TIDMIII
RNS Number : 4818F
3i Group PLC
18 May 2017
18 May 2017
3i Group plc announces full year results
to 31 March 2017
An excellent year
-- Total return of GBP1,592m or 36% and NAV per share of 604 pence (31 March 2016: 463 pence)
-- Very strong Private Equity gross investment return of
GBP1,624m or 43%, driven by Action, Scandlines, and more recent
investments, such as ATESTEO. The gross investment return from our
investments completed between 2013 and 2016 was 29%
-- Disposals and refinancings in Private Equity generated GBP982m of proceeds
-- GBP409m invested in three new portfolio companies, BoConcept,
Ponroy Santé and Schlemmer as well as a further investment of
GBP62m in Q Holding to support its acquisition of Degania
-- Good progress in Infrastructure; advised 3i Infrastructure
plc ("3iN") on GBP479m of investment in six companies and announced
the launch of three Infrastructure fund platforms to complement our
mandate as investment adviser to 3iN
-- A 16% total shareholder return from 3iN
-- Successful sale of our Debt Management business to Investcorp for GBP270m
-- Proposed final dividend of 18.5 pence per share, bringing the
total dividend for FY2017 to 26.5 pence per share, subject to
shareholder approval
Simon Borrows, 3i's Chief Executive, commented:
"FY2017 was another important year for 3i. Our Private Equity
and Infrastructure businesses performed well and we simplified the
Group by selling our Debt Management platform. Our efforts over the
last few years in reshaping the portfolio mean we are now able to
focus on active asset management and origination. We have made a
good start to FY2018 with c.EUR500m of new investments signed and
strong value growth potential in our current portfolio."
Financial highlights
Year to/as at Year to/as at
31 March 31 March
2017 2016
--------------------------------------------------------- -------------- --------------
Group
Total return including discontinued operations GBP1,592m GBP824m
Total return(1) GBP1,501m GBP797m
Operating expenses including discontinued operations GBP130m GBP134m
Operating expenses(1) GBP117m GBP107m
Operating cash profit including discontinued operations GBP33m GBP37m
Operating cash profit/(loss)(1) GBP5m GBP(9)m
========================================================= ============== ==============
Realisation proceeds GBP1,005m GBP794m
- Uplift over opening book value(2) GBP38m/5% GBP70m/13%
- Money multiple(3) 3.7x 2.4x
Proceeds from the sale of Debt Management GBP270m nil
Gross investment return GBP1,755m GBP1,051m
- As a percentage of opening 3i portfolio value 40% 28%
Cash investment GBP638m GBP433m
3i portfolio value GBP5,675m GBP4,497m
Gross debt GBP575m GBP837m
Net cash GBP419m GBP165m
Gearing(4) nil nil
Liquidity GBP1,323m GBP1,352m
Net asset value GBP5,836m GBP4,455m
Diluted net asset value per ordinary share 604p 463p
1 The sale of our Debt Management business completed on 3 March 2017. The FY2017 total return
attributed to the business sold to Investcorp has been classified as discontinued operations
and the prior period results have been represented. Unless stated, all balances are on continuing
operations.
2 Uplift over opening book value excludes refinancings.
3 The money multiple is calculated as cash proceeds over cash investment. As the total calculation
includes the proceeds from partial disposals and refinancings, the valuations of the remaining
investments are included in the multiple.
4 Gearing is net debt as a percentage of net assets.
For further information, please contact:
Silvia Santoro Tel: 020 7975 3258
Investor Relations Director
Kathryn Van Der Kroft Tel: 020 7975 3021
Communications Director
For further information regarding the announcement of 3i's
annual results to 31 March 2017, including a live videocast of the
results presentation at 10.00am, please visit www.3i.com.
Notes to editors
3i is a leading international investment manager focused on
mid-market Private Equity and Infrastructure. Our core investment
markets are northern Europe and North America. For further
information, please visit: www.3i.com.
Notes to the announcement of the results
Note 1
All of the financial data in this announcement is taken from the
Investment basis financial statements. The statutory accounts are
prepared under IFRS for the year to 31 March 2017 and have not yet
been delivered to the Registrar of Companies. The statutory
accounts for the year to 31 March 2016 have been delivered to the
Registrar of Companies. The auditors' reports on the statutory
accounts for these years are unqualified and do not contain any
matters to which the auditor drew attention by way of emphasis or
any statements under section 498(2) or (3) of the Companies Act
2006. This announcement does not constitute statutory accounts.
Note 2
Copies of the Report and accounts 2017 will be distributed to
shareholders on or soon after 31 May 2017.
Note 3
This announcement may contain statements about the future
including certain statements about the future outlook for 3i Group
plc and its subsidiaries ("3i"). These are not guarantees of future
performance and will not be updated. Although we believe our
expectations are based on reasonable assumptions, any statements
about the future outlook may be influenced by factors that could
cause actual outcomes and results to be materially different.
Note 4
Subject to shareholder approval, the proposed final dividend is
expected to be paid on 21 July 2017 to holders of ordinary shares
on the register on 16 June 2017.
Chairman's statement
"Our clear strategy and focus on investment discipline and
effective asset management delivered strong returns in FY2017."
The Group delivered another robust performance in FY2017. The
sale of Debt Management, completed in March 2017, has simplified
and focused the Group on its two principal businesses, both of
which performed well. Private Equity delivered very strong returns,
driven by significant portfolio earnings growth. Infrastructure
continues to execute its updated strategy effectively, generating
good returns with a strong pipeline of new business.
Market environment
FY2017 was dominated by unexpected political events, including
the UK's decision to leave the EU and the result of the US
presidential election. These events created volatile conditions,
but with supportive debt markets and high volumes of capital still
seeking attractive investment opportunities in both Private Equity
and Infrastructure, the market environment remains intensely
competitive. Under these conditions, our permanent capital base,
strong balance sheet and long-established business networks in our
target sectors and geographies represent a distinct competitive
advantage. They enable the Group to be agile and opportunistic
while remaining focused on investment discipline and effective
asset management.
Performance and dividend
The Group's total return increased by 93% to GBP1,592 million
(2016: GBP824 million). Net asset value increased to 604 pence per
share (31 March 2016: 463 pence) and our return on opening
shareholders' funds was 36% (2016: 22%). A strong market for
realisations meant that we were, as anticipated, net divestors
during FY2017. We repaid our EUR331 million bond in March 2017 and
ended the year with a net cash balance of GBP419 million and
liquidity of GBP1,323 million (31 March 2016: net cash of GBP165
million and liquidity of GBP1,352 million).
In recognition of the strong level of cash realisations
(including the proceeds from the sale of our Debt Management
business) and taking into account the strength of the investment
pipeline, the Board has recommended a final dividend of 18.5 pence
per share (2016: 16 pence per share) for FY2017. This is made up of
the balance of the base dividend (8 pence per share, after the 8
pence interim dividend paid in January 2017) and an additional
final dividend of 10.5 pence per share. The total dividend for the
year of 26.5 pence per share reflects the Board's continuing
confidence in the Group's future prospects and cash generation
capability.
Board changes
I am pleased to welcome Stephen Daintith, Chief Financial
Officer of Rolls-Royce Holdings, who joined the Board on 1 October
2016. Stephen brings financial, operating and international
experience across a range of relevant sectors, including consumer
and digital, and has already made a strong contribution to the
Board and its committees.
Martine Verluyten has decided not to seek re-election at the
Annual General Meeting on 29 June 2017. I would like to thank
Martine for her valuable contribution since 2012 during a period of
significant transformation for the Group.
Outlook
We enter FY2018 with a capable and experienced team of
investors, a strong balance sheet, a high performing portfolio of
assets, a good pipeline of new investment opportunities and a
broadened platform in Infrastructure with good growth prospects. I
am confident that the Group will remain opportunistic but
disciplined as we navigate what promises to be another year of
significant uncertainty.
Simon Thompson
Chairman
Chief Executive's review
"FY2017 was another important year for 3i. Our Private Equity
and Infrastructure businesses performed well and we simplified the
group by selling our Debt Management platform. Our efforts over the
last few years in reshaping the portfolio mean we are now able to
focus on active asset management and origination."
We continued to make very strong progress at 3i in FY2017. Our
financial results were excellent and underpinned by strong
fundamentals.
Our Private Equity investment portfolio has undergone a major
transformation over the last five years as we have sold many of the
weaker, legacy assets and made new investments in good quality
companies at attractive prices. Our Infrastructure team has also
been busy and assembled a sizeable economic infrastructure
portfolio for 3i Infrastructure plc ("3iN"), as well as pursuing a
number of new initiatives to broaden our investment capability.
We sold our Debt Management business for GBP270 million during
the year, as we were not confident that this business would meet
our return requirements and justify its relative complexity in a
more onerous regulatory environment in the future.
A measure of the success of these changes can be seen in this
year's financial results; 3i generated a total return on
shareholders' funds of GBP1,592 million, or 36% (2016: GBP824
million, or 22%), ending the year with a NAV per share of 604 pence
(31 March 2016: 463 pence). Our results include the benefit of
currency movements; 71% of the Group's assets are denominated in
euros or US dollars and we generated a GBP297 million gain (2016:
GBP143 million gain) from the weakness of sterling in the year.
Cash realisations, including the proceeds from the sale of Debt
Management, were strong at GBP1,308 million and we saw a good step
forward in cash investment to GBP638 million. We finished the year
with net cash of GBP419 million (31 March 2016: GBP165 million) and
have announced a further good lift in the pay out to
shareholders.
A high quality Private Equity investment portfolio
Our plan with new Private Equity investments is simple, but the
execution is not and requires diligence, discipline and good
judgement. We aim to double the earnings of new investments under
our ownership through operational improvements, international
growth and careful M&A strategies. This year, 93% of our
portfolio companies by value grew their earnings (2016: 84%).
Action was the strongest performer again; it is a very special
company and a low price, consumer champion. As a fast growth,
disruptive retailer, Action has been transformed by the successful
execution of its international expansion strategy. Store openings
increased from 52 in 2012 to 197 in 2016 and Action now has more
than 890 stores and annual sales in excess of EUR2.6 billion. The
compound annual growth rates for sales and EBITDA since 2012 exceed
30%, like for like growth rates are 6%-7% per annum and cash flow
is strong. This sector-leading performance under our ownership has
already resulted in cash distributions to 3i equivalent to 4.9x our
original investment.
There is still plenty of runway for expansion at Action and
potential for further rapid value growth for 3i. Action has been
welcomed in each country it has opened in and its store opening
programme now covers six countries and more new stores are planned
in 2017 over 2016. Action is also set to open its fourth and fifth
distribution centres in 2017. Such material growth requires strong
operational capability and Action, with support from 3i, is focused
on managing the risks associated with this rapid growth by
enhancing its teams and other resources in logistics, direct
sourcing, IT and inventory control to meet the increasing demands
of the business.
But 3i is not just about Action. The portfolio we have
constructed in recent years, our 2013-16 vintage, produced a gross
investment return of 29% in FY2017, and is already a top quartile
performer, valued on a multiple of 1.7x (31 March 2016: 1.5x).
The performance of Scandlines has accelerated since our further
investment in 2013. We expect further delays to the competing Rødby
Puttgarten tunnel project, while the business continues to generate
good levels of cash flow and earnings growth. In February 2017,
Fitch assigned Scandlines an investment grade rating for the first
time.
A fundamental part of our investment strategy is to facilitate
the international expansion of our portfolio companies. Since our
investment in 2013, ATESTEO, the world's leading drivetrain testing
services provider to the automotive industry, has increased the
utilisation of its testing facilities in Germany and expanded its
Chinese footprint. As a result, its Chinese capacity has doubled
and sales have increased by more than 100%. The outlook looks
promising, with further expansion in China and North America in
progress.
Aspen Pumps, Audley Travel, Basic-Fit, Q Holding and Euro-Diesel
also performed well, with strong, organic earnings growth. However,
it is inevitable that there will be some challenges in any
broad-based Private Equity portfolio and our high street retailer,
Christ, suffered from declining footfall.
As mentioned earlier, we have refocused our model and have
largely exited the older and often minority investments that we
invested in before the strategic review in 2012. Many of these
assets have required a great deal of asset management. Some, but
not all, have been a significant drag on the value growth of our
portfolio over the last few years.
In August 2016, we became aware of accounting irregularities at
Agent Provocateur which had concealed its true financial position
and lack of liquidity. We wrote down the investment to nil and the
business was subsequently sold through an administration process,
with the proceeds being insufficient to return any value to 3i,
resulting in a total write-down in the year of GBP49 million.
In total, our Private Equity realisation activity produced
approximately GBP1 billion of cash proceeds this year (2016: GBP718
million) at good return multiples and we now own a leaner,
higher--performing portfolio of 37 assets and three quoted stakes
(2016: 47 assets and five quoted stakes).
Our permanent capital is a distinct competitive advantage. It
ensures we can be flexible and opportunistic and it is a
fundamental aspect of our differentiated strategy. It enables us to
hold assets for longer periods if we believe that there is
potential for additional value creation. This is particularly
important in an economic environment where there are limited
opportunities for attractive new investment at sensible prices.
We are well established in continental Europe and were the first
private equity firm to set up a number of offices across Europe.
Our brand and local investment teams are held in high regard in
these markets and we enjoy good visibility over the deal flow in
our chosen sectors. As the requirements of managing the older
assets have diminished, we have been able to source and complete
more new investment opportunities.
We completed new investments in BoConcept, Schlemmer and Ponroy
Santé together with a further investment in Q Holding to support
its acquisition of Degania in FY2017. A German investment,
Lampenwelt, and a Dutch investment, Hans Anders, were announced in
March 2017 and April 2017 respectively and should complete by the
end of June 2017. We also announced an investment in Formel D in
May 2017.
A year of exceptional investment activity in Infrastructure
Our Infrastructure business has achieved good growth since 3iN's
change of strategy and update to its return target, announced in
May 2015. Although the infrastructure market is very competitive,
particularly for larger economic infrastructure assets, 3iN's
revised investment strategy enabled the business to compete with
confidence for assets that fitted its current mid-market remit. We
advised 3iN on GBP479 million of new investments in total in the
year and have recruited selectively to ensure that we have the
strength and depth to manage the investment portfolio, as well as
boost origination.
To support this expansion, we maintained our 34% share of 3iN in
its June 2016 capital raise, the proceeds of which have since been
fully invested. The 3iN shares have performed strongly, generating
a total shareholder return of 16% in the year (2016: 13%).
Over the last year, we have been working on a number of new fund
platforms, one in North America and two in Europe, to broaden our
capabilities and deal flow and complement our mandate as investment
adviser to 3iN.
In Europe, we announced the launch of a new GBP700 million fund,
managed by 3i, to purchase a portfolio of assets from the EISER
Global Infrastructure fund. Post year end, 3i invested GBP35
million in this fund, alongside two pension fund investors. Our
Infrastructure business manages two funds dedicated to operational
PPP and renewables projects, one of which was coming to the end of
its investment life. In April 2017, we seeded a new fund with
substantially all of its remaining assets. 3i has committed up to
EUR40 million to this fund alongside a group of external investors
and we expect a final close later on in the year. We launched our
North American Infrastructure business in March 2017 as a natural
and key strategic extension of 3i's established European
platform.
Continuing to focus on driving performance
Following our successful disposal of Debt Management we have a
more streamlined investment capability, focused on Private Equity
and Infrastructure, and built on our proprietary capital
foundation, with a growing fund management capability in
Infrastructure. The broader macro-economic back-drop has improved
over the last year and we see generally decent GDP growth ahead in
our main markets of northern Europe and North America.
However, the market for new investment remains challenging. High
asset valuations, together with intense competition from corporate
buyers and other private equity investors, mean that maintaining
our selective and disciplined approach is essential in order to
continue to generate attractive returns.
Outlook
3i is now performing as it should, with careful investment and
active asset management generating very strong returns. The broader
environment remains volatile and challenging but we remain
confident in our ability to deliver continued, good growth for
shareholders. We have strong investment capabilities in both our
divisions and our well-established international network, together
with our proprietorial approach, give us real competitive
advantage.
We will avoid complacency and maintain our disciplined approach
to investment and the costs of our platform, as well as maintaining
our focus on the mid market where we see the most attractive
opportunities. This approach should underpin high returns for
shareholders, together with healthy cash dividends.
I would like to thank the 3i team for their hard work and
contribution to what has been an excellent year for the Group. 3i
is now a much more balanced and resilient business, with a clear
strategy and a well-funded balance sheet.
Simon Borrows
Chief Executive
Business review - Private Equity
Private Equity performed very strongly in FY2017. Although it
was a year of political change, with financial markets subject to
periods of significant volatility, our portfolio generated
excellent returns with a GIR of GBP1,624 million or 43% on the
opening portfolio (2016: GBP1,011 million, 32%). We recognised
value growth in excess of GBP1.25 billion, with strong performance
from assets such as Action and Scandlines, together with very good
progress from investments made in the more recent 2013-2016
vintage. With over 81% of the portfolio denominated in euros or US
dollars, the sharp fall in sterling that followed the UK's decision
to leave the EU resulted in a translation gain of GBP248 million
(2016: GBP168 million).
Investment activity
We completed three new investments in the year and made a
material further investment.
In July 2016, we invested DKK1,144 million (GBP132 million) in
BoConcept, an urban living brand headquartered in Denmark. This was
a public-to-private transaction where the majority of the shares
were owned by the founding family. In August 2016, we invested
EUR182 million (GBP155 million) in Schlemmer, a global leader in
cable management solutions for the automotive industry,
headquartered in Germany. In January 2017, we completed our EUR141
million (GBP122 million) investment in Ponroy Santé, a manufacturer
of natural healthcare and cosmetics products. All three companies
have strong market positions and 3i will use its experience to help
them expand internationally, maximise market opportunities and
drive operational efficiencies.
An important component of enhancing the strategic value of our
investments is our ability to enable transformative M&A in our
portfolio companies. In December 2016, we invested GBP62 million in
Q Holding to support its acquisition of Degania. This transaction
almost doubles Q Holding's medical revenues and diversifies its
product mix and geographic exposure.
The availability of capital, together with favourable debt
financing terms, continues to attract investors to the Private
Equity asset class and so our price discipline remains essential.
Our local teams have been able to find an interesting range of
investment opportunities, both for 3i and its portfolio companies,
particularly in Europe.
In addition to the GBP478 million investment in the year to 31
March 2017, we announced investments in Lampenwelt (EUR120
million), a German online lighting retailer and Hans Anders (EUR200
million), a leading optical retailer in the Benelux, in March 2017
and April 2017 respectively. Both investments should complete by
the end of June 2017. We also announced an investment in Formel D,
the leading quality services provider for the automotive industry,
in May 2017.
Table 1: Private Equity cash investment in the year to 31 March
2017
Proprietary
Total capital
investment investment
Investment Type Business description Date GBPm GBPm
==================== ======== =========================================== ============== ========== ===========
BoConcept New Urban living brand July 2016 133 132
Provider of cable management solutions for
Schlemmer New the automotive industry August 2016 156 155
Manufacturer of natural healthcare and
Ponroy Santé New cosmetics products January 2017 135 122
Manufacturer of precision engineered
Q Holding (Degania) Further elastomeric components December 2016 63 62
Agent Provocateur Further Women's lingerie and associated products Various 14 8
Other n/a n/a (1) (1)
============================== =========================================== ============= ========== ===========
Total Private Equity investment 500 478
=========================================================================== ============== ========== ===========
Realisations activity
As market conditions remained favourable, we had a very strong
year for realisations and generated GBP982 million of proceeds at
an average money multiple of 3.7x. We disposed of nine unquoted
investments, including older investments such as Mayborn, Lekolar
and Polyconcept, and more recent investments such as Geka. We also
took advantage of supportive equity market conditions to exit or
reduce a number of quoted holdings, generating proceeds of GBP154
million (2016: GBP111 million).
We continue to refinance our most cash generative assets where
appropriate for the business, and where market conditions allow.
Due to Action's strong growth and cash flow generation, it was able
to de-lever rapidly during 2016 ahead of a EUR1.675 billion
refinancing in December 2016. The proceeds were used to refinance
the existing debt and fund a distribution to shareholders. As a
result, 3i received GBP187 million of proceeds.
Since investment, Action has returned GBP526 million of
refinancing proceeds to 3i, a 4.9x sterling cash return on the
original investment.
In addition, we took the opportunity to refinance the debt in
ATESTEO in June 2016. Its strong EBITDA growth since our investment
facilitated a refinancing and return of GBP48 million to 3i.
During the year, we completed the successful exits of Mayborn
(3.5x) and Amor (2.3x). Both had been valued on an imminent sales
basis at 31 March 2016. In March 2017, Agent Provocateur went into
administration, giving rise to a realised loss of GBP49 million on
our investment. In aggregate, we generated total realised profits
of GBP38 million in the year, an uplift over opening value of 5%,
excluding refinancings (2016: GBP67 million and 14%).
We continue to make good progress towards our longer-term plan
to hold a portfolio of 30 to 40 assets. As at 31 March 2017, the
portfolio had reduced to 37 assets and three quoted stakes (31
March 2016: 47 assets and five quoted stakes).
Table 2: Private Equity realisations in the year to 31 March
2017
31 March 3i Profit/(loss) Uplift Money
on
Calendar 2016 realised in the opening Residual multiple
year value(1) proceeds year(2) value(2) value over
Investment Country/region invested GBPm GBPm GBPm % GBPm cost(3) IRR
================== =============== ========== ======== ======== ============= ======== ======== ======== ====
Full realisations
Mayborn UK 2006 135 136 3 2% nil 3.5x 17%
Quintiles USA 2008 92 107 10 10% nil 3.3x 23%
Amor Germany 2010 87 88 2 2% nil 2.3x 18%
Geka Germany 2012 55 85 27 47% nil 1.8x 16%
Polyconcept UK 2005 37 44 3 7% nil 2.1x 7%
Eltel Sweden 2007 20 20 1 5% nil 1.0x (1)%
UFO Moviez India 2007 12 16 3 23% nil 2.9x 16%
GO Outdoors UK 2012 17 21 5 31% nil 1.0x 1%
Loxam France 2011 22 40 16 67% nil 1.9x 13%
Lekolar Sweden 2007 29 34 4 13% nil 1.6x 5%
ESG UK 2007 22 30 8 36% nil 1.4x 12%
Agent Provocateur UK 2006 42 - (49) (100)% nil - -%
Partial
realisations(1,3)
Basic-Fit(4) Benelux 2013 82 82 nil -% 184 3.3x 49%
Denmark/
Scandlines Germany 2007/2013 16 16 nil -% 538 4.6x 31%
Refresco Gerber Benelux 2010 13 11 (2) (15)% 32 1.8x 11%
Other n/a n/a 13 10 1 n/a 60 n/a n/a
Refinancings(3)
ATESTEO Germany 2013 48 48 nil -% 160 2.7x 40%
Action Benelux 2011 187 187 nil -% 1,708 20.8x 84%
Deferred
consideration
Other n/a n/a 1 7 6 n/a 1 n/a n/a
Total Private Equity realisations 930 982 38 4% 2,683 3.7x n/a
=================================== ========== ======== ======== ============= ======== ======== ======== ====
1 For partial realisations, 31 March 2016 value represents value of stake
sold.
2 Cash proceeds in the period over opening value realised.
3 Cash proceeds over cash invested. For partial realisations and refinancings,
valuations of any remaining investment are included in the multiple.
4 Proceeds returned to 3i through the repayment of shareholder loans.
Portfolio valuation
The strong performance of the portfolio resulted in unrealised
value growth of GBP1,274 million (2016: GBP690 million).
Performance
The continued strong performance of the investments valued on an
earnings basis resulted in an increase in value of GBP827 million
(2016: GBP460 million) with the most significant contribution
coming from Action. For its year ended 31 December 2016, Action
reported sales of EUR2.675 billion (a 34% increase over 2015), a
37% increase in operating EBITDA, and 6.9% like-for-like sales
growth and opened 197 new stores in six countries. Action has
delivered EBITDA CAGR growth in excess of 30% p.a. since 3i's
investment in 2011. Since 2013, our previous valuations have used
run-rate adjusted earnings for the 12 months to the quarter end
preceding the reporting period. For the valuation of Action at 31
March 2017, we have refined our valuation methodology better to
reflect its consistent financial delivery. As is typical for retail
businesses, Action prepares its results in four weekly periods. At
31 March 2017, we are valuing this investment using run-rate
earnings to 26 March 2017, the closest period end to 3i's. The
valuation earnings increased by 33% in the last 12 months and, as
at 31 March 2017, Action was valued at GBP1,708 million (2016:
GBP902 million). As the largest Private Equity investment by value,
it represented 35% of the Private Equity portfolio (2016: 24%).
The investments in our 2013-16 vintage are delivering good
earnings growth, with assets such as ATESTEO, Aspen Pumps, Audley
Travel, Q Holding and Euro-Diesel showing good value uplifts in the
year.
We invested in ATESTEO in 2013 and have transformed it from an
owner-managed diversified engineering company into a world leading
testing and industrial specialist for the automotive industry. Its
earnings have almost doubled under our ownership; driven by a 30%
increase in testing capacity through opening a new facility in
Germany and the expansion of its Chinese operations.
Aspen Pumps is the global leader in the design and assembly of
condensate removal pumps, accessories for air conditioning ("AC")
installers and rooftop support systems for AC products. It had a
strong 2016, financially and operationally, as it continued to gain
market share in its core markets. It also completed two small
acquisitions, designed to allow direct control of its distribution
channels and product bolt-ons.
Euro-Diesel designs and assembles standby power supply systems
for data centres and other customers for whom power security is
critical. The business performed well in 2016 and the order book
for 2017 is promising.
Macro-economic developments are impacting a small number of our
investments, especially those exposed to capital expenditure in the
oil and commodities sector (Dynatect) or weaker consumer sentiment
and decelerating tourist flows which have reduced spending on the
high street in Europe (Christ).
Overall, the majority of the portfolio (93% of assets valued on
an earnings basis, as well as Scandlines and Basic-Fit) grew their
earnings in the year (2016: 84%). One investment was valued using
forecast earnings at 31 March 2017 (31 March 2016: two),
representing 2% of the portfolio by value (31 March 2016: 3%).
Table 4 shows the earnings growth of our top 20 assets.
Table 3: Unrealised profits/(losses) on the revaluation of
Private Equity investments(1) in the year to 31 March
2017 2016
GBPm GBPm
========================================== ====== =====
Earnings based valuations
Performance 827 460
Multiple movements 239 95
Other bases
Uplift to imminent sale 8 13
Discounted cash flow 158 124
Other movements on unquoted investments (1) 5
Quoted portfolio 43 (7)
========================================= ====== =====
Total 1,274 690
========================================== ====== =====
1 Further information on our valuation methodology, including definitions and rationale, is
included in the Portfolio valuation - an explanation section of our Annual report.
Table 4: Portfolio earnings growth of the top 20 - Private
Equity(1) investments GBPm
3i carrying value
at 31 March 2017
========= ==================
<0% 241
0 - 9% 1,327
10 - 19% 370
20 - 30% 112
>30% 2,362
========= ==================
1 Includes top 20 Private Equity companies by value. This represents 91% of the Private Equity
portfolio by value (31 March 2016: 86%).
Overall, net debt across the portfolio increased to 3.1x EBITDA
(31 March 2016: 2.9x) principally due to the refinancing of Action.
Table 5 shows the ratio of net debt to EBITDA by portfolio value at
31 March 2017.
Table 5: Ratio of net debt to EBITDA(1) GBPm
3i carrying value
at 31 March 2017
======= ==================
<1x 595
1 - 2x 545
2 - 3x 32
3 - 4x 3,181
4 - 5x 472
>5x -
======= ==================
1 This represents 99.9% of the Private Equity portfolio by value (31
March 2016: 99.2%).
Multiple movements
Due to its consistent financial and operational outperformance,
we increased the post discount run-rate multiple used to value
Action from 14.0x at 31 March 2016 to 16.0x post discount at 31
March 2017. As at 31 March 2017, a 1.0x movement of Action's
multiple would increase or decrease the valuation of 3i's
investment by GBP135 million. Excluding Action, the weighted
average EBITDA multiple declined to 10.6x before liquidity discount
(2016: 10.8x) and was 9.9x after liquidity discount (2016: 10.1x).
The decline in multiple is principally due to Basic-Fit, which
listed in June; it was previously valued using a multiple
materially higher than the portfolio average at 31 March 2016, and
is now held on a quoted basis.
When setting multiples, we consider factors such as exit plans,
relative performance and investment size. As a result of market
volatility in the year, we continued our practice of adjusting
multiples down, relative to their comparable set, in 14 out of the
22 companies (2016: 17 out of 29) valued on an earnings basis. The
pre-discount multiples used to value the portfolio ranged between
5.0x and 16.8x (2016: 6.5x and 14.7x) and the post-discount
multiples ranged between 4.8x and 16.0x (2016: 5.5x and 14.0x).
The combined effect of changes in multiples across the portfolio
resulted in an increase in value of GBP239 million in the period
(2016: GBP95 million increase).
Uplift to imminent sale
We announced the sale of MKM in March 2017 and recognised an
increase in value of GBP8 million. The sale is expected to complete
by the end of June 2017.
In October 2016, we announced an implementation agreement to
sell ACR to two Shenzhen government sponsored investment companies,
subject to regulatory and other approvals. This approval process
remains ongoing and, as a result, we did not value ACR on an
imminent sales basis as at 31 March 2017. Its valuation movement in
FY2017 is classified within the other movements on unquoted
investments category.
Discounted cash flow ("DCF")
As at 31 March 2017, the largest Private Equity investment
valued on a DCF basis was Scandlines, valued at GBP538 million (31
March 2016: GBP369 million). It generated value growth of GBP155
million due to continued strong trading, the expectation of further
delays in the opening date of a competing tunnel on its key route
between Rødby and Puttgarden, as well as a modest reduction in its
weighted average cost of capital.
Quoted portfolio
The Private Equity quoted portfolio generated an unrealised
value gain of GBP43 million (2016: GBP7 million loss) in the
year.
Basic-Fit's strong FY2016 financial and operational performance,
resulting in the business ending the year with 419 clubs and 1.2
million members, was reflected in the share price increasing from
its June 2016 IPO price of EUR15.00 to close at EUR16.27 and an
unrealised value gain of GBP51 million in the year. 3i's remaining
stake was valued at GBP184 million at 31 March 2017.
Table 6: Quoted portfolio movement for the year to 31 March
2017
Opening Disposals Unrealised Closing
value at at opening value Other value at
1 April 2016 book value movement movements(1) 31 March 2017
Investment IPO date GBPm GBPm GBPm GBPm GBPm
================= =============== ============= =========== =========== ============= ==============
Quintiles May 2013 92 (92) - - -
Dphone July 2014 25 - (5) 1 21
Eltel February 2015 20 (20) - - -
Refresco Gerber March 2015 44 (13) (3) 4 32
UFO Moviez May 2015 12 (12) - - -
Basic-Fit June 2016 208 (82) 51 7 184
================= =============== ============= =========== =========== ============= ==============
401 (219) 43 12 237
================================= ============= =========== =========== ============= ==============
1 Other movements include foreign exchange.
Assets under management
The value of Eurofund V ("EFV"), covering buyout investments
made in the period between 2007 and 2012, continued to grow and at
31 March 2017 the fund had a gross money multiple of 2.2x (31 March
2016: 1.7x).
Investments made since the change in investment strategy in
2012, including the further investment in Scandlines, are making
good progress with a sterling multiple of 1.7x at 31 March 2017 (31
March 2016: 1.5x).
The value of 3i's Proprietary Capital increased to GBP4.8
billion in the year (2016: GBP3.7 billion). The value of the
portfolio including third-party capital increased to EUR8.1 billion
(2016: EUR7.0 billion).
Business review - Infrastructure
Infrastructure contributed a gross investment return of GBP87
million, or 17% on the opening portfolio (2016: GBP47 million, 8%).
This was driven by 3iN's strong share price appreciation together
with good levels of dividend and fee income from both 3iN and the
other funds managed by the team.
In May 2016, 3iN announced a 7.55 pence per share annual
dividend target for FY2017, as well as a GBP350 million capital
raise. Both initiatives were well received and the final amount
raised in the placing, gross of fees, was GBP385 million. 3i
invested GBP131 million in this placing to maintain its 34% stake
in 3iN. The shares were offered at 165 pence per share and closed
at 189 pence on 31 March 2017, generating a total shareholder
return for investors in that placing of 17%.
We made excellent progress in sourcing assets in 3iN's target
markets of economic infrastructure and greenfield projects. In
total we advised 3iN on GBP479 million of new investment in the
year (2016: GBP193 million). 3iN completed six new investments:
Wireless Infrastructure Group, TCR, Valorem, the Hart van Zuid
greenfield PPP project, the A27/A1 greenfield PPP project and
Infinis. As a result, all of the proceeds from the capital raise
were deployed.
Overall, the 3iN portfolio continues to perform well and the
company generated a total return of 9% in the year (2016: 14%).
Under the terms of the investment advisory agreement, 3iN paid an
advisory fee of GBP25 million to 3i (2016: GBP16 million), with the
increase attributable to new investment activity, and a NAV-based
performance fee of GBP4 million (2016: GBP20 million). Of this,
GBP3 million (2016: GBP15 million) was accrued as payable to the
team.
Investment portfolio performance
The Group's infrastructure portfolio consists primarily of its
34% stake in 3iN.
3iN's share price performed strongly in the year as the yield
offered by 3iN continues to be attractive to investors in the
current low interest rate environment. 3iN's TSR for the year was
16% (2016: 13%) and 3iN generated GBP23 million (2016: GBP21
million) of dividend income for 3i. 3i also has an investment in
the 3i India Infrastructure Fund, where the team continues to focus
on managing this portfolio to maximise value for fund
investors.
In total, the Infrastructure portfolio generated unrealised
value growth of GBP59 million (2016: GBP22 million).
Table 7: Unrealised profits/(losses) on the revaluation of
Infrastructure investments(1) in the year to 31 March
2017 2016
GBPm GBPm
====================== ===== =====
Quoted 63 31
Discounted cash flow (4) (9)
====================== ===== =====
Total 59 22
====================== ===== =====
1 More information on our valuation methodology, including definitions and rationale, is included
in the Portfolio valuation - an explanation section of our Annual report.
Assets under management
Infrastructure AUM increased to GBP2.9 billion (31 March 2016:
GBP2.3 billion) principally due to 3iN's fundraising and strong
portfolio performance.
We are focused on managing the 3iN portfolio actively and
embedding the new assets to ensure that they meet or exceed the
investment plan. While we continue to see a good flow of new
investment opportunities, there remains strong demand for
infrastructure assets as capital flows towards more defensive
sectors. In this environment, we remain disciplined and focused on
maintaining a balanced and attractive portfolio in 3iN.
We remain committed to the importance of our 3iN mandate and
sourcing and managing its attractive portfolio of assets. To
broaden 3i's infrastructure strategy, and generate increased cash
income for the Group in the medium term, we have also announced
several complementary new initiatives. In each case, we are adding
resources to ensure that the new initiatives are successful, and
that our focus on the 3iN mandate is not compromised. We launched a
new GBP700 million fund to purchase assets from the EISER Global
Infrastructure Fund. In addition, we announced a new fund, the 3i
European Operational Projects Fund SCSP. 3i will provide seed
capital of c.GBP35 million to each of these funds. Finally, we
announced the launch of a US Infrastructure platform in March
2017.
Financial review
Strong financial performance
FY2017 was another year of strong financial performance. It was
also the year in which we sold our Debt Management business to
Investcorp. The sale of Debt Management completed on 3 March 2017
and the business we sold to Investcorp is classified as
discontinued operations throughout this report. We retained the CLO
investments not required for regulatory or contractual purposes, as
well as investments in the Global Income Fund and Senior Loan Fund.
These investments are classified within Other in the Financial
review and our segmental reporting.
We generated an excellent gross investment return from Private
Equity, Infrastructure and the retained Debt Management investments
of GBP1,755 million (2016: GBP1,051 million) and an operating
profit before carried interest of GBP1,675 million (2016: GBP911
million). This was driven by the strong unrealised value growth
from our investments, together with the positive impact of foreign
exchange translation.
Total return was GBP1,592 million, or a profit on opening
shareholders' funds of 36% (2016: GBP824 million or 22%) and, as a
result, the diluted NAV per share at 31 March 2017 increased by 30%
to 604 pence (31 March 2016: 463 pence).
Table 8: Total return for the year to 31 March
12 months to 12 months to
31 March 2017 31 March 2016(1)
Investment basis GBPm GBPm
====================================================================== ============== =================
Realised profits over value on the disposal of investments 38 72
Unrealised profits on the revaluation of investments 1,342 690
Portfolio income
Dividends 50 49
Interest income from investment portfolio 50 59
Fees receivable 6 7
Foreign exchange on investments 269 174
====================================================================== ============== =================
Gross investment return 1,755 1,051
Fees receivable from external funds 46 41
Operating expenses (117) (107)
Interest received 2 4
Interest paid (49) (47)
Exchange movements 28 (31)
Other income 10 -
====================================================================== ============== =================
Operating profit before carried interest 1,675 911
Carried interest
Carried interest and performance fees receivable 279 78
Carried interest and performance fees payable (434) (186)
====================================================================== ============== =================
Operating profit from continuing operations 1,520 803
Income taxes 3 -
Re-measurements of defined benefit plans (22) (6)
====================================================================== ============== =================
Total comprehensive income: continuing operations
("Total return from continued operations") 1,501 797
====================================================================== ============== =================
Total comprehensive income from discontinued operations, net of tax
("Total return from discontinued operations") 91 27
====================================================================== ============== =================
Total comprehensive income ("Total return") 1,592 824
====================================================================== ============== =================
Total return on opening shareholders' funds 36% 22%
====================================================================== ============== =================
1 Comparatives have been re-presented to reflect the classification of
the Group's Debt Management business, sold to Investcorp, as discontinued
operations.
Alternative performance measures ("APMs")
In October 2015, the European Securities and Markets Authority ("ESMA")
published guidelines about the use of APMs. These are financial measures
such as KPIs that are not defined under IFRS. In our Strategic report
we describe our financial performance under our Investment basis, which
is itself an APM, and use a number of other measures which, on account
of being derived from the Investment basis, are also APMs. Further information
about our use of APMs, including the applicable reconciliations to the
IFRS equivalent where appropriate, is provided at the end of the Financial
review and should be read alongside our Investment basis to IFRS reconciliation.
Our APMs are gross investment return as a percentage of the opening investment
portfolio value, cash realisations, cash investment, operating cash profit,
net cash/(debt) and gearing.
=================================================================================
Realised profits
Supportive market conditions, together with the co-incidental
maturity of our exit pipeline, resulted in realised proceeds of
GBP1,005 million (2016: GBP796 million). Profits on disposal of
GBP38 million (2016: GBP72 million) were net of the GBP49 million
realised loss on Agent Provocateur which was sold after it was
entered into administration in March 2017. This, combined with the
fact that the successful exits of Mayborn and Amor were valued on
an imminent sales basis at 31 March 2016, meant realisations
(excluding refinancings) were achieved at an uplift over opening
value of 5% (2016: 13%) in the year.
Unrealised value movements
The unrealised value movement of GBP1,342 million (2016: GBP690
million) was due to strong earnings growth in a number of our
Private Equity assets. Action contributed GBP911 million to value
growth and we also saw improved performance from Private Equity
investments in our 2013-16 vintage, such as Scandlines (a further
investment in 2013), ATESTEO, Basic--Fit and Euro--Diesel.
Table 9: Unrealised profits on revaluation of investments
(continuing operations) for the year to 31 March
2017 2016
GBPm GBPm
================================== ====== =====
Private equity 1,274 690
Infrastructure 59 22
Other (residual Debt Management) 9 (22)
================================== ====== =====
Total 1,342 690
================================== ====== =====
Our residual Debt Management positions recovered some of the
mark-to-market losses seen in the first quarter of calendar year
2016 and generated an unrealised value gain of GBP9 million (2016:
GBP22 million loss) in the year.
Further information on the Private Equity and Infrastructure
valuations is included in their respective Business reviews.
Portfolio income
The portfolio generated income of GBP106 million during the year
(2016: GBP115 million). The increase in dividends from 3iN (up from
GBP21 million to GBP23 million) was offset by a reduction in
dividends from Private Equity, as income in FY2016 included a
significant dividend from Scandlines as well as dividends from
older assets which have been sold. Interest income on loans in
Private Equity reduced to GBP50 million (2016: GBP59 million) due
to the timing of asset disposals or IPOs relative to the completion
of our three new investments. Portfolio fees were broadly stable as
the increase in deal fees on new investments completed in the year
was offset by abort costs incurred on prospective transactions.
Fees receivable from external funds
Fees increased to GBP46 million (2016: GBP41 million) due to
increased fee income from 3iN. 3i, as investment adviser, receives
a fee for sourcing and completing new investments for 3iN; 3iN
completed six new investments in FY2017 and invested GBP479 million
(2016: four investments and GBP193 million).
Operating expenses
Operating expenses were GBP117 million (2016: GBP107 million),
principally due to a GBP4 million increase in the Infrastructure
team's share of the 3iN fee income referred to above. The
share-based payment expense also increased by GBP3 million due to
the strong performance of 3i Group's share price.
We continue to invest in the front office capability in Private
Equity and Infrastructure but remain disciplined on cost. We expect
that expenses in FY2018 will be broadly double the second half
costs of GBP63 million.
Operating cash profit
Operating cash profit is a Group KPI; by covering the operating
costs of running our business with income, we reduce the dilution
of shareholder returns. Since its introduction in 2012, this
measure has been defined as cash portfolio and fee income less
accrued operating expenses, the latter being used as it was not
considered to be materially different from cash operating expenses.
The definition has been updated to be cash portfolio income and fee
income less cash expenses. The principal non-cash expense now
excluded from the measure is share-based payments; these have
become significantly more material since the measure was originally
implemented, as more compensation is delivered in the form of
shares, and as the share price has increased.
Table 10: Operating cash profit for the year to 31 March
2017 2016(2)
GBPm GBPm
===================================================== ====== ========
Third-party capital fees 47 40
Cash portfolio fees 12 8
Cash portfolio dividends and interest 62 60
===================================================== ====== ========
Cash income from continuing operations 121 108
Operating expenses(1) from continuing operations (116) (117)
===================================================== ====== ========
Operating cash profit/(loss): continuing operations 5 (9)
===================================================== ====== ========
Operating cash profit: discontinued operations 28 46
===================================================== ====== ========
Operating cash profit 33 37
===================================================== ====== ========
1 Operating expenses are now calculated on a cash basis and the 2016
comparative has been re-presented.
2 Comparatives have been re-presented to reflect the classification of
the Group's Debt Management business, sold to Investcorp, as discontinued
operations.
Excluding the Debt Management business sold to Investcorp, 3i
made an operating cash profit of GBP5 million in the year (2016:
GBP9 million loss). Cash income increased to GBP121 million (2016:
GBP108 million) principally due to the increase in the third-party
capital fees in Infrastructure to GBP37 million (2016: GBP29
million).
The Debt Management business was a significant contributor to
the Group's operating cash profit. Including the contribution of
the Debt Management business, the Group made an operating cash
profit of GBP33 million in the year (2016: GBP37 million).
Net interest payable
Gross interest payable was GBP49 million (2016: GBP47 million),
of which GBP15 million related to interest charges on the EUR331
million bond which was repaid in March 2017. The undrawn revolving
credit facility was extended by one year to September 2021 at no
additional cost, following an agreement with all but one of the
participating banks. The total amount of the facility is GBP329
million (31 March 2016: GBP350 million).
Interest receivable on cash balances was GBP2 million (2016:
GBP4 million).
Carried interest and performance fees
We receive carried interest from third-party funds and pay a
portion to participants in our carry plans. We also pay carried
interest to participants on our proprietary capital invested. The
accounting recognition of carried interest is driven by the
valuation of the underlying investment portfolio and is accounted
for by assuming that all investments are realised at the balance
sheet value.
Our carried interest plans pay cash to participants when the
underlying investments are realised, for example through a disposal
or a refinancing event, but only when a performance hurdle has been
met. Due to the length of time between investment and realisation,
the schemes are usually active for a number of years and their
participants are both current and previous employees of 3i.
We generated a very strong gross investment return of GBP1,624
million in Private Equity (2016: GBP1,011 million) and this
material valuation uplift has resulted in significant increases in
our carried interest balances in FY2017. The consequence of this
year's valuation increase is that our largest Private Equity fund,
EFV, went through its performance hurdle and consequently we
recognised significant carried interest receivable. A share of this
receivable is accrued as carried interest payable to the associated
plan participants. The strong run of realisations from investments
made between 2010 and 2012 that have completed over the last few
years meant that we went through the cash hurdle on the Group's
associated proprietary capital plan (the so-called Buyouts 2010-12
carried interest scheme) and began paying carried interest to its
participants for the first time this year.
Table 11: Carried interest and performance fees (continuing
operations) for the year to 31 March
2017 2016
Statement of comprehensive income GBPm GBPm
================================================== ====== ======
Carried interest and performance fees receivable
Private Equity 275 58
Infrastructure 4 20
================================================== ====== ======
Total 279 78
================================================== ====== ======
Carried interest and performance fees payable
Private Equity (431) (171)
Infrastructure (3) (15)
================================================== ====== ======
Total (434) (186)
================================================== ====== ======
Net carried interest payable (155) (108)
================================================== ====== ======
We typically accrue carried interest payable on 3i's investment
portfolio at between 10% and 15% of gross investment return. The
majority of assets by value are now held in schemes that would have
met their performance hurdles, assuming that the portfolio was
realised at the 31 March 2017 valuation.
We accrued carried interest payable of GBP431 million (2016:
GBP171 million) for Private Equity, of which GBP202 million relates
to the carry plan participant's share of carried interest
receivable from EFV (2016: GBP48 million). Carried interest payable
accrued on 3i's investment portfolio was GBP229 million (2016:
GBP123 million). GBP159 million (31 March 2016: GBP71 million) of
this GBP229 million balance relates to the carry payable on the
Buyouts 2010-12 plan, which includes Action.
Carried interest is only paid to participants when the hurdles
are passed in cash terms and then only when the cash proceeds are
actually received following a realisation or refinancing event.
During the year, GBP127 million of cash was paid out to the
participants in the Private Equity plans (2016: GBP9 million). Of
this GBP98 million related to the carry payable on the Buyouts
2010-12 scheme which went through its cash hurdle in the year.
3iN pays a performance fee based on 3iN's NAV on an annual
basis, subject to a hurdle rate of return and a high watermark. The
continued good performance of the assets held by 3iN resulted in
the recognition of GBP4 million (2016: GBP20 million) of
performance fees receivable. Carried interest of GBP3 million was
accrued as payable to the Infrastructure team.
Overall, the effect of the income statement charge, the cash
movement, as well as the currency translation meant that the
balance sheet carried interest and performance fees payable
increased to GBP685 million (31 March 2016: GBP404 million) and the
receivable increased to GBP366 million (31 March 2016: GBP122
million).
Table 12: Carried interest and performance fees for the year to
31 March 2017
2017 2016
Statement of financial position GBPm GBPm
================================================== ====== ======
Carried interest and performance fees receivable
Private Equity 359 92
Infrastructure 4 20
Other 3 10
================================================== ====== ======
Total 366 122
================================================== ====== ======
Carried interest and performance fees payable
Private Equity (650) (356)
Infrastructure (35) (43)
Other - (5)
================================================== ====== ======
Total (685) (404)
================================================== ====== ======
Net foreign exchange movements
At 31 March 2017, 71% of the Group's net assets were denominated
in euros or US dollars. Following the result of the UK's referendum
on its membership of the EU and the subsequent weakening of
sterling against the euro and the US dollar, the Group recorded a
total net foreign exchange gain of GBP297 million (2016: GBP143
million) in the year.
The Group is a long-term investor and does not hedge its foreign
currency denominated portfolio. Where possible, flows from currency
realisations are matched with currency investments. Short-term
derivative contracts are used occasionally and typically to hedge
investments and realisations between signing and completion.
The net foreign exchange gain also reflects the translation of
non-portfolio net assets, including non-sterling cash held at the
balance sheet date.
Table 13: Net assets and sensitivity by currency at 31 March
2017
1% sensitivity
FX rate GBPm % GBPm
============= ======= ===== === ==============
Sterling n/a 1,420 24% n/a
Euro 1.1701 3,373 58% 34
US dollar 1.2516 751 13% 8
Danish krona 8.7015 147 3% 1
Other n/a 145 2% n/a
------------- ------- ----- --- --------------
Pension
On an IAS 19 basis the pension scheme remains in a surplus.
There was a re-measurement loss on the Group's pension scheme of
GBP22 million during the year (2016: GBP6 million loss). The
liability of the Group's UK defined benefit pension scheme
increased in the year following a decrease in the discount rate.
This was partially offset by an increase in the underlying asset
valuations.
During the year, the Trustees of the 3i Group Pension Plan
implemented a buy-in transaction, which is a bulk annuity purchase
that partially reduces member longevity risk while improving the
investment returns of the pension scheme. The transaction is
expected to improve the actuarial funding position of the plan,
which in turn influences the future cash contributions by 3i. The
transaction resulted in an accounting charge in accordance with IAS
19 of GBP14 million.
The triennial valuation of the scheme's funding position at 30
June 2016 is underway and will be completed no later than 30
September 2017.
Tax
The Group's parent company has operated in the UK as an approved
investment trust company since its listing on the London Stock
Exchange in 1994. An approved investment trust is a UK investment
company which is required to meet certain conditions set out in the
UK tax rules to obtain and maintain its tax status. This approval
allows certain investment profits of the Company, broadly its
capital profits, to be exempt from tax in the UK. Approved
investment trust companies are particularly suited for investment
vehicles as their tax status allows them to ensure that their
shareholders do not suffer double taxation of their investment
returns. The Group recognised a tax credit in the period of GBP3
million (2016: nil).
Sale of Debt Management
On 3 March 2017, we completed the sale of our Debt Management
business to Investcorp for total proceeds of GBP270 million. The
sale comprised the entire Debt Management fund management business,
which had teams based in London and New York, and the CLO
investments required by the buyer for regulatory and contractual
purposes. We retained the CLO investments in excess of those
requirements. During the period between signing and completion we
continued to support CLO warehouses in the US and Europe, and the
outstanding balances of GBP33 million were repaid in full on
completion. In addition, we retained our investments in the Global
Income Fund and the Senior Loan Fund.
Table 14: Debt Management investments as at 31 March
Net
2017 movement(1) 2016
Valuation GBPm GBPm GBPm
======================= ===== ============ =====
CLO equity sold - (119) 119
CLO warehouses repaid 1 (16) 17
CLO equity retained 50 16 34
Global Income Fund 79 27 52
Senior Loan Fund 8 1 7
======================== ===== ============ =====
Total 138 (91) 229
======================== ===== ============ =====
1 Net movement is inclusive of investments, currency translation
and mark to market adjustments.
The transaction was signed on 25 October 2016, and the economic
benefit of the fund management business and relevant CLO equity
interest transferred with effect from 1 October 2016. The total
return from discontinued operations of GBP91 million (2016: GBP27
million) includes the economics of the business up to 30 September
2016, compensation for the period to closing and the profit on
disposal.
The GBP270 million of proceeds was split between GBP232 million
for the sale of the subsidiaries, proceeds of GBP22 million from
the sale of directly held investments in CLO equity and warehouses
and GBP16 million for the settlement of an inter-company loan.
Balance sheet
Net cash and liquidity
Table 15: Net cash as at 31 March
2017 2016
GBPm GBPm
=========================== ====== ======
Cash and cash equivalents 954 962
Deposits 40 40
Loans and borrowings (575) (837)
=========================== ====== ======
Net cash 419 165
=========================== ====== ======
Net cash is calculated as cash and cash equivalents and deposits
less total loans and borrowings. As at 31 March 2017, net cash was
GBP419 million (2016: GBP165 million). The increase reflects the
significant level of realisations which, including the proceeds of
the sale of Debt Management, were GBP1,275 million (2016: GBP796
million). The balance will reduce by c.GBP272 million (c.EUR320
million) when the signed investments in Hans Anders and Lampenwelt
complete (expected by the end of June 2017). Subject to shareholder
approval, the final dividend of GBP178 million will also be paid in
July 2017.
Liquidity
Liquidity remained strong at GBP1,323 million (31 March 2016:
GBP1,352 million) after the repayment of our EUR331 million bond in
March 2017. Liquidity comprised cash and deposits of GBP994 million
(31 March 2016: GBP1,002 million) and undrawn facilities of GBP329
million (31 March 2016: GBP350 million).
Gross debt and gearing
Table 16: Gross debt and gearing as at 31 March
2017 2016
GBPm GBPm
======================================= ===== =====
GBP331 million notes at 5.625% (2017) - 262
GBP200 million notes at 6.875% (2023) 200 200
GBP375 million notes at 5.750% (2032) 375 375
======================================= ===== =====
Loans and borrowings 575 837
======================================= ===== =====
Gearing nil nil
======================================= ===== =====
On 17 March 2017, the EUR310 million outstanding balance of the
EUR331 million bond was repaid out of cash resources. This reduced
the total gross debt outstanding to GBP575 million as at 31 March
2017 (31 March 2016: GBP837 million). As a result, the annual
interest cost on the remaining bonds will reduce to GBP35 million
per annum in FY2018 (2017: GBP49 million).
Gearing
Gearing is defined as net debt as a percentage of the Group's
net assets. As the Group was in a net cash position at 31 March
2017 and 2016 under both the Investment basis and IFRS, gearing was
nil.
Key accounting judgements and estimates
In preparing these accounts, the key accounting judgement relates to
the carrying value of our investment assets which are stated at fair
value.
Given the importance of this area the Board has a separate Valuations
Committee to review the valuation policy, process and application to
individual investments. However, asset valuations for unquoted investments
are inherently subjective, as they are made on the basis of assumptions
which may not prove to be accurate. At 31 March 2017, 84% by value of
the investment assets were unquoted (31 March 2016: 85%).
The valuation of the Proprietary Capital portfolio is a primary input
into the carried interest payable and receivable balances, which are
determined by reference to the valuation at 31 March 2017 and the underlying
investment management agreements.
Accounting for investment entities
An assessment is required to determine the degree of control or influence
the Group exercises and the form of any control to ensure that the financial
treatment of investment entities is accurate. The introduction of IFRS
10 resulted in a number of intermediate holding companies being presented
at fair value, which has led to reduced transparency of the underlying
investment performance. As a result, the Group continues to present a
non-GAAP Investment basis set of financial statements to ensure that
the commentary in the Strategic report remains fair, balanced and understandable.
The reconciliation of the Investment basis to IFRS is shown below.
==================================================================================
Investment basis
Consolidated statement of comprehensive income
Total Total
2017 2016(1)
GBPm GBPm
=============================================================== ====== ========
Realised profits over value on the disposal of investments 38 72
Unrealised profits on the revaluation of investments 1,342 690
Portfolio income
Dividends 50 49
Interest income from investment portfolio 50 59
Fees receivable 6 7
Foreign exchange gain on investments 269 174
=============================================================== ====== ========
Gross investment return 1,755 1,051
=============================================================== ====== ========
Fees receivable from external funds 46 41
Operating expenses (117) (107)
Interest receivable 2 4
Interest payable (49) (47)
Foreign exchange gain/(loss) 28 (31)
Other income 10 -
=============================================================== ====== ========
Operating profit before carried interest 1,675 911
=============================================================== ====== ========
Carried interest
Carried interest and performance fees receivable 279 78
Carried interest and performance fees payable (434) (186)
Operating profit from continuing operations 1,520 803
Income taxes 3 -
=============================================================== ====== ========
Profit for the year from continuing operations 1,523 803
=============================================================== ====== ========
Profit for the year from discontinued operations, net of tax 91 27
=============================================================== ====== ========
Profit for the year 1,614 830
=============================================================== ====== ========
Other comprehensive income
Re-measurements of defined benefit plans (22) (6)
============================================================== ====== ========
Total comprehensive income for the year ("Total return") 1,592 824
=============================================================== ====== ========
1 Comparatives for the year ended 31 March 2016 have been re-presented to reflect the classification
of the Group's Debt Management business sold to Investcorp as discontinued operations. See
Note 8.
Investment basis
Consolidated statement of financial position
Total Total
2017 2016
GBPm GBPm
=================================================== ======== ========
Assets
Non-current assets
Investments
Quoted investments 893 658
Unquoted investments 4,782 3,839
================================================== ======== ========
Investment portfolio 5,675 4,497
Carried interest and performance fees receivable 359 94
Other non-current assets 106 37
Intangible assets - 12
Retirement benefit surplus 121 132
Property, plant and equipment 5 5
Deferred income taxes - 3
=================================================== ======== ========
Total non-current assets 6,266 4,780
=================================================== ======== ========
Current assets
Carried interest and performance fees receivable 7 28
Other current assets 10 53
Current income tax receivable 2 -
Deposits 40 40
Cash and cash equivalents 954 962
=================================================== ======== ========
Total current assets 1,013 1,083
=================================================== ======== ========
Total assets 7,279 5,863
=================================================== ======== ========
Liabilities
Non-current liabilities
Trade and other payables (29) (27)
Carried interest and performance fees payable (644) (290)
Loans and borrowings (575) (575)
Retirement benefit deficit (22) (20)
Deferred income taxes (1) (2)
Provisions (2) (1)
=================================================== ======== ========
Total non-current liabilities (1,273) (915)
=================================================== ======== ========
Current liabilities
Trade and other payables (125) (107)
Carried interest and performance fees payable (41) (114)
Acquisition related earn-out charges payable - (1)
Loans and borrowings - (262)
Current income taxes - (2)
Provisions (4) (7)
=================================================== ======== ========
Total current liabilities (170) (493)
=================================================== ======== ========
Total liabilities (1,443) (1,408)
=================================================== ======== ========
Net assets 5,836 4,455
=================================================== ======== ========
Equity
Issued capital 719 719
Share premium 785 784
Other reserves 4,370 3,006
Own shares (38) (54)
=================================================== ======== ========
Total equity 5,836 4,455
=================================================== ======== ========
Investment basis
Consolidated cash flow statement
Total Total
2017 2016
GBPm GBPm
================================================ ====== ======
Cash flow from operating activities
Purchase of investments (692) (449)
Proceeds from investments 1,063 771
Net cash flow from derivatives - (14)
Portfolio interest received 16 15
Portfolio dividends received 66 71
Portfolio fees received 11 7
Fees received from external funds 71 78
Carried interest and performance fees received 39 52
Carried interest and performance fees paid (131) (15)
Carried interest held in non-current assets (56) -
Acquisition related earn-out charges paid (1) (30)
Operating expenses (131) (134)
Income taxes paid (2) -
------------------------------------------------ ------ ------
Other cash income 2 -
================================================ ====== ======
Net cash flow from operating activities 255 352
================================================ ====== ======
Cash flow from financing activities
Issue of shares 1 -
Dividends paid (230) (190)
Interest received 2 4
Interest paid (51) (51)
------------------------------------------------ ------ ------
Repayment of short-term borrowings (264) -
------------------------------------------------ ------ ------
Repurchase of short-term borrowings (17) -
------------------------------------------------ ------ ------
Co-investment loans 1 -
================================================ ====== ======
Net cash flow from financing activities (558) (237)
================================================ ====== ======
Cash flow from investing activities
Purchase of property, plant and equipment (1) (1)
Proceeds from sale of Debt Management business 232 -
Cash held in sold subsidiaries (4) -
Net cash flow from deposits - (40)
================================================ ====== ======
Net cash flow from investing activities 227 (41)
================================================ ====== ======
Change in cash and cash equivalents (76) 74
================================================ ====== ======
Cash and cash equivalents at the start of year 962 864
Effect of exchange rate fluctuations 68 24
================================================ ====== ======
Cash and cash equivalents at the end of year 954 962
================================================ ====== ======
Background to Investment basis financial statements
The Group makes investments in portfolio companies directly,
held by 3i Group plc, and indirectly, held through intermediate
holding company and partnership structures ("Investment entity
subsidiaries"). It also has other operational subsidiaries which
provide services and other activities such as employment,
regulatory activities, management and advice ("Trading
subsidiaries"). The application of IFRS 10 requires us to fair
value a number of intermediate holding companies that were
previously consolidated line by line. This fair value approach,
applied at the intermediate holding company level, effectively
obscures the performance of our proprietary capital investments and
associated transactions occurring in the intermediate holding
companies. The financial effect of the underlying portfolio
companies and fee income, operating expenses and carried interest
transactions occurring in Investment entity subsidiaries are
aggregated into a single value. Other items which were previously
eliminated on consolidation are now included separately.
To maintain transparency in our report and aid understanding we
introduced separate non-GAAP "Investment basis" Statements of
comprehensive income, financial position and cash flow in our 2014
Annual report and accounts. The Investment basis is an APM and the
Strategic report is prepared using the Investment basis as we
believe it provides a more understandable view of our performance.
Total return and net assets are equal under the Investment basis
and IFRS; the Investment basis is simply a "look through" of IFRS
10 to present the underlying performance.
Reconciliation of Investment basis and IFRS
A detailed reconciliation from the Investment basis to IFRS
basis of the Consolidated statement of comprehensive income,
Consolidated statement of financial position and Consolidated cash
flow statement is shown on the following pages.
Reconciliation of Investment basis and IFRS
Reconciliation of consolidated statement of comprehensive
income
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2017 2017 2017 2016(5) 2016(5) 2016(5)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
================================= ====== =========== ============ ======= =========== ============ ========
Realised profits/(losses) over
value
on the disposal of investments 1,2 38 (63) (25) 72 (61) 11
Unrealised profits on the
revaluation of investments 1,2 1,342 (1,080) 262 690 (576) 114
Fair value movements on
investment entity subsidiaries 1 - 1,041 1,041 - 591 591
Portfolio income
Dividends 1,2 50 (12) 38 49 (13) 36
Interest income from investment
portfolio 1,2 50 (40) 10 59 (37) 22
Fees receivable 1,2 6 3 9 7 2 9
Foreign exchange on investments 1,3 269 (205) 64 174 (145) 29
================================= ====== =========== ============ ======= =========== ============ ========
Gross investment return 1,755 (356) 1,399 1,051 (239) 812
================================= ====== =========== ============ ======= =========== ============ ========
Fees receivable from
external funds 1,4 46 - 46 41 - 41
Operating expenses 1,4 (117) 1 (116) (107) 2 (105)
Interest receivable 2 - 2 4 - 4
Interest payable (49) - (49) (47) - (47)
Exchange movements 1,3 28 14 42 (31) 95 64
Other income 10 - 10 - - -
Income/(expense) from investment
entity subsidiaries 1 - 18 18 - (10) (10)
================================= ====== =========== ============ ======= =========== ============ ========
Operating profit before carried
interest 1,675 (323) 1,352 911 (152) 759
================================= ====== =========== ============ ======= =========== ============ ========
Carried interest
Carried interest and
performance
fees receivable 1,4 279 1 280 78 (5) 73
Carried interest and
performance
fees payable 1,4 (434) 326 (108) (186) 148 (38)
Operating profit from continuing
operations 1,520 4 1,524 803 (9) 794
================================= ====== =========== ============ ======= =========== ============ ========
Income taxes 1,4 3 - 3 - (2) (2)
================================= ====== =========== ============ ======= =========== ============ ========
Profit for the year from
continuing operations 1,523 4 1,527 803 (11) 792
================================= ====== =========== ============ ======= =========== ============ ========
Profit for the year from
discontinued operations 91 7 98 27 (2) 25
================================= ====== =========== ============ ======= =========== ============ ========
Profit for the year 1,614 11 1,625 830 (13) 817
================================= ====== =========== ============ ======= =========== ============ ========
Other comprehensive income
Exchange differences on
translation of foreign
operations 1,3 - (4) (4) - 11 11
Re-measurements of defined
benefit plans (22) - (22) (6) - (6)
================================ ====== =========== ============ ======= =========== ============ ========
Other comprehensive
(expense)/income for the year
from continuing operations (22) (4) (26) (6) 11 5
================================= ====== =========== ============ ======= =========== ============ ========
Other comprehensive
(expense)/income for the year
from discontinued operations - (7) (7) - 2 2
================================= ====== =========== ============ ======= =========== ============ ========
Total comprehensive income for
the year ("Total return") 1,592 - 1,592 824 - 824
================================= ====== =========== ============ ======= =========== ============ ========
Notes:
1 Applying IFRS 10 to the Consolidated statement of comprehensive income consolidates the line
items of a number of previously consolidated subsidiaries into a single line item "Fair value
movements on investment entity subsidiaries". In the "Investment basis" accounts we have disaggregated
these line items to analyse our total return as if these Investment entity subsidiaries were
fully consolidated, consistent with prior years. The adjustments simply reclassify the Consolidated
statement of comprehensive income of the Group, and the total return is equal under the Investment
basis and the IFRS basis.
2 Realised profits, unrealised profits, and portfolio income shown in the IFRS accounts only
relate to portfolio companies that are held directly by 3i Group plc and not those portfolio
companies held through Investment entity subsidiaries. Realised profits, unrealised profits,
and portfolio income in relation to portfolio companies held through Investment entity subsidiaries
are aggregated into the single "Fair value movement on investment entity subsidiaries" line.
This is the most significant reduction of information in our IFRS accounts.
3 Foreign exchange movements have been reclassified under the Investment basis as foreign currency
asset and liability movements. Movements within the Investment entity subsidiaries are included
within "Fair value movements on investment entities".
4 Other items also aggregated into the "Fair value movements on investment entity subsidiaries"
line include fees receivable from external funds, audit fees, administration expenses, carried
interest and tax.
5 Comparatives for the year ended 31 March 2016 have been re-presented to reflect the classification
of the Group's Debt Management business sold to Investcorp as discontinued operations. See
Note 8 to the IFRS financial statements.
6 The IFRS basis is audited and the Investment basis is unaudited.
Reconciliation of consolidated statement of financial
position
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2017 2017 2017 2016 2016 2016
Notes GBPm GBPm GBPm GBPm GBPm GBPm
================================= ====== =========== ============ ======= =========== ============ ========
Assets
Non-current assets
Investments
Quoted investments 1 893 (503) 390 658 (361) 297
Unquoted investments 1 4,782 (3,466) 1,316 3,839 (2,596) 1,243
Investments in investment
entity subsidiaries 1,2 - 3,483 3,483 - 2,680 2,680
================================= ====== =========== ============ ======= =========== ============ ========
Investment portfolio 5,675 (486) 5,189 4,497 (277) 4,220
================================= ====== =========== ============ ======= =========== ============ ========
Carried interest and performance
fees receivable 1 359 (5) 354 94 (5) 89
Other non-current assets 106 (56) 50 37 - 37
Intangible assets - - - 12 - 12
Retirement benefit surplus 121 - 121 132 - 132
Property, plant and equipment 5 - 5 5 - 5
Deferred income taxes - - - 3 - 3
================================= ====== =========== ============ ======= =========== ============ ========
Total non-current assets 6,266 (547) 5,719 4,780 (282) 4,498
================================= ====== =========== ============ ======= =========== ============ ========
Current assets
Carried interest and performance
fees receivable 7 2 9 28 - 28
Other current assets 1 10 2 12 53 (22) 31
Current income tax receivable 2 - 2 - - -
Deposits 40 - 40 40 - 40
Cash and cash equivalents 1,2 954 (23) 931 962 (5) 957
================================= ====== =========== ============ ======= =========== ============ ========
Total current assets 1,013 (19) 994 1,083 (27) 1,056
================================= ====== =========== ============ ======= =========== ============ ========
Total assets 7,279 (566) 6,713 5,863 (309) 5,554
================================= ====== =========== ============ ======= =========== ============ ========
Liabilities
Non-current liabilities
Trade and other payables (29) 5 (24) (27) - (27)
Carried interest and performance
fees payable 1 (644) 520 (124) (290) 205 (85)
Loans and borrowings (575) - (575) (575) - (575)
Retirement benefit deficit (22) - (22) (20) - (20)
Deferred income taxes 1 (1) 1 - (2) 2 -
Provisions (2) - (2) (1) - (1)
================================= ====== =========== ============ ======= =========== ============ ========
Total non-current liabilities (1,273) 526 (747) (915) 207 (708)
================================= ====== =========== ============ ======= =========== ============ ========
Current liabilities
Trade and other payables 1 (125) 22 (103) (107) 8 (99)
Carried interest and performance
fees payable 1 (41) 18 (23) (114) 94 (20)
Acquisition related earn-out
charges
payable - - - (1) - (1)
Loans and borrowings - - - (262) - (262)
Current income taxes - - - (2) - (2)
Provisions (4) - (4) (7) - (7)
================================= ====== =========== ============ ======= =========== ============ ========
Total current liabilities (170) 40 (130) (493) 102 (391)
================================= ====== =========== ============ ======= =========== ============ ========
Total liabilities (1,443) 566 (877) (1,408) 309 (1,099)
================================= ====== =========== ============ ======= =========== ============ ========
Net assets 5,836 - 5,836 4,455 - 4,455
================================= ====== =========== ============ ======= =========== ============ ========
Equity
Issued capital 719 - 719 719 - 719
Share premium 785 - 785 784 - 784
Other reserves 3 4,370 - 4,370 3,006 - 3,006
Own shares (38) - (38) (54) - (54)
================================= ====== =========== ============ ======= =========== ============ ========
Total equity 5,836 - 5,836 4,455 - 4,455
================================= ====== =========== ============ ======= =========== ============ ========
Notes:
1 Applying IFRS 10 to the Consolidated statement of financial position aggregates the line items
into the single line item "Investment in investment entities". In the Investment basis we
have disaggregated these items to analyse our net assets as if the Investment entity subsidiaries
were consolidated. The adjustment reclassifies items in the Consolidated statement of financial
position. There is no change to the net assets, although for reasons explained below, gross
assets and gross liabilities are different.
The disclosure relating to portfolio companies is significantly reduced by the aggregation,
as the fair value of all investments held by Investment entity subsidiaries is aggregated
into the "Investments in investment entities" line. We have disaggregated this fair value
and disclosed the underlying portfolio holding in the relevant line item, ie, quoted equity
investments or unquoted equity investments.
Other items which may be aggregated are carried interest and other payables, and the Investment
basis presentation again disaggregates these items.
2 Intercompany balances between Investment entity subsidiaries and trading subsidiaries also
impact the transparency of our results under the IFRS basis. If an Investment entity subsidiary
has an intercompany balance with a consolidated trading subsidiary of the Group, then the
asset or liability of the Investment entity subsidiary will be aggregated into its fair value,
while the asset or liability of the consolidated trading subsidiary will be disclosed as an
asset or liability in the Consolidated statement of financial position for the Group.
3 Investment basis financial statements are prepared for performance measurement and therefore
reserves are not analysed separately under this basis.
4 The IFRS basis is audited and the Investment basis is unaudited.
Reconciliation of consolidated cash flow statement
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2017 2017 2017 2016 2016 2016
Notes GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ----------- ------------ ------- ----------- ------------ -------
Cash flow from operating activities
Purchase of investments 1 (692) 358 (334) (449) 362 (87)
Proceeds from investments 1 1,063 (753) 310 771 (535) 236
Cash inflow from investment
entity subsidiaries 1 - 246 246 - 206 206
Net cash flow from derivatives - - - (14) - (14)
Portfolio interest received 1 16 (9) 7 15 (10) 5
Portfolio dividends received 1 66 (12) 54 71 (13) 58
Portfolio fees received 11 (2) 9 7 - 7
Fees received from external funds 1 71 - 71 78 - 78
Carried interest and performance
fees received 39 - 39 52 - 52
Carried interest and performance
fees paid 1 (131) 104 (27) (15) 2 (13)
Carried interest held in
non-current assets (56) 56 - - - -
Acquisition related earn-out
charges paid (1) - (1) (30) - (30)
Operating expenses 1 (131) - (131) (134) - (134)
Income taxes paid (2) - (2) - - -
----------------------------------- --- ----------- ------------ ------- ----------- ------------ -------
Other cash income 2 - 2 - - -
=================================== === =========== ============ ======= =========== ============ =======
Net cash flow from operating
activities 255 (12) 243 352 12 364
=================================== === =========== ============ ======= =========== ============ =======
Cash flow from financing
activities
Issue of shares 1 - 1 - - -
Dividends paid (230) - (230) (190) - (190)
Interest received 2 - 2 4 - 4
Interest paid (51) - (51) (51) - (51)
Repayment of short-term borrowings (264) - (264) - - -
Repurchase of short-term
borrowings (17) - (17) - - -
Co-investment loans 1 1 2 - - -
=================================== === =========== ============ ======= =========== ============ =======
Net cash flow from financing
activities (558) 1 (557) (237) - (237)
=================================== === =========== ============ ======= =========== ============ =======
Cash flow from investing
activities
Purchase of property, plant and
equipment 1 (1) - (1) (1) - (1)
Proceeds from sale of Debt
Management business 232 - 232 - - -
Cash held in sold subsidiaries (4) - (4) - - -
Net cash flow from deposits - - - (40) - (40)
=================================== === =========== ============ ======= =========== ============ =======
Net cash flow from investing
activities 227 - 227 (41) - (41)
=================================== === =========== ============ ======= =========== ============ =======
Change in cash and cash
equivalents 2 (76) (11) (87) 74 12 86
=================================== === =========== ============ ======= =========== ============ =======
Cash and cash equivalents at the
start of year 2 962 (5) 957 864 (3) 861
Effect of exchange rate
fluctuations 1 68 (7) 61 24 (14) 10
=================================== === =========== ============ ======= =========== ============ =======
Cash and cash equivalents at
the end of year 2 954 (23) 931 962 (5) 957
=================================== === =========== ============ ======= =========== ============ =======
Notes:
1 The Consolidated cash flow statement is impacted by the application of IFRS 10 as cash flows
to and from Investment entity subsidiaries are disclosed, rather than the cash flows to and
from the underlying portfolio.
Therefore in our Investment basis financial statements, we have disclosed our cash flow statement
on a "look through" basis, in order to reflect the underlying sources and uses of cash flows
and disclose the underlying investment activity.
2 There is a difference between the change in cash and cash equivalents of the Investment basis
financial statements and the IFRS financial statements because there are cash balances held
in Investment entity subsidiary vehicles. Cash held within Investment entity subsidiaries
will not be shown in the IFRS statements but will be seen in the Investment basis statements.
3 The IFRS basis is audited and the Investment basis is unaudited.
Alternative Performance Measures ("APMs")
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed APMs.
The APMs that we use may not be directly comparable with those used
by other companies. Our Investment basis is itself an APM.
The explanation of and rationale for the Investment basis and
its reconciliation to IFRS is provided above.
The table below defines our additional APMs.
APM Purpose Calculation Reconciliation to IFRS
============================ ============================ ============================ ============================
Gross investment return as a A measure of the performance It is calculated as the The equivalent balances
percentage of opening of our proprietary gross investment return, as under IFRS and the
portfolio value investment portfolio. shown in the Investment reconciliation to the
basis Consolidated Investment basis are shown
For further information see statement of comprehensive in the Reconciliation of the
the Group KPIs in our Annual income, as a % of the consolidated statement of
report. opening portfolio value. comprehensive income and the
Reconciliation
of the consolidated
statement of financial
position respectively.
============================ ============================ ============================ ============================
Cash realisations Cash proceeds from our The cash received from the The equivalent balance under
investments support our disposal of investments in IFRS and the reconciliation
returns to shareholders, as the year as shown in the to the Investment basis is
well as our ability Investment shown
to invest in new basis Consolidated cash flow in the Reconciliation of the
opportunities. statement. consolidated cash flow
statement.
For further information see
the Group KPIs in our Annual
report.
============================ ============================ ============================ ============================
Cash investment Identifying new The cash paid to acquire The equivalent balance under
opportunities in which to investments in the year as IFRS and the reconciliation
invest proprietary capital shown on the Investment to the Investment basis is
is the primary driver basis Consolidated shown
of the Group's ability to cash flow statement. in the Reconciliation of the
deliver attractive returns. consolidated cash flow
statement.
For further information see
the Group KPIs in our Annual
report.
============================ ============================ ============================ ============================
Operating cash profit By covering the cash cost of The cash income from the The equivalent balance under
running the business with portfolio (interest, IFRS and the reconciliation
cash income, we reduce the dividends and fees) together to the Investment basis is
potential with fees received shown
dilution of capital returns. from external funds less in the Reconciliation of the
cash operating expenses as consolidated cash flow
shown on the Investment statement.
basis Consolidated
cash flow statement. The
calculation is shown in
Table 10 of the Financial
review.
============================ ============================ ============================ ============================
Net cash/(net debt) A measure of the financial Cash and cash equivalents The equivalent balance under
risk in the Group's balance plus deposits less loans and IFRS and the reconciliation
sheet. borrowings as shown on the to the Investment basis is
Investment shown
basis Consolidated statement in the Reconciliation of the
of financial position. consolidated statement of
financial position.
============================ ============================ ============================ ============================
Gearing A measure of the financial Net debt (as defined above) The equivalent balance under
risk in the Group's balance as a % of the Group's net IFRS and the reconciliation
sheet. assets under the Investment to the Investment basis is
basis. It shown
cannot be less than zero. in the Reconciliation of the
consolidated statement of
financial position.
============================ ============================ ============================ ============================
Risk management
Effective risk management underpins the successful delivery of
our strategy. Integrity, rigour and accountability are central to
our values and culture at 3i and are embedded in our approach to
risk management.
Understanding our risk appetite and culture
As both an investor and asset manager, 3i is in the business of
taking risk in order to seek to achieve its targeted returns for
investors and shareholders. The Board approves the strategic
objectives that determine the level and types of risk that 3i is
prepared to accept. The Board reviews 3i's strategic objectives and
risk appetite at least annually.
3i's risk appetite policy, which is consistent with previous
years, is built on rigorous and comprehensive investment procedures
and conservative capital management.
Risk appetite
Our risk appetite is defined by our strategic objectives. We invest capital
in investment opportunities that will deliver capital returns and portfolio
and fund management cash income to cover our costs, and increase returns
to our investors.
Investment risk
The substantial majority of the Group's capital is invested in Private
Equity. Before the Group commits to an investment, we assess the opportunity
using the following criteria:
* return objective: individually assessed and subject
to a minimum target of 2x money multiple over three
to five years;
* geographic focus: core markets of northern Europe and
North America;
* sector expertise: focus on Business Services,
Consumer and Industrials; and
* vintage: invest up to GBP750 million per annum in
four to seven new investments in companies with an
enterprise value range of EUR100 million to EUR500
million at investment.
Investments made by 3iN need to be consistent with 3iN's overall return
target of 8% to 10% over the medium term and generate a mix of capital
and income returns. Other infrastructure investments made by the Group
should be capable of delivering capital growth and fund management fees
which together generate mid-teens returns.
Capital management
3i adopts a conservative approach to managing its capital resources as
follows:
* There is no appetite for structural gearing at the
Group level, but short-term tactical gearing will be
used.
* The Group does not hedge its currency exposure but it
does match currency realisations with investments
where possible and takes out short-term hedges
occasionally to hedge investments and realisations
between signing and completion.
* We have limited appetite for the dilution of capital
returns as a result of operating and interest
expenses. Both Private Equity and Infrastructure
generate cash income to mitigate this risk.
3i Group's Pillar 3 document can be found at www.3i.com
-----------------------------------------------------------------------------
Culture
Integrity, rigour and accountability are central to our values
and culture and are embedded in our approach to risk management.
Our Investment Committee, which has oversight of the investment
pipeline development and approves new investments, significant
portfolio changes and divestments, is integral to embedding our
institutional approach across the business. It ensures consistency
and compliance with 3i's financial and strategic requirements,
cultural values and appropriate investment behaviours. Members of
the Executive Committee have responsibility for their own business
or functional areas and the Group expects individual behaviours to
meet the Group's high standards of conduct. All employees share the
responsibility for upholding 3i's strong control culture and
supporting effective risk management. Senior managers, typically
those who report to Executive Committee members, are required to
confirm their individual and business area compliance annually. In
addition, all staff are assessed on how they have demonstrated 3i's
values as part of their annual appraisal.
The following sections explain how we control and manage the
risks in our business. They outline the key risks, our assessment
of their potential impact on our business in the context of the
current environment and how we seek to mitigate them.
Approach to risk governance
The Board is responsible for risk assessment, the risk
management process and for the protection of the Group's reputation
and brand integrity. It considers the most significant risks facing
the Group and uses quantitative analyses, such as the vintage
control which considers the portfolio concentration by revenue,
geography and sector, and liquidity reporting, where
appropriate.
Non-executive oversight is also exercised through the Audit and
Compliance Committee which focuses on upholding standards of
integrity, financial reporting, risk management, going concern and
internal control.
The Board has delegated the responsibility for risk oversight to
the Chief Executive. He is assisted by the Group Risk Committee
("GRC") in managing this responsibility, and guided by the Board's
appetite for risk and any specific limits set. The GRC maintains
the Group risk review, which summarises the Group's principal
risks, associated mitigating actions and key risk indicators, and
identifies any changes to the Group's risk profile. The risk review
is updated quarterly and the Chief Executive provides quarterly
updates to each Audit and Compliance Committee meeting where the
Committee members contribute views and raise questions. The last
risk review was completed in May 2017.
The risk framework is augmented by a separate Risk Management
Function which has specific responsibilities under the FCA's
Investment Funds Sourcebook. It meets ahead of the GRC meetings to
consider the key risks impacting the Group, and any changes in the
relevant period where appropriate. It also considers the separate
risk reports for each Alternative Investment Fund ("AIF") managed
by the Group, including areas such as portfolio composition,
portfolio valuation, operational updates and team changes, which
are then considered by the GRC.
Assurance over the robustness and effectiveness of the Group's
overarching risk management processes and compliance with relevant
policies is provided to the Audit and Compliance Committee through
the independent assessment by Internal Audit and the work of Group
Compliance on regulatory risks.
Assurance over the robustness of the Group's valuation policy is
provided by the Valuations Committee.
In addition to the above, a number of other committees
contribute to the Group's overall risk governance structure.
Risk management framework
The Group's risk management framework is designed to support the
delivery of the Group's strategic objectives.
The key principles that underpin risk management in the Group
are:
-- the Board and the Executive Committee promote a culture in
which risks are identified, assessed and reported in an open,
transparent and objective manner;
-- the Investment Committee ensures a centralised process-led approach to investment; and
-- the over-riding priority is to protect the Group's long-term
viability and reputation and produce sustainable, medium to
long-term cash-to-cash returns.
Managing the Group's Environmental, Social and Governance
("ESG") risks is central to how we do business and a key part of
our risk management framework. It also forms part of our
half-yearly portfolio company reviews as described in the
Valuations Committee report in our Annual report.
In practice, the Group operates a "three lines of defence"
framework for managing and identifying risk. The first line of
defence against outcomes outside our risk appetite is the business
function and the respective Managing Partners across Private Equity
and Infrastructure, and Debt Management (until 3 March 2017).
Line management is supported by oversight and control functions
such as finance, human resources and legal which constitute the
second line of defence. The compliance function is also in the
second line of defence; its duties include reviewing the effective
operation of our processes in meeting regulatory requirements.
Internal audit provides independent assurance over the operation
of controls and is the third line of defence. The internal audit
programme includes the review of risk management processes and
recommendations to improve the internal control environment.
Risk review process
The Group risk review process includes the monitoring of key
strategic and financial metrics considered to be indicators of
potential changes in the Group's risk profile. The review includes,
but is not limited to, the following reference data:
-- Group and business line KPIs;
-- portfolio analysis;
-- risk reports for managed AIFs; and
-- quarterly Group risk log.
In addition to the above, the GRC considers the impact of any
changes and developments to its risk profile, strategic delivery
and reputation quarterly.
The GRC uses the above to identify its principal risks. It then
evaluates the impact and likelihood of each risk, with reference to
associated measures and key performance indicators. The adequacy of
the mitigation plans is then assessed and, if necessary, additional
actions are agreed and then reviewed at the subsequent meeting.
A number of focus topics are also agreed in advance of each
meeting. In FY2017, the GRC covered the following:
-- a preliminary analysis of the potential impact of the UK's
decision to leave the EU on the Group;
-- a refresh of the Group's risk review process and reporting;
-- an update on ESG issues and themes, especially with respect to its portfolio companies;
-- a review of the Group's stress tests to support its Internal
Capital Adequacy Assessment Process ("ICAAP") and Viability
Statement;
-- a review of the Group's IT framework including cyber security;
-- the proposed risk disclosures in the 2017 Annual report and accounts; and
-- an overview of the main risk management aspects of the
Group's remuneration and performance management structures.
There were no significant changes to the Group's approach to
risk governance or its operation in FY2017 but we have continued to
refine our framework for risk management where appropriate,
including further steps to monitor our investment in Action.
Further details on 3i's approach as a responsible investor are
available at www.3i.com.
Principal risks and mitigations
Aligning risk to our strategic objectives
Review of principal risks
The disclosures on the following pages are not an exhaustive
list of risks and uncertainties faced by the Group, but rather a
summary of those principal risks which are under active review by
the GRC and Board, and are believed to have the potential to affect
materially the achievement of the Group's strategic objectives and
impact its financial performance, reputation and brand
integrity.
Although the business environment over the last 12 months has
been challenging, given the political and economic uncertainty and
volatile market conditions, there has been no significant change to
our risk management approach or risk appetite. The sale of our Debt
Management business, which completed on 3 March 2017, will allow
the Group to focus on proprietary capital investment, its advisory
relationship with 3iN, as well as new fund management initiatives
in Infrastructure. The sale of the Debt Management business has
reduced the regulatory complexity of the Group as it is no longer
subject to the CRDIV regime.
The Group believes that its consistent strategy of focusing on
core sectors and geographies, its institutional process-led
approach to investment and strong culture will help it to navigate
what it expects will be another challenging year for financial
markets.
External
The external environment remains difficult. There has been a
significant amount of uncertainty in the Eurozone and the wider
emerging markets economies, fuelled by a challenging global
macro-economic context and ongoing geo-political tensions. There
has been a significant amount of uncertainty in the global economy
over the last year and in particular following the result of the US
election and the UK's referendum on its membership of the EU. This
has been shown by the significant volatility seen in foreign
exchange and quoted markets this year. Our well-funded balance
sheet and diverse portfolio of international companies position us
well to address the wider implications of the EU referendum as they
unfold.
Notwithstanding this, large amounts of capital are focused on
Private Equity and Infrastructure which requires us to be diligent
and selective in our investment approach.
The Group is subject to a range of regulatory and tax reporting
requirements. In particular, as a multinational investment company,
the changes to the tax landscape require careful monitoring as
countries begin to consider and adopt the recommendations made by
the OECD's Base Erosion and Profit Shifting ("BEPS") project. The
UK has been among the first to adopt a number of the BEPS
recommendations, including the tax deductibility for corporate
interest expense, the tax treatment of hybrid instruments and
country-by-country reporting. The Group continues to monitor these
tax developments. Whilst the increased reporting is expected to
lead to an increase in the Group's interaction with the tax
authorities in the various jurisdictions in which it operates, it
is not currently expected to lead to a significant change in the
Group's overall tax profile.
Managing these requirements is a priority and regular updates
are provided to the Executive Committee and the Board. To date,
whilst complex to interpret and implement, they have had limited
practical impact on 3i's ability to deliver its strategy.
Investment
Investment risks are those in respect of specific asset
investment decisions and the subsequent performance of an
investment or exposure concentrations across business line
portfolios. They could materially impact our ability to achieve our
strategic objectives. To mitigate these risks, we focus on Private
Equity and Infrastructure sectors and geographies where our
expertise and network can drive significant outperformance.
Our overarching objectives are to source attractive investment
opportunities at the right price and execute their investment plans
successfully.
The investment case presented at the outset includes the
expected benefit of operational improvements, growth initiatives
and M&A activity that will be driven by our investment
professionals together with the portfolio company's management
team. It will also include a view on the likely exit strategy and
timing.
The execution of this investment case is monitored through two
key review processes. Our monthly portfolio monitoring reviews
current performance against budget and prior year and a set of
traffic light indicators and KPIs. Our semi-annual reviews focus on
the longer term plan for the investment together with any strategic
developments.
Finally, we recognise the need to plan and execute a successful
exit at the optimum time for the portfolio company's development,
taking consideration of market conditions. This risk is closely
linked to the economic environment noted above. Exit plans are
refreshed where appropriate in the semi-annual portfolio reviews
and the divestment process is clearly defined and overseen by the
Investment Committee.
The Investment Committee is involved in and approves every step
of the investment and realisation process.
In addition, there are a number of risks specific to each
business line as follows:
Private Equity
Regular and robust portfolio monitoring procedures remain
critical given the volatile economic backdrop and as the investment
portfolio becomes more concentrated. The Private Equity partners'
detailed monthly portfolio monitoring meeting is attended by the
Group Chief Executive and the Group Finance Director. In addition,
the Valuations Committee reviews the valuation assumptions of our
more material assets quarterly. Individual portfolio company
failures could have adverse reputational consequences for the
Group, even though the value impact may not be material. We review
our internal processes and investment decisions in light of actual
outcomes on an ongoing basis.
Infrastructure
Infrastructure remains focused on investing selectively within
its target sectors and developing both organic and inorganic growth
opportunities. The Infrastructure business was very active in
FY2016 and FY2017, where 3iN saw particularly strong levels of
investment, and a GBP385 million capital raise, in FY2017. In
addition, the team has launched three initiatives in Europe and
North America to broaden its coverage of the infrastructure sector
in areas of the market complementary to the core investment focus
of 3iN, which remains the primary investment vehicle for the
business line. To mitigate risks associated with managing this
strong growth in 3iN and the wider infrastructure business, the
team has invested in its origination and asset management
capability through new hires and internal promotions to Partner and
Director level in Europe and an Infrastructure team in the US, and
has enhanced its finance, strategy and investor relations teams.
Further hires will be made in FY2018. We also hold monthly
portfolio monitoring meetings and bi-annual investment reviews.
Operational
Following an external review of 3i's cyber security capabilities
and controls, the Group implemented a number of new protection and
detection tools. This, together with a major upgrade to our IT
infrastructure, has delivered a more robust cyber security
framework.
The Board also received regular updates on ESG risks and whether
our investors' skill sets and business development capabilities
could support the Group's strategic delivery. Detailed resource
plans are in place at the business line level and the Board
conducts an annual review of the Group's organisational capability
and succession plans (which include contingencies against loss of
key staff). The last review was conducted in September 2016.
Viability statement
The Directors have assessed 3i's viability over a three-year period to
March 2020. 3i conducts its strategic planning over a five-year period;
this statement is based on the first three years, which provides more
certainty over the forecasting assumptions used. 3i's strategic plan,
ICAAP and associated principal risks (as set out in the Review of principle
risks) are the foundation of the Directors' assessment.
The assessment is overseen by the Group Finance Director and is subject
to challenge by the GRC, review by the Audit and Compliance Committee
and the Board.
Our Group strategic plan projects the performance, net asset value and
liquidity of 3i over a five-year period and is presented at the Directors'
annual strategy away day and updated throughout the year as appropriate.
At the strategy away day, the Directors consider the strategy and opportunities
for, and threats to, each business line and the Group as a whole. The
outcome of those discussions is included in the next iteration of the
strategic plan which is then used to support the viability assessment.
The Group's ICAAP and viability testing considers multiple severe, yet
plausible, scenarios including a severe downside economic scenario and
the impact of a material single asset event. The severe downside used
in FY2017 assumes that the global economy enters a severe recession; global
equities fall and long-term interest rates reach new lows. The material
single asset event considers the impact of a significant asset experiencing
a severe downturn in performance.
We project the amount of capital we need in the business to cover our
risks, including financial and operational risks, under such stress scenarios.
Our analysis shows that, while there may be a significant impact on the
Group's reported performance in the short term under these scenarios,
the resilience and quality of our balance sheet is such that solvency
is maintained and our business remains viable.
Taking the inputs from the strategic planning process, the ICAAP and its
stress scenarios, Directors reviewed an assessment of the potential effects
of 3i's principal risks on its current portfolio and forecast investment
and realisation activity and the consequent impact on 3i's capital and
liquidity.
Based on this assessment, the Directors have a reasonable expectation
that the Company and the Group will be able to continue in operation and
meet all their liabilities as they fall due up to at least March 2020.
--------------------------------------------------------------------------------
By order of the Board
Simon Borrows
Chief Executive
17 May 2017
Consolidated statement of comprehensive income
for the year to 31 March
2017 2016(1)
Notes GBPm GBPm
================================================================================= ====== ====== ========
Realised (losses)/profits over value on the disposal of investments (25) 11
Unrealised profits on the revaluation of investments 262 114
Fair value movements on investment entity subsidiaries 1,041 591
Portfolio income
Dividends 38 36
Interest income from investment portfolio 10 22
Fees receivable 9 9
Foreign exchange on investments 64 29
================================================================================= ====== ====== ========
Gross investment return 1,399 812
Fees receivable from external funds 46 41
Operating expenses (116) (105)
Interest received 2 4
Interest paid (49) (47)
Exchange movements 42 64
Income/(expense) from investment entity subsidiaries 18 (10)
Other income 10 -
Carried interest
Carried interest and performance fees receivable 280 73
Carried interest and performance fees payable (108) (38)
Operating profit before tax 1,524 794
Income taxes 2 3 (2)
================================================================================= ====== ====== ========
Profit for the year from continuing operations 1,527 792
Profit for the year from discontinued operations, net of tax 8 98 25
================================================================================= ====== ====== ========
Profit for the year 1,625 817
================================================================================= ====== ====== ========
Other comprehensive (expense)/income that may be reclassified to the income statement
Exchange differences on translation of foreign operations (4) 11
Other comprehensive expense that will not be reclassified to the income statement
Re-measurements of defined benefit plans (22) (6)
================================================================================ ====== ====== ========
Other comprehensive (expense)/income for the year from continuing operations (26) 5
================================================================================= ====== ====== ========
Other comprehensive (expense)/income for the year from discontinued operations 8 (7) 2
================================================================================= ====== ====== ========
Total comprehensive income for the year ("Total return") 1,592 824
================================================================================= ====== ====== ========
Earnings per share from continuing operations
Basic (pence) 3 159.0 83.0
Diluted (pence) 3 158.3 82.6
================================================================================= ====== ====== ========
Earnings per share
Basic (pence) 3 169.2 85.6
Diluted (pence) 3 168.4 85.2
================================================================================ ====== ====== ========
Dividend per share
Interim dividend per share paid (pence) 4 8.0 6.0
Final dividend per share (pence) 4 18.5 16.0
================================================================================ ====== ====== ========
1 Comparatives for the year ended 31 March 2016 have been re-presented
to reflect the classification of the Group's Debt Management business,
sold on 3 March 2017, as discontinued operations. See Note 8.
The Notes to the accounts form an integral part of these
financial statements.
Consolidated statement of financial position
as at 31 March
2017 2016
Notes GBPm GBPm
=================================================== ====== ====== ========
Assets
Non-current assets
Investments
Quoted investments 390 297
Unquoted investments 1,316 1,243
Investments in investment entity subsidiaries 3,483 2,680
=================================================== ====== ====== ========
Investment portfolio 5,189 4,220
=================================================== ====== ====== ========
Carried interest and performance fees receivable 354 89
Other non-current assets 50 37
Intangible assets - 12
Retirement benefit surplus 121 132
Property, plant and equipment 5 5
Deferred income taxes 2 - 3
=================================================== ====== ====== ========
Total non-current assets 5,719 4,498
=========================================================== ====== ========
Current assets
Carried interest and performance fees receivable 9 28
Other current assets 12 31
Current income tax 2 -
Deposits 40 40
Cash and cash equivalents 931 957
=========================================================== ====== ========
Total current assets 994 1,056
=========================================================== ====== ========
Total assets 6,713 5,554
=========================================================== ====== ========
Liabilities
Non-current liabilities
Trade and other payables (24) (27)
Carried interest and performance fees payable (124) (85)
Loans and borrowings 6 (575) (575)
Retirement benefit deficit (22) (20)
Provisions (2) (1)
=================================================== ====== ====== ========
Total non-current liabilities (747) (708)
=========================================================== ====== ========
Current liabilities
Trade and other payables (103) (99)
Carried interest and performance fees payable (23) (20)
Acquisition related earn-out charges payable - (1)
Loans and borrowings 6 - (262)
Current income taxes - (2)
Provisions (4) (7)
=================================================== ====== ====== ========
Total current liabilities (130) (391)
=========================================================== ====== ========
Total liabilities (877) (1,099)
=========================================================== ====== ========
Net assets 5,836 4,455
=========================================================== ====== ========
Equity
Issued capital 719 719
Share premium 785 784
Capital redemption reserve 43 43
Share-based payment reserve 30 32
Translation reserve 218 229
Capital reserve 3,390 2,080
Revenue reserve 689 622
Own shares (38) (54)
=================================================== ====== ====== ========
Total equity 5,836 4,455
=========================================================== ====== ========
The Notes to the accounts form an integral part of these
financial statements.
Simon Thompson
Chairman
17 May 2017
Consolidated statement of changes in equity
for the year to 31 March
Share-
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve reserve shares equity
2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total equity at the
start of the year 719 784 43 32 229 2,080 622 (54) 4,455
Profit for the year - - - - - 1,489 136 - 1,625
Exchange differences
on translation of
foreign operations - - - - (4) - - - (4)
Re-measurements of
defined benefit plans - - - - - (22) - - (22)
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Other comprehensive
income from
discontinued
operations - - - - (7) - - - (7)
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total comprehensive
income for the year - - - - (11) 1,467 136 - 1,592
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Share-based payments - - - 18 - - - - 18
Release on exercise /
forfeiture of share
options - - - (20) - - 20 - -
Exercise of share
awards - - - - - (16) - 16 -
Ordinary dividends - - - - - (39) (89) - (128)
Additional dividends - - - - - (102) - - (102)
Issue of ordinary
shares - 1 - - - - - - 1
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total equity at the
end of the year 719 785 43 30 218 3,390 689 (38) 5,836
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Share-
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve(2) reserve reserve shares equity
2016(1) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ======== ======== =========== ======== ============ ======== ======== ============= =======
Total equity at
the
start of the
year 719 784 43 31 216 1,519 573 (79) 3,806
Profit for the
year - - - - - 705 112 - 817
Exchange
differences
on translation
of
foreign
operations - - - - 11 - - - 11
Re-measurements
of
defined benefit
plans - - - - - (6) - - (6)
----------------- -------- -------- ----------- -------- ------------ -------- -------- ------------- -------
Other
comprehensive
income from
discontinued
operations - - - - 2 - - - 2
================= ======== ======== =========== ======== ============ ======== ======== ============= =======
Total
comprehensive
income for the
year - - - - 13 699 112 - 824
================= ======== ======== =========== ======== ============ ======== ======== ============= =======
Share-based
payments - - - 15 - - - - 15
Release on
exercise /
forfeiture of
share options - - - (14) - - 14 - -
Exercise of
share awards - - - - - (25) - 25 -
Ordinary
dividends - - - - - - (77) - (77)
Additional
dividends - - - - - (113) - - (113)
================= ======== ======== =========== ======== ============ ======== ======== ============= =======
Total equity at
the
end of the year 719 784 43 32 229 2,080 622 (54) 4,455
================= ======== ======== =========== ======== ============ ======== ======== ============= =======
1 Comparatives for the year ended 31 March 2016 have been re-presented
to reflect the classification of the Group's Debt Management business
2 sold on 3 March 2017, as discontinued operations. See Note 8.
Translation reserve balance at 31 March 2016 included GBP7 million in
relation to discontinued operations.
The Notes to the accounts form an integral part of these
financial statements.
Consolidated cash flow statement
for the year to 31 March
2017 2016
Notes GBPm GBPm
================================================= ================= ====== ======
Cash flow from operating activities
Purchase of investments (334) (87)
Proceeds from investments 310 236
Cash inflow from investment entity subsidiaries 246 206
Net cash flow from derivatives - (14)
Portfolio interest received 7 5
Portfolio dividends received 54 58
Portfolio fees received 9 7
Fees received from external funds 71 78
Carried interest and performance fees received 39 52
Carried interest and performance fees paid (27) (13)
Acquisition related earn-out charges paid (1) (30)
Operating expenses paid (131) (134)
Other cash income 2 -
Income taxes paid (2) -
================================================= ================= ====== ======
Net cash flow from operating activities 243 364
================================================= ================= ====== ======
Cash flow from financing activities
Issue of shares 1 -
Dividend paid 4 (230) (190)
Repayment of short-term borrowings (264) -
Repurchase of short-term borrowings (17) -
Interest received 2 4
Interest paid (51) (51)
Co-investment loans 2 -
================================================= ================= ====== ======
Net cash flow from financing activities (557) (237)
================================================= ================= ====== ======
Cash flow from investing activities
Proceeds from sale of Debt Management business 8 232 -
Cash held in disposed subsidiaries 8 (4) -
Purchases of property, plant and equipment (1) (1)
Net cash flow from deposits - (40)
================================================= ================= ====== ======
Net cash flow from investing activities 227 (41)
================================================= ================= ====== ======
Change in cash and cash equivalents (87) 86
================================================= ================= ====== ======
Cash and cash equivalents at the start of year 957 861
Effect of exchange rate fluctuations 61 10
================================================= ================= ====== ======
Cash and cash equivalents at the end of year 931 957
================================================= ================= ====== ======
The Notes to the accounts form an integral part of these
financial statements.
Significant accounting policies
Reporting entity
3i Group plc (the "Company") is a public limited company
incorporated and domiciled in England and Wales. The Consolidated
financial statements ("the Group accounts") for the year to 31
March 2017 comprise the financial statements of the Company and its
consolidated subsidiaries (collectively, "the Group").
The Group accounts have been prepared and approved by the
Directors in accordance with section 395 of the Companies Act 2006
and the Large and Medium-Sized Companies and Groups (Accounts and
Reports) Regulations 2008. The Company has taken advantage of the
exemption in section 408 of the Companies Act 2006 not to present
its Company statement of comprehensive income and related
Notes.
A number of accounting policies are disclosed below, but where
possible, they have been shown as part of the Note to which they
specifically relate in order to assist the reader's
understanding.
A Compliance with International Financial Reporting Standards
("IFRS")
The Group and Company accounts have been prepared and approved
by the Directors in accordance with all relevant IFRSs as issued by
the International Accounting Standards Board ("IASB"), and
interpretations issued by the IFRS Interpretations Committee,
endorsed by the European Union ("EU").
The following standards, amendments and interpretations have
been issued with implementation dates, subject to EU endorsement in
some cases, which do not impact on these financial statements:
Effective for annual periods beginning on or after
=================================================================================================
IAS 7 Disclosure initiative (amendments to IAS 7 - Statement of Cash Flows) 1 January 2017
IFRS 9 Financial instruments 1 January 2018
IFRS 15 Revenue from contracts with customers 1 January 2018
IFRS 16 Leases 1 January 2019
======== ====================================================================== ===============
The impact of future standards and amendments on the financial
statements is being assessed by the Group and the Company. The
Group does not anticipate that IFRS 9 and IFRS 16 will have a
material impact on its results. The detailed assessment of the
extent to which IFRS 15 may affect the carried interest receivable
recognition in the Group's financial statements is ongoing.
B Basis of preparation
The financial statements are prepared on a going concern basis
as disclosed in the Directors' report and presented to the nearest
million.
C Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control, as
defined by IFRS 10, is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over
the investee. Subsidiaries are fully consolidated from the date on
which the Group effectively obtains control. They are
de-consolidated from the date that control ceases.
3i Group plc is an investment entity and, as such, does not
consolidate the investment entities it controls. Most of the
Group's interests in subsidiaries are recognised at fair value
through profit or loss. Those subsidiaries which provide investment
related services, such as advisory, management or employment
services, are not classified at fair value through profit and loss
and continue to be consolidated unless they are deemed investment
entities, in which case they are fair valued.
The acquisition method of accounting is used to account for the
acquisition of subsidiaries. Under the acquisition method of
accounting, with some limited exceptions, the assets, liabilities
and contingent liabilities of a subsidiary are measured at their
fair values at the date of acquisition. Any non-controlling
interest is measured either at fair value or at the non-controlling
interest's proportion of the net assets acquired. Acquisition
related costs are accounted for as expenses when incurred. Any
excess of the cost of acquisition over net assets is capitalised as
goodwill. All intra-group balances, transactions, income and
expenses are eliminated upon consolidation.
(ii) Associates
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating
policies. Investments that are held as part of the Group's
investment portfolio are carried in the Consolidated statement of
financial position at fair value even though the Group may have
significant influence over those companies.
(iii) Composition of the Group
The Group comprises several different types of subsidiaries. The
Group re-assesses the function performed by each type of subsidiary
to determine its treatment under the IFRS 10 exception from
consolidation on an annual basis. The types of subsidiaries and
their treatment under IFRS 10 are as follows:
General Partners (GPs) - Consolidated
General Partners provide investment management services and do
not hold any direct investments in portfolio assets. These entities
are not investment entities.
Investment managers/advisers - Consolidated
These entities provide investment related services through the
provision of investment management or advice. They do not hold any
direct investments in portfolio assets. These entities are not
investment entities.
Holding companies of investment managers/advisers -
Consolidated
These entities provide investment related services through their
subsidiaries. Typically they do not hold any direct investment in
portfolio assets and these entities are not investment
entities.
Limited Partnerships and other intermediate investment holding
structures - Fair valued
The Group makes investments in portfolio assets through its
ultimate parent company as well as through other limited
partnerships and corporate subsidiaries which the Group has created
to align the interests of the investment teams with the performance
of the assets through the use of various carried interest schemes.
The purpose of these limited partnerships and corporate holding
vehicles, many of which also provide investment related services,
is to invest for investment income and capital appreciation. These
partnerships meet the definition of an investment entity and are
classified at fair value through profit and loss.
Portfolio investments - Fair valued
Under IFRS 10, the test for accounting subsidiaries takes wider
factors of control as well as actual equity ownership into account.
In accordance with the investment entity exception, these entities
have been held at fair value with movements in fair value being
recognised in the Consolidated statement of comprehensive
income.
Structured entities - Fair valued
The Group has retained interests in a number of unconsolidated
structured entities, being CLO equity investments.
D Critical accounting estimates and judgements
The reported results of the Group are sensitive to the
accounting policies, assumptions and estimates that underlie the
preparation of its financial statements. UK company law and IFRS
require the Directors, in preparing the Group's financial
statements, to select suitable accounting policies, apply them
consistently and make judgements and estimates that are reasonable
and prudent. The Group's estimates and assumptions are based on
historical experience and expectation of future events and are
reviewed periodically. The actual outcome may be materially
different from that anticipated.
The judgements, assumptions and estimates involved in the
Group's accounting policies that are considered by the Board to be
the most important to the portrayal of its financial condition are
the following:
(a) The fair valuation of the investment portfolio
The investment portfolio is held at fair value. Given the
importance of this area, the Board has a separate Valuations
Committee to review the valuations policies, process and
application to individual investments. A report on the activities
of the Valuations Committee is included in the Governance section
of the Annual report.
(b) Assessment as an investment entity
Entities that meet the definition of an investment entity within
IFRS 10 are required to account for most investments in controlled
entities, as well as investments in associates and joint ventures,
at fair value through profit and loss.
The Board has concluded that the Company continues to meet the
definition of an investment entity as its strategic objective of
investing in portfolio investments and providing investment
management services to investors for the purpose of generating
returns in the form of investment income and capital appreciation
remains unchanged.
The Group is required to determine the degree of control or
influence the Group exercises and the form of any control to ensure
that the financial treatment is accurate. Further detail on our
review of our application of IFRS 10 can be found in the
Reconciliation of Investment basis to IFRS section.
(c) Valuation of the defined benefit schemes
The Group also considers the valuation of the defined benefit
schemes in accordance with IAS 19 to be a significant estimate. The
Group reviews its assumptions annually with its independent
actuaries.
E Other accounting policies
(a) Revenue recognition
Gross investment return is equivalent to "revenue" for the
purposes of IAS 1. It represents the overall increase in net assets
from the investment portfolio net of deal-related costs and
includes foreign exchange movements in respect of the investment
portfolio. Investment income is analysed into the following
components:
I. Realised profits or losses over value on the disposal of
investments are the difference between the fair value of the
consideration received less any directly attributable costs, on the
sale of equity and the repayment of interest income from investment
portfolio, and its carrying value at the start of the accounting
period, converted into sterling using the exchange rates in force
at the date of disposal.
II. Unrealised profits or losses on the revaluation of
investments are the movement in the fair value of investments
between the start and end of the accounting period converted into
sterling using the exchange rates in force at the date of fair
value assessment.
III. Fair value movements on investment entity subsidiaries are
the movements in the fair value of Group subsidiaries which are
classified as investment entities under IFRS 10. The Group makes
investments in portfolio assets through these entities which are
usually limited partnerships or corporate subsidiaries.
IV. Portfolio income is that portion of income that is directly
related to the return from individual investments. It is recognised
to the extent that it is probable that there will be economic
benefit and the income can be reliably measured. The following
specific recognition criteria in accordance with IAS 18 must be met
before the income is recognised:
-- Dividends from equity investments are recognised in the
Consolidated statement of comprehensive income when the
shareholders' rights to receive payment have been established.
Income received on the investment in the most junior ranked level
of CLO capital is recognised as a dividend. GBP26 million was
received in the year (2016: GBP31 million) from continuing and
discontinued operations.
-- Interest income from investment portfolio is recognised as it
accrues by reference to the principal outstanding and the effective
interest rate applicable, which is the rate that exactly discounts
the estimated future cash flows through the expected life of the
financial asset to the asset's carrying value. When the fair value
of an investment is assessed to be below the principal value of a
loan the Group recognises a provision against any interest accrued
from the date of the assessment going forward until the investment
is assessed to have recovered in value. Income received on the
instruments in the most junior level of CLO capital is recognised
as a dividend as detailed above. GBP26 million was received in the
year (2016: GBP31 million) from continuing and discontinued
operations.
-- Fee income is earned directly from investee companies when an
investment is first made and through the life of the investment.
Fees that are earned on a financing arrangement are considered to
relate to a financial asset measured at fair value through profit
or loss and are recognised when that investment is made. Fees that
are earned on the basis of providing an ongoing service to the
investee company are recognised as that service is provided.
V. Foreign exchange on investments arises on investments made in
currencies that are different from the functional currency of the
Group entity. Investments are translated at the exchange rate
ruling at the date of the transaction. At each subsequent reporting
date investments are translated to sterling at the exchange rate
ruling at that date.
(b) Foreign currency translation
For the Company and those subsidiaries whose balance sheets are
denominated in sterling, which is the Company's functional and
presentational currency, monetary assets and liabilities
denominated in foreign currencies are translated into sterling at
the closing rates of exchange at the balance sheet date. Foreign
currency transactions are translated into sterling at the average
rates of exchange over the year and exchange differences arising
are taken to the Consolidated statement of comprehensive
income.
The statements of financial position of subsidiaries and
associates denominated in foreign currencies are translated into
sterling at the closing rates. The statements of comprehensive
income for these subsidiaries and associates are translated at the
average rates and exchange differences arising are taken to other
comprehensive income. Such exchange differences are reclassified to
the Consolidated statement of comprehensive income in the period in
which the subsidiary or associate is disposed of.
Exchange movements in relation to forward foreign exchange
contracts are included within exchange movements in the
Consolidated statement of comprehensive income, where appropriate.
No forward foreign exchange contracts were held in the current year
and in 2016 a GBP14 million loss was recognised in exchange
movements.
(c) Treasury assets and liabilities
Short-term treasury assets and short and long-term treasury
liabilities are used in order to manage cash flows and minimise the
overall costs of borrowing.
Cash and cash equivalents comprise cash at bank, short-term
deposits and amounts held in money market funds, which are readily
convertible into cash and there is an insignificant risk of changes
in value. Financial assets and liabilities are recognised in the
balance sheet when the relevant Group entity becomes a party to the
contractual provisions of the instrument. De-recognition occurs
when rights to cash flows from a financial asset expire, or when a
liability is extinguished.
Notes to the accounts
1 Segmental analysis
Operating segments are the components of the Group whose results
are regularly reviewed by the Group's chief operating decision
maker to make decisions about resources to be allocated to the
segment and assess its performance.
The Chief Executive, who is considered to be the chief operating
decision maker, managed the Group on the basis of business
divisions determined with reference to market focus, geographic
focus, investment funding model and the Group's management
hierarchy. A description of the activities, including products and
services offered by these divisions and the allocation of
resources, is given in the Strategic report. For the geographical
segmental split, revenue information is based on the locations of
the assets held.
The segmental information that follows is presented on the basis
used by the Chief Executive to monitor the performance of the
Group. The reported segments are Private Equity, Infrastructure and
other, where other comprises the residual investments retained
following the sale of our Debt Management business.
1 Segmental analysis
Investment basis Total
--------------------------------------- -------- --------------- --------- ----------- -------------- --------
Private continuing Discontinued
Equity Infrastructure Other(1) operations operations(1) Total
Year to 31 March 2017 GBPm GBPm GBPm GBPm GBPm GBPm
======================================= ======== =============== ========= =========== ============== ========
Realised profits/(losses) over value
on the disposal of investments 38 (1) 1 38 - 38
Unrealised profits on the revaluation
of
investments 1,274 59 9 1,342 3 1,345
Portfolio income
Dividends 8 23 19 50 16 66
Interest income from investment
portfolio 50 --- - 50 3 53
Fees receivable 6 - - 6 - 6
Foreign exchange on investments 248 6 15 269 16 285
======================================= ======== =============== ========= =========== ============== ========
Gross investment return 1,624 87 44 1,755 38 1,793
======================================= ======== =============== ========= =========== ============== ========
Fees receivable from external funds 10 36 - 46 25 71
Operating expenses (76) (41) - (117) (13) (130)
Interest receivable 2 - 2
Interest payable (49) - (49)
Exchange movements 28 (9) 19
--------------------------------------- -------- --------------- --------- ----------- -------------- --------
Other income 10 2 12
======================================= ======== =============== ========= =========== ============== ========
Operating profit before carry 1,675 43 1,718
======================================= ======== =============== ========= =========== ============== ========
Carried interest
Carried interest and performance
fees receivable 275 4 - 279 1 280
Carried interest and performance
fees payable (431) (3) - (434) - (434)
Operating profit 1,520 44 1,564
======================================= ======== =============== ========= =========== ============== ========
Profit on disposal of Debt Management
business before tax - 48 48
--------------------------------------- -------- --------------- --------- ----------- -------------- --------
Income taxes 3 (1) 2
Other comprehensive income
Re-measurements of defined benefit
plans (22) - (22)
====================================== ======== =============== ========= =========== ============== ========
Total return 1,501 91 1,592
======================================= ======== =============== ========= =========== ============== ========
Net divestment/(investment)
Realisations(2) 982 12 11 1,005 270 1,275
Cash investment (478) (131) (29) (638) (51) (689)
======================================= ======== =============== ========= =========== ============== ========
504 (119) (18) 367 219 586
======================================= ======== =============== ========= =========== ============== ========
Balance sheet
Opening portfolio value at 1 April
2016(3) 3,741 527 92 4,360 137 4,497
Investment(4) 548 131 29 708 51 759
Value disposed (944) (13) (10) (967) (191) (1,158)
Unrealised value movement 1,274 59 9 1,342 3 1,345
Other movement(5) 212 2 18 232 - 232
======================================= ======== =============== ========= =========== ============== ========
Closing portfolio value at 31 March
2017 4,831 706 138 5,675 - 5,675
======================================= ======== =============== ========= =========== ============== ========
1 Discontinued operations relate to the Debt Management business sold to Investcorp. Other relates
to the residual Debt Management investments retained by 3i.
2 Private Equity does not include proceeds paid from investee holding companies of GBP33 million.
Total proceeds from the sale of the Debt Management business were GBP270 million, of which
GBP17 million related to the investment made by 3i Group plc on behalf of Debt Management
Investments Ltd and GBP16 million related to an intercompany loan provided by 3i Group plc
to Debt Management US LLC and not included within the consolidated Group.
3 The opening portfolio values have been re-presented to reflect the classification of the Group's
Debt Management business sold to Investcorp as discontinued operations. See Note 8. The residual
Debt Management stakes are included within Other.
4 Includes capitalised interest and other non-cash investment.
5 Other movement relates to foreign exchange and the provisioning of capitalised interest.
Investment basis Total
---------------------------------------- -------- --------------- --------- ----------- -------------- -------
Private continuing Discontinued
Equity Infrastructure Other(1) operations Operations(1) Total
Year to 31 March 2016 GBPm GBPm GBPm GBPm GBPm GBPm
======================================== ======== =============== ========= =========== ============== =======
Realised profits over value on the
disposal
of investments 69 3 - 72 - 72
Unrealised profits/(losses) on the
revaluation of investments 690 22 (22) 690 (21) 669
Portfolio income
Dividends 18 21 10 49 22 71
Interest income from investment
portfolio 59 - - 59 4 63
Fees receivable/(payable) 7 - - 7 (1) 6
Foreign exchange on investments 168 1 5 174 14 188
======================================== ======== =============== ========= =========== ============== =======
Gross investment return 1,011 47 (7) 1,051 18 1,069
======================================== ======== =============== ========= =========== ============== =======
Fees receivable from external funds 13 28 - 41 38 79
Operating expenses(2) (75) (32) - (107) (27) (134)
Interest receivable 4 - 4
Interest payable (47) - (47)
Exchange movements (31) - (31)
======================================== ======== =============== ========= =========== ============== =======
Operating profit before carry 911 29 940
======================================== ======== =============== ========= =========== ============== =======
Carried interest
Carried interest and performance
fees receivable 58 20 - 78 5 83
Carried interest and performance
fees payable (171) (15) - (186) (2) (188)
Acquisition related earn-out charges - - - - (5) (5)
======================================== ======== =============== ========= =========== ============== =======
Operating profit 803 27 830
======================================== ======== =============== ========= =========== ============== =======
Income taxes - - -
Other comprehensive income
Re-measurements of defined benefit
plans (6) - (6)
======================================= ======== =============== ========= =========== ============== =======
Total return 797 27 824
======================================== ======== =============== ========= =========== ============== =======
Net divestment/(investment)
Realisations(3) 743 51 - 794 2 796
Cash investment(4) (365) - (68) (433) (20) (453)
======================================== ======== =============== ========= =========== ============== =======
378 51 (68) 361 (18) 343
======================================== ======== =============== ========= =========== ============== =======
Balance sheet
Opening portfolio value at 1 April 2015 3,148 553 51 3,752 125 3,877
Investment(5) 464 - 68 532 20 552
Value disposed (674) (48) - (722) (2) (724)
Unrealised value movement 690 22 (22) 690 (21) 669
Other movement(6) 113 - (5) 108 15 123
======================================== ======== =============== ========= =========== ============== =======
Closing portfolio value at 31 March
2016 3,741 527 92 4,360 137 4,497
======================================== ======== =============== ========= =========== ============== =======
1 Discontinued operations comprise the Debt Management business sold to Investcorp on 3 March
2017. Operating expenses have been re-presented to reflect only direct expenses relating to
Debt Management within discontinued operations. Other relates to the residual Debt Management
investments retained by 3i.
2 Includes restructuring costs of GBP5 million for Private Equity.
3 GBP25 million in Private Equity relates to proceeds held back in the holding company of the
investee company.
4 Includes GBP4 million of Debt Management investment awaiting settlement at 31 March 2016.
5 Includes capitalised interest and other non-cash investment.
6 Other movement relates to foreign exchange and the provisioning of capitalised interest. Within
discontinued operations, GBP9 million relates to capital withdrawn from the Palace Street
I portfolio.
Investment basis Northern North Rest of
UK Europe America World Total
Year to 31 March 2017 GBPm GBPm GBPm GBPm GBPm
============================================== ====== ========= ======== ======== =======
Gross investment return
Realised (losses)/ profits over value on the
disposal of investments (33) 51 12 8 38
Unrealised profits/(losses) on the
revaluation of investments 160 1,183 12 (10) 1,345
Portfolio income/(expense) 34 77 15 (1) 125
Foreign exchange on investments 1 196 43 45 285
============================================== ====== ========= ======== ======== =======
162 1,507 82 42 1,793
============================================== ====== ========= ======== ======== =======
Net divestment/(investment)
Realisations 239 818 179 39 1,275
Cash investment (131) (488) (69) (1) (689)
============================================== ====== ========= ======== ======== =======
108 330 110 38 586
============================================== ====== ========= ======== ======== =======
Balance sheet
Closing portfolio value at 31 March 2017 1,309 3,639 349 378 5,675
============================================== ====== ========= ======== ======== =======
Investment basis Northern North Rest of
UK Europe America World Total
Year to 31 March 2016 GBPm GBPm GBPm GBPm GBPm
========================================== ====== ========= ======== ======== ======
Gross investment return
Realised profits over value on the
disposal of investments 8 49 4 11 72
Unrealised profits/(losses) on the
revaluation of investments 11 707 (50) 1 669
Portfolio income 59 66 12 3 140
Foreign exchange on investments 2 175 11 - 188
========================================== ====== ========= ======== ======== ======
80 997 (23) 15 1,069
========================================== ====== ========= ======== ======== ======
Net divestment/(investment)
Realisations 62 586 96 52 796
Cash investment (121) (272) (60) - (453)
========================================== ====== ========= ======== ======== ======
(59) 314 36 52 343
========================================== ====== ========= ======== ======== ======
Balance sheet
Closing portfolio value at 31 March 2016 1,240 2,498 385 374 4,497
========================================== ====== ========= ======== ======== ======
2 Income taxes
Accounting policy:
Income taxes represent the sum of the tax currently payable,
withholding taxes suffered and deferred tax. Tax is charged or
credited in the Consolidated statement of comprehensive income,
except where it relates to items charged or credited directly to
equity, in which case the tax is also dealt within equity.
The tax currently payable is based on the taxable profit for the
year. This may differ from the profit included in the Consolidated
statement of comprehensive income because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible.
To enable the tax charge to be based on the profit for the year,
deferred tax is provided in full on temporary timing differences,
at the rates of tax expected to apply when these differences
crystallise. Deferred tax assets are recognised only to the extent
that it is probable that sufficient taxable profits will be
available against which temporary differences can be set off. All
deferred tax liabilities are offset against deferred tax assets,
where appropriate, in accordance with the provisions of IAS 12.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
The main rate of UK corporation tax is to be reduced from 20% to
19% from 1 April 2017, and further to 17% from 1 April 2020. These
changes will affect future UK corporate taxes payable and the rate
at which deferred tax assets are expected to reverse.
2017 2016
GBPm GBPm
======================================================================================== ===== =====
Current taxes
Current year 1 4
Prior year (4) (1)
Deferred taxes
Deferred income taxes - (1)
======================================================================================== ===== =====
Total income tax (credit)/charge in the Consolidated statement of comprehensive income (3) 2
======================================================================================== ===== =====
Reconciliation of income taxes in the Consolidated statement of
comprehensive income
The tax charge for the year is different to the standard rate of
corporation tax in the UK, currently 20% (2016: 20%), and the
differences are explained below:
2017 2016
GBPm GBPm
========================================================================================= ====== ======
Profit before tax 1,524 794
Profit before tax multiplied by rate of corporation tax in the UK of 20% (2016: 20%) 305 159
Effects of:
Non-taxable capital profits due to UK approved investment trust company status (309) (165)
Non-taxable dividend income (6) (5)
(10) (11)
Other differences between accounting and tax profits:
Permanent differences - non-deductible items - 4
Temporary differences on which deferred tax is not recognised 4 2
Overseas countries taxes (3) 2
Excess unutilised tax losses arising in the period 6 5
======================================================================================== ====== ======
Total income tax (credit)/charge in the Consolidated statement of comprehensive income (3) 2
========================================================================================= ====== ======
The affairs of the Group's parent company are directed so as to
allow it to meet the requisite conditions to continue to operate as
an approved investment trust company for UK tax purposes. An
approved investment trust company is a UK investment company which
is required to meet certain conditions set out in the UK tax rules
to obtain and maintain its tax status. This approval allows certain
investment profits of the Company, broadly its capital profits, to
be exempt from tax in the UK. Approved investment trust companies
are particularly suited for investment vehicles as their tax status
allows them to ensure that their shareholders do not suffer double
taxation of their returns.
Including a net tax charge of nil (2016: GBP2 million credit) in
the fair valued entities, the Group recognised a total tax credit
of GBP3 million (2016: nil) under the Investment basis.
Deferred income taxes
2017 2016
GBPm GBPm
============================================================= ===== =====
Opening deferred income tax asset
Tax losses 7 7
Income in accounts taxable in the future (7) (7)
Other 3 2
============================================================= ===== =====
3 2
============================================================= ===== =====
Recognised through Consolidated statement of comprehensive income
Tax losses recognised 1 -
Income in accounts taxable in the future (1) -
Other - 1
============================================================= ===== =====
- 1
============================================================= ===== =====
Recognised within discontinued operations
Deferred tax asset transferred with discontinued operations (3) -
------------------------------------------------------------- ----- -----
(3) -
------------------------------------------------------------- ----- -----
Closing deferred income tax asset
Tax losses 8 7
Income in accounts taxable in the future (8) (7)
Other - 3
============================================================= ===== =====
- 3
============================================================= ===== =====
At 31 March 2017, the Group had carried forward tax losses of
GBP1,390 million (31 March 2016: GBP1,375 million), capital losses
of GBP93 million (31 March 2016: GBP88 million) and other temporary
differences of GBP94 million (31 March 2016: GBP69 million). It is
uncertain that the Group will generate sufficient or relevant
taxable profits in the foreseeable future to utilise these amounts
and therefore no deferred tax asset has been recognised in respect
of these losses. Deferred income taxes are calculated using an
expected rate of corporation tax in the UK of 19% (2016: 19%).
3 Per share information
The calculation of basic earnings per share is based on the
profit attributable to shareholders and the number of basic average
shares. When calculating the diluted earnings per share, the
weighted average number of shares in issue is adjusted for the
effect of all dilutive share options and awards.
As at 31 March 2017 2016(1)
=================================================================== ====== ========
Earnings per share (pence)
Basic earnings per share 169.2 85.6
- of which from continuing operations 159.0 83.0
- of which from discontinued operations 10.2 2.6
Diluted earnings per share 168.4 85.2
- of which from continuing operations 158.3 82.6
- of which from discontinued operations 10.1 2.6
Earnings (GBPm)
Profit for the year attributable to equity holders of the Company 1,625 817
- of which from continuing operations 1,527 792
- of which from discontinued operations 98 25
=================================================================== ====== ========
1 Comparatives for the year ended 31 March 2016 have been re-presented
to reflect the classification of the Group's Debt Management business
which was sold on 3 March 2017 as discontinued operations. See Note
8.
As at 31 March 2017 2016
============================= ============= =============
Weighted average number of shares in issue
Ordinary shares 972,734,609 972,569,633
Own shares (12,580,145) (18,427,460)
============================= ============= =============
960,154,464 954,142,173
============================= ============= =============
Effect of dilutive potential ordinary shares
Share options and awards 4,710,808 4,735,616
============================ ============= =============
Diluted shares 964,865,272 958,877,789
============================= ============= =============
As at 31 March 2017 2016
========================================================== ====== ======
Net assets per share (GBP)
Basic 6.07 4.66
Diluted 6.04 4.63
========================================================== ====== ======
Net assets (GBPm)
Net assets attributable to equity holders of the Company 5,836 4,455
========================================================== ====== ======
Basic NAV per share is calculated on 961,458,801 shares in issue
at 31 March 2017 (31 March 2016: 956,417,466). Diluted NAV per
share is calculated on diluted shares of 966,553,549 at 31 March
2017 (31 March 2016: 961,323,047).
4 Dividends
2017 2017 2016 2016
pence per share GBPm pence per share GBPm
========================= ================ ===== ================ =====
Declared and paid during the year
Ordinary shares
Final dividend 16.0 154 14.0 133
Interim dividend 8.0 76 6.0 57
========================= ================
24.0 230 20.0 190
========================= ================
Proposed final dividend 18.5 178 16.0 154
========================= ================
The Group's dividend policy was updated in May 2016. The Group
will pay a base dividend of 16 pence per share and an additional
final dividend which is based on cash realisations, the investment
pipeline and the balance sheet at year end. The Group will only pay
an additional final dividend if gross debt is less than GBP1
billion and gearing is less than 20%, to maintain its conservative
approach.
The distribution policy covers the Group's total annual
dividend, which is split between a base dividend (16 pence per
share) and an additional dividend. The dividend can be paid out of
either the capital reserve or the revenue reserve subject to the
investment trust rules which state that at least 85% of revenue
must be distributed by the Company.
5 Fair values of assets and liabilities
Accounting policy:
Financial instruments, other than those held at amortised cost,
are held at fair value and are designated irrevocably at inception.
In particular, 3i designates groups of financial instruments as
being at fair value when they are managed, and their performance
evaluated, on a fair value basis in accordance with a documented
risk management or investment strategy, and where information about
the groups of financial instruments is reported to management on
that basis.
(A) Classification
The following tables analyse the Group's assets and liabilities
in accordance with the categories of financial instruments in IAS
39:
Group Group Group Group
2017 2017 2016 2016
Designated Other Designated Other
at fair financial at fair financial
value value
through instruments Group through instruments Group
profit at amortised 2017 profit at amortised 2016
and and
loss cost Total loss cost Total
At 31 March GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Quoted investments 390 - 390 297 - 297
Unquoted investments 1,316 - 1,316 1,243 - 1,243
Investments in investment entities 3,483 - 3,483 2,680 - 2,680
Other financial assets - 425 425 - 185 185
Total 5,189 425 5,614 4,220 185 4,405
Liabilities
Loans and borrowings - 575 575 - 837 837
Other financial liabilities - 274 274 - 232 232
Total - 849 849 - 1,069 1,069
Company Company Company Company
2017 2017 2016 2016
Designated Other Designated Other
at fair financial at fair financial
value value
through instruments Company through instruments Company
profit at amortised 2017 profit at amortised 2016
and and
loss cost Total loss cost Total
At 31 March GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Quoted investments 390 - 390 297 - 297
Unquoted investments 1,295 - 1,295 1,103 - 1,103
Other financial assets - 384 384 - 113 113
Total 1,685 384 2,069 1,400 113 1,513
Liabilities
Loans and borrowings - 575 575 - 837 837
Other financial liabilities - 522 522 - 419 419
Total - 1,097 1,097 - 1,256 1,256
Within the Company GBP3,483 million (31 March 2016: GBP2,680
million) of the Interest in Group entities is held at fair
value.
(B) Valuation
The fair values of the Group's financial assets and liabilities
are not materially different from their carrying values with the
exception of loans and borrowings. The fair value of the loans and
borrowings is GBP741 million (31 March 2016: GBP967 million),
determined with reference to their published market prices. The
carrying value of the loans and borrowings is GBP575 million (31
March 2016: GBP837 million).
Valuation hierarchy
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 Fixed rate loan notes
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
Unquoted equity instruments and debt instruments are measured in
accordance with the IPEV Guidelines with reference to the most
appropriate information available at the time of measurement.
The tables below show the classification of financial
instruments held at fair value into the valuation hierarchy at 31
March 2017:
Group Group Group Group Group Group Group Group
2017 2017 2017 2017 2016 2016 2016 2016
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Quoted investments 390 - - 390 297 - - 297
Unquoted investments - - 1,316 1,316 - - 1,243 1,243
Investment in investment entity subsidiaries - - 3,483 3,483 - - 2,680 2,680
Total 390 - 4,799 5,189 297 - 3,923 4,220
The above disclosure only relates to the investment portfolio
and the investments in our investment entity subsidiaries. We
determine that in the ordinary course of business, the net asset
values of an investment entity subsidiary are considered to be the
most appropriate to determine fair value. The underlying portfolio
is valued under the same methodology as directly held investments,
with any other assets or liabilities within investment entity
subsidiaries fair valued in accordance with the Group's accounting
policies.
Movements in the directly held investment portfolio categorised
as Level 3 during the year:
Group Group Company Company
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Opening book value 1,243 1,272 1,103 1,082
Additions from continuing operations 213 164 228 95
- of which loan notes with nil value (10) (13) (10) (13)
Additions from discontinued operations 70 - 18 -
Disposals, repayments and write-offs from continuing operations (292) (166) (288) (165)
Disposals, repayments and write-offs from discontinued operations (191) - (24) -
Fair value movement from continuing operations1 224 72 218 98
Fair value movement from discontinued operations 3 - - -
Other movements and net cash movements from continuing operations 75 (86) 69 6
Other movements and net cash movements from discontinued operations (19) - (19) -
Closing book value 1,316 1,243 1,295 1,103
1 All fair value movements relate to assets held at the end of the period.
Other movements include the effects of foreign exchange.
On a continuing basis, unquoted investments valued using Level 3
inputs also had the following impact on the Consolidated statement
of comprehensive income: realised losses over value on disposal of
investment of GBP26 million (2016: GBP10 million (realised
profit)), dividend income of GBP24 million (2016: GBP46 million)
and foreign exchange gains of GBP63 million (2016: GBP40
million).
Level 3 inputs are sensitive to assumptions made when
ascertaining fair value as described in the Portfolio valuation -
an explanation section. On an IFRS basis, of assets held at 31
March 2017, classified as Level 3, 33% (31 March 2016: 28%) were
valued using a multiple of earnings and the remaining 67% (31 March
2016: 72%) were valued using alternative valuation
methodologies.
Assets move between Level 1 and Level 3 primarily due to an
increase or decrease in observable market activity related to an
input which is primarily when an unquoted equity investment lists
on a quoted market exchange.
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 earnings multiple used when valuing the portfolio at 31
March 2017 was 10.23x (2016: 9.83x).
If the multiple used to value each unquoted investment valued on
an earnings multiple basis as at 31 March 2017 decreased by 5%, the
investment portfolio would decrease by GBP18 million (31 March
2016: GBP19 million) or 1% (31 March 2016: 1%). If the same
sensitivity was applied to the underlying portfolio held by
investment entities, this would have a negative impact of GBP224
million (31 March 2016: GBP173 million) or 6% (31 March 2016:
6%).
If the multiple increased by 5% then the investment portfolio
would increase by GBP16 million (31 March 2016: GBP19 million) or
1% (31 March 2016: 1%). If the same sensitivity was applied to the
underlying portfolio held by investment entities, this would have a
positive impact of GBP215 million (31 March 2016: GBP172 million)
or 5% (31 March 2016: 6%).
Alternative valuation methodologies - There are a number of
alternative investment valuation methodologies used by the Group,
for reasons specific to individual assets.
Each methodology is used for a proportion of assets by value,
and at year end the following techniques were used under an IFRS
basis: 41% DCF (31 March 2016: 30%), 4% broker quotes (31 March
2016:18%), 2% imminent sale (31 March 2016: 11%), 10% industry
metric (31 March 2016: 10%), and 10% other (31 March 2016: 3%).
If the value of all of the investments valued under alternative
methodologies moved by 5%, this would have an impact on the
investment portfolio of GBP44 million (31 March 2016: GBP45
million) or 3% (31 March 2016: 3%). If the same sensitivity was
applied to the underlying portfolio held by investment entities,
this would have an impact of GBP7 million (31 March 2016: GBP9
million) or 0.2% (31 March 2016: 0.3%).
6 Loans and borrowings
Accounting policy:
All loans and borrowings are initially recognised at the fair
value of the consideration received. After initial recognition,
these are subsequently measured at amortised cost using the
effective interest method, which is the rate that exactly discounts
the estimated future cash flows through the expected life of the
liabilities. Financial liabilities are derecognised when they are
extinguished.
Group Group
2017 2016
GBPm GBPm
Loans and borrowings are repayable as follows:
Within one year - 262
Between the second and fifth year - -
After five years 575 575
575 837
Principal borrowings include:
Group Group Company Company
2017 2016 2017 2016
Rate Maturity GBPm GBPm GBPm GBPm
Issued under the GBP2,000 million note issuance programme
Fixed rate
EUR331 million notes (public issue) 5.625% 2017 - 262 - 262
GBP200 million notes (public issue) 6.875% 2023 200 200 200 200
GBP375 million notes (public issue) 5.750% 2032 375 375 375 375
575 837 575 837
Committed multi-currency facilities
GBP329 million LIBOR+0.60% 2021 - - - -
- - - -
Total loans and borrowings 575 837 575 837
The maturity of the Company's GBP329 million (31 March 2016:
GBP350 million) syndicated multi-currency facility was extended by
one year to September 2021 in the current financial year, following
an agreement with all but one of the participating banks. The
GBP329 million facility has no financial covenants.
During the year, the EUR331 million outstanding of the Company's
EUR350 million fixed rate notes were repaid in full.
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 GBP741 million (31
March 2016: GBP967 million), determined with reference to their
published market prices. The loans and borrowings are included in
Level 2 of the fair value hierarchy.
In accordance with the FCA Handbook (FUNDS 3.2.2. R and Fund
3.2.6. R), 3i Investments plc, as AIFM of the Company is required
to calculate leverage in accordance with a set formula and disclose
this to investors. In line with the relevant requirements, leverage
for the Group is 115% (31 March 2016: 116%) and the Company is 107%
(31 March 2016: 119%) under both the gross method and the
commitment method. The leverage for 3i Investments plc is 100% (31
March 2016: 100%) under both the gross method and the commitment
method.
Under the Securities Financing Transactions Regulation ("SFTR")
and AIFMD, 3i is required to disclose certain information relating
to the use of securities financing transactions ("SFTs") and total
return swaps. At 31 March 2017, 3i was not party to any
transactions involving SFTs or total return swaps.
7 Related parties and interests in other entities
Related-party transactions which took place in the year and have
materially affected performance or the financial position of the
Group, are described below. There were no material changes in the
Group's related parties as disclosed in the Annual report and
accounts 2016. The full list of all related-party transactions will
be disclosed in the Annual report and accounts 2017.
Related parties
Limited partnerships
The Group manages a number of external funds which invest
through limited partnerships. Group companies act as the general
partners of these limited partnerships and exert significant
influence over them. The following amounts have been included in
respect of these limited partnerships:
Group Group Company Company
2017 2016 2017 2016
Statement of comprehensive income GBPm GBPm GBPm GBPm
Carried interest receivable 276 53 276 53
Fees receivable from external funds 26 28 - -
Group Group Company Company
2017 2016 2017 2016
Statement of financial position GBPm GBPm GBPm GBPm
Carried interest receivable 356 87 356 87
Investments
The Group makes investments in the equity of unquoted and quoted
investments where it does not have control but may be able to
participate in the financial and operating policies of that
company. IFRS presumes that it is possible to exert significant
influence when the equity holding is greater than 20%. The Group
has taken the investment entity exception as permitted by IFRS 10
and has not equity accounted for these investments, in accordance
with IAS 28, but they are related parties. The total amounts
included for investments where the Group has significant influence
but not control are as follows:
Group Group Company Company
2017 2016(1) 2017 2016(1)
Statement of comprehensive income GBPm GBPm GBPm GBPm
Realised profit over value on the disposal of investments - 4 - 4
Unrealised profits on the revaluation of investments 57 (21) 51 (13)
Portfolio income 17 12 7 7
Profit for the year from discontinued operations 21 4 4 3
Group Group Company Company
2017 2016 2017 2016
Statement of financial position GBPm GBPm GBPm GBPm
Unquoted investments 429 480 407 341
1 Comparatives for the year ended 31 March 2016 have been re-presented
to reflect the classification of the Group's Debt Management business
which was sold on 3 March 2017 as discontinued operations. See Note
8.
From time to time, transactions occur between related parties
within the investment portfolio that the Group influences to
facilitate the reorganisation or refinancing of an investee
company. These transactions are made on an arm's length basis.
Advisory arrangements
The Group acts as an adviser to 3i Infrastructure plc, which is
listed on the London Stock Exchange. The following amounts have
been included in respect of this advisory relationship:
Group Group Company Company
2017 2016 2017 2016
Statement of comprehensive income GBPm GBPm GBPm GBPm
Realised profit over value on the disposal of investments - 2 - 2
Unrealised profits on the revaluation of investments 38 20 38 20
Fees receivable from external funds 21 12 - -
Performance fees receivable 4 20 - -
Dividends 14 12 14 12
Group Group Company Company
2017 2016 2017 2016
Statement of financial position GBPm GBPm GBPm GBPm
Quoted equity investments 390 277 390 277
Performance fees receivable 4 20 - -
8 Discontinued operations
On 3 March 2017, the Group completed the disposal of its Debt
Management business to Investcorp and received cash proceeds of
GBP270 million. Included within the cash proceeds was GBP33 million
which related to the repayment of loans provided to Debt Management
to fund two CLO warehouses. At 31 March 2017, the Group retained
residual stakes in a number of CLO funds which were not required by
Investcorp for risk retention or other contractual requirements
together with its holdings in the Global Income Fund and the Senior
Loan Fund. These investments are treated as continuing operations
and there were no assets held for sale on 31 March 2017. Since the
publication of the Half-yearly report 2016 and following completion
of the transaction on 3 March 2017, it is now expected that some of
the investments not sold to Investcorp will be retained beyond the
12 month period prescribed by IFRS 5. Accordingly they are no
longer classified as assets held for sale and have been included in
continuing operations in these financial statements. As these
investments are held at fair value through profit or loss, the
reclassification out of held for sale had no impact on the carrying
value of these investments.
The disposal group fulfilled the requirement of IFRS 5 to be
classified as "discontinued operations" in the Consolidated
statement of comprehensive income, the results of which are set out
below.
Consolidated statement of comprehensive income
Group Group
2017 2016
GBPm GBPm
Realised profits over value on the disposal of investments - -
Unrealised profits/(losses) on the revaluation of investments 3 (22)
Fair value movements on investment entity subsidiaries - -
3 (22)
Portfolio income
Dividends 16 22
Interest income from investment portfolio 3 4
Fees receivable/(payable) - (1)
Foreign exchange on investments 16 12
Gross investment return from discontinued operations 38 15
Fees receivable from external funds 25 38
Operating expenses (13) (27)
Exchange movements (2) 1
Other income 2 -
Carried interest
Carried interest and performance fees receivable 1 5
Carried interest and performance fees payable - (2)
Acquisition related earn-out charges - (5)
Operating profit before tax from discontinued operations 51 25
Profit on disposal of Debt Management business before tax 48 -
Income taxes
Income taxes on disposal of Debt Management business (1) -
Other income taxes - -
Profit for the year from discontinued operations, net of tax 98 25
Other comprehensive income for the year from discontinued operations (7) 2
Total comprehensive income for the year from discontinued operations 91 27
Cash flows
Group Group
2017 2016
GBPm GBPm
Purchase of investments (51) (46)
Proceeds from the sale of investments(1) 25 2
Cash income, net carried interest, operating expenses and other 33 18
Net cash flow from operating activities 7 (26)
Sale of subsidiaries(1) 232 -
Cash held in sold subsidiaries (4) -
Net cash flow from investing activities 228 -
Total net cash flows from discontinued operations 235 (26)
1 Total proceeds from the sale of the Debt Management business were GBP270
million, consisting of sale of subsidiaries (GBP232m), proceeds from
the sale of investments (GBP22 million of the GBP25 million total above)
and settlement of an inter-company loan (GBP16 million).
Earnings per share (pence)
Group Group
2017 2016
Basic, profit for the year from discontinued operations 10.2 2.6
Diluted, profit for the year from discontinued operations 10.1 2.6
Portfolio and other information
20 Large investments
The 20 investments listed below account for 89% of the portfolio
at 31 March 2017 (31 March 2016: 70%). This table does not include
two investments that have been excluded for commercial reasons. For
each of our investments we have assessed whether they classify as
accounting subsidiaries under IFRS and/or subsidiaries under the UK
Companies Act. This assessment forms the basis of our disclosure of
accounting subsidiaries in the financial statements.
The UK Companies Act defines a subsidiary based on voting
rights, with a greater than 50% majority of voting rights resulting
in an entity being classified as a subsidiary. IFRS 10 applies a
wider test and, if a Group is exposed, or has rights to variable
returns from its involvement with the investee and has the ability
to affect these returns through its power over the investee then it
has control, and hence the investee is deemed an accounting
subsidiary. Controlled subsidiaries under IFRS are noted below.
None of these investments are UK Companies Act subsidiaries.
In accordance with Part 5 of The Alternative Investment Fund
Managers Regulations 2013 ("the Regulations"), 3i Investments plc,
as AIFM, requires all controlled portfolio companies to make
available to employees an annual report which meets the disclosure
requirements of the Regulations. These are available either on the
portfolio company's website or through filing with the relevant
local authorities.
Residual Residual
Business line cost(1) cost(1) Valuation Valuation
Geography March March March March
Investment First invested in 2016 2017 2016 2017 Relevant transactions
Description of business Valuation basis GBPm GBPm GBPm GBPm in the year
Action* Private Equity 1 1 902 1,708 Refinancing returned
Non-food discount retailer Benelux GBP187m of proceeds
2011
Earnings
3i Infrastructure plc* Infrastructure 270 399 464 655 Invested GBP131m in 3iN's
Quoted investment company, UK capital raise
investing in infrastructure 2007
Quoted
Scandlines* Private Equity 114 114 369 538
Ferry operator between Denmark/
Denmark and Germany Germany
2007/2013
DCF
Q Holding* Private Equity 100 162 120 222 Further investment to
Manufacturer of engineered US support Q Holding's
precision elastomeric 2014 investment in Degania
components Earnings
Weener Plastic* Private Equity 151 161 173 200
Supplier of plastic packaging Germany
solutions 2015
Earnings
Audley Travel* Private Equity 161 177 158 185
Provider of experiential UK
tailor made travel 2015
Earnings
Basic-Fit Private Equity 99 11 208 184 Listed on Amsterdam
Discount gyms operator Benelux Stock Exchange in June
2013 2016 and returned GBP82m
Quoted of proceeds
ATESTEO* Private Equity 83 39 130 160 Refinancing returned
International transmission Germany GBP48m of proceeds
testing specialist 2013
Earnings
Schlemmer* Private Equity - 162 - 154 New investment
Provider of cable management Germany
solutions for the automotive 2016
industry Earnings
BoConcept* Private Equity - 140 - 146 New investment
Urban living brand Denmark
2016
Earnings
Ponroy Santé* Private Equity - 123 - 122 New investment
Manufacturer of natural France
healthcare and cosmetics 2017
products Earnings
AES Engineering Private Equity 30 30 92 113
Manufacturer of mechanical UK
seals and support systems 1996
Earnings
Tato Private Equity 2 2 80 112
Manufacturer and seller of UK
speciality chemicals 1989
Earnings
Christ* Private Equity 99 101 117 98
Distributor and retailer of Germany
jewellery 2014
Earnings
Euro-Diesel* Private Equity 52 57 59 95
Manufacturer of Benelux
uninterruptible
power supply systems 2015
Earnings
Aspen Pumps* Private Equity 70 78 64 88
Manufacturer of pumps and UK
accessories for the air 2015
conditioning, heating and Earnings
refrigeration industry
Global Income Fund Other 48 66 52 79 Further investment of
Debt Management open UK GBP24m
ended fund with exposure to 2015
North America and western Fund
European issuers
MKM Private Equity 23 24 53 68 Sale announced with
Building materials supplier UK proceeds of GBP70m
2006
Imminent sale
OneMed Group* Private Equity 124 130 60 59
Distributor of consumable Sweden
medical products, 2011
devices and technology Earnings
Dynatect* Private Equity 65 65 63 56
Manufacturer of engineered, US
mission critical protective 2014
equipment Earnings
1,492 2,042 3,164 5,042
* Controlled in accordance with IFRS.
1 Residual cost includes capitalised interest.
Glossary
Alternative Investment Funds ("AIFs") At 31 March 2017, 3i
Investments plc as AIFM, managed five AIFs.
Alternative Investment Fund Manager ("AIFM") is the regulated
manager of AIFs. Within 3i, this is 3i Investments plc.
Approved Investment Trust Company This is a particular UK tax
status maintained by 3i Group plc, the parent company of 3i Group.
An approved investment trust company is a UK company which meets
certain conditions set out in the UK tax rules which include a
requirement for the company to undertake portfolio investment
activity that aims to spread investment risk and for the company's
shares to be listed on an approved exchange. The "approved" status
for an investment trust must be agreed by the UK tax authorities
and its benefit is that certain profits of the company, principally
its capital profits, are not taxable in the UK.
Assets under management ("AUM") A measure of the total assets
that 3i has to invest or manages on behalf of shareholders and
third-party investors for which it receives a fee. AUM is measured
at fair value. The measurement changed in the year from residual
value to fair value to reflect the scale of 3i's business and, in
the absence of a third-party fund in Private Equity, it is not a
measure of fee generating capability.
Base Erosion and Profit Shifting ("BEPS") Project is an OECD
initiative that was launched in 2013, at the request of the G20
countries, to develop specific, detailed proposals, rules and
instruments required to equip governments and tax authorities to
address the BEPS challenge and the proposals were delivered to and
approved by the G20 leaders in November 2015. Countries are now in
the process of considering and implementing changes to their
domestic tax laws and international tax treaties to give effect to
the recommendations made by the BEPS project team.
Board The Board of Directors of the Company.
Capital redemption reserve is established in respect of the
redemption of the Company's ordinary shares.
Capital reserve recognises all profits that are capital in
nature or have been allocated to capital. Following changes to the
Companies Act, the Company amended its Articles of Association at
the 2012 Annual General Meeting to allow these profits to be
distributable by way of a dividend.
Carried interest is accrued on the realised and unrealised
profits generated taking relevant performance hurdles into
consideration, assuming all investments were realised at the
prevailing book value. Carried interest is only actually paid or
received when the relevant performance hurdles are met and the
accrual is discounted to reflect expected payment periods.
Carried interest receivable is generated on third-party capital
over the life of the relevant fund when relevant performance
criteria are met.
Collateralised Loan Obligation ("CLO") A form of securitisation
where payments from multiple loans are pooled together and passed
on to different classes of owners in various tranches.
Common Reporting Standard ("CRS") imposes obligations on
financial groups and entities to identify and report details,
relating to the foreign investors investing in such groups and
entities, to the local tax authority who then exchange the
information with the other relevant tax authorities.
Company 3i Group plc.
Country by Country reporting ("CbC Reporting") refers to a
requirement for large multinational groups, operating in different
countries, to file an annual report detailing certain information
about the activities of the entities in the Group, on a country by
country basis, covering the countries in which the Group entities
operate. This new requirement applies to the Group for its
accounting periods beginning after 1 April 2016.
Discounting The reduction in present value at a given date of a
future cash transaction at an assumed rate, using a discount factor
reflecting the time value of money.
Disposal Group is comprised of the assets and liabilities
associated with the Group's Debt Management business sold to
Investcorp in March 2017.
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.
EBITDA is defined as earnings before interest, taxation,
depreciation and amortisation and is used as the typical measure of
portfolio company performance.
EBITDA multiple Calculated as the enterprise value over EBITDA,
it is used to determine the value of a company.
Executive Committee The Executive Committee is responsible for
the day-to-day running of the Group and comprises: the Chief
Executive, Group Finance Director, the Managing Partners of the
Private Equity and Infrastructure businesses and the Group's
General Counsel.
Fair value movements on investment entity subsidiaries The
movement in the carrying value of Group subsidiaries, classified as
investment entities under IFRS 10, between the start and end of the
accounting period converted into sterling using the exchange rates
at the date of the movement.
Fair value through profit or loss ("FVTPL") is an IFRS
measurement basis permitted for assets and liabilities which meet
certain criteria. Gains and losses on assets and liabilities
measured as FVTPL are recognised directly in the Statement of
comprehensive income.
Fee income is earned directly from investee companies when an
investment is first made and through the life of the investment.
Fees that are earned on a financing arrangement are considered to
relate to a financial asset measured at fair value through profit
or loss and are recognised when that investment is made. Fees that
are earned on the basis of providing an ongoing service to the
investee company are recognised as that service is provided.
Fees receivable from external funds are fees received by the
Group, from third parties, for the management of Private Equity and
Infrastructure funds.
Foreign Account Tax Compliance Act ("FATCA") is US tax
legislation aimed at preventing offshore tax avoidance by US
persons. The rules impose obligations on non-US financial groups
and entities to identify and report details relating to US
investors who have invested in those groups and entities.
Foreign exchange on investments arises on investments made in
currencies that are different from the functional currency of the
Group entity. Investments are translated at the exchange rate
ruling at the date of the transaction. At each subsequent reporting
date investments are translated to sterling at the exchange rate
ruling at that date.
Gross investment return ("GIR") includes profit and loss on
realisations, increases and decreases in the value of the
investments we hold at the end of a period, any income received
from the investments such as interest, dividends and fee income and
foreign exchange movements. GIR is measured as a percentage of the
opening portfolio value.
Interest income from investment portfolio is recognised as it
accrues. When the fair value of an investment is assessed to be
below the principal value of a loan the Group recognises a
provision against any interest accrued from the date of the
assessment going forward until the investment is assessed to have
recovered in value.
International Financial Reporting Standards ("IFRS") are
accounting standards issued by the International Accounting
Standards Board ("IASB"). The Group's consolidated financial
statements are required to be prepared in accordance with IFRS.
Investment basis Accounts prepared assuming that IFRS 10 had not
been introduced. Under this basis, we fair value portfolio
companies at the level we believe provides the most comprehensive
financial information.
The commentary in the Strategic report refers to this basis as
we believe it provides a more understandable view of our
performance.
Key Performance Indicators ("KPI") is a measure by reference to
which the development, performance or position of the Group can be
measured effectively.
Money multiple is calculated as the cumulative distributions
plus any residual value divided by paid-in capital.
Net asset value ("NAV") is a measure of the fair value of our
proprietary investments and the net costs of operating the
business.
Operating cash profit is the difference between our cash income
(consisting of portfolio interest received, portfolio dividends
received, portfolio fees received and fees received from external
funds as per the Investment basis Cash flow statement) and our
operating expenses (as per the Investment basis Cash flow
statement).
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, interest
income from investment portfolio and fee income.
Proprietary Capital Shareholders' capital which is available to
invest to generate profits.
Public Private Partnership ("PPP") is a government service or
private business venture which is funded and operated through a
partnership of government and one or more private sector
companies.
Realised profits or losses over value on the disposal of
investments The difference between the fair value of the
consideration received, less any directly attributable costs, on
the sale of equity and the repayment of interest income from
investment portfolio 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.
Total return comprises operating profit less tax charge less
movement in actuarial valuation of the historic defined benefit
pension scheme.
Total shareholder return ("TSR") is the measure of the overall
return to shareholders and includes the movement in the share price
and any dividends paid, assuming that all dividends are reinvested
on their ex-dividend date.
Translation reserve comprises all exchange differences arising
from the translation of the financial statements of international
operations.
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 the last 12-month
earnings, when comparing to the preceding 12 months.
List of Directors and their functions
The Directors of the Company and their functions are listed
below:
Simon Thompson, Chairman and Chairman of the Nominations
Committee
Simon Borrows, Chief Executive and Executive Director
Julia Wilson, Group Finance Director and Executive Director
Jonathan Asquith, non-executive Director, Deputy Chairman and
Chairman of the Remuneration Committee
Caroline Banszky, non-executive Director and Chairman of the
Audit and Compliance Committee
Stephen Daintith, non-executive Director
Peter Grosch, non-executive Director
David Hutchison, non-executive Director and Chairman of the
Valuations Committee
Martine Verluyten, non-executive Director
By order of the Board
K J Dunn
Company Secretary
17 May 2017
Registered Office: 16 Palace Street, London SW1E 5JD
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EANSXFANXEFF
(END) Dow Jones Newswires
May 18, 2017 02:01 ET (06:01 GMT)
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