TIDMIII
RNS Number : 4327F
3i Group PLC
12 November 2015
3i Group plc announces half yearly results
to 30 September 2015
Another solid half year with each business making important
progress
-- Good progression in NAV per share to 401 pence, after the
payment of the 14 pence final FY2015 dividend
-- Strong performance in the Private Equity portfolio
underpinned by continued earnings momentum in our key assets
-- Productive first half for Private Equity with selective
investment of GBP208 million and realised proceeds
of GBP307 million
-- Infrastructure had a good first half, advising 3i
Infrastructure plc on three new investments and contributing a
special dividend of GBP51 million and cash income of GBP25 million
to 3i
-- Debt Management assets under management now GBP7.5 billion as
the team raised GBP0.8 billion of new assets from one new CLO in
Europe and one new CLO in the US and launched the Global Income
Fund
-- Efficient operating platform supported operating cash profit
of GBP17 million
-- Well funded balance sheet with net debt of only GBP12
million
-- Interim dividend of 6.0 pence per share and expect to pay a
full year dividend of at least 15 pence
per share
Simon Borrows, 3i's Chief Executive, commented:
"We have completed another solid half year with each business
making important progress. The macro and market environment has
clearly deteriorated over the course of this year and the steps we
have taken since 2012 to create a more resilient business are
proving their value.
We are enjoying good momentum across 3i and anticipate that the
current environment will, over time, create attractive
opportunities and we have the people, financial resources and
agility to take advantage of them."
Financial highlights
Six months to/as Six months to/as Year to/as at
at 30 September at 30 September 31 March
2015 2014 2015
================================================ ================= ================= ==============
Group
Total return GBP168m GBP234m GBP659m
Total return on opening shareholders' funds 4.4% 7.1% 19.9%
Dividend per ordinary share 6.0p 6.0p 20.0p
Operating expenses GBP63m GBP63m GBP131m
As a percentage of assets under management(1) 0.9% 1.0% 1.0%
Operating cash profit GBP17m GBP16m GBP28m
================================================ ================= ================= ==============
Proprietary Capital
Realisation proceeds GBP359m GBP324m GBP841m
Uplift over opening book value(2) GBP29m/9% GBP36m/15% GBP145m/27%
Money multiple 1.7x 1.8x 2.0x
Gross investment return GBP272m GBP297m GBP805m
As a percentage of opening 3i portfolio value 7.0% 8.3% 22.6%
Operating profit (3) GBP204m GBP262m GBP721m
Cash investment GBP294m GBP199m GBP474m
3i portfolio value GBP4,037m GBP3,672m GBP3,877m
Gross debt GBP819m GBP831m GBP815m
Net (debt)/cash GBP(12)m GBP(161)m GBP49m
Gearing 0.3% 5% nil
Liquidity GBP1,157m GBP1,020m GBP1,214m
Net asset value GBP3,851m GBP3,426m GBP3,806m
Diluted net asset value per ordinary share 401p 358p 396p
================================================ ================= ================= ==============
Fund Management
Total assets under management GBP13,469m GBP12,923m GBP13,474m
Third-party capital GBP10,143m GBP9,566m GBP10,140m
Proportion of third-party capital 75% 74% 75%
Total fee income GBP58m GBP63m GBP125m
Third-party fee income GBP37m GBP41m GBP80m
Operating profit(3) GBP10m GBP13m GBP26m
Underlying Fund Management profit(3,4) GBP13m GBP16m GBP33m
Underlying Fund Management margin 22% 26% 26%
=============================================== ================= ================= ==============
1 Annualised actual operating expenses, excluding restructuring costs
of nil (September 2014: nil, March 2015: GBP1 million), as a percentage
of weighted average assets under management.
2 Uplift over opening book value excludes refinancings. The September
2014 balance has been restated from GBP35 million to GBP36 million
to exclude refinancings.
3 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.
4 Excludes Fund Management restructuring costs of nil (September 2014:
nil, March 2015: GBP1 million) and amortisation costs of GBP3 million
(September 2014: GBP3 million, March 2015: GBP6 million).
- ends -
For further information, please contact:
Silvia Santoro, Investor Relations Tel: 020 7975
Director 3258
Kathryn van der Kroft, Communications Tel: 020 7975
Director 3021
For further information regarding the announcement of 3i's
Half-yearly results to 30 September 2015, including a live
videocast of the results presentation at 10.00am (registration from
9.00am), 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 Half-yearly results
Note 1
All of the financial data in this announcement is taken from the
Investment basis financial statements. This Half-yearly report has
been prepared solely to provide information to shareholders. It
should not be relied on by any other party or for any other
purpose.
The financial information for the year ended 31 March 2015
contained within this announcement does not constitute statutory
accounts as defined in Section 434 of the Companies Act 2006. The
statutory accounts for the year to 31 March 2015, prepared under
IFRS, have been reported on by Ernst and Young LLP and delivered to
the Registrar of Companies. The report of the Auditor on these
statutory accounts was unqualified and did not contain a statement
under section 498(2) or section 498(3) of the Companies Act
2006.
Note 2
A pdf of the 3i Group plc Half-yearly report 2015 will be
available on our website www.3i.com and is also attached below.
http://www.rns-pdf.londonstockexchange.com/rns/4327F_1-2015-11-11.pdf
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
The interim dividend is expected to be paid on 6 January 2016 to
holders of ordinary shares on the register on 11 December 2015.
Disclaimer
The Half-yearly report has been prepared solely to provide
information to shareholders. It should not be relied on by any
other party or for any other purpose.
The Half-yearly report 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.
Basis
The numbers and commentary in the Overview and Interim
management report reflects the Investment basis rather than IFRS.
Detail on the differences and a reconciliation is included in the
Reconciliation of the Investment basis to IFRS. The key measures of
total return on equity and NAV are the same under both bases.
For definitions of our financial terms, used throughout this
report, please see our glossary.
(MORE TO FOLLOW) Dow Jones Newswires
November 12, 2015 02:01 ET (07:01 GMT)
We have enhanced the Half-yearly report to concentrate on those
events and transactions that are significant to an understanding of
3i's financial performance in the period since the Annual report
and accounts 2015. As a result the commentary has been streamlined
to remove duplication and a number of Notes on the Financial
Statements have been refined or deleted to focus on information
that is material to this Half-yearly report.
Total return for the six months to 30 September 2015
Six months to Six months to 12 months to
30 September 30 September 31 March
2015 2014 2015
Investment basis GBPm GBPm GBPm
--------------------------------------------------------------------- -------------- -------------- -------------
Realised profits over value on disposal of investments 29 35 162
Unrealised profits on revaluation of investments 167 307 684
Portfolio income
Dividends 36 21 45
Income from loans and receivables 28 30 62
Fees receivable 5 2 6
Foreign exchange on investments 7 (98) (154)
--------------------------------------------------------------------- -------------- -------------- -------------
Gross investment return 272 297 805
Fees receivable from external funds 37 41 80
Operating expenses (63) (63) (131)
Interest receivable 2 1 3
Interest payable (24) (26) (49)
Movement in the fair value of derivatives - (1) (1)
Exchange movements (10) 25 40
Other income - 1 -
--------------------------------------------------------------------- -------------- -------------- -------------
Operating profit before carry 214 275 747
Carried interest
Carried interest and performance fees receivable from external
funds (3) 19 80
Carried interest and performance fees payable (39) (45) (142)
Acquisition related earn-out charges (4) (5) (8)
--------------------------------------------------------------------- -------------- -------------- -------------
Operating profit 168 244 677
Income taxes 1 (3) (4)
Re-measurements of defined benefit plans (1) (7) (14)
--------------------------------------------------------------------- -------------- -------------- -------------
Total comprehensive income ("Total return") 168 234 659
--------------------------------------------------------------------- -------------- -------------- -------------
Total return on opening shareholders' funds 4.4% 7.1% 19.9%
--------------------------------------------------------------------- -------------- -------------- -------------
OVERVIEW
Performance highlights
for the six months to 30 September 2015
Total RETURN ON EQUITY Assets under Management ("AUM") operating cash profit
GBP13.5bn
4.4% GBP17m
The solid performance across all AUM remained stable as the Cash income increased by 1% to GBP80
three businesses, despite the market fundraising activity in Debt million due to distributions from CLO
volatility seen in our Management was offset by net equity and dividend
second quarter, demonstrates the divestment income in Private Equity.
Group's commercial and financial in
resilience and Private Equity. Operating expenses remain well
competitive positioning. controlled at less than 1% of AUM.
-------------------------------------- -------------------------------------- --------------------------------------
Private Equity Infrastructure Debt Management
realisation proceeds GBP307m NEW AUM raised GBP773m
operating cash income
GBP25m
cash invested GBP208m fee income
GBP17m
Special dividend
GBP51m
Private Equity remained net divestors Ordinary dividends and advisory fees Debt Management closed two CLOs in
in the first half as they continued resulted in GBP25 million of cash the first
to focus on reducing income for 3i. half and launched the Global Income
the number of companies in the Fund.
portfolio. AUM increased to
The Group also received a GBP51 GBP7.5 billion.
The team completed two new million special dividend from 3i
investments in our core industrials Infrastructure plc ("3iN") Good levels of income were generated
sector in Europe, where our following the sale of Eversholt Rail from CLO distributions and fund
expertise and network can create which has been recognised as realised management activities.
longer term value. proceeds.
-------------------------------------- -------------------------------------- --------------------------------------
Chairman's statement
"3i remains well positioned and reported a resilient performance
in the first half despite the volatile economic environment"
Simon Thompson, Chairman
11 November 2015
Introduction
This is my first report to you since succeeding Sir Adrian
Montague as Chairman at the Annual General Meeting in June 2015.
Over the past few months, I have acquainted myself with both the 3i
team and its shareholders. My first impressions are that 3i is well
positioned in its chosen geographies and sectors with a distinct
and well established strategy to deliver shareholder value. In this
highly competitive and volatile market, I believe that 3i has both
the financial and commercial strength to maximise the opportunities
available to it.
Performance
Our performance in the first half of our financial year was
resilient. The market environment has been characterised by reduced
investor confidence as a result of uncertainties in the Eurozone,
the impact of depressed commodity prices and concerns about the
growth outlook for China and other emerging markets. While we are
not immune to these developments, we are seeing the benefit of the
strategic decision to reduce our presence in Asia and South America
and to focus on our core sectors in northern Europe and North
America.
Dividend
Our distribution policy is designed to give shareholders a
direct share in the success of the Group's divestment activity. We
made good progress on realisations in the first half and generated
proceeds of GBP359 million. We also increased our investment
activity but have announced a total interim dividend of 6.0 pence
per share (September 2014: 6.0 pence per share) in recognition of
the robust financial performance and the Board's confidence in the
Group's longer term prospects. The dividend comprises of a base
dividend of 2.7 pence (one third of our annual base dividend) and
3.3 pence of additional dividend.
BOARD CHANGES
As announced in October 2015, Alistair Cox retired as a Director
of 3i on 10 November 2015, having served on the Board for six
years. We thank him for his valued contribution to the Group.
Peter Grosch was appointed as a non-executive Director on 1
November 2015. He brings directly relevant geographic and sector
experience as a director or supervisory board member of a number of
private and public companies as well as being chairman of
Euro-Diesel, a 3i investee company.
Outlook
(MORE TO FOLLOW) Dow Jones Newswires
November 12, 2015 02:01 ET (07:01 GMT)
The macro-economic and geo-political landscape continues to be
challenging and investor confidence is fragile. The outlook for
growth is uncertain in many parts of the world, including the
Eurozone and China, and this is resulting in volatility across
financial markets. Given this context, we will remain cautious and
disciplined in our investment approach, and focused on enhancing
the value of our portfolio of investments, while supporting the
continued development of our fund management activity.
Chief Executive's statement
"Another solid half year for 3i with each business making
important progress"
Simon Borrows, Chief Executive
11 November 2015
Introduction
We have completed another solid half year with each business
making important progress, underpinned by the sound fundamentals
created from our restructuring in 2012.
The macro and market environment has clearly deteriorated over
the course of this year but 3i is now well-placed to operate with
resilience and capitalise on the opportunities this part of the
cycle will create. Today, the Group benefits from a strong balance
sheet, a portfolio of Private Equity investments with good earnings
growth and capable investment teams working within disciplined
investment processes.
Robust first half performance
3i generated a total return on shareholders' funds of 4.4%
(September 2014: 7.1%) and a NAV per share of 401 pence (31 March
2015: 396 pence) after accounting for the payment of the 14 pence
final dividend in July 2015. This performance was underpinned by
continued strong earnings growth in the Private Equity portfolio
and supported by good levels of dividend and fee income from
Infrastructure and Debt Management. We continued to reduce the
number of companies in our portfolio by realising smaller non-core
assets early in the period. Realisation proceeds also benefited
from a special dividend from 3iN following the sale of Eversholt
Rail. In line with our policy, and in recognition of our confidence
in our longer term prospects, we are announcing a 6.0 pence
dividend which is comprised of one third of our base dividend (2.7
pence) and an additional dividend of 3.3 pence.
Business review
In Private Equity, the team delivered another good performance
and generated a gross investment return of GBP246 million, or 8% on
opening value (September 2014: GBP282 million, 10%). This was due
to strong performances from a number of our larger assets, as
evidenced by weighted average earnings growth, including the
benefit of portfolio acquisitions, of 19% (31 March 2015: 19%) and
14% excluding Action (31 March 2015: 16%). Action delivered robust
like for like earnings growth and made good progress with its
international expansion plans, opening over 80 new stores in the
calendar year to date. It announced the appointment of a new CEO
and CFO to lead the business in the next stage of its strategic
journey and is well set for a strong finish to its current
financial year. Elsewhere in the portfolio, Element Materials
Technology's performance benefited from a number of strategic
acquisitions and Scandlines' valuation increased due to both strong
trading and the expectation of further delays in the proposed
competing fixed tunnel link.
In addition to the resilient performance of our existing
investments, the flow of realisations has continued. A generally
constructive market in the first quarter allowed us to dispose of
some of our older, more challenged assets; this included the
completion of some significant turnarounds. At their valuation low
points, Azelis and Labco were held at GBP14 million and GBP24
million respectively; we received proceeds of GBP63 million and
GBP42 million for each and freed up valuable investment team time
to focus on origination and our newer investments. We achieved 9
complete exits and, in total, received proceeds of GBP307 million
(September 2014: GBP316 million) from a combination of asset sales
and an IPO. We recorded profits of GBP26 million, at an uplift of
9%. This uplift reflects the weight of realisations early in the
first half. GBP71 million of the proceeds came from the quoted
portfolio, where we have taken advantage of opportunities to sell
down tranches of Quintiles.
We are making good progress with new investments. We completed
two new transactions, Weener Plastic Packaging Group ("Weener
Plastic") and Euro-Diesel, in our core industrials sector at
sensible prices, as well as a further investment in GIF through the
buyout of the founding family. At 30 September 2015, we had reduced
the portfolio to 53 companies and 5 quoted holdings and the team
continues to work on a busy pipeline of promising investment
opportunities.
Our sector and geographic focus since the 2012 restructuring has
limited the negative impact from the current broader geo-political
and economic conditions. The impact of the lower oil price on the
wider energy sector has had the most notable impact on JMJ, a
leading safety management consultancy with a particular focus on
major capital projects for the oil and gas industry. It has been
very proactive in reducing its cost base to counter the impact of
the falling oil price. Currency volatility created pressures in a
small number of our portfolio companies, but the impact is limited
to date.
Notwithstanding the volatility in the global equity markets in
the first half, and in our second quarter in particular, the
weighted average post discount EBITDA multiple increased to 10.7x
(31 March 2015: 10.5x) reflecting the increased weighting of our
higher rated assets. There was no change to the multiple used to
value Action (post discount 13.5x) and, excluding Action, the
average increased marginally to 9.4x (31 March 2015: 9.3x).
Notably, we increased the multiple used to value Basic-Fit from
9.5x to 10.5x post discount to recognise the growth potential of
this asset, as it upgrades its existing gyms and opens new ones.
More generally, our policy of adjusting multiples as equity markets
increased throughout the prior year, to reflect both our longer
term view of cross-cycle sector values and our exit plans, meant
our portfolio valuation was less impacted by the recent volatility
than it might otherwise have been. The net effect of all the
multiple changes was a value reduction of GBP24 million (September
2014: GBP13 million gain) and this was more than compensated for by
the GBP171 million improvement in performance (September 2014:
GBP209 million). Overall, our Private Equity portfolio companies
remain well positioned in their chosen markets. This reflects our
methodical and disciplined investment approach and the increased
weight of our portfolio towards its stronger assets.
The Infrastructure team has been proactive in the origination of
new investment opportunities. Against a backdrop of intense
competition for infrastructure assets, and particularly for large
core economic infrastructure businesses, the team has also shaped
its investment focus towards mid-market economic infrastructure
businesses and primary PPP and low-risk energy projects, which
offer more attractive risk-adjusted returns in line with 3iN's
target. The team is focused on sourcing opportunities in these
areas and the early signs are encouraging.
Infrastructure had a good first half and contributed a gross
investment return of GBP23 million, or 4% (September 2014: GBP22
million, 5%). The European portfolio continues to perform well and
underpins the good levels of cash income for 3i.
3iN performed well in the period and reported a 7% total
shareholder return for the six months to 30 September 2015
following a well received annual results announcement which
included updated return targets. In line with its focus on
mid-market infrastructure, PPP and low-risk energy sectors, the
team announced the completion of three new investments (two further
terminals alongside Oiltanking, ESVAGT and the West of Duddon Sands
Offshore Transmission Owner) totalling GBP187 million. In its
recent interim announcement, 3iN also recorded a good unrealised
value uplift from its attractive portfolio of economic European
assets with a notable increase in the valuation of its investment
in Elenia, a Finnish energy distribution company.
3iN's positive performance was partially offset by the weaker
performance of the India Infrastructure Fund, in which 3i also has
a direct interest, which was valued at GBP54 million at 30
September 2015 (31 March 2015: GBP64 million). The valuation of
this portfolio remains subject to rupee weakness as well as
specific macro-economic issues impacting assets with exposure to
the road and power sectors in India.
We continue to see good levels of fundraising activity in our
Debt Management business although recent market volatility,
particularly in the US, has resulted in a general reduction in
investor appetite for CLOs. However, as a result of our strong
investor relationships we had an active six months and grew AUM in
our core CLO offering, closing one EUR413 million CLO in Europe and
a US$511 million CLO in the US. Our investment in CLOs generated
strong cash distributions (GBP14 million, September 2014: GBP6
million). The effect of these distributions, together with some
market volatility, particularly in the US, reduced the mark to
market valuation of our existing CLOs (GBP18 million reduction in
the first half, September 2014: GBP10 million).
The team also made 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. The US
Senior Loan Fund outperformed its benchmarks in the period, helping
to attract investors. In total, Debt Management generated GBP17
million of fee income, a slight decrease on the prior period's
income of GBP18 million due to the timing of the new AUM raising,
and increased assets under management to GBP7.5 billion (31 March
2015: GBP7.2 billion).
(MORE TO FOLLOW) Dow Jones Newswires
November 12, 2015 02:01 ET (07:01 GMT)
We remain focused on fund management profitability and operating
cash profit as measures to ensure cost discipline and operating
expenses remained stable at GBP63 million in the first half
(September 2014: GBP63 million). Due to improved distributions from
CLO equity and a dividend from Scandlines, cash income increased by
1% to GBP80 million (September 2014: GBP79 million) and, as a
result, operating cash profit increased in the period to GBP17
million (September 2014: GBP16 million). This focus is all the more
important as Private Equity management fee income will continue to
decline as we realise investments made in Eurofund V ("EFV") and
fund new Private Equity investments with proprietary capital,
rather than initiating a new Private Equity fundraising, in the
short to medium term.
As well as selective recruitment of experienced investment
professionals across the business, we launched a graduate
recruitment programme in 2014 to start developing our own
investment professionals and business leaders. A number of
exceptional candidates applied and our first cohort joined the
Group in September 2015.
Continuing to deliver value for investors
Our three-year transformation programme, which completed in
March 2015, created a more resilient business both commercially and
financially. The cornerstones of that programme, namely our
emphasis on disciplined asset management, cash generation, cost
control and fund management margins remain as relevant now as they
were in June 2012. We remain committed to executing this strategy
through our three diverse, yet complementary, business lines, as we
believe this represents a differentiated and attractive value
proposition that generates capital return and fund management
income.
In Private Equity, we have an investment team with a proven
ability to develop businesses internationally and drive operational
efficiencies. Monetary policy over the last few years has
contributed to large amounts of both equity and debt capital
chasing a limited supply of investment opportunities and, in this
environment, our principal constraint is our ability to source
assets at appropriate prices. We intend to commit EUR500 million -
EUR750 million of proprietary capital in four to seven investments
per year subject to available opportunity and attractive pricing.
However, as we start to observe a change in the cycle, we are
finding more investment opportunities to consider and in the first
half we announced and completed two investments totalling EUR272
million.
As we reduce the number of more challenged assets in our
portfolio, the contribution to realisations from our stronger, core
assets will increase in significance. High quality assets are less
dependent on general market sentiment to generate good realisation
proceeds but are necessarily less frequent and individually more
material. The structured approach to exit plans implemented in 2012
allows us to anticipate this and plan accordingly.
Our Fund Management profitability objectives are driven by
Infrastructure and Debt Management. In line with our strategy to
grow Infrastructure's contribution to our Fund Management profits,
we continue to leverage 3i's partnerships and broader investor
network to originate new investments. Since the sale of Eversholt
Rail, the team has made new investments of GBP187 million. In
addition, the team's engaged asset management approach is driving
increased value in 3iN's existing European portfolio.
Debt Management is well placed to manage regulatory changes in
Europe and the US, as our proprietary capital allows us to support
the establishment of our CLO vehicles and the team continues to
have success in its fundraising activities. The changing regulatory
landscape is having an impact on business models and the structure
of vehicles that support CLOs, and 3i continues to monitor and
adapt to these changes where appropriate. We are also continuing to
diversify our product offering to address investor appetite for
alternative debt products.
Our clear and consistent strategy is designed to deliver a
robust performance across all three of our business lines. This is
underpinned by our core investment capabilities across our chosen
geographic and business sectors which allow us to evaluate and take
risk-based decisions. Our strong balance sheet and efficient
investment platform ensure this value creation is not diluted and
returns can be distributed to shareholders or reinvested into new
assets.
Outlook
The second quarter of our first half was noted as one of the
most volatile in markets since the financial crisis. Against that
backdrop, the steps that 3i has taken since 2012 to create a
significantly more resilient business are proving their value.
We currently enjoy good momentum across 3i and anticipate that
the current environment will, over time, create attractive
opportunities for the Group and we now have the people, financial
resources and agility to take advantage of them.
Key Performance Indicators
GROSS INVESTMENT RETURN ("GIR") NET ASSET VALUE total shareholder return
("NAV") ("TSR")
----------------------------------------------------------------------------------- --------------------------------------------------- -------------------------------------------------------------------
% of opening portfolio value NAV per share (pence) %
----------------------------------------------------------------------------------- --------------------------------------------------- -------------------------------------------------------------------
Financial year/Half year Financial year/Half year Financial year/Half year
----------------------------------------------------------------------------------- --------------------------------------------------- -------------------------------------------------------------------
FY2014 FY2015 HY2015 HY2016 FY2014 HY2015 FY2015 HY2016 FY2014 FY2015 HY2015 HY2016
==================== ==================== ==================== ================= =========== =========== =========== ============ ============= ========== ========== ========== ================
20 23 8 7 348 358 396 401 Share price 26 22 (4) (4)
==================== ==================== ==================== ================= =========== =========== =========== ============ ============= ========== ========== ========== ================
Dividend 4 5 4 3
---------------------------------------------------------------------------------------------------------------------------------------- ============= ========== ========== ========== ================
GIR is how we measure the performance of our portfolio of NAV is a measure of the fair value of our proprietary investments TSR measures the return to our shareholders through the change in
proprietary investments after the net costs of operating share price and dividends
the business paid during the period
------------------------------------------------------------------ -------------------------------------------------------------------- -------------------------------------------------------------------
HY2016 progress HY2016 progress HY2016 progress
* GIR of 7% demonstrates the resilience of the * Good progression of NAV per share to 401p after * TSR reflects the decrease in the share price from
portfolio despite the impact of wider macro-economic paying the FY2015 final dividend of 14p per share 482p at 31 March 2015 to 466p at 30 September 2015,
conditions on equity markets and our own portfolio following the general softening of markets and the
final FY2015 dividend of 14p paid in July 2015
* Strong value weighted earnings growth of 19%, * The direct valuation impact from exposure to the
including acquisitions, in Private Equity energy and commodity sectors, China and emerging * Good progress on realisations and continued earnings
markets and currency volatility limited to a small momentum in the proprietary capital portfolio
number of Private Equity portfolio companies and the
* Good contribution to value growth and portfolio US CLOs in Debt Management
income from 3iN, partially offset by further value * Expect to pay a dividend of at least 15.0p in total
(MORE TO FOLLOW) Dow Jones Newswires
November 12, 2015 02:01 ET (07:01 GMT)
loss in the India fund in light of the macro-economic and are paying an interim dividend of 6.0p per share
challenges in the sector * Significant currency volatility intra-period but the
period end NAV impact was flat
* Good portfolio income contribution from Debt
Management was offset by negative mark to market
movements on the portfolio
------------------------------------------------------------------ -------------------------------------------------------------------- -------------------------------------------------------------------
Key risks Key risks Key risks
* Investment rate or quality of investments is lower * G20 political and economic uncertainty affects 3i's * Lower NAV due to investment under-performance or
than expected core markets, impacts valuations and increases political and economic uncertainty
foreign exchange volatility
* Subdued M&A activity or high pricing in 3i's core * Volatility in equity markets
markets could impact the timing of exits, cash * Unplanned increase in cost base, eg due to regulatory
returns and investments changes
* Appeal of our business model
* Operational underperformance of portfolio companies
impacting earnings growth and valuations * Regulatory or legal change materially affecting one
or more of the Group's businesses
* Failure to invest in people to support our activities
------------------------------------------------------------------ -------------------------------------------------------------------- -------------------------------------------------------------------
ASSETS UNDER MANAGEMENT UNDERLYING FUND OPERATING CASH
("AUM") MANAGEMENT profit PROFIT
--------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------------------
GBPbn Profit (GBPm) and Margin (%) GBPm
--------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------------------
Financial year/Half year Financial year/Half year Financial year/Half year
--------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------------------
FY2014 HY2015 FY2015 HY2016 FY2014 FY2015 HY2015 HY2016 FY2014 FY2015 HY2015 HY2016
================ ========== ========= ========= ================= =========== =========== =========== =========== ================ ================= ================= ================= =========
AUM 12.9 12.9 13.5 13.5 Profit 33 33 16 13 5 28 16 17
================ ========== ========= ========= ================= =========== =========== =========== =========== ================ ================= ================= ================= =========
Proprietary
Capital 3.4 3.3 3.3 3.3 Margin 26% 26% 26% 22%
================ ========== ========= ========= ================= =========== =========== =========== =========== ================ ==================================================================
Third-party
Capital 9.5 9.6 10.2 10.2
================ ========== ========= ========= ================= ==================================================================== ==================================================================
AUM forms the basis on which management fee income is generated. For Underlying Fund Management profit allows us to assess the Covering the annual cost of running our business with the annual
funds out of their re-investment performance of our Fund Management cash income eliminates capital
period, this is measured at residual cost business return dilution
--------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------------------
HY2016 progress HY2016 progress HY2016 progress
* Debt Management raised two new CLOs, as well as a * Underlying Fund Management profit and margin movement * Good progress in maintaining a positive operating
US$150 million Global Income Fund which contributed reflects Private Equity divestment in managed funds cash profit
to the new AUM of GBP0.8 billion and our decision to focus on proprietary capital
rather than third-party funds in Private Equity
* All three business lines contributed to cash income,
* Total AUM was flat at GBP13.5 billion following net which increased to GBP80 million due to CLO equity
divestment in Private Equity and Infrastructure * Operating expenses continue to be well managed and distributions and dividends from the Private Equity
were less than 1% of AUM portfolio
* Proprietary Capital AUM was flat at GBP3.3 billion,
as the good flow of Private Equity realisations was * 3iN special dividend treated as a realisation and not
largely replaced with new investments included in operating cash income
* We remain disciplined on operating expenses, which
were flat at GBP63 million
--------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------------------
Key risks Key risks Key risks
* Portfolio performance is weak or impacted by a legal, * G20 political and economic uncertainty affects * Portfolio performance, and therefore portfolio income,
macro-economic/political and/or regulatory event investment opportunity or fundraising appetite is weak due to operational underperformance
* Regulatory change limits 3i's ability to raise * Adverse fluctuations in financial markets impact our * Unplanned increase in cost base eg due to regulatory
third-party capital fee-based businesses changes
* Regulatory change adds to 3i's cost base
--------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------------------
INTERIM MANAGEMENT REPORT
Business review
PRIVATE EQUITY
(MORE TO FOLLOW) Dow Jones Newswires
November 12, 2015 02:01 ET (07:01 GMT)
Private Equity delivered a good performance in the first half.
Although market volatility was a feature of the period, its direct
impact was limited to a small number of assets and the underlying
strength and performance of our larger assets is demonstrated by
the 19% increase in weighted average earnings (including the
benefit of portfolio acquisitions) in the last twelve months. The
gross investment return for the period was GBP246 million, or 8% on
the opening portfolio (September 2014: GBP282 million, 10%).
Investment activity
The momentum seen in FY2015 continued, as the disposal of a
number of our more challenging assets over the last three years
allowed the investment teams to focus more of their activity on
origination.
The Private Equity team invested in two new businesses in our
core industrial sector in the period: Weener Plastic and
Euro-Diesel. Headquartered in Germany, Weener Plastic designs,
develops and manufactures added value caps, closures, roll-on
balls, jars and bottles for a number of markets. We initially
invested EUR251 million of proprietary capital and then set up a
co-investment arrangement with a third-party investor to fund EUR50
million of our commitment. Euro-Diesel is a leading provider of
diesel rotary uninterruptable power supply systems, based in
Belgium, in which we invested EUR71 million of proprietary
capital.
In both cases we had been working with the management teams and
our Business Leaders Network for a significant amount of time
before the respective sales processes started. Having stepped back
from both processes, we were able to re-join after they failed to
complete and secured the investments at good prices. 3i will use
its network to support both businesses in the acceleration of their
international expansion plans and maximise their operational
efficiency. In addition to these new investments, we also took the
opportunity to purchase a minority stake in GIF (2013 investment)
from the founding family.
Table 1: Cash investment in the six months to 30 September
2015
Proprietary
Total Capital
investment investment
Investment Type Business description Date GBPm GBPm
---------------- --------- ---------------------------------------------------- -------- ----------- ------------
Manufacturer of innovative plastic packaging
Weener Plastic New systems Aug 15 183 144
Manufacturer of uninterruptible power supply
Euro-Diesel New systems Sep 15 53 52
GIF Further International transmission testing specialist Aug 15 12 11
Other Further n/a n/a (1) 1
---------------- --------- ---------------------------------------------------- -------- ----------- ------------
Total Private Equity investment 247 208
--------------------------------------------------------------------------------- -------- ----------- ------------
Realisations activity
Market conditions were favourable in the first half of the 2015
calendar year, enabling us to continue to dispose of a number of
smaller non-core assets through both sales and an IPO.
We took advantage of opportunities to sell down one of our
quoted investments. We disposed of two tranches of our holding in
Quintiles, realising proceeds of GBP53 million. We also completed a
successful IPO of UFO Moviez, realising GBP17 million. In total we
received cash proceeds of GBP307 million (September 2014: GBP316
million) at an uplift of 9% over opening portfolio value (September
2014: 15%). The relatively small uplift reflects the fact that a
number of assets were held on an imminent sales basis at 31 March
2015, or were from the quoted portfolio.
At 30 September 2015, there were 53 assets in the portfolio and
5 stakes in listed companies, down from 61 assets and 4 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: Realisations in the six months to 30 September 2015
31 March 3i Profit/(loss) Uplift Money
on
Calendar 2015 realised in the opening Residual multiple
Country/ year value(1) proceeds period(2) value(2) value over
Investment region invested GBPm GBPm GBPm % GBPm cost(3) IRR
-------------- ----------- ----------- ----------- --------- -------------- --------- --------- --------- ------
Full realisations
Azelis Benelux 2007 62 63 1 2% - 1.1x 1%
Labco France 2008 36 42 6 17% - 0.7x (6)%
Touchtunes USA 2011 39 38 1 3% 2 2.2x 23%
Soyaconcept Nordic 2007 16 17 nil -% - 2.0x 13%
Boomerang Spain 2008 7 11 4 57% - 0.6x (8)%
Inspecta Nordic 2007 6 6 1 20% - 0.1x (40)%
Other
investments n/a n/a 4 7 3 n/a - n/a n/a
Partial realisations(1,3)
Quintiles USA 2008 50 53 3 6% 93 3.1x 24%
Denmark/
Scandlines Germany 2007 38 38 nil -% 257 2.4x 25%
UFO Moviez India 2007 14 17 3 21% 16 2.8x 16%
Other
investments n/a n/a 9 11 2 n/a 104 n/a n/a
Deferred consideration
Other
investments n/a n/a 2 4 2 n/a n/a n/a n/a
-------------- ----------- ----------- ----------- --------- -------------- --------- --------- --------- ------
Total Private
Equity
realisations 283 307 26 9% 472 1.6x n/a
--------------- ----------------------- ----------- --------- -------------- --------- --------- --------- ------
For partial realisations, 31 March 2015 value represents value of stake
1 sold.
2 Cash proceeds in the period over opening value realised.
3 Cash proceeds over cash invested. For partial realisations and recapitalisations,
valuations of any remaining investment are included in the multiple.
Assets under management
Total AUM decreased to GBP3.6 billion during the period (31
March 2015: GBP3.8 billion). The performance of EFV and the Growth
Capital Fund continued to improve, with money multiples at 30
September 2015 of 1.5x and 1.8x respectively (31 March 2015: 1.4x,
1.7x). The Growth Capital Fund in particular benefited from the
realisation of Labco and further quoted disposals of Quintiles. The
investments made in EFV's 2010-2012 investment period, continue to
show a particularly strong performance, with a money multiple of
2.8x at 30 September 2015 (31 March 2015: 2.6x), driven by the
strong performance of Action, Element and Amor/Christ in
particular.
Table 3: Assets under management at 30 September 2015
Remaining Gross Fee income
3i % money received
commitment(1) invested multiple(2) in the
Close Original Original 3i September September September period
Private date fund size commitment
Equity 2015 2015 2015 AUM GBPm
-------------- --------- ---------- ------------ -------------- ---------- ------------ ---------- -----------
3i Growth
Capital Fund Mar 10 EUR1,192m EUR800m EUR346m 53% 1.8x EUR277m 1
3i Eurofund V Nov 06 EUR5,000m EUR2,780m EUR114m 94% 1.5x EUR1,968m 5
3i Eurofund
IV Jun 04 EUR3,067m EUR1,941m EUR82m 95% 2.3x EUR487m -
Other Various Various Various n/a n/a n/a GBP1,332m -
-------------- --------- ---------- ------------ -------------- ---------- ------------ ---------- -----------
Total Private Equity AUM GBP3,598m 6
------------------------- ---------- ------------ -------------- ---------- ------------ ---------- -----------
(MORE TO FOLLOW) Dow Jones Newswires
November 12, 2015 02:01 ET (07:01 GMT)
1 All funds are beyond their investment period.
2 Gross money multiple is the cash returned to the fund plus remaining value as at 30 September
2015, as a multiple of cash invested.
outlook
The team made good progress in sourcing and completing new
investment opportunities in the first half but will remain
disciplined and selective in their approach. On the divestment
side, it is likely that more realisations will come from our
stronger investments, given the significant progress we have made
to date in reshaping and streamlining the portfolio.
INFRASTRUCTURE
Infrastructure continued to make good progress and contributed a
gross investment return of GBP23 million, or 4% on the opening
portfolio (September 2014: GBP22 million, 5%). The performance of
the underlying assets underpinned a good level of cash income to
3i, from both dividends and fee income from 3iN and other
infrastructure funds managed by the team.
Investment adviser
In its capacity as investment adviser to 3iN, the team advised
on three new investments totalling GBP187 million in the mid-market
economic infrastructure and low-risk energy sectors. There is a
good pipeline of investment opportunities but, given the
competition in the sector, the team remains focused on sourcing
assets that can generate returns for 3iN in line with its return
targets.
3iN's underlying European portfolio continues to perform well
and it has an attractive collection of economic infrastructure
assets. In particular, the portfolio valuation has benefited from
an improved regulatory environment and performance in Elenia, an
electricity distribution and heating company based in Finland.
Under the terms of the advisory agreements, we received an
advisory fee of GBP8 million (September 2014: GBP7 million).
3iN performance
In addition to its role as investment adviser, 3i holds a 34%
(31 March 2015: 34%) stake in 3iN. 3iN continued to perform well in
the period and the share price increased by a respectable 4% to 167
pence at 30 September 2015 (31 March 2015: 160 pence). The
underlying uplift in 3iN's performance was driven by value growth
across its core economic infrastructure portfolio, supported by the
continued returns compression and the competitive market
environment for large economic infrastructure.
3i's investment in 3iN contributed GBP19 million of value growth
(September 2014: GBP17 million) and GBP11 million of dividend
income (September 2014: GBP10 million). In July 2015, 3iN also paid
a GBP150 million special dividend to shareholders, generated from
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 remains subject to economic
pressures, with the power and road assets particularly affected.
This, together with the ongoing depreciation in the value of the
rupee resulted in a GBP9 million reduction in the value of 3i's
share of the Indian portfolio to GBP54 million (31 March 2015:
GBP64 million).
Table 4: Assets under management at 30 September 2015
Remaining Gross Fee
income
3i % money received
commitment invested multiple(1) in the
Original Original 3i September September September period
Close date fund size commitment 2015 2015 2015 AUM GBPm
----------- ----------- ----------- ------------ ------------ ---------- ------------ ------------- ----------
3iN Mar 07 n/a n/a n/a n/a n/a GBP1,192m(2) 8
India fund Mar 08 US$1,195m US$250m US$36m 73% 0.5x US$584m(3) 2
BIIF May 08 GBP680m n/a n/a 90% n/a GBP592m 2
BEIF II July 06 GBP280m n/a n/a 97% 1.1x GBP98m 1
Other Various Various Various n/a n/a n/a GBP143m 1
----------- ----------- ----------- ------------ ------------ ---------- ------------ ------------- ----------
Total Infrastructure
AUM GBP2,377m 14
------------------------ ------------------------------------- ---------- ------------ ------------- ----------
1 Gross money multiple is the cash returned to the fund plus remaining value as at 30 September
2015, 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.
outlook
The team remains busy as it focuses on new investment
opportunities in mid-market infrastructure, greenfield PPP and
low-risk energy projects. We have made a number of senior hires,
including a new origination partner, to support the strategic
development and momentum of the business.
DEBT MANAGEMENT
We had another good period of fund-raising, closing two new CLOs
and launching a new US$150 million Global Income Fund. AUM
increased to GBP7.5 billion at 30 September 2015 (31 March 2015:
GBP7.2 billion) as the GBP773 million of new AUM raised and
favourable foreign exchange movements more than offset the run-off
of older funds.
Fundraising activity
Debt Management has made good progress in generating AUM in the
first half as the cash yield generated by CLO funds remained
attractive. The team closed one CLO in Europe, Harvest XII, and one
in the US, Jamestown VII, raising a total of GBP625 million new CLO
AUM in the first half. In addition, we continue to operate CLO
warehouse vehicles in both Europe and the US ahead of establishing
new CLOs. There was significant volatility in August and September
2015 and, overall, the CLO market activity is below the peak seen
in 2014 in the US in particular and transactions are taking longer
to close in Europe.
In addition to our CLO offerings and 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 30 September 2015, had US$171 million under
management. The US Senior Loan Fund also continued to perform
strongly, outperforming its benchmarks, and AUM increased to US$199
million (31 March 2015: US$157 million).
Table 6 details Debt Management AUM.
Proprietary Capital investment
For regulatory reasons, 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 European risk retention rules, and future US rules, is
important as managers who can provide most or all of the equity to
a new CLO, and demonstrate the ability to comply with the
regulatory rules, are increasingly at a competitive advantage.
As long-term holders of CLO equity positions, our returns are
driven by the cash flows to maturity. CLO equity distributions
contributed GBP14 million (September 2014: GBP6 million) to
operating cash profit and the IRRs are attractive. However, in the
interim, our valuations were subject to the market volatility and
we recognised a mark to market loss of GBP18 million (September
2014: GBP10 million) in the first half. This was due, in part, to
the distributions but also a number of other factors, such as
concerns about interest rate rises and the oil and gas sector.
In addition to the investments 3i makes in the CLOs for
regulatory reasons, 3i is also the first loss investor in the
warehouse facilities used to accumulate loans prior to the launch
of a CLO. At 30 September 2015 the total invested by 3i in these
facilities was GBP51 million.
Table 5: Cash investment in the six months to 30 September
2015
Total 3i
investment
Investment Type Date GBPm
------------------------ ----------------------------- --------- -----------
Harvest XII New European CLO Aug 15 15
Jamestown VII New US CLO Aug 15 15
Global Income Fund Open ended senior debt fund Jun 15 48
European warehouses(1) Warehouse Various 6
Other n/a Various 2
------------------------ ----------------------------- --------- -----------
Total Debt Management investment 86
------------------------------------------------------- --------- -----------
1 Net of cash received back from warehouses on the successful close of a CLO.
Including the US$75 million seed capital contributed to the
Global Income Fund, we had GBP249 million (31 March 2015: GBP176
million) of proprietary capital invested in the Debt Management
business at 30 September 2015.
outlook
(MORE TO FOLLOW) Dow Jones Newswires
November 12, 2015 02:01 ET (07:01 GMT)
In general, current market volatility is impacting investor
appetite for new CLOs. However, our strong relationships mean we
expect to close at least one US CLO and one European CLO before the
end of the financial year.
Table 6: Assets under management at 30 September 2015
Realised Annualised
Par value equity equity Fee income
Closing Reinvestment Maturity of fund money cash received in
date period end date at launch multiple(1) Yield(2,3,4) AUM(5) the period
------------ --------- -------------- ---------- ---------- ------------ ------------- ---------- ------------
European CLO funds
Harvest CLO
XII Aug 15 Aug 19 Aug 29 EUR413m n/a n/a EUR401m
Harvest CLO
XI Mar 15 Mar 19 Mar 29 EUR415m 0.0x 9.2% EUR400m
Harvest CLO
X Nov 14 Nov 18 Nov 28 EUR467m 0.1x 17.2% EUR451m
Harvest CLO
IX Jul 14 Aug 18 Aug 26 EUR525m 0.2x 19.8% EUR508m
Harvest CLO
VIII Mar 14 Apr 18 Apr 26 EUR425m 0.2x 16.5% EUR413m
Harvest CLO
VII Sep 13 Oct 17 Oct 25 EUR310m 0.2x 10.2% EUR301m
Windmill
CLO I Oct 07 Dec 14 Dec 29 EUR500m 0.7x 9.3% EUR433m
Axius CLO Oct 07 Nov 13 Nov 23 EUR350m 0.7x 8.7% EUR202m
Coniston
CLO Aug 07 Jun 13 Jul 24 EUR409m 1.0x 12.7% EUR197m
Harvest CLO
V Apr 07 May 14 May 24 EUR632m 0.7x 8.8% EUR477m
Garda CLO Feb 07 Apr 13 Apr 22 EUR358m 1.4x 16.8% EUR134m
Pre 2007
CLOs n/a n/a n/a EUR3,111m n/a n/a EUR640m
------------ --------- -------------- ---------- ---------- ------------ ------------- ---------- ------------
GBP3,359m GBP9m
------------ --------- -------------- ---------- ---------- ------------ ------------- ---------- ------------
US CLO funds
Jamestown Aug 15 Jul 19 Jul 27 US$511m n/a n/a US$500m
CLO VII
Jamestown
CLO VI Feb 15 Feb 19 Feb 27 US$750m 0.1x 13.6% US$749m
Jamestown
CLO V Dec 14 Jan 19 Jan 27 US$411m 0.1x 19.6% US$392m
Jamestown
CLO IV Jun 14 Jul 18 Jul 26 US$618m 0.3x 20.4% US$589m
COA Summit
CLO Mar 14 Apr 15 Apr 23 US$416m 0.4x 27.0% US$362m
Jamestown
CLO III Dec 13 Jan 18 Jan 26 US$516m 0.3x 16.8% US$495m
Jamestown
CLO II Feb 13 Jan 17 Jan 25 US$510m 0.5x 19.6% US$497m
Jamestown
CLO I Nov 12 Nov 16 Nov 24 US$461m 0.5x 19.0% US$444m
Fraser
Sullivan
CLO VII Apr 12 Apr 15 Apr 23 US$459m 0.7x 20.3% US$442m
COA Caerus
CLO Dec 07 Jan 15 Dec 19 US$240m 1.8x 23.8% US$182m
Pre 2007 n/a n/a n/a US$500m n/a n/a US$136m
CLOs
------------ --------- -------------- ---------- ---------- ------------ ------------- ---------- ------------
GBP3,158m GBP6m
------------ --------- -------------- ---------- ---------- ------------ ------------- ---------- ------------
Other funds
Global Jul 15 n/a n/a n/a n/a n/a US$171m
Income Fund
EMMF Nov 14 Nov 17 Nov 22 n/a n/a n/a EUR259m
Vintage II Nov 11 Sep 13 n/a US$400m 0.4x 1.6x US$192m
Palace
Street I Aug 11 n/a n/a n/a n/a n/a EUR15m
Senior Loan Jul 09 n/a n/a n/a n/a 7.3% US$199m
Fund
COA Fund(6) Nov 07 n/a n/a n/a n/a (0.1)% US$46m
Vintage I Mar 07 Mar 09 Jan 22 EUR500m 4.2x 6.7x EUR282m
European
warehouse
vehicles n/a n/a n/a n/a n/a n/a EUR223m
------------ --------- -------------- ---------- ---------- ------------ ------------- ---------- ------------
GBP977m GBP2m
------------------------------------------------ ---------- ------------ ------------- ---------- ------------
Total Debt Management AUM GBP7,494m GBP17m
--------------------------------------------------- ---------- ------------ ------------- ---------- ------------
1 Multiple of total equity distributions over par value of equity at launch.
2 Average annualised returns since inception of CLOs calculated as annualised
cash distributions over par value of equity. Excludes unrealised equity
remaining in CLO.
3 Vintage I & II returns are shown as gross money multiple which is cash
returned to the Fund plus residual value as at 30 September 2015, as
a multiple of cash invested.
4 The annualised returns for the COA Fund and Senior Loan Fund are the
annualised net returns of the Funds since inception.
5 Includes par value of assets and principal cash amount.
6 The COA Fund AUM excludes the market value of investments the fund has
made in 3i US Debt Management CLO funds (US$39 million as at 30 September
2015).
Financial review
Against a volatile market backdrop, the Group delivered a solid
result in the first half.
Table 7: Summary financial data under the Investment basis
Six months to/as Six months to/as 12 months to/as
at 30 September at 30 September at 31 March
Investment basis 2015 2014 2015
------------------------------------------------ ----------------- ----------------- ----------------
Total return GBP168m GBP234m GBP659m
Total return on opening shareholders' funds 4.4% 7.1% 19.9%
Dividend per ordinary share 6.0p 6.0p 20.0p
Operating expenses GBP63m GBP63m GBP131m
As a percentage of assets under management(1) 0.9% 1.0% 1.0%
Operating cash profit GBP17m GBP16m GBP28m
------------------------------------------------ ----------------- ----------------- ----------------
Proprietary Capital
Realisation proceeds GBP359m GBP324m GBP841m
Uplift over opening book value(2) GBP29m/9% GBP36m/15% GBP145m/27%
Money multiple 1.7x 1.8x 2.0x
Gross investment return GBP272m GBP297m GBP805m
As a percentage of opening 3i portfolio value 7.0% 8.3% 22.6%
Operating profit (3) GBP204m GBP262m GBP721m
Cash investment GBP294m GBP199m GBP474m
3i Portfolio value GBP4,037m GBP3,672m GBP3,877m
Gross debt GBP819m GBP831m GBP815m
Net (debt)/cash GBP(12)m GBP(161)m GBP49m
Gearing 0.3% 5% nil
Liquidity GBP1,157m GBP1,020m GBP1,214m
Net asset value GBP3,851m GBP3,426m GBP3,806m
Diluted net asset value per ordinary share 401p 358p 396p
------------------------------------------------ ----------------- ----------------- ----------------
Fund Management
Total assets under management GBP13,469m GBP12,923m GBP13,474m
Third-party capital GBP10,143m GBP9,566m GBP10,140m
Proportion of third-party capital 75% 74% 75%
Total fee income GBP58m GBP63m GBP125m
Third-party fee income GBP37m GBP41m GBP80m
(MORE TO FOLLOW) Dow Jones Newswires
November 12, 2015 02:01 ET (07:01 GMT)
Operating profit(3) GBP10m GBP13m GBP26m
Underlying Fund Management profit(3,4) GBP13m GBP16m GBP33m
Underlying Fund Management margin 22% 26% 26%
----------------------------------------------- ----------------- ----------------- ----------------
1 Annualised actual operating expenses, excluding restructuring costs
of nil (September 2014: nil, March 2015: GBP1 million), as a percentage
of weighted average assets under management.
2 Uplift over opening book value excludes refinancings. The September
2014 balance has been restated from GBP35 million to GBP36 million
to exclude refinancings.
3 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.
4 Excludes Fund Management restructuring costs of nil (September 2014:
nil, March 2015: GBP1 million) and amortisation costs of GBP3 million
(September 2014: GBP3 million, March 2015: GBP6 million).
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 eliminated the risk of having to consolidate portfolio
investments. However, as described in our Annual report and
accounts 2015, 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 statements.
Total return
3i generated a total return of GBP168 million, or a profit on
opening shareholders' funds of 4.4% (September 2014: GBP234 million
or 7.1%) in the first half, despite challenging market conditions,
demonstrating the financial and commercial resilience of the
business after the completion of its three-year transformation
programme. The Proprietary Capital business delivered a gross
investment return of GBP272 million (September 2014: GBP297
million) and an operating profit before carry of GBP204 million
(September 2014: GBP262 million) due to a robust performance in the
underlying portfolio companies. Underlying Fund Management
operating profit before carry was GBP13 million (September 2014:
GBP16 million).
Table 8: Total return for the six months to 30 September
2015
Six months to Six months to 12 months to
30 September 30 September 31 March
2015 2014 2015
Investment basis GBPm GBPm GBPm
--------------------------------------------------------------------- -------------- -------------- -------------
Realised profits over value on disposal of investments 29 35 162
Unrealised profits on revaluation of investments 167 307 684
Portfolio income
Dividends 36 21 45
Income from loans and receivables 28 30 62
Fees receivable 5 2 6
Foreign exchange on investments 7 (98) (154)
--------------------------------------------------------------------- -------------- -------------- -------------
Gross investment return 272 297 805
Fees receivable from external funds 37 41 80
Operating expenses (63) (63) (131)
Interest receivable 2 1 3
Interest payable (24) (26) (49)
Movement in the fair value of derivatives - (1) (1)
Exchange movements (10) 25 40
Other income - 1 -
--------------------------------------------------------------------- -------------- -------------- -------------
Operating profit before carry 214 275 747
Carried interest
Carried interest and performance fees receivable from external
funds (3) 19 80
Carried interest and performance fees payable (39) (45) (142)
Acquisition related earn-out charges (4) (5) (8)
--------------------------------------------------------------------- -------------- -------------- -------------
Operating profit 168 244 677
Income taxes 1 (3) (4)
Re-measurements of defined benefit plans (1) (7) (14)
--------------------------------------------------------------------- -------------- -------------- -------------
Total comprehensive income ("Total return") 168 234 659
--------------------------------------------------------------------- -------------- -------------- -------------
Total return on opening shareholders' funds 4.4% 7.1% 19.9%
--------------------------------------------------------------------- -------------- -------------- -------------
Proprietary capital returns
The Proprietary Capital business delivered an operating profit
before carry of GBP204 million (September 2014: GBP262 million)
principally due to strong weighted average earnings growth,
including portfolio acquisitions, of 19% (31 March 2015: 19%) in
the Private Equity portfolio and positive contributions from the
Infrastructure and Debt Management businesses.
By business line, the gross investment return on the opening
portfolio was 8% from Private Equity (September 2014: 10%), 4% from
Infrastructure (September 2014: 5%) and 2% from Debt Management
(September 2014: loss of 5%). Private Equity accounted for 81% of
the proprietary capital portfolio at 30 September 2015 (31 March
2015: 81%) and remains the primary driver of Proprietary Capital
returns.
Realised profits
Continued exit momentum in the first half resulted in 3i
realising profits on disposal of GBP29 million (September 2014:
GBP35 million) and proceeds totalling GBP359 million (September
2014: GBP324 million). Realisations were achieved at an uplift over
opening value of 9%, which was lower than prior periods due to a
number of assets being valued on an imminent sales basis at the
beginning of the year.
As in previous periods, the majority of the realisations were
from the Private Equity portfolio, which contributed proceeds of
GBP307 million (September 2014: GBP316 million), including GBP71
million from the sale of quoted assets (September 2014: GBP68
million). The Private Equity realisations completed in the period
generated an average money multiple of 1.6x over their investment
life. Further detail is provided in Table 2 of the Private Equity
section.
3iN returned GBP51 million via a special dividend during the
period, following the completion of its sale of Eversholt Rail, and
this was treated as realised proceeds. This generated a realised
profit of GBP3 million due to the increase in the 3iN share price
up until the date the dividend was paid.
Unrealised value movements
The unrealised value movement of GBP167 million (September 2014:
GBP307 million) was due predominantly to strong earnings growth in
a number of our key Private Equity assets.
Table 9: Unrealised profits/(losses) on revaluation of
investments for the six months to 30 September
2015 2014
GBPm GBPm
------------------------------------------ ----- -----
Private Equity
Earnings based valuations
Performance 171 209
Multiple movements (24) 13
Other bases
Uplift to imminent sale - 34
Discounted Cash Flow 28 33
Other movements on unquoted investments 1 7
Quoted portfolio (2) 12
Infrastructure
Quoted portfolio 15 15
Discounted Cash Flow (4) (6)
Debt Management(1) (18) (10)
------------------------------------------ ----- -----
Total 167 307
------------------------------------------ ----- -----
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1 Debt Management includes value movements on the subordinated debt stakes
in CLOs and our fund vehicles.
Private Equity unrealised value growth
Performance
The performance category measures the impact of earnings and net
debt movements for the portfolio companies valued on an earnings
basis. In general, when valuing a portfolio investment on an
earnings basis, the earnings used in the September valuations are
the last 12 months' management accounts data to June, unless the
current year forecast indicates a lower maintainable earnings
level. Where appropriate, adjustments are made to earnings on a pro
forma basis for acquisitions, disposals and non-recurring items. In
the case of Action, which is continuing to experience significant
growth due to its store roll-out programme, a run-rate adjustment
is made to its earnings for valuation purposes to reflect the
profitability of recently opened stores.
Improvements in the performance of the portfolio valued on an
earnings basis resulted in an increase in value of GBP171 million
(September 2014: GBP209 million). Value weighted last 12 months
earnings, including portfolio acquisitions, increased by 19% (31
March 2015: 19%), demonstrating that the portfolio's largest assets
are delivering strong improvements in performance. Excluding
Action, value weighted last 12 months earnings grew by 14% (31
March 2015: 16%).
The number of investments valued using forecast earnings
increased to five at 30 September 2015 from two at 31 March 2015,
representing 10% of the portfolio by value (31 March 2015: 3%).
Table 10: Portfolio earnings growth weighted by September 2015
carrying values(1)
3i carrying value 3i carrying value
at 30 September 2015 at 31 March 2015
Last 12 months' (LTM) earnings growth GBPm GBPm
-------------------------------------- --------------------- ------------------
<(20)% 9 32
(20) - (11)% 46 -
(10) - (1)% 87 131
0 - 9% 755 753
10 - 19% 292 88
20 - 30% 995 387
>30% 194 868
-------------------------------------- --------------------- ------------------
1 Includes all companies valued on an earnings basis where comparable earnings data is available.
This represents 73% of the Private Equity portfolio by value (31 March 2015: 72%).
Net debt in the portfolio decreased to 2.8x EBITDA (31 March
2015: 3.1x).
Table 11: Ratio of debt to EBITDA weighted by September 2015
carrying values(1)
3i carrying value 3i carrying value
at 30 September 2015 at 31 March 2015
Ratio of net debt to EBITDA GBPm GBPm
---------------------------- --------------------- ------------------
<1x 411 490
1 - 2x 193 483
2 - 3x 564 86
3 - 4x 1,136 428
4 - 5x 765 1,450
5 - 6x - 62
>6x - 6
---------------------------- --------------------- ------------------
1 This represents 94% of the Private Equity portfolio by value (31 March
2015: 95%).
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 11.4x at 30 September 2015 before marketability
discount, and from 10.5x to 10.7x after marketability discount. The
multiple used to value Action, the largest asset by value, remained
unchanged at 13.5x post discount. Excluding Action, the weighted
average EBITDA multiple remained flat at 10.1x before marketability
discount (31 March 2015: 10.1x) and was 9.4x after marketability
discount (31 March 2015: 9.3x).
We increased the multiple used to value Basic-Fit from 9.5x at
31 March 2015 to 10.5x post discount to recognise the growth
potential of this asset as it both upgrades its existing gyms and
opens new ones.
Stock market multiples declined sharply in our second quarter
but, as noted in the Annual report and accounts 2015, we consider
other factors such as exit plans, relative performance and
investment size when setting the multiples we use. As a result, we
adjusted multiples down, when compared to the market, throughout
2014 as equity markets increased. In the first half we continued to
adjust multiples in 19 out of the 30 companies (31 March 2015: 22
out of 33) valued on an earnings basis. However the valuation
multiples declined for 10 companies and the net effect was a
decrease in value of GBP24 million in the period (September 2014:
GBP13 million increase).
Imminent sale
Portfolio companies which are well advanced in a negotiated
sales process are valued on an imminent sale basis. No companies
were valued on this basis at 30 September 2015.
Discounted Cash Flow
The Discounted Cash Flow (DCF) valuation basis is used to value
portfolio companies with predictable and stable cash flows. As at
30 September 2015, the largest portfolio company valued on this
basis was Scandlines, valued at GBP257 million. Its value increased
by GBP30 million largely due to strong trading and the expectation
of further delays in the opening of the proposed competing fixed
link.
Quoted portfolio
The Private Equity quoted portfolio, including the UFO Moviez
IPO that completed in the period, generated an unrealised value
loss of GBP2 million (September 2014: GBP12 million gain) which is
detailed in Table 12.
Table 12: Quoted portfolio movement for the six months to 30
September 2015
Opening Closing Total gross
value Disposals Unrealised value at investment
at 1 April at opening value Other 30 September return during
2015(1) book value movement movements 2015 the period
Investment IPO date GBPm GBPm GBPm GBPm(2) GBPm GBPm
------------ ---------- ----------- ----------- ----------- ---------- ------------- --------------
Quintiles May 13 144 (50) 3 (4) 93 1
Dphone Jul 14 35 - (11) (2) 22 (13)
Eltel Feb 15 47 - 4 - 51 4
Refresco Mar 15 47 (1) (1) 2 47 -
UFO Moviez May 15 27 (15) 3 - 15 4
------------ ---------- ----------- ----------- ----------- ---------- ------------- --------------
300 (66) (2) (4) 228 (4)
------------------------ ----------- ----------- ----------- ---------- ------------- --------------
1 For UFO which IPO'd during the period, this is the value pre-IPO.
2 Other movements includes foreign exchange.
Infrastructure unrealised value movement
The direct Infrastructure portfolio primarily consists of our
34% holding in 3iN. The 4% increase in 3iN's share price to 167
pence (31 March 2015: 160 pence) led to a value uplift of GBP19
million in the period (September 2014: GBP17 million). This
positive performance was partially offset by a further decline in
value of the India Infrastructure Fund which recorded an unrealised
value reduction of GBP9 million (September 2014: GBP8 million
reduction). The fund's investments continued to face a number of
challenges together with the ongoing depreciation of the rupee.
Debt Management unrealised value movement
The Debt Management unrealised value reduction of GBP18 million
in the first half (September 2014: GBP10 million) relates
principally to the mark to market valuation of the CLO equity
portfolio, and there are a number of factors that contribute to
this movement. We received GBP14 million of cash distributions
(September 2014: GBP6 million), included in portfolio income, that
result in a corresponding value reduction. Broker quotes, which are
used to support CLO valuations, also reflected general market
concerns about liquidity and investor risk appetite. In the US in
particular, potential interest rate rises and oil and gas sector
concerns impacted this sentiment. The underlying cash flows of the
CLOs remain sound, and our longer term view of returns remains
positive.
Portfolio income
The portfolio generated income of GBP69 million in the period
(September 2014: GBP53 million). The increase compared to the prior
period was driven by dividends, with notable receipts including
GBP14 million from Debt Management CLO distributions, GBP8 million
from Scandlines and the GBP11 million ordinary distribution from
3iN. Income from loans and receivables was broadly stable at GBP28
million (September 2014: GBP30 million) and predominantly related
to Private Equity assets.
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A further GBP5 million in net fees from the new investments in
Weener Plastic and Euro-Diesel, as well as portfolio monitoring
fees, were also recognised in the period (September 2014: GBP2
million).
Net foreign exchange movements
The Group recorded a total net foreign exchange loss of GBP3
million (September 2014: GBP73 million) during the period with the
strengthening of sterling against the US dollar (2.4%) being
partially offset by the weakening of sterling against the euro
(1.6%). The net foreign exchange loss also reflects the translation
of non-portfolio net assets, including non-sterling cash held at
the balance sheet date.
Based on the portfolio as at 30 September 2015, a 1% movement in
the euro and US dollar would give rise to a GBP20 million and GBP7
million movement in total return respectively.
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
include 100% of costs in relation to the CEO and Group Finance
Director and elements of finance, IT, property and compliance.
Proprietary Capital operating expenses continued to be well managed
and were GBP15 million (September 2014: GBP13 million).
Synthetic fees, which are calculated on cost rather than value
of assets, were marginally lower at GBP21 million (September 2014:
GBP22 million) and reflect the lower level of proprietary capital
being managed as a result of net divestment during the period.
Net interest payable
Gross interest payable declined to GBP24 million (September
2014: GBP26 million) due to the reduced costs associated with the
2016 revolving credit facility which was refinanced in September
2014. This facility was extended by one year to September 2020 at
no extra cost, following an agreement with the participating banks
in September 2015. The current gross debt position is detailed
further in this Financial review and in Note 9 of the accounts.
Interest receivable increased marginally to GBP2 million
(September 2014: GBP1 million) and reflected the higher cash
balances held throughout the period.
FUND MANAGEMENT RETURNS
Table 13: Fund Management operating profit for the six months to
30 September
2015 2014
GBPm GBPm
---------------------------------------- ----- -----
Fees receivable from external funds 37 41
Synthetic fee from Proprietary Capital 21 22
Operating expenses (48) (50)
---------------------------------------- ----- -----
Operating profit before carry 10 13
---------------------------------------- ----- -----
Amortisation costs 3 3
---------------------------------------- ----- -----
Underlying Fund Management profit 13 16
---------------------------------------- ----- -----
The Group's Fund Management income is driven by total AUM. At 30
September 2015, AUM was stable at GBP13.5 billion (31 March 2015:
GBP13.5 billion) as the launch of two CLOs and the Global Income
Fund within Debt Management were offset by a fall in AUM from the
net divestment activity in Private Equity.
The Fund Management business generated an operating profit
before carry of GBP10 million for the period (September 2014: GBP13
million). The reduction in profitability was driven principally by
lower third-party fee income, which declined by 10% to GBP37
million (September 2014: GBP41 million) as a result of the ongoing
divestment of older Private Equity assets that were partially
funded with external capital. This was partially offset by
continued cost discipline but the operating profit margin decreased
to 17% (September 2014: 21%). On an underlying basis, excluding
amortisation costs, operating profit was GBP13 million (September
2014: GBP16 million) at a margin of 22% (September 2014: 26%).
Total return
Table 14: Summarised total return for the 6 months to 30
September
2015 2014
GBPm GBPm
---------------------------------------------------------------------- ----- -----
Proprietary Capital operating profit before carry 204 262
Fund Management operating profit before carry 10 13
---------------------------------------------------------------------- ----- -----
Operating profit before carry 214 275
---------------------------------------------------------------------- ----- -----
Carried interest and performance fees receivable from external funds (3) 19
Carried interest and performance fees payable (39) (45)
Acquisition related earn-out charges (4) (5)
---------------------------------------------------------------------- ----- -----
Operating profit 168 244
---------------------------------------------------------------------- ----- -----
Tax 1 (3)
Re-measurements of defined benefit plans (1) (7)
---------------------------------------------------------------------- ----- -----
Total comprehensive income ("Total return") 168 234
---------------------------------------------------------------------- ----- -----
Total return on opening shareholders' funds 4.4% 7.1%
---------------------------------------------------------------------- ----- -----
Net carried interest and performance fees payable
We pay carried interest to our investment teams on proprietary
capital invested and receive carried interest from third-party
funds.
In Private Equity, we typically accrue carried interest 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 30 September 2015 valuation. We accrued carried interest
payable of GBP36 million (September 2014: GBP36 million) in the
period.
We also accrued GBP3 million of carried interest payable to the
Debt Management team (September 2014: GBP2 million) and nil to the
Infrastructure team (September 2014: GBP7 million) as 3iN did not
go through its performance hurdle in the first half. In total, we
accrued for GBP39 million of carry payable in September 2015
(September 2014: GBP45 million).
The GBP(3) million carried interest receivable includes an GBP8
million one-off adjustment to the balance due from the Growth
Capital Fund, which offsets the GBP5 million from Debt Management
(September 2014: GBP4 million). Notwithstanding the recovery in
fund performance, we are yet to accrue carried interest receivable
from EFV, our largest third-party Private Equity fund.
Pension
There was a re-measurement loss on the Group's pension scheme of
GBP1 million (30 September 2014: GBP7 million loss) during the
period. The liability of the Group's UK defined benefit pension
scheme declined in the period following an increase in the discount
rate. However, this was offset by a fall in asset valuations, which
were impacted by volatile financial markets.
We have launched a programme to offer our members flexibility in
how they take their pension benefits following the Government's
"Freedom and choice in pensions" changes announced in April 2014.
This includes the provision of independent financial advice and a
range of options for deferred and pensioner members.
Operating cash profit
Table 15: Operating cash profit for the six months to 30
September
2015 2014
GBPm GBPm
--------------------------------------- ----- -----
Third-party capital fees 37 37
Cash portfolio fees 4 4
Cash portfolio dividends and interest 39 38
--------------------------------------- ----- -----
Cash income 80 79
--------------------------------------- ----- -----
Operating expenses(1) (63) (63)
--------------------------------------- ----- -----
Operating cash profit 17 16
--------------------------------------- ----- -----
1 Operating expenses are calculated on an accruals basis rather than cash.
3i made an operating cash profit of GBP17 million in the period
(September 2014: GBP16 million). Cash income increased modestly to
GBP80 million (September 2014: GBP79 million) principally due to
increased dividends. Our Debt Management business generated good
fund fee cash income of GBP18 million (September 2014: GBP17
million) which almost offset the reduced Private Equity fund
management income. Cash fee income from our managed Private Equity
funds and third parties decreased to GBP5 million (September 2014:
GBP9 million).
Operating expenses incurred during the period were stable at
GBP63 million (September 2014: GBP63 million), and decreased to
0.9% (September 2014: 1.0%) of AUM. We have recruited to support
our investment teams, as detailed in the Chief Executive's
statement, but remain focused on costs being 1% of AUM as an
appropriate benchmark.
INVESTMENT CASH FLOWS
Investment and realisations
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Table 16: Investment activity - Proprietary Capital and
Third-party Capital for the six months to 30 September
Proprietary Capital Proprietary and Third-party Capital(1)
September 2015 September 2014 September 2015 September 2014
GBPm GBPm GBPm GBPm
--------------------- --------------- --------------- -------------------- -------------------
Realisations 359 324 583 463
Cash investment (294) (199) (333) (180)
--------------------- --------------- --------------- -------------------- -------------------
Net cash divestment 65 125 250 283
Non-cash investment (44) (55) (57) (69)
--------------------- --------------- --------------- -------------------- -------------------
Net divestment 21 70 193 214
--------------------- --------------- --------------- -------------------- -------------------
1 Third-party capital relates to Private Equity activity only.
Further detail on investment and realisations is included in the
relevant business line sections.
BALANCE SHEET
Table 17: Simplified balance sheet and gearing
30 September 2015 31 March 2015
GBPm GBPm
---------------------------- ------------------ --------------
Investment portfolio value 4,037 3,877
---------------------------- ------------------ --------------
Gross debt (819) (815)
Cash and deposits 807 864
---------------------------- ------------------ --------------
Net (debt)/cash (12) 49
Other net liabilities (174) (120)
---------------------------- ------------------ --------------
Net assets 3,851 3,806
---------------------------- ------------------ --------------
Gearing(1) 0.3% nil
---------------------------- ------------------ --------------
1 Gearing is net debt as a percentage of net assets.
The Proprietary Capital portfolio increased to GBP4,037 million
at 30 September 2015 (31 March 2015: GBP3,877 million) as cash
investment of GBP294 million and unrealised value growth of GBP167
million offset the realisations in the period.
The mix of the portfolio was broadly stable. Private Equity
remained at 81% of the total portfolio (31 March 2015: 81%) while
an increase in the Debt Management portfolio to 6% (31 March 2015:
5%) was offset by a fall in the Infrastructure portfolio to 13% (31
March 2015: 14%).The final FY2015 dividend payment, partially
offset by operating cash inflows and net divestment, led to cash
and deposits on the balance sheet decreasing to GBP807 million (31
March 2015: GBP864 million). We recognised a small increase in the
sterling equivalent of the 2017 euro denominated bond and, as a
result, the Group was in a net debt position of GBP12 million at 30
September 2015 (31 March 2015: GBP49 million net cash) and had
gearing of 0.3% (31 March 2015: nil).
Liquidity
Liquidity remained strong at GBP1,157 million (31 March 2015:
GBP1,214 million) and comprised cash and deposits of GBP807 million
(31 March 2015: GBP864 million) and undrawn facilities of GBP350
million (31 March 2015: GBP350 million).
Foreign exchange
At 30 September 2015, 30% of the Group's net assets were
denominated in sterling, 43% in euro, 25% in US dollar and 2% in
other currencies. Although we do not implement structured hedging
of the NAV, we may implement specific short-term hedging on entry
or exit cash flows of an investment if appropriate.
Diluted NAV
The diluted NAV per share at 30 September 2015 was 401 pence (31
March 2015: 396 pence). The increase was driven by the total return
in the period of GBP168 million (September 2014: GBP234 million),
partially offset by the payment of the final FY2015 dividend of
GBP133 million, or 14.0 pence per share (September 2014: GBP126
million, 13.3 pence per share).
Dividend
The Board has announced an interim dividend of 6.0p (September
2014: 6.0p). This comprises of a 2.7p base dividend and a 3.3p
additional dividend and reflects our robust balance sheet and
confidence in our longer term prospects. The interim dividend is
expected to be paid on 6 January 2016 to those shareholders on the
register at 11 December 2015.
Principal risks and uncertainties
The main elements of 3i's approach to risk management, its risk
management process and governance structure are set out in the Risk
section of the 3i Group Annual report and accounts 2015 which can
be accessed via the link on the Investor Relations home page of the
Group's website at www.3i.com.
In delivering the Group's strategy we face a number of risks.
These are monitored continuously and managed by:
-- adhering to our clearly defined and established business
model;
-- following an integrated risk management approach; and
-- maintaining our clearly defined risk appetites and key risk
indicators.
During the six months to 30 September 2015, there was no
significant change to our business model, risk management approach
or risk appetite.
The principal risks and uncertainties for the remaining six
months of the financial year are unchanged and summarised below.
This is not a comprehensive list of all potential risks and
uncertainties faced by the Group, but rather a summary of the risks
which it currently believes may have a significant impact on its
performance and future prospects.
External - Risks arising from external factors including
political, legal, regulatory, economic and competitor changes which
affect the Group's operations. There has been a significant amount
of uncertainty in the Eurozone and the wider emerging markets'
economies in 2015 and the Group continues to monitor these events
closely. On 5 October 2015, the OECD published the final reports
arising from its work on the Base Erosion and Profit Shifting
("BEPS") project. It is not clear which countries will implement
these proposals and the timing and extent of implementation by
those that do. The OECD has indicated that further detail on some
of the proposals will be published during 2016. 3i will continue to
monitor the impact of these proposals on its business and
operations.
Investment - Risks in respect of specific asset investment
decisions, the subsequent performance of an investment or exposure
concentrations across business line portfolios.
Treasury and funding - Risks in relation to changes in market
prices and rates, access to capital markets and third-party funds,
and the Group's capital structure.
Operational - Risks arising from inadequate or failed processes,
people and systems or from external factors affecting these. In the
Group's ongoing assessment of operational risks in FY2016, which is
informed by an analysis of its risk factors, the Group has paid
particular attention to the increasingly sophisticated threat of
cyber crime. We continue to review and improve our governance and
controls to protect our information and infrastructure.
The Group Risk Committee meets quarterly. The risk review
process includes the monitoring of dashboards which track the
Group's financial performance and progress against its strategic
objectives at a Group level and for each of the Group's business
lines. This assists the Committee in its assessment of the key
risks affecting the achievement of the Group's objectives and the
effectiveness of current risk mitigation plans.
The Committee also has a number of focus areas, which are agreed
in advance of each meeting. Topics discussed in the period included
a review of cyber crime and a review of the changes to the UK
Corporate Governance code.
This Half-yearly report provides an update on 3i's strategy and
business performance, as well as market conditions, which are
relevant to the Group's overall risk profile and should be viewed
in the context of the Group's risk management framework and
principal inherent risk factors as disclosed in the Annual report
and accounts 2015.
Reconciliation of the Investment basis to IFRS
Background to investment basis NUMBERS USED IN THE INTERIM
MANAGEMENT REPORT
The Group makes investments in portfolio companies directly,
held by 3i Group plc, and indirectly, held through intermediate
holding company and partnership structures ("Investment entity
subsidiaries"). It also has other operational subsidiaries which
provide services and other activities such as employment,
regulatory activities, management and advice ("Trading
subsidiaries"). The application of IFRS 10 requires us to fair
value a number of Investment entity subsidiaries that were
previously consolidated line by line. This fair value approach,
applied at the Investment entity subsidiary level, effectively
obscures the performance of our proprietary capital investments and
associated transactions occurring in the Investment entity
subsidiaries. The financial effect of the underlying portfolio
companies and fee income, operating expenses and carried interest
transactions occurring in Investment entity subsidiaries are
aggregated into a single value. Other items which were previously
eliminated on consolidation are now included separately.
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As a result we introduced separate non-GAAP "Investment basis"
Statements of comprehensive income, financial position and cash
flow in our Annual report and accounts 2014 to aid understanding of
our results. The Interim management 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 the same 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 after Principal
risks and uncertainties.
Reconciliation of Statement of comprehensive income
Six months to 30 September 2015 Six months to 30 September 2014
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited)
(restated)(1)
Note GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----- ----------- ------------ ------------ ----------- ------------ ---------------
Realised profits over
value
on the disposal of
investments 3 29 (17) 12 35 (29) 6
Unrealised profits
on the revaluation of
investments 3 167 (166) 1 307 (203) 104
Fair value movements
on Investment entity
subsidiaries 2 - 207 207 - 219 219
Portfolio income
Dividends 2 36 (4) 32 21 (6) 15
Income from loans and
receivables 2 28 (15) 13 30 (12) 18
Fees receivable 5 - 5 2 1 3
Foreign exchange on
investments 5 7 (8) (1) (98) 67 (31)
------------------------ ----- ----------- ------------ ------------ ----------- ------------ ---------------
Gross investment return 272 (3) 269 297 37 334
------------------------ ----- ----------- ------------ ------------ ----------- ------------ ---------------
Fees receivable from
external funds 4 37 - 37 41 1 42
Operating expenses 4 (63) - (63) (63) - (63)
Interest receivable 4 2 - 2 1 - 1
Interest payable (24) - (24) (26) - (26)
Movement in the fair
value of derivatives - - - (1) - (1)
Exchange movements 5 (10) 6 (4) 25 (58) (33)
Income/(expense) from
fair value
subsidiaries - (31) (31) - 10 10
Other income - - - 1 - 1
------------------------ ----- ----------- ------------ ------------ ----------- ------------ ---------------
Operating profit before
carry 214 (28) 186 275 (10) 265
------------------------ ----- ----------- ------------ ------------ ----------- ------------ ---------------
Carried interest and
performance fees
Receivable from
external funds 4 (3) (7) (10) 19 - 19
Payable 4 (39) 22 (17) (45) 23 (22)
Acquisition related
earn-out charges (4) - (4) (5) - (5)
----------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------------
Operating profit 168 (13) 155 244 13 257
------------------------ ----- ----------- ------------ ------------ ----------- ------------ ---------------
Income taxes 4 1 (1) - (3) - (3)
------------------------ ----- ----------- ------------ ------------ ----------- ------------ ---------------
Profit for the period 169 (14) 155 241 13 254
------------------------ ----- ----------- ------------ ------------ ----------- ------------ ---------------
Other comprehensive income
Exchange differences
on translation of
foreign operations 5 - 14 14 - (13) (13)
Re-measurements of
defined benefit plans (1) - (1) (7) - (7)
----------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------------
Total comprehensive
income for the period
("Total return") 2 168 - 168 234 - 234
------------------------ ----- ----------- ------------ ------------ ----------- ------------ ---------------
Notes:
1 See Note 12 of the IFRS financial statements.
2 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 periods. 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.
3 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.
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 On the Investment basis, the impact of the translation of foreign subsidiaries
is included within the line items foreign exchange on investments and
exchange movements rather than as a separate line item as required
under IFRS. On an IFRS basis, the revaluation of assets and liabilities
held by Investment entity subsidiaries is reflected in the fair value
movements on Investment entity subsidiaries rather than being reflected
as exchange movements.
Reconciliation of Statement of financial position
As at 30 September 2015 As at 31 March 2015
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (audited)
Note GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Assets
Non-current assets
Investments
Quoted investments 1 682 (363) 319 763 (364) 399
Unquoted investments 1 3,355 (2,219) 1,136 3,114 (1,842) 1,272
Investments in Investment
entities 1,3 - 2,417 2,417 - 2,079 2,079
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Investment portfolio 4,037 (165) 3,872 3,877 (127) 3,750
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Carried interest and
performance
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fees receivable 1 36 (8) 28 43 - 43
Intangible assets 16 - 16 19 - 19
Retirement benefit surplus 137 - 137 136 - 136
Property, plant and
equipment 4 - 4 4 - 4
Deferred income taxes 1 3 - 3 3 - 3
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Total non-current assets 4,233 (173) 4,060 4,082 (127) 3,955
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Current assets
Carried interest and
performance
fees receivable - - - 45 - 45
Other current assets 1 64 (5) 59 85 (31) 54
Deposits 140 - 140 - - -
Cash and cash equivalents 1,2 667 (5) 662 864 (3) 861
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Total current assets 871 (10) 861 994 (34) 960
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Total assets 5,104 (183) 4,921 5,076 (161) 4,915
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Liabilities
Non-current liabilities
Carried interest and
performance
fees payable 1 (224) 152 (72) (214) 142 (72)
Acquisition related earn-out
charges payable - - - (10) - (10)
Loans and borrowings (819) - (819) (815) - (815)
Retirement benefit deficit (20) - (20) (19) - (19)
Deferred income taxes (1) 1 - (3) 2 (1)
Provisions 1 (3) - (3) (5) - (5)
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Total non-current
liabilities (1,067) 153 (914) (1,066) 144 (922)
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Current liabilities
Trade and other payables 1 (135) 18 (117) (169) 17 (152)
Carried interest and
performance
fees payable 1 (22) 12 (10) (13) - (13)
Acquisition related earn-out
charges payable (20) - (20) (17) - (17)
Current income taxes 1 (4) - (4) (2) - (2)
Provisions 1 (5) - (5) (3) - (3)
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Total current liabilities (186) 30 (156) (204) 17 (187)
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Total liabilities (1,253) 183 (1,070) (1,270) 161 (1,109)
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Net assets 3,851 - 3,851 3,806 - 3,806
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Equity
Issued capital 719 - 719 719 - 719
Share premium 784 - 784 784 - 784
Other reserves 4 2,401 - 2,401 2,382 - 2,382
Own shares (53) - (53) (79) - (79)
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Total equity 3,851 - 3,851 3,806 - 3,806
----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Notes:
1 Applying IFRS 10 to the Statement of financial position aggregates
the line items of a number of previously consolidated subsidiaries
into the single line item investments 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,
consistent with prior periods. 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
investments or unquoted investments.
Other items which may be aggregated are carried interest and other
payables, and the Investment basis presentation again disaggregates
these items.
2 Cash balances held in Investment entity subsidiaries are also aggregated
into the investment in investment entities line. At 30 September 2015,
GBP5 million of cash was held in subsidiaries that are now classified
as Investment entity subsidiaries and is therefore included in the
investments 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 of the Group. Prior to the adoption
of IFRS 10, these balances would have been eliminated on consolidation.
4 Investment basis financial statements are prepared for performance
measurement and therefore reserves are not analysed separately under
this basis.
Reconciliation of Cash flow statement
6 months to 30 September 2015 6 months to 30 September 2014
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited)
(restated)(1)
Note GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----- ----------- ------------ ------------ ----------- ------------ --------------
Cash flow from operating activities
Purchase of investments 2 (294) 206 (88) (199) 95 (104)
Proceeds from investments 2 359 (180) 179 324 (217) 107
Cash divestment from
traded portfolio 2 - - - 7 (7) -
Net cash flow (to)/from
Investment entity
subsidiaries 2 - (24) (24) - 144 144
Portfolio interest
received 2 3 - 3 18 (7) 11
Portfolio dividends
received 2 36 (4) 32 20 (5) 15
Portfolio fees received 4 - 4 4 - 4
Fees received from
external funds 37 - 37 37 - 37
Carried interest and
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November 12, 2015 02:01 ET (07:01 GMT)
performance fees received 49 - 49 4 - 4
Carried interest and
performance fees paid 2 (18) 1 (17) (11) - (11)
Acquisition related
earn-out charges paid (11) - (11) (10) - (10)
Operating expenses 2 (76) - (76) (71) 8 (63)
Interest received 2 - 2 1 - 1
Interest paid (11) - (11) (15) - (15)
Income taxes paid 1 - 1 (3) - (3)
--------------------------- ----- ----------- ------------ ------------ ----------- ------------ --------------
Net cash flow from
operating activities 81 (1) 80 106 11 117
--------------------------- ----- ----------- ------------ ------------ ----------- ------------ --------------
Cash flow from financing
activities
Purchase of B shares - - - (6) - (6)
Dividend paid (133) - (133) (126) - (126)
Net cash flow from
derivatives - - - 2 - 2
--------------------------- ----- ----------- ------------ ------------ ----------- ------------ --------------
Net cash flow from
financing activities (133) - (133) (130) - (130)
--------------------------- ----- ----------- ------------ ------------ ----------- ------------ --------------
Cash flow from investing
activities
Purchases of property,
plant and equipment (1) - (1) - - -
Net cashflow to deposits (140) - (140) - - -
--------------------------- ----- ----------- ------------ ------------ ----------- ------------ --------------
Net cash flow from
investing activities (141) - (141) - - -
--------------------------- ----- ----------- ------------ ------------ ----------- ------------ --------------
Change in cash and cash
equivalents 3 (193) (1) (194) (24) 11 (13)
Cash and cash equivalents
at the start of the
period 3 864 (3) 861 697 (23) 674
Effect of exchange rate
fluctuations 2 (4) (1) (5) (3) 1 (2)
--------------------------- ----- ----------- ------------ ------------ ----------- ------------ --------------
Cash and cash equivalents
at the end of the period 3 667 (5) 662 670 (11) 659
--------------------------- ----- ----------- ------------ ------------ ----------- ------------ --------------
Notes:
1 Restated. See Note 12 of the IFRS financial statements.
2 The 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.
3 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.
IFRS FINANCIAL STATEMENTS
Condensed consolidated statement of comprehensive income
for the six months to 30 September 2015
Six months to Six months to
30 September 30 September
2015 2014
(unaudited) (unaudited)
(restated)(1)
Notes GBPm GBPm
------------------------------------------------------------------ ------ -------------- --------------
Realised profits over value on the disposal of investments 2 12 6
Unrealised profits on the revaluation of investments 3 1 104
Fair value movements on Investment entity subsidiaries 7 207 219
------------------------------------------------------------------ ------ -------------- --------------
220 329
Portfolio income
Dividends 32 15
Income from loans and receivables 13 18
Fees receivable 5 3
Foreign exchange on investments (1) (31)
------------------------------------------------------------------ ------ -------------- --------------
Gross investment return 269 334
Fees receivable from external funds 37 42
Operating expenses (63) (63)
Interest received 2 1
Interest paid (24) (26)
Movement in the fair value of derivatives - (1)
Exchange movements (4) (33)
(Expense)/income from fair value subsidiaries (31) 10
Other income - 1
Carried interest
Carried interest and performance fees receivable (10) 19
Carried interest and performance fees payable (17) (22)
Acquisition related earn-out charges (4) (5)
------------------------------------------------------------------ ------ -------------- --------------
Operating profit before tax 155 257
Income taxes - (3)
------------------------------------------------------------------ ------ -------------- --------------
Profit for the period 155 254
------------------------------------------------------------------ ------ -------------- --------------
Other comprehensive income that may be reclassified to the income statement:
Exchange differences on translation of foreign operations 14 (13)
Other comprehensive income that will not be reclassified to the income statement:
Re-measurements of defined benefit plans (1) (7)
------------------------------------------------------------------ ------ -------------- --------------
Other comprehensive income for the period 13 (20)
------------------------------------------------------------------ ------ -------------- --------------
Total comprehensive income for the period ("Total return") 168 234
------------------------------------------------------------------ ------ -------------- --------------
Earnings per share
Basic (pence) 4 16.3 26.8
Diluted (pence) 4 16.2 26.6
----------------------------------------------------------------- ------ -------------- --------------
1 Restated. See Note 12.
Condensed consolidated statement of financial position
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November 12, 2015 02:01 ET (07:01 GMT)
as at 30 September 2015
30 September 31 March
2015 2015
(unaudited) (audited)
Notes GBPm GBPm
------------------------------------------------------- ------------- ----------
Assets
Non-current assets
Investments
Quoted investments 6 319 399
Unquoted investments 6 1,136 1,272
Investments in Investment entities 7 2,417 2,079
--------------------------------------------------- ------------- ----------
Investment portfolio 3,872 3,750
--------------------------------------------------- ------------- ----------
Carried interest and performance fees receivable 28 43
Intangible assets 16 19
Retirement benefit surplus 137 136
Property, plant and equipment 4 4
Deferred income taxes 3 3
--------------------------------------------------- ------------- ----------
Total non-current assets 4,060 3,955
------------------------------------------------------- ------------- ----------
Current assets
Carried interest and performance fees receivable - 45
Other current assets 59 54
Deposits 140 -
Cash and cash equivalents 662 861
------------------------------------------------------- ------------- ----------
Total current assets 861 960
------------------------------------------------------- ------------- ----------
Total assets 4,921 4,915
------------------------------------------------------- ------------- ----------
Liabilities
Non-current liabilities
Carried interest and performance fees payable (72) (72)
Acquisition related earn-out charges payable - (10)
Loans and borrowings 9 (819) (815)
Retirement benefit deficit (20) (19)
Deferred income taxes - (1)
Provisions (3) (5)
--------------------------------------------------- ------------- ----------
Total non-current liabilities (914) (922)
------------------------------------------------------- ------------- ----------
Current liabilities
Trade and other payables (117) (152)
Carried interest and performance fees payable (10) (13)
Acquisition related earn-out charges payable (20) (17)
Current income taxes (4) (2)
Provisions (5) (3)
--------------------------------------------------- ------------- ----------
Total current liabilities (156) (187)
------------------------------------------------------- ------------- ----------
Total liabilities (1,070) (1,109)
------------------------------------------------------- ------------- ----------
Net assets 3,851 3,806
------------------------------------------------------- ------------- ----------
Equity
Issued capital 719 719
Share premium 784 784
Capital redemption reserve 43 43
Share-based payment reserve 27 31
Translation reserve 230 216
Capital reserve 1,518 1,519
Revenue reserve 583 573
Own shares (53) (79)
--------------------------------------------------- ------------- ----------
Total equity 3,851 3,806
------------------------------------------------------- ------------- ----------
Condensed consolidated statement of changes in equity
For the six months to Share-
30 September 2015
(unaudited)
-----------------------
Capital based
-----------------------
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve reserve shares Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total equity at the
start of
the period 719 784 43 31 216 1,519 573 (79) 3,806
Profit for the period - - - - - 108 47 - 155
Exchange differences
on translation of
foreign operations - - - - 14 - - - 14
Re-measurements of
defined benefit plans - - - - - (1) - - (1)
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total comprehensive
income for the period - - - - 14 107 47 - 168
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Share-based payments - - - 10 - - - - 10
Release on
exercise/forfeiture
of share options - - - (14) - - 14 - -
Loss on sale of own
shares - - - - - (26) - 26 -
Ordinary dividends - - - - - - (51) - (51)
Additional dividends - - - - - (82) - - (82)
Issue of ordinary - - - - - - - - -
shares
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total equity at the
end of
the period 719 784 43 27 230 1,518 583 (53) 3,851
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
For the six months to Share-
30 September 2014
(unaudited)
(restated)(1)
-----------------------
Capital based
-----------------------
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve reserve shares Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total equity at the
start of
the period 718 782 43 19 243 1,050 542 (89) 3,308
Profit for the
period(1) - - - - - 195 59 - 254
Exchange differences
on translation of
foreign operations(1) - - - - (13) - - - (13)
Re-measurements of
defined benefit plans - - - - - (7) - - (7)
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total comprehensive
income for the period - - - - (13) 188 59 - 234
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Share-based payments - - - 9 - - - - 9
Release on
exercise/forfeiture
of share options - - - (4) - - 4 - -
Loss on sale of own
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November 12, 2015 02:01 ET (07:01 GMT)
shares - - - - - (9) - 9 -
Ordinary dividends - - - - - - (51) - (51)
Additional dividends - - - - - (75) - - (75)
Issue of ordinary
shares - 1 - - - - - - 1
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total equity at the
end of
the period 718 783 43 24 230 1,154 554 (80) 3,426
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
1 In accordance with the restatement detailed in Note 12, the capital
reserve at 1 April 2014 has been restated from GBP1,051 million to
GBP1,050 million and the translation reserve has been restated from
GBP242 million to GBP243 million. We have restated the capital reserve
profit for the period from GBP197 million to GBP195 million and the
exchange differences on translation of foreign operations from GBP(15)
million to GBP(13) million.
Condensed consolidated cash flow statement
for the six months to 30 September 2015
Six months to Six months to
30 September 30 September
2015 2014
(unaudited) (unaudited)
(restated)(1)
GBPm GBPm
-------------------------------------------------------- -------------- --------------
Cash flow from operating activities
Purchase of investments (88) (104)
Proceeds from investments 179 107
Net cash flow (to)/from Investment entity subsidiaries (24) 144
Portfolio interest received 3 11
Portfolio dividends received 32 15
Portfolio fees received 4 4
Fees received from external funds 37 37
Carried interest and performance fees received 49 4
Carried interest and performance fees paid (17) (11)
Acquisition related earn-out charges (11) (10)
Operating expenses (76) (63)
Interest received 2 1
Interest paid (11) (15)
Income taxes paid 1 (3)
-------------------------------------------------------- -------------- --------------
Net cash flow from operating activities 80 117
-------------------------------------------------------- -------------- --------------
Cash flow from financing activities
Dividend paid (133) (126)
Repurchase of B shares - (6)
Net cash flow from derivatives - 2
-------------------------------------------------------- -------------- --------------
Net cash flow from financing activities (133) (130)
-------------------------------------------------------- -------------- --------------
Cash flow from investing activities
Purchase of property, plant and equipment (1) -
Net cash flow to deposits (140) -
-------------------------------------------------------- -------------- --------------
Net cash flow from investing activities (141) -
-------------------------------------------------------- -------------- --------------
Change in cash and cash equivalents (194) (13)
Cash and cash equivalents at the start of the period 861 674
Effect of exchange rate fluctuations (5) (2)
-------------------------------------------------------- -------------- --------------
Cash and cash equivalents at the end of the period 662 659
-------------------------------------------------------- -------------- --------------
1 Restated. See Note 12.
Notes to the financial statements
BASIS OF PREPARATION AND ACCOUNTING POLICIES
A Compliance with International Financial Reporting Standards
("IFRS")
The Half-yearly condensed consolidated financial statements of
3i Group plc have been prepared in accordance with the Disclosure
Rules and Transparency Rules of the Financial Conduct Authority and
IAS 34 'Interim Financial Reporting' as issued by the International
Accounting Standards Board ('IASB') and as endorsed by the EU.
These Half-yearly consolidated financial statements should be read
in conjunction with the Annual report and accounts 2015.
Standards applied during the half year to 30 September 2015
There were no new standards applied during the half year to 30
September 2015. During the period, 3i Group plc applied a number of
interpretations and amendments to standards as part of the IFRS
lifecycle proposals which had an insignificant effect on these
Half-yearly condensed consolidated financial statements.
The financial information for the year ended 31 March 2015
contained within this Half-yearly report does not constitute
statutory accounts as defined in Section 434 of the Companies Act
2006. The statutory accounts for the year to 31 March 2015,
prepared under IFRS, have been reported on by Ernst and Young LLP
and delivered to the Registrar of Companies. The report of the
Auditor on these statutory accounts was unqualified and did not
contain a statement under section 498(2) or section 498(3) of the
Companies Act 2006.
B Use of estimates and judgements
The preparation of the Half-yearly report requires management to
make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision
affects both current and future periods. The most significant
techniques for estimation are described in the accounting policies
on pages 90 to 128 of the Annual report and accounts 2015 and in
"Portfolio valuation - an explanation". There was no change in the
current period to the critical accounting estimates and judgements
applied in 2015, which are stated on pages 91 to 92 of the Annual
report and accounts 2015.
C Composition of Group
There were no material changes in the composition of the 3i
Group in the half year to 30 September 2015.
D Future accounting developments
Information on future accounting developments and their
potential effect on the financial statements of 3i are provided on
page 90 of the Annual report and accounts 2015.
E Going concern
The financial statements are prepared on a going concern
basis.
F Accounting policies
The accounting policies applied by 3i Group for these
Half-yearly condensed consolidated financial statements are
consistent with those described on pages 90 to 128 of the Annual
report and accounts 2015, as are the methods of computation.
Consistent with prior year, income on the most junior level of CLO
capital is recognised as a dividend. GBP14 million (September 2014:
GBP6 million) was received in the period.
1 Segmental analysis
The tables below are presented on the Investment basis which is
the basis used by the chief-operating-decision-maker, the Chief
Executive, to monitor the performance of the Group. A description
of the Investment basis is provided in the Financial review and a
reconciliation of the Investment basis to the IFRS financial
statements is provided after Principal risks and uncertainties.
Further detail on the Group's segmental analysis can be found on
pages 93-95 of the Annual report and accounts 2015. The remaining
Notes are prepared on an IFRS basis.
Investment basis Private Debt Proprietary Fund
Six months to 30 September Equity Infrastructure Management Total Capital Management Total
2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Realised profits over value
on the disposal of
investments 26 3 - 29 29 - 29
Unrealised profits/(losses)
on the revaluation of
investments 174 11 (18) 167 167 - 167
Portfolio income
Dividends 11 11 14 36 36 - 36
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November 12, 2015 02:01 ET (07:01 GMT)
Income from loans and
receivables 26 - 2 28 28 - 28
Fees receivable/(payable) 6 - (1) 5 5 - 5
Foreign exchange on
investments 3 (2) 6 7 7 - 7
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Gross investment return 246 23 3 272 272 - 272
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Fees receivable from
external funds 6 14 17 37 - 37 37
Synthetic fees - - - - (21) 21 -
Operating expenses (31) (14) (18) (63) (15) (48) (63)
Interest receivable 2 2 - 2
Interest payable (24) (24) - (24)
Exchange movements (10) (10) - (10)
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Operating profit before
carry 214 204 10 214
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Carried interest and
performance fees
Receivable from external
funds (8) - 5 (3) (3)
Payable (36) - (3) (39) (39)
Acquisition related
earn-out charges - - (4) (4) (4)
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Operating profit 168 168
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Income taxes 1 1
Other comprehensive income
Re-measurements of defined
benefit plans (1) (1)
---------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Total return 168 168
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Net divestment/
(investment)
Realisations 307 51 1 359 359 359
Cash investment (208) - (86) (294) (294) (294)
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
99 51 (85) 65 65 65
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Balance sheet
Opening portfolio value at 1
April 2015 3,148 553 176 3,877 3,877 3,877
Investment 252 - 86 338 338 338
Value disposed (281) (48) (1) (330) (330) (330)
Unrealised value movement 174 11 (18) 167 167 167
Other movement (18) (3) 6 (15) (15) (15)
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Closing portfolio value at
30 September 2015 3,275 513 249 4,037 4,037 4,037
----------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Investment basis Private Debt Proprietary Fund
Six months to 30 September Equity Infrastructure Management Total Capital Management Total
2014 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ======== =============== =========== ======= ============ =========== =======
Realised profits over
value on the disposal of
investments 34 1 - 35 35 - 35
Unrealised
profits/(losses) on the
revaluation of
investments 308 9 (10) 307 307 - 307
Portfolio income
Dividends 5 10 6 21 21 - 21
Income from loans and
receivables 27 - 3 30 30 - 30
Fees receivable/(payable) 3 - (1) 2 2 - 2
Foreign exchange on
investments (95) 2 (5) (98) (98) - (98)
--------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Gross investment return 282 22 (7) 297 297 - 297
--------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Fees receivable from
external funds 9 14 18 41 - 41 41
Synthetic fees - - - - (22) 22 -
Operating expenses (31) (14) (18) (63) (13) (50) (63)
Interest receivable 1 1 - 1
Interest payable (26) (26) - (26)
Movement in the fair value
of derivatives (1) (1) - (1)
Exchange movements 25 25 - 25
Other income 1 1 - 1
--------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Operating profit before
carry 275 262 13 275
--------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Carried interest and
performance fees
Receivable from external
funds 7 8 4 19 19
Payable (36) (7) (2) (45) (45)
Acquisition related
earn-out charges - - (5) (5) (5)
--------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Operating profit 244 244
--------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Income taxes (3) (3)
Other comprehensive income
Re-measurements of
defined benefit plans (7) (7)
-------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Total return 234 234
--------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Net divestment/
(investment)
Realisations 316 8 - 324 324 324
Cash investment (104) - (95) (199) (199) (199)
--------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
212 8 (95) 125 125 125
--------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Balance sheet
Opening portfolio value at
1 April 2014 2,935 487 143 3,565 3,565 3,565
Investment 159 - 95 254 254 254
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November 12, 2015 02:01 ET (07:01 GMT)
Value disposed (282) (7) - (289) (289) (289)
Unrealised value movement 308 9 (10) 307 307 307
Other movement (136) 2 (31) (165) (165) (165)
--------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
Closing portfolio value at
30 September 2014 2,984 491 197 3,672 3,672 3,672
--------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
2 Realised profits over value on the disposal of investments
Six months to 30 September 2015 Unquoted Quoted
investments investments Total
GBPm GBPm GBPm
----------------------------------------------- ------------ ------------ ------
Realisations 148 31 179
Valuation of disposed investments (138) (29) (167)
----------------------------------------------- ------------ ------------ ------
10 2 12
----------------------------------------------- ------------ ------------ ------
Of which:
- - profit recognised on realisations 10 2 12
- losses recognised on realisations - - -
-------- ------------------------------------- ------------ ------------ ------
10 2 12
---------------------------------------------- ------------ ------------ ------
Six months to 30 September 2014 Unquoted Quoted
investments investments Total
(restated) (restated) (restated)
GBPm GBPm GBPm
----------------------------------------------- ------------ ------------ -----------
Realisations 107 - 107
Valuation of disposed investments (101) - (101)
----------------------------------------------- ------------ ------------ -----------
6 - 6
----------------------------------------------- ------------ ------------ -----------
Of which:
- - profit recognised on realisations 7 - 7
- losses recognised on realisations (1) - (1)
---------------------------------------------- ------------ ------------ -----------
6 - 6
---------------------------------------------- ------------ ------------ -----------
3 Unrealised profits/(losses) on the revaluation of
investments
Six months to 30 September 2015 Unquoted Quoted
investments investments Total
GBPm GBPm GBPm
-------------------------------------------- ------------ ------------ ------
Movement in the fair value of investments (14) 15 1
-------------------------------------------- ------------ ------------ ------
Of which:
- unrealised gains 46 15 61
- unrealised losses (60) - (60)
------------------------------------------- ------------ ------------ ------
(14) 15 1
------------------------------------------- ------------ ------------ ------
Six months to 30 September 2014 Unquoted Quoted
investments investments Total
(restated) (restated) (restated)
GBPm GBPm GBPm
============================================ ============ ============ ===========
Movement in the fair value of investments 93 11 104
-------------------------------------------- ------------ ------------ -----------
Of which:
- unrealised gains 142 11 153
- unrealised losses (49) - (49)
------------------------------------------- ------------ ------------ -----------
93 11 104
------------------------------------------- ------------ ------------ -----------
4 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.
6 months 6 months
to 30 September to 30 September
2015 2014
(restated)
--------------------------------------------------------------------- ---------------- ----------------
Earnings per share (pence)
Basic 16.3 26.8
Diluted 16.2 26.6
Earnings (GBPm)
Profit for the period attributable to equity holders of the Company 155 254
--------------------------------------------------------------------- ---------------- ----------------
6 months 6 months
to 30 September to 30 September
2015 2014
Number Number
---------------------------------------------- ---------------- ----------------
Weighted average number of shares in issue
Ordinary shares 972,524,749 972,013,634
Own shares (20,757,426) (25,467,918)
---------------------------------------------- ---------------- ----------------
Basic shares 951,767,323 946,545,716
---------------------------------------------- ---------------- ----------------
Effect of dilutive potential ordinary shares
Share options and awards 3,987,648 9,251,617
---------------------------------------------- ---------------- ----------------
Diluted shares 955,754,971 955,797,333
---------------------------------------------- ---------------- ----------------
30 September 30 September
2015 2014
---------------------------------------------------------- ------------- -------------
Net assets per share (pence)
Basic 403 361
Diluted 401 358
---------------------------------------------------------- ------------- -------------
Net assets (GBPm)
Net assets attributable to equity holders of the Company 3,851 3,426
---------------------------------------------------------- ------------- -------------
Basic NAV per share is calculated on 956,477,854 shares in issue
at 30 September 2015 (30 September 2014: 947,926,954). Diluted NAV
per share is calculated on diluted shares of 960,746,598 at 30
September 2015 (30 September 2014: 957,831,109).
5 Dividends
6 months to 6 months to 6 months to 6 months to
30 September 30 September 30 September 30 September
2015 2015 2014 2014
pence pence
per share GBPm per share GBPm
Declared and paid during the period
Final dividend 14.0 133 13.3 126
14.0 133 13.3 126
Proposed interim dividend 6.0 57 6.0 57
6 Investment portfolio
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The basis for measuring the fair value of the investment
portfolio is explained on page 101 of the Annual report and
accounts 2015.
6 months to Year to
30 September 2015 31 March 2015
Non-current GBPm GBPm
Opening book value 1,671 1,582
Additions 106 203
- of which loan notes with nil value (8) (48)
Disposals and repayments (167) (216)
Fair value movement 1 236
Other movements and net cash movements (148) (86)
Closing book value 1,455 1,671
Quoted investments 319 399
Unquoted investments 1,136 1,272
Closing book value 1,455 1,671
The holding period of 3i's investment portfolio is on average
greater than one year. For this reason the portfolio is classified
as non-current. It is not possible to identify with certainty
investments that will be sold within one year.
Additions include GBP18 million (31 March 2015: GBP69 million)
in capitalised interest received by way of loan notes, of which
GBP8 million (31 March 2015: GBP48 million) has been written down
in the period to nil.
Included within the statement of comprehensive income is GBP13
million (31 March 2015: GBP38 million) of interest income, which
reflects the net additions after write downs noted above, GBP3
million (31 March 2015: GBP14 million) of cash income and the
capitalisation of prior year accrued income and non-capitalised
accrued income nil (31 March 2015: GBP3 million).
Other movements include the transfer of assets to Investment
entity subsidiaries, foreign exchange and conversions from one
instrument into another.
7 Investments in investment entities
The basis for measuring the fair value of the investments in
investment entities is explained on page 102 of the Annual report
and accounts 2015.
6 months to Year to
30 September 2015 31 March 2015
Non-current GBPm GBPm
Opening book value 2,079 1,909
Net cash flow to/(from) Investment entity subsidiaries 24 (272)
Fair value movement on Investment entity subsidiaries 207 530
Transfer of assets to/(from) Investment entity subsidiaries 107 (88)
Closing book value 2,417 2,079
All investment entities are classified as Level 3 in the fair
value hierarchy, see Note 8 for details.
Restrictions
3i Group plc, the ultimate parent company, receives dividend
income from its subsidiaries.
Support
3i Group plc provides ongoing support to its Investment entity
subsidiaries for the purchase of portfolio investments.
The Group has no contractual commitments or current intentions
to provide any financial or other support to its unconsolidated
subsidiaries.
8 Fair values of assets and liabilities
This section should be read in conjunction with Note 12 on pages
103 to 105 of the Annual report and accounts 2015 which provide
more detail about accounting policies adopted, the definitions of
the three levels of fair value hierarchy, valuation methods used in
calculating fair value, and the valuation framework which governs
oversight of valuations. There have been no changes in the
accounting policies adopted or the valuation methodologies
used.
Valuation
The Group classifies financial instruments measured at fair
value in the investment portfolio according to the following
hierarchy:
Level Fair value input description Financial instruments
Level 1 Quoted prices (unadjusted) from active markets Quoted equity instruments
Level 2 Inputs other than quoted prices included in Level 1 that No Level 2 financial instruments
are observable either directly (ie
as prices) or indirectly
(ie derived from prices)
Level 3 Inputs that are not based on observable market data Unquoted equity instruments and loan instruments
The table below shows the classification of financial
instruments held at fair value into the valuation hierarchy at 30
September 2015:
As at 30 September 2015 As at 31 March 2015
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Quoted investments 319 - - 319 399 - - 399
Unquoted investments - - 1,136 1,136 - - 1,272 1,272
Investment in investment entities - - 2,417 2,417 - - 2,079 2,079
Total 319 - 3,553 3,872 399 - 3,351 3,750
This disclosure only relates to the investment portfolio and the
investments in our investment entities. Investments in investment
entities are fair valued at the entity's net asset value with the
significant part being attributable to the underlying portfolio.
The underlying portfolio is valued under the same methodology as
directly held investments with any other assets or liabilities
within investment entities fair valued in accordance with the
Group's accounting policies.
The fair value hierarchy also applies to loans and borrowings,
see Note 9 for details.
Level 3 fair value reconciliation
Six months to Year to
30 September 31 March
2015 2015
GBPm GBPm
Opening book value 1,272 1,324
Additions 106 201
- of which loan notes with nil value (8) (48)
Disposals, repayments and write-offs (138) (136)
Fair value movement (14) 117
Transfer of equity Level 3 to Level 1 - (112)
Other movements(1) (82) (74)
Closing book value 1,136 1,272
1 Other includes transfer of assets to Investment entity subsidiaries.
Unquoted investments valued using Level 3 inputs also had the
following impact on the statement of comprehensive income; realised
profits over value on disposal of investment of GBP10 million
(September 2014: GBP6 million), dividend income of GBP24 million
(September 2014: GBP9 million) and foreign exchange impact of nil
(September 2014: GBP38 million loss).
Level 3 inputs are sensitive to assumptions made when
ascertaining fair value as described in the Portfolio valuation -
an explanation section. There are a number of non-observable inputs
and a change in one or more of the underlying assumptions could
result in a significant change in fair value.
Valuation multiple - The valuation multiple is the main
assumption applied to a multiple of earnings based valuation. The
multiple is derived from comparable listed companies or relevant
market transaction multiples. Companies in the same industry and
geography and, where possible, with a similar business model and
profile are selected and then adjusted for factors including
liquidity risk, growth potential and relative performance. They are
also adjusted to represent our longer term view of performance
through the cycle or our exit assumptions. The value weighted
average multiple used when valuing the portfolio at 30 September
2015 was 9.6x (31 March 2015: 9.7x).
If the multiple used to value each unquoted investment valued on
an earnings multiple basis as at 30 September 2015 decreased by 5%,
the investment portfolio would decrease by GBP27 million (31 March
2015: GBP35 million) or 2% (31 March 2015: 2%). If the same
sensitivity was applied to the underlying portfolio held by
Investment entities, this would have a negative impact of GBP136
million (31 March 2015: GBP121 million) or 5% (31 March 2015:
5%).
If the multiple increased by 5% then the investment portfolio
would increase by GBP25 million (31 March 2015: GBP33 million) or
2% (31 March 2015: 2%). If the same sensitivity was applied to the
underlying portfolio held by Investment entities, this would have a
positive impact of GBP135 million (31 March 2015: GBP122 million)
or 5% (31 March 2015: 6%).
Alternative valuation methodologies - There are a number of
alternative investment valuation methodologies used by the Group,
for reasons specific to individual assets. The details of such
valuation methodologies, and the inputs that are used, are given in
the Portfolio valuation - an explanation section. Each methodology
is used for a proportion of assets by value, and at 30 September
2015 the following techniques were used: 23% DCF, nil% imminent
sale, 11% industry metric, 20% broker quotes and 5% other. If the
value of all of the investments under this methodology moved by 5%,
this would have an impact on the investment portfolio of GBP34
million (31 March 2015: GBP35 million) or 2% (31 March 2015: 2%).
If the same sensitivity was applied to the underlying portfolio
held by Investment entities, this would have an impact of GBP14
million (31 March 2015: GBP6 million) or 1% (31 March 2015:
0.3%).
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9 Loans and borrowings
The basis for measuring the loans and borrowings is explained on
page 108 of the Annual report and accounts 2015.
30 September 31 March
2015 2015
GBPm GBPm
Loans and borrowings are repayable as follows:
Within one year - -
In the second year 244 240
In the third year - -
In the fourth year - -
In the fifth year - -
After five years 575 575
819 815
Principal borrowings include:
30 September 31 March
2015 2015
Rate Maturity GBPm GBPm
Issued under the GBP2,000 million note issuance programme
Fixed rate
GBP200 million notes (public issue) 6.875% 2023 200 200
GBP400 million notes (public issue) 5.750% 2032 375 375
EUR350 million notes (public issue) 5.625% 2017 244 240
819 815
Committed multi-currency facilities
GBP350 million LIBOR+0.60% 2020 - -
- -
Total loans and borrowings 819 815
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 GBP953 million (31
March 2015: GBP997 million), determined with reference to their
published market prices which are classified as Level 1 in the fair
value hierarchy as described in Note 8.
10 Contingent liabilities
30 September 31 March
2015 2015
GBPm GBPm
Contingent liabilities relating to guarantees in respect of investee companies - 14
The Company has provided a guarantee to the Trustees of the 3i
Group Pension Plan in respect of liabilities of 3i plc to the Plan.
3i plc is the sponsor of the 3i Group Pension Plan. On 4 April 2012
the Company transferred eligible assets (GBP150 million of ordinary
shares in 3i Infrastructure plc as defined by the agreement) to a
wholly owned subsidiary of the Group. The Company will retain all
income and capital rights in relation to the 3i Infrastructure plc
shares, as eligible assets, unless the Company becomes insolvent or
fails to comply with material obligations in relation to the
agreement with the Trustees, all of which are under its control.
The fair value of eligible assets at 30 September 2015 was GBP181
million (31 March 2015: GBP193 million).
3i has entered into warehouse arrangements in Europe to support
the creation of senior secured debt portfolios ahead of future CLO
fund launches. Whilst in the warehouse phase, 3i is subject to
optional margin calls in the event of market falls. The current
capital at risk is restricted to GBP26 million at 30 September 2015
(31 March 2015: GBP15 million).
At 30 September 2015, there was no material litigation
outstanding against the Company or any of its subsidiary
undertakings.
11 Related parties
All related party transactions that took place in the half year
to 30 September 2015 are consistent with the disclosures in Note 29
on pages 122 - 125 of the Annual report and accounts 2015. Related
party transactions which have taken place in the period and have
materially affected performance or the financial position of the
Group and any material changes in related party transactions
described in the Annual report and accounts 2015 that could
materially affect the performance or the financial position of the
Group are detailed below.
Limited partnerships
The Group manages a number of external funds which invest
through limited partnerships. Group companies act as the general
partners of these limited partnerships and exert significant
influence over them. The following amounts have been included in
respect of these limited partnerships:
Statement of comprehensive income Six months to Six months to
30 September 30 September
2015 2014
(restated)
GBPm GBPm
Carried interest receivable (15) 7
Fees receivable from external funds 14 17
Statement of financial position 30 September 31 March
2015 2015
GBPm GBPm
Carried interest receivable 16 33
Investments
The Group makes investments in the equity of unquoted and quoted
investments where it does not have control. This normally allows
the Group 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:
Statement of comprehensive income Six months to Six months to
30 September 30 September
2015 2014
(restated)
GBPm GBPm
Realised profit over value on the disposal of investments 3 3
Unrealised (losses)/profits on the revaluation of investments (39) 7
Portfolio income 17 13
Statement of financial position 30 September 31 March
2015 2015
GBPm GBPm
Unquoted investments 473 560
From time to time, transactions occur between related parties
within the investment portfolio that the Group influences to
facilitate the reorganisation or recapitalisation of an investee
company. These transactions are made on an arm's length basis.
Advisory arrangements
The Group acts as an adviser to 3i Infrastructure plc, which is
listed on the London Stock Exchange. The following amounts have
been included in respect of this advisory relationship:
Statement of comprehensive income Six months to Six months to
30 September 30 September
2015 2014
(restated)
GBPm GBPm
Realised profits over value on the disposal of investments 2 -
Unrealised profits on the revaluation of investments 11 10
Dividends 6 6
Fees receivable from external funds 6 5
Performance fees - 8
Statement of financial position 30 September 31 March
2015 2015
GBPm GBPm
Quoted equity investments 269 288
Performance fees - 45
12 Restatement of prior period information
As explained in the significant accounting policies note on page
90 of the Annual report and accounts 2015, the Group had restated
comparative information for the year ending 31 March 2014,
following the early adoption of changes provided in the narrow
scope amendment to IFRS 10. Similarly, the Condensed consolidated
statement of comprehensive income and the Condensed consolidated
cash flow statement, for the six months ending 30 September 2014
have been restated. The change has no effect on total return or net
asset value as reported in the Group's prior year Half-yearly
report.
The impact of this restatement on a line by line basis is
presented below:
Impact on Condensed consolidated statement of comprehensive
income for the six months ended
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30 September 2014
As originally Effect of Restated
reported restatement presentation
GBPm GBPm GBPm
Unrealised profits on the revaluation of investments 108 (4) 104
Fair value movements on Investment entity subsidiaries 218 1 219
Income from loans and receivables 16 2 18
Foreign exchange on investments (28) (3) (31)
Fees receivable from external funds 28 14 42
Operating expenses (56) (7) (63)
Income from fair value subsidiaries 13 (3) 10
Carried interest and performance fees receivable 14 5 19
Carried interest and performance fees payable (21) (1) (22)
Acquisition related earn-out charges (1) (4) (5)
Income taxes (1) (2) (3)
Exchange differences on translation of foreign operations (15) 2 (13)
Other income statement items (41) - (41)
Total comprehensive income for the year 234 - 234
Impact on Condensed consolidated cash flow statement for the six
months ended 30 September 2014
As originally Effect of Restated
reported restatement presentation
GBPm GBPm GBPm
Cash flow from operating activities
Purchase of investments (82) (22) (104)
Net cash flow from Investment entity subsidiaries 128 16 144
Portfolio interest received 8 3 11
Portfolio dividends received 14 1 15
Fees received from external funds 24 13 37
Carried interest and performance fees received 2 2 4
Carried interest and performance fees paid (10) (1) (11)
Acquisition related earn-out charges paid - (10) (10)
Operating expenses (61) (2) (63)
Income taxes paid (2) (1) (3)
Other cash flows (33) - (33)
Change in cash and cash equivalents (12) (1) (13)
Opening cash and cash equivalents 643 31 674
Effect of exchange rate fluctuations (2) - (2)
Closing cash and cash equivalents 629 30 659
Independent review report to 3i Group plc
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the Half-yearly report for the six
months ended 30 September 2015 which comprises the Condensed
consolidated statement of comprehensive income, the Condensed
consolidated statement of financial position, the Condensed
consolidated statement of changes in equity, the Condensed
consolidated cash flow statement, and the related notes 1 to 12. We
have read the other information contained in the Half-yearly report
and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The Half-yearly report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the Half-yearly report in accordance with the Disclosure
and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
As disclosed in the Basis of preparation and accounting
policies, the annual financial statements of the Group are prepared
in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this Half-yearly
report has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting", as adopted
by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the Half-yearly report
based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the Half-yearly report for the six months ended 30 September
2015 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
11 November 2015
Statement of Directors' responsibilities
The Directors, who are required to prepare the financial
statements on a going concern basis unless it is not appropriate,
are satisfied that the Group has the resources to continue in
business for the foreseeable future. In making this assessment, the
Directors have considered information relating to present and
future conditions, including future projections of profitability
and cash flows.
The Directors confirm that to the best of their knowledge:
a) the condensed set of financial statements has been prepared
in accordance with IAS 34 "Interim Financial Reporting" as adopted
by the EU;
b) the Interim Report includes a fair review of the information
required by:
i) DTR 4.2.7R of the Disclosure Rules and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year ending 31 March 2016 and
their impact on the condensed set of financial statements; and
a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
ii) DTR 4.2.8R of the Disclosure Rules and Transparency Rules, being
(i) related party transactions that have taken place in the first
six months of the financial year ending 31 March 2016 which have
materially affected the financial position or performance of
3i Group during that period; and (ii) any changes in the related
parties transactions described in the Annual report and accounts
2015 that could materially affect the financial position or performance
of 3i Group during the first six months of the financial year
ending 31 March 2016
The Directors of 3i Group plc and their functions are listed
below.
The report is authorised for issue by order of the Board.
K J Dunn, Secretary
11 November 2015
BOARD OF DIRECTORS
Simon Thompson, Chairman
Simon Borrows, Chief Executive and Executive Director
Julia Wilson, Group Finance Director and Executive Director
Jonathan Asquith, Non-executive Director
Caroline Banszky, Non-executive Director
Peter Grosch, Non-executive Director
David Hutchison, Non-executive Director
Martine Verluyten, Non-executive Director
PORTFOLIO AND OTHER INFORMATION
Portfolio valuation - an explanation
POLICY
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The valuation policy is the responsibility of the Board, with
additional oversight and annual review from the Valuations
Committee. Our policy is to value 3i's investment portfolio at fair
value and we achieve this by valuing investments on an appropriate
basis, applying a consistent approach across the portfolio. The
policy ensures that the portfolio valuation is compliant with the
fair value guidelines under IFRS and, in so doing, is also
compliant with the guidelines issued by the International Private
Equity and Venture Capital valuation board (the "IPEV guidelines").
The policy covers the Group's Private Equity, Infrastructure and
Debt Management investment valuations. Valuations of the investment
portfolio of the Group and its subsidiaries are performed at each
quarter end.
Fair value is the underlying principle and is defined as "the
price that would be received to sell an asset in an orderly
transaction between market participants at the measurement date"
(IPEV guidelines, December 2012). Fair value is therefore an
estimate and, as such, determining fair value requires the use of
judgement.
The quoted assets in our portfolio are valued at their closing
bid price at the balance sheet date. The majority of the portfolio,
however, is represented by unquoted investments.
PRIVATE EQUITY UNQUOTED VALUATION
To arrive at the fair value of the Group's unquoted Private
Equity investments, we first estimate the entire value of the
company we have invested in - the enterprise value. We then
apportion that enterprise value between 3i, other shareholders and
lenders.
Determining enterprise value
This enterprise value is determined using one of a selection of
methodologies depending on the nature, facts and circumstances of
the investment.
Where possible, we use methodologies which draw heavily on
observable market prices, whether listed equity markets or reported
merger and acquisition transactions, and trading updates from our
portfolio.
As unquoted investments are not traded on an active market, the
Group adjusts the estimated enterprise value by a liquidity
discount. The liquidity discount is applied to the total enterprise
value and we apply a higher discount for investments where there
are material restrictions on our ability to sell at a time of our
choosing.
The table in Portfolio valuation - an explanation outlines in
more detail the range of valuation methodologies available to us,
as well as the inputs and adjustments necessary for each.
Apportioning the enterprise value between 3i, other shareholders
and lenders
Once we have estimated the enterprise value, the following steps
are taken:
1. We subtract the value of any claims, net of free cash
balances, that are more senior to the most senior of our
investments.
2. The resulting attributable enterprise value is apportioned to
the Group's investment, and equal ranking investments by other
parties, according to contractual terms and conditions, to arrive
at a fair value of the entirety of the investment. The value is
then distributed amongst the different loan, equity and other
financial instruments accordingly.
3. If the value attributed to a specific shareholder loan
investment in a company is less than its par or nominal value, a
shortfall is implied, which is recognised in our valuation. In
exceptional cases, we may judge that the shortfall is temporary; to
recognise the shortfall in such a scenario would lead to
unrepresentative volatility and hence we may choose not to
recognise the shortfall.
Other factors
In applying this framework, there are additional considerations
that are factored into the valuation of some assets.
Impacts from structuring
Structural rights are instruments convertible into equity or
cash at specific points in time or linked to specific events. For
example, where a majority shareholder chooses to sell, and we have
a minority interest, we may have the right to a minimum return on
our investment.
Debt instruments, in particular, may have structural rights. In
the valuation, it is assumed that third parties, such as lenders or
holders of convertible instruments, fully exercise any structural
rights they might have if they are "in the money", and that the
value to the Group may therefore be reduced by such rights held by
third parties. The Group's own structural rights are valued on the
basis they are exercisable on the reporting date.
Assets classified as "terminal"
If we believe an investment has more than a 50% probability of
failing in the 12 months following the valuation date, we value the
investment on the basis of its expected recoverable amount in the
event of failure. It is important to distinguish between our
investment failing and the business failing; the failure of our
investment does not always mean that the business has failed, just
that our recoverable value has dropped significantly. This would
generally result in the equity and loan components of our
investment being valued at nil. Value movements in the period
relating to investments classified as terminal are classified as
provisions in our value movement analysis.
INFRASTRUCTURE UNQUOTED VALUATION
The primary valuation methodology used for infrastructure
investments is the discounted cash flow method ("DCF"). Fair value
is estimated by deriving the present value of the investment using
reasonable assumptions of expected future cash flows and the
terminal value and date, and the appropriate risk-adjusted discount
rate that quantifies the risk inherent to the investment. The
discount rate is estimated with reference to the market risk-free
rate, a risk adjusted premium and information specific to the
investment or market sector.
DEBT MANAGEMENT VALUATION
The Group's Debt Management business line typically invests in
traded debt instruments and the subordinated notes that it is
required to hold in the debt funds which it manages. The traded
debt instruments and the subordinated notes are valued using a
range of data including broker quotes (if available), 3i internal
forecasts and discounted cash flow models, trading data (where
available), and data from third-party valuation providers. Broker
quotes and trading data for more liquid holdings are preferred.
% of
portfolio
valued
on this
Methodology Business line Description Inputs Adjustments basis
Earnings multiples
are applied to the
earnings of the
company to
determine the
enterprise
value
Earnings
Reported earnings
adjusted for
non-recurring
items, such as
restructuring
expenses, for
significant
corporate actions
and, in exceptional
cases, run-rate
adjustments to
arrive at
maintainable
earnings
Most common measure
is earnings before
interest, tax,
depreciation and
amortisation
("EBITDA")
Earnings used are
usually the
management accounts
for the 12 months
to the quarter end
preceding
the reporting
period, unless data
from forecasts or
the latest audited
accounts provides a
more reliable
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picture of
maintainable
earnings
Earnings multiples
The earnings
multiple is derived
from comparable
listed companies or
relevant market
transaction
multiples
We select companies
in the same
industry and, where
possible, with a
similar business
model
and profile in
Most commonly used terms of size,
Private Equity products, services
valuation and customers,
methodology growth rates and A marketability or
geographic liquidity discount
Used for investments focus is applied to the
which are profitable enterprise value,
and for which we can We adjust for typically between
determine a set of relative 5% and 15%, using
listed companies performance in the factors such as our
and precedent set of comparables, alignment with
transactions, where exit expectations management and other
relevant, with and other investors and our
similar company specific investment rights in
Earnings Private Equity characteristics factors the deal structure 59%
Infrastructure, Used for investments Closing bid price at No adjustments
Quoted Private Equity in listed companies balance sheet date or discounts applied 17%
We create a set of
comparable listed
companies and
derive the implied
values of the
relevant
metric
We track and adjust
this metric for
relative
performance, as is
Used for investments the case of
in industries which earnings multiples
have well defined
metrics as bases for Comparable
valuation companies are
- eg book value for selected using the An appropriate
insurance same criteria as discount is applied,
underwriters, or described for the depending on the
Specific industry regulated asset earnings valuation metric
metrics Private Equity bases for utilities methodology used 3%
Used where an asset Contracted proceeds A discount of
is in a sales for the typically 2.5% is
process, a price has transaction, or applied to reflect
been agreed but the best estimate of any uncertain
Infrastructure, transaction has the expected adjustments to
Imminent sale Private Equity not yet settled proceeds expected proceeds 0%
Typically no further
discount applied in
Net asset value addition to that
Infrastructure, Used for investments reported by the applied by the fund
Fund Private Equity in unlisted funds fund manager manager 0%
Long-term cash flows
are discounted at a
rate which is
benchmarked against
market data, where
possible, or Discount already
Appropriate for adjusted from the implicit in the
businesses with rate at the initial discount rate
long-term stable investment based on applied to long-term
cash flows, changes in the risk cash flows - no
Discounted cash flow Infrastructure, typically in profile of the further
("DCF") Private Equity infrastructure investment discounts applied 8%
Broker quotes
obtained from banks
which trade the
specific
instruments
concerned,
benchmarked
to a range of other
data such as DCF,
trade data and
other quotes.
Occasionally DCF,
trade
or other data may
be used if
available broker
quotes are not
considered to be
Used to value traded representative No discount is
Broker quotes Debt Management debt instruments of fair value applied 6%
Values of separate
Used where elements elements prepared
of a business are on one of the Discounts applied to
valued on different methodologies separate elements as
Other Private Equity bases listed above above 7%
Equity shares are valued at the higher of an earnings or net
assets methodology. Fixed income shares and loan investments are
measured using amortised cost and any implied impairment, in line
with IFRS.
Consistent with IPEV guidelines, all equity investments are held
at fair value using the most appropriate methodology and no
investments are held at historical cost.
Twenty five large investments
The 25 investments listed below account for 81% of the portfolio
at 30 September 2015 (31 March 2015: 81%). This does not include
the one investment that has been excluded for commercial
reasons.
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In accordance with Section 29 of the Alternative Investment Fund
Manager Directive ("AIFMD"), 3i Investments plc, as Alternative
Investment Fund Manager ("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 September March September
Investment First invested in 2015 2015 2015 2015 Relevant
transactions
Description of business Valuation basis GBPm GBPm GBPm GBPm in the period
Action Private Equity
Non-food discount
retailer Benelux 2 1 592 712
2011
Earnings
3i Infrastructure plc Infrastructure
Quoted investment UK 302 270 481 450 GBP51m special
company, investing in 2007 dividend following
infrastructure the sale of
Quoted Eversholt Rail
Scandlines Private Equity
Ferry operator between GBP46m of proceeds
Denmark Denmark/ 114 114 262 257 and
and Germany Germany income, net of
2007 transaction fees,
DCF following sale of
route between
Helsingor and
Helsingborg
Amor/Christ Private Equity
Distributor and
retailer of Germany 129 129 165 174
jewellery 2010/2014
Earnings
Weener Plastic Private Equity
Supplier of plastic
packaging Germany - 145 - 149 New investment
solutions 2015
Price of recent
investment
Mayborn Private Equity
Manufacturer and
distributor UK 129 140 133 137
of baby products 2006
Earnings
ACR Private Equity
Pan-Asian non life
reinsurance Singapore 105 105 120 120
2006
Industry metric
Basic-Fit Private Equity
Discount gyms operator Benelux 91 95 102 119
2013
Earnings
Q Holding Private Equity
Precision engineered US 100 100 109 117
elastomeric components 2014
manufacturer Earnings
GIF Private Equity
International Further investment
transmission Germany 68 81 78 106 of
testing specialist 2013 GBP11m
Earnings
Quintiles Private Equity
Clinical research Sold 36% and
outsourcing US 41 26 144 93 generated
solutions 2008 proceeds of GBP53m
Quoted
AES Engineering Private Equity
Manufacturer of
mechanical UK 30 30 102 85
seals and support 1996
systems
Earnings
Mémora Private Equity
Funeral service
provider Spain 159 159 61 80
2008
Earnings
Tato Private Equity
Manufacture and sale
of UK 2 2 80 72
speciality chemicals 1989
Earnings
Geka Private Equity
Manufacturer of
brushes, Germany 69 69 53 63
applicators and 2012
packaging
systems for the Earnings
cosmetics industry
Aspen Pumps Private Equity
Manufacturer of pumps
and UK 65 64 64 62
accessories for the 2015
air conditioning, Earnings
heating and
refrigeration industry
Dynatect Private Equity
Manufacturer of
engineered, US 65 65 71 61
mission critical 2014
protective
equipment Earnings
Euro-Diesel Private Equity
Manufacturer of
uninterruptible Benelux - 52 - 52 New investment
power supply systems 2015
Price of recent
investment
Agent Provocateur Private Equity
Women's lingerie and
associated UK 53 53 53 51
products 2007
Earnings
MKM Private Equity
Building materials
supplier UK 22 22 43 51
2006
Earnings
Eltel Networks Private Equity
Infrastructure
services for Sweden 13 13 47 51
electricity and 2007
telecoms networks
Quoted
OneMed Group Private Equity
Distributor of
consumable Sweden 117 122 47 49
medical products, 2011
devices and technology Earnings
Global Income Fund Debt Management
Debt Management open Europe/North - 48 - 49 New investment,
ended fund with America launched in the first
exposure to North half
American and western 2015
European issuers Broker quotes
Refresco Gerber Private Equity
European bottler of
soft drinks Benelux 30 29 47 47
and fruit juices for 2010
retailers and
branded customers Quoted
JMJ Private Equity
Global Management US 42 42 53 44
Consultancy 2013
Earnings
1 Residual cost includes capitalised interest.
Glossary
Alternative Investment Funds ("AIFs") At 30 September 2015, 3i
Investments plc as AIFM, managed five AIFs. These were 3i Group
plc, 3i Growth Capital Fund, 3i Eurofund V, the European Middle
Market Loan Fund and 3i Debt Management Global Income Fund.
Alternative Investment Fund Managers Directive ("AIFMD") became
effective from July 2013. As a result, at 31 March 2015, 3i
Investments plc is authorised 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.
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.
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 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.
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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. Carry is only actually paid or received when
the relevant performance hurdles are met, and the accrual is
discounted to reflect expected payment periods.
Carry receivable is generated on third-party capital over the
life of the relevant fund when relevant performance criteria are
met.
We pay carry to our investment teams on proprietary capital
invested and share a proportion of carry receivable from
third-party funds. This total carry payable is provided through
schemes which have been structured typically over two/three year
vintages to maximise flexibility in resource planning.
Collateralised Loan Obligation ("CLO") is a form of
securitisation where payments from multiple loans are pooled
together and passed on to different classes of owners in various
tranches.
Company 3i Group plc.
Discounting The reduction in present value at a given date of a
future cash transaction at an assumed rate, using a discount factor
reflecting the time value of money.
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, tax,
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") 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 exchange on investments arises on investments made in
currencies that are different from the functional currency of the
Group. 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") 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") 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 Interim Management
Report refers to this basis as we believe it provides a more
understandable view of our performance.
Key Performance Indicators ("KPI") This is a measure by
reference to which the development, performance or position of the
Group can be measured effectively.
Money multiple Calculated as the cumulative distributions plus
any residual value divided by paid-in capital.
Net asset value ("NAV") 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 accrued 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 3i capital which is available to
invest.
Proprietary Capital operating profit The 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") A 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 intra-segment 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") This 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 the key driver of our private equity portfolio performance.
Information for shareholders
ANNUAL REPORTS ONLINE
If you would prefer to receive shareholder communications
electronically in future, including annual reports and notices of
meetings, please visit our Registrars' website at
www.shareview.co.uk/clients/3isignup and follow the instructions
there to register.
More general information on electronic communications is
available on our website at
www.3i.com/investor-relations/shareholder-information
REGISTRARS
For shareholder administration enquiries, including changes of
address, please contact:
Equiniti
Aspect House,
Spencer Road,
Lancing,
West Sussex BN99 6DA, UK
Telephone 0371 384 2031
Lines are open from 8.30am to 5.30pm, Monday to Friday.
(International callers +44 121 415 7183)
3i GROUP PLC
Registered office:
16 Palace Street,
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