of consolidated statement of financial
position
As at 30 September 2017 As at 31 March 2017
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (audited)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
============================ ========= =========== ============ ============ =========== ============ ==========
Assets
Non-current assets
Investments
Quoted investments 1 911 (514) 397 893 (503) 390
Unquoted investments 1 5,673 (4,068) 1,605 4,782 (3,466) 1,316
Investments in investment entity
subsidiaries 1,3 - 4,156 4,156 - 3,483 3,483
================================= ==== =========== ============ ============ =========== ============ ==========
Investment portfolio 6,584 (426) 6,158 5,675 (486) 5,189
================================= ==== =========== ============ ============ =========== ============ ==========
Carried interest and performance
fees receivable 1 433 (5) 428 359 (5) 354
Other non-current assets 109 (58) 51 106 (56) 50
Intangible assets 13 - 13 - - -
Retirement benefit surplus 120 - 120 121 - 121
Property, plant and equipment 5 - 5 5 - 5
Total non-current assets 7,264 (489) 6,775 6,266 (547) 5,719
================================= ==== =========== ============ ============ =========== ============ ==========
Current assets
Carried interest and performance
fees receivable 1 3 - 3 7 2 9
Other current assets 1 15 3 18 10 2 12
Current income tax receivable 4 - 4 2 - 2
Derivative financial instruments 3 - 3 - - -
Deposits 41 - 41 40 - 40
Cash and cash equivalents 1,2 486 (144) 342 954 (23) 931
================================= ==== =========== ============ ============ =========== ============ ==========
Total current assets 552 (141) 411 1,013 (19) 994
================================= ==== =========== ============ ============ =========== ============ ==========
Total assets 7,816 (630) 7,186 7,279 (566) 6,713
================================= ==== =========== ============ ============ =========== ============ ==========
Liabilities
Non-current liabilities
Trade and other payables 1 (25) - (25) (29) 5 (24)
Carried interest and performance
fees payable 1 (717) 573 (144) (644) 520 (124)
Loans and borrowings (575) - (575) (575) - (575)
Retirement benefit deficit (22) - (22) (22) - (22)
Deferred income taxes 1 - - - (1) 1 -
Provisions (1) - (1) (2) - (2)
================================= ==== =========== ============ ============ =========== ============ ==========
Total non-current liabilities (1,340) 573 (767) (1,273) 526 (747)
================================= ==== =========== ============ ============ =========== ============ ==========
Current liabilities
Trade and other payables 1 (103) 15 (88) (125) 22 (103)
Carried interest and performance
fees payable 1 (49) 41 (8) (41) 18 (23)
Current income taxes (1) 1 - - - -
Provisions (3) - (3) (4) - (4)
================================= ==== =========== ============ ============ =========== ============ ==========
Total current liabilities (156) 57 (99) (170) 40 (130)
================================= ==== =========== ============ ============ =========== ============ ==========
Total liabilities (1,496) 630 (866) (1,443) 566 (877)
================================= ==== =========== ============ ============ =========== ============ ==========
Net assets 6,320 - 6,320 5,836 - 5,836
================================= ==== =========== ============ ============ =========== ============ ==========
Equity
Issued capital 719 - 719 719 - 719
Share premium 786 - 786 785 - 785
Other reserves 4 4,841 - 4,841 4,370 - 4,370
Own shares (26) - (26) (38) - (38)
================================= ==== =========== ============ ============ =========== ============ ==========
Total equity 6,320 - 6,320 5,836 - 5,836
================================= ==== =========== ============ ============ =========== ============ ==========
Notes:
1 Applying IFRS 10 to the consolidated statement of financial position consolidates the line
items of a number of previously consolidated subsidiaries into a single line item called investments
in investment entity subsidiaries. In the Investment basis, we have disaggregated these line
items to analyse our net assets as if these investment entity subsidiaries were fully consolidated,
consistent with prior periods. The adjustment reclassifies items in the consolidated statement
of financial position. There is no change to the net assets, although for reasons explained
below, gross assets and gross liabilities are different.
The disclosure relating to portfolio companies is significantly reduced by the aggregation,
as the fair value of all investments held by investment entity subsidiaries is aggregated
into the investments in investment entity subsidiaries line. We have disaggregated this fair
value and disclosed the underlying portfolio holding in the relevant line item, ie quoted
investments or unquoted investments.
Other items which may be aggregated are carried interest and other payables, and the Investment
basis presentation again disaggregates these items.
2 Cash balances held in investment entity subsidiaries are also aggregated into the investment
in investment entity subsidiaries line.
3 Intercompany balances between investment entity subsidiaries and trading subsidiaries also
impact the transparency of our results under the IFRS basis. If an investment entity subsidiary
has an intercompany balance with a consolidated trading subsidiary of the Group, then the
asset or liability of the investment entity subsidiary will be aggregated into its fair value,
while the asset or liability of the consolidated trading subsidiary will be disclosed as an
asset or liability in the consolidated statement of financial position of the Group. Prior
to the adoption of IFRS 10, these balances would have been eliminated on consolidation.
4 Investment basis financial statements are prepared for performance measurement and therefore
reserves are not analysed separately under this basis.
Reconciliation of consolidated cash flow statement
Six months to 30 September 2017 Six months to 30 September 2016
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
============================ ====== =========== ============ ============ =========== ============ ============
Cash flow from operating activities
Purchase of investments 1 (572) 305 (267) (515) 229 (286)
Proceeds from investments 1 360 (185) 175 693 (485) 208
Net cash flow (to)/from
investment entity
subsidiaries 1 - (240) (240) - 151 151
Net cash flow from
derivatives (13) - (13) - - -
Portfolio interest received 1 1 (1) - 12 (8) 4
Portfolio dividends
received 1 22 (6) 16 40 (6) 34
Portfolio fees received 8 - 8 2 - 2
Fees received from external
funds 24 - 24 46 - 46
Carried interest and
performance
fees received 5 - 5 29 - 29
Carried interest and
performance
fees paid 1 (24) 7 (17) (64) 52 (12)
Acquisition related
earn-out charges - - - (1) - (1)
Operating expenses paid 1 (71) - (71) (70) - (70)
Co-investment loans 1 - 1 - - -
Income taxes paid 1 (2) 1 (1) (1) - (1)
============================ ====== =========== ============ ============ =========== ============ ============
Net cash flow from
operating activities (261) (119) (380) 171 (67) 104
============================ ====== =========== ============ ============ =========== ============ ============
Cash flow from financing
activities
Issue of shares 1 - 1 1 - 1
Repurchase of short-term
borrowings - - - (15) - (15)
Dividend paid (178) - (178) (154) - (154)
Interest received 1 - 1 1 - 1
Interest paid (11) - (11) (11) - (11)
Net cash flow from
financing activities (187) - (187) (178) - (178)
============================ ====== =========== ============ ============ =========== ============ ============
Cash flow from investing
activities
Purchases of property,
plant and equipment (1) - (1) - - -
Purchases of intangible
assets (13) - (13) - - -
============================ ====== =========== ============ ============ =========== ============ ============
Net cash flow from
investing activities (14) - (14) - - -
============================ ====== =========== ============ ============ =========== ============ ============
Change in cash and cash
equivalents 2 (462) (119) (581) (7) (67) (74)
Cash and cash equivalents
at the start of the period 1 954 (23) 931 962 (5) 957
Effect of exchange rate
fluctuations 1 (6) (2) (8) 50 1 51
Cash held within assets
held for sale - - - (14) - (14)
============================ ====== =========== ============ ============ =========== ============ ============
Cash and cash equivalents
at the end of the period 2 486 (144) 342 991 (71) 920
============================ ====== =========== ============ ============ =========== ============ ============
Notes:
1 The consolidated cash flow statement is impacted by the application
of IFRS 10 as cash flows to and from investment entity subsidiaries
are disclosed, rather than the cash flows to and from the underlying
portfolio.
Therefore, in our Investment basis financial statements, we have disclosed
our consolidated cash flow statement on a "look through" basis, in
order to reflect the underlying sources and uses of cash flows and
disclose the underlying investment activity.
2 There is a difference between the change in cash and cash equivalents
of the Investment basis financial statements and the IFRS financial
statements because there are cash balances held in investment entity
subsidiaries. Cash held within investment entity subsidiaries will
not be shown in the IFRS statements but will be seen in the Investment
basis statements.
IFRS Financial statements
Condensed consolidated statement of comprehensive income
Six months to Six months to
30 September 30 September
2017 2016(1)
(unaudited) (unaudited)
Notes GBPm GBPm
============================================================================ ====== ============== ==============
Realised profits over value on the disposal of investments 2 13 7
Unrealised profits on the revaluation of investments 3 176 92
Fair value movements on investment entity subsidiaries 7 396 671
============================================================================ ====== ============== ==============
585 770
Portfolio income
Dividends 16 18
Interest income from investment portfolio 10 2
Fees receivable 11 4
Foreign exchange on investments 7 61
============================================================================ ====== ============== ==============
Gross investment return 629 855
Fees receivable from external funds 24 23
Operating expenses (58) (53)
Interest income 1 1
Interest paid (18) (25)
Exchange movements 16 35
Income from investment entity subsidiaries 11 -
Other income 1 8
Carried interest
Carried interest and performance fees receivable 64 205
Carried interest and performance fees payable (14) (74)
=========================================================================== ====== ============== ==============
Operating profit before tax from continuing operations 656 975
Income taxes 1 (2)
============================================================================ ====== ============== ==============
Profit for the period from continuing operations 657 973
============================================================================ ====== ============== ==============
Profit for the period from discontinued operations 11 - 50
============================================================================ ====== ============== ==============
Profit for the period 657 1,023
==================================================================================== ============== ==============
Other comprehensive income/(expense) that may be reclassified to the income
statement:
Exchange differences on translation of foreign operations 1 (3)
Other comprehensive expense that will not be reclassified to the income statement:
Re-measurement of defined benefit plans (3) (19)
=========================================================================== ====== ============== ==============
Other comprehensive expense for the period from continuing operations (2) (22)
============================================================================ ====== ============== ==============
Other comprehensive income for the period from discontinued operations 11 - 5
============================================================================ ====== ============== ==============
Total comprehensive income for the period ("Total return") 655 1,006
============================================================================ ====== ============== ==============
Earnings per share from continuing operations
Basic (pence) 4 68.2 101.5
Diluted (pence) 4 67.9 101.0
=========================================================================== ====== ============== ==============
Earnings per share
Basic (pence) 4 68.2 106.7
Diluted (pence) 4 67.9 106.2
=========================================================================== ====== ============== ==============
1 Comparatives for the six months ended 30 September 2016 have been re-presented
to show the results of the retained Debt Management assets, previously
shown as discontinued operations, as continuing operations. See Note
11.
Condensed consolidated statement of financial position
30 September 31 March
2017 2017
(unaudited) (audited)
Notes GBPm GBPm
======================================================= ============= ==========
Assets
Non-current assets
Investments
Quoted investments 6 397 390
Unquoted investments 6 1,605 1,316
Investments in investment entity subsidiaries 7 4,156 3,483
=================================================== ============= ==========
Investment portfolio 6,158 5,189
=================================================== ============= ==========
Carried interest and performance fees receivable 428 354
Other non-current assets 51 50
Intangible assets 13 -
Retirement benefit surplus 120 121
Property, plant and equipment 5 5
Total non-current assets 6,775 5,719
======================================================= ============= ==========
Current assets
Carried interest and performance fees receivable 3 9
Other current assets 18 12
Current income tax receivable 4 2
Derivative financial instruments 3 -
Deposits 41 40
Cash and cash equivalents 342 931
======================================================= ============= ==========
Total current assets 411 994
======================================================= ============= ==========
Total assets 7,186 6,713
======================================================= ============= ==========
Liabilities
Non-current liabilities
Trade and other payables (25) (24)
Carried interest and performance fees payable (144) (124)
Loans and borrowings (575) (575)
Retirement benefit deficit (22) (22)
Provisions (1) (2)
=================================================== ============= ==========
Total non-current liabilities (767) (747)
======================================================= ============= ==========
Current liabilities
Trade and other payables (88) (103)
Carried interest and performance fees payable (8) (23)
Provisions (3) (4)
=================================================== ============= ==========
Total current liabilities (99) (130)
======================================================= ============= ==========
Total liabilities (866) (877)
======================================================= ============= ==========
Net assets 6,320 5,836
======================================================= ============= ==========
Equity
Issued capital 719 719
Share premium 786 785
Capital redemption reserve 43 43
Share-based payment reserve 25 30
Translation reserve 219 218
Capital reserve 3,826 3,390
Revenue reserve 728 689
Own shares (26) (38)
=================================================== ============= ==========
Total equity 6,320 5,836
======================================================= ============= ==========
Condensed consolidated statement of changes in equity
For the six months to Share-
30 September 2017
(unaudited)
=======================
Capital based
=======================
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve Reserve reserve reserve shares Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total equity at the
start of
the period 719 785 43 30 218 3,390 689 (38) 5,836
Profit for the period - - - - - 576 81 - 657
Exchange differences
on translation of
foreign operations - - - - 1 - - - 1
Re-measurements of
defined benefit plans - - - - - (3) - - (3)
Total comprehensive
income for the period - - - - 1 573 81 - 655
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Share-based payments - - - 6 - - - - 6
Release on
exercise/forfeiture
of share awards - - - (11) - - 11 - -
Loss on sale of own
shares - - - - - (12) - 12 -
Ordinary dividends - - - - - (24) (53) - (77)
Additional dividends - - - - - (101) - - (101)
Issue of ordinary
shares - 1 - - - - - - 1
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total equity at the
end of
the period 719 786 43 25 219 3,826 728 (26) 6,320
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
For the six months to Share-
30 September 2016
(unaudited)
=======================
Capital based
=======================
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve Reserve(1) reserve reserve shares Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total equity at the
start of
the period 719 784 43 32 229 2,080 622 (54) 4,455
Profit for the period - - - - - 937 86 - 1,023
Exchange differences
on translation of
foreign operations
from continuing
operations - - - - (3) - - - (3)
Re-measurements of
defined benefit plans
from continuing
operations - - - - - (19) - - (19)
Other comprehensive
income from
discontinued
operations - - - - 5 - - - 5
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total comprehensive
income for the period - - - - 2 918 86 - 1,006
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Share-based payments - - - 12 - - - - 12
Release on
exercise/forfeiture
of share awards - - - (18) - - 18 - -
Loss on sale of own
shares - - - - - (15) - 15 -
Ordinary dividends - - - - - - (52) - (52)
Additional dividends - - - - - (102) - - (102)
Issue of ordinary
shares - 1 - - - - - - 1
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total equity at the
end of
the period 719 785 43 26 231 2,881 674 (39) 5,320
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
1 Translation reserve balance at 30 September 2016 included GBP12 million
in relation to discontinued operations (31 March 2016: GBP7 million).
Condensed consolidated cash flow statement
Six months to Six months to
30 September 30 September
2017 2016
(unaudited) (unaudited)
GBPm GBPm
======================================================== ============== ==============
Cash flow from operating activities
Purchase of investments (267) (286)
Proceeds from investments 175 208
Net cash flow (to)/from investment entity subsidiaries (240) 151
Net cash outflow from derivatives (13) -
Portfolio interest received - 4
Portfolio dividends received 16 34
Portfolio fees received 8 2
Fees received from external funds 24 46
Carried interest and performance fees received 5 29
Carried interest and performance fees paid (17) (12)
Acquisition related earn-out charges - (1)
Operating expenses paid (71) (70)
Co-investment loans received 1 -
Income taxes paid (1) (1)
======================================================== ============== ==============
Net cash flow from operating activities (380) 104
======================================================== ============== ==============
Cash flow from financing activities
Issue of shares 1 1
Repurchase of short-term borrowings - (15)
Dividend paid (178) (154)
Interest received 1 1
Interest paid (11) (11)
Net cash flow from financing activities (187) (178)
======================================================== ============== ==============
Cash flow from investing activities
Purchase of property, plant and equipment (1) -
Purchase of intangibles (13) -
======================================================== ============== ==============
Net cash flow from investing activities (14) -
======================================================== ============== ==============
Change in cash and cash equivalents (581) (74)
Cash and cash equivalents at the start of the period 931 957
Effect of exchange rate fluctuations (8) 51
Cash held within assets held for sale - (14)
======================================================== ============== ==============
Cash and cash equivalents at the end of the period 342 920
======================================================== ============== ==============
Notes to the financial statements
Basis of preparation and accounting policies
Compliance with International Financial Reporting Standards
("IFRS")
The Half-year condensed consolidated financial statements of 3i
Group plc have been prepared in accordance with the Disclosure
Rules and Transparency Rules of the Financial Conduct Authority and
IAS 34 'Interim Financial Reporting' as issued by the International
Accounting Standards Board ('IASB') and as endorsed by the European
Union. The Half-year condensed consolidated financial statements
should be read in conjunction with the Annual report and accounts
2017. The accounting policies applied by 3i Group plc for the
Half-year condensed consolidated financial statements are
consistent with those described on pages 108 to 148 of the Annual
report and accounts 2017, as are the methods of computation. There
was no change in the current period to the critical accounting
estimates and judgements applied in 2017, which are stated on pages
109 to 110 of the Annual report and accounts 2017.
The impact of future standards and amendments on the financial
statements is being assessed by the Group and the Company. The
Group does not anticipate that IFRS 9 (Financial instruments) and
IFRS 16 (Leases) will have a material impact on its results. The
detailed assessment of the extent to which IFRS 15 (Revenue from
contracts with customers) may affect the carried interest
receivable recognition in the Group's financial statements is
ongoing.
The financial information for the year ended 31 March 2017
contained within this Half-year report does not constitute
statutory accounts as defined in section 434 of the Companies Act
2006. The statutory accounts for the year to 31 March 2017,
prepared under IFRS as endorsed by the EU, have been reported on by
Ernst & Young LLP and delivered to the Registrar of Companies.
The report of the Auditor on these statutory accounts was
unqualified and did not contain a statement under section 498(2) or
section 498(3) of the Companies Act 2006.
3i announced the sale of its Debt Management business to
Investcorp on 25 October 2016 and the transaction completed on 3
March 2017. At 30 September 2016, the Debt Management business was
classified as discontinued operations and all of its associated
assets and liabilities as held for sale. As disclosed in the Annual
report and accounts 2017, we retained the Debt Management
investments not sold to Investcorp and classified them as 'Other'
in our segmental analysis. Therefore, the comparatives for the six
months ended 30 September 2016 have been re-presented to include
the results from these retained Debt Management assets as
continuing operations.
The Half-year condensed consolidated financial statements are
prepared on a going concern basis.
1 Segmental analysis
The tables below are presented on the Investment basis which is
the basis used by the chief operating decision maker, the Chief
Executive, to monitor the performance of the Group. A description
of the Investment basis and a reconciliation of the Investment
basis to the IFRS financial statements is provided in the
"Reconciliation of the Investment basis to IFRS" section. Further
detail on the Group's segmental analysis can be found on pages 112
to 114 of the Annual report and accounts 2017. The remaining Notes
are prepared on an IFRS basis.
Investment basis
Private
Equity Infrastructure Other Total
Six months to 30 September 2017 GBPm GBPm GBPm GBPm
======================================================= ======== =============== ====== ======
Realised profits over value on the disposal
of investments 53 - - 53
Unrealised profits on the revaluation of investments 517 22 - 539
Portfolio income
Dividends 2 13 7 22
Interest income from investment portfolio 49 - - 49
Fees receivable 10 - - 10
Foreign exchange on investments 84 (3) (8) 73
======================================================= ======== =============== ====== ======
Gross investment return 715 32 (1) 746
======================================================= ======== =============== ====== ======
Fees receivable from external funds 3 21 - 24
Operating expenses (38) (20) - (58)
Interest received 1
Interest paid (18)
Exchange movements (21)
Other income 1
======================================================= ======== =============== ====== ======
Operating profit before carried interest 675
======================================================= ======== =============== ====== ======
Carried interest
Carried interest and performance fees receivable 64 - - 64
Carried interest and performance fees payable (81) - - (81)
====================================================== ======== =============== ====== ======
Operating profit 658
======================================================= ======== =============== ====== ======
Income taxes -
Other comprehensive income
Re-measurements of defined benefit plans (3)
====================================================== ======== =============== ====== ======
Total return 655
======================================================= ======== =============== ====== ======
Net (investment)/divestment
Realisations(1) 350 - 24 374
Cash investment (506) (43) (23) (572)
======================================================= ======== =============== ====== ======
(156) (43) 1 (198)
======================================================= ======== =============== ====== ======
Balance sheet
Opening portfolio value at 1 April 2017 4,831 706 138 5,675
Investment(2) 555 43 23 621
Value disposed (297) - (24) (321)
Unrealised value movement 517 22 - 539
Other movement (including foreign exchange) 86 (6) (10) 70
======================================================= ======== =============== ====== ======
Closing portfolio value at 30 September 2017 5,692 765 127 6,584
======================================================= ======== =============== ====== ======
1 Investment basis Cash flow statement differs due to timing realisation
cash flows in Private Equity.
2 Includes capitalised interest and other non-cash investment.
Investment basis Total
Private Continuing Discontinued
Equity Infrastructure Other(1) Operations Operations(1,2) Total
Six months to 30 September 2016(1) GBPm GBPm GBPm GBPm GBPm GBPm
=================================== ======== =============== ========= =========== ================ ========
Realised profits/(losses) over
value on the disposal of
investments 52 (1) - 51 2 53
Unrealised profits on the
revaluation of investments 643 76 12 731 1 732
Portfolio income
Dividends 6 10 8 24 16 40
Interest income from investment
portfolio 19 - - 19 3 22
Fees receivable 1 - - 1 - 1
Foreign exchange on investments 268 5 10 283 17 300
=================================== ======== =============== ========= =========== ================ ========
Gross investment return 989 90 30 1,109 39 1,148
=================================== ======== =============== ========= =========== ================ ========
Fees receivable from external
funds 5 18 - 23 24 47
Operating expenses (35) (19) - (54) (12) (66)
Interest received 1 - 1
Interest paid (25) - (25)
Exchange movements 9 4 13
Other income/(expense) 8 (1) 7
=================================== ======== =============== ========= =========== ================ ========
Operating profit before carried
interest 1,071 54 1,125
=================================== ======== =============== ========= =========== ================ ========
Carried interest and performance
fees
Receivable 203 - - 203 1 204
Payable (302) - - (302) - (302)
================================== ======== =============== ========= =========== ================ ========
Operating profit 972 55 1,027
=================================== ======== =============== ========= =========== ================ ========
Income taxes (2) - (2)
Other comprehensive income
Re-measurements of defined
benefit plans (19) - (19)
================================== ======== =============== ========= =========== ================ ========
Total return 951 55 1,006
=================================== ======== =============== ========= =========== ================ ========
Net divestment/(investment)
Realisations(3) 654 12 - 666 3 669
Cash investment(3) (291) (131) (8) (430) (42) (472)
=================================== ======== =============== ========= =========== ================ ========
363 (119) (8) 236 (39) 197
=================================== ======== =============== ========= =========== ================ ========
Year to 31 March 2017
Balance sheet
Opening portfolio value at 1 April
2016 3,741 527 92 4,360 137 4,497
Investment(4) 548 131 29 708 51 759
Value disposed (944) (13) (10) (967) (191) (1,158)
Unrealised value movement 1,274 59 9 1,342 3 1,345
Other movement
(including foreign exchange) 212 2 18 232 - 232
=================================== ======== =============== ========= =========== ================ ========
Closing portfolio value at 31
March 2017 4,831 706 138 5,675 - 5,675
=================================== ======== =============== ========= =========== ================ ========
1 Comparatives for the six months ended 30 September 2016 have been re-presented
to show the results of the retained Debt Management assets, previously
shown as discontinued operations, within Other.
2 Discontinued operations relate to the Debt Management business sold
to Investcorp.
3 Investment basis Cash flow statement differs due to timing of investment
and realisation cash flows in Private Equity and Debt Management.
4 Includes capitalised interest and other non-cash investment.
2 Realised profits/(losses) over value on the disposal of
investments
Six months to 30 September 2017 Unquoted Quoted
investments investments Total
GBPm GBPm GBPm
=============================================== ============ ============ ======
Realisations 175 - 175
Valuation of disposed investments (162) - (162)
=============================================== ============ ============ ======
13 - 13
=============================================== ============ ============ ======
Of which:
- - profit recognised on realisations 14 - 14
- losses recognised on realisations (1) - (1)
============================================== ============ ============ ======
13 - 13
============================================== ============ ============ ======
Six months to 30 September 2016 Unquoted Quoted
investments investments Total
GBPm GBPm GBPm
=============================================== ============ ============ ======
Realisations 186 20 206
Valuation of disposed investments (180) (19) (199)
=============================================== ============ ============ ======
6 1 7
=============================================== ============ ============ ======
Of which:
- - profit recognised on realisations 7 1 8
- losses recognised on realisations (1) - (1)
============================================== ============ ============ ======
6 1 7
============================================== ============ ============ ======
3 Unrealised profits/(losses) on the revaluation of
investments
Six months to 30 September 2017 Unquoted Quoted
investments investments Total
GBPm GBPm GBPm
============================================ ============ ============ ======
Movement in the fair value of investments 165 11 176
============================================ ============ ============ ======
Of which:
- unrealised gains 177 11 188
- unrealised losses (12) - (12)
=========================================== ============ ============ ======
165 11 176
=========================================== ============ ============ ======
Six months to 30 September 2016(1) Unquoted Quoted
investments investments Total
GBPm GBPm GBPm
============================================ ============ ============ ======
Movement in the fair value of investments 44 48 92
============================================ ============ ============ ======
Of which:
- unrealised gains 93 48 141
- unrealised losses (49) - (49)
=========================================== ============ ============ ======
44 48 92
=========================================== ============ ============ ======
1 Comparatives for the six months ended 30 September 2016 have been
re-presented to show the unrealised profits/(losses) on the retained
Debt Management assets, previously shown as discontinued operations,
as continuing operations. See Note 11.
4 Per share information
The calculation of basic earnings per share is based on the
profit attributable to shareholders and the average number of basic
shares. When calculating the diluted earnings per share, the
weighted average number of shares in issue is adjusted for the
effect of all dilutive share options and awards.
6 months 6 months
to 30 September to 30 September
2017 2016(1)
====================================================================== ================ ================
Earnings per share (pence)
Basic earnings per share 68.2 106.7
- of which from continuing operations 68.2 101.5
- of which from discontinued operations - 5.2
Diluted earnings per share 67.9 106.2
- of which from continuing operations 67.9 101.0
- of which from discontinued operations - 5.2
Earnings (GBPm)
Profit for the period attributable to equity holders of the Company 657 1,023
- of which from continuing operations 657 973
- of which from discontinued operations - 50
===================================================================== ================ ================
1 Comparatives for the six months ended 30 September 2016 have been re-presented
to show the results from the retained Debt Management assets, previously
shown as discontinued operations, as continuing operations. See Note
11.
6 months 6 months
to 30 September to 30 September
2017 2016
Number Number
============================================== ================ ================
Weighted average number of shares in issue
Ordinary shares 972,828,742 972,696,599
Own shares (9,611,495) (13,810,391)
============================================== ================ ================
Basic shares 963,217,247 958,886,208
============================================== ================ ================
Effect of dilutive potential ordinary shares
Share options and awards 4,520,532 4,403,571
============================================== ================ ================
Diluted shares 967,737,779 963,289,779
============================================== ================ ================
30 September 31 March
2017 2017
========================================================== ============= =========
Net assets per share (pence)
Basic 655 607
Diluted 652 604
========================================================== ============= =========
Net assets (GBPm)
Net assets attributable to equity holders of the Company 6,320 5,836
========================================================== ============= =========
Basic NAV per share is calculated on 964,884,704 shares in issue
at 30 September 2017 (31 March 2017: 961,458,801). Diluted NAV per
share is calculated on diluted shares of 969,721,096 at 30
September 2017 (31 March 2017: 966,553,549).
5 Dividends
6 months to 6 months to 6 months to 6 months to
30 September 30 September 30 September 30 September
2017 2017 2016 2016
pence pence
per share GBPm per share GBPm
===================================== ============= ============= ============= ===============
Declared and paid during the period
Final dividend 18.5 178 16.0 154
===================================== ============= ============= ============= =============
18.5 178 16.0 154
===================================== ============= ============= ============= =============
Proposed interim dividend 8.0 77 8.0 77
===================================== ============= ============= ============= =============
6 Investment portfolio
This section should be read in conjunction with Note 10 on pages
120 to 121 of the Annual report and accounts 2017, which provides
more detail about initial recognition and subsequent measurement of
investments at fair value.
6 months to Year to
30 September 2017 31 March 2017
Non-current GBPm GBPm
========================================================================= ================= ==============
Opening fair value 1,706 1,540
========================================================================= ================= ==============
Additions from continuing operations 277 291
- of which loan notes with nil value (1) (10)
Additions from discontinued operations - 70
Disposals and repayments from continuing operations (162) (311)
Disposals and repayments from discontinued operations - (191)
Fair value movement from continuing operations 176 262
Fair value movement from discontinued operations - 3
Other movements and net cash movements from continuing operations 6 71
Other movements and net cash movements from discontinued operations - (19)
========================================================================= ================= ==============
Closing fair value 2,002 1,706
========================================================================= ================= ==============
Quoted investments 397 390
Unquoted investments 1,605 1,316
========================================================================= ================= ==============
Closing fair value 2,002 1,706
========================================================================= ================= ==============
The holding period of 3i's investment portfolio is on average
greater than one year. For this reason the portfolio is classified
as non-current. It is not possible to identify with certainty
investments that will be sold within one year.
Additions include GBP10 million (31 March 2017: GBP11 million)
in capitalised interest received by way of loan notes, of which
GBP1 million (31 March 2017: GBP10 million) was written down in the
period to nil. Included within the Consolidated statement of
comprehensive income is GBP10 million (31 March 2017: GBP10
million) of interest income, which reflects the net additions after
write downs noted above, cash income is nil (31 March 2017: GBP4
million). The capitalisation of prior year accrued income and
non-capitalised accrued income is GBP1 million (31 March 2017: GBP5
million). The prior year to 31 March 2017 included GBP3 million of
interest income from discontinued operations.
Other movements and net cash movements include the impact of
changes in foreign exchange rates. The prior year to 31 March 2017
included cash returned of GBP19 million from warehouses used by our
Debt Management business.
Quoted investments are classified as Level 1 in the fair value
hierarchy and unquoted investments are classified as Level 3 in the
fair value hierarchy; see Note 8 for details.
7 Investments in investment entity subsidiaries
Investments in investment entity subsidiaries are accounted for
as financial instruments at fair value through profit and loss. We
determine that in the ordinary course of business, the net asset
values of an investment entity subsidiary are considered to be the
most appropriate to determine fair value. At each reporting period,
we consider whether any additional fair value adjustments need to
be made to the net asset values of the investment entity
subsidiaries. These adjustments may be required to reflect market
participants' considerations about fair value that may include, but
are not limited to, liquidity and the portfolio effect of holding
multiple investments within the investment entity subsidiary. There
was no particular circumstance to indicate that any fair value
adjustment was required and after due consideration we concluded
that the net asset values were the most appropriate reflection of
fair value at 30 September 2017.
Level 3 fair value reconciliation - investments in investment
entity subsidiaries
6 months to Year to
30 September 2017 31 March 2017
Non-current GBPm GBPm
======================================================= ================== ==============
Opening fair value 3,483 2,680
Net cash flow to/(from) investment entities 240 (246)
Fair value movement on investment entity subsidiaries 396 1,041
Transfer of assets to investment entity subsidiaries 37 8
======================================================= ================== ==============
Closing fair value 4,156 3,483
======================================================= ================== ==============
All investment entity subsidiaries are classified as Level 3 in
the fair value hierarchy, see Note 8 for details.
A 5% movement in the closing fair value of investments in
investment entity subsidiaries would have an impact of GBP208
million (31 March 2017: GBP174 million).
Restrictions
3i Group plc, the ultimate parent company, receives dividend
income from its subsidiaries. There are no restrictions on the
ability to transfer funds from these subsidiaries to the Group
except for cash balances of GBP58 million (31 March 2017: GBP56
million) held in escrow in investment entity subsidiaries for
carried interest payable.
Support
3i Group plc provides, where necessary, ongoing support to its
investment entity subsidiaries for the purchase of portfolio
investments. During the period, there were net cash flows from the
Group as noted in the table above.
8 Fair values of assets and liabilities
This section should be read in conjunction with Note 12 on pages
122 to 124 of the Annual report and accounts 2017 which provides
more detail about accounting policies adopted, the definitions of
the three levels of fair value hierarchy, valuation methods used in
calculating fair value, and the valuation framework which governs
oversight of valuations. There have been no changes in the
accounting policies adopted or the valuation methodologies
used.
Valuation
The Group classifies financial instruments measured at fair
value in the investment portfolio according to the following
hierarchy:
Level Fair value input description Financial instruments
======= ========================================================== =================================================
Level 1 Quoted prices (unadjusted) from active markets Quoted equity instruments
======= ========================================================== =================================================
Level 2 Inputs other than quoted prices included in Level 1 that Derivative financial instruments
are observable either directly (ie
as prices) or indirectly (ie derived from prices)
======= ========================================================== =================================================
Level 3 Inputs that are not based on observable market data Unquoted equity instruments and loan instruments
======= ========================================================== =================================================
The table below shows the classification of financial
instruments held at fair value into the valuation hierarchy at 30
September 2017:
As at 30 September 2017 As at 31 March 2017
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ====== ====== ======= ======= ====== ====== ======= =======
Quoted investments 397 - - 397 390 - - 390
Unquoted investments - - 1,605 1,605 - - 1,316 1,316
Investments in investment
entity
subsidiaries - - 4,156 4,156 - - 3,483 3,483
Derivative financial
instruments - 3 - 3 - - - -
=========================== ====== ====== ======= ======= ====== ====== ======= =======
Total 397 3 5,761 6,161 390 - 4,799 5,189
=========================== ====== ====== ======= ======= ====== ====== ======= =======
We determine that in the ordinary course of business, the net
asset values of an investment entity subsidiary are considered to
be the most appropriate to determine fair value. The underlying
portfolio is valued under the same methodology as directly held
investments, with any other assets or liabilities within investment
entity subsidiaries valued in accordance with the Group's
accounting policies. Note 7 details the Directors' considerations
about the fair value of the underlying investment entity
subsidiaries.
The fair values of the Group's other financial assets and
liabilities are not materially different from their carrying values
with the exception of loans and borrowings. The fair value of loans
and borrowings is GBP722 million (31 March 2017: GBP741 million),
determined with reference to their published market prices. The
carrying value of the loans and borrowings is GBP575 million (31
March 2017: GBP575 million).
Level 3 fair value reconciliation - unquoted investments
Six months to Year to
30 September 31 March
2017 2017
GBPm GBPm
========================================================================= ============= ============
Opening fair value 1,316 1,243
Additions from continuing operations 277 213
- of which loan notes with nil value (1) (10)
Additions from discontinued operations - 70
Disposals and repayments from continuing operations (162) (292)
Disposals and repayments from discontinued operations - (191)
Fair value movement from continuing operations 165 224
Fair value movement from discontinued operations - 3
Other movements and net cash movements from continuing operations 10 75
Other movements and net cash movements from discontinued operations - (19)
========================================================================= ============= ============
Closing fair value 1,605 1,316
========================================================================= ============= ============
Unquoted investments valued using Level 3 inputs also had the
following impact on the Consolidated statement of comprehensive
income: realised profits over value on disposal of investment of
GBP13 million (September 2016: GBP6 million), dividend income of
GBP8 million (September 2016: GBP4 million) and foreign exchange
gains of GBP7 million (September 2016: GBP55 million).
Level 3 inputs are sensitive to assumptions made when
ascertaining fair value as described in the Portfolio valuation -
an explanation section on pages 158 to 159 in the Annual report and
accounts 2017. On an IFRS basis, of the unquoted assets held at 30
September 2017 classified as Level 3, 41% (31 March 2017: 33%) were
valued using a multiple of earnings and the remaining 59% (31 March
2017: 67%) were valued using alternative valuation
methodologies.
Assets move between Level 1 and Level 3 primarily when an
unquoted equity investment lists on a quoted market exchange. There
were no transfers in or out of Level 3 in the period.
Valuation multiple - The valuation multiple is the main
assumption applied to a multiple of earnings based valuation. The
multiple is derived from comparable listed companies and relevant
market transaction multiples. Companies in the same industry and
geography and, where possible, with a similar business model and
profile are selected and their valuation multiple is then adjusted
for factors including liquidity risk, growth potential and relative
performance. Multiples are also adjusted to reflect our longer term
view of performance through the cycle or our exit assumptions.
The value weighted average multiple used when valuing the
portfolio at 30 September 2017 was 11.28x (31 March 2017:
10.23x).
If the multiple used to value each unquoted investment valued on
an earnings multiple basis as at 30 September 2017 decreased by 5%,
the investment portfolio value would decrease by GBP38 million (31
March 2017: GBP18 million) or 2% (31 March 2017: 1%). If the same
sensitivity was applied to the underlying portfolio held by
investment entity subsidiaries, this would have a negative impact
of GBP257 million (31 March 2017: GBP224 million) or 6% (31 March
2017: 6%). If the multiple increased by 5% then the investment
portfolio value would increase by GBP38 million (31 March 2017:
GBP16 million) or 2% (31 March 2017: 1%). If the same sensitivity
was applied to the underlying portfolio held by investment entity
subsidiaries, this would have a positive impact of GBP261 million
(31 March 2017: GBP215 million) or 6% (31 March 2017: 5%).
Alternative valuation methodologies - There are a number of
alternative investment valuation methodologies used by the Group,
for reasons specific to individual assets. The details of such
valuation methodologies, and the inputs that are used, are given in
the Portfolio valuation - an explanation section on pages 158 to
159 in the Annual report and accounts 2017. Each methodology is
used for a proportion of assets by value, and at 30 September 2017
the following techniques were used under an IFRS basis: 51% other
(which includes DCF) and 8% industry metric. If the value of all of
the investments under these methodologies moved by 5%, this would
have an impact on the investment portfolio of GBP47 million (31
March 2017: GBP44 million) or 3% (31 March 2017: 3%). If the same
sensitivity was applied to the underlying portfolio held by
investment entity subsidiaries, this would have an impact of GBP5
million (31 March 2017: GBP7 million) or 0.1% (31 March 2017:
0.2%).
9 Contingent liabilities
The Company has provided a guarantee to the Trustees of the 3i
Group Pension Plan in respect of liabilities of 3i plc to the Plan.
3i plc is the sponsor of the 3i Group Pension Plan. On 4 April 2012
the Company transferred eligible assets (GBP150 million of ordinary
shares in 3i Infrastructure plc) as defined by an agreement with a
wholly owned subsidiary of the Group. The Company will retain all
income and capital rights in relation to the 3i Infrastructure plc
shares, as eligible assets, unless the Company becomes insolvent or
fails to comply with material obligations in relation to the
agreement with the Trustees, all of which are under its control.
The fair value of eligible assets held by this subsidiary at 30
September 2017 was GBP273 million (31 March 2017: GBP265 million).
As part of the latest triennial valuation of the pension scheme,
the Company has agreed to pay up to GBP50 million to the scheme if
the Group's gearing increases above 20%, gross debt above GBP1
billion or net assets fall below GBP2 billion. If gearing, gross
debt or net asset limits noted are reached, the Group may be
required to increase the potential cover provided by the contingent
asset arrangement until the gearing, gross debt or net assets
improve.
At 30 September 2017, there was no material litigation
outstanding against the Company or any of its subsidiary
undertakings.
10 Related parties
All related party transactions that took place in the half year
to 30 September 2017 are consistent in nature with the disclosures
in Note 29 on pages 140 to 143 of the Annual report and accounts
2017. Related party transactions which took place in the period and
materially affected performance or the financial position of the
Group, together with any material changes in related party
transactions as described in the Annual report and accounts 2017
that could materially affect the performance or the financial
position of the Group are detailed below.
Limited partnerships
The Group manages a number of external funds which invest
through limited partnerships. Group companies act as the general
partners of these limited partnerships and exert significant
influence over them. The following amounts have been recognised in
respect of these limited partnerships:
Consolidated statement of comprehensive income Six months to Six months to
30 September 30 September
2017 2016
GBPm GBPm
=================================================== ============== ==============
Carried interest and performance fees receivable 64 205
Fees receivable from external funds 13 14
=================================================== ============== ==============
Consolidated statement of financial position 30 September 31 March
2017 2017
GBPm GBPm
=================================================== ============= =========
Carried interest and performance fees receivable 430 356
=================================================== ============= =========
Investments
The Group makes investments in the equity of unquoted and quoted
investments where it does not have control but may be able to
participate in the financial and operating policies of that
company. IFRS presumes that it is possible to exert significant
influence when the equity holding is greater than 20%. The Group
has taken the investment entity exception as permitted by IFRS 10
and has not equity accounted for these investments, in accordance
with IAS 28, but they are related parties. The total amounts
included for investments where the Group has significant influence
but not control are as follows:
Consolidated statement of comprehensive income Six months to Six months to
30 September 30 September
2017 2016(1)
GBPm GBPm
============================================================ ============== ==============
Realised profit over value on the disposal of investments 9 -
Unrealised profits on the revaluation of investments 25 29
Portfolio income 5 7
Profits for the period from discontinued operations - 30
============================================================ ============== ==============
Consolidated statement of financial position 30 September 31 March
2017 2017
GBPm GBPm
============================================== ============= =========
Unquoted investments 423 429
1 Comparatives for the six months ended 30 September 2016 have been re-presented
to show the results from the retained Debt Management assets, previously
shown as discontinued operations, as continuing operations. See Note
11.
From time to time, transactions occur between related parties
within the investment portfolio that the Group influences to
facilitate the reorganisation or recapitalisation of an investee
company. These transactions are made on an arm's length basis.
Advisory arrangements
The Group acts as an adviser to 3i Infrastructure plc, which is
listed on the London Stock Exchange. The following amounts have
been recognised in respect of this advisory relationship:
Consolidated statement of comprehensive income Six months to Six months to
30 September 30 September
2017 2016
GBPm GBPm
Unrealised profits on the revaluation of investments 11 48
Dividends 8 6
Fees receivable from external funds 11 9
Consolidated statement of financial position 30 September 31 March
2017 2017
GBPm GBPm
Quoted equity investments 397 390
Performance fees receivable - 4
11 Discontinued operations
On 3 March 2017, the Group completed the disposal of its Debt
Management business to Investcorp and received cash proceeds of
GBP270 million. All assets associated with the Debt Management
business were classified as held for sale in the Half-year report
2016. Following the completion of the transaction on 3 March 2017,
the Group determined that the investments not sold to Investcorp
would be retained beyond the 12 month period prescribed by IFRS 5.
Accordingly, they were no longer classified as held for sale and
were included as continuing operations in the Annual report and
accounts 2017.
Comparatives for the six months to 30 September 2016 have been
re-presented to reflect the reclassification of the residual Debt
Management assets as continuing operations. The impact of this
re-presentation on a line by line basis is presented below. There
was no profit or cash flow from discontinued operations in the six
months to 30 September 2017.
Condensed consolidated statement of comprehensive income -
Impact of re-presentation
Six months to 30 September 2016 As previously Effect of As
reported re-presentation re-presented
GBPm GBPm GBPm
Realised profits over value on the disposal of investments 7 - 7
Unrealised profits on the revaluation of investments 80 12 92
Fair value movements on investment entity subsidiaries 670 1 671
757 13 770
Portfolio income
Dividends 10 8 18
Interest income from investment portfolio 2 - 2
Fees receivable 4 - 4
Foreign exchange on investments 53 8 61
Gross investment return from continuing operations 826 29 855
Fees receivable from external funds 23 - 23
Operating expenses (53) - (53)
Interest received 1 - 1
Interest paid (25) - (25)
Exchange movements 35 - 35
Other income 8 - 8
Carried interest
Carried interest and performance fees receivable 205 - 205
Carried interest and performance fees payable (74) - (74)
Operating profit before tax from continuing operations 946 29 975
Income taxes (2) - (2)
Profit for the period from continuing operations 944 29 973
Profit for the period from discontinued operations 79 (29) 50
Profit for the period 1,023 - 1,023
Other comprehensive expense that may be reclassified to the income
statement:
Exchange differences on translation of foreign operations (3) - (3)
Other comprehensive expense that will not be reclassified to the
income statement:
Re-measurement of defined benefit plans (19) - (19)
Other comprehensive income for the period from continuing operations (22) - (22)
Other comprehensive income for the period from discontinued operations 5 - 5
Total comprehensive income for the period ("Total return") 1,006 - 1,006
Cash flows - Impact of re-presentation
Six months to 30 September 2016 As previously Effect of As
reported re-presentation re-presented
GBPm GBPm GBPm
Net cash flows from operating activities 43 (1) 42
Total net cash flows from discontinued operations 43 (1) 42
Independent review report to 3i Group plc
Introduction
We have been engaged by 3i Group plc (the 'Company' or the
'Group') to review the condensed consolidated financial statements
in the Half-year report for the six months ended 30 September 2017
which comprises the Condensed consolidated statement of
comprehensive income, the Condensed consolidated statement of
financial position, the Condensed consolidated statement of changes
in equity, the Condensed consolidated cash flow statement, Basis of
preparation and accounting policies and the related notes 1 to 11
(together the 'condensed consolidated financial statements'). We
have read the other information contained in the Half-year report
and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed
consolidated financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The Half-year report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Half-year report in accordance with the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in the Basis of preparation and accounting
policies, the annual financial statements of the Group are prepared
in accordance with International Financial Reporting Standards as
adopted by the European Union. The condensed consolidated financial
statements included in this Half-year report have been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated financial statements in the Half-year
report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated financial
statements in the Half-year report for the six months ended 30
September 2017 are not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London, United Kingdom
15 November 2017
Statement of Directors' responsibilities
The Directors, who are required to prepare the financial
statements on a going concern basis unless it is not appropriate,
are satisfied that the Group has the resources to continue in
business for the foreseeable future. In making this assessment, the
Directors have considered information relating to present and
future conditions, including future projections of profitability
and cash flows.
The Directors confirm that to the best of their knowledge:
a) the condensed set of financial statements has been prepared
in accordance with IAS 34 "Interim Financial Reporting" as adopted
by the EU;
b) the Half year report includes a fair review of the
information required by:
i) DTR 4.2.7R of the Disclosure Rules and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year ending 31 March 2018 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 financial year; and
ii) DTR 4.2.8R of the Disclosure Rules and Transparency Rules, being
(i) related party transactions that have taken place in the first
six months of the financial year ending 31 March 2018 which have
materially affected the financial position or performance of
3i Group during that period; and (ii) any changes in the related
party transactions described in the Annual report and accounts
2017 that could materially affect the financial position or performance
of 3i Group during the first six months of the financial year
ending 31 March 2018.
The Directors of 3i Group plc and their functions are listed
below.
The report is authorised for issue by order of the Board.
K J Dunn, Secretary
15 November 2017
List of Directors and their functions
The Directors of the Company and their functions are listed
below:
Simon Thompson, Chairman and Chairman of the Nominations
Committee
Simon Borrows, Chief Executive and Executive Director
Julia Wilson, Group Finance Director and Executive Director
Jonathan Asquith, non-executive Director, Deputy Chairman and
Chairman of the Remuneration Committee
Caroline Banszky, non-executive Director and Chairman of the
Audit and Compliance Committee
Stephen Daintith, non-executive Director
Peter Grosch, non-executive Director
David Hutchison, non-executive Director and Chairman of the
Valuations Committee
Portfolio and other information
20 large investments
The 20 investments listed below account for 82% of the portfolio
at 30 September 2017 (31 March 2017: 77%). This table excludes one
investment for commercial reasons.
Residual Residual
Business line cost(1) cost(1) Valuation Valuation
Geography March September March September
Investment First invested in 2017 2017 2017 2017 Relevant transactions
Description of business Valuation basis GBPm GBPm GBPm GBPm in the period
Action* Private Equity 1 1 1,708 2,009
Non-food discount retailer Benelux
2011
Earnings
3i Infrastructure plc* Infrastructure 399 396 655 670 Dividend of
Quoted investment UK GBP13 million received
company, investing 2007
in infrastructure Quoted
Q Holding* Private Equity 162 162 222 243
Manufacturer of engineered US
precision elastomeric 2014
components Earnings
Weener Plastic* Private Equity 161 168 200 218
Supplier of plastic packaging Germany
solutions 2015
Earnings
Basic-Fit Private Equity 11 11 184 218
Discount gym operator Benelux
2013
Quoted
Audley Travel* Private Equity 177 185 185 208
Provider of experiential UK
tailor made travel 2015
Earnings
Hans Anders* Private Equity - 178 - 195 New investment in
Value for money Benelux the period
optical retailer 2017
Earnings
ATESTEO* Private Equity 39 40 160 182
International transmission Germany
testing specialist 2013
Earnings
Schlemmer* Private Equity 162 168 154 152
Provider of cable Germany
management solutions for 2016
the automotive industry Earnings
BoConcept* Private Equity 140 136 146 145 DKK 100 million
Urban living brand Denmark over-funding repaid
2016 in the period
Earnings
Formel D* Private Equity - 137 - 135 New investment in
Quality assurance provider Germany the period
for the automotive industry 2017
Earnings
AES Engineering Private Equity 30 30 113 134
Manufacturer of mechanical UK
seals and support systems 1996
Earnings
Ponroy Santé* Private Equity 123 126 122 133
Manufacturer of natural France
healthcare and cosmetics 2017
products Earnings
ACR Private Equity 105 105 135 130
Pan-Asian non-life Singapore
reinsurance 2006
Industry metric
Tato Private Equity 2 2 112 112
Manufacturer and seller of UK
speciality chemicals 1989
Earnings
Lampenwelt* Private Equity - 105 - 109 New investment in
Online lighting Germany the period
specialist retailer 2017
Earnings
Aspen Pumps* Private Equity 78 82 88 104
Manufacturer of pumps and UK
accessories for the air 2015
conditioning, heating and Earnings
refrigeration industry
Christ* Private Equity 101 102 98 100
Distributor and retailer of Germany
jewellery 2014
Earnings
Cirtec Medical* Private Equity - 103 - 99 New investment in
Outsourced medical device USA the period
manufacturing 2017
Earnings
Euro-Diesel* Private Equity 57 60 95 91
Manufacturer of Benelux
uninterruptible 2015
power supply systems Earnings
* Controlled in accordance with IFRS.
1 Residual cost includes capitalised interest.
Glossary
Approved Investment Trust Company This is a particular UK tax
status maintained by 3i Group plc, the parent company of 3i Group.
An approved investment trust company is a UK company which meets
certain conditions set out in the UK tax rules which include a
requirement for the company to undertake portfolio investment
activity that aims to spread investment risk and for the company's
shares to be listed on an approved exchange. The "approved" status
for an investment trust must be agreed by the UK tax authorities
and its benefit is that certain profits of the company, principally
its capital profits, are not taxable in the UK.
Assets under management ("AUM") A measure of the total assets
that 3i has to invest or manages on behalf of shareholders and
third-party investors for which it receives a fee. AUM is measured
at fair value.
Capital reserve recognises all profits that are capital in
nature or have been allocated to capital. Following changes to the
Companies Act 2006, the Company amended its Articles of Association
at its 2012 Annual General Meeting to allow these profits to be
distributable by way of a dividend.
Carried interest is accrued on the realised and unrealised
profits generated, taking relevant performance hurdles into
consideration, assuming all investments were realised at the
prevailing book value. Carried interest is only actually paid or
received when the relevant performance hurdles are met on a cash
basis and the accrual is discounted to reflect expected payment
periods. Carried interest receivable is generated on third-party
capital over the life of the relevant fund when relevant
performance criteria are met.
Company 3i Group plc.
Discounting The reduction in present value at a given date of a
future cash transaction at an assumed rate, using a discount factor
reflecting the time value of money.
EBITDA is defined as earnings before interest, taxation,
depreciation and amortisation and is used as the typical measure of
the performance of our portfolio companies.
EBITDA multiple Calculated as the enterprise value over EBITDA
and is used to determine the value of a company.
Fees receivable from external funds are fees received by the
Group, from third parties, for the management of Private Equity and
Infrastructure funds.
Investment basis accounts are prepared assuming that IFRS 10 had
not been introduced. Under this basis, we fair value portfolio
companies at the level we believe provides the most comprehensive
financial information. The commentary in the Interim report refers
to this basis as we believe it provides a more understandable view
of our performance.
Money multiple is calculated as the cumulative distributions
plus any residual value divided by paid-in capital.
Operating cash profit/(loss) is the difference between our cash
income (consisting of portfolio interest received, portfolio
dividends received, portfolio fees received and fees received from
external funds as per the Investment basis Cash flow statement) and
our cash operating expenses (as per the Investment basis Cash flow
statement).
Proprietary Capital Shareholders' capital which is available to
invest.
Revenue reserve recognises all profits that are revenue in
nature or have been allocated to revenue.
Total shareholder return ("TSR") is the measure of the overall
return to shareholders and includes the movement in the share price
and any dividends paid, assuming that all dividends are reinvested
on their ex-dividend date.
Information for shareholders
Note
The interim dividend is expected to be paid on 10 January 2018
to holders of ordinary shares on the register on 15 December 2017.
The ex-dividend date will be 14 December 2017.
3i Group plc
Registered office:
16 Palace Street,
London SW1E 5JD, UK
Registered in England No. 1142830
An investment company as defined by section 833 of the Companies
Act 2006.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EANFSFEPXFFF
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