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.

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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

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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).

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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 

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        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

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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 
-------------------------  ----------  ------------  --------------  ----------  ------------  ----------  ----------- 
 
 

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 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

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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 

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 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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  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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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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  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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  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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 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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