TIDMIII
RNS Number : 0557F
3i Group PLC
12 November 2020
12 November 2020
3i Group plc announces results for the six months to
30 September 2020
Strong results driven by resilient performance
-- Total return of GBP1,142 million or 15% on opening
shareholders' funds (September 2019: GBP767 million, 10%) and NAV
per share of 905 pence (March 2020: 804 pence) after paying a
dividend of 17.5 pence per share in the period and a 12 pence per
share negative accounting impact from the further de-risking of the
UK defined benefit pension plan.
-- Our Private Equity business delivered a gross investment
return of GBP1,245 million or 19% (September 2019: GBP666 million,
11%), supported by continued good earnings growth and cash
generation in portfolio companies operating in the consumer,
e-commerce, healthcare and business services sectors and a
sustained recovery in our retail investments following the lifting
of Covid-related trading restrictions through the summer. Our
investments in the travel and automotive sectors continue to
experience challenging conditions.
-- Action's performance through the Covid-19 pandemic has
exceeded our expectations, with strong like-for-like sales, EBITDA
and cash flow growth. This supported an increase in value of our
stake in Action of GBP644 million in the period. At 30 September
2020, we valued our 52.6% stake in Action at GBP4,269 million,
based on a multiple of 18x Action's September 2020 run-rate
earnings.
-- In challenging markets, the Private Equity business
maintained its selective approach to capital deployment, making one
new investment in GartenHaus whilst focusing on growing the
existing portfolio. We funded the transformational acquisitions of
Technogroup by Evernex and of SaniTech West by our bioprocessing
platform, which we have now rebranded as SaniSure. Private Equity
realisations totalled GBP82 million in the period.
-- Our Infrastructure business delivered a gross investment
return of GBP134 million, or 12% (September 2019: GBP88 million,
9%), driven by resilient performance across all portfolios. Our 30%
stake in 3i Infrastructure plc ("3iN) contributed particularly
strongly to this return through a 17% share price increase since 31
March 2020. The Infrastructure business continues to contribute
materially to our operating cash profit, with fee income across the
business of GBP19 million and dividend income from 3iN of GBP12
million in the period.
-- First dividend for FY2021 set at 17.5 pence, in line with our dividend policy.
Simon Borrows, 3i's Chief Executive , commented:
" In the six months to 30 September 2020, our Private Equity
portfolio delivered a gross investment return ("GIR") of 19%,
demonstrating its resilience in a difficult macroeconomic
environment. Our thorough portfolio management processes enabled us
to respond quickly and effectively to the challenges that arose as
a result of the pandemic, including, more recently, decisive
measures to address increases in infection rates across much of
Europe. Encouragingly, most of our portfolio companies outperformed
our rebased Covid-19 full-year outlook during the period. In this
environment, we will remain disciplined in our investment approach
and focused on enhancing the value of our portfolio through organic
growth and value-accretive add-ons."
Summary financial highlights under the Investment basis
3i prepares its statutory financial statements in accordance
with International Financial Reporting Standards as adopted by the
European Union ("IFRS"). However, we also report a non-GAAP
"Investment basis" which we believe aids users of our report to
assess the Group's underlying operating performance. The Investment
basis (which is unaudited) is an alternative performance measure
("APM") and is described in the Alternative Performance Measures
section later in this document. Total return and net assets are the
same under the Investment basis and IFRS and we provide a
reconciliation of our Investment basis financial statements to the
IFRS statements later in this document. Numbers are prepared on an
Investment basis from the beginning of this document up to the
Alternative Performance Measures section.
Six months to/as Six months to/as 12 months to/as
at 30 September at 30 September at 31 March
Investment basis 2020 2019 2020
-------------------------------------------------------------- ----------------- ----------------- ----------------
Total return(1) GBP1,142m GBP767m GBP253m
% return on opening shareholders' funds 15% 10% 3%
Dividend per ordinary share 17.5p 17.5p 35.0p
============================================================== ================= ================= ================
Gross investment return(2) GBP1,394m GBP798m GBP318m
As a percentage of opening 3i portfolio value 17% 11% 4%
Cash investment(2) GBP233m GBP312m GBP1,248m
Realisation proceeds GBP82m GBP71m GBP918m
3i portfolio value GBP9,578m GBP8,551m GBP8,098m
Gross debt GBP975m GBP575m GBP575m
Net (debt)/cash (2) GBP(288)m GBP50m GBP270m
Gearing(2) 3% nil nil
Liquidity GBP1,087m GBP975m GBP1,245m
Diluted net asset value per ordinary share ("NAV per share") 905p 873p 804p
============================================================== ================= ================= ================
1 Total return is defined as Total comprehensive income for the year, under both the Investment
basis and the IFRS basis.
2 Financial measure defined as APM. Further information in the Alternative Performance Measures
section.
Disclaimer
These half-year results have been prepared solely to provide information to shareholders.
They should not be relied on by any other party or for any other purpose. These half-year
results may contain statements about the future, including certain statements about the future
outlook for 3i Group plc and its subsidiaries ("3i" or "the Group"). These are not guarantees
of future performance and will not be updated. Although we believe our expectations are based
on reasonable assumptions, any statements about the future outlook may be influenced by factors
that could cause actual outcomes and results to be materially different.
Enquiries:
Silvia Santoro, Group Investor Relations Director 020 7975 3258
Kathryn van der Kroft, Communications Director 020 7975 3021
A PDF copy of this release can be downloaded from www.3i.com/investor-relations
For further information, including a live webcast of the results presentation at 10.00am on
12 November 2020, please visit www.3i.com/investor-relations
3i Group Half-year report 2020
Chief Executive's review
3i delivered a strong set of results for the first half of the
year, generating a total return of GBP1,142 million, or 15% on
opening shareholders' funds (September 2019: GBP767 million, or
10%) . The NAV per share at 30 September 2020 was 905 pence (March
2020: 804 pence), after the payment of the 17.5 pence second FY2020
dividend in July 2020 and the 12 pence one-off negative accounting
impact from the further de-risking of the UK defined benefit
pension plan.
These results were underpinned by resilient performance across
our portfolio up to the end of September. We completed our first
new Private Equity investment for this year in September 2020 and
focused on growing our existing portfolio with the completion of
two transformational bolt-on acquisitions in our Private Equity
portfolio and two bolt-on acquisitions in the 3i Infrastructure plc
("3iN") portfolio.
Private Equity
In the six months to 30 September 2020, our Private Equity
portfolio delivered a gross investment return ("GIR") of 19%,
demonstrating its resilience in a difficult macroeconomic
environment. Our thorough portfolio management processes enabled us
to respond quickly and effectively to the challenges that arose as
a result of the pandemic, including, more recently, decisive
measures to address increases in infection rates across much of
Europe. Encouragingly, most of our portfolio companies outperformed
our rebased Covid-19 full-year outlook during the period.
Action
Action's performance through the pandemic has exceeded our
expectations. Trading in the first two and a half months of 2020
was strong with sales, like-for-like ("LFL") growth, EBITDA and
cash flows ahead of budget. As the outbreak of Covid-19 intensified
across Europe in late March, Action was impacted by
government-enforced temporary closures of its stores in France,
Belgium and Austria and partial closures in Germany and Poland.
Stores in the Netherlands remained open. After the reopening of all
stores in May 2020, Action experienced robust trading with strong
LFL performance across all markets. Action delivered LTM EBITDA of
EUR579 million in September 2020 (September 2019: EUR506 million).
October 2020 was another strong month for Action with LTM EBITDA
increasing to EUR608 million (October 2019: EUR519 million). At the
end of October, national lockdowns were re-imposed in France,
Germany and Belgium, three of Action's largest markets. Action's
stores in Germany have remained open, selling the entire range but
with enhanced social distancing measures. In France and Belgium all
stores are open, selling a reduced range of essentials,
representing about 60% of items in France and about 50% of items in
Belgium.
Store openings in April and May were limited and the roll-out
programme resumed at pace only after the lifting of lockdowns. In
the 10 months to October 2020, Action had opened 115 stores,
including its first five stores in the Czech Republic. The opening
of pilot stores in Italy, initially planned for Autumn 2020, has
been deferred to H1 2021.
Other portfolio performance and activity
We continue to see strong momentum in earnings growth and cash
generation for portfolio companies operating in the consumer,
e-commerce, healthcare and business services sectors. The increased
demand for hygiene products continues to benefit Royal Sanders. The
strong performance and cash flow generation since our investment in
2018 allowed the company to make a dividend distribution to 3i of
GBP38 million in July 2020. Lampenwelt, now rebranded Luqom, has
been supported by the structural shift of consumer demand towards
e-commerce and the increased importance of the home and living
category as consumers spend more time at home. Cirtec Medical
delivered significant year-on-year growth in the first half, driven
by sales to high growth customers and the successful implementation
of several margin optimisation initiatives. Tato has benefited from
increased demand for products used in disinfectants and hygiene
products and returned a GBP5 million dividend to 3i in July
2020.
We have also seen an encouraging recovery across our retail
investments. In April 2020, we completed a GBP20 million equity
injection into Hans Anders, to support the business through
government-enforced temporary store closures across the countries
in which it operates. Since reopening its stores in May 2020, Hans
Anders has experienced a strong recovery in order intake across all
markets, with higher conversion rates in the stores. The business
has shifted its emphasis from walk-ins to online bookings,
leveraging the substantial investments in its omni-channel
proposition since our investment in 2017. Similarly, BoConcept has
recovered well since the easing of lockdowns, with trading levels
above those of the prior year.
Our portfolio companies exposed to the travel and automotive
sectors continue to operate in more challenging conditions. As
expected, Audley Travel's revenues have been under significant
pressure, with departures severely restricted since April 2020. In
early November 2020 we invested a further c.GBP50 million of
capital to support the business through this difficult trading
period. We believe Audley Travel will be well positioned to benefit
when international leisure travel recovers due to its client
proposition, destination diversity and asset-light model. The
performance of ICE, now rebranded Arrivia, has been relatively
resilient, with the recurring revenue nature of its membership
business and material reductions to expenses and capex offsetting
an extended period of no cruise sailings and a low level of resort
vacations. Since passing the peak of the temporary plant shutdowns
in April 2020 in response to Covid-19, Formel D has remained cash
generative. Whilst its output recovery has been steady, it has been
slower than expected, against a backdrop of a very challenging
automotive sector. Q Holding continued to experience softer trading
in its Quality Synthetic Rubber ("QSR") business, which has
exposure to the automotive sector. Performance has since begun to
stabilise, and the business is positioned well to recover as the
automotive cycle improves. Its healthcare business continues to
perform well.
We continue our focus on buy-and-build opportunities for our
platform assets. In July 2020, we supported Evernex's
transformational acquisition of Technogroup, the leading
third-party data centre maintenance provider in Germany, Austria
and Switzerland, contributing GBP41 million of funding . Having
established a bioprocessing platform through the merger of Cellon,
Silicone Altimex and TBL Performance Plastics in January 2020, we
achieved a significant milestone in the growth and
internationalisation of this platform through the acquisition of
Sani-Tech West, Inc in July 2020. The total 3i investment in this
platform, now rebranded as SaniSure, is GBP135 million. In August
2020, SaniSure completed the acquisition of Biofluidfocus.
In September 2020, we completed the GBP64 million investment in
GartenHaus, an online leader in the retail of garden buildings,
sheds, saunas, and related products in Germany, Austria,
Switzerland and the Netherlands. In June 2020, we invested GBP17
million in Basic-Fit to provide expansion capital and, in September
2020, we repurchased an equity stake in Havea for GBP23 million. At
the start of November 2020, we signed a c.GBP125 million investment
in MPM, an international leader in branded premium natural pet
food.
In the period, we completed the disposal of Kinolt and received
total proceeds of GBP81 million. As a proprietary capital investor,
and with the benefit of a strong balance sheet, we are not under
pressure to exit investments when market conditions are
unfavourable or when we believe a longer-term hold may yield
greater returns for shareholders. Over 61% of our portfolio by
value, excluding Action, was acquired within the last four years,
and is still being managed actively as we build value organically
and, in a number of cases, through bolt-on acquisitions. In light
of the Covid-19 related market uncertainty, we are not currently
planning to realise further material assets for the remainder of
the year.
Infrastructure
Our Infrastructure business performed well in the first half of
the year, achieving a GIR of 12%. The 3iN portfolio continues to
demonstrate its resilience, generating a total return on opening
NAV of 4% in the six months to 30 September 2020 (September 2019:
6%). 3iN is on track to deliver its dividend target, which is up
6.5% on last year. The team completed two bolt-on acquisitions in
the period. 3iN's share price reflected the portfolio's good
operational performance, increasing by 17% and closing at 289 pence
on 30 September 2020 (31 March 2020: 247 pence).
Both of our US infrastructure assets are deemed to be providers
of essential services and have continued to operate throughout the
pandemic. The seven freight rail lines of our investment in
Regional Rail have performed ahead of our investment case despite
some softness in freight volumes in Northeast America. Smarte Carte
has benefited from the diversity of its product offering and the
locations in which it operates, as well as a moderate recovery in
US air traffic levels. However, we remain cautious in light of the
short and medium-term prospects for the travel industry.
In the period, we established a new 3i-managed vehicle which
will co-invest alongside 3iN in certain transactions, with a
commitment of EUR400 million from Industriens Pension of
Denmark.
Scandlines
Scandlines delivered a solid performance in the period with
freight volumes remaining close to 2019 levels. The lifting of
travel restrictions in the summer months allowed car volumes to
also show good momentum. Scandlines continues to be well positioned
to manage the further uncertainty developing in Northern Europe due
to the pandemic.
Balance sheet and dividend
In June 2020, we took advantage of favourable corporate debt
market conditions to strengthen our balance sheet further, issuing
a 20-year GBP400 million bond at a coupon of 3.75%. At 30 September
2020, our balance sheet remained well funded with GBP687 million of
cash. Net debt was GBP288 million, resulting in gearing of 3%.
In line with our dividend policy, we have decided to pay a first
FY2021 dividend of 17.5 pence, which is half of our FY2020 total
dividend. This first FY2021 dividend will be paid to shareholders
on 13 January 2021.
Covid-19 update
Throughout this pandemic, our focus has been first and foremost
on protecting the wellbeing of our own employees, as well as those
of our portfolio companies and the communities in which we
collectively operate. We continue to follow local government
guidance closely.
At the start of May 2020, we used employee carry and performance
fee reserves to establish a GBP5 million Covid-19 Charitable Fund,
with the aim of supporting charities and communities affected by
the pandemic in the countries in which we operate. This money will
be allocated to both immediate relief and longer-term rebuilding
activities. By the end of October, we had made donations totalling
c.GBP1.6 million to over 20 charities focused on immediate relief
work across our markets. The overarching theme of the fund is the
alleviation of poverty and its consequences. The fund has focused
its donations on areas such as food provision, education, domestic
violence, the advancement of minorities and disadvantaged groups,
community development, homelessness, elderly people and mental
health.
Brexit
As we approach the end of the transition period on 1 January
2021, we do not expect a significant disruption to our business
from Brexit. Our Brexit planning has been based on worst-case
scenario assumptions and we implemented an alternative regulatory
structure in Luxembourg, which enables us to continue activities in
Europe, regardless of the form of Brexit. The direct impact of
Brexit on our investment portfolio is not expected to be
material.
Outlook
The environment remains challenging as a result of the economic
and social disruption resulting from the Covid-19 pandemic.
Investor confidence continues to be undermined by the limited
visibility on the longer-term impact of the pandemic and the
political response to it across the world. In this environment, we
will remain disciplined in our investment approach and focused on
enhancing the value of our portfolio through organic growth and
value-accretive add-ons. To date, our portfolio has been resilient
to the shocks caused by the pandemic and while we continue to
monitor developments closely, we have entered the second half of
the year with good momentum across the Group. We will continue to
navigate the challenges from the pandemic from a strong position
with our resilient investment portfolio and a clear and proven
strategy supported by rigorous asset management policies.
Simon Borrows
Chief Executive
Business and Financial review
Private Equity
Our Private Equity business performed strongly in the first
half, generating a gross investment return of GBP1,245 million
(September 2019: GBP666 million), or 19% of the opening portfolio
value (September 2019: 11%), including a gain on foreign exchange
on investments of GBP97 million (September 2019: GBP176
million).
Table 1: Gross investment return for the six months to 30
September
2020 2019
Investment basis GBPm GBPm
============================================================ ====== =====
Realised profits over value on the disposal of investments 3 -
Unrealised profits on the revaluation of investments 1,071 429
Dividends 43 5
Interest income from investment portfolio 25 52
Fees receivable 6 4
Foreign exchange on investments 97 176
Gross investment return 1,245 666
============================================================ ====== =====
Gross investment return as a % of opening portfolio value 19% 11%
============================================================ ====== =====
Investment
Table 2: Private Equity cash investment in the six months to 30
September 2020
Proprietary
capital
investment
Investment Type Business description/bolt on description Date GBPm
============== ================== ==================================================== =============== ===========
Online leader in retail of garden buildings, sheds,
saunas and related products in Germany,
GartenHaus(1) New Austria, Switzerland and Netherlands September 2020 64
Manufacturer of natural healthcare and cosmetics
Havea Further products September 2020 23
Hans Anders Further Value-for-money optical retailer April 2020 20
Basic-Fit Further Discount gyms operator June 2020 17
Luqom Return of funding Online lighting specialist retailer July 2020 (8)
Total Private Equity new cash, further investment and return of funding 116
--------------------------------------------------------------------------------------------------------- -----------
Total Private Equity bolt-on investments from 3i balance sheet 115
--------------------------------------------------------------------------------------------------------- -----------
Total Private Equity cash investment 231
========================================================================================================= ===========
1 Post 30 September 2020, GartenHaus returned GBP3 million of overfunding, reducing 3i's proprietary
capital investment to GBP61 million.
During the first half of the year, our Private Equity business
made net investment of GBP231 million (September 2019: GBP221
million), comprising GBP116 million of new and further investment
and return of funding and GBP115 million of bolt-on
investments.
A description of the new and bolt-on investments is provided in
the Chief Executive's review. We have also used our capital to
support the existing portfolio through the Covid-19 pandemic. In
April 2020, we completed the GBP20 million equity injection in Hans
Anders to provide liquidity support and in June 2020, we invested
GBP17 million in Basic-Fit to provide expansion capital. In
September 2020, we repurchased an equity stake in Havea for GBP23
million, following a reorganisation of shareholding. In July 2020,
Luqom returned GBP8 million of overfunding that we had provided for
the bolt-on acquisition of QLF in FY2020.
At the start of November 2020, we signed a c.GBP125 million
investment in MPM, an international leader in branded premium
natural pet food.
Realisations
In the period, we realised proceeds of GBP82 million (September
2019: GBP1 million). We completed the sale of Kinolt, generating
proceeds of GBP81 million, of which GBP76 million was recognised as
capital and the remainder as income. We also received further
proceeds from the disposal of ACR, a legacy investment.
Table 3: Private Equity realisations in the six months to 30
September 2020
31 March Uplift
on
Calendar 2020 3i Profit/(loss) opening Residual
realised
year value proceeds in the value value Money
year (1) (1)
Investment Country invested GBPm GBPm GBPm % GBPm multiple IRR
(2)
=============== =========== ========== ========= ========== ============== ======== ========= ========= =====
Full
realisations
Kinolt Belgium 2015 80 76 (3) (3)% - 1.6x 10%
=============== =========== ========== ========= ========== ============== ======== ========= ========= =====
Deferred
consideration
ACR Singapore 2006 - 5 5 - - n/a n/a
=============== =========== ========== ========= ========== ============== ======== ========= ========= =====
Other n/a n/a - 1 1 - - n/a n/a
=============== =========== ========== ========= ========== ============== ======== ========= ========= =====
Total Private
Equity realisations 80 82 3 n/a - n/a n/a
======================================== ========= ========== ============== ======== ========= ========= =====
1 Cash proceeds realised in the period over opening value.
2 Cash proceeds over cash invested. For partial realisations and refinancings,
valuations of any remaining investment are included in the multiple.
Money multiples are quoted on a GBP basis.
Portfolio performance
The Covid-19 pandemic continues to drive uncertainty for the
2020 outlook. Since the valuation point at 31 March 2020 (see pages
22 and 23 of the FY2020 Annual report and accounts detailing our
valuation approach at that date), our Private Equity portfolio has
shown resilience and most of our portfolio companies outperformed
our rebased Covid-19 full-year outlook during the period.
Therefore, for most of our portfolio, we reverted to our usual
valuation process for 30 September 2020. For the more challenged
investments, particularly those in the travel and automotive
sectors, we sought to gather a broader range of inputs, considered
different methodologies and applied further judgement.
Table 4: Unrealised profits/(losses) on the revaluation of
Private Equity investments(1) in the six months to 30 September
2020 2019
GBPm GBPm
=============================================== ====== =====
Action
Performance 644 381
Earnings based valuations (excluding Action)
Performance 238 90
Multiple movements 211 (19)
Other bases
Discounted cash flow ("DCF") (60) -
Other movements in unquoted investments (1) (11)
Imminent sale 11 -
Quoted portfolio 28 (12)
============================================== ====== =====
Total 1,071 429
=============================================== ====== =====
1 More information on our valuation methodology, including definitions and rationale, is included
in our Annual report and accounts 2020 on pages 177 to 178.
Action valuation and performance
Following the reopening of all stores in May 2020, Action has
experienced robust trading with an increase in the average basket
size more than outweighing a decrease in footfall resulting from
the implementation of social distancing measures. Strong earnings
recovery and cash generation resulted in GBP644 million (September
2019: GBP381 million) of value growth, as shown in Table 4.
At 30 September 2020, Action was valued using its run-rate
earnings to 30 September and a multiple of 18.0x net of the
liquidity discount (31 March 2020: Fair value). This approach was
consistent with the approach used at 30 June 2020. This resulted in
a valuation of our 52.6% stake in Action of GBP4,269 million (31
March 2020: GBP3,536 million).
Performance (excluding Action)
We continue to see strong performance from our portfolio
companies operating in the consumer, e-commerce, healthcare and
business services sectors.
Royal Sanders has been able to capture a share of the surge in
demand for handwash and hand gels, with all its factories remaining
operational throughout the year. Additionally, the acquisition of
the McBride sites in 2018 has created significant value. As a
result, the business has generated strong earnings growth and cash
since our investment in 2018, allowing the company to return GBP38
million of dividends to 3i.
Luqom has been supported by the structural shift of consumer
demand towards e-commerce, coupled with an increasing demand and
relevance of the home and living category, resulting in significant
sales growth in the first half. E-commerce demand for lighting
products has remained high even as economies have reopened.
Cirtec Medical delivered strong year-on-year growth in the first
half. The neuromodulation and structural heart end markets
recovered quickly from the deferral of procedures in late March and
early April. Additionally, Cirtec Medical has benefited from
platform-specific tailwinds, with a number of customers ramping up
their purchases. The business also realised several margin
optimisation initiatives, all of which have driven earnings
growth.
Tato has seen increased demand for chemicals used in
disinfectants and hygiene products and returned a GBP5 million
dividend to 3i in July 2020.
Evernex's third-party IT equipment maintenance ("TPM") model has
performed resiliently so far, with monthly subscriptions accounting
for around two-thirds of total sales and with the benefit of
variable operating costs. In addition, the acquisition of
Technogroup in July 2020 secured its European leadership in the TPM
sector.
Our retail businesses have recovered well from
government-enforced temporary store closures across Europe at the
beginning of FY2021. Since reopening its stores in May 2020, Hans
Anders has experienced a strong recovery in order intake across all
markets, with higher conversion rates in the stores. The business
has shifted its emphasis from walk-ins to online bookings,
leveraging the substantial investments in its omni-channel
proposition since 3i's investment in 2017. Similarly, BoConcept has
shown good performance with trading levels above those of the prior
year and very limited store closures.
Our portfolio companies exposed to the travel sector continue to
operate in more challenging conditions. Arrivia experienced an
extended period of no cruise sailings and low level of resort
vacations. Despite this, Arrivia's business model has proven
resilient, due to the strength of its membership business that
forms a significant part of its revenue. Audley Travel's trading
has been acutely impacted by Covid-19, with minimal departure
revenue since April 2020 . Further details can be found under
'Discounted Cash Flow ("DCF")' below.
With the on-set of the Covid-19 pandemic, the automotive market,
which had already been under pressure, has been further negatively
affected on both the supply and demand side, resulting in a
reduction in volumes across Europe and the US in the period. Since
passing the peak of the enforced temporary plant shutdowns in April
2020, Formel D's output recovery has been steady but slower than
expected. Covid-19 has had a commercial impact on the automotive
side of Q Holding's business whilst creating some operational
disruption to its medical sites. However, these impacts are
partially offset by an increase in demand for non-discretionary
medical products.
Overall, 85% of the top 20 assets by value in our Private Equity
portfolio grew their earnings in the 12 months to 30 June 2020
(September 2019: 91%) . Nine companies experienced negative
earnings growth in the 12 months to 30 June 2020 . These include
companies exposed to the challenging travel and automotive sectors
and companies which experienced temporary interruptions in activity
during April and May.
Table 5: Portfolio earnings growth of the top 20 Private Equity
investments(1)
3i carrying value
Number of companies at 30 September 2020
Last 12 months' earnings growth at 30 September 2020 GBPm
================================ ===================== =====================
<0% 9 1,204
0 - 9% 2 401
10 - 19% 3 4,818
20 - 40% 3 785
>40% 3 584
================================ ===================== =====================
1 This represents 99% of the Private Equity portfolio by value (31 March 2020: 98%).
Across the portfolio leverage was 4.0x at 30 September 2020 (31
March 2020: 4.1x). Excluding Action, leverage across the portfolio
at 30 September 2020 was 4.3x (31 March 2020: 3.7x). Table 6 shows
the ratio of net debt to earnings by portfolio value at 30
September 2020.
Table 6: Ratio of net debt to earnings(1)
3i carrying value
Number of companies at 30 September 2020
Ratio of net debt to earnings at 30 September 2020 GBPm
============================== ===================== =====================
<1x 1 228
1 - 2x 1 130
2 - 3x 2 317
3 - 4x 2 4,643
4 - 5x 4 839
5 - 6x 7 898
============================== ===================== =====================
1 This represents 89% of the Private Equity portfolio by value (31 March 2020: 91%). Quoted
holdings, deferred consideration and companies with net cash are excluded from the calculation.
Multiple movements
In setting or changing a multiple, we consider a number of
factors such as relative performance, investment size, comparable
recent transactions and exit plans, and monitor external equity
markets. Where appropriate, we adjust the multiples for the impact
of the applicable lease accounting standards.
In valuing the portfolio at 30 September 2020, we adjusted a
small number of multiples to reflect the strong performance in the
medical sector and took account of the recent transformational
acquisitions in the multiples of Evernex and SaniSure. We have also
taken some recovery in multiples for businesses that we believe are
experiencing a short-term impact on earnings driven by the
pandemic, but in general, we have not assumed that exceptional
performance as a result of changed behavior in the pandemic should
also be reflected in a rerating of the business.
The multiple of run-rate earnings used to value Action at 30
September 2020 was 18.0x net of the liquidity discount . As at 30
September 2020, a 1.0x movement in Action's post-discount multiple
would have increased or decreased the valuation of 3i's investment
by GBP299 million.
DCF
In the period, we moved Audley Travel's valuation basis from
earnings to DCF and reflected the deterioration in travel market
sentiment and broader market outlook in the short to medium term in
the valuation. In early November 2020, we invested a further
c.GBP50 million of capital to support the business through this
difficult trading period.
Imminent sale
At 30 September 2020, we moved Navayuga, an Asian legacy asset,
to an imminent sale valuation basis following the completion of a
commercial settlement. We received proceeds of GBP17 million from
this sale in October 2020.
Quoted portfolio
Basic-Fit is the only quoted asset in the Private Equity
portfolio. In June 2020, we invested GBP17 million in the business
to provide expansion capital. We recognised an unrealised value
gain of GBP28 million from Basic-Fit in the period (September 2019:
GBP12 million loss) as its share price increased to EUR20.30 at 30
September 2020 (31 March 2020: EUR15.20). At 30 September 2020, our
residual 12.8% shareholding was valued at GBP141 million (31 March
2020: 12.7% shareholding valued at GBP93 million).
Private Equity proprietary capital
At 30 September 2020, the portfolio consisted of 32 assets (31
March 2020: 32 assets). The value of 3i's Private Equity
proprietary capital increased to GBP7.9 billion (31 March 2020:
GBP6.6 billion) due to value growth, net investment
and gains from foreign exchange translation on investment in the
period.
Table 7: Private Equity proprietary capital
Proprietary capital value Vintage Proprietary capital value Vintage
30 September 2020 money multiple (3) 31 March 2020 money multiple (3)
Vintages (1) GBPm 30 September 2020 GBPm 31 March 2020
=================== ========================== =================== ========================== ===================
Buyouts 2010-2012 1,470 10.0x 1,623 9.5x
Growth 2010-2012 19 2.1x 20 2.1x
2013-2016 776 2.2x 869 2.2x
2016-2019 1,850 1.3x 1,472 1.0x
2019-2022 523 1.2x 281 1.0x
Other(2) 3,252 n/a 2,287 n/a
=================== ========================== =================== ========================== ===================
Total 7,890 6,552
=================== ========================== =================== ========================== ===================
1 Assets included in these vintages are disclosed in the glossary towards the end of this document.
2 Includes value of GBP2,799 million (31 March 2020: GBP1,913 million) held in Action through
the 2020 Co-investment vehicles and 3i.
3 Vintage money multiple includes unrealised value.
The value of the Private Equity portfolio including third-party
capital increased to EUR11.6 billion (31 March 2020: EUR9.9
billion) due to the increase in the valuation of Action, strong
performance from our more recent vintages, net investment and
favourable foreign exchange gains.
Table 8: Private Equity proprietary capital by 3i office
location
3i carrying value
at 30 September 2020
3i office location Number of companies GBPm
==================== ==================== =====================
Netherlands 5 5,106
France 2 549
Germany 6 689
UK 8 503
US 7 1,004
Other 4 39
==================== ==================== =====================
Total 32 7,890
==================== ==================== =====================
Infrastructure
Our Infrastructure business performed well and generated a gross
investment return of GBP134 million, or 12% on the opening
portfolio value in the period (September 2019: GBP88 million, 9%).
This was driven by the recovery of 3iN's share price and by
dividend income.
Table 9: Gross investment return for the six months to 30
September
2020 2019
Investment basis GBPm GBPm
=========================================================== ===== =====
Unrealised profits on the revaluation of investments 127 59
Dividends 14 12
Interest income from investment portfolio 5 5
Foreign exchange on investments (16) 17
Movement in the fair value of derivatives 4 (5)
=========================================================== ===== =====
Gross investment return 134 88
=========================================================== ===== =====
Gross investment return as a % of opening portfolio value 12% 9%
=========================================================== ===== =====
3iN performance
The 3iN portfolio continues to demonstrate its resilience to the
effects of the Covid-19 pandemic, generating a total return on
opening NAV of 4% in the six months to 30 September 2020 (September
2019: 6%). 3iN is on track to deliver its dividend target which is
up 6.5% on last year. In the first half, Infinis completed the
acquisition of the development rights for a 6MW solar PV project at
the Ling Hall landfill and Tampnet agreed to purchase a 1,200km
offshore fibre cable system in the Gulf of Mexico. Furthermore, 3iN
committed additional capital to ESVAGT to fund further growth in
its offshore wind servicing segment.
As 3iN's investment manager, we received a management fee of
GBP12 million for the six-month period to 30 September 2020
(September 2019: GBP15 million).
Performance of 3i's proprietary capital Infrastructure
portfolio
Table 10: Unrealised profits on the revaluation of
Infrastructure investments(1) in the six months to 30 September
2020 2019
GBPm GBPm
=============== ===== =====
Quoted 113 53
DCF 7 4
Fund 1 2
Imminent sale 6 -
=============== ===== =====
Total 127 59
=============== ===== =====
1 More information on our valuation methodology, including definitions and rationale, is included
in our Annual report and accounts 2020 on pages 177 to 178.
Quoted stake in 3iN
3iN's share price increased by 17% in the first half of the year
and closed at 289 pence on 30 September 2020 (31 March 2020: 247
pence). We recognised GBP113 million of unrealised value growth on
our 3iN investment and GBP12 million of dividend income (September
2019: GBP53 million of unrealised value growth and GBP12 million of
dividend income). At 30 September 2020, our investment in 3iN was
valued at GBP778 million (31 March 2020: GBP665 million).
US Infrastructure
Our US infrastructure portfolio has been relatively resilient
throughout the pandemic, as both assets have been deemed to provide
essential services. Regional Rail has continued to perform well.
The business benefited from opportunistic growth in offerings like
car storage and better than expected operational efficiency at its
newly acquired Carolina Coastal Railway line. It also added new
customers on its Florida lines, offsetting some freight softness in
Northeast America. Smarte Carte's operations have been relatively
resilient despite the reduction in air travel across the US,
benefiting from a diverse offering and broad penetration across the
country. However, the business continues to operate in very
challenging market conditions. Whilst US air traffic has marginally
recovered, the Company benefits from leisure travel that is
recovering faster than business travel.
Imminent sale
At 30 September 2020, we valued Krishnapatnam Port , the largest
asset remaining in our 3i India Infrastructure Fund, on an imminent
sale valuation basis following completion of a commercial
settlement. We received proceeds of GBP30 million from this sale in
October 2020.
Fund management
The 3i European Operational Projects Fund completed the
acquisition of a portfolio of eight operational projects in France.
The Fund has now deployed c.60% of its total commitments and has a
good pipeline of potential investments. The Fund is outperforming
its yield objective.
We established a new 3i-managed vehicle in the period that will
co-invest alongside 3iN in certain transactions, with a commitment
of EUR400 million from Industriens Pension of Denmark.
Infrastructure AUM increased to GBP4.9 billion (31 March 2020:
GBP4.4 billion) and we generated fee income of GBP19 million from
our fund management activities in the period (September 2019: GBP22
million).
Table 11: Assets under management as at 30 September 2020
Fee
income
% invested at earned in
Close 3i commitment/ Remaining 3i September AUM the period
Fund/strategy date Fund size share commitment 2020 GBPm GBPm
========================== ========= ========== =============== ============= ============== ====== ===========
3iN(1) Mar 07 n/a GBP778m n/a n/a 2,576 12
3i Managed Infrastructure
Acquisitions LP Jun 17 GBP698m GBP35m GBP5m 86% 784 3
3i European Operational
Projects Fund Apr 18 EUR456m EUR40m EUR16m 59% 244 1
BIIF May 08 GBP680m n/a n/a 90% 477 2
3i India Infrastructure
Fund Mar 08 US$1,195m US$250m US$35m 73% 119 -
3i managed accounts various n/a n/a n/a n/a 326 1
US Infrastructure various n/a n/a n/a n/a 367 -
========================== ========= ========== =============== ============= ============== ====== ===========
Total 4,893 19
===================================== ========== =============== ============= ============== ====== ===========
1 AUM based on the share price at 30 September 2020.
Scandlines
Scandlines generated a gross investment return of GBP15 million
(September 2019: GBP44 million) or 3% of opening portfolio value
(September 2019: 8%).
Table 12: Gross investment return for the six months to 30
September
2020 2019
Investment basis GBPm GBPm
=========================================================== ===== =====
Unrealised profit on the revaluation of investments 12 10
Dividends - 27
Foreign exchange on investments 11 16
Movement in the fair value of derivatives (8) (9)
=========================================================== ===== =====
Gross investment return 15 44
=========================================================== ===== =====
Gross investment return as a % of opening portfolio value 3% 8%
=========================================================== ===== =====
Performance
Scandlines delivered a solid performance. Its strategic
importance to supply chains between Denmark, Germany and
Scandinavia remains evident, with freight volumes at over 90% in
the nine months to September compared to the prior comparable
period. Car volumes continue to be impacted on a month-by-month
basis by regional and national travel and quarantine restrictions,
although they demonstrated good momentum following the removal of
travel restrictions in the summer. The company continues to be well
positioned to manage the further uncertainty developing in Northern
Europe due to the pandemic. As indicated previously, we do not
expect to receive any dividends from Scandlines in FY2021. At 30
September 2020, Scandlines was valued at GBP452 million (31 March
2020: GBP429 million) on a DCF basis.
Foreign exchange
We hedge our investment in Scandlines for foreign exchange
translation risk. We recognised a GBP3 million net gain on foreign
exchange translation (September 2019: GBP7 million) including an
GBP8 million fair value loss (September 2019: GBP9 million) from
derivatives in our hedging programme.
Overview of financial performance
3i generated a total return of GBP1,142 million, or a profit on
opening shareholders' funds of 15%, in the six months to 30
September 2020 (September 2019: GBP767 million, or 10%). The
diluted NAV per share at 30 September 2020 increased to 905 pence
(31 March 2020: 804 pence) after the payment of the second FY2020
dividend of GBP169 million, or 17.5 pence per share (September
2019: GBP194 million, 20 pence per share) and the 12 pence one-off
negative accounting impact of the pension buy-in transaction.
Table 13: Gross investment return for the six months to 30
September
2020 2019
Investment basis GBPm GBPm
=========================================================== ====== =====
Private Equity 1,245 666
Infrastructure 134 88
Scandlines 15 44
Gross investment return 1,394 798
=========================================================== ====== =====
Gross investment return as a % of opening portfolio value 17% 11%
----------------------------------------------------------- ------ -----
Total comprehensive income ("Total return") 1,142 767
=========================================================== ====== =====
Total return on opening shareholders' funds 15% 10%
=========================================================== ====== =====
Gross investment return was GBP1,394 million in the period
(September 2019: GBP798 million) driven by the strong performance
of Action and several other portfolio companies, as well as good
dividend income from the portfolio. The GIR also includes a GBP88
million net foreign currency gain on translation of our investments
(September 2019: GBP195 million gain). Further information on the
Private Equity, Infrastructure and Scandlines valuations is
included in their respective sections of this Business and
Financial review.
Operating cash profit
Table 14: Operating cash profit/(loss) for the six months to 30
September
2020 2019
GBPm GBPm
======================================= ===== =====
Cash fees from external funds 19 19
Cash portfolio fees 2 3
Cash portfolio dividends and interest 62 55
======================================= ===== =====
Cash income 83 77
Cash operating expenses(1) (69) (79)
======================================= ===== =====
Operating cash profit/(loss) 14 (2)
======================================= ===== =====
1 Cash operating expenses include operating expenses paid and lease payments.
3i generated an operating cash profit of GBP14 million in the
period (September 2019: GBP2 million loss). Cash income increased
to GBP83 million (September 2019: GBP77 million) principally due to
good dividend income. Cash operating expenses incurred during the
period decreased to GBP69 million (September 2019: GBP79 million)
driven principally by lower variable compensation costs and a
reduction in travel as a result of the Covid-19 travel
restrictions.
Foreign exchange
At 30 September 2020, 83% of the Group's assets were denominated
in euros or US dollars (31 March 2020: 78%). Following the
weakening of sterling against the euro and strengthening of
sterling against the US dollar, the Group recorded a total foreign
exchange gain of GBP80 million net of derivatives during the period
(September 2019: GBP196 million).
Table 15: Net assets and sensitivity by currency at 30 September
2020
Net 1%
assets sensitivity
FX rate GBPm % GBPm
============== ======== ======= === ============
Sterling n/a 1,268 15 n/a
Euro(1) 1.1027 5,954 68 59
US dollar(1) 1.2932 1,347 15 13
Danish krone 8.2091 130 2 1
Other n/a 42 - n/a
============== ======== ======= === ============
Total 8,741
============== ======== ======= === ============
1 Sensitivity impact is net of derivatives.
Carried interest and performance fees payable and receivable
We pay carried interest to participants in plans relating to our
proprietary capital invested. We also receive performance fees from
third-party funds and pay a portion of that carry received to
participants in our carry plans. Carried interest at 30 September
2020 was calculated assuming that remaining assets in the portfolio
were realised at their fair value at that date.
Table 16: Carried interest and performance fees for the six
months to 30 September
Consolidated statement of comprehensive income 2020 2019
GBPm GBPm
================================================== ===== =====
Carried interest and performance fees receivable
Private Equity (2) 81
================================================== ===== =====
Total (2) 81
================================================== ===== =====
Carried interest and performance fees payable
Private Equity (61) (63)
Infrastructure (2) (5)
================================================== ===== =====
Total (63) (68)
================================================== ===== =====
Net carried interest (payable)/receivable (65) 13
================================================== ===== =====
Table 17: Carried interest and performance fees
Consolidated statement of financial position 30 September 31 March
2020 2020
GBPm GBPm
================================================== ============= =========
Carried interest and performance fees receivable
Private Equity 9 11
Infrastructure - 6
Total 9 17
================================================== ============= =========
Carried interest and performance fees payable
Private Equity (564) (998)
Infrastructure (24) (40)
================================================== ============= =========
Total (588) (1,038)
================================================== ============= =========
Carried interest and performance fees receivable
Following the disposal of its stake in Action by Eurofund V
("EFV") in FY2020, the only material carried interest and
performance fees receivable will be generated from our management
of 3iN's portfolio.
Carried interest and performance fees payable
In Private Equity, we typically accrue net carried interest
payable at between 10% and 13% of gross investment return. We
accrued carried interest payable of GBP61 million (September 2019:
GBP63 million) for Private Equity in the period. At 30 September
2020, we were not accruing carried interest payable on the 2016-19
or 2019-22 vintage.
Carried interest is paid to participants when the performance
hurdles are passed in cash terms following cash proceeds received
from a realisation, refinancing event or other cash distribution.
Due to the 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. In FY2020, we
crystallised carried interest due on the EFV share of Action, along
with the carried interest due on 3i's share of the refinancing
proceeds from Action in the Buyouts 2010-12 scheme. As a result,
GBP502 million was paid to participants in the Buyouts 2010-12
scheme, of which GBP109 million was previously held in escrow.
Overall, the effect of the income statement charge, cash
payments, as well as the currency translation meant that the
balance sheet carried interest and performance fees payable
decreased to GBP588 million (31 March 2020: GBP1,038 million).
During the period, we crystallised further carried interest in the
Buyouts 2010-12 scheme relating to Action, which is expected to
result in a c.GBP112 million carried interest payment to
participants in the Buyouts 2010-12 scheme in November 2020.
Balance sheet and NAV
Table 18: Simplified consolidated balance sheet
30 September 31 March
2020 2020
Investment basis GBPm GBPm
================================================== ============= =========
Investment portfolio 9,578 8,098
Gross debt (975) (575)
Cash and deposits 687 845
================================================== ============= =========
Net (debt)/cash (288) 270
================================================== ============= =========
Carried interest and performance fees receivable 9 17
Carried interest and performance fees payable (588) (1,038)
Other net assets 30 410
================================================== ============= =========
Net assets 8,741 7,757
================================================== ============= =========
Gearing(1) 3.3% nil
================================================== ============= =========
1 Gearing is net debt as a percentage of net assets.
The investment portfolio value increased to GBP9,578 million at
30 September 2020 (31 March 2020: GBP8,098 million) driven by
unrealised value growth of GBP1,210 million, net investment and
gains on foreign exchange translation.
At 30 September 2020 the Group had net debt of GBP288 million
(31 March 2020: GBP270 million net cash) after a GBP400 million
carried interest payment, net cash investment of GBP15 million and
the payment of the second FY2020 dividend of GBP169 million.
Going concern and liquidity
The Half-year consolidated financial statements are prepared on
a going concern basis. The Directors made an assessment of going
concern, taking into account the Group's current performance and
the outlook, and performed additional analysis to support the going
concern assessment considering the ongoing impact of the Covid-19
pandemic on the portfolio.
Liquidity reduced to GBP1,087 million at 30 September 2020 (31
March 2020: GBP1,245 million) and comprised cash and deposits of
GBP687 million (31 March 2020: GBP845 million) and undrawn facility
of GBP400 million (31 March 2020: GBP400 million). In June we
successfully issued a 20-year GBP400 million bond at a coupon of
3.75%, providing further liquidity to the Group.
Pension
During the period, the 3i Group Pension Plan Trustees completed
a GBP650 million buy-in transaction with Legal & General. This
transaction was completed without additional contributions from 3i.
The 3i Group Pension Plan benefits are now fully insured through
buy-in policies which are held as assets of the Plan. This means
that 3i is no longer exposed to any material longevity, interest or
inflation risk in the plan and therefore any financing
requirements. As a result of the transaction we have reduced the
IAS 19 plan surplus to reflect this commercial outcome.
Consequently, at 30 September 2020, the IAS 19 Plan surplus was
GBP57 million (31 March 2020: GBP173 million) which included a
total re-measurement loss recognised in other comprehensive income
of GBP118 million (September 2019: GBP6 million gain) and interest
income recognised in the Consolidated statement of comprehensive
income of GBP2 million (September 2019: GBP2 million).
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 in the Reconciliation of the
Investment basis to IFRS section below. The table below defines our
additional APMs and should be read in conjunction with the Annual
report and accounts 2020.
APM Purpose Calculation Reconciliation to
IFRS
Gross investment A measure of the performance It is calculated The equivalent balances
return as a percentage of our proprietary as the gross investment under IFRS and the
of opening portfolio investment portfolio. return, as shown reconciliation to
value For further information, in the Investment the Investment basis
see the Group KPIs basis Consolidated are shown in the
in our Annual report statement of comprehensive Reconciliation of
and accounts 2020. income, as a % of consolidated statement
the opening portfolio of comprehensive
value. income and the Reconciliation
of consolidated
statement of financial
position respectively.
================================ =========================== ==============================
Cash realisations Cash proceeds from The cash received The equivalent balance
our investments support from the disposal under IFRS and the
our returns to shareholders, of investments in reconciliation to
as well as our ability the period as shown the Investment basis
to invest in new opportunities. in the Investment is shown in the
For further information, basis Consolidated Reconciliation of
see the Group KPIs cash flow statement. consolidated cash
in our Annual report flow statement.
and accounts 2020.
================================ =========================== ==============================
Cash investment Identifying new opportunities The cash paid to The equivalent balance
in which to invest acquire investments under IFRS and the
proprietary capital in the period as reconciliation to
is the primary driver shown on the Investment the Investment basis
of the Group's ability basis Consolidated is shown in the
to deliver attractive cash flow statement. Reconciliation of
returns. For further consolidated cash
information, see the flow statement.
Group KPIs in our Annual
report and accounts
2020.
================================ =========================== ==============================
Operating cash By covering the cash The cash income The equivalent balance
profit/(loss) cost of running the from the portfolio under IFRS and the
business with cash (interest, dividends reconciliation to
income, we reduce the and fees) together the Investment basis
potential dilution with fees received is shown in the
of capital returns. from external funds Reconciliation of
For further information, less cash operating consolidated cash
see the Group KPIs expenses and leases flow statement.
in our Annual report payments as shown
and accounts 2020. on the Investment
basis Consolidated
cash flow statement.
The calculation
is shown in Table
14 of the Overview
of financial performance.
================================ =========================== ==============================
Net cash/(net A measure of the available Cash and cash equivalents The equivalent balance
debt) cash to invest in the plus deposits less under IFRS and the
business and an indicator loans and borrowings reconciliation to
of the financial risk as shown on the the Investment basis
in the Group's balance Investment basis is shown in the
sheet. Consolidated statement Reconciliation of
of financial position. consolidated statement
of financial position.
================================ =========================== ==============================
Gearing A measure of the financial Net debt (as defined The equivalent balance
risk in the Group's above) as a % of under IFRS and the
balance sheet. the Group's net reconciliation to
assets under the the Investment basis
Investment basis. is shown in the
It cannot be less Reconciliation of
than zero. consolidated statement
of financial position.
================================ =========================== ==============================
Principal risks and uncertainties
3i's risk appetite statement, approach to risk management and
governance structure are set out in the Risk section of the Annual
report and accounts 2020, which can be accessed on the Group's
website at www.3i.com .
The principal risks to the achievement of the Group's strategic
objectives for the remaining six months of its financial year are
unchanged from those reported on pages 55 to 59 of the Annual
report and accounts 2020. There have been no material changes to
the impact and likelihood of the Group's principal risks in the
period, which are outlined below.
Covid-19
The restrictions to combat the Covid-19 pandemic have resulted
in a significant contraction of economic activity across the G20
countries and downgrading of global economic growth forecasts. The
outlook remains very uncertain. These economic headwinds have the
potential to affect trading, liquidity and valuations in varying
degrees across the portfolio. As outlined below, 3i has a
well-funded balance sheet and the impact on the investment
portfolio, which is now clearer, has been concentrated on a small
number of assets in the most exposed sectors.
Principal risks
External - Risks arising from external factors including
political, legal, regulatory, economic and competitor changes,
which affect the Group's investment portfolio and operations. There
is significant continuing uncertainty in the outlook for the global
economy and the potential for periods of increased market
volatility, both of which will be influenced by the extent of
Covid-19 related restrictions, their economic impact and government
economic policies. 3i is not immune to these wider market
conditions; however, our balance sheet is well funded with low
holding company debt and we have a diverse portfolio of
international companies.
Whilst the outcome of UK / EU trade negotiations remains
unclear, we have in place the necessary regulatory and investment
structures to ensure continuity of our EU based activities based on
a range of reasonably foreseeable scenarios. The exposure of the
portfolio to possible disruption to UK / EU trade flows is very
limited.
Investment - Risks in respect of specific asset investment
decisions, the subsequent performance of an investment or exposure
concentrations across business line portfolios. Although the
extension of Covid-19 restrictions continues to affect a limited
number of portfolio assets in the most exposed sectors e.g. travel,
the majority of the portfolio continues to show a resilient
performance.
Operational - Risks arising from inadequate or failed processes,
people and systems or from external factors affecting these. The
Group's day-to-day operations have been largely unaffected by the
impact of Covid-19 related restrictions and remote working
arrangements. This includes the resilience and security of the
Group's IT systems; maintaining robust processes and internal
controls; and providing appropriate levels of support for our
staff.
The Half-year report provides an update on 3i's strategy and
business performance, as well as on market conditions, which is
relevant to the Group's overall risk profile and should be viewed
in the context of the Group's risk management framework and
principal risks as disclosed in the Annual report and accounts
2020.
Reconciliation of the Investment basis to IFRS
Background to Investment basis numbers used in the Half-year
report
The Group makes investments in portfolio companies directly,
held by 3i Group plc, and indirectly, held through intermediate
holding company and partnership structures ("investment entity
subsidiaries"). It also has other operational subsidiaries, which
provide services and other activities such as employment,
regulatory activities, management and advice ("trading
subsidiaries"). The application of IFRS 10 requires the Group to
fair value a number of investment entity subsidiaries. This fair
value approach, applied at the investment entity subsidiary level,
effectively obscures the performance of our proprietary capital
investments and associated transactions occurring in the investment
entity subsidiaries. The financial effect of the underlying
portfolio companies and fee income, operating expenses and carried
interest transactions occurring in investment entity subsidiaries
are aggregated into a single value.
To aid understanding of our results, we include a separate
non-GAAP "Investment basis" consolidated statement of comprehensive
income, financial position and cash flow. The Investment basis is
an APM and the Chief Executive's review and the Business and
financial review are prepared using the Investment basis, as we
believe it provides a more understandable view of our performance.
Total return and net assets are equal under the Investment basis
and IFRS; the Investment basis is simply a "look through" of IFRS
10 to present the underlying performance.
A more detailed explanation of the effect of IFRS 10 is provided
in the Annual report and accounts 2020 on page 43.
Reconciliation between Investment basis and IFRS
A detailed reconciliation from the Investment basis to IFRS
basis of the consolidated statement of comprehensive income,
consolidated statement of financial position and consolidated cash
flow statement is shown below.
Reconciliation of consolidated statement of comprehensive
income
Six months to 30 September 2020 Six months to 30 September 2019
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
=================== ====== =========== ============ ============ ============== ============ ==============
Realised profits
over value
on the disposal
of investments 1,2 3 2 5 - - -
Unrealised profits
on the
revaluation of
investments 1,2 1,210 (605) 605 498 (436) 62
Fair value
movements
on investment
entity
subsidiaries 1 - 634 634 - 602 602
Portfolio income
Dividends 1,2 57 (27) 30 44 (31) 13
Interest income
from investment
portfolio 1,2 30 (20) 10 57 (39) 18
Fees receivable 1,2 6 1 7 4 1 5
Foreign exchange
on investments 1,4 92 (78) 14 209 (168) 41
Movement in the
fair value of
derivatives (4) - (4) (14) - (14)
=================== ====== =========== ============ ============ ============== ============ ==============
Gross investment
return 1,394 (93) 1,301 798 (71) 727
=================== ====== =========== ============ ============ ============== ============ ==============
Fees receivable
from external
funds 21 - 21 23 - 23
Operating expenses 1,3 (58) 1 (57) (60) - (60)
Interest received (1) 1 - 2 - 2
Interest paid (23) - (23) (18) - (18)
Exchange movements 1,4 (8) 5 (3) 1 19 20
Income from
investment entity
subsidiaries 1 - 12 12 - 10 10
Other income - - - 3 (1) 2
Operating profit
before carried
interest 1,325 (74) 1,251 749 (43) 706
=================== ====== =========== ============ ============ ============== ============ ==============
Carried interest
Carried interest
and performance
fees receivable 1,3 (2) - (2) 81 (18) 63
Carried interest
and performance
fees payable 1,3 (63) 68 5 (68) 59 (9)
================== ====== =========== ============ ============ ============== ============ ==============
Operating profit
before tax 1,260 (6) 1,254 762 (2) 760
=================== ====== =========== ============ ============ ============== ============ ==============
Income taxes 1,3 - - - (1) - (1)
=================== ====== =========== ============ ============ ============== ============ ==============
Profit for the
period 1,260 (6) 1,254 761 (2) 759
=================== ====== =========== ============ ============ ============== ============ ==============
Other comprehensive income
that may be reclassified
to the income statement
Exchange
differences
on translation
of foreign
operations 1,4 - 6 6 - 2 2
Other
comprehensive
income that will
not be
reclassified to
the income
statement
Re-measurement of
defined
benefit plans (118) - (118) 6 - 6
================== ====== =========== ============ ============ ============== ============ ==============
Other
comprehensive
(expense)/ income
for the period (118) 6 (112) 6 2 8
=================== ====== =========== ============ ============ ============== ============ ==============
Total
comprehensive
income for
the period
("Total return") 1,142 - 1,142 767 - 767
=================== ====== =========== ============ ============ ============== ============ ==============
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 periods. The adjustments simply reclassify the consolidated
statement of comprehensive income of the Group, and the total return is equal under the Investment
basis and the IFRS basis.
2 Realised profits, unrealised profits and portfolio income shown in the IFRS accounts only
relate to portfolio companies that are held directly by 3i Group plc and not those portfolio
companies held through investment entity subsidiaries. Realised profits, unrealised profits
and portfolio income in relation to portfolio companies held through investment entity subsidiaries
are aggregated into the single "Fair value movement on investment entity subsidiaries" line.
This is the most significant reduction of information in our IFRS accounts.
3 Other items 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.
4 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 entity subsidiaries".
Reconciliation of consolidated statement of financial
position
As at 30 September 2020 As at 31 March 2020
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (audited)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
==== ================================ =========== ============ ============ =========== ============ ==========
Assets
Non-current assets
Investments
Quoted investments 1 919 (430) 489 758 (340) 418
Unquoted investments 1 8,659 (4,838) 3,821 7,340 (4,304) 3,036
Investments in investment
entity subsidiaries 1,2 - 4,871 4,871 - 3,936 3,936
================================ ==== =========== ============ ============ =========== ============ ==========
Investment portfolio 9,578 (397) 9,181 8,098 (708) 7,390
================================ ==== =========== ============ ============ =========== ============ ==========
Carried interest and
performance
fees receivable 1 9 1 10 11 - 11
Other non-current assets 1 34 (1) 33 26 (3) 23
Intangible assets 8 - 8 9 - 9
Retirement benefit surplus 57 - 57 173 - 173
Property, plant and equipment 5 - 5 5 - 5
Right of use asset 17 - 17 19 - 19
Derivative financial
instruments 2 - 2 7 - 7
Deferred income taxes 1 - 1 - - -
Total non-current assets 9,711 (397) 9,314 8,348 (711) 7,637
================================ ==== =========== ============ ============ =========== ============ ==========
Current assets
Carried interest and
performance
fees receivable 1 - - - 6 1 7
Other current assets 1 29 (2) 27 296 (152) 144
Current income taxes 2 - 2 2 - 2
Derivative financial
instruments 3 - 3 6 - 6
Cash and cash equivalents 1 687 (126) 561 845 (74) 771
================================ ==== =========== ============ ============ =========== ============ ==========
Total current assets 721 (128) 593 1,155 (225) 930
================================ ==== =========== ============ ============ =========== ============ ==========
Total assets 10,432 (525) 9,907 9,503 (936) 8,567
================================ ==== =========== ============ ============ =========== ============ ==========
Liabilities
Non-current liabilities
Trade and other payables 1 (8) 8 - (5) 5 -
Carried interest and
performance
fees payable 1 (469) 410 (59) (505) 439 (66)
Loans and borrowings (975) - (975) (575) - (575)
Derivative financial
instruments (3) - (3) (2) - (2)
Lease liability (13) - (13) (16) - (16)
Retirement benefit deficit (26) - (26) (25) - (25)
Deferred income taxes (1) - (1) (1) - (1)
Provisions (3) - (3) (3) - (3)
================================ ==== =========== ============ ============ =========== ============ ==========
Total non-current liabilities (1,498) 418 (1,080) (1,132) 444 (688)
================================ ==== =========== ============ ============ =========== ============ ==========
Current liabilities
Trade and other payables 1 (68) (2) (70) (73) - (73)
Carried interest and
performance
fees payable 1 (119) 109 (10) (533) 492 (41)
Derivative financial
instruments (1) - (1) (2) - (2)
Lease liability (4) - (4) (4) - (4)
Current income taxes (1) - (1) (2) - (2)
Total current liabilities (193) 107 (86) (614) 492 (122)
================================ ==== =========== ============ ============ =========== ============ ==========
Total liabilities (1,691) 525 (1,166) (1,746) 936 (810)
================================ ==== =========== ============ ============ =========== ============ ==========
Net assets 8,741 - 8,741 7,757 - 7,757
================================ ==== =========== ============ ============ =========== ============ ==========
Equity
Issued capital 719 - 719 719 - 719
Share premium 788 - 788 788 - 788
Other reserves 3 7,301 - 7,301 6,328 - 6,328
Own shares (67) - (67) (78) - (78)
================================ ==== =========== ============ ============ =========== ============ ==========
Total equity 8,741 - 8,741 7,757 - 7,757
================================ ==== =========== ============ ============ =========== ============ ==========
Notes:
1 Applying IFRS 10 to the consolidated statement of financial position
aggregates the line items of investment entity subsidiaries into the
single line item "Investments in investment entity subsidiaries".
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
entity subsidiaries" line. We have disaggregated this fair value and
disclosed the underlying portfolio holding in the relevant line item,
ie quoted investments or unquoted investments.
Other items which may be aggregated include 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 of the Group.
3 Investment basis financial statements are prepared for performance
measurement and therefore reserves are not analysed separately under
this basis.
Reconciliation of consolidated cash flow statement
Six months to 30 September 2020 Six months to 30 September 2019
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (restated)(1) (unaudited)
(restated)(1)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
=================== ====== =========== ============ ============ =========== ============== ===================
Cash flow from operating
activities
Purchase of
investments 1 (202) 141 (61) (312) 158 (154)
Proceeds from
investments 1 187 (79) 108 71 (71) -
Drawdowns paid to
investment entity
subsidiaries 1 - (647) (647) - (148) (148)
Distributions
received from
investment entity
subsidiaries 1 - 192 192 - 117 117
Net cash flow from
derivatives 3 - 3 1 - 1
Portfolio interest
received 1 5 (5) - 9 (3) 6
Portfolio
dividends
received 1 57 (27) 30 46 (31) 15
Portfolio fees
received 1 2 - 2 3 1 4
Fees received from
external funds 19 - 19 19 - 19
Carried interest
and performance
fees received 1 6 - 6 53 (19) 34
Carried interest
and performance
fees paid 1 (400) 374 (26) (40) 14 (26)
Carried interest
held in
non-current
assets 1 - - - (11) 11 -
Operating expenses
paid (67) - (67) (77) - (77)
Co-investment
loans received 1 13 - 13 - - -
Income taxes
received - - - 10 - 10
Other cash income - - - 2 - 2
------------------- ------ ----------- ------------ ------------ ----------- -------------- -------------------
Net cash flow from
operating
activities (377) (51) (428) (226) 29 (197)
=================== ====== =========== ============ ============ =========== ============== ===================
Cash flow from
financing
activities
Purchase of own
shares - - - (18) - (18)
Dividend paid (169) - (169) (194) - (194)
Proceeds from
long-term
borrowing 395 - 395 - - -
Lease payments (2) - (2) (2) - (2)
Interest received 1 (1) 1 - 1 1 2
Interest paid (12) - (12) (12) - (12)
Net cash flow from
financing
activities 211 1 212 (225) 1 (224)
=================== ====== =========== ============ ============ =========== ============== ===================
Cash flow from investing
activities
Purchase of
property, plant
and equipment - - - (1) - (1)
Net cash flow from
investing
activities - - - (1) - (1)
=================== ====== =========== ============ ============ =========== ============== ===================
Change in cash and
cash equivalents 2 (166) (50) (216) (452) 30 (422)
=================== ====== =========== ============ ============ =========== ============== ===================
Cash and cash
equivalents at
the start of the
period 2 845 (74) 771 1,020 (37) 983
Effect of exchange
rate fluctuations 1 8 (2) 6 7 (3) 4
Cash and cash
equivalents at
the end of the
period 2 687 (126) 561 575 (10) 565
=================== ====== =========== ============ ============ =========== ============== ===================
1 Refer to the basis of preparation and accounting policies section
further on in this document.
Notes:
1 The consolidated cash flow statement is impacted by the application
of IFRS 10 as cash flows to and from investment entity subsidiaries
are disclosed, rather than the cash flows to and from the underlying
portfolio.
Therefore, in our Investment basis financial statements, we have disclosed
our consolidated cash flow statement on a "look through" basis, in
order to reflect the underlying sources and uses of cash flows and
disclose the underlying investment activity.
2 There is a difference between the change in cash and cash equivalents
of the Investment basis financial statements and the IFRS financial
statements because there are cash balances held in investment entity
subsidiaries. Cash held within investment entity subsidiaries will
not be shown in the IFRS statements but will be seen in the Investment
basis statements.
IFRS Financial statements
Condensed consolidated statement of comprehensive income
Six months to Six months to
30 September 30 September
2020 2019
(unaudited) (unaudited)
Notes GBPm GBPm
=========================================================================== ======= ============== ==============
Realised profits over value on the disposal of investments 2 5 -
Unrealised profits on the revaluation of investments 3 605 62
Fair value movements on investment entity subsidiaries 8 634 602
=========================================================================== ======= ============== ==============
Portfolio income
Dividends 30 13
Interest income from investment portfolio 10 18
Fees receivable 4 7 5
Foreign exchange on investments 14 41
Movement in the fair value of derivatives (4) (14)
=========================================================================== ======= ============== ==============
Gross investment return 1,301 727
Fees receivable from external funds 4 21 23
Operating expenses (57) (60)
Interest received - 2
Interest paid (23) (18)
Exchange movements (3) 20
Income from investment entity subsidiaries 12 10
Other income - 2
Carried interest
Carried interest and performance fees receivable 4 (2) 63
Carried interest and performance fees payable 5 (9)
========================================================================== ======= ============== ==============
Operating profit before tax 1,254 760
Income taxes - (1)
=========================================================================== ======= ============== ==============
Profit for the period 1,254 759
=========================================================================== ======= ============== ==============
Other comprehensive income that may be reclassified to the income statement
Exchange differences on translation of foreign operations 6 2
Other comprehensive income that will not be reclassified to the income statement
Re-measurements of defined benefit plans 12 (118) 6
========================================================================== ======= ============== ==============
Other comprehensive (expense)/income for the period (112) 8
=========================================================================== ======= ============== ==============
Total comprehensive income for the period ("Total return") 1,142 767
=========================================================================== ======= ============== ==============
Earnings per share
Basic (pence) 5 130.1 78.4
Diluted (pence) 5 130.0 78.2
========================================================================== ======= ============== ==============
The Notes to the accounts section forms an integral part of
these financial statements.
Condensed consolidated statement of financial position
30 September 31 March
2020 2020
(unaudited) (audited)
Notes GBPm GBPm
======================================================= ============= ==========
Assets
Non-current assets
Investments
Quoted investments 7 489 418
Unquoted investments 7 3,821 3,036
Investments in investment entity subsidiaries 8 4,871 3,936
=================================================== ============= ==========
Investment portfolio 9,181 7,390
=================================================== ============= ==========
Carried interest and performance fees receivable 10 11
Other non-current assets 33 23
Intangible assets 8 9
Retirement benefit surplus 57 173
Property, plant and equipment 5 5
Right of use asset 17 19
Derivative financial instruments 2 7
Deferred income taxes 1 -
Total non-current assets 9,314 7,637
======================================================= ============= ==========
Current assets
Carried interest and performance fees receivable - 7
Other current assets 27 144
Current income taxes 2 2
Derivative financial instruments 3 6
Cash and cash equivalents 561 771
======================================================= ============= ==========
Total current assets 593 930
======================================================= ============= ==========
Total assets 9,907 8,567
======================================================= ============= ==========
Liabilities
Non-current liabilities
Carried interest and performance fees payable (59) (66)
Loans and borrowings (975) (575)
Retirement benefit deficit (26) (25)
Lease liability (13) (16)
Derivative financial instruments (3) (2)
Deferred income taxes (1) (1)
Provisions (3) (3)
=================================================== ============= ==========
Total non-current liabilities (1,080) (688)
======================================================= ============= ==========
Current liabilities
Trade and other payables (70) (73)
Carried interest and performance fees payable (10) (41)
Lease liability (4) (4)
Derivative financial instruments (1) (2)
Current income taxes (1) (2)
Total current liabilities (86) (122)
======================================================= ============= ==========
Total liabilities (1,166) (810)
======================================================= ============= ==========
Net assets 8,741 7,757
======================================================= ============= ==========
Equity
Issued capital 719 719
Share premium 788 788
Capital redemption reserve 43 43
Share-based payment reserve 27 33
Translation reserve 4 (2)
Capital reserve 6,298 5,432
Revenue reserve 929 822
Own shares (67) (78)
=================================================== ============= ==========
Total equity 8,741 7,757
------------------------------------------------------- ------------- ----------
The Notes to the accounts section forms an integral part of
these financial statements.
Condensed consolidated statement of changes in equity
For the six months Share-
to
30 September 2020
(unaudited)
=====================
Capital based
=====================
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve(1) reserve(1) shares equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
===================== ======== ======== =========== ======== ============ =========== =========== ======= =======
Total equity at the
start of
the period 719 788 43 33 (2) 5,432 822 (78) 7,757
Profit for the
period - - - - - 1,164 90 - 1,254
Exchange differences
on translation of
foreign operations - - - - 6 - - - 6
Re-measurements of
defined benefit
plans - - - - - (118) - - (118)
Total comprehensive
income for the
period - - - - 6 1,046 90 - 1,142
===================== ======== ======== =========== ======== ============ =========== =========== ======= =======
Share-based payments - - - 11 - - - - 11
Release on
exercise/forfeiture
of share awards - - - (17) - - 17 - -
Exercise of share
awards - - - - - (11) - 11 -
Ordinary dividends - - - - - (169) - - (169)
Purchase of own - - - - - - - - -
shares
Total equity at the
end of
the period 719 788 43 27 4 6,298 929 (67) 8,741
===================== ======== ======== =========== ======== ============ =========== =========== ======= =======
1 Refer to the glossary towards the end of this document for the nature
of the capital and revenue reserves.
For the six months Share-
to
30 September 2019
(unaudited)
=====================
Capital based
=====================
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve(2) reserve(2) shares equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
===================== ======== ======== =========== ======== ============ =========== =========== ======= =======
Total equity at the
start of
the period(1) 719 787 43 36 (3) 5,590 779 (42) 7,909
Profit for the
period - - - - - 665 94 - 759
Exchange differences
on translation of
foreign operations - - - - 2 - - - 2
Re-measurements of
defined benefit
plans - - - - - 6 - - 6
Total comprehensive
income for the
period - - - - 2 671 94 - 767
===================== ======== ======== =========== ======== ============ =========== =========== ======= =======
Share-based payments - - - 11 - - - - 11
Release on
exercise/forfeiture
of share awards - - - (16) - - 16 - -
Exercise of share
awards - - - - - (23) - 23 -
Ordinary dividends - - - - - (194) - - (194)
Purchase of own
shares - - - - - - - (18) (18)
Total equity at the
end of
the period 719 787 43 31 (1) 6,044 889 (37) 8,475
===================== ======== ======== =========== ======== ============ =========== =========== ======= =======
1 The adoption of IFRS 16 on 1 April 2019 resulted in the recognition
of a right of use asset of GBP23 million and lease liability of GBP23
million, with nil impact on retained earnings.
2 Refer to the glossary towards the end of this document for the nature
of the capital and revenue reserves.
The Notes to the accounts section forms an integral part of
these financial statements.
Condensed consolidated cash flow statement
Six months to Six months to
30 September 30 September
2020 2019
(unaudited) (unaudited)
(restated)(1)
GBPm GBPm
============================================================ ============== ================
Cash flow from operating activities
Purchase of investments (61) (154)
Proceeds from investments 108 -
Drawdowns paid to investment entity subsidiaries (647) (148)
Distributions received from investment entity subsidiaries 192 117
Net cash flow from derivatives 3 1
Portfolio interest received - 6
Portfolio dividends received 30 15
Portfolio fees received 2 4
Fees received from external funds 19 19
Carried interest and performance fees received 6 34
Carried interest and performance fees paid (26) (26)
Operating expenses paid (67) (77)
Co-investment loans received 13 -
Income taxes received - 10
Other cash income - 2
============================================================ ============== ================
Net cash flow from operating activities (428) (197)
============================================================ ============== ================
Cash flow from financing activities
Purchase of own shares - (18)
Dividend paid (169) (194)
Proceeds from long-term borrowing 395 -
Lease payments (2) (2)
Interest received - 2
Interest paid (12) (12)
Net cash flow from financing activities 212 (224)
============================================================ ============== ================
Cash flow from investing activities
Purchase of property, plant and equipment - (1)
Net cash flow from investing activities - (1)
============================================================ ============== ================
Change in cash and cash equivalents (216) (422)
============================================================ ============== ================
Cash and cash equivalents at the start of the period 771 983
Effect of exchange rate fluctuations 6 4
Cash and cash equivalents at the end of the period 561 565
============================================================ ============== ================
1 Refer to the basis of preparation and accounting policies below.
The Notes to the accounts section forms an integral part of
these financial statements.
Notes to the condensed consolidated financial statements
Basis of preparation and accounting policies
Compliance with International Financial Reporting Standards
("IFRS")
The Half-year condensed consolidated financial statements of 3i
Group plc have been prepared in accordance with the Disclosure
Rules and Transparency Rules of the Financial Conduct Authority and
IAS 34 Interim Financial Reporting as issued by the International
Accounting Standards Board ('IASB') and as endorsed by the European
Union. The Half-year condensed consolidated financial statements
should be read in conjunction with the Annual report and accounts
2020. The accounting policies applied by 3i Group plc for the
Half-year condensed consolidated financial statements are
consistent with those described on pages 126 to 164 of the Annual
report and accounts 2020. There was no change in the current period
to the critical accounting estimates and judgements applied in
2020, which are stated on page 128 of the Annual report and
accounts 2020.
The financial information for the year ended 31 March 2020
contained within this Half-year report does not constitute
statutory accounts as defined in section 434 of the Companies Act
2006. The statutory accounts for the year to 31 March 2020,
prepared under IFRS as endorsed by the EU, have been reported on by
Ernst & Young LLP and delivered to the Registrar of Companies.
The report of the Auditor on these statutory accounts was
unqualified and did not contain a statement under section 498(2) or
section 498(3) of the Companies Act 2006. At the 2020 AGM held on
25 June 2020 shareholders appointed KPMG LLP as the Company's new
external auditor for the year ending 31 March 2021, in succession
to Ernst & Young LLP.
In this Half year report, we have changed the presentation of
the Condensed consolidated cash flow statement
to present net cash flows from investment entity subsidiaries on
a gross basis in two line items; Drawdowns paid to investment
entity subsidiaries and Distributions received from investment
entity subsidiaries. Presentation of the six months to September
2019 have been changed to reflect this split.
Going concern
The Half-year condensed consolidated financial statements are
prepared on a going concern basis and presented to the nearest
million sterling (GBPm), the functional currency of the Group.
The Directors have made an assessment of going concern, taking
into account the Group's current performance, and outlook, and
performed additional analysis to support the going concern
assessment considering the ongoing impact of the Covid-19 pandemic
on the Group portfolio. The Group has maintained a conservative
balance sheet structure for the past eight years, positioning the
Group well to navigate the current uncertain business environment.
As part of this assessment the Directors considered:
-- an analysis of the Group's liquidity, solvency and regulatory
capital position. The Group manages and monitors liquidity
regularly, ensuring it is adequate and sufficient and is
underpinned by its monitoring of investments, realisations,
operating expenses and receipt of portfolio cash income. The Group
successfully issued a bond of GBP400 million in June 2020. At 30
September 2020, liquidity remained strong at GBP1,087 million (31
March 2020: GBP1,245 million). Liquidity comprised of cash and
deposits of GBP687 million (31 March 2020: GBP845 million) and
undrawn facility of GBP400 million (31 March 2020: GBP400
million);
-- the business review reflects that to date, our portfolio has
been resilient to the effects of the pandemic, but we continue to
monitor developments closely particularly in the travel and
automotive sectors. The approach to valuations was consistent with
the normal valuation process and where needed we continue to apply
judgement. At 30 September 2020 our portfolio companies exposed to
the travel and automotive industries have been most negatively
impacted by the Covid-19 pandemic and where required, we have
assessed their ability to generate earnings and cash flows, and
also the longer-term view of their ability to recover; and
-- the operational resilience of the Group's critical functions
includes the wellbeing of 3i's staff and the resilience of IT
systems. Covid-19 has emphasised the importance of 3i and its
portfolio companies' focus on keeping employees safe, motivated and
able to continue to fulfil their roles effectively.
Having performed an assessment on going concern, the Directors
consider it appropriate for the going concern basis to be adopted
in preparing the Half-year report and condensed consolidated
financial statements.
1 Segmental analysis
The tables below are presented on the Investment basis which is
the basis used by the chief operating decision maker, the Chief
Executive, to monitor the performance of the Group. A description
of the Investment basis and a reconciliation of the Investment
basis to the IFRS financial statements is provided in the
Reconciliation of the Investment basis to IFRS section above.
Further detail on the Group's segmental analysis can be found on
pages 130 to 132 of the Annual report and accounts 2020. The
remaining Notes are prepared on an IFRS basis.
Investment basis
Private Of which is
Equity Action Infrastructure Scandlines Total(4)
Six months to 30 September 2020 GBPm GBPm GBPm GBPm GBPm
=================================================== ======== ============ =============== =========== =========
Realised profits over value on the disposal
of investments 3 - - - 3
Unrealised profits on the revaluation
of investments 1,071 644 127 12 1,210
Portfolio income
Dividends 43 - 14 - 57
Interest income from investment portfolio 25 - 5 - 30
Fees receivable 6 - - - 6
Foreign exchange on investments 97 89 (16) 11 92
Movement in the fair value of derivatives - - 4 (8) (4)
=================================================== ======== ============ =============== =========== =========
Gross investment return 1,245 733 134 15 1,394
=================================================== ======== ============ =============== =========== =========
Fees receivable from external funds 2 19 - 21
Operating expenses (36) (20) (2) (58)
Interest received (1)
Interest paid (23)
Exchange movements (8)
Operating profit before carried interest 1,325
=================================================== ======== ============ =============== =========== =========
Carried interest
Carried interest and performance fees receivable (2) - - (2)
Carried interest and performance fees payable (61) (2) - (63)
================================================== ======== ============ =============== =========== =========
Operating profit 1,260
=================================================== ======== ============ =============== =========== =========
Income taxes -
Other comprehensive income
Re-measurements of defined benefit plans (118)
================================================== ======== ============ =============== =========== =========
Total return 1,142
=================================================== ======== ============ =============== =========== =========
Net divestment/(investment)
Realisations(1) 82 - - - 82
Cash investment(2) (231) - (2) - (233)
=================================================== ======== ============ =============== =========== =========
(149) - (2) - (151)
=================================================== ======== ============ =============== =========== =========
Balance sheet
Opening portfolio value at 1 April 2020 6,552 3,536 1,117 429 8,098
Investment(3) 300 - 2 - 302
Value disposed (80) - - - (80)
Unrealised value movement 1,071 644 127 12 1,210
Other movement (including foreign exchange) 47 89 (10) 11 48
=================================================== ======== ============ =============== =========== =========
Closing portfolio value at 30 September 2020 7,890 4,269 1,236 452 9,578
=================================================== ======== ============ =============== =========== =========
1 Realised proceeds may differ from cash proceeds due to timing of receipts.
During the period Private Equity received GBP105 million of cash proceeds
which were recognised as realised proceeds in FY2020.
2 Investment per the segmental analysis is different to cash investment
per the cashflow due to GBP31 million of syndication in Private Equity
which was recognised in FY2020 and received in FY2021.
3 Includes capitalised interest and other non-cash investment.
4 The total is the sum of Private Equity, Infrastructure and Scandlines.
"Of which is Action" is part of Private Equity.
Investment basis
Private Of which is
Equity Action Infrastructure Scandlines(2) Total(3)
Six months to 30 September 2019 GBPm GBPm GBPm GBPm GBPm
================================================ ======== ============ =============== ============== =========
Realised profits over value on the disposal
of investments - - - - -
Unrealised profits on the revaluation
of investments 429 381 59 10 498
Portfolio income
Dividends 5 - 12 27 44
Interest income from investment portfolio 52 - 5 - 57
Fees receivable 4 - - - 4
Foreign exchange on investments 176 71 17 16 209
Movement in the fair value of derivatives - - (5) (9) (14)
================================================ ======== ============ =============== ============== =========
Gross investment return 666 452 88 44 798
================================================ ======== ============ =============== ============== =========
Fees receivable from external funds 1 22 - 23
Operating expenses (38) (21) (1) (60)
Interest received 2
Interest paid (18)
Exchange movements 1
Other income 3
================================================ ======== ============ =============== ============== =========
Operating profit before carried interest 749
================================================ ======== ============ =============== ============== =========
Carried interest
Carried interest and performance fees
receivable 81 - - 81
Carried interest and performance fees payable (63) (5) - (68)
=============================================== ======== ============ =============== ============== =========
Operating profit 762
================================================ ======== ============ =============== ============== =========
Income taxes (1)
Other comprehensive income
Re-measurements of defined benefit plans 6
=============================================== ======== ============ =============== ============== =========
Total return 767
================================================ ======== ============ =============== ============== =========
Net divestment/(investment)
Realisations 1 - - 70 71
Cash investment (221) (60) (91) - (312)
================================================ ======== ============ =============== ============== =========
(220) (60) (91) 70 (241)
================================================ ======== ============ =============== ============== =========
Balance sheet
Opening portfolio value at 1 April 2019 6,023 2,731 1,001 529 7,553
Investment(1) 289 60 91 - 380
Value disposed (1) - - (70) (71)
Unrealised value movement 429 381 59 10 498
Other movement (including foreign exchange) 163 71 12 16 191
================================================ ======== ============ =============== ============== =========
Closing portfolio value at 30 September 2019 6,903 3,243 1,163 485 8,551
================================================ ======== ============ =============== ============== =========
1 Includes capitalised interest and other non-cash investment. GBP60
million investment in Action relates to the purchase of LP stakes
in EFV.
2 During FY2020 Corporate Assets was renamed Scandlines, which is the
only asset in that segment.
3 The total is the sum of Private Equity, Infrastructure and Scandlines.
"Of which is Action" is part of Private Equity.
2 Realised profits over value on the disposal of investments
Six months to 30 September 2020 Unquoted
investments Total
GBPm GBPm
====================================== ============ ======
Realisations 5 5
Valuation of disposed investments - -
====================================== ============ ======
5 5
====================================== ============ ======
Of which:
- profit recognised on realisations 5 5
- losses recognised on realisations - -
===================================== ============ ======
5 5
===================================== ============ ======
Six months to 30 September 2019 Unquoted
investments Total
GBPm GBPm
====================================== ============ ======
Realisations - -
Valuation of disposed investments - -
====================================== ============ ======
- -
====================================== ============ ======
Of which:
- profit recognised on realisations - -
- losses recognised on realisations - -
==================================== ============ ======
- -
==================================== ============ ======
3 Unrealised profits/(losses) on the revaluation of
investments
Six months to 30 September 2020 Unquoted Quoted
investments investments Total
GBPm GBPm GBPm
============================================ ============ ============ ======
Movement in the fair value of investments 534 71 605
============================================ ============ ============ ======
Of which:
- unrealised gains 549 71 620
- unrealised losses (15) - (15)
=========================================== ============ ============ ======
534 71 605
=========================================== ============ ============ ======
Six months to 30 September 2019 Unquoted Quoted
investments investments Total
GBPm GBPm GBPm
============================================ ============ ============ ======
Movement in the fair value of investments 29 33 62
============================================ ============ ============ ======
Of which:
- unrealised gains 60 33 93
- unrealised losses (31) - (31)
=========================================== ============ ============ ======
29 33 62
------------------------------------------- ------------ ------------ ------
4 Revenue
Items from the Consolidated statement of comprehensive income
which fall within the scope of IFRS 15 are included in the table
below:
Private
Equity Infrastructure Total
Six months to 30 September 2020 GBPm GBPm GBPm
===================================================== ======== =============== ======
Total revenue by geography (1)
UK (1) 17 16
Northern Europe 3 2 5
North America 2 - 2
Other 3 - 3
Total 7 19 26
===================================================== ======== =============== ======
Revenue by type
Fees receivable(2) from portfolio 7 - 7
Fees receivable from external funds 2 19 21
Carried interest and performance fees receivable(2) (2) - (2)
Total 7 19 26
===================================================== ======== =============== ======
Private
Equity Infrastructure Total
Six months to 30 September 2019 GBPm GBPm GBPm
===================================================== ======== =============== ======
Total revenue by geography (1)
UK 64 21 85
Northern Europe 2 1 3
North America 3 - 3
Total 69 22 91
===================================================== ======== =============== ======
Revenue by type
Fees receivable(2) from portfolio 5 - 5
Fees receivable from external funds 1 22 23
Carried interest and performance fees receivable(2) 63 - 63
Total 69 22 91
===================================================== ======== =============== ======
1 For fees receivable from external funds and carried interest and performance fees receivable
the geography is based on the domicile of the fund.
2 Fees receivable and carried interest receivable above are different to the Investment basis
figures included in Note 1. This is due to the fact that Note 1 is disclosed on the Investment
basis and the table above is shown on the IFRS basis. For an explanation of the Investment
basis and a reconciliation between Investment basis and IFRS basis see the Reconciliation
of the Investment basis to IFRS section above.
5 Per share information
The calculation of basic net assets per share is based on the
net assets and the number of shares in issue. When calculating the
diluted net assets per share, the number of shares in issue is
adjusted for the effect of all dilutive share awards.
30 September 31 March
2020 2020
========================================================== ============= =========
Net assets per share (GBP)
Basic 9.07 8.06
Diluted 9.05 8.04
Net assets (GBPm)
Net assets attributable to equity holders of the Company 8,741 7,757
========================================================== ============= =========
30 September 31 March
2020 2020
============================================== ============= =============
Number of shares in issue
Ordinary shares 973,129,833 973,074,585
Own shares (9,028,495) (10,398,032)
============================================== ============= =============
964,101,338 962,676,553
============================================== ============= =============
Effect of dilutive potential ordinary shares
Share awards 1,823,955 1,649,348
============================================== ============= =============
Diluted shares 965,925,293 964,325,901
============================================== ============= =============
The calculation of basic earnings per share is based on the
profit attributable to shareholders and the weighted average number
of shares in issue. When calculating the diluted earnings per
share, the weighted average number of shares in issue is adjusted
for the effect of all dilutive share awards.
6 months 6 months
to 30 September to 30 September
2020 2019
===================================================================== ================ ================
Earnings per share (pence)
Basic 130.1 78.4
Diluted 130.0 78.2
Earnings (GBPm)
Profit for the period attributable to equity holders of the Company 1,254 759
===================================================================== ================ ================
Basic earnings per share is calculated on weighted average
shares in issue of 963,542,371 for the period to 30 September 2020
(2019: 968,015,436). Diluted earnings per share is calculated on
diluted weighted average shares of 964,863,213 for the period to 30
September 2020 (2019: 970,176,172).
6 Dividends
6 months to 6 months to 6 months to 6 months to
30 September 30 September 30 September 30 September
2020 2020 2019 2019
pence pence
per share GBPm per share GBPm
===================================== ============= ============= ============= ===============
Declared and paid during the period
Second dividend 17.5 169 20.0 194
===================================== ============= ============= ============= =============
17.5 169 20.0 194
===================================== ============= ============= ============= =============
Proposed first dividend 17.5 169 17.5 169
===================================== ============= ============= ============= =============
The dividend can be paid out of either the capital reserve or
the revenue reserve subject to the investment trust rules.
The distributable reserves of the parent company as at 31 March
2020 were GBP3,863 million (31 March 2019: GBP2,226 million) and
the Board reviews the distributable reserves bi-annually, including
consideration of any material changes since the most recent audited
accounts, ahead of proposing any dividend. The Board also reviews
the proposed dividends in the context of the requirements of being
an approved investment trust. Shareholders are given the
opportunity to approve the total dividend for the year at the
Company's Annual General Meeting. Details of the Group's continuing
viability and going concern can be found in the Risk management
section on pages 48 to 59 of the Annual report and accounts
2020.
7 Investment portfolio
This section should be read in conjunction with Note 11 on page
139 of the Annual report and accounts 2020, which provides more
detail about initial recognition and subsequent measurement of
investments at fair value.
6 months to Year to
30 September 2020 31 March 2020
Non-current GBPm GBPm
============================================= ================= =============
Opening book value 3,454 1,662
============================================= ================= =============
Additions 504 1,929
- of which loan notes with nil value (20) (6)
Disposals, repayments and write offs(1) (258) (142)
Fair value movement(2) 605 (28)
Other movements and net cash movements(3) 25 39
Closing book value 4,310 3,454
============================================= ================= =============
Quoted investments 489 418
Unquoted investments 3,821 3,036
============================================= ================= =============
Closing book value 4,310 3,454
============================================= ================= =============
1 Represents an intercompany transfer to investment entity subsidiaries
for the six months to 30 September 2020.
2 All fair value movements relate to assets held at the end of the period.
3 Other movements includes the impact of foreign exchange.
The holding period of 3i's investment portfolio is on average
greater than one year. For this reason, the portfolio is classified
as non-current. It is not possible to identify with certainty
investments that will be sold within one year.
Additions include cash investment of GBP61 million (31 March
2020: GBP650 million) and the transfer of assets of GBP423 million
(31 March 2020: GBP1,251 million) from the Buyouts 10-12
partnerships which are classified as investment entity subsidiaries
related to Action, and GBP20 million (31 March 2020: GBP28 million)
in capitalised interest received by way of loan notes, of which
GBP20 million (31 March 2020: GBP6 million) was written down in the
period to nil.
Included within the Consolidated statement of comprehensive
income is GBP10 million (31 March 2020: GBP37 million) of interest
income. This comprised of nil capitalised interest as noted above
(31 March 2020: GBP22 million), nil cash income (31 March 2020:
GBP10 million) and the capitalisation of prior year accrued income
and non-capitalised income of GBP10 million (31 March 2020: GBP5
million).
Quoted investments are classified as Level 1 in the fair value
hierarchy and unquoted investments are classified as Level 3 in the
fair value hierarchy; see Note 9 for details.
8 Investments in investment entity subsidiaries
Investments in investment entity subsidiaries are accounted for
as financial instruments at fair value through profit and loss in
accordance with IFRS 9. We determine that in the ordinary course of
business, the net asset value of investment entity subsidiaries is
considered to be the most appropriate to determine fair value. At
each reporting period, we consider whether any additional fair
value adjustments need to be made to the net asset value of the
investment entity subsidiaries. These adjustments may be required
to reflect market participants' considerations about fair value
that may include, but are not limited to, liquidity and the
portfolio effect of holding multiple investments within the
investment entity subsidiary. There was no particular circumstance
to indicate that a fair value adjustment was required and, after
due consideration, we concluded that the net asset values were the
most appropriate reflection of fair value at 30 September 2020.
Level 3 fair value reconciliation - investments in investment
entity subsidiaries
6 months to Year to
30 September 2020 31 March 2020
Non-current GBPm GBPm
====================================================================== ================== ==============
Opening fair value 3,936 5,159
Drawdowns and distributions to/(from) investment entity subsidiaries 455 (186)
Fair value movement on investment entity subsidiaries 634 191
Transfer of assets from investment entity subsidiaries(1) (154) (1,228)
====================================================================== ================== ==============
Closing fair value 4,871 3,936
====================================================================== ================== ==============
1 During the period the Company received a transfer of assets of GBP165
million (31 March 2020: GBP1,251 million) from investment entity subsidiaries
relating to Action.
All investment entity subsidiaries are classified as Level 3 in
the fair value hierarchy, see Note 9 for details.
A 5% movement in the closing fair value of investments in
investment entity subsidiaries would have an impact of GBP244
million (31 March 2020: GBP197 million).
Restrictions
3i Group plc, the ultimate parent company, receives dividend
income from its subsidiaries. There are no restrictions
on the ability to transfer funds from these subsidiaries to the
Group at 30 September 2020. At 31 March 2020 a cash balance of
GBP109 million was held in escrow in investment entity subsidiaries
for carry payable paid in June 2020.
Support
3i Group plc provides, where necessary, ongoing support to its
investment entity subsidiaries for the purchase of portfolio
investments.
9 Fair values of assets and liabilities
This section should be read in conjunction with Note 13 on pages
141 to 143 of the Annual report and accounts 2020 which provides
more detail about accounting policies adopted, the definitions of
the three levels of fair value hierarchy, valuation methods used in
calculating fair value, and the valuation framework which governs
oversight of valuations. There have been no changes in the
accounting policies adopted or the valuation methodologies
used.
Valuation
The Group classifies financial instruments measured at fair
value according to the following hierarchy:
Level Fair value input description Financial instruments
======= ========================================================== =================================================
Level 1 Quoted prices (unadjusted) from active markets Quoted equity instruments
======= ========================================================== =================================================
Level 2 Inputs other than quoted prices included in Level 1 that Derivative financial instruments
are observable either directly (ie
as prices) or indirectly (ie derived from prices)
======= ========================================================== =================================================
Level 3 Inputs that are not based on observable market data Unquoted equity instruments and loan instruments
======= ========================================================== =================================================
9 Fair values of assets and liabilities continued
The table below shows the classification of financial
instruments held at fair value into the valuation hierarchy at
30 September 2020:
As at 30 September 2020 As at 31 March 2020
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 489 - - 489 418 - - 418
Unquoted investments - - 3,821 3,821 - - 3,036 3,036
Investments in investment
entity
subsidiaries - - 4,871 4,871 - - 3,936 3,936
Other financial assets - 5 33 38 - 13 44 57
Liabilities
Other financial liabilities - (4) - (4) - (4) - (4)
Total 489 1 8,725 9,215 418 9 7,016 7,443
============================= ====== ====== ======= ======= ====== ====== ======= =======
We determine that in the ordinary course of business, the net
asset value of an investment entity subsidiary is 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 held at their carrying value considered to be
their fair value. Note 8 details the Directors' considerations
about the fair value of the investment entity subsidiaries.
The fair values of the Group's financial assets and liabilities
not held at fair value, are not materially different from their
carrying values, with the exception of loans and borrowings. The
fair value of loans and borrowings is GBP1,152 million (31 March
2020: GBP671 million), determined with reference to their published
market prices. The carrying value of the loans and borrowings is
GBP975 million (31 March 2020: GBP575 million) and accrued interest
payable (included within trade and other payables) is GBP20 million
(31 March 2020: GBP8 million).
Level 3 fair value reconciliation - unquoted investments
Six months to Year to
30 September 31 March
2020 2020
GBPm GBPm
============================================== ============= ========
Opening fair value 3,036 1,193
Additions 504 1,929
- of which loan notes with nil value (20) (6)
Disposals and repayments and write-offs(1) (258) (142)
Fair value movement(2) 534 20
Other movements and net cash movements(3) 25 42
Closing fair value 3,821 3,036
============================================== ============= ========
1 Represents an intercompany transfer to investment entity subsidiaries
for the six months to 30 September 2020.
2 All fair value movements relate to assets held at the end of the period.
3 Other movements includes the impact of foreign exchange and accrued
interest.
Unquoted investments valued using Level 3 inputs also had the
following impact on the Consolidated statement of comprehensive
income: realised profits over value on disposal of investment of
GBP5 million (September 2019: nil), dividend income of GBP22
million (September 2019: GBP6 million) and foreign exchange gains
of GBP19 million (September 2019: GBP42 million).
Level 3 inputs are sensitive to assumptions made when
ascertaining fair value as described in the 'Portfolio valuation -
an explanation' section on pages 177 to 178 of the Annual report
and accounts 2020. On an IFRS basis, of the unquoted assets held at
30 September 2020 classified as Level 3, 90% (31 March 2020: 33%)
were valued using
a multiple of earnings and the remaining 10% (31 March 2020:
67%) were valued using alternative valuation methodologies. Of the
underlying portfolio held by investment entity subsidiaries, 85%
(31 March 2020: 41%) were valued using a multiple of earnings and
the remaining 15% (31 March 2020: 59%) were valued using
alternative valuation methodologies.
Assets move between Level 1 and Level 3 when an unquoted equity
investment lists on a quoted market exchange. There were no
transfers into or out of Level 3 in the period. In the six months
to 30 September 2020, four assets changed valuation basis, two
moving to an imminent sales basis, one moving from an
earnings-based valuation to a DCF and one moving from fair value to
an earnings-based valuation. The changes in valuation methodology
in the period reflect our view of the most appropriate method to
determine the fair value of the four assets at 30 September 2020.
Further information can be found in the Private Equity and
Infrastructure sections of the Business and Financial review.
Earnings multiple is the main assumption applied to an
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
multiples are 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. This continues to be an important exercise
given the market volatility we have seen as a result of the
Covid-19 pandemic in the six months to 30 September 2020.
The pre-discount multiple used to value the portfolio ranged
between 9.0x and 18.95x (31 March 2020: 8.0x and 14.5x).
If the multiple used to value each unquoted investment valued on
an earnings multiple basis as at 30 September 2020 decreased by 5%,
the investment portfolio value would decrease by GBP221 million (31
March 2020: GBP68 million) or 5% (31 March 2020: 2%). If the same
sensitivity was applied to the underlying portfolio held by
investment entity subsidiaries, this would have a negative value
impact of GBP292 million (31 March 2020: GBP148 million) or 6% (31
March 2020: 3%).
If the multiple increased by 5% then the investment portfolio
value would increase by GBP215 million (31 March 2020: GBP68
million) or 5% (31 March 2020: 2%). If the same sensitivity was
applied to the underlying portfolio held by investment entity
subsidiaries, this would have a positive value impact of GBP281
million (31 March 2020: GBP148 million) or 5% (31 March 2020:
3%).
Earnings - Earnings multiples are applied to the earnings of a
portfolio company to determine the enterprise value. Earnings are
usually obtained from the management accounts of the portfolio
company and where necessary, are adjusted for non-recurring items
such as restructuring expenses or significant corporate actions,
and, in exceptional cases, run rate adjustments to arrive at
maintainable earnings. At 30 September 2020, for most of the
portfolio we used the last twelve months earnings to 30 June 2020
or forecast earnings. In a small number of assets we used
maintainable earnings reflecting the impact of Covid-19. Action was
valued on run-rate earnings.
Alternative valuation methodologies - There are a number of
alternative investment valuation methodologies used by the Group,
for reasons specific to individual assets. The details of such
valuation methodologies, and inputs that are used, are given in the
Portfolio valuation - an explanation section on pages 177 to 178 of
the Annual report and accounts 2020.
Each methodology is used for a proportion of assets by value,
and at 30 September 2020 the following techniques were used under
an IFRS basis: nil transaction value (31 March 2020: 55%), 8% DCF
(31 March 2020: 10%) and 2% other (31 March 2020: 2%).
If the value of all of the investments valued under alternative
methodologies moved by 5%, this would have an impact on the
investment portfolio value of GBP19 million (31 March 2020: GBP101
million) or 1% (31 March 2020: 3%). If the same sensitivity was
applied to the underlying portfolio held by investment entity
subsidiaries, this would have a value impact of GBP36 million (31
March 2020: GBP126 million) or 1% (31 March 2020: 3%).
10 Contingent liabilities
The Company has provided a guarantee to the Trustees of the 3i
Group Pension Plan in respect of liabilities of 3i plc to the Plan.
3i plc is the sponsor of the 3i Group Pension Plan. On 4 April 2012
the Company transferred eligible assets (GBP150 million of ordinary
shares in 3i Infrastructure plc) as defined by the agreement to a
wholly owned subsidiary of the Group. The Company will retain all
income and capital rights in relation to the 3i Infrastructure plc
shares, as eligible assets, unless the Company becomes insolvent or
fails to comply with material obligations in relation to the
agreement with the Trustees, all of which are under its control.
The fair value of eligible assets held by this subsidiary at 30
September 2020 was GBP289 million (31 March 2020: GBP247
million).
At 30 September 2020, there was no material litigation
outstanding against the Company or any of its subsidiary
undertakings.
11 Related parties
All related party transactions that took place in the six months
ending 30 September 2020 are consistent in nature with the
disclosures in Note 29 on pages 158 to 160 of the Annual report and
accounts 2020. Related party transactions which took place in the
period and materially affected performance or the financial
position of the Group, together with any material changes in
related party transactions as described in the Annual report and
accounts 2020 that could materially affect the performance or the
financial position of the Group are detailed below.
Investments
The Group makes investments in the equity of unquoted and quoted
investments where it does not have control but may be able to
participate in the financial and operating policies of that
company. IFRS presumes that it is possible to exert significant
influence when the equity holding is greater than 20%. The Group
has taken the investment entity exception as permitted by IFRS 10
and has not equity accounted for these investments, in accordance
with IAS 28, but they are related parties. The total amounts
included for investments where the Group has significant influence
but not control are as follows:
Consolidated statement of comprehensive income Six months to Six months to
30 September 30 September
2020 2019
GBPm GBPm
============================================================= ============== ==============
Realised profits over value on the disposal of investments 5 -
Unrealised profits on the revaluation of investments 67 18
Portfolio income 9 5
============================================================= ============== ==============
Consolidated statement of financial position 30 September 31 March
2020 2020
GBPm GBPm
============================================== ============= =========
Unquoted investments 421 354
---------------------------------------------- ------------- ---------
Management arrangements
The Group acted as Investment Manager to 3i Infrastructure plc
("3iN"), which is listed on the London Stock Exchange, for the
period to 30 September 2020. The following amounts have been
recognised in respect of the management and advisory
relationship:
Consolidated statement of comprehensive income Six months to Six months
to
30 September 30 September
2020 2019
GBPm GBPm
Unrealised profits on the revaluation of investments 71 33
Dividends 8 7
Fees receivable from external funds 12 16
Consolidated statement of financial position 30 September 31 March
2020 2020
GBPm GBPm
Quoted equity investments 489 418
Performance fees receivable - 6
12 Retirement benefits
The Group operates a final salary defined benefit plan for
qualifying employees of its subsidiaries in the UK ("the Plan").
The Plan is approved by HMRC for tax purposes and is operated
separately from the Group and managed by an independent set of
Trustees, whose appointment and powers are determined by the Plan's
documentation.
During the period, the Plan's Trustees completed a GBP650
million buy-in transaction with Legal & General. This insurance
policy, alongside previous bulk annuity contracts entered into with
Pension Insurance Corporation and Legal & General in March 2017
and February 2019 respectively, means that the Plan benefits are
now fully insured through buy-in policies. The Plan's Trustees have
yet to conclude on the timeframe for any potential buyout.
Consequently, for the purposes of IAS19, the buy-in transaction is
not considered to be a settlement, and the purchase of this further
insurance policy is treated as an investment decision by the Plan's
Trustees. Accordingly, at 30 September 2020, the IAS 19 Plan
surplus was GBP57 million (31 March 2020: GBP173 million) which
included a total re-measurement loss recognised in other
comprehensive income of GBP118 million (September 2019: GBP6
million gain) and interest income recognised in the Consolidated
statement of comprehensive income of GBP2 million (September 2019:
GBP2 million).
Independent review report to 3i Group plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2020 which comprises the Condensed
consolidated statement of comprehensive income, the Condensed
consolidated statement of financial position, the Condensed
consolidated statement of changes in equity, the Condensed
consolidated cash flow statement and the related explanatory
notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2020 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the Disclosure Guidance and Transparency Rules ("the
DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in 'Basis of preparation and accounting policies',
the annual financial statements of the group are prepared in
accordance with International Financial Reporting Standards as
adopted by the EU. The directors are responsible for preparing the
condensed set of financial statements included in the half-yearly
financial report in accordance with IAS 34 as adopted by the
EU.
Our Responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Jonathan Mills
For and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
11 November 2020
Statement of Directors' responsibilities
The Directors, who are required to prepare the financial
statements on a going concern basis unless it is not appropriate,
are satisfied that the Group has the resources to continue in
business for the foreseeable future.
In making this assessment, the Directors have considered
information relating to present and future conditions, including
future projections of profitability and cash flows .
The Directors confirm that to the best of their knowledge:
a) the condensed set of financial statements has been prepared
in accordance with IAS 34 "Interim Financial Reporting" as adopted
by the EU; and
b) the Half-year report includes a fair review of the
information required by:
i) DTR 4.2.7R of the Disclosure Rules and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year ending 31 March 2021 and
their impact on the condensed set of financial statements; and
a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
ii) DTR 4.2.8R of the Disclosure Rules and Transparency Rules, being
(i) related party transactions that have taken place in the first
six months of the financial year ending 31 March 2021 which have
materially affected the financial position or performance of
3i Group during that period; and (ii) any changes in the related
party transactions described in the Annual report and accounts
2020 that could materially affect the financial position or performance
of 3i Group during the first six months of the financial year
ending 31 March 2021.
The Directors of 3i Group plc and their functions are listed
below.
The report is authorised for issue by order of the Board.
K J Dunn , Secretary
11 November 2020
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, Deputy Chairman and non-executive Director
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, Senior Independent
Director and Chairman of the Valuations Committee
Coline McConville, non-executive Director and Chairman of the
Remuneration Committee
Alexandra Schaapveld, non-executive Director
Portfolio and other information
20 large investments
The 20 investments listed below account for 95 % of the
portfolio value at 30 September 2020 (31 March 2020: 95%).
Residual Residual
Business line cost(1) cost(1) Valuation Valuation
Geography September March September March
Investment First invested in 2020 2020 2020 2020 Relevant transactions
Description of business Valuation basis GBPm GBPm GBPm GBPm in the period
Action* Private Equity 614 614 4,269 3,536
General merchandise Netherlands
discount retailer 2011/2020
Earnings
3i Infrastructure plc* Infrastructure 305 305 778 665
Quoted investment UK
company, investing 2007
in infrastructure Quoted
Scandlines Scandlines 529 529 452 429
Ferry operator between Denmark/Germany
Denmark and Germany 2018
DCF
Cirtec Medical* Private Equity 172 172 374 302
Outsourced medical US
device manufacturing 2017
Earnings
Evernex* Private Equity 265 219 296 217 Acquisition of
Provider of third-party France Technogroup in
maintenance services for 2019 July 2020
data centre infrastructure Earnings
Royal Sanders* Private Equity 135 135 294 198 GBP38 million dividend
Private label and contract Netherlands received in July 2020
manufacturing producer of 2018
personal care products Earnings
Hans Anders* Private Equity 265 221 272 196 Further investment
Value-for-money optical Netherlands of GBP20 million in
retailer 2017 April 2020
Earnings
WP* Private Equity 214 206 260 244
Supplier of plastic Netherlands
packaging solutions 2015
Earnings
Havea* Private Equity 183 155 253 182 Further investment
Manufacturer of natural France of GBP23 million in
healthcare and cosmetics 2017 September 2020
products Earnings
Tato Private Equity 2 2 247 196 GBP5 million dividend
Manufacturer and seller of UK received in July
speciality chemicals 1989 2020
Earnings
Luqom* Private Equity Return of funding
(formerly Lampenwelt) Germany 108 113 228 144 of GBP8 million in July
Online lighting 2017 2020
specialist retailer Earnings
Q Holding* Private Equity 162 162 203 222
Manufacturer of precision US
engineered elastomeric 2014
components Earnings
Regional Rail* Infrastructure 175 175 199 195
Owns and operates US
short-line freight railroads 2019
and rail-related businesses DCF
AES Engineering Private Equity 30 30 175 158
Manufacturer of mechanical UK
seals and support systems 1996
Earnings
SaniSure* Private Equity 135 60 165 64 Acquisition of
(formerly Bioprocessing US Sani-Tech West in
platform) 2019 July 2020
Manufacturer, distributor and Earnings
integrator of single-use
bioprocessing systems and
components
Smarte Carte* Infrastructure 172 167 165 172
Provider of self-serve US
vended luggage carts, 2017
electronic lockers and DCF
concession carts
Basic-Fit Private Equity 23 6 141 93 Further investment
Discount gyms operator Netherlands of GBP17 million in
2013 June 2020
Quoted
BoConcept* Private Equity 165 149 130 119
Urban living designer Denmark
2016
Earnings
Magnitude Software* Private Equity 139 139 116 121
Leading provider of unified US
application data 2019
management solutions Earnings
Formel D* Private Equity 154 154 110 141
Quality assurance provider Germany
for the automotive 2017
industry Earnings
3,947 3,713 9,127 7,594
* Controlled in accordance with IFRS.
1 Residual cost includes capitalised interest.
Glossary
2013-2016 vintage includes Aspen Pumps, Audley Travel,
Basic-Fit, Dynatect, Kinolt, ATESTEO, JMJ, Q Holding, WP,
Scandlines further (completed in December 2013), Christ, Geka,
Óticas Carol and Blue Interactive.
2016-2019 vintage includes BoConcept, Cirtec Medical, Formel D,
Hans Anders, Arrivia, Luqom, Magnitude Software, Havea, Royal
Sanders and Schlemmer.
2019-2022 vintage includes Evernex, SaniSure and GartenHaus.
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. In the absence of a third-party fund in Private
Equity, it is not a measure of fee generating capability.
Buyouts 2010-2012 vintage includes Action, Amor, Element,
Etanco, Hilite, OneMed and Trescal.
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 payable 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 when
the relevant performance hurdles are met and the accrual is
discounted to reflect expected payment periods.
Carried interest receivable The Group earns a share of profits
from funds which it manages on behalf of third parties. These
profits are earned when the funds meet certain performance
conditions and are paid by the fund once these conditions have been
met on a cash basis. The carried interest receivable may be subject
to clawback provisions if the performance of the fund deteriorates
following carried interest being paid.
Company 3i Group plc.
Discounting The reduction in present value at a given date of a
future cash transaction at an assumed rate, using a discount factor
reflecting the time value of money.
EBITDA is defined as earnings before interest, taxation,
depreciation and amortisation and is used as the typical measure of
portfolio company performance.
EBITDA multiple Calculated as the enterprise value over EBITDA,
it is used to determine the value of a company.
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.
Fee income (or Fees receivable) is earned for providing services
to 3i's portfolio companies and predominantly falls into one of two
categories. Negotiation and other transaction fees are earned for
providing transaction related services. Monitoring and other
ongoing service fees are earned for providing a range of services
over a period of time.
Fees receivable from external funds Fees receivable from
external funds are earned for providing management and advisory
services to a variety of fund partnerships and other entities. Fees
are typically calculated as a percentage of the cost or value of
the assets managed during the year and are paid quarterly, based on
the assets under management to date.
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,
movements in the fair value of derivatives and foreign exchange
movements. GIR is measured as a percentage of the opening portfolio
value.
Growth 2010-2012 vintage includes Element, Hilite, BVG, Go
Outdoors, Loxam, Touchtunes and WFCI.
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.
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.
IRR Internal Rate of Return
Like-for-like figures compare financial results in one period
with those for the previous period
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 / loss is the difference between our cash
income (consisting of portfolio interest received, portfolio
dividends received, portfolio fees received and fees received from
external funds as per the Investment basis Consolidated cash flow
statement) and our operating expenses and lease payments (as per
the Investment basis Consolidated 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, other losses and
carried interest.
Organic growth is the growth a company achieves by increasing
output and enhancing sales internally.
Performance fee receivable The Group earns a performance fee
from the investment management services it provides to 3i
Infrastructure plc ("3iN") when 3iN's total return for the year
exceeds a specified threshold. This fee is calculated on an annual
basis and paid in cash early in the next financial year.
Portfolio income is that which is directly related to the return
from individual investments. It is comprised of dividend income,
income from loans and receivables and fee income.
Proprietary Capital Shareholders' capital which is available to
invest to generate profits.
Realised profits or losses over value on the disposal of
investments The difference between the fair value of the
consideration received, less any directly attributable costs, on
the sale of equity and the repayment of loans and receivables and
its carrying value at the start of the accounting period, converted
into sterling using the exchange rates at the date of disposal.
Revenue reserve recognises all profits that are revenue in
nature or have been allocated to revenue.
Segmental reporting Operating segments are reported in a manner
consistent with the internal reporting provided to the Chief
Executive who is considered to be the Group's chief operating
decision maker. All transactions between business segments are
conducted on an arm's length basis, with intrasegment revenue and
costs being eliminated on consolidation. Income and expenses
directly associated with each segment are included in determining
business segment performance.
Total return comprises of 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.
Information for shareholders
Note
The first FY2021 dividend is expected to be paid on 13 January
2021 to holders of ordinary shares on the register on 4 December
2020. The ex-dividend date will be 3 December 2020.
3i Group plc
Registered office:
16 Palace Street,
London SW1E 5JD, UK
Registered in England No. 1142830
An investment company as defined by section 833 of the Companies
Act 2006.
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END
IR GPGAUGUPUPPG
(END) Dow Jones Newswires
November 12, 2020 02:00 ET (07:00 GMT)
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