TIDMIII
RNS Number : 6700Y
3i Group PLC
19 May 2016
19 May 2016
3i Group plc announces full year results to 31 March 2016
Another year of strong performance
-- Total return of GBP824m / 22% (FY2015: GBP659m / 20%) and NAV
per share of 463 pence (FY2015: 396 pence)
-- Private Equity gross investment return of GBP1,011m, or 32%,
underpinned by a strong performance from a number of our key
investments such as Action, Scandlines, Basic-Fit and ATESTEO
(formerly GIF)
-- Momentum in Private Equity realisations continues with
proceeds of GBP743m and a further c.GBP224m announced in April
2016. Maintained a disciplined approach to investment and invested
GBP365m in three new portfolio companies; Audley Travel, Weener
Plastic and Euro-Diesel
-- Good progress in Infrastructure with a 13% total shareholder
return from 3i Infrastructure plc ("3iN") and a significant
increase in origination activity. 3i will support 3iN's fundraising
to maintain its 34% investment in 3iN
-- Debt Management delivered a solid performance, raising
GBP1.5bn of AUM from 4 CLOs and launching the Global Income
Fund
-- Robust balance sheet with net cash of GBP165m and nil gearing at 31 March 2016
-- Proposed final dividend of 16.0 pence per share, bringing the
total dividend for FY2016 to 22.0 pence per share, subject to
shareholder approval
Simon Borrows, 3i's Chief Executive, commented:
"These strong FY2016 results demonstrate 3i's continued momentum
in the face of challenging macro-economic conditions. We enter
FY2017 firmly focused on delivering our clear and consistent
strategy and generating good returns and distributions for our
shareholders."
Financial highlights
Year to/as at Year to/as at
31 March 31 March
2016 2015
------------------------------------------------- -------------- --------------
Group
Total return GBP824m GBP659m
- Total return on opening shareholders' funds 21.7% 19.9%
Dividend per ordinary share 22.0p 20.0p
Operating expenses GBP134m GBP131m
- As a percentage of assets under management 1.0% 1.0%
Operating cash profit GBP37m GBP28m
================================================= ============== ==============
Proprietary Capital
Realisation proceeds GBP796m GBP841m
- Uplift over opening book value(1) GBP70m/13% GBP145m/27%
- Money multiple 2.4x 2.0x
Gross investment return GBP1,069m GBP805m
- As a percentage of opening 3i portfolio value 27.6% 22.6%
Operating profit(2) GBP920m GBP721m
Cash investment(3) GBP453m GBP474m
3i portfolio value GBP4,497m GBP3,877m
Gross debt GBP837m GBP815m
Net cash GBP165m GBP49m
Gearing(4) nil nil
Liquidity GBP1,352m GBP1,214m
Net asset value GBP4,455m GBP3,806m
Diluted net asset value per ordinary share 463p 396p
Fund Management
Total assets under management GBP13,999m GBP13,474m
- Third party capital GBP10,703m GBP10,140m
- Proportion of third party capital 76% 75%
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1 Uplift over opening book value excludes refinancings.
2 Operating profit for the Proprietary Capital and Fund Management activities excludes carried
interest and performance fees payable/receivable, which is not allocated between these activities.
3 Cash investment includes GBP4 million of Debt Management investment awaiting settlement at
31 March 2016 (31 March 2015: nil).
4 Gearing is net debt as a percentage of net assets.
S
For further information, please contact:
Silvia Santoro
Investor Relations Director Tel: 020 7975 3258
Toby Bates
Interim Communications Director Tel: 020 7975 3032
For further information regarding the announcement of 3i's
annual results to 31 March 2016, including a live videocast of the
results presentation at 10.00am, please visit www.3i.com.
Notes to editors
3i is a leading international investment manager focused on
mid-market Private Equity, Infrastructure and Debt Management. Our
core investment markets are northern Europe and North America. For
further information, please visit: www.3i.com.
Notes to the announcement of the results
Note 1
All of the financial data in this announcement is taken from the
Investment basis financial statements. The statutory accounts are
prepared under IFRS for the year to 31 March 2016 and have not yet
been delivered to the Registrar of Companies. The statutory
accounts for the year to 31 March 2015 have been delivered to the
Registrar of Companies. The auditors' reports on the statutory
accounts for these years are unqualified and do not contain any
matters to which the auditor drew attention by way of emphasis or
any statements under section 498(2) or (3) of the Companies Act
2006. This announcement does not constitute statutory accounts.
Note 2
Copies of the Report and accounts 2016 will be distributed to
shareholders on or soon after 31 May 2016.
Note 3
This announcement may contain statements about the future
including certain statements about the future outlook for 3i Group
plc and its subsidiaries ("3i"). 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.
Note 4
Subject to shareholder approval, the proposed final dividend is
expected to be paid on 22 July 2016 to holders of ordinary shares
on the register on 17 June 2016.
Chairman's statement
"2016 has delivered another robust result which demonstrates the
value of our clear, consistent strategy and disciplined approach to
investment."
Overview
In my first year as Chairman, I am pleased to report that 3i
delivered another robust result. The Group has a clear, consistent
strategy and Simon Borrows and the team continue to make excellent
progress in positioning 3i as a business capable of delivering
attractive returns throughout the economic cycle.
Market environment
2015 was marked by considerable turbulence in global markets and
growth indicators in the US and Europe remained under pressure. As
a consequence, central bank monetary policy continued to be
supportive across all the major developed economies with interest
rates remaining at historic lows. 3i has limited direct exposure to
companies in the most challenged sectors and our portfolio
performed well, with our largest and strongest investments,
including Action, Scandlines and 3i Infrastructure plc, delivering
strong year-on-year improvements in performance.
Performance and dividend
In FY2016, total return increased by 25% to GBP824 million
(2015: GBP659 million). Net asset value increased to 463 pence per
share (31 March 2015: 396 pence) and return on opening
shareholders' funds was 21.7% (2015: 19.9%). We remained net
divestors during FY2016 and ended the year with a net cash position
of GBP165 million and available liquidity of GBP1,352 million (31
March 2015: net cash of GBP49 million and liquidity of GBP1,214
million). In light of this strong performance, the Board has
recommended a final dividend of 16 pence per share (2015: 14 pence
per share), resulting in a full year dividend of 22 pence per share
(2015: 20 pence per share), equivalent to 27% of cash realisation
proceeds (2015: 23%). This reflects the Board's continuing
confidence in both the Group's future prospects and its cash
generation capability. Subject to shareholder approval, we will pay
the final dividend of 16 pence (2015: 14 pence) in July 2016.
Our current dividend policy, set in May 2012, contemplates
distributions of between 15-20% of cash realisation proceeds
(subject to certain criteria on gross debt and gearing described
below) with a minimum dividend of 8.1 pence per year. As a result
of the Group's strong performance and conservative balance sheet
strategy, actual dividends have exceeded 20% of realised proceeds
in each of the years the policy has been in operation.
In light of the Group's continued progress in executing its
strategy, the quality of its investment portfolio and forecast
realisation pipeline, the Board has decided that with effect from
FY2017, the base dividend will increase to 16 pence per annum, with
an additional final dividend each year taking account of cash
realisations, the investment pipeline and the balance sheet at year
end. Consistent with our conservative approach, we will maintain
our criteria of only paying an additional final dividend provided
gross debt is less than GBP1 billion and gearing is less than 20%,
but do not expect this to be a practical constraint. Further detail
on the Group's approach to capital allocation is provided in the
Chief Executive's review.
Outlook
The combination of continuing market volatility and the upcoming
Brexit referendum is likely to weigh on investor sentiment, with
reduced M&A volumes and delays in capital investment likely to
persist while the uncertainty remains. However, I believe that 3i's
proprietary capital, selective investment approach and balance
sheet strength positions the Group well to deal with these
uncertain economic and financial conditions. A clear, consistent
strategy and disciplined approach to investment underpin our
confidence in the future success of the Group.
Simon Thompson
Chairman
Strategic report
Chief Executive's review
"2016 was another strong year for 3i and built on the success of
our recent restructuring. The Group's performance has been
resilient in the face of challenging macro-economic conditions and
volatile markets."
We have continued to execute our well established strategy,
making good progress against our key performance indicators, with
all three of our businesses building on the momentum seen in
previous years. 3i generated an excellent total return on opening
shareholders' funds of 21.7% (2015: 19.9%) and a NAV per share of
463 pence (31 March 2015: 396 pence). This year's financial and
operational performance, against a backdrop of volatile market
sentiment, demonstrates the depth of the Group's investment
capabilities and potential to generate attractive returns for
investors through the cycle.
Another year of resilient financial performance
Private Equity had an excellent year, generating a gross
investment return of GBP1,011 million, or 32% of opening value
(2015: GBP719 million, 24%). This reflects strong performance from
our larger investments, particularly Action, Basic-Fit and
Scandlines.
Action, the leading non-food discounter in continental Europe,
had another outstanding year with a 36% increase in EBITDA and
like-for-like sales growth of 7.6%. Action continued its successful
store roll-out programme, opening 141 net new stores in the year,
and at the end of 2015 had 655 stores in six countries (with a
total of 410 opened since our investment in 2011). Action's
international expansion has been a key driver of its success to
date, with France and Germany now the main markets for growth. In
addition, Action entered Austria and Luxembourg in 2015; early
progress is encouraging and provides further evidence that Action's
store concept travels well across borders. To enhance Action's
international growth plans, a third distribution centre opened
north of Paris in early 2016 and a fourth and fifth are planned for
Toulouse and Mannheim respectively. 2016 promises to be another
strong year for Action as it plans to open more stores than last
year. We acquired Action in 2011 as a Benelux retailer but in 2015,
Action opened more stores in France and Germany than in the Benelux
and it has now become a truly pan-European retailer.
I joined the Board of Peer Holding BV, Action's parent company,
last year in recognition of the importance of this investment to 3i
and in order to foster closer links between the two groups.
Scandlines, a large ferry operator with two high frequency,
large capacity routes between Germany and Denmark, continues to
perform well due to strong volume growth and a shift in mix towards
higher margin booking classes. The Danish Transport Ministry has
confirmed that the opening date of a competing tunnel, the Fehmarn
Belt Fixed Link, on Scandlines' key route between Rødby and
Puttgarden will be delayed further, which is an important
development for Scandlines.
Positive momentum continues at Basic-Fit, the leading discount
fitness operator in continental Europe, with very good earnings
growth and ongoing capital investment to upgrade its existing gym
portfolio and open new units. Basic-Fit is now Europe's largest
discount gym chain and had 351 gyms and 1.1 million members at 31
March 2016. It is another pan-European business, growing strongly
in France and Spain, having established market leadership in the
Netherlands and Belgium. On 17 May 2016, Basic-Fit announced its
intention to launch an Initial Public Offering and Listing on
Euronext Amsterdam.
The wider portfolio continues to perform well, notwithstanding
the slowing macro-economic conditions, with encouraging performance
from some of our newer investments. Our decision in 2012 to focus
our Private Equity resources on core sectors and geographies has
limited the negative impact from broader geo-political and economic
concerns. Our monthly portfolio monitoring means that potential
issues are highlighted early and any remedial actions put in place
promptly. However, we cannot be immune to issues in the markets in
which we operate. In particular, the impact of the lower oil price
on the wider energy and industrial sectors has impacted our
investments in JMJ and Dynatect. Reduced capital expenditure by oil
and gas companies has continued to affect JMJ, which provides
consultancy services to the sector. It has also had a negative
effect on Dynatect, a specialist provider of protection equipment.
Dynatect has a number of large customers which supply the capital
goods sector, including oil and gas, in the US and suffered from
reduced orders in 2015. Foreign exchange volatility has also
hindered trading for a number of our companies and the decline in
Russian consumer spending has had a negative impact on trading at
our lingerie retailer, Agent Provocateur. However, the portfolio is
performing well overall, with only a small minority of our
investments seeing earnings decline in 2015. Value weighted
earnings increased by 17% (2015: 19%) over the year.
The flow of realisations has continued and Private Equity
realised total proceeds of GBP743 million (2015: GBP831 million). A
supportive market for realisations in the first half of our
financial year meant that we continued to make good progress in
reshaping our portfolio. In total we disposed of 11 smaller or
older assets in the year which freed up investment executive time
to focus on origination and managing and ultimately maximising
value in our stronger assets.
As we noted at the half-year, we have reached a point in the
evolution of the portfolio where more of our realisations will come
from our stronger assets. Despite a more challenging macro-economic
environment for realisations in the second half of FY2016, we sold
Element Materials Technology ("Element"), one of our largest and
highest growth investments. Under 3i's ownership, Element completed
and successfully integrated 10 acquisitions which also delivered an
increase in EBITDA margin from 16% to 26%. As a result, revenue
nearly trebled to c.US$290 million and EBITDA quadrupled to US$80
million. Total cash proceeds to 3i on the sale were GBP188 million
with a money multiple of 3.9x (4.5x in euro). In total, cash
returns were GBP217 million, including the refinancing completed in
2014. This was an excellent result and all credit to the management
team at Element as well as our own Private Equity team.
Action completed a GBP1.2 billion senior debt refinancing,
despite deteriorating conditions in the debt markets, in February
2016. Action's performance and strong cash generation meant it had
been able to de-lever rapidly since its prior refinancing in 2015.
Such is the strength of the Action proposition that we have already
returned a 3.5x euro cash multiple on our original investment
without reducing our equity ownership. This transaction contributed
GBP168 million to the GBP185 million of realisations received from
refinancings this year.
We closed the year with a strong realisation pipeline and post
year end we announced the disposal of Amor, the market leader for
medium price jewellery in Germany, for estimated proceeds of GBP89
million and 2.5x original euro cost (2.3x in sterling) as well as
Mayborn, owner of the Tommee Tippee baby products brand, for GBP135
million (3.5x).
We have maintained the investment momentum seen in FY2015. In a
competitive market, our pricing discipline is paramount but we were
nevertheless able to secure three interesting new investment
opportunities through careful and well managed processes. We
invested GBP406 million (of which GBP365 million was 3i Group
proprietary capital) in Weener Plastic Packaging Group ("Weener
Plastic"), Euro-Diesel and Audley Travel as well as a further
investment in ATESTEO (formerly known as GIF) through the buyout of
the founding family's remaining interest.
The number of portfolio companies in Private Equity was 47
unquoted assets and five quoted stakes at 31 March 2016 (31 March
2015: 61 unquoted assets and four quoted stakes) and we remain on
target to meet our medium-term objective of holding 30-40 Private
Equity assets.
Finally, we reached an important milestone at 31 March 2016 with
the accounting recognition of carry receivable for Eurofund V. This
is an excellent achievement as the fund performance has recovered
from a low point of 0.6x in 2009 to 1.7x at 31 March 2016.
The Infrastructure team built on FY2015's excellent performance
and its core portfolio of European economic infrastructure assets
continues to perform well and underpins good levels of income for
the Group. The business generated cash income of GBP49 million
(2015: GBP47 million) through its fund advisory and management
activities and dividend income from 3i Infrastructure plc ("3iN").
The good portfolio performance also resulted in a NAV based
performance fee for 3i of GBP20 million (2015: GBP45 million). In
addition, 3i received a special dividend of GBP51 million (2015:
nil) from 3iN following its sale of Eversholt Rail.
Against a backdrop of intense competition for infrastructure
assets, and particularly for large core economic infrastructure
assets, the team advised 3iN on a revised return target, announced
in May 2015, and changed their investment focus towards mid-market
economic infrastructure businesses and primary PPP and low-risk
energy projects, which offer more attractive risk-adjusted returns.
The new leadership team has made a number of senior hires,
including a new origination partner, to support the strategic
development and momentum of the business. The change in focus and
high level recruitment has led to a material increase in
origination activity. Infrastructure announced the completion of
four new investments (two further terminals alongside Oiltanking,
ESVAGT, the West of Duddon Sands Offshore Transmission Owner and a
French PPP investment in Condorcet Campus) totalling GBP193 million
in the year. 3iN also announced a GBP75 million investment in
Wireless Infrastructure Group and a c.GBP154 million investment in
TCR, Europe's largest independent asset owner of airport ground
support equipment, in April 2016.
The success of the new investment strategy led to 3iN's
announcement on 12 May 2016 of its intention to raise new equity of
up to GBP350 million to fund new investments and its future
pipeline. We have indicated our intention to support the
transaction, and maintain our 34% interest in 3iN.
The Debt Management business had a successful year of fund
raising in Europe and the US and AUM increased to GBP8.1 billion
(31 March 2015: GBP7.2 billion). We closed four CLOs in the year,
raising AUM of GBP1.3 billion (2015: GBP2.2 billion) of CLO AUM
before negative investor sentiment around oil and gas, commodities
and utilities effectively closed the US CLO market between January
and March 2016. The European market, which generally has less
exposure to these sectors, was impacted to a lesser degree,
although it was effectively also closed for part of calendar Q1
2016. This market volatility has reduced the mark to market
valuation of our CLO portfolio but, as long-term holders of CLO
equity, our returns are ultimately driven by the cash flows, rather
than short-term unrealised fair value movements.
The team continued to make important progress in diversifying
the business and launched an open-ended senior debt fund, the
Global Income Fund, with US$75 million of seed money from 3i. Both
the Global Income Fund and the US Senior Loan Fund outperformed
their benchmarks in the year. In total, Debt Management contributed
GBP38 million of fee income (2015: GBP34 million) to the Group
during the year.
One of the key components of our improved financial performance
and resilience since 2012 has been a disciplined control over
operating expenses. Although we have recruited selectively within
our Private Equity and Infrastructure teams to support origination
and business development activity, costs remain tightly controlled
at 1% of AUM (2015: 1%). Cash income increased by 8% to GBP171
million (2015: GBP158 million) due to fee income and distributions
from our three businesses. As a result, operating cash profit
increased to GBP37 million (2015: GBP28 million).
Fragile market conditions create challenges and
opportunities
Throughout FY2016, we operated through periods of significant
economic, financial and geo-political volatility driven by concerns
about Chinese growth and the significant falls in oil and commodity
prices. Although the triggering events may change, we expect this
volatility to continue to be a feature throughout FY2017 and
beyond. This uncertainty is reducing M&A volumes and creates
volatility in thin equity markets. Nevertheless, the private equity
sector raised over $500 billion of new funds, increasing uninvested
capital, or "dry powder", to a record level of $1.3 trillion in
2015 (source: Bain & Company Inc.).
In our Private Equity business, our systematic approach to
planning for realisations allows us to be well prepared to maximise
value in competitive processes and through the IPO market when
conditions allow. The same factors drive our emphasis on the need
to remain selective in making new investments. Our strategy of
maintaining long-standing geographic teams with strong local
relationships means we can often originate investments outside
competitive processes and differentiate ourselves with management
teams.
As we do not have the pressure of a future third-party fund
mandate and timeline, we can step away from aggressive processes
but act with flexibility and speed using our proprietary capital
when suitable opportunities that meet our strict investment
criteria arise. For example, in December 2015, we were able to move
rapidly to secure the acquisition of Audley Travel by using the
Group's strong balance sheet to underwrite the debt as well as
provide the equity for this fast growing business. After securing
the acquisition, we refinanced the debt facilities with a
consortium of banks in January 2016.
Finally, our monthly portfolio monitoring process allows us to
react promptly and decisively to indications that the wider market
uncertainty is having a more direct effect on individual investment
strategies, as it is bound to do given current weak growth in many
sectors and geographies. This does not mean we can be completely
immune to the markets in which we operate, but it substantially
reduces the risk of material and realised losses that were a
feature of 3i's past.
Our Infrastructure team has responded to the low yield
environment by resetting its investment strategy away from the
larger infrastructure assets and projects, which are attracting
investors with lower return expectations. This has created a much
more active pipeline of investment opportunities. Debt Management
maintains an active trading approach to the underlying credit
investments in its funds to minimise the risk of defaults. This, in
turn, reinforces its successful credit management track record to
support future fund raising.
Well positioned to deliver good returns to shareholders
We are navigating these challenging market conditions with a
conservative and well-funded balance sheet. Our capital allocation
approach is unchanged since we announced our strategy in 2012 and
the progress.
The majority of our proprietary capital (83%) is invested in
Private Equity. Our planned rate of new investment in Private
Equity remains EUR500-EUR750 million in four to seven investments
per annum. After allowing for this, we expect to remain a
significant net divestor throughout the next five years, through a
combination of re-shaping the portfolio and, more fundamentally,
achieving our objective of generating at least a 2x money multiple
on new investments.
We ended the year with a healthy cash position, out of which we
will repay the 2017 EUR331 million bond (2016: GBP262 million)
which matures on 17 March 2017. As we announced separately today,
we intend to buy back the bond early to the extent there is
investor appetite to do so. We also intend to support 3iN's equity
fund raising.
In recognition of this year's strong performance, we have
announced an increased total dividend for FY2016 of 22 pence per
share (2015: 20 pence per share) and our strong balance sheet and
capital allocation approach underpins the enhancement of our
dividend policy going forward as set out in the Chairman's
statement.
Outlook
Our restructuring and simplified strategy has re-established 3i
as a more resilient business both commercially and financially.
This clear and consistent approach with its emphasis on active
asset management, cash generation and cost control has demonstrated
its value over the last 12 months as macro-economic pressures and
volatile debt and equity markets dampened market sentiment and
challenged individual businesses. As an investment company, we also
face the continual increase in financial and governance regulation
which is often not appropriate for our specific circumstances and
which inevitably leads to further cost and complexity for the
Group.
We enter our new financial year with those challenging
conditions still in place, but we remain confident that we can
deliver another resilient performance. We must maintain our price
and cost discipline and use the sector and geographic capabilities
within our investment platforms to produce consistently strong
returns for our shareholders and investment partners. This
approach, along with our strong balance sheet and a proprietorial
focus, gives us a fundamental competitive advantage in mid-market
private equity and infrastructure investment and underpins our
confidence in producing attractive financial returns. The
mid-market is limited in the scale of opportunity within it but the
breadth of our international platform and the long-term nature of
our proprietary capital make 3i an attractive partner for
management teams compared to many of our fund-financed
competitors.
This was an excellent year for the Group and I would like to
thank the 3i team for their good work and rigour. Our disciplined
approach, capable investment and management teams and strong
balance sheet underpin our objective of delivering mid to
high-teens returns to shareholders, accompanied by attractive cash
distributions.
Simon Borrows
Chief Executive
Action highlights
Since its establishment in 1993, Benelux-based Action
has grown into the leading European non-food discount
retailer with more than 650 stores in six countries
and over 29,000 employees. This compares to 245
stores across the Benelux and Germany and more than
7,000 employees when 3i and Funds invested in the
business in June 2011. EBITDA has almost tripled
from EUR77 million in 2010 to EUR226 million in
2015. The business now generates revenues of c.EUR2.0
billion per annum, up from EUR600 million. The majority
of sales are now outside Action's home country.
Action's business model differs from that of more
traditional retailers because only a third of articles
are part of its standard range. Large-scale procurement,
optimal distribution and a cost-conscious corporate
culture ensure very low prices. Action was voted
European Retailer of the Year for the second consecutive
year in 2015.
=========================================================
Our strategic objectives
To increase 3i's competitive advantage, we focus on
opportunities where our sector and market expertise, combined with
our strong capital position, can create material value for
shareholders.
2016 progress 2017 outlook
=========================== ============================ ===========================================================
1
Grow investment portfolio Weighted average * Strongest assets are well positioned in their chosen
earnings LTM earnings(1) increased by markets
17%
* Macro-economic pressures expected to continue
* Planned M&A activity in our newer investments
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2
Realise investments with Private Equity proceeds of * Private Equity expects to remain a net divestor in
good cash-to-cash returns GBP743m FY2017 due to a healthy pipeline of realisations and
significant amounts of capital chasing limited
investment opportunities that may mean that prices
move outside our target range
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3
Maintain an operating cash Operating cash profit of * Subject to market conditions, Debt Management expects
profit GBP37m to raise further funds in the US and Europe
* Continue to focus on generating income from Private
Equity
* Remain disciplined over costs
=========================== ============================ ===========================================================
4 Proprietary capital
Use our strong balance GBP4.5bn * Subject to available investment opportunities, we
sheet plan to invest EUR500 million - EUR750 million p.a.
Net cash in four to seven Private Equity investments
GBP165m
* Support 3iN's equity fund raising with an intention
to maintain our 34% investment
* FY2017 bond repayment of EUR331 million will be met
out of cash resources
=========================== ============================ ===========================================================
5
Increase shareholder Dividend of * Announced updated dividend policy and expect to pay a
distributions 22p base dividend of 16 pence per share in respect of
FY2017 and an additional dividend based on a share of
net realised proceeds
=========================== ============================ ===========================================================
1 Last 12 months ("LTM") earnings in Private Equity companies
valued on an EBITA/EBITDA basis (31 companies).
Key performance indicators
How we performed
For definitions, please see our glossary
Rationale Rationale Rationale
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Gross investment return ("GIR") as % of opening portfolio value Cash realisations (GBPm) Cash investment (GBPm)
GIR is how we measure the performance of the proprietary Cash proceeds representing our proprietary share of investment Identifying new opportunities in which to invest proprietary
investment portfolio expressed as realisations completed during capital is the primary driver
a percentage of the opening portfolio value. the year support our returns to shareholders, as well as our of the Group's ability to deliver attractive returns. We also
ability to invest in new opportunities. invest further capital in existing
investments.
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2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016
------------- ------------- ------------- -------------------- -------------- -------------- -------------- ------------------ -------------- -------------- -------------- ------------------
19% 20% 23% 28% GBP606m GBP677m GBP841m GBP771m GBP149m GBP337m GBP474m GBP453m
------------- ------------- ------------- -------------------- -------------- -------------- -------------- ------------------ -------------- -------------- -------------- ------------------
2016 progress 2016 progress 2016 progress
* Strong performance in Private Equity with GIR of 32% * Realised proceeds of GBP743m (2015: GBP831m) from the * Invested GBP365 million of proprietary capital (2015:
particularly from Action, Scandlines, ATESTEO disposal of 12 Private Equity companies, the GBP369m), in three new Private Equity investments in
(formerly GIF) and Basic-Fit refinancing of two assets and selling down holdings our core industrial and consumer sectors, as well as
in four quoted stakes a further investment in ATESTEO
* Following two years of substantial foreign exchange
translation losses, the weakening of sterling against * Received a GBP51m special dividend from 3iN following * Supported the launch of four CLOs by investing GBP60m
the euro led to GBP188m of foreign exchange its sale of Eversholt Rail in CLO equity
translation gains on our investment portfolio
* Provided US$75m of seed capital to Debt Management to
* Infrastructure and Debt Management contributed launch its Global Income Fund
valuable cash income to the Group
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Key risks Key risks Key risks
* Investment rates or quality are lower than expected * Subdued M&A activity in our core sectors reduces * High prices reduce the attractiveness of potential
investor appetite for our assets investment opportunities
* Subdued M&A activity and/or reduced prices in 3i's
core sectors could impact timing of exits and cash * Uncertainty around Brexit limits willingness to * Failure to attract, invest in and retain the right
returns invest investment executives
* Operational underperformance in the portfolio * Failure to develop our Business Leaders Network
companies impacts earnings growth and exit plans
* Market volatility, particularly in buyouts, reduces
* Inability to invest in the right people to support available liquidity to support investment
our operations
* Sterling materially strengthens against the euro and
US dollar
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Link to strategic objectives: 1,2 Link to strategic objectives: 2,5 Link to strategic objectives: 1, 4, 5
----------------------------------------------------------------- ------------------------------------------------------------------ ------------------------------------------------------------------
Rationale Rationale Rationale
---------------------------------------------------------------------- ----------------------------------------------------------------- -------------------------------------------------------------------
Operating cash profit (GBPm) Net asset value ("NAV") per share (pence) Total shareholder return ("TSR") (%)
By covering the annual cost of running our business with annual cash NAV per share is the measure of the fair value of our TSR measures the return to our shareholders through the movement
income, we eliminate proprietary investments after the net in the share price and the
the potential dilution of capital returns. costs of operating the business. dividends paid during the year.
---------------------------------------------------------------------- ----------------------------------------------------------------- -------------------------------------------------------------------
2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016
---------------- -------------- --------------- ------------------- ------------- ------------- ------------- -------------------- --------------- ---------- ---------- ---------- --------------
GBP(8)m GBP5m GBP28m GBP37m 311 348 396 463 TSR 54% 30% 27% (2)%
---------------- -------------- --------------- ------------------- ------------- ------------- ------------- -------------------- --------------- ---------- ---------- ---------- --------------
Share price 50% 26% 22% (6)%
---------------------------------------------------------------------- ----------------------------------------------------------------- --------------- ---------- ---------- ---------- --------------
Dividend 4% 4% 5% 4%
------------------------------------------------------------------- ------------- ------------- ------------- -------------------- --------------- ---------- ---------- ---------- --------------
2016 progress 2016 progress 2016 progress
* Continued improvement in operating cash profit to * Good progression in NAV per share to 463p, up 17% in * TSR of (2)% as the final FY2015 dividend of 14.0p
GBP37m driven by increase in operating cash income the year paid in July 2015 and the interim FY2016 dividend of
across the business lines 6.0p paid in January 2016 were offset by the fall in
the share price to 456p at 31 March 2016 (31 March
* Strong gross investment return contribution from 2015: 482p)
* Good levels of dividend income in Private Equity more Private Equity
than offset reduced levels of fee income from managed
funds * Our continued net divestment activity and strong
* Due in part to concerns over a potential Brexit, balance sheet, including a closing net cash position,
sterling materially weakened against the euro supported a full year dividend of 22.0p per share
* Increased AUM and CLO equity in Debt Management (2015: 20.0p)
* Disciplined approach to costs, which remain at 1% of
AUM
---------------------------------------------------------------------- ----------------------------------------------------------------- -------------------------------------------------------------------
Key risks Key risks Key risks
* Portfolio performance, and therefore portfolio income, * Brexit creates uncertainty and further dampens * Lower NAV due to investment underperformance or
is weak investor sentiment political and economic uncertainty
* Unplanned increase in the cost base; for example * Wider G20 political and economic uncertainty impacts * Investor appetite in a volatile macro-economic
legal, regulatory or compliance costs 3i's portfolio companies and valuations environment
* Reduction in assets under management in Debt
Management
* Ability to generate interest and dividends in a
Private Equity structure
* Investor appetite in a volatile macro-economic
environment
---------------------------------------------------------------------- ----------------------------------------------------------------- -------------------------------------------------------------------
Link to strategic objectives: 3,5 Link to strategic objectives: 1, 2, 3 Link to strategic objectives: 5
---------------------------------------------------------------------- ----------------------------------------------------------------- -------------------------------------------------------------------
Business review
Private Equity
"An excellent year with a gross investment return of 32%, good
progress on realisations and three important new investments."
Alan Giddins and Menno Antal
Managing Partners and Co-heads of Private Equity
Business performance
Private Equity, the largest contributor to the Group's returns,
delivered a strong performance in the year. The gross investment
return of GBP1,011 million, or 32% on the opening portfolio (2015:
GBP719 million, 24%), reflected the robust performance of our
largest investments. The portfolio proved its resilience against a
backdrop of volatile markets and difficult macro-economic
conditions due to its strength and diversified nature. We continue
to have no direct exposure to the energy and commodity sectors. The
impact of the weak oil and commodity prices remains limited to a
small number of assets with indirect exposure, such as JMJ and
Dynatect. Weighted average earnings (including the benefit of
portfolio acquisitions) increased by 17% in the last 12 months
(2015: 19%) reflecting the continued strong growth trajectory in
Action, as well as encouraging performance in a number of our newer
investments.
Investment activity
The investment activity seen in FY2015 continued throughout
FY2016. Although levels of M&A activity have moderated,
particularly in the first quarter of the calendar year 2016,
valuations remain high as there is still a substantial amount of
capital searching for new investment opportunities. Importantly, we
maintained our pricing discipline and invested GBP406 million, of
which GBP365 million was proprietary capital.
We invested in three new businesses in the year; Weener Plastic,
Euro-Diesel and Audley Travel. Alongside a co-investor who
contributed EUR50 million, we invested EUR201 million in Weener
Plastic, a manufacturer of plastic packaging systems headquartered
in Germany. Euro-Diesel is a leading provider of stand-by diesel
power supply systems, based in Belgium, in which we invested EUR71
million of proprietary capital. In December 2015, we invested
GBP156 million in Audley Travel, a luxury provider of tailor-made
travel experiences based in the UK. The initial investment included
a GBP85 million bridging loan whilst Audley's existing facility was
refinanced. The loan was repaid in full in January 2016; an
excellent example of how our strong balance sheet can facilitate
good investments in more volatile debt markets. In addition to
these new investments, we also took the opportunity to purchase a
minority stake in a 2013 investment, ATESTEO (formerly known as
GIF) from the founding family.
Table 1: Private Equity cash investment in the year to 31 March
2016
Proprietary
Total capital
investment investment
Investment Type Business description Date GBPm GBPm
=============== ======== ===================================================== ======= ========== ===========
Weener Plastic New Manufacturer of innovative plastic packaging systems Aug 15 183 144
Euro-Diesel New Manufacturer of uninterruptible power supply systems Sep 15 53 52
Audley Travel New Provider of tailor-made experiential travel Dec 15 159 156
ATESTEO Further International transmission testing specialist Aug 15 12 11
Other Further n/a n/a (1) 2
=============== ======== ===================================================== ======= ========== ===========
Total Private Equity investment 406 365
================================================================================ ======= ========== ===========
Realisations activity
Market conditions were favourable for realisations in the first
half of the 2015 calendar year, which enabled us to continue to
divest 11 of our smaller or older assets. As we continue to reshape
the portfolio, we expect more of our future realisations will be
driven by our larger, stronger assets. In December 2015, we
announced the disposal of Element at a euro money multiple of 4.5x
(3.9x in sterling).
Realisations and refinancings generated aggregate proceeds of
GBP743 million (2015: GBP831 million) in the year. Excluding
refinancings of GBP185 million, which are usually recognised
primarily as a repayment of shareholder loans or capital and
therefore do not generate a material increase in value, this
represented an uplift over opening value of GBP67 million, or 14%
(2015: GBP144 million, 27%). The lower uplift reflects the fact
that the majority of disposals were smaller or non-core assets,
held on an imminent sales basis at 31 March 2015, or were from the
quoted portfolio.
At 31 March 2016, there were 47 assets and five quoted stakes in
the portfolio, down from 61 assets and four quoted stakes at 31
March 2015, and we remain on track to meet our longer-term
objective of holding fewer than 40 Private Equity investments.
Table 2: Private Equity realisations in the year to 31 March
2016
Profit/(loss) Uplift
31 March 3i on Money
Calendar 2015 realised in the opening Residual multiple
Country/ year value(1) proceeds year(2) value(2) value over
Investment region invested GBPm GBPm GBPm % GBPm cost(3) IRR
================== ================ ========== ======== ======== ============= ======== ======== ======== =====
Full realisations
Element Benelux 2010 145 179 36 25% - 3.9x 31%
Azelis Benelux 2007 62 63 1 2% - 1.1x 1%
Labco France 2008 36 42 6 17% - 0.7x (6)%
Touchtunes USA 2011 39 40 1 3% - 2.2x 23%
Soyaconcept Nordic 2007 16 17 - -% - 2.0x 13%
Blue Interactive Brazil 2012 14 12 1 9% - 0.4x (22)%
Boomerang Spain 2008 7 11 4 57% - 0.6x (8)%
Consultim France 2007 12 10 (2) (17)% - 1.5x 6%
Inspecta Nordic 2007 6 6 1 20% - 0.1x (40)%
Other investments n/a n/a 4 11 6 n/a - n/a n/a
Partial
realisations(1,3)
Quintiles USA 2008 50 53 3 6% 92 3.1x 23%
Scandlines Denmark/Germany 2007/2013 38 38 - -% 369 3.2x 29%
Eltel Nordic 2007 31 30 (1) (3)% 20 1.0x (1)%
UFO Moviez India 2007 14 17 3 21% 12 2.6x 14%
Refresco Gerber Benelux 2010 9 11 2 22% 44 1.8x 12%
Other investments n/a n/a 10 11 1 n/a 63 n/a n/a
Refinancings
Action Benelux 2011 168 168 - -% 902 11.6x 80%
Geka Germany 2012 15 17 2 13% 55 1.3x 6%
Deferred consideration
Other investments n/a n/a 2 7 5 n/a n/a n/a n/a
================== ================ ========== ======== ======== ============= ======== ======== ======== =====
Total Private Equity realisations 678 743 69 10% 1,557 2.6x n/a
==================================== ========== ======== ======== ============= ======== ======== ======== =====
1 For partial realisations, 31 March 2015 value represents value of stake
sold.
2 Cash proceeds in the period over opening value realised inclusive of
foreign exchange.
3 Cash proceeds over cash invested. For partial realisations and refinancings,
valuations of any remaining investment are included in the multiple.
The sterling multiple includes the impact of foreign exchange, where
appropriate.
Assets under management
Total AUM decreased to GBP3.5 billion in the year (31 March
2015: GBP3.8 billion), principally due to the continued net
divestment activity. Encouragingly, the performance of Eurofund V
("EFV") and the Growth Capital Fund continued to improve, with
gross money multiples at 31 March 2016 of 1.7x and 1.8x
respectively (31 March 2015: 1.4x, 1.7x). The investments made in
EFV's 2010-2012 investment period continue to show very strong
performance, with a money multiple of 3.4x at 31 March 2016 (31
March 2015: 2.6x). The Growth Capital Fund benefited from the
realisation of Labco and further disposals of Quintiles, a quoted
holding. The value of 3i's Proprietary Capital increased to GBP3.7
billion in the year (31 March 2015: GBP3.1 billion) and, inclusive
of third-party funds, increased to EUR6.8 billion (31 March 2015:
EUR6.3 billion).
We concluded a review of our resources and investment
opportunities during the year. As a result, we are planning for a
reduction in our Nordic team while we seek to increase the size of
the investment teams in some of our key geographies in Europe and
the US.
Outlook
We remain focused on the investment pipeline for FY2017,
sourcing attractive opportunities through our international team
and network of advisers and business leaders, whilst maintaining
price discipline. Conditions for M&A are expected to remain
volatile and, whilst our portfolio companies cannot be immune to
macro-economic pressures, our rigorous investment process and
active portfolio management approach allows us to address such
issues promptly.
Table 3: Private Equity assets under management at 31 March
2016
Gross Fee income
Remaining 3i % money received
commitment(1) invested multiple(2) in the
Close Original Original 3i at March at March at March year
Private Equity date fund size commitment 2016 2016 2016 AUM GBPm
======================= ======== ========= =========== ============= ======== =========== ========= ==========
3i Growth Capital Fund Mar 10 EUR1,192m EUR800m EUR346m 53% 1.8x EUR266m 2
3i Eurofund V Nov 06 EUR5,000m EUR2,780m EUR116m 94% 1.7x EUR1,809m 9
3i Eurofund IV Jun 04 EUR3,067m EUR1,941m EUR82m 95% 2.3x EUR533m -
Other Various Various Various n/a n/a n/a GBP1,370m 2
======================= ======== ========= =========== ============= ======== =========== ========= ==========
Total Private Equity AUM GBP3,512m 13
================================================================================== =========== ========= ==========
1 All funds are beyond their investment period.
2 Gross money multiple is the cash returned to the fund plus remaining
value as at 31 March 2016, as a multiple of cash invested.
Infrastructure
"Infrastructure had a busy year in terms of business activity,
demonstrating our ability to access attractive investment
opportunities in a competitive market."
Ben Loomes and Phil White
Managing Partners and Co-heads of Infrastructure
The Infrastructure business performed well in the year, building
on the strong result in FY2015 driven by the sale of 3iN's holding
in Eversholt Rail. Infrastructure delivered a gross investment
return of GBP47 million, or 8% on the opening portfolio (2015:
GBP96 million, 20%). The business generated cash income of GBP49
million through its fund advisory and management activities and
dividends received from 3iN (2015: GBP47 million). In addition, 3i
received a GBP51 million special dividend from 3iN (2015: nil)
following 3iN's sale of Eversholt Rail.
Investment Adviser to 3iN
To reflect the compression in market returns and the evolution
of the composition of 3iN's underlying investment portfolio, 3iN's
total return target was updated to between 8% and 10% to be
delivered over the medium term (previously a 10% annual target) in
May 2015. Given the competition for large core assets in the global
infrastructure sector, the team has focused on sourcing mid-market
economic infrastructure and greenfield projects across Europe. The
team made good progress against these revised objectives and
advised 3iN on four new investments in its target markets totalling
GBP193 million (2015: GBP114 million) as well as the GBP75 million
investment in Wireless Infrastructure Group, the c.GBP154 million
investment in TCR and the c.GBP4 million investment in Hart van
Zuid announced in April 2016. On 12 May 2016, 3iN announced its
intention to raise new equity of up to GBP350 million to fund new
investments and its future pipeline.
3iN has built an attractive portfolio of economic infrastructure
assets across Europe which performed well and generated a strong
total return of 14% in FY2016. In particular, the portfolio
valuation benefited from positive regulatory developments for
Elenia, an electricity distribution and district heating company
based in Finland. This performance builds on the strong long-term
performance of 3iN, which has delivered an annualised total
shareholder return of 11.3% since its IPO in 2007.
Under the terms of the advisory agreement, 3i received an
advisory fee of GBP16 million (2015: GBP16 million) and a NAV based
performance fee of GBP20 million (2015: GBP45 million) from 3iN, of
which GBP15 million (2015: GBP34 million) was accrued as payable to
the team.
Business performance
3iN performance
In addition to being its investment adviser, 3i holds a 34% (31
March 2015: 34%) stake in 3iN. Reflecting its strong positioning,
3iN's share price continued to perform well in a year of equity
market volatility and generated a total shareholder return of
13%.
3i's investment in 3iN contributed GBP33 million of unrealised
value (2015: GBP77 million) and GBP21 million of dividend income
(2015: GBP20 million). In July 2015, 3iN also paid a GBP150 million
special dividend to shareholders, following its sale of Eversholt
Rail. 3i's share of the special dividend, GBP51 million, was
treated as realised proceeds.
Assets under management
The Infrastructure AUM decreased to GBP2.4 billion (31 March
2015: GBP2.5 billion) principally due to the payment of the special
dividend from 3iN. In addition, the performance of the assets in
the India Infrastructure Fund remained weak; the economic
environment and ongoing depreciation of the rupee against the US
dollar, in which the fund is denominated, resulted in a GBP11
million reduction in the value of 3i's direct share of the 3i India
Infrastructure Fund to GBP53 million (31 March 2015: GBP64
million).
Outlook
The team's focus on origination and asset management
capabilities together with a healthy pipeline of attractive
investment opportunities across our target markets means that the
business remains well placed to continue its current good
performance and to grow its assets under management through
selective investment.
Table 4: Infrastructure assets under management at 31 March
2016
Gross Fee income
Remaining 3i % money received
commitment invested multiple(1) in the
Original Original 3i at March at March at March year
Close date fund size commitment 2016 2016 2016 AUM GBPm
============= ============= ========== ============ ============= ======== =========== ============ ==========
3iN Mar 07 n/a n/a n/a n/a n/a GBP1,248m(2) 16
BIIF May 08 GBP680m n/a n/a 90% n/a GBP580m 5
BEIF II Jul 06 GBP280m n/a n/a 97% 1.1x GBP80m 2
India fund Mar 08 US$1,195m US$250m US$35m 73% 0.5x US$584m(3) 4
Other Various Various Various n/a n/a n/a GBP145m 1
============= ============= ========== ============ ============= ======== =========== ============ ==========
Total Infrastructure AUM GBP2,406m 28
============================ ===================================== ======== =========== ============ ==========
1 Gross money multiple is the cash returned to the fund plus remaining
value as at 31 March 2016, as a multiple of cash invested.
2 Based on latest published NAV (ex-dividend).
3 Adjusted to reflect 3iN's US$250 million share of the fund.
Debt Management
"A solid year with four new CLOs and a new fund launch, despite
volatility in the credit markets."
Jeremy Ghose
Managing Partner and CEO, 3i Debt Management
Business performance
The Debt Management team continued to make good progress in fund
raising despite more volatile conditions for CLO issuance. AUM
increased to GBP8.1 billion (31 March 2015: GBP7.2 billion) as good
levels of fund raising activity and favourable foreign exchange
rates more than offset the impact of the run off of older funds. An
important source of operating cash income, the business generated
GBP38 million of fee income in the year (2015: GBP34 million) and
portfolio income of GBP35 million (2015: GBP21 million).
The pricing of debt instruments has been subject to significant
volatility since the middle of 2015, particularly in the US, due to
increased credit concerns about specific sectors such as oil and
gas, metals and mining, energy and utilities. The European market,
which generally has more limited exposure to oil and gas and metals
and mining, experienced less volatility. As long-term holders of
CLO equity positions, our returns are ultimately driven by the cash
flows and the realised default and loss rates in the portfolio,
rather than short-term unrealised fair value movements, but we
remain subject to the impact of mark-to-market volatility.
Fund raising activity
Debt Management made good progress, particularly in the first
half of our financial year, in generating new AUM.
The team closed two CLOs in Europe, Harvest XII and Harvest XIV,
and two in the US, Jamestown VII and Jamestown VIII, raising a
total of GBP1.3 billion new CLO AUM. CLO issuance slowed
significantly in the second half of our financial year. US CLO
issuance in the three months to 31 March 2016 was 25% of the prior
year CLO volumes. However, following an improvement in sentiment
from March 2016, prices are recovering and our latest European CLO,
Harvest XV, priced at the end of March and closed on 12 May 2016.
We also had an open CLO warehouse vehicle in the US in anticipation
of launching the first US CLO of FY2017.
Following on from the successful launch of the European Middle
Market Loan Fund, we continued to diversify our product offering
and launched a new Global Income Fund with US$75 million of seed
capital from 3i. The fund is an open-ended senior debt fund that
invests across the US and Europe and, as at 31 March 2016, had AUM
of US$188 million. The US Senior Loan Fund also continued to
perform strongly, outperforming its benchmarks, and AUM increased
to US$178 million (31 March 2015: US$157 million).
Proprietary Capital investment
Including the US$75 million seed capital contributed to the
Global Income Fund, we had GBP229 million (31 March 2015: GBP176
million) of proprietary capital invested in the Debt Management
business at 31 March 2016. 3i is required to hold a minimum 5%
stake in the European CLOs it manages. We also structure our US
CLOs in anticipation of the implementation of similar risk
retention rules in the US in December 2016. Our ability to comply
with the risk retention rules is important as it is now a
prerequisite for managers, even in the US, to demonstrate
compliance with the regulatory rules.
In addition to the investments 3i makes in the CLOs for
regulatory reasons, 3i is also the first loss investor in the
majority of the warehouse facilities used to accumulate loans prior
to the launch of a CLO. At 31 March 2016, the total invested by 3i
in these facilities was GBP17 million (31 March 2015: GBP43
million).
Table 5 details cash investment in the year.
Table 5: Debt Management cash investment in the year to 31 March
2016
Total 3i
investment
Investment Type Date GBPm
======================= ============================= ======== ==========
Global Income Fund Open-ended senior debt fund Jun 15 48
Harvest XII New European CLO Aug 15 15
Jamestown VII New US CLO Aug 15 15
Harvest XIV New European CLO Nov 15 28
Jamestown VIII New US CLO Dec 15 5
Jamestown III Further investment in US CLO Mar 16 4
European warehouses(1) Warehouse Various (39)
US warehouse Warehouse Various 10
Other n/a Various 2
======================= ============================= ======== ==========
Total Debt Management investment 88
====================================================== ======== ==========
1 Net cash received back from warehouses on the successful close of the
European CLOs.
Outlook
The underlying credit performance of the portfolios underpinning
our CLOs and other funds remains sound, with metrics outperforming
market benchmarks despite the challenging year. Given our strong
relationships with investors and ability to meet current and future
fund risk retention requirements, we are in a good position to
continue launching new CLOs and raising funds, if market conditions
permit and returns are sufficiently attractive.
Risk management
Effective risk management underpins the successful delivery of
our strategy. Integrity, rigour and accountability are central to
our values and culture at 3i and are embedded in our approach to
risk management.
Understanding our risk appetite and culture
As both an investor and asset manager, 3i is in the business of
taking risk in order to seek to achieve its targeted returns for
investors and shareholders. The Board approves the strategic
objectives that determine the level and types of risk that 3i is
prepared to accept. The Board reviews 3i's strategic objectives and
risk appetite at least annually.
In order to support its institutional asset management
capability, 3i's risk appetite policy is built on rigorous and
comprehensive investment procedures and conservative capital
management.
Culture
Integrity, rigour and accountability are central to our values
and culture and are embedded in our approach to risk management.
Our Investment Committee which has oversight of the investment
pipeline development and approves new investments, significant
portfolio changes and divestments, is integral to embedding our
institutional approach across the business. It ensures consistency
and compliance with 3i's financial and strategic requirements,
cultural values and appropriate investment behaviours. Members of
the Executive Committee have responsibility for their own business
or functional areas and the Group expects individual behaviours to
meet the Group's high standards of conduct. All employees share the
responsibility for upholding 3i's strong control culture and
supporting effective risk management. Senior managers, typically
those who report to Executive Committee members, are required to
confirm their individual and business area compliance. In addition,
all staff are assessed on their compliance with the Group values as
part of their annual appraisal.
The following sections explain how we control and manage the
risks in our business. It outlines the key risks, our assessment of
their potential impact on our business in the context of the
current environment and how we seek to mitigate them.
Risk appetite
3i's risk appetite is defined by its objective to invest proprietary capital
in assets that generate sufficient proceeds to fund new opportunities
and allow material shareholder distributions as well as good levels of
cash income.
Investment risk
The substantial majority of the Group's capital is invested in Private
Equity. Private Equity investments are subject to a range of factors which
include:
* Return objective: individually assessed but subject
to a target 2x money multiple over three to five
years
* Geographic focus: core markets of northern Europe and
North America
* Sector expertise: focus on Business Services,
Consumer and Industrials
* Vintage: invest c.EUR500 million-EUR750 million per
annum in four to seven new investments in companies
with an enterprise value range of EUR100
million-EUR500 million at investment
Our other two businesses are more modest users of proprietary capital
but each investment is subject to rigorous review.
Capital management
3i adopts a conservative approach to managing its capital resources. There
is no appetite for significant structural gearing at the Group level although
short-term tactical gearing will be used. In addition, we have a limited
appetite for the dilution of capital returns as a result of operating
and interest expenses. All three of our business lines, Private Equity,
Infrastructure and Debt Management also generate cash income to mitigate
this risk.
3i Group's Pillar 3 document can be found at www.3i.com
==============================================================================
Risk management
Approach to risk governance
The Board is responsible for risk assessment, the risk
management process and for the protection of the Group's reputation
and brand integrity. It considers the most significant risks facing
the Group and uses quantitative analyses, such as the vintage
control which considers the portfolio concentration by revenue,
geography and sector, and liquidity reporting, where
appropriate.
Non-executive oversight is also exercised through the Audit and
Compliance Committee which focuses on upholding standards of
integrity, financial reporting, risk management, going concern and
internal control.
The Board has delegated the responsibility for risk oversight to
the Chief Executive. He is assisted by the Group Risk Committee
("GRC") in managing this responsibility, guided by the Board's
appetite for risk and any specific limits set. The GRC maintains
the Group risk review, which summarises the Group's principal
risks, associated mitigating actions and key risk indicators, and
identifies any changes to the Group's risk profile. The risk review
is updated quarterly and the Chief Executive provides quarterly
updates to each Audit and Compliance Committee meeting where the
Committee members contribute views and raise questions. The last
risk review was completed in May 2016.
The risk framework is further augmented by a separate Risk
Management Function which has specific responsibilities under the
European Alternative Investment Fund Managers Directive ("AIFMD").
It meets ahead of the GRC meetings to consider the key risks
impacting the Group, and any changes in the relevant period where
appropriate. It also considers the separate risk reports for each
AIF managed by the Group, including areas such as portfolio
composition, portfolio valuation, operational updates and team
changes, which are then considered by the GRC.
Assurance over the robustness and effectiveness of the Group's
overarching risk management processes and compliance with relevant
policies is provided to the Audit and Compliance Committee through
the independent assessment by Internal Audit and the work of Group
Compliance on regulatory risks.
Assurance over the robustness of the Group's valuation policy is
provided by the Valuations Committee.
Risk management framework
The Group's risk management framework is designed to support the
delivery of the Group's strategic objectives.
The key principles that underpin risk management in the Group
are:
- The Board and the Executive Committee promote a culture in
which risks are identified, assessed and reported in an open,
transparent and objective manner; and
- The over-riding priority is to protect the Group's long-term
viability and reputation and produce sustainable, medium to
long-term cash-to-cash returns.
Managing the Group's Environmental, Social and Governance
("ESG") risks is central to how we do business and a key part of
our risk management framework. It also forms part of our
half-yearly portfolio company reviews as described in the
Valuations Committee report in the Annual report 2016.
In practice, the Group operates a "three lines of defence"
framework for managing and identifying risk. The first line of
defence against outcomes outside our risk appetite is the business
function and the respective Managing Partners across Private
Equity, Infrastructure and Debt Management.
Line management is supported by oversight and control functions
such as finance, human resources and legal which constitute the
second line of defence. The Compliance function is also in the
second line of defence; its duties include reviewing the effective
operation of our processes in meeting regulatory requirements.
Internal Audit provides independent assurance over the operation
of controls and is the third line of defence. The internal audit
programme includes the review of risk management processes and
recommendations to improve the internal control environment.
Risk review process
The Group risk review process includes the monitoring of key
strategic and financial metrics considered to be indicators of
potential changes in the Group's risk profile. The review includes,
but is not limited to, the following reference data:
- Financial performance and strategic dashboards
- Vintage control and asset allocation analysis
- Macro-economic and M&A market overview
- Liquidity management
- Capital adequacy, including stress testing
- Operating expenses
- Portfolio performance reports for Private Equity, Infrastructure and Debt Management
- Risk reports for managed AIFs
- Quarterly Group risk log
In addition to the above, the GRC considers the impact of any
changes and developments in its risk profile, strategic delivery
and reputation quarterly.
The GRC uses the above to identify a number of key risks. It
then evaluates the impact and likelihood of each key risk, with
reference to associated measures and key performance indicators.
The adequacy of the mitigation plans is then assessed and, if
necessary, additional actions are agreed and then reviewed at the
subsequent meeting.
A number of focus topics are also agreed in advance of each
meeting. In FY2016, the GRC covered the update to the Group's IT
strategy; 3i's approach to ESG especially with respect to its
portfolio companies; business continuity and cyber security; an
update on the implementation of Infrastructure's revised strategy,
as well as the changes to the UK Corporate Governance Code and
relevant risks for 3i associated with the UK EU referendum.
There were no significant changes to the Group's approach to
risk governance or its operation in FY2016 but we have continued to
refine our framework for risk management and reporting where
appropriate.
Further details on 3i's approach as a responsible investor are
available at www.3i.com
Review of principal risks
The disclosures on the following pages are not an exhaustive
list of risks and uncertainties faced by the Group, but rather a
summary of those principal risks which are under active review by
the GRC and Board, and are believed to have the potential to affect
materially the achievement of the Group's strategic objectives and
impact its financial performance, reputation and brand
integrity.
The Group's risk profile and appetite remain broadly stable.
Although the economic outlook deteriorated and market volatility
and uncertainty increased in the second half of our financial year,
the Group's overall risk profile has not changed significantly. The
Group believes that its consistent strategy of focusing on core
sectors and geographies, its institutional process-led approach to
investment and strong culture have helped it to maintain its stable
risk profile.
External
The external environment remains difficult. There has been a
significant amount of uncertainty in the Eurozone and the wider
emerging markets' economies fuelled by a challenging global
macro-economic context and ongoing geo-political tensions,
including the UK referendum on EU membership. In addition, there is
also some evidence of softening of US and Eurozone growth rates.
The Group continues to monitor all of these events closely.
The Group is subject to a range of regulatory and tax reporting
requirements which continue to evolve. These include the AIFMD,
regulations under the European Market Infrastructure Regulation
("EMIR"), Capital Requirements Directive IV ("CRDIV"), the FCA's
Client Asset rules ("CASS"), the Foreign Account Tax Compliance Act
("FATCA") and the OECD's Common Reporting Standard. These
developments have resulted in increased reporting requirements,
operational complexity and operational cost to the business.
Managing these regulatory requirements is a key priority and they
are the subject of regular updates to Executive Committee and the
Board. To date, they have had limited practical impact on 3i's
ability to deliver its strategy.
Looking forward, although the Base Erosion and Profit Shifting
("BEPS") proposals have now been published, it is not clear how
individual countries will implement these proposals and the timing
and extent of implementation as they do. The UK is already in the
process of changing its domestic tax rules and implementing certain
BEPS actions such as country-by-country reporting and limiting the
tax deductibility for interest expense. The OECD has indicated that
further detail on some of the proposals will be published in 2016.
The Group continues to monitor developments carefully and intends
to comply with new rules as and when they are implemented.
Investment
Being an investment company, there are a number of significant
risks that impact our ability to achieve our strategic objectives.
Firstly our ability to source attractive investment opportunities
at the right price is critical. The investment case presented at
the outset will include the expected benefit of operational
improvements, growth initiatives and M&A activity that will be
driven by our active management approach, together with the
portfolio company's management team. It will also include a view on
the likely exit strategy and timing. The execution of this
investment case is monitored through our monthly portfolio
monitoring and our semi-annual reviews which focus on longer term
and strategic developments. Alongside this we need to recognise the
need to plan and execute a successful exit at the optimum time for
the portfolio company's development after taking account of market
conditions. These risks are closely linked to the economic
environment noted above. To mitigate these risks, we focus on
sectors and geographies where our expertise and network can drive
significant outperformance.
In addition, there are a number of risks specific to each
business line as follows:
Private Equity
Regular and robust portfolio monitoring procedures remain
critical given the volatile economic backdrop and as the investment
portfolio becomes more concentrated. The Private Equity partners
hold a detailed monthly portfolio monitoring meeting that is
attended by the Group Chief Executive and the Group Finance
Director. In addition, the Valuations Committee review the
valuation assumptions of our more material assets quarterly.
Individual portfolio company failures could have adverse
reputational consequences for the Group, even though the value
impact may not be material.
Infrastructure
3iN announced an amended total return target of 8% - 10% per
annum over the medium term in May 2015 (previously a 10% annual
target) as strong investor demand for yield was impacting the
business' ability to maintain investment rates in quality assets.
Infrastructure remains focused on investing selectively within its
target sectors and developing both organic and inorganic growth
opportunities. In addition, its engaged asset management approach
supports many of the investments in the economic infrastructure and
project portfolios.
Debt Management
The principal risks are the ability to grow AUM profitably in
line with its business plan and to mitigate negative impact on
returns. The business is exposed to volatility in the credit
markets and the challenging market conditions in the US have
negatively impacted valuations of our CLO equity in FY2016. Our
teams manage the underlying credit portfolios very actively which,
in some cases, might include taking early losses in volatile
markets, if appropriate. Due to the introduction of risk retention
rules in Europe (effective 2011) and the US (effective December
2016), we are required, as managers, to take minimum positions in
the CLO funds we manage. In addition, during the warehouse phase of
establishing CLOs, the Group is exposed to market volatilities and
the potential for further capital calls.
Operational
One of the key areas of increased potential operational risk is
cyber security. In response to this growing threat, management
engaged KPMG to conduct an independent review on the adequacy of
the Group's ability to prevent, detect and respond to cyber
security threats. In addition, the Group rolled out a cyber
security training course for all staff and refreshed information
security policies and incident management processes. The Group also
conducted a wider review of its business continuity and resilience
capabilities. The findings and proposed enhancements from these
various workstreams were discussed at GRC and are being implemented
across the Group.
The Board also received regular updates on ESG risks and whether
our investors' skill sets and business development capabilities
could support the Group's strategic delivery. Detailed resource
plans are in place at the business line level and the Board
conducts an annual review of the Group's organisational capability
and succession plans (which include contingencies against loss of
key staff). The last review was conducted in September 2015.
Financial review
"Another year of robust results with each business continuing to
perform well."
Julia Wilson
Group Finance Director
The table below summarises our key financial data under the
Investment basis.
Table 6: Summary financial data
Year to/as at Year to/as at
31 March 31 March
Investment basis 2016 2015
================================================ ============== ==============
Group
Total return GBP824m GBP659m
Total return on opening shareholders' funds 21.7% 19.9%
Dividend per ordinary share 22.0p 20.0p
Operating expenses GBP134m GBP131m
As a percentage of assets under management 1.0% 1.0%
Operating cash profit GBP37m GBP28m
================================================ ============== ==============
Proprietary Capital Return
Realisation proceeds GBP796m GBP841m
Uplift over opening book value(1) GBP70m/13% GBP145m/27%
Money multiple 2.4x 2.0x
Gross investment return GBP1,069m GBP805m
As a percentage of opening 3i portfolio value 27.6% 22.6%
Operating profit(2) GBP920m GBP721m
================================================ ============== ==============
Proprietary Capital Balance Sheet
Cash investment(3) GBP453m GBP474m
3i portfolio value GBP4,497m GBP3,877m
Gross debt GBP837m GBP815m
Net cash GBP165m GBP49m
Gearing(4) nil nil
Liquidity GBP1,352m GBP1,214m
Net asset value GBP4,455m GBP3,806m
Diluted net asset value per ordinary share 463p 396p
================================================ ============== ==============
Fund Management
Total assets under management GBP13,999m GBP13,474m
Third-party capital GBP10,703m GBP10,140m
Proportion of third-party capital 76% 75%
=============================================== ============== ==============
1 Uplift over opening book value excludes refinancings.
2 Operating profit for the proprietary capital activities excludes performance
fees payable/receivable.
3 Cash investment includes GBP4 million of Debt Management investment
awaiting settlement at 31 March 2016 (31 March 2015: nil).
4 Gearing is net debt as a percentage of net assets.
Basis
3i prepares its statutory financial statements in accordance
with IFRS. The introduction of IFRS 10 in 2014 was important for
investment companies such as 3i, as the investment entity exception
it contained eliminated the risk of having to consolidate portfolio
investments. However, consistent with previous years, we also
report using a non-GAAP "Investment basis", as we believe it aids
users of our report to assess the Group's underlying operating
performance. Total return and net assets are the same under the
Investment basis and IFRS and we provide more detail on IFRS 10, as
well as a reconciliation of our Investment basis financial
statements to the IFRS financial statements.
Total return
The Group generated a total return of GBP824 million, or a
profit on opening shareholders' funds of 21.7% (2015: GBP659
million or 19.9%) in the year as the robust performance of its
underlying portfolio more than offset the impact of volatile market
conditions. The Proprietary Capital business delivered a gross
investment return of GBP1,069 million (2015: GBP805 million) and an
operating profit before carry of GBP920 million (2015: GBP721
million), underpinned by the strong performance of its portfolio
companies as well as by the strengthening of the euro and US dollar
against sterling. Fund Management operating profit before carry was
GBP20 million (2015: GBP26 million). Further detail regarding the
performance during the year is provided below.
Table 7: Total return for the year to 31 March
2016 2016 2015 2015
Proprietary Fund 2016 Proprietary Fund 2015
Capital Management Total Capital Management Total
Investment basis GBPm GBPm GBPm GBPm GBPm GBPm
============================================== ============ =========== ====== ============ =========== ======
Realised profits over value on disposal of
investments 72 - 72 162 - 162
Unrealised profits on revaluation of
investments 669 - 669 684 - 684
Portfolio income
Dividends 71 - 71 45 - 45
Income from loans and receivables 63 - 63 62 - 62
Fees receivable 6 - 6 6 - 6
Foreign exchange on investments 188 - 188 (154) - (154)
============================================== ============ =========== ====== ============ =========== ======
Gross investment return 1,069 - 1,069 805 - 805
============================================== ============ =========== ====== ============ =========== ======
Fees receivable from external funds - 79 79 - 80 80
Synthetic fees (44) 44 - (45) 45 -
Operating expenses(1) (31) (103) (134) (32) (99) (131)
Interest receivable 4 - 4 3 - 3
Interest payable (47) - (47) (49) - (49)
Movement in the fair value of derivatives - - - (1) - (1)
Exchange movements (31) - (31) 40 - 40
============================================== ============ =========== ====== ============ =========== ======
Operating profit before carry 920 20 940 721 26 747
============================================== ============ =========== ====== ============ =========== ======
Carried interest and performance fees
receivable 83 80
Carried interest and performance fees payable (188) (142)
Acquisition related earn-out charges (5) (8)
============================================== ============ =========== ====== ============ =========== ======
Operating profit 830 677
============================================== ============ =========== ====== ============ =========== ======
Income taxes - (4)
Re-measurements of defined benefit plans (6) (14)
============================================== ============ =========== ====== ============ =========== ======
Total comprehensive income ("Total return") 824 659
============================================== ============ =========== ====== ============ =========== ======
Total return on opening shareholders' funds 21.7% 19.9%
============================================== ============ =========== ====== ============ =========== ======
1 Includes restructuring costs of nil (2015: nil) and GBP5
million (2015: GBP1 million) for Proprietary Capital and Fund
Management respectively.
Proprietary capital returns
Operating profit before carry on our Proprietary Capital was
GBP920 million (2015: GBP721 million) and was underpinned by strong
value growth in the portfolio and positive foreign exchange
movements which partly reversed negative foreign exchange movements
incurred in 2014 and 2015.
By business line, gross investment return on opening portfolio
value was 32% for Private Equity (2015: 24%), 8% for Infrastructure
(2015: 20%) and 6% for Debt Management (2015: loss of 7%). Private
Equity accounted for 83% of the Proprietary Capital portfolio at 31
March 2016 (31 March 2015: 81%) and remains the primary driver of
Proprietary Capital returns.
Realised profits
Exit momentum continued in the year to 31 March 2016 with
realisation proceeds of GBP796 million (2015: GBP841 million)
generating realised profits of GBP72 million (2015: GBP162
million). Realisations, excluding refinancings, were achieved at an
uplift over opening value of 13%, (2015: 27%), due to a number of
assets being valued on an imminent sales basis at the beginning of
the year and the sale of quoted stakes.
The majority of the realisations were from the Private Equity
portfolio, which contributed GBP743 million (2015: GBP831 million)
of this, including GBP185 million of refinancing proceeds (2015:
GBP155 million). Refinancing proceeds of GBP168 million were
generated by Action, whose strong cash generation meant it had
delevered rapidly since its refinancing in January 2015. Private
Equity proceeds also included the sale of Element for GBP179
million and GBP111 million from sales of our quoted stakes. Table
2, in the Private Equity section, details the Private Equity
realisations in the year and sets out the accounting uplift
reflected in this year's total return and the longer-term
cash-to-cash results. The Private Equity realisations, including
refinancings and partial disposals completed in the year, have
generated a money multiple of 2.6x over their investment life.
Proceeds of GBP51 million were received from 3iN, via a special
dividend, following the completion of the sale of its holding in
Eversholt Rail, and these were treated as realised proceeds.
Unrealised value movements
The unrealised value movement of GBP669 million (2015: GBP684
million) was driven by the continued strong performance of a number
of our key assets, which more than offset market-driven weakness in
a small number of portfolio companies. Table 8 summarises the
revaluation movement by category and each category is discussed
further below.
Table 8: Unrealised profits/(losses) on revaluation of
investments for the year to 31 March
2016 2015
GBPm GBPm
========================================== ===== =====
Private Equity
Earnings based valuations
Performance 460 417
Multiple movements 95 64
Other bases
Uplift to imminent sale 13 22
Discounted cash flow 124 89
Other movements on unquoted investments 5 3
Quoted portfolio (7) 46
Infrastructure
Quoted portfolio 31 77
Discounted cash flow (9) (9)
Debt Management (43) (25)
========================================== ===== =====
Total 669 684
========================================== ===== =====
Private Equity unrealised value growth
The Private Equity portfolio performed strongly with value
growth of GBP690 million in the year (2015: GBP641 million). This
was underpinned by good value weighted earnings growth of 17%
(2015: 19%) and a weighted multiple increase of 10% (2015: 6%),
following the re-rating of a small number of our assets. Net debt
declined to 2.9x EBITDA (31 March 2015: 3.1x) notwithstanding the
fact that Action took advantage of its strong cash generation
capability to take on additional debt at favourable terms. The
majority of the portfolio (84% by value, 2015: 93%) grew its
earnings in the year and our larger and more recent investments
continue to perform very well.
Performance
Improvements in the performance of the portfolio valued on an
earnings basis resulted in an increase in value of GBP460 million
(2015: GBP417 million). Value weighted earnings increased by 17% in
the year (2015: 19%). Action, our largest asset with over 30%
earnings growth in the 12 months to December 2015, is the biggest
contributor to this measure. Excluding Action, the value weighted
earnings growth was lower at 7% (2015: 16%) principally due to the
sale of Element, one of our largest assets with high growth
supported by its buy and build strategy and the impact of
macro-economic challenges, such as the oil and commodity price
pressure, seen in a small number of portfolio companies (JMJ,
Dynatect, Agent Provocateur, AES and Etanco). In addition,
acquisitions by our portfolio companies were fewer this year and
therefore the contribution from acquisitions to earnings growth in
2016 was lower (2015: 2% of the 19% growth).
Table 9: Portfolio earnings growth weighted by March 2016
carrying values(1)
3i carrying value
at 31 March 2016
Last 12 months' (LTM) earnings growth (GBPm)
-------------------------------------- ------------------
<(20)% 35
(20) - (11)% 70
(10) - (1)% 373
0 - 9% 832
10 - 19% 302
20 - 30% 421
>30% 942
====================================== ==================
1 Includes all companies valued on an earnings basis where comparable earnings data is available.
This represents 80% of the
Private Equity portfolio by value.
Table 10: Ratio of debt to EBITDA - Private Equity portfolio
weighted by March 2016 carrying values(1) (GBPm)
3i carrying value
at 31 March 2016
Ratio of net debt to EBITDA (GBPm)
<1x 550
1 - 2x 406
2 - 3x 339
3 - 4x 691
4 - 5x 1,724
5 - 6x 5
>6x -
============================ ==================
1 This represents 99% of the Private Equity portfolio by value.
The value of a small number of investments was impacted by
company and geography specific issues. In total, value reductions
of GBP64 million, in relation to seven assets, offset the otherwise
strong performance (2015: GBP44 million, seven assets). The largest
single negative movement related to JMJ, a leading safety
management consultancy with a particular focus on major capital
projects for the oil and gas industry. We recognised a GBP19
million value reduction on this investment in the year.
Forecast earnings, used when the outlook is lower than the last
12 months' data, were used for only two investments at 31 March
2016, representing 7% of the portfolio by number and 3% by value
(31 March 2015: two, 6% by number and 3% by value). Table 9 shows
the earnings growth rates across the portfolio.
In the case of Action, EBITDA for valuation purposes is adjusted
to reflect its run-rate performance. Action is growing strongly
due, in part, to its successful store roll-out programme. We
consider that this run-rate methodology reflects fairly the high
growth characteristics of this business, and therefore its
maintainable earnings. At GBP902 million (31 March 2015: GBP592
million), net of the GBP168 million refinancing in January 2016,
Action is the largest Private Equity investment by value,
representing 24% of the Private Equity portfolio (31 March 2015:
19%).
We took the opportunity to refinance the debt of Action and
Geka, both increasing and extending the maturity of portfolio debt,
with 82% of the overall portfolio debt now repayable in 2018 or
later (31 March 2015: 81% in 2017 or later). Table 10 shows the
ratio of net debt to EBITDA weighted by portfolio value.
Multiple movements
The weighted average EBITDA multiple of the Private Equity
portfolio assets valued on an earnings basis increased from 11.2x
at 31 March 2015 to 12.3x at 31 March 2016 before liquidity
discount, and from 10.5x to 11.5x after liquidity discount,
resulting in a positive movement in the year of GBP95 million
(2015: GBP64 million). Due to another year of strong performance
against its comparable set, we reviewed Action's EBITDA multiple
and increased it by 0.5x to 14.7x pre-liquidity discount and 14.0x
post discount (31 March 2015: 14.2x, 13.5x). Based on the run-rate
earnings and capital structure at 31 March 2016, a 1.0x movement in
the EBITDA multiple applied would increase or decrease Action's
value by GBP86 million. Excluding Action, the weighted average
EBITDA multiple increased to 10.8x before liquidity discount (31
March 2015: 10.1x) and was 10.1x after liquidity discount (31 March
2015: 9.3x). We also increased the multiple used to value Basic-Fit
to reflect its strong performance, significant capital investment
programme and a positive market environment for discount gym
operators more generally.
We continued to adjust multiples lower in 17 out of the 29
companies (31 March 2015: 22 out of 33) valued on an earnings
basis. As a matter of policy, we select an appropriate multiple for
each investment based on a comparable set of quoted companies and
adjust these comparable multiple sets with discounts and
occasionally premiums to take account of relevant size, sector,
growth and cycle considerations as appropriate. Against a volatile
market backdrop, we continued to apply a relatively high level of
adjustments to reflect our caution about longer-term and sector
multiple trends rather than taking an average of the quoted
comparable sets.
The pre-discount multiples used to value the portfolio ranged
between 6.5x and 14.7x and post-discount multiples ranged from 5.5x
to 14.0x.
Imminent sale
The exit processes for Amor and Mayborn were sufficiently
progressed to value on an imminent sales basis at 31 March 2016.
The uplift to imminent sale was GBP13 million (2015: GBP22
million). Both sales were announced post year end and are expected
to complete by the end of June 2016.
Discounted cash flow
The largest investment valued using DCF in the Private Equity
portfolio is Scandlines, the Danish/German ferry group, which
increased in value by GBP122 million (2015: GBP94 million).
Scandlines' largest ferry route, Rødby-Puttgarden, is expected to
have direct competition from a new tunnel (the Fehmarn Belt
project) at some point in the future. In light of recent public
commentary and developments around expected potential delays to the
opening of this new tunnel, we revised our assumption as to the
tunnel opening date by three years since 31 March 2015 and two
years since 30 September 2015. This change, combined with a
reduction in the Weighted Average Cost of Capital ("WACC"), were
the primary drivers of the increase in the value of our investment
in Scandlines in the year.
Quoted portfolio
The Private Equity quoted portfolio, including IPOs completed in
the year, generated an unrealised value reduction of GBP7 million
(2015: GBP46 million gain) principally driven by our holding in
Hong Kong listed Dphone. Table 11 details the movement in the year
and closing quoted portfolio.
Infrastructure unrealised value movement
The Infrastructure portfolio consists primarily of our 34%
holding in 3iN. 3iN continued to perform well during the year, as
it has an attractive portfolio of core European assets. 3iN
generated value growth of GBP33 million (2015: GBP77 million) for
3i Group in the year, driven by an 8% increase in the share price
to 173 pence (2015: 160 pence, 19% increase) and a total
shareholder return of 13%. This was offset by further modest falls
in the value of the Indian Infrastructure portfolio of GBP12
million (2015: GBP9 million) as the investments continued to face a
number of challenges.
Debt Management unrealised value movement
The Debt Management Proprietary Capital portfolio consists
principally of CLO equity and at 31 March 2016, 3i had invested
GBP151 million of proprietary capital in CLO equity (31 March 2015:
GBP117 million). The remaining Debt Management portfolio is
comprised of direct investments in CLO warehouses, the Global
Income Fund and the Senior Loan fund.
The mark-to-market valuation of the CLO equity portfolio reduced
by GBP43 million (2015: GBP25 million) and there were a number of
other factors which contributed to this movement. We received GBP31
million (2015: GBP16 million) of cash distributions from CLO
equity, which is included in portfolio income, resulting in an
associated value reduction. Broker quotes, which are used to
support CLO valuations, reflected general market concerns about
liquidity and investor risk appetite. In the US in particular,
negative investor sentiment around the oil and gas, commodities and
utilities sectors impacted valuations significantly. The underlying
cash flows of the CLOs remain sound, and our longer-term view of
returns remains positive.
Table 11: Quoted portfolio movement for the year to 31 March
2016
Total gross
Closing investment
Opening Disposals Unrealised value return
value at at opening value Other at 31 March during
1 April 2015 book value growth movements 2016 the year
Investment IPO date GBPm(1) GBPm GBPm GBPm(2) GBPm GBPm(3)
================= =============== ============= =========== =========== ========== ============ ============
Quintiles May 2013 144 (50) (3) 1 92 -
Dphone July 2014 35 - (9) (1) 25 (10)
Eltel February 2015 47 (31) 1 3 20 3
Refresco Gerber March 2015 47 (9) 5 1 44 9
UFO Moviez May 2015 27 (15) (1) 1 12 1
================= =============== ============= =========== =========== ========== ============ ============
300 (105) (7) 5 193 3
================================= ============= =========== =========== ========== ============ ============
1 For UFO Moviez, which IPOd during the year, this is the value pre-IPO.
2 Other movements relate to foreign exchange.
3 Includes realised profit/loss.
Portfolio income
Portfolio income increased by 24% to GBP140 million (2015:
GBP113 million) of which GBP93 million was received in cash (2015:
GBP80 million). Dividends of GBP71 million were received (2015:
GBP45 million), including GBP31 million from CLO investments (2015:
GBP16 million), GBP21 million from 3iN (2015: GBP20 million) and
GBP18 million from Private Equity (2015: GBP9 million). Interest
income totalled GBP63 million (2015: GBP62 million), with GBP59
million (2015: GBP56 million) generated from Private Equity
investments and GBP4 million (2015: GBP6 million) generated from
investments held in Debt Management warehouses.
Net portfolio fees of GBP6 million were recognised during the
year (2015: GBP6 million) from new Private Equity investments and
monitoring fees.
Net foreign exchange movements
The net foreign exchange gain of GBP157 million in the year
(2015: GBP114 million loss) reflects the translation of
non-sterling denominated portfolio assets and non-portfolio net
assets, including cash and gross debt held at the balance sheet
date. This movement reflects the strengthening of the euro (9.1%)
against sterling over the year.
The net assets of the Group by currency and the sensitivity for
further currency movements are shown in Table 12 below.
Table 12: Net assets of the Group by currency and sensitivity at
31 March 2016
GBPm % 1% sensitivity
=============== ====== === ===============
Sterling 1,364 31 n/a
Euro 2,169 49 22
US dollar 726 16 7
Swedish krona 106 2 1
Other 90 2 n/a
=============== ====== === ===============
Proprietary Capital costs
A proportion of the Group's operating expenses that are assessed
as having been incurred in running a regulated and listed
investment trust are allocated to Proprietary Capital. These costs
include 100% of costs in relation to the CEO and Group Finance
Director and elements of finance, IT, property and compliance.
Operating expenses were broadly stable at GBP31 million (2015:
GBP32 million) as the Group continued to manage costs closely.
Synthetic fees, the internal fee payable to the Fund Management
business for managing the Group's Proprietary Capital, of GBP44
million (2015: GBP45 million) reflect the lower level of
Proprietary Capital being managed as a result of net divestment
activity, predominantly in Private Equity.
Net interest payable
Gross interest payable declined to GBP47 million (2015: GBP49
million) due to the reduced costs associated with the revolving
credit facility which was refinanced in September 2014.
The current gross debt position is detailed further in the
Balance sheet section of this Financial review and in Note 7 of the
financial statements.
Cash interest received increased marginally to GBP4 million
(2015: GBP3 million).
Fund Management returns
This year the Board agreed to remove Fund Management
profitability as a KPI. While Fund Management profitability is
still monitored when managing the individual business lines to
ensure cost discipline, our decision not to raise a new Private
Equity fund means that it is no longer expected to be a material
driver of the Group's performance.
The Group's Fund Management income is driven by total AUM, which
was GBP14.0 billion at 31 March 2016 (31 March 2015: GBP13.5
billion). The closing of four CLOs and the launch of the Global
Income Fund, and further commitments to the European Middle Market
Fund and US Senior Loan Fund in the Debt Management business offset
a fall in AUM arising from net divestment activity in Private
Equity and the special dividend from 3iN. The proportion of
third-party assets under management increased marginally to 76% (31
March 2015: 75%).
The Fund Management business generated an operating profit
before carry of GBP20 million and an operating profit margin of 16%
(2015: GBP26 million, 21%). Fee income declined marginally to
GBP123 million (2015: GBP125 million) due to reduced third-party
Private Equity AUM. Operating expenses increased marginally to
GBP103 million (2015: GBP99 million), principally due to the
redundancy costs noted in the Private Equity business line
section.
Table 13: Fund Management profit for the year to 31 March
2016 2015
GBPm GBPm
===================================== ====== =====
Fees receivable from external funds
Private Equity 13 16
Infrastructure 28 30
Debt Management 38 34
===================================== ====== =====
Synthetic fees
Private Equity 41 42
Infrastructure 3 3
Debt Management - -
===================================== ====== =====
Total fee income 123 125
===================================== ====== =====
Fund Management operating expenses (103) (99)
===================================== ====== =====
Operating profit before carry 20 26
===================================== ====== =====
Table 14: Carried interest and performance fees by business line
for the year to 31 March
2016 2015
GBPm GBPm
================================================== ====== ======
Carried interest and performance fees receivable
Private Equity 58 28
Infrastructure 20 45
Debt Management 5 7
================================================== ====== ======
Total 83 80
================================================== ====== ======
Carried interest and performance fees payable
Private Equity (171) (103)
Infrastructure (15) (35)
Debt Management (2) (4)
================================================== ====== ======
Total (188) (142)
================================================== ====== ======
Carried interest and performance fees payable
Our largest Private Equity fund, Eurofund V, which includes
investments made in 2007-12, reached its performance hurdle on a
valuation basis in FY2016. We have seen a strong recovery in the
fund's multiple to 1.7x (31 March 2015: 1.4x) principally due to
the performance of Action and Scandlines, as well as the
realisations of Element and Amor. As a result, we are now accruing
carried interest receivable from this fund for the first time and
GBP63 million was recognised in the year (2015: nil). This is
calculated assuming that the portfolio was realised at the 31 March
2016 valuation.
We pay carried interest to our investment teams on proprietary
capital invested and share a proportion of carried interest
receivable from third-party funds. In Private Equity, we typically
accrue carried interest payable at between 10-15% of gross
investment return. The improved performance over the last 12 months
means that 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 31 March 2016 valuation. We accrued
carried interest payable of GBP171 million (2015: GBP103 million)
for Private Equity in the year, of which GBP48 million relates to
the team's share of carry receivable from Eurofund V (2015:
nil).
3iN pays a performance fee based on 3iN's NAV on an annual
basis, subject to a hurdle rate of return and a high-water mark.
The continued good performance of the European assets held by 3iN
resulted in the recognition of GBP20 million of performance fees
receivable in the year (2015: GBP45 million). Carry payable to the
Infrastructure team of GBP15 million (2015: GBP35 million) has been
accrued.
Carry is only paid once the hurdles are passed in cash terms and
the cash proceeds are actually received following a realisation or
refinancing event. During the year, GBP15 million was paid (2015:
GBP7 million).
In total at 31 March 2016, balance sheet carried interest and
performance fees payable increased to GBP404 million (31 March
2015: GBP227 million) and the receivable increased to GBP122
million (31 March 2015: GBP88 million).
Pension
The valuation of assets of the Group's defined benefit pension
schemes was impacted by the volatility in financial markets during
the year. The liability of the Group's defined benefit pension
scheme declined in the year following an increase in the discount
rate. On a net basis, these movements resulted in a re-measurement
loss of GBP6 million (2015: GBP14 million loss) for the year. On an
IAS19 basis the pension scheme remains in a significant
surplus.
The 2013 triennial valuation of the UK defined benefit pension
scheme was completed in March 2014. It resulted in a very small
surplus and consequently no further contributions were made, or are
planned, as a result of this valuation. The next triennial
valuation will be based on the pension scheme's funding position at
30 June 2016.
We launched a programme to offer our members flexibility in how
they take their pension benefits following the implementation of HM
Treasury's "Freedom and Choice in Pensions" changes. This included
providing financial advice and a range of options for deferred and
pensioner members.
Tax
The Group's parent company is an approved investment trust
company for UK tax purposes. Approved investment trust companies
are used as investment fund vehicles. The tax exemption for capital
profits from which they benefit ensures that investors do not
suffer double taxation of their investment returns. The majority of
our returns are capital returns for tax purposes (realised profits,
fair value adjustments and impairment losses) and are substantially
non-taxable. As a result, the Group's tax charge in the year was
nil (2015: GBP4 million).
Operating cash profit
Table 15: Operating cash profit for the year to 31 March
2016 2015
GBPm GBPm
================================================== ===== =====
Third-party capital fees 78 78
Cash portfolio fees 7 10
Cash portfolio dividends and interest 86 70
================================================== ===== =====
Cash income 171 158
================================================== ===== =====
Total operating expenses(1) 134 131
Less: Restructuring costs(2) - (1)
================================================== ===== =====
Operating expenses excluding restructuring costs 134 130
================================================== ===== =====
Operating cash profit 37 28
================================================== ===== =====
1 Operating expenses are stated on an accrual basis.
2 Operating cash profit in FY16 has not been adjusted for
restructuring costs.
Third-party fees received remained broadly flat during the year,
as the launch of four Debt Management CLOs and the Global Income
Fund largely offset the reduction in fees from our Private Equity
funds. Increased investment into cash yielding Debt Management
funds has generated good income and the Private Equity portfolio
generated a higher level of dividend income. Consequently, the
Group was able materially to improve its operating cash income to
GBP171 million (2015: GBP158 million) despite the net divestment
activity in Private Equity.
Total operating expenses increased by 2% to GBP134 million
(2015: GBP131 million), while restructuring costs, which comprise
redundancy, office closures and organisational changes, increased
to GBP5 million (2015: GBP1 million). Excluding restructuring and
redundancy costs, operating expenses were stable at GBP129 million
(2015: GBP130 million) despite some strategic recruitment into our
investment teams in the second half of the year. Operating expenses
as a percentage of weighted average AUM remained stable at 1.0%
(2015: 1.0%), as a result of the continuing cost focus. We expect
costs to rise marginally as we continue to grow the business,
increase activity and deal with increased regulation, but we expect
costs to remain at c.1.0% of AUM.
In total, the operating cash profit position, including this
year's restructuring costs, increased significantly to GBP37
million (2015: GBP28 million).
Cash flow
Investment and realisations
Proceeds from realisations were GBP796 million (2015: GBP841
million), of which GBP25 million was receivable at 31 March 2016.
Cash proceeds of GBP771 million were offset partly by cash
investment of GBP453 million (2015: GBP474 million) and resulted in
net cash inflow of GBP318 million (2015: GBP367 million). A further
GBP99 million of investment was non-cash due to capitalised
interest (2015: GBP140 million) and total investment was GBP552
million (2015: GBP614 million).
Further detail on investment and realisations is included in the
relevant business line sections.
Table 16: Investment activity - Proprietary Capital and
Third-party Capital for the year to 31 March
Proprietary Capital Proprietary and Third-party Capital
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
===================== ========== ========== ================== ==================
Realisations 771 841 1,327 1,363
Cash investment (453) (474) (494) (562)
===================== ========== ========== ================== ==================
Net cash divestment 318 367 833 801
Non-cash investment (99) (140) (133) (191)
===================== ========== ========== ================== ==================
Net divestment 219 227 700 610
===================== ========== ========== ================== ==================
Balance sheet
Table 17: Simplified balance sheet as at 31 March
2016 2015
GBPm GBPm
============================ ====== ======
Investment portfolio value 4,497 3,877
Gross debt (837) (815)
Cash and deposits 1,002 864
============================ ====== ======
Net cash 165 49
Other net liabilities (207) (120)
============================ ====== ======
Net assets 4,455 3,806
============================ ====== ======
Gearing nil nil
============================ ====== ======
The proprietary capital portfolio increased to GBP4,497 million
at 31 March 2016 (31 March 2015: GBP3,877 million) as cash
investment of GBP453 million, unrealised value growth of GBP669
million and foreign exchange movements of GBP188 million outweighed
the good level of realisations.
Gross debt includes a euro denominated bond of GBP262 million
(31 March 2015: GBP240 million) which matures on 17 March 2017. We
expect to repay that bond out of cash resources.
Net divestment activity and an operating cash profit led to cash
and deposits on the balance sheet increasing to GBP1,002 million
(31 March 2015: GBP864 million). After allowing for an increase in
the sterling equivalent of the 2017 euro denominated bond, the
Group was in a net cash position of GBP165 million at 31 March 2016
(31 March 2015: GBP49 million net cash). Gearing remained at nil at
31 March 2016 (31 March 2015: nil).
Liquidity
Liquidity remained strong at GBP1,352 million (31 March 2015:
GBP1,214 million) and comprised cash and deposits of GBP1,002
million (31 March 2015: GBP864 million) and undrawn facilities of
GBP350 million (31 March 2015: GBP350 million).
Foreign exchange hedging
Although derivatives are not used to hedge currency movements on
a portfolio basis, we do hedge individual investment acquisitions
or divestments where appropriate. Foreign exchange risk is
considered an integral part of the investment process.
Diluted NAV
The diluted NAV per share at 31 March 2016 was 463 pence (31
March 2015: 396 pence). This was driven by the total return in the
year of GBP824 million (2015: GBP659 million) and partially offset
by dividend payments in the year of GBP190 million, or 20.0 pence
per share (2015: GBP183 million, 19.3 pence per share).
Dividend
The Board has declared a total dividend of 22 pence (2015: 20.0
pence) for 2016. This comprises an 8.1 pence base dividend and a
13.9 pence additional dividend. Due to our current net divestment
activity and robust balance sheet, we have proposed an additional
dividend above the top end of our 15%-20% distribution range, that
will result in the total dividend for 2016 being 27% of gross cash
realised proceeds. Following payment of an interim dividend of 6.0
pence per share in January 2016, and subject to shareholder
approval, we will pay the final dividend of 16.0 pence (2015: 14.0
pence) on 22 July 2016 to shareholders on the register at 17 June
2016.
Key accounting judgements and estimates
In preparing these accounts, the key accounting judgement estimate relates
to the carrying value of our investment assets which are stated at fair
value.
Given the importance of this area, the Board has a separate Valuations
Committee to review the valuations policies, process and application
to individual investments. However, asset valuations for non-quoted
investments are inherently subjective, as they are made on the basis
of assumptions which may not prove to be accurate. At 31 March 2016,
85% of the investment assets were non-quoted (31 March 2015: 80%).
Accounting for investment entities: an assessment is required to determine
the degree of control or influence the Group exercises and the form
of any control to ensure that the financial treatment is accurate. IFRS
10 has resulted in a number of intermediate holding companies being
presented at fair value, which has led to reduced transparency of the
underlying investment performance. As a result, the Group continues
to present an alternative non-GAAP Investment basis set of financial
statements to ensure that the commentary in the Strategic report remains
fair, balanced and understandable.
============================================================================
Investment basis
Consolidated statement of comprehensive income
Total Total
2016 2015
GBPm GBPm
------------------------------------------------------------- ------ ------
Realised profits over value on the disposal of investments 72 162
Unrealised profits on the revaluation of investments 669 684
Portfolio income
Dividends 71 45
Income from loans and receivables 63 62
Fees receivable 6 6
Foreign exchange gain/(loss) on investments 188 (154)
------------------------------------------------------------- ------ ------
Gross investment return 1,069 805
------------------------------------------------------------- ------ ------
Fees receivable from external funds 79 80
Operating expenses (134) (131)
Interest receivable 4 3
Interest payable (47) (49)
Movement in the fair value of derivatives - (1)
Foreign exchange (loss)/gain (31) 40
------------------------------------------------------------- ------ ------
Operating profit before carry 940 747
------------------------------------------------------------- ------ ------
Carried interest
Carried interest and performance fees receivable 83 80
Carried interest and performance fees payable (188) (142)
Acquisition related earn-out charges (5) (8)
------------------------------------------------------------ ------ ------
Operating profit 830 677
Income taxes - (4)
------------------------------------------------------------- ------ ------
Profit for the year 830 673
------------------------------------------------------------- ------ ------
Other comprehensive income
Re-measurements of defined benefit plans (6) (14)
------------------------------------------------------------ ------ ------
Total comprehensive income for the year ("Total return") 824 659
------------------------------------------------------------- ------ ------
Investment basis
Consolidated statement of financial position
Total Total
2016 2015
GBPm GBPm
--------------------------------------------------- -------- --------
Assets
Non-current assets
Investments
Quoted investments 658 763
Unquoted investments 3,839 3,114
-------------------------------------------------- -------- --------
Investment portfolio 4,497 3,877
Carried interest and performance fees receivable 94 43
Other non-current assets 37 21
Intangible assets 12 19
Retirement benefit surplus 132 136
Property, plant and equipment 5 4
Deferred income taxes 3 3
--------------------------------------------------- -------- --------
Total non-current assets 4,780 4,103
--------------------------------------------------- -------- --------
Current assets
Carried interest and performance fees receivable 28 45
Other current assets 53 64
Deposits 40 -
Cash and cash equivalents 962 864
--------------------------------------------------- -------- --------
Total current assets 1,083 973
--------------------------------------------------- -------- --------
Total assets 5,863 5,076
--------------------------------------------------- -------- --------
Liabilities
Non-current liabilities
Trade and other payables (27) (25)
Carried interest and performance fees payable (290) (214)
Acquisition related earn-out charges payable - (10)
Loans and borrowings (575) (815)
Retirement benefit deficit (20) (19)
Deferred income taxes (2) (3)
Provisions (1) (5)
--------------------------------------------------- -------- --------
Total non-current liabilities (915) (1,091)
--------------------------------------------------- -------- --------
Current liabilities
Trade and other payables (107) (144)
Carried interest and performance fees payable (114) (13)
Acquisition related earn-out charges payable (1) (17)
Loans and borrowings (262) -
Current income taxes (2) (2)
Provisions (7) (3)
--------------------------------------------------- -------- --------
Total current liabilities (493) (179)
--------------------------------------------------- -------- --------
Total liabilities (1,408) (1,270)
--------------------------------------------------- -------- --------
Net assets 4,455 3,806
--------------------------------------------------- -------- --------
Equity
Issued capital 719 719
Share premium 784 784
Other reserves 3,006 2,382
Own shares (54) (79)
--------------------------------------------------- -------- --------
Total equity 4,455 3,806
--------------------------------------------------- -------- --------
Investment basis
Consolidated cash flow statement
2016 2015
GBPm GBPm
------------------------------------------------ ------ ------
Cash flow from operating activities
Purchase of investments (449) (474)
Proceeds from investments 771 841
Cash divestment from traded portfolio - 21
Net cash flow from derivatives (14) 9
Portfolio interest received 15 26
Portfolio dividends received 71 44
Portfolio fees received 7 10
Fees received from external funds 78 78
Carried interest and performance fees received 52 6
Carried interest and performance fees paid (15) (13)
Acquisition related earn-out charges paid (30) (10)
Operating expenses (134) (117)
Income taxes paid - (5)
------------------------------------------------ ------ ------
Net cash flow from operating activities 352 416
------------------------------------------------ ------ ------
Cash flow from financing activities
Issue of shares - 3
Repurchase of B shares - (6)
Dividend paid (190) (183)
Interest received 4 3
Interest paid (51) (54)
------------------------------------------------ ------ ------
Net cash flow from financing activities (237) (237)
------------------------------------------------ ------ ------
Cash flow from investing activities
Purchase of property, plant and equipment (1) -
Net cash flow from deposits (40) -
------------------------------------------------ ------ ------
Net cash flow from investing activities (41) -
------------------------------------------------ ------ ------
Change in cash and cash equivalents 74 179
------------------------------------------------ ------ ------
Cash and cash equivalents at the start of year 864 697
Effect of exchange rate fluctuations 24 (12)
------------------------------------------------ ------ ------
Cash and cash equivalents at the end of year 962 864
------------------------------------------------ ------ ------
Reconciliation of Investment basis to IFRS
Background to Investment basis financial statements
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 intermediate holding companies that were
previously consolidated line by line. This fair value approach,
applied at the intermediate holding company level, effectively
obscures the performance of our proprietary capital investments and
associated transactions occurring in the intermediate holding
companies. 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. Other items which were previously
eliminated on consolidation are now included separately.
As a result we introduced separate non-GAAP "Investment basis"
Statements of comprehensive income, financial position and cash
flow in our 2014 Annual report and accounts to aid understanding of
our results. The Strategic report is 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.
Reconciliation between Investment basis and IFRS
A detailed reconciliation from the Investment basis to IFRS
basis of the Statement of comprehensive income, Statement of
financial position and Cash flow statement is shown below.
Reconciliation of consolidated statement of comprehensive
income
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2016 2016 2016 2015 2015 2015
Notes GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------ ----------- ------------ ------- ----------- ------------ ------
Realised profits over value
on the disposal of investments 1,2 72 (61) 11 162 (108) 54
Unrealised profits on the
revaluation of investments 1,2 669 (577) 92 684 (448) 236
Fair value movements on
investment entity subsidiaries 1 - 591 591 - 530 530
Portfolio income
Dividends 1,2 71 (13) 58 45 (9) 36
Income from loans and
receivables 1,2 63 (37) 26 62 (24) 38
Fees receivable 1,2 6 2 8 6 - 6
Foreign exchange on investments 1,3 188 (147) 41 (154) 105 (49)
----------------------------------- ------ ----------- ------------ ------- ----------- ------------ ------
Gross investment return 1,069 (242) 827 805 46 851
----------------------------------- ------ ----------- ------------ ------- ----------- ------------ ------
Fees receivable from
external funds 1,4 79 - 79 80 - 80
Operating expenses 1,4 (134) 2 (132) (131) 9 (122)
Interest receivable 4 - 4 3 - 3
Interest payable (47) - (47) (49) - (49)
Movement in the fair value of
derivatives - - - (1) - (1)
Exchange movements 1,3 (31) 96 65 40 (101) (61)
(Expense)/income from investment
entity subsidiaries 1 - (10) (10) - 1 1
----------------------------------- ------ ----------- ------------ ------- ----------- ------------ ------
Operating profit before carry 940 (154) 786 747 (45) 702
----------------------------------- ------ ----------- ------------ ------- ----------- ------------ ------
Carried interest
Carried interest and performance
fees receivable 1,4 83 (5) 78 80 - 80
Carried interest and performance
fees payable 1,4 (188) 148 (40) (142) 70 (72)
Acquisition related earn-out
charges (5) - (5) (8) - (8)
---------------------------------- ------ ----------- ------------ ------- ----------- ------------ ------
Operating profit 830 (11) 819 677 25 702
----------------------------------- ------ ----------- ------------ ------- ----------- ------------ ------
Income taxes 1,4 - (2) (2) (4) 2 (2)
----------------------------------- ------ ----------- ------------ ------- ----------- ------------ ------
Profit for the year 830 (13) 817 673 27 700
----------------------------------- ------ ----------- ------------ ------- ----------- ------------ ------
Other comprehensive income
Exchange differences on
translation of foreign
operations 1,3 - 13 13 - (27) (27)
Re-measurements of defined
benefit plans (6) - (6) (14) - (14)
---------------------------------- ------ ----------- ------------ ------- ----------- ------------ ------
Total comprehensive income for
the year ("Total return") 824 - 824 659 - 659
----------------------------------- ------ ----------- ------------ ------- ----------- ------------ ------
Notes:
1 Applying IFRS 10 to the Statement of comprehensive income consolidates the line items of a
number of previously consolidated subsidiaries into a single line item "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 years. The adjustments simply reclassify the 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 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 Foreign exchange movements have been reclassified under the Investment basis as foreign currency
asset and liability movements. Movements within the Investment entity subsidiaries are included
within "Fair value movements on investment entities".
4 Other items also 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.
5 The IFRS basis is audited and the Investment basis is unaudited.
Reconciliation of consolidated statement of financial
position
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2016 2016 2016 2015 2015 2015
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Assets
Non-current assets
Investments
Quoted investments 1 658 (361) 297 763 (364) 399
Unquoted investments 1 3,839 (2,596) 1,243 3,114 (1,842) 1,272
Investments in investment
entity subsidiaries 1,3 - 2,680 2,680 - 2,079 2,079
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Investment portfolio 4,497 (277) 4,220 3,877 (127) 3,750
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Carried interest and
performance
fees receivable 1 94 (5) 89 43 - 43
Other non-current assets 37 - 37 21 - 21
Intangible assets 12 - 12 19 - 19
Retirement benefit surplus 132 - 132 136 - 136
Property, plant and equipment 5 - 5 4 - 4
Deferred income taxes 3 - 3 3 - 3
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Total non-current assets 4,780 (282) 4,498 4,103 (127) 3,976
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Current assets
Carried interest and
performance
fees receivable 28 - 28 45 - 45
Other current assets 1 53 (22) 31 64 (31) 33
Deposits 40 - 40 - - -
Cash and cash equivalents 1,2 962 (5) 957 864 (3) 861
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Total current assets 1,083 (27) 1,056 973 (34) 939
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Total assets 5,863 (309) 5,554 5,076 (161) 4,915
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Liabilities
Non-current liabilities
Trade and other payables (27) - (27) (25) - (25)
Carried interest and
performance fees payable 1 (290) 205 (85) (214) 142 (72)
Acquisition related earn-out
charges payable - - - (10) - (10)
Loans and borrowings (575) - (575) (815) - (815)
Retirement benefit deficit (20) - (20) (19) - (19)
Deferred income taxes 1 (2) 2 - (3) 2 (1)
Provisions (1) - (1) (5) - (5)
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Total non-current liabilities (915) 207 (708) (1,091) 144 (947)
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Current liabilities
Trade and other payables 1 (107) 8 (99) (144) 17 (127)
Carried interest and
performance fees payable 1 (114) 94 (20) (13) - (13)
Acquisition related earn-out
charges
payable (1) - (1) (17) - (17)
Loans and borrowings (262) - (262) - - -
Current income taxes (2) - (2) (2) - (2)
Provisions (7) - (7) (3) - (3)
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Total current liabilities (493) 102 (391) (179) 17 (162)
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Total liabilities (1,408) 309 (1,099) (1,270) 161 (1,109)
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Net assets 4,455 - 4,455 3,806 - 3,806
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Equity
Issued capital 719 - 719 719 - 719
Share premium 784 - 784 784 - 784
Other reserves 4 3,006 - 3,006 2,382 - 2,382
Own shares (54) - (54) (79) - (79)
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Total equity 4,455 - 4,455 3,806 - 3,806
-------------------------------- ------ ----------- ------------ -------- ----------- ------------ --------
Notes:
1 Applying IFRS 10 to the Statement of financial position aggregates the line items into the
single line item "Investment in investment entities".
In the Investment basis we have disaggregated these items to analyse our net assets as if
the Investment entity subsidiaries were consolidated. The adjustment reclassifies items in
the 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 entities" line. We have disaggregated this fair value
and disclosed the underlying portfolio holding in the relevant line item, ie, quoted equity
investments or unquoted equity 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 entities" line. At 31 March 2016
GBP5 million (2015: GBP3 million) of cash was held in subsidiaries that are now classified
as Investment entity subsidiaries and is therefore included in the "Investment in investment
entities" 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 Statement of financial position for 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.
5 The IFRS basis is audited and the Investment basis is unaudited.
Reconciliation of consolidated cash flow statement
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2016 2016 2016 2015 2015 2015
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------ ----------- ------------ ------- ----------- ------------ -------
Cash flow from operating activities
Purchase of investments 1 (449) 362 (87) (474) 358 (116)
Proceeds from investments 1 771 (535) 236 841 (571) 270
Cash divestment from traded
portfolio 1 - - - 21 (21) -
Cash inflow from investment
entity subsidiaries 1 - 206 206 - 272 272
Net cash flow from derivatives (14) - (14) 9 - 9
Portfolio interest received 1 15 (10) 5 26 (12) 14
Portfolio dividends received 1 71 (13) 58 44 (9) 35
Portfolio fees received 7 - 7 10 - 10
Fees received from external funds 1 78 - 78 78 (1) 77
Carried interest and performance
fees received 52 - 52 6 - 6
Carried interest and performance
fees paid 1 (15) 2 (13) (13) (1) (14)
Acquisition related earn-out
charges paid (30) - (30) (10) - (10)
Operating expenses 1 (134) - (134) (117) 1 (116)
Income taxes paid - - - (5) - (5)
------------------------------------ ------ ----------- ------------ ------- ----------- ------------ -------
Net cash flow from operating
activities 352 12 364 416 16 432
------------------------------------ ------ ----------- ------------ ------- ----------- ------------ -------
Cash flow from financing
activities
Dividend paid (190) - (190) (183) - (183)
Issue of shares - - - 3 - 3
Repurchase of B shares - - - (6) - (6)
Interest received 4 - 4 3 - 3
Interest paid (51) - (51) (54) - (54)
------------------------------------ ------ ----------- ------------ ------- ----------- ------------ -------
Net cash flow from financing
activities (237) - (237) (237) - (237)
------------------------------------ ------ ----------- ------------ ------- ----------- ------------ -------
Cash flow from investing
activities
Purchase of property, plant and
equipment 1 (1) - (1) - - -
Net cash flow from deposits (40) - (40) - - -
------------------------------------ ------ ----------- ------------ ------- ----------- ------------ -------
Net cash flow from investing
activities (41) - (41) - - -
------------------------------------ ------ ----------- ------------ ------- ----------- ------------ -------
Change in cash and cash
equivalents 2 74 12 86 179 16 195
------------------------------------ ------ ----------- ------------ ------- ----------- ------------ -------
Cash and cash equivalents at the
start of year 2 864 (3) 861 697 (23) 674
Effect of exchange rate
fluctuations 1 24 (14) 10 (12) 4 (8)
------------------------------------ ------ ----------- ------------ ------- ----------- ------------ -------
Cash and cash equivalents at
the end of year 2 962 (5) 957 864 (3) 861
------------------------------------ ------ ----------- ------------ ------- ----------- ------------ -------
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 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 subsidiary vehicles. Cash held within Investment entity subsidiaries
will not be shown in the IFRS statements but will be seen in the Investment basis statements.
3 The IFRS basis is audited and the Investment basis is unaudited.
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
Peter Grosch, non-executive Director
David Hutchison, non-executive Director and Chairman of the
Valuations Committee
Martine Verluyten, non-executive Director
By order of the Board
K J Dunn
Company Secretary
18 May 2016
Registered Office: 16 Palace Street, London SW1E 5JD
Audited financial statements
Consolidated statement of comprehensive income
for the year to 31 March
2016 2015
Notes GBPm GBPm
---------------------------------------------------------------- ------ ------------ ------
Realised profits over value on the disposal of investments 2 11 54
Unrealised profits on the revaluation of investments 3 92 236
Fair value movements on investment entity subsidiaries 591 530
Portfolio income
Dividends 58 36
Income from loans and receivables 26 38
Fees receivable 8 6
Foreign exchange on investments 41 (49)
---------------------------------------------------------------- ------ ------------ ------
Gross investment return 827 851
Fees receivable from external funds 79 80
Operating expenses (132) (122)
Interest received 4 3
Interest paid (47) (49)
Movement in the fair value of derivatives - (1)
Exchange movements 65 (61)
(Expense)/income from investment entity subsidiaries (10) 1
Carried interest
Carried interest and performance fees receivable 78 80
Carried interest and performance fees payable (40) (72)
Acquisition related earn-out charges (5) (8)
---------------------------------------------------------------- ------ ------------ ------
Operating profit before tax 819 702
Income taxes 4 (2) (2)
---------------------------------------------------------------- ------ ------------ ------
Profit for the year 817 700
---------------------------------------------------------------- ------ ------------ ------
Other comprehensive income/(expense) that may be reclassified to the income statement
Exchange differences on translation of foreign operations 13 (27)
Other comprehensive expense that will not be reclassified to the income statement
Re-measurements of defined benefit plans (6) (14)
--------------------------------------------------------------- ------ ------------ ------
Other comprehensive income for the year 7 (41)
---------------------------------------------------------------- ------ ------------ ------
Total comprehensive income for the year ("Total return") 824 659
---------------------------------------------------------------- ------ ------------ ------
Earnings per share
Basic (pence) 5 85.6 73.9
Diluted (pence) 5 85.2 72.9
--------------------------------------------------------------- ------ ------------ ------
Dividend per share
Interim dividend per share paid (pence) 6 6.0 6.0
Final dividend per share (pence) 6 16.0 14.0
--------------------------------------------------------------- ------ ------------ ------
Consolidated statement of financial position
as at 31 March
2016 2015
Notes GBPm GBPm
--------------------------------------------------- ------ -------- --------
Assets
Non-current assets
Investments
Quoted investments 297 399
Unquoted investments 1,243 1,272
Investments in investment entity subsidiaries 2,680 2,079
--------------------------------------------------- ------ -------- --------
Investment portfolio 4,220 3,750
--------------------------------------------------- ------ -------- --------
Carried interest and performance fees receivable 89 43
Other non-current assets 37 21
Intangible assets 12 19
Retirement benefit surplus 132 136
Property, plant and equipment 5 4
Deferred income taxes 4 3 3
--------------------------------------------------- ------ -------- --------
Total non-current assets 4,498 3,976
----------------------------------------------------------- -------- --------
Current assets
Carried interest and performance fees receivable 28 45
Other current assets 31 33
Deposits 40 -
Cash and cash equivalents 957 861
----------------------------------------------------------- -------- --------
Total current assets 1,056 939
----------------------------------------------------------- -------- --------
Total assets 5,554 4,915
----------------------------------------------------------- -------- --------
Liabilities
Non-current liabilities
Trade and other payables (27) (25)
Carried interest and performance fees payable (85) (72)
Acquisition related earn-out charges payable - (10)
Loans and borrowings 7 (575) (815)
Retirement benefit deficit (20) (19)
Deferred income taxes 4 - (1)
Provisions (1) (5)
--------------------------------------------------- ------ -------- --------
Total non-current liabilities (708) (947)
----------------------------------------------------------- -------- --------
Current liabilities
Trade and other payables (99) (127)
Carried interest and performance fees payable (20) (13)
Acquisition related earn-out charges payable (1) (17)
Loans and borrowings 7 (262) -
Current income taxes (2) (2)
Provisions (7) (3)
--------------------------------------------------- ------ -------- --------
Total current liabilities (391) (162)
----------------------------------------------------------- -------- --------
Total liabilities (1,099) (1,109)
----------------------------------------------------------- -------- --------
Net assets 4,455 3,806
----------------------------------------------------------- -------- --------
Equity
Issued capital 719 719
Share premium 784 784
Capital redemption reserve 43 43
Share-based payment reserve 32 31
Translation reserve 229 216
Capital reserve 2,080 1,519
Revenue reserve 622 573
Own shares (54) (79)
--------------------------------------------------- ------ -------- --------
Total equity 4,455 3,806
----------------------------------------------------------- -------- --------
Simon Thompson
Chairman
18 May 2016
Consolidated statement of changes in equity
for the year to 31 March
Share-
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve reserve shares equity
2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total equity at the
start of the year 719 784 43 31 216 1,519 573 (79) 3,806
Profit for the year 705 112 817
Exchange differences
on translation of
foreign operations 13 13
Re-measurements of
defined benefit plans (6) (6)
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total comprehensive
income for the year - - - - 13 699 112 - 824
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Share-based
payments 15 15
Release on forfeiture
of share options (14) 14 -
Exercise of share
awards (25) 25 -
Ordinary dividends (77) (77)
Additional dividends (113) (113)
Total equity at the
end of the year 719 784 43 32 229 2,080 622 (54) 4,455
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Share-
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve reserve shares equity
2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total equity at the
start of the year 718 782 43 19 243 1,050 542 (89) 3,308
Profit for the year 599 101 700
Exchange differences
on translation of
foreign operations (27) (27)
Re-measurements of
defined benefit plans (14) (14)
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total comprehensive
income for the year - - - - (27) 585 101 - 659
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Share-based
payments 19 19
Release on forfeiture
of share options (7) 7 -
Exercise of share
awards (10) 10 -
Ordinary dividends (77) (77)
Additional dividends (106) (106)
Issue of ordinary
shares 1 2 3
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total equity at the
end of the year 719 784 43 31 216 1,519 573 (79) 3,806
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Consolidated cash flow statement
for the year to 31 March
2016 2015
GBPm GBPm
------------------------------------------------- ------ ------
Cash flow from operating activities
Purchase of investments (87) (116)
Proceeds from investments 236 270
Cash inflow from investment entity subsidiaries 206 272
Net cash flow from derivatives (14) 9
Portfolio interest received 5 14
Portfolio dividends received 58 35
Portfolio fees received 7 10
Fees received from external funds 78 77
Carried interest and performance fees received 52 6
Carried interest and performance fees paid (13) (14)
Acquisition related earn-out charges paid (30) (10)
Operating expenses (134) (116)
Income taxes paid - (5)
------------------------------------------------- ------ ------
Net cash flow from operating activities 364 432
------------------------------------------------- ------ ------
Cash flow from financing activities
Issue of shares - 3
Repurchase of B shares - (6)
Dividend paid (190) (183)
Interest received 4 3
Interest paid (51) (54)
------------------------------------------------- ------ ------
Net cash flow from financing activities (237) (237)
------------------------------------------------- ------ ------
Cash flow from investing activities
Purchases of property, plant and equipment (1) -
Net cash flow from deposits (40) -
------------------------------------------------- ------ ------
Net cash flow from investing activities (41) -
------------------------------------------------- ------ ------
Change in cash and cash equivalents 86 195
------------------------------------------------- ------ ------
Cash and cash equivalents at the start of year 861 674
Effect of exchange rate fluctuations 10 (8)
------------------------------------------------- ------ ------
Cash and cash equivalents at the end of year 957 861
------------------------------------------------- ------ ------
Significant accounting policies
Reporting entity
3i Group plc (the "Company") is a public limited company
incorporated and domiciled in England and Wales. The Consolidated
financial statements ("the Group accounts") for the year to 31
March 2016 comprise the financial statements of the Company and its
consolidated subsidiaries (collectively, "the Group").
The Group accounts have been prepared and approved by the
Directors in accordance with section 395 of the Companies Act 2006
and the Large and Medium-Sized Companies and Groups (Accounts and
Reports) Regulations 2008. The Company has taken advantage of the
exemption in section 408 of the Companies Act 2006 not to present
its Company statement of comprehensive income and related
Notes.
A number of key accounting policies are disclosed below, but
where possible, accounting policies have been shown as part of the
Note to which they specifically relate in order to assist the
reader's understanding.
A Compliance with International Financial Reporting Standards
("IFRS")
The Group and Company accounts have been prepared and approved
by the Directors in accordance with all relevant IFRSs as issued by
the International Accounting Standards Board ("IASB"), and
interpretations issued by the IFRS Interpretations Committee,
endorsed by the European Union ("EU").
The following standards, amendments and interpretations have
been issued with implementation dates, subject to EU endorsement in
some cases, which do not impact on these financial statements:
Effective for annual periods beginning on or after
----------------------------------------------------------------------------------------------
IFRS Annual improvements 2012 to 2014 1 January 2016
------- --------------------------------------------------------------------- --------------
IAS 7 Disclosure initiative (amendments to IAS 7 - Statement of Cash Flows) 1 January 2017
------- --------------------------------------------------------------------- --------------
IFRS 9 Financial instruments 1 January 2018
------- --------------------------------------------------------------------- --------------
IFRS 15 Revenue from contracts with customers 1 January 2018
------- --------------------------------------------------------------------- --------------
IFRS 16 Leases 1 January 2019
------- --------------------------------------------------------------------- --------------
The impact of future standards and amendments on the financial
statements is being assessed by the Group and the Company.
B Basis of preparation
The financial statements are prepared on a going concern basis
as disclosed in the Directors' report.
C Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control, as
defined by IFRS 10, is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over
the investee. Subsidiaries are fully consolidated from the date on
which the Group effectively obtains control. They are
de-consolidated from the date that control ceases.
3i Group plc is an investment entity and, as such, does not
consolidate the investment entities it controls. Most of the
Group's interests in subsidiaries are recognised at fair value
through profit or loss. Those subsidiaries which provide investment
related services, such as advisory, management or employment
services, are not classified at fair value through profit and loss
and continue to be consolidated unless they are deemed investment
entities, in which case they are fair valued.
The acquisition method of accounting is used to account for the
acquisition of subsidiaries. Under the acquisition method of
accounting, with some limited exceptions, the assets, liabilities
and contingent liabilities of a subsidiary are measured at their
fair values at the date of acquisition. Any non-controlling
interest is measured either at fair value or at the non-controlling
interest's proportion of the net assets acquired. Acquisition
related costs are accounted for as expenses when incurred. Any
excess of the cost of acquisition over net assets is capitalised as
goodwill. All intra-group balances, transactions, income and
expenses are eliminated upon consolidation.
(ii) Associates
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating
policies. Investments that are held as part of the Group's
investment portfolio are carried in the statement of financial
position at fair value even though the Group may have significant
influence over those companies.
(iii) Composition of the Group
The Group comprises several different types of subsidiaries. The
Group re-assesses the function performed by each type of subsidiary
to determine its treatment under the IFRS 10 exception from
consolidation on an annual basis. The types of subsidiaries and
their treatment under IFRS 10 are as follows:
General Partners (GPs) - Consolidated
General Partners provide investment management services and do
not hold any direct investments in portfolio assets. These entities
are not investment entities.
Investment managers/advisers - Consolidated
These entities provide investment related services through the
provision of investment management or advice. They do not hold any
direct investments in portfolio assets. These entities are not
investment entities.
Investment managers/advisers which also hold investments -
Consolidated
These entities provide investment related services through the
provision of investment management or advice and also hold
investments in managed assets, typically due to regulatory reasons
or investor expectations. The primary purpose of these entities is
to provide investment related services and therefore they are not
classified as investment entities.
Holding companies of investment managers/advisers -
Consolidated
These entities provide investment related services through their
subsidiaries. They do not hold any direct investment in portfolio
assets and these entities are not investment entities.
Limited Partnerships and other intermediate investment holding
structures - Fair valued
The Group makes investments in portfolio assets through its
ultimate parent company as well as through other limited
partnerships and corporate subsidiaries which the Group has created
to align the interests of the investment teams with the performance
of the assets through the use of various carried interest schemes.
The purpose of these limited partnerships and corporate holding
vehicles, many of which also provide investment related services,
is to invest for investment income and capital appreciation. These
partnerships meet the definition of an investment entity and are
classified at fair value through profit and loss.
Portfolio investments - Fair valued
Under IFRS 10, the test for accounting subsidiaries has been
altered to take wider factors of control as well as actual equity
ownership into account. At 31 March 2016, the Group had 26
investments which were classified as accounting subsidiaries. In
accordance with the investment entity exception, these entities
have been held at fair value with movements in fair value being
recognised in the Consolidated statement of comprehensive income.
With one exception (Palace Street I Limited) none of these
subsidiaries are UK Companies Act subsidiaries.
Structured entities - Fair valued
The Group has interests in a number of unconsolidated structured
entities, their current carrying value and a description of their
activities is included in Note 8.
D Critical accounting estimates and judgements
The reported results of the Group are sensitive to the
accounting policies, assumptions and estimates that underlie the
preparation of its financial statements. UK company law and IFRS
require the Directors, in preparing the Group's financial
statements, to select suitable accounting policies, apply them
consistently and make judgements and estimates that are reasonable
and prudent. The Group's estimates and assumptions are based on
historical experience and expectation of future events and are
reviewed periodically. The actual outcome may be materially
different from that anticipated.
The judgements, assumptions and estimates involved in the
Group's accounting policies that are considered by the Board to be
the most important to the portrayal of its financial condition are
the fair valuation of the investment and the assessment regarding
investment entities. The investment portfolio is held at fair
value. Given the importance of this area, the Board has a separate
Valuations Committee to review the valuations policies, process and
application to individual investments. A report on the activities
of the Valuations Committee is included in the Governance section
of the Annual report.
Further detail on the assessment as an investment entity is as
follows:
(a) Assessment as an investment entity
Entities that meet the definition of an investment entity within
IFRS 10 are required to account for most investments in controlled
entities, as well as investments in associates and joint ventures,
at fair value through profit and loss.
The Board has concluded that the Company continues to meet the
definition of an investment entity as its strategic objective of
investing in portfolio investments and providing investment
management services to investors for the purpose of generating
returns in the form of investment income and capital appreciation
remains unchanged.
The Group is required to determine the degree of control or
influence the Group exercises and the form of any control to ensure
that the financial treatment is accurate. Further detail on our
review of our application of IFRS 10 can be found in the
Reconciliation of Investment basis to IFRS section.
(b) Valuation of the defined benefit schemes
The Group also considers the valuation of the defined benefit
schemes in accordance with IAS 19 to be a significant estimate. The
Group reviews its assumptions annually with its independent
actuaries.
E Other accounting policies
(a) Revenue recognition
Gross investment return is equivalent to "revenue" for the
purposes of IAS 1. It represents the overall increase in net assets
from the investment portfolio net of deal-related costs and
includes foreign exchange movements in respect of the investment
portfolio. Investment income is analysed into the following
components:
i. Realised profits or losses over value on the disposal of
investments are the difference between the fair value of the
consideration received less any directly attributable costs, on the
sale of equity and the repayment of loans and receivables, and its
carrying value at the start of the accounting period, converted
into sterling using the exchange rates in force at the date of
disposal.
ii. Unrealised profits or losses on the revaluation of
investments are the movement in the carrying value of investments
between the start and end of the accounting period converted into
sterling using the exchange rates in force at the date of the
movement.
iii. Fair value movements on investment entity subsidiaries are
the movements in the carrying value of Group subsidiaries which are
classified as investment entities under IFRS 10. The Group makes
investments in portfolio assets through these entities which are
usually limited partnerships or corporate subsidiaries.
iv. Portfolio income is that portion of income that is directly
related to the return from individual investments. It is recognised
to the extent that it is probable that there will be economic
benefit and the income can be reliably measured. The following
specific recognition criteria must be met before the income is
recognised:
- Dividends from equity investments are recognised in the
Consolidated statement of comprehensive income when the
shareholders' rights to receive payment have been established.
Income received on the investment in the most junior ranked level
of CLO capital is recognised as a dividend. GBP31 million was
received in the year (2015: GBP16 million).
- Income from loans and receivables is recognised as it accrues
by reference to the principal outstanding and the effective
interest rate applicable, which is the rate that exactly discounts
the estimated future cash flows through the expected life of the
financial asset to the asset's carrying value. When the fair value
of an investment is assessed to be below the principal value of a
loan the Group recognises a provision against any interest accrued
from the date of the assessment going forward until the investment
is assessed to have recovered in value. Income received on the
instruments in the most junior level of CLO capital is recognised
as a dividend as detailed above. GBP31 million was received in the
year (2015: GBP16 million).
- Fee income is earned directly from investee companies when an
investment is first made and through the life of the investment.
Fees that are earned on a financing arrangement are considered to
relate to a financial asset measured at fair value through profit
or loss and are recognised when that investment is made. Fees that
are earned on the basis of providing an ongoing service to the
investee company are recognised as that service is provided.
v. Foreign exchange on investments arises on investments made in
currencies that are different from the functional currency of the
Group entity. Investments are translated at the exchange rate
ruling at the date of the transaction. At each subsequent reporting
date investments are translated to sterling at the exchange rate
ruling at that date.
(b) Foreign currency translation
For the Company and those subsidiaries whose balance sheets are
denominated in sterling, which is the Company's functional and
presentational currency, monetary assets and liabilities
denominated in foreign currencies are translated into sterling at
the closing rates of exchange at the balance sheet date. Foreign
currency transactions are translated into sterling at the average
rates of exchange over the year and exchange differences arising
are taken to the Consolidated statement of comprehensive
income.
The balance sheets of subsidiaries and associates denominated in
foreign currencies are translated into sterling at the closing
rates. The Statements of comprehensive income for these
subsidiaries and associates are translated at the average rates and
exchange differences arising are taken to other comprehensive
income. Such exchange differences are reclassified to the
Consolidated statement of comprehensive income in the period in
which the subsidiary or associate is disposed of.
Exchange movements in relation to forward foreign exchange
contracts are included within exchange movements in the
Consolidated statement of comprehensive income. During the year, a
GBP14 million loss (2015: GBP12 million gain) was recognised in
exchange movements in relation to forward foreign exchange
contracts.
(c) Treasury assets and liabilities
Short-term treasury assets and short and long-term treasury
liabilities are used in order to manage cash flows and minimise the
overall costs of borrowing.
Cash and cash equivalents comprise cash at bank, short-term
deposits and amounts held in money market funds, which are readily
convertible into cash and there is an insignificant risk of changes
in value. Financial assets and liabilities are recognised in the
balance sheet when the relevant Group entity becomes a party to the
contractual provisions of the instrument. De-recognition occurs
when rights to cash flows from a financial asset expire, or when a
liability is extinguished.
Notes to the accounts
1 Segmental analysis
Operating segments are the components of the Group whose results
are regularly reviewed by the Group's chief operating decision
maker to make decisions about resources to be allocated to the
segment and assess its performance.
The Chief Executive, who is considered to be the chief operating
decision maker, managed the Group on two bases throughout the year.
Firstly, as business divisions determined with reference to market
focus, geographic focus, investment funding model and the Group's
management hierarchy. Secondly, he considers separate Proprietary
Capital and Fund Management businesses focused on investment
returns and Fund Management profits respectively. A description of
the activities, including products and services offered by these
divisions and the allocation of resources, is given in the
Strategic report. For the geographical segmental split, revenue
information is based on the locations of the assets held.
The segmental information that follows is presented on the
Investment basis which is the basis used by the Chief Executive to
monitor the performance of the Group. The remaining Notes are
prepared on the IFRS basis.
Private Debt Proprietary Fund
Equity Infrastructure Management Total Capital Management Total
Year to 31 March 2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Realised profits over value
on the disposal
of investments 69 3 - 72 72 - 72
Unrealised profits/(losses)
on the
revaluation of investments 690 22 (43) 669 669 - 669
Portfolio income
Dividends 18 21 32 71 71 - 71
Income from loans and
receivables 59 - 4 63 63 - 63
Fees receivable/(payable) 7 - (1) 6 6 - 6
Foreign exchange on
investments 168 1 19 188 188 - 188
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Gross investment return 1,011 47 11 1,069 1,069 - 1,069
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Fees receivable from
external funds 13 28 38 79 - 79 79
Synthetic fees - - - - (44) 44 -
Operating expenses(1) (66) (29) (39) (134) (31) (103) (134)
Interest receivable 4 4 - 4
Interest payable (47) (47) - (47)
Exchange movements (31) (31) - (31)
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Operating profit before
carry 940 920 20 940
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Carried interest
Carried interest and
performance
fees receivable 58 20 5 83 83
Carried interest and
performance
fees payable (171) (15) (2) (188) (188)
Acquisition related earn-out
charges - - (5) (5) (5)
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Operating profit 830 830
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Income taxes - -
Other comprehensive income
Re-measurements of defined
benefit
plans (6) (6)
---------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Total return 824 824
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Net divestment/(investment)
Realisations(2) 743 51 2 796 796 796
Cash investment(3) (365) - (88) (453) (453) (453)
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
378 51 (86) 343 343 343
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Balance sheet
Opening portfolio value at 1
April 2015 3,148 553 176 3,877 3,877 3,877
Investment(4) 464 - 88 552 552 552
Value disposed (674) (48) (2) (724) (724) (724)
Unrealised value movement 690 22 (43) 669 669 669
Other movement(5) 113 - 10 123 123 123
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Closing portfolio value at
31 March 2016 3,741 527 229 4,497 4,497 4,497
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
1 Includes restructuring costs of GBP5 million, nil and nil for Private Equity, Infrastructure
and Debt Management, respectively, and nil and GBP5 million for Proprietary Capital and Fund
Management, respectively.
2 GBP25 million in Private Equity relates to proceeds held back in the holding company of the
investee company.
3 Includes GBP4 million of Debt Management investment awaiting settlement at 31 March 2016.
4 Includes capitalised interest and other non-cash investment.
5 Other relates to foreign exchange and the provisioning of capitalised interest. In Debt Management,
GBP9 million relates to capital withdrawn from the Palace Street I portfolio.
Private Debt Proprietary Fund
Equity Infrastructure Management Total Capital Management Total
Year to 31 March 2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Realised profits over value
on the disposal
of investments 161 1 - 162 162 - 162
Unrealised profits/(losses)
on the
revaluation of investments 641 68 (25) 684 684 - 684
Portfolio income
Dividends 9 20 16 45 45 - 45
Income from loans and
receivables 56 - 6 62 62 - 62
Fees receivable/(payable) 8 (1) (1) 6 6 - 6
Foreign exchange on
investments (156) 8 (6) (154) (154) - (154)
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Gross investment return 719 96 (10) 805 805 - 805
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Fees receivable from
external funds 16 30 34 80 - 80 80
Synthetic fees - - - - (45) 45 -
Operating expenses(1) (66) (31) (34) (131) (32) (99) (131)
Interest receivable 3 3 - 3
Interest payable (49) (49) - (49)
Movement in the fair value
of derivatives (1) (1) - (1)
Exchange movements 40 40 - 40
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Operating profit before
carry 747 721 26 747
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Carried interest
Carried interest and
performance
fees receivable 28 45 7 80 80
Carried interest and
performance
fees payable (103) (35) (4) (142) (142)
Acquisition related earn-out
charges - - (8) (8) (8)
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Operating profit 677 677
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Income taxes (4) (4)
Other comprehensive income
Re-measurements of defined
benefit
plans (14) (14)
---------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Total return 659 659
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Net divestment/(investment)
Realisations 831 10 - 841 841 841
Cash investment (369) - (105) (474) (474) (474)
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
462 10 (105) 367 367 367
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Balance sheet
Opening portfolio value at 1
April 2014 2,935 487 143 3,565 3,565 3,565
Investment(2) 509 - 105 614 614 614
Value disposed (670) (9) - (679) (679) (679)
Unrealised value movement 641 68 (25) 684 684 684
Other movement(3) (267) 7 (47) (307) (307) (307)
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Closing portfolio value at
31 March 2015 3,148 553 176 3,877 3,877 3,877
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
1 Includes restructuring costs of nil, nil and GBP1 million for Private Equity, Infrastructure
and Debt Management, respectively, and nil and GBP1 million for Proprietary Capital and Fund
Management, respectively.
2 Includes capitalised interest and other non-cash investment.
3 Other relates to foreign exchange and the provisioning of capitalised interest. In Debt Management,
GBP41 million relates to capital withdrawn from the Palace Street I portfolio.
Northern North Rest of
UK Europe America World Total
Year to 31 March 2016 GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ------ --------- -------- -------- ------
Gross investment return
Realised profits over value on the
disposal of investments 8 49 4 11 72
Unrealised profits/(losses) on the
revaluation of investments 11 707 (50) 1 669
Portfolio income 59 66 12 3 140
Foreign exchange on investments 2 175 11 - 188
------------------------------------------ ------ --------- -------- -------- ------
80 997 (23) 15 1,069
------------------------------------------ ------ --------- -------- -------- ------
Net divestment/(investment)
Realisations 62 586 96 52 796
Cash Investment (121) (272) (60) - (453)
------------------------------------------ ------ --------- -------- -------- ------
(59) 314 36 52 343
------------------------------------------ ------ --------- -------- -------- ------
Balance sheet
Closing portfolio value at 31 March 2016 1,240 2,498 385 374 4,497
------------------------------------------ ------ --------- -------- -------- ------
Northern North Rest of
UK Europe America World Total
Year to 31 March 2015 GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ------ --------- -------- -------- ------
Gross investment return
Realised profits over value on the
disposal of investments 2 117 29 14 162
Unrealised profits/(losses) on the
revaluation of investments 106 526 39 13 684
Portfolio income 56 41 13 3 113
Foreign exchange on investments (2) (208) 47 9 (154)
------------------------------------------ ------ --------- -------- -------- ------
162 476 128 39 805
------------------------------------------ ------ --------- -------- -------- ------
Net divestment/(investment)
Realisations 70 518 161 92 841
Cash Investment (109) (186) (179) - (474)
------------------------------------------ ------ --------- -------- -------- ------
(39) 332 (18) 92 367
------------------------------------------ ------ --------- -------- -------- ------
Balance sheet
Closing portfolio value at 31 March 2015 1,148 1,859 457 413 3,877
------------------------------------------ ------ --------- -------- -------- ------
2 Realised profits over value on the disposal of investments
2016 2016
Unquoted Quoted 2016
investments investments Total
GBPm GBPm GBPm
--------------------------------------- ------------ ------------ ------
Realisations 176 60 236
Valuation of disposed investments (166) (59) (225)
--------------------------------------- ------------ ------------ ------
10 1 11
--------------------------------------- ------------ ------------ ------
Of which:
- profits recognised on realisations 12 2 14
- losses recognised on realisations (2) (1) (3)
-------------------------------------- ------------ ------------ ------
10 1 11
-------------------------------------- ------------ ------------ ------
2015 2015
Unquoted Quoted 2015
investments investments Total
GBPm GBPm GBPm
--------------------------------------- ------------ ------------ ------
Realisations 155 115 270
Valuation of disposed investments (136) (80) (216)
--------------------------------------- ------------ ------------ ------
19 35 54
--------------------------------------- ------------ ------------ ------
Of which:
- profits recognised on realisations 21 35 56
- losses recognised on realisations (2) - (2)
-------------------------------------- ------------ ------------ ------
19 35 54
-------------------------------------- ------------ ------------ ------
3 Unrealised profits on the revaluation of investments
2016 2016
Unquoted Quoted 2016
investments investments Total
GBPm GBPm GBPm
-------------------------------------------- ------------ ------------ ------
Movement in the fair value of investments 72 20 92
-------------------------------------------- ------------ ------------ ------
Of which:
- unrealised gains 155 20 175
- unrealised losses (83) - (83)
------------------------------------------- ------------ ------------ ------
72 20 92
-------------------------------------------- ------------ ------------ ------
2015 2015
Unquoted Quoted 2015
investments investments Total
GBPm GBPm GBPm
-------------------------------------------- ------------ ------------ ------
Movement in the fair value of investments 117 119 236
-------------------------------------------- ------------ ------------ ------
Of which:
- unrealised gains 193 119 312
- unrealised losses (76) - (76)
------------------------------------------- ------------ ------------ ------
117 119 236
-------------------------------------------- ------------ ------------ ------
4 Income taxes
Accounting policy:
Income taxes represent the sum of the tax currently payable,
withholding taxes suffered and deferred tax. Tax is charged or
credited in the Statement of comprehensive income, except where it
relates to items charged or credited directly to equity, in which
case the tax is also dealt with in equity.
The tax currently payable is based on the taxable profit for the
year. This may differ from the profit included in the Statement of
comprehensive income because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible.
To enable the tax charge to be based on the profit for the year,
deferred tax is provided in full on temporary timing differences,
at the rates of tax expected to apply when these differences
crystallise. Deferred tax assets are recognised only to the extent
that it is probable that sufficient taxable profits will be
available against which temporary differences can be set off. All
deferred tax liabilities are offset against deferred tax assets in
accordance with the provisions of IAS 12.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
The main rate of UK corporation tax is to be reduced from 20% to
19% from 1 April 2017, and further to 18% from 1 April 2020. These
changes will affect future UK corporate taxes payable and the rate
at which deferred tax assets are expected to reverse.
2016 2015
GBPm GBPm
------------------------------------------------------------------------------- ----- -----
Current taxes
Current year 3 3
Deferred taxes
Deferred income taxes (1) (1)
------------------------------------------------------------------------------- ----- -----
Total income tax charge in the Consolidated statement of comprehensive income 2 2
------------------------------------------------------------------------------- ----- -----
Reconciliation of income taxes in the Consolidated statement of
comprehensive income
The tax charge for the year is different to the standard rate of
corporation tax in the UK, currently 20% (2015: 21%), and the
differences are explained below:
2016 2015
GBPm GBPm
-------------------------------------------------------------------------------------------- ------ ------
Profit before tax 819 702
Profit before tax multiplied by rate of corporation tax in the UK of 20% (2015: 21%) 164 147
Effects of:
Non-taxable capital profits due to UK approved investment trust company status (163) (145)
------------------------------------------------------------------------------------------- ------ ======
1 2
Other differences between accounting and tax profits:
Non-taxable dividend income (5) (6)
Permanent differences - non-deductible items 4 6
Timing differences - deferred tax charges/(credits) 2 (3)
Overseas countries taxes 2 2
Excess unutilised tax losses arising in the period (2) 1
---- -------------------------------------------------------------------------------------- ------ ------
Total income tax charge in the Consolidated statement of comprehensive income 2 2
-------------------------------------------------------------------------------------------- ------ ------
The affairs of the Group's parent company are directed so as to
allow it to meet the requisite conditions to continue to operate as
an approved investment trust company for UK tax purposes. Approved
investment trust companies are used as investment fund vehicles.
The tax exemption for capital profits which they benefit from
allows them to ensure that investors do not ultimately suffer
double taxation of their investment returns, i.e. once at the level
of the investment fund vehicle and then again in the hands of the
investors.
Including GBP2 million of tax credits (2015: GBP2 million tax
charge) incurred in fair valued entities, the total tax charge for
the Group was nil (2015: GBP4 million) under the Investment
basis.
Deferred income taxes
2016 2015
GBPm GBPm
------------------------------------------- ----- -----
Opening deferred income tax asset
Tax losses 7 12
Income in accounts taxable in the future (7) (12)
Other 2 1
2 1
Recognised through Statement of comprehensive income
Tax losses utilised - (5)
Income in accounts taxable in the future - 5
Other 1 1
1 1
Closing deferred income tax asset
Tax losses 7 7
Income in accounts taxable in the future (7) (7)
Other 3 2
3 2
At 31 March 2016, the Group had carried forward tax losses of
GBP1,375 million (2015: GBP1,409 million), capital losses of GBP88
million (2015: GBP98 million) and other temporary differences of
GBP69 million (2015: GBP12 million). It is uncertain that the Group
will generate sufficient taxable profits in the foreseeable future
to utilise these amounts and therefore no deferred tax asset has
been recognised in respect of these losses. Deferred income taxes
are calculated using an expected rate of corporation tax in the UK
of 19% (2015: 20%).
5 Per share information
The calculation of basic earnings per share is based on the
profit attributable to shareholders and the number of basic average
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.
As at 31 March 2016 2015
Earnings per share (pence)
Basic 85.6 73.9
Diluted 85.2 72.9
Earnings (GBPm)
Profit for the year attributable to equity holders of the Company 817 700
As at 31 March 2016 2015
Weighted average number of shares in issue
Ordinary shares 972,569,633 972,141,887
Own shares (18,427,460) (24,825,193)
954,142,173 947,316,694
Effect of dilutive potential ordinary shares
Share options and awards 4,735,616 12,293,543
Diluted shares 958,877,789 959,610,237
As at 31 March 2016 2015
Net assets per share (GBP)
Basic 4.66 4.01
Diluted 4.63 3.96
Net assets (GBPm)
Net assets attributable to equity holders of the Company 4,455 3,806
Basic NAV per share is calculated on 956,417,466 shares in issue
at 31 March 2016 (2015: 948,610,924). Diluted NAV per share is
calculated on diluted shares of 961,323,047 at 31 March 2016 (2015:
961,432,940).
6 Dividends
2016 2016 2015 2015
pence per share GBPm pence per share GBPm
Declared and paid during the year
Ordinary shares
Final dividend 14.0 133 13.3 126
Interim dividend 6.0 57 6.0 57
20.0 190 19.3 183
Proposed final dividend 16.0 153 14.0 133
In FY2016, the Group's dividend policy is to distribute to
shareholders between 15% and 20% of gross cash realisation
proceeds, provided that gearing is less than 20% and gross debt is,
or is scheduled to be below GBP1 billion. The policy is designed to
give shareholders a direct share in the Group's realisation
activities, while retaining sufficient funds within the Group to
make new investments, meet liabilities as they fall due and meet
internally set liquidity requirements. When determining the level
of realisations to be paid as a dividend each year, the Board
considers current and expected cash investment along with any
significant actual or expected cash flows.
The distribution policy covers the Group's total annual
dividend, which is split between a base dividend (8.1 pence per
share) and an additional dividend (2016: 13.9 pence per share). The
dividend can be paid out of either the capital reserve or the
revenue reserve subject to the investment trust rules which state
that at least 85% of revenue must be distributed by the
Company.
7 Loans and borrowings
Accounting policy:
All loans and borrowings are initially recognised at the fair
value of the consideration received. After initial recognition,
these are subsequently measured at amortised cost using the
effective interest method, which is the rate that exactly discounts
the estimated future cash flows through the expected life of the
liabilities. Financial liabilities are derecognised when they are
extinguished.
Group Group
2016 2015
GBPm GBPm
Loans and borrowings are repayable as follows:
Within one year 262 -
In the second year - 240
In the third year - -
In the fourth year - -
In the fifth year - -
After five years 575 575
837 815
Principal borrowings include:
Group Group
2016 2015
Rate Maturity GBPm GBPm
Issued under the GBP2,000 million note issuance programme
Fixed rate
EUR350 million notes (public issue) 5.625% 2017 262 240
GBP200 million notes (public issue) 6.875% 2023 200 200
GBP400 million notes (public issue) 5.750% 2032 375 375
837 815
Committed multi-currency facilities
GBP350 million LIBOR+0.60% 2020 - -
- -
Total loans and borrowings 837 815
During the year, the maturity of the Company's GBP350 million
syndicated multi-currency facility was extended by one year to
September 2020. The Company has the option to request a further one
year extension at the second year anniversary of the facility,
which may be granted at the discretion of each lender individually.
The GBP350 million facility has no financial covenants.
All of the Group's borrowings are repayable in one instalment on
the respective maturity dates. None of the Group's interest-bearing
loans and borrowings are secured on the assets of the Group.
The fair value of the loans and borrowings is GBP967 million
(2015: GBP997 million), determined with reference to their
published market prices. The loans and borrowings are included in
Level 1 of the fair value hierarchy.
Under AIFMD, the Group is required to calculate leverage in
accordance with a set formula and disclose this to investors. In
line with AIFMD, leverage is 116% (2015: 117%) under the gross
method and 116% (2015: 120%) under the commitment method.
8 Related parties and interests in other entities
The Group has various related parties stemming from
relationships with limited partnerships managed by the Group, its
investment portfolio (including unconsolidated subsidiaries), its
advisory arrangements and its key management personnel. In
addition, the Company has related parties in respect of its
subsidiaries. Some of these subsidiaries are held at fair value
(unconsolidated subsidiaries) due to the treatment prescribed in
IFRS 10.
Related parties
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 included in
respect of these limited partnerships:
Group Group
2016 2015
Statement of comprehensive income GBPm GBPm
Carried interest receivable 53 28
Fees receivable from external funds 28 31
Group Group
2016 2015
Statement of financial position GBPm GBPm
Carried interest receivable 87 33
In addition, the Group has invested in the 3i Global Income
Fund. At the year end, the value of the investment was GBP52
million. The Group received management fees of less than GBP1
million in the year (2015: nil).
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. It is presumed 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:
Group Group
2016 2015
Statement of comprehensive income GBPm GBPm
Realised profit over value on the disposal of investments 4 13
Unrealised profits on the revaluation of investments (42) 3
Portfolio income 37 26
Group Group
2016 2015
Statement of financial position GBPm GBPm
Unquoted investments 480 560
From time to time, transactions occur between related parties
within the investment portfolio that the Group influences to
facilitate the reorganisation or refinancing 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 included in respect of this advisory relationship:
Group Group
2016 2015
Statement of comprehensive income GBPm GBPm
Realised profit over value on the disposal of investments 2 -
Unrealised profits on the revaluation of investments 20 46
Fees receivable from external funds 12 12
Performance fees receivable 20 45
Dividends 12 12
Group Group
2016 2015
Statement of financial position GBPm GBPm
Quoted equity investments 277 288
Performance fees receivable 20 45
Subsidiaries
Transactions between the Company and its fully consolidated
subsidiaries, which are related parties of the Company, are
eliminated on consolidation. Details of related party transactions
between the Company and its subsidiaries are detailed below.
Management, administrative and secretarial arrangements
The Company has appointed 3i Investments plc, a wholly-owned
subsidiary of the Company incorporated in England and Wales, as
investment manager of the Group. 3i Investments plc received a fee
of GBP13 million (2015: GBP13 million) for this service.
The Company has appointed 3i plc, a wholly-owned subsidiary of
the Company incorporated in England and Wales, to provide the
Company with a range of administrative and secretarial services. 3i
plc received a fee of GBP69 million (2015: GBP145 million) for this
service.
Key management personnel
The Group's key management personnel comprise the members of the
Executive Committee and the Board's non-executive Directors. The
following amounts have been included in respect of these
individuals:
Group Group
2016 2015
Statement of comprehensive income GBPm GBPm
Salaries, fees, supplements and benefits in kind 5 5
Cash bonuses 3 4
Carried interest and performance fees payable 21 17
Share-based payments 6 5
Acquisition related earn-out charges 1 4
Group Group
2016 2015
Statement of financial position GBPm GBPm
-----
Bonuses and share-based payments 16 14
Carried interest and performance fees payable within one year 12 5
Carried interest and performance fees payable after one year 33 21
Acquisition related earn-out charges payable within one year - 10
Acquisition related earn-out charges payable after one year - 8
-----
Carried interest paid in the year to key management personnel
was GBP3 million (2015: GBP3 million). Acquisition related earn-out
charges paid in the year to key management personnel was GBP19
million (2015: GBP8 million).
Unconsolidated structured entities
The application of IFRS 12 requires additional disclosure on the
Group's exposure to unconsolidated structured entities.
The Group has exposure to a number of unconsolidated structured
entities as a result of its investment activities across its
Private Equity, Infrastructure and Debt Management business lines.
These structured entities fall into four categories, namely CLO's,
debt management warehouses, closed end limited partnerships
(Private Equity and Infrastructure funds) and investments in
certain portfolio investments.
The nature, purpose and activities of these entities are
detailed below along with the nature of risks associated with these
entities and the maximum exposure to loss.
CLO structured entities
The Group manages CLO vehicles as part of its Debt Management
business. These funds predominantly invest in senior secured loans
and are financed by investors seeking credit rated, structured,
investment returns.
The Group manages these funds in return for a management fee.
The Group also typically invests into the equity tranche of these
funds. The Group's attributable stakes in these entities are held
at fair value, fees receivable are recognised on an accruals basis
and performance fees are accrued when relevant performance hurdles
are met.
The risk and maximum exposure to loss arising from the Group's
involvement with these entities are summarised below:
Carrying amount
Assets Liabilities Net Maximum loss exposure
Balance sheet line item of asset or liability GBPm GBPm GBPm GBPm
Unquoted investments 154 - 154 154
Fee income receivable 7 - 7 7
-----------
Total 161 - 161 161
-----------
At 31 March 2015, the carrying amount of assets and maximum loss
exposure of unquoted investments and fee income receivable was
GBP119 million and GBP7 million respectively. The carrying amount
of liabilities was nil.
At 31 March 2016, the total CLO assets under management were
GBP7.1 billion (2015: GBP6.5 billion). The Group earned
distributions of GBP31 million (2015: GBP16 million) and fee income
of GBP33 million (2015: GBP30 million) during the year from CLO
structured entities.
Warehouse structured entities
Ahead of future CLO fund launches, warehouse facilities are
usually established to support the creation of senior secured debt
portfolios. These entities are financed by the Group along with the
bank appointed to operate the warehouse facility. The Group makes a
commitment to the warehouse, typically taking the first loss
position and is at risk for margin calls if the portfolio
underperforms. The Group's attributable stakes in these warehouses
are held at fair value.
The risk and maximum exposure to loss arising from the Group's
involvement with these entities are summarised below:
Carrying amount
Assets Liabilities Net Maximum loss exposure
Balance sheet line item of asset or liability GBPm GBPm GBPm GBPm
Unquoted investments 17 - 17 17
Total 17 - 17 17
At 31 March 2015, the carrying amount of assets and the maximum
loss exposure of unquoted investments was GBP43 million. The
carrying amount of liabilities was nil.
The Group earned interest income of GBP4 million (2015: GBP6
million) during the year from warehouse structured entities.
Closed-end limited partnerships
The Group manages a number of closed-end limited partnerships,
which are primarily Private Equity or Infrastructure focused, in
return for a management fee. The purpose of these partnerships is
to invest in Private Equity or Infrastructure investments for
capital appreciation. Limited Partners, which in some cases may
include the Group, finance these entities by committing capital to
them and cash is drawn down or distributed for financing investment
activity.
The Group's attributable stakes in these entities are held at
fair value, fees receivable are recognised on an accruals basis and
carried interest is accrued when relevant performance hurdles are
met.
The risk and maximum exposure to loss arising from the Group's
involvement with these entities are summarised below:
Carrying amount
Assets Liabilities Net Maximum loss exposure
Balance sheet line item of asset or liability GBPm GBPm GBPm GBPm
Carried interest receivable 87 - 87 87
Total 87 - 87 87
At 31 March 2015, the carrying amount of assets and maximum loss
exposure of carried interest receivable was GBP33 million. The
carrying amount of liabilities was nil.
At 31 March 2016, the total assets under management relating to
these entities was GBP2.0 billion (2015: GBP2.2 billion). The Group
earned fee income of GBP28 million (2015: GBP31 million) and
carried interest of GBP53 million (2015: GBP28 million) in the
year.
Investments that are structured entities
The Group makes investments on behalf of itself and third-party
funds that it manages, for capital appreciation purposes. In a
small number of cases, these investments fall under the
classification of a structured entity as they are funds managed by
the General Partner under a limited partnership agreement.
The Group's attributable stakes in these entities are held at
fair value.
The risk and maximum exposure to loss arising from the Group's
involvement with these entities are summarised below:
Carrying amount
Assets Liabilities Net Maximum loss exposure
Balance sheet line item of asset or liability GBPm GBPm GBPm GBPm
Unquoted investments 2 - 2 2
Total 2 - 2 2
At 31 March 2015, the carrying amount of assets and the maximum
loss exposure of unquoted investments was GBP2 million. The
carrying amount of liabilities was nil.
At 31 March 2016, the total fair value of these investments,
including stakes held by third parties was GBP28 million (2015:
GBP33 million). The Group recognised an unrealised movement of nil
(2015: GBP1 million loss) from investments that are structured
entities.
Regulatory information relating to fees:
Under AIFMD, 3i Investments plc acts as an Alternative
Investment Fund Manager ("AIFM") to 3i Group plc. In performing the
activities and functions of the AIFM, the AIFM or another 3i
company may pay or receive fees, commissions or non-monetary
benefits to or from third parties of the following nature:
- Transaction fees: 3i companies receive monitoring and
Directors' fees from portfolio companies. The amount is agreed with
the portfolio company at the time of the investment but may be
re-negotiated. Where applicable, 3i may also receive fees on the
completion of transactions such as acquisitions, refinancings or
syndications either from the portfolio company or a co-investor.
Transaction fees paid to 3i are included in portfolio income.
- Payments for third party services: 3i companies may retain the
services of third party consultants; for example for an independent
director or other investment management specialist expertise. The
amount paid varies in accordance with the nature of the service and
the length of the service period and is usually, but not always,
paid/reimbursed by the portfolio companies. The payment may involve
a flat fee, retainer or success fee. Such payments, where borne by
3i companies, are usually included in portfolio income.
- Payments for services from 3i companies: One 3i company may
provide investment advisory services to another 3i company and
receive payment for such service.
Portfolio and other information
25 Large investments
The 25 investments listed below account for 79% of the portfolio
at 31 March 2016 (2015: 81%). This table does not include two
investments that have been excluded for commercial reasons. For
each of our investments we have assessed whether they classify as
accounting subsidiaries under IFRS and/or subsidiaries under the UK
Companies Act. This assessment forms the basis of our disclosure of
accounting subsidiaries in the financial statements.
The UK Companies Act defines a subsidiary based on voting
rights, with a greater than 50% majority of voting rights resulting
in an entity being classified as a subsidiary. IFRS 10 applies a
wider test and, if a Group is exposed, or has rights to variable
returns from its involvement with the investee and has the ability
to affect these returns through its power over the investee then it
has control, and hence the investee is deemed an accounting
subsidiary. Controlled subsidiaries under IFRS within the 25 large
investments below are noted. None of these investments are UK
Companies Act subsidiaries.
In accordance with Section 29 of the Alternative Investment Fund
Manager Directive ("AIFMD"), 3i Investments plc, as AIFM,
encourages all controlled portfolio companies to make available to
employees and investors an Annual report which meets the disclosure
requirements of the Directive. These are available either on the
portfolio company's website or through filing with the relevant
local authorities.
Residual Residual
Business line cost(1) cost(1) Valuation Valuation
Geography March March March March
Investment First invested in 2015 2016 2015 2016 Relevant transactions
Description of business Valuation basis GBPm GBPm GBPm GBPm in the year
Action* Private Equity 2 1 592 902 Refinancing returned
Non-food discount retailer Benelux GBP168m of proceeds
2011
Earnings
3i Infrastructure plc* Infrastructure 302 270 481 464 GBP51m special dividend
Quoted investment company, UK following the sale of
investing in infrastructure 2007 Eversholt Rail
Quoted
Scandlines* Private Equity 114 114 262 369 GBP46m of proceeds and
Ferry operator between Denmark/ income, net of
Denmark and Germany Germany transaction fees,
2007/2013 following sale of route
DCF between Helsingor and
Helsinborg
Weener Plastic* Private Equity - 151 - 173 New investment
Supplier of plastic Germany
packaging
solutions 2015
Earnings
Audley Travel* Private Equity - 161 - 158 New investment
Provider of experiential UK
tailor made travel 2015
Earnings
Mayborn* Private Equity 129 149 133 135 Exit announced in April
Manufacturer and UK 2016
distributor
of baby products 2006
Imminent sale
ATESTEO (formerly GIF)* Private Equity 68 83 78 130 Further investment of
International transmission Germany GBP11m
testing specialist 2013
Earnings
Q Holding* Private Equity 100 100 109 120
Precision engineered US
elastomeric components 2014
manufacturer Earnings
Christ* Private Equity 99 99 111 117
Distributor and retailer of Germany
jewellery 2014
Earnings
AES Engineering Private Equity 30 30 102 92
Manufacturer of mechanical UK
seals and support systems 1996
Earnings
Quintiles Private Equity 41 26 144 92 Partial disposal in the
Clinical research US year
outsourcing
solutions 2008
Quoted
Amor* Private Equity 30 30 54 87 Exit announced in April
Provider of affordable Germany 2016
precious jewellery 2010
Imminent sale
Mémora* Private Equity 159 159 61 83
Funeral service provider Spain
2008
Earnings
Tato Private Equity 2 2 80 80
Manufacturer and sale of UK
speciality chemicals 1989
Earnings
Aspen Pumps* Private Equity 65 70 64 64
Manufacturer of pumps and UK
accessories for the air 2015
conditioning, heating and Earnings
refrigeration industry
Dynatect* Private Equity 65 65 71 63
Manufacturer of US
engineered,
mission critical 2014
protective
equipment Earnings
OneMed Group* Private Equity 117 124 47 60
Distributor of consumable Sweden
medical products, 2011
devices and technology Earnings
Euro-Diesel* Private Equity - 52 - 59 New investment
Manufacturer of Benelux
uninterruptible
power supply systems 2015
Earnings
Geka* Private Equity 69 55 53 55 Refinancing returned
Manufacturer of brushes, Germany GBP17m of proceeds
applicators and packaging 2012
systems for the cosmetics Earnings
industry
MKM Private Equity 22 23 43 53
Building materials UK
supplier
2006
Earnings
Global Income Fund* Debt Management - 48 - 52 New fund launched
Debt Management open-ended UK
fund with exposure to 2007
North
American and western Broker quotes
European issuers
Refresco Gerber Private Equity 30 23 47 44 Partial disposal in the
European bottler of soft Benelux year
drinks
and fruit juices for 2010
retailers and
branded customers Quoted
Agent Provocateur* Private Equity 53 53 53 42
Women's lingerie and UK
assorted
products 2007
Earnings
Polyconcept Private Equity 48 48 22 37
Leader in promotional UK
products
industry 2005
Earnings
Etanco* Private Equity 87 93 40 36
Designer, manufacturer and France
distributor of fasteners 2011
and
fixing systems Earnings
1,632 2,029 2,647 3,567
* Controlled in accordance with IFRS.
1 Residual cost includes capitalised interest
Glossary
Alternative Investment Funds ("AIFs") At 31 March 2016, 3i
Investments plc as AIFM, managed five AIFs. These were 3i Group
plc, 3i Growth Capital Fund, 3i Eurofund V, 3i Global Income Fund
and the European Middle Market Loan Fund.
Alternative Investment Fund Managers Directive ("AIFMD") became
effective from July 2013. As a result, at 31 March 2016, 3i
Investments plc is registered as an Alternative Investment Fund
Manager ("AIFM"), which in turn manages five AIFs.
Alternative Investment Fund Manager ("AIFM") is the regulated
manager of AIFs. Within 3i, this is 3i Investments plc.
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.
Barclays Infrastructure Fund Management business ("BIFM")
Acquired by 3i in November 2013 when it managed two active unlisted
funds that invest in UK and European PPP and energy projects, with
assets under management of over GBP700 million.
Base Erosion and Profit Shifting ("BEPS") Project is an OECD
initiative that was launched in 2013, at the request of the G20
countries, to develop specific, detailed proposals, rules and
instruments required to equip governments and tax authorities to
address the BEPS challenge and the proposals were delivered to and
approved by the G20 leaders in November 2015. Countries are now in
the process of considering and implementing changes to their
domestic tax laws and international tax treaties to give effect to
the recommendations made by the BEPS project team.
Board The Board of Directors of the Company.
Capital redemption reserve is established in respect of the
redemption of the Company's ordinary shares.
Capital reserve The capital reserve recognises all profits that
are capital in nature or have been allocated to capital. Following
changes to the Companies Act, the Company amended its Articles of
Association at the 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 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.
We pay carried interest to our investment teams on proprietary
capital invested and share a proportion of carried interest
receivable from third--party funds. This total carried interest
payable is provided historically by reference to two or three-year
vintages to maximise flexibility in resource planning.
"CLO" - Collateralised Loan Obligation A form of securitisation
where payments from multiple loans are pooled together and passed
on to different classes of owners in various tranches.
Common Reporting Standard ("CRS") imposes obligations on
financial groups and entities to identify and report details,
relating to the foreign investors investing in such groups and
entities, to the local tax authority who then exchanges the
information with the other relevant tax authorities.
Company 3i Group plc.
Country by Country reporting ("CbC Reporting") refers to a
requirement for large multinational groups, operating in different
countries, to file an annual report detailing certain information
about the activities of the entities in the Group, on a country by
country basis, covering the countries in which the Group entities
operate. This new requirement will apply to the Group for its
accounting periods beginning after 1 April 2016.
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.
Dividend income from equity investments and CLO capital is
recognised in the Statement of comprehensive income when the
shareholders' rights to receive payment have been established.
Earnings before interest, tax, depreciation and amortisation
("EBITDA") EBITDA is defined as earnings before interest, taxation,
depreciation and amortisation and is used as the typical measure of
portfolio company performance.
EBITDA multiple Calculated as the enterprise value over EBITDA,
it is used to determine the value of a company.
Executive Committee The Executive Committee is responsible for
the day-to-day running of the Group and comprises: the Chief
Executive, Group Finance Director, the Managing Partners of the
Private Equity, Infrastructure and Debt Management businesses and
the Group's General Counsel.
Fair value movements on investment entity subsidiaries The
movement in the carrying value of Group subsidiaries, classified as
investment entities under IFRS 10, between the start and end of the
accounting period converted into sterling using the exchange rates
at the date of the movement.
Fair value through profit or loss ("FVTPL") is an IFRS
measurement basis permitted for assets and liabilities which meet
certain criteria. Gains and losses on assets and liabilities
measured as FVTPL are recognised directly in the Statement of
comprehensive income.
Fee income is earned directly from investee companies when an
investment is first made and through the life of the investment.
Fees that are earned on a financing arrangement are considered to
relate to a financial asset measured at fair value through profit
or loss and are recognised when that investment is made. Fees that
are earned on the basis of providing an ongoing service to the
investee company are recognised as that service is provided.
Fees receivable from external funds are fees received by the
Group, from third parties, for the management of private equity,
infrastructure and debt management funds.
Foreign Account Tax Compliance Act ("FATCA") is US tax
legislation aimed at preventing offshore tax avoidance by US
persons. The rules impose obligations on non-US financial groups
and entities to identify and report details relating to US
investors who have invested in those groups and entities.
Foreign exchange on investments arises on investments made in
currencies that are different from the functional currency of the
Group entity. Investments are translated at the exchange rate
ruling at the date of the transaction. At each subsequent reporting
date investments are translated to sterling at the exchange rate
ruling at that date.
Fund Management A segment of the business focused on generating
profits from the management of private equity, infrastructure and
debt management funds.
Fund Management Operating profit comprises fee income from third
parties as well as a synthetic fee received from the Proprietary
Capital business less operating expenses incurred by the Fund
Management business.
Gross investment return ("GIR") includes profit and loss on
realisations, increases and decreases in the value of the
investments we hold at the end of a period, any income received
from the investments such as interest, dividends and fee income and
foreign exchange movements. GIR is measured as a percentage of the
opening portfolio value and is the principal tool for assessing our
Proprietary Capital business.
Income from loans and receivables is recognised as it accrues.
When the fair value of an investment is assessed to be below the
principal value of a loan the Group recognises a provision against
any interest accrued from the date of the assessment going forward
until the investment is assessed to have recovered in value.
International Financial Reporting Standards ("IFRS") are
accounting standards issued by the International Accounting
Standards Board ("IASB"). The Group's consolidated financial
statements are required to be prepared in accordance with IFRS.
Investment basis Accounts 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 Strategic report refers to this basis as
we believe it provides a more understandable view of our
performance.
Key Performance Indicators ("KPI") is a measure by reference to
which the development, performance or position of the Group can be
measured effectively.
Money multiple is calculated as the cumulative distributions
plus any residual value divided by paid-in capital.
Net asset value ("NAV") is a measure of the fair value of our
proprietary investments and the net costs of operating the
business.
Operating cash profit Defined as the difference between our cash
income (cash fees from managing third-party funds and cash income
from our proprietary capital portfolio) and our operating expenses,
excluding restructuring costs.
Operating profit Includes gross investment return, management
fee income generated from managing external funds, the costs of
running our business, net interest payable, movements in the fair
value of derivatives, other losses and carried interest.
Portfolio income is that which is directly related to the return
from individual investments. It is recognised to the extent that it
is probable that there will be economic benefit and the income can
be reliably measured. It is comprised of dividend income, income
from loans and receivables and fee income.
Proprietary Capital A segment of the business focused on
generating profits from shareholders' capital which is available to
invest.
Proprietary Capital operating profit Comprises gross investment
return, operating expenses, a fee paid to the Fund Management
business and balance sheet funding expenses such as interest
payable.
Public Private Partnership ("PPP") is a government service or
private business venture which is funded and operated through a
partnership of government and one or more private sector
companies.
Realised profits or losses over value on the disposal of
investments The difference between the fair value of the
consideration received, less any directly attributable costs, on
the sale of equity and the repayment of loans and receivables and
its carrying value at the start of the accounting period, converted
into sterling using the exchange rates at the date of disposal.
Revenue reserve recognises all profits that are revenue in
nature or have been allocated to revenue.
Segmental reporting Operating segments are reported in a manner
consistent with the internal reporting provided to the Chief
Executive who is considered to be the Group's chief operating
decision maker. All transactions between business segments are
conducted on an arm's length basis, with intrasegment revenue and
costs being eliminated on consolidation. Income and expenses
directly associated with each segment are included in determining
business segment performance.
Share-based payment reserve is a reserve to recognise those
amounts in retained earnings in respect of share-based
payments.
Synthetic fee Internal fee payable to the Fund Management
business for managing our proprietary capital.
Total return Comprises operating profit less tax charge less
movement in actuarial valuation of the historic defined benefit
pension scheme.
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.
Translation reserve Comprises all exchange differences arising
from the translation of the financial statements of international
operations.
Underlying fund management profit Calculated as fee income minus
operating expenses related to Fund Management activities, excluding
restructuring and amortisation costs.
Unrealised profits or losses on the revaluation of investments
The movement in the carrying value of investments between the start
and end of the accounting period converted into sterling using the
exchange rates at the date of the movement.
Value weighted earnings growth The growth in last 12 month
earnings, when comparing to the preceding 12 months. This measure
is a key driver of our private equity portfolio performance.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DBGDUIDBBGLI
(END) Dow Jones Newswires
May 19, 2016 02:02 ET (06:02 GMT)
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