TIDMIII

RNS Number : 1824Z

3i Group PLC

16 May 2019

16 May 2019

3i Group plc announces results for the year

to 31 March 2019

Strong performance across our business

-- Total return of GBP1,252 million or 18% on opening shareholders' funds (March 2018: GBP1,425 million, 24%) and NAV per share of 815 pence (31 March 2018: 724 pence) after paying 37 pence of dividends in the year

-- Our Private Equity business continues to perform well, with underlying earnings growth underpinning a gross investment return of GBP1,148 million or 20%. This was driven by assets including Action, Cirtec Medical, Audley Travel, Aspen Pumps and Formel D

-- In competitive markets the Private Equity team maintained its cautious approach to pricing, deploying proprietary capital of GBP332 million, including two new investments. We intensified our focus on M&A activity by our portfolio companies and completed eight bolt-on acquisitions in total during the year, most of which were self-funded. We also re-invested GBP529 million into Scandlines for a 35% stake

-- Our Infrastructure business had another outstanding year. 3i Infrastructure plc ("3iN") generated a total shareholder return of 33% as a result of good underlying portfolio performance and the realisation of XLT. Proceeds from XLT and cash in the business were redeployed by the team in three new investments

-- Realisations remained strong, with proceeds of GBP1,242 million, or GBP713 million after the GBP529 million reinvestment in Scandlines

-- Total dividend of 35 pence per share for FY2019, with a dividend of 20 pence per share to be paid in July 2019 subject to shareholder approval

Simon Borrows, 3i's Chief Executive, commented:

"3i continued to perform well in FY2019, delivering a total return of 18%, supported by good earnings growth across our Private Equity portfolio and by excellent returns from our Infrastructure team. In very competitive markets, we remained disciplined investors and focused on our buy-and-build platforms.

FY2020 appears to be starting in a similar way to FY2019, with significant political and market uncertainty and a growing tide of funds looking to invest in our markets. We remain cautious in this environment, which will lead us to be careful about the pricing of new investments and to deploy further capital in companies we already know well.

The Group's portfolio of investments is positioned well and has good momentum for further growth. We have a clear strategic focus and will use our active management processes to deliver another good year of progress for our shareholders. "

Financial highlights

 
                                                    Year to/as at   Year to/as at 
                                                         31 March        31 March 
                                                             2019            2018 
-------------------------------------------------  --------------  -------------- 
 Group 
 Total return                                           GBP1,252m       GBP1,425m 
 Operating expenses                                       GBP126m         GBP121m 
 Operating cash profit                                     GBP46m          GBP11m 
=================================================  ==============  ============== 
 
 
 Realisation proceeds                                   GBP1,242m       GBP1,323m 
 
 Gross investment return                                GBP1,407m       GBP1,552m 
 - As a percentage of opening 3i portfolio value              21%             27% 
 
 Cash investment                                          GBP859m         GBP827m 
 3i portfolio value                                     GBP7,553m       GBP6,657m 
 Gross debt                                               GBP575m         GBP575m 
 Net cash                                                 GBP495m         GBP479m 
 Gearing(1)                                                   nil             nil 
 Liquidity                                              GBP1,420m       GBP1,404m 
 
 Net asset value                                        GBP7,909m       GBP7,024m 
 Diluted net asset value per ordinary share                  815p            724p 
 
 
 
 
1  Gearing is net debt as a percentage of net assets. 
 
S

For further information, please contact:

 
Silvia Santoro 
 Group Investor Relations Director  Tel: 020 7975 3258 
 
Kathryn Van Der Kroft 
 Communications Director            Tel: 020 7975 3021 
 

For further information regarding the announcement of 3i's annual results to 31 March 2019, including a live videocast of the results presentation at 10.00am, please visit www.3i.com.

Notes to editors

3i is a leading international investment manager focused on mid-market Private Equity and Infrastructure. Our core investment markets are northern Europe and North America. For further information, please visit: www.3i.com.

Notes to the announcement of the results

Note 1

All of the financial data in this announcement is taken from the Investment basis financial statements. The statutory accounts are prepared under IFRS for the year to 31 March 2019 and have not yet been delivered to the Registrar of Companies. The statutory accounts for the year to 31 March 2018 have been delivered to the Registrar of Companies. The auditor's reports on the statutory accounts for these years are unqualified and do not contain any matters to which the auditor drew attention by way of emphasis or any statements under section 498(2) or (3) of the Companies Act 2006. This announcement does not constitute statutory accounts.

Note 2

Copies of the Annual report and accounts 2019 will be distributed to shareholders on or soon after 28 May 2019.

Note 3

This announcement may contain statements about the future including certain statements about the future outlook for 3i Group plc and its subsidiaries ("3i"). These are not guarantees of future performance and will not be updated. Although we believe our expectations are based on reasonable assumptions, any statements about the future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

Note 4

Subject to shareholder approval, the proposed second dividend is expected to be paid on 19 July 2019 to holders of ordinary shares on the register on 14 June 2019. The ex-dividend date will be 13 June 2019.

Chairman's statement

"A Clear strategy and consistent execution has delivered strong returns."

Against a volatile political and economic backdrop, 3i delivered another strong performance in FY2019. Private Equity performed well, driven by good portfolio earnings growth, the effective implementation of our buy-and-build strategy, and a favourable market for realisations. 3iN delivered strong returns, with a solid performance from its core European portfolio and another excellent realisation.

Market environment

FY2019 was characterised by continuing political and economic uncertainty, fuelled by the protracted trade war between the US and China, the ongoing lack of clarity on the UK's future relationship with the European Union, and slowing growth in the Eurozone. While we were not immune to the influence of these uncertainties, our diversified portfolio and long-term, rigorous approach to new investments and asset management limited the impact on the Group's performance.

Despite the economic uncertainties, debt markets remained available throughout the year and high demand for private equity and infrastructure investments enabled us to sell a number of assets at attractive exit valuations, delivering strong returns for our shareholders and other investors. At the same time, our deal teams maintained a cautious approach to new business, completing a number of new investments and bolt-on acquisitions at disciplined entry prices.

Performance and dividend

The Group's total return(1) for the year was GBP1,252 million (2018: GBP1,425 million). Net asset value ("NAV") increased to 815 pence per share (31 March 2018: 724 pence) and our return on opening shareholders' funds was 18% (2018: 24%). We remained net divestors in FY2019, ending the year with net cash of GBP495 million and liquidity of GBP1,420 million (31 March 2018: net cash of GBP479 million and liquidity of GBP1,404 million).

Last year we announced a revised dividend policy, with the aim of maintaining or growing our dividend year on year, subject to balance sheet strength and investment and realisation levels. In line with the revised policy, and in recognition of the Group's financial performance and robust balance sheet, the Board has recommended a second FY2019 dividend of 20.0 pence (2018: 22.0 pence). Together with the first FY2019 dividend of 15 pence per share paid in January 2019, this takes the total dividend to 35.0 pence (2018: 30.0 pence). The recommendation reflects the Board's confidence in the future prospects of the Group as we continue to execute our clear and consistent strategy.

Board and management

I am pleased to welcome Coline McConville, who joined the Board on 1 November 2018, as a non-executive Director. Coline brings extensive commercial experience in a variety of relevant sectors and considerable board experience. She has joined the Remuneration, Audit and Compliance and Nominations Committees.

Outlook

We enter FY2020 with a strong balance sheet and a diversified portfolio of assets that position the Group well in the current uncertain environment, with significant growth potential combined with good defensive characteristics. The Board is confident that the Group's clear strategy, experienced investment teams, and disciplined but opportunistic approach to business will continue to deliver superior returns for shareholders.

Simon Thompson

Chairman

1 Total return is defined as Total comprehensive income for the year, under both the Investment basis and the IFRS basis. See the Investment basis Total return statement.

Chief Executive's statement

"Our results for the year, against a backdrop of geo-political uncertainty and market volatility, highlight the resilience of the Group and its capabilities to generate attractive, sustainable returns for investors through the cycle."

Simon Borrows

Chief Executive

We generated a total return on shareholders' funds of GBP1,252 million, or 18% (2018: GBP1,425 million, or 24%), ending the year with NAV per share of 815 pence (31 March 2018: 724 pence). Realised proceeds, were strong at GBP1,242 million (31 March 2018: GBP1,323 million) or GBP713 million after the GBP529 million reinvestment into Scandlines. In the current competitive environment for new investment we remained selective and cautious on price, investing GBP245 million in two new Private Equity investments and we focused heavily on bolt-on acquisitions for our portfolio companies where we could achieve synergies. We were successful in completing a total of eight such bolt-on acquisitions for our Private Equity portfolio as well as three for the 3iN portfolio.

A high quality, diverse portfolio in Private Equity

Our Private Equity portfolio is performing well. Our top 20 Private Equity assets account for 98% of the Private Equity portfolio value. Overall, 93% of our Private Equity assets by value delivered earnings growth in the year. We have remained selective and price disciplined in both making new investments and completing bolt-on acquisitions for our existing portfolio companies, in a market where competition for private assets remains very strong. We did, however, capitalise on record levels of dry powder by exiting some of our long-standing 2008 and 2011 assets at good recovery values. The result is a leaner, stronger and well diversified portfolio, which continues to generate attractive returns for shareholders in an uncertain environment.

Action

Action, our largest Private Equity investment, had another strong year. In 2018, revenue grew by 23% to EUR4.2 billion, like-for-like ("LFL") sales by 3.2% and EBITDA by 16% to EUR450 million (2018: EUR3.4 billion, 5.3% and EUR387 million). These results were achieved despite a challenging year for the broader European retail industry and operational supply chain issues in France.

Action is an exceptional business and, to achieve its full potential of international growth, it is investing significantly in its commercial, stock planning, distribution and supply chain capabilities. During 2018, Action recruited a new planning team and added further resource to its buying and supply chain teams. It is accelerating the roll-out of its distribution centre ("DC") network. It opened two new DCs earlier this year and a further three are due to open over the next 18 months, increasing the network to 10 DCs across Europe. This investment will facilitate further store roll-out in France, Germany, Poland, Austria and new countries. It will also mitigate the effect of the DC performance and product availability issues that Action has experienced over the last 12 months, particularly in France. The DC expansion is being accompanied by the roll-out of new IT systems to support stock planning and DC organisation, in order to manage better the increasing complexity inherent in the end-to-end supply chain planning, given the rapid roll-out of Action stores and DCs across Europe.

The supply chain improvements resulted in strong performance in France and elsewhere in the final months of 2018. LFL sales growth increased in the final quarter of 2018 to a healthy 4.4% overall, above the rate seen in the previous three quarters, with higher and more stable stock availability seen across the French network of stores. Strong LFL sales growth has continued during the first four months of 2019.

The pace of store roll-outs remains impressive with 230 net new stores in calendar year 2018, even after Action decided to defer 20 new store openings in France to 2019 to help manage the supply chain issues. Action had 1,361 stores across seven countries as at 31 March 2019. In Poland, the success of Action's six store pilot, which started in 2017, led to the opening of an additional 19 stores in 2018. In 2019, Action will continue with its store roll-out programme in France and Germany and will accelerate its store growth rate in Poland. Action also accelerated its store renewal programme in the Netherlands and Belgium: 48 stores were refurbished, enlarged or relocated in 2018, compared to 27 the year before, improving the customer experience and EBITDA contribution of those stores.

Exceptional weather conditions in 2018 adversely affected customer footfall across European retail and also contributed to the delayed opening of two of Action's most recent DCs; Belleville near Lyon and Peine in Germany. Both of these DCs became operational in Q1 2019.

3i owns 44.3% of Action and also manages Eurofund V ("EFV"), which owns 33.2% of the company. Action is one of two remaining companies in EFV. The final extension of EFV is scheduled to end in November this year. As a result, 3i is working closely with the team at Action to facilitate a transaction that will allow those investors who wish to realise their interest in Action by November 2019 to do so. 3i intends to maintain its current level of exposure in Action and we expect that a number of other investors are likely to retain a substantial part of their holdings.

Private Equity portfolio performance

Since the strategic review in 2012, 3i's Private Equity portfolio has changed significantly. The portfolio has been reduced from 124 companies to 32 companies and, excluding Action, 86% of the remaining Private Equity portfolio value is from our 2013-16 and 2016-19 vintages. We are conscious of the challenging external environment and concerns that some form of market correction is coming. Our strategy of taking a long-term view on the multiples used to value our portfolio companies means we are able to reduce the impact of volatility on our return, which increases 3i's resilience to market corrections.

Our 2013-16 vintage is performing strongly, generating significant cash returns. In September 2018, we sold 24% of our shareholding in Basic-Fit at EUR30.50 per share, generating proceeds of GBP89 million. We retain an 18% stake in the business, valued at GBP254 million. We completed the refinancing of Aspen Pumps, returning cash of GBP49 million to the Group. Aspen Pumps' underlying business is performing strongly through a combination of organic growth, with strong performance in its core pumps division, together with bolt-on acquisitions helping to consolidate its position as a global leader in the condensate pump manufacturing market. Audley Travel had another good year and we received a cash distribution of GBP25 million. Investment in its US operation is now generating strong earnings growth. We invested GBP1.1 billion in the 2013-16 vintage and that portfolio is already standing at over a 2x vintage multiple with significant potential growth ahead of it.

At 31 March 2019, the 2016-19 vintage reached the end of its investment period, with the Group's total proprietary capital committed totalling c.GBP1.4 billion. In FY2019, we invested and committed to invest c.GBP450 million in a combination of new investments and bolt-on acquisitions. In the first quarter we completed proprietary capital investments in Royal Sanders of GBP135 million and ICE of GBP110 million. We also completed further bolt-on acquisitions for both assets; in November 2018 we completed the acquisition of McBride's European personal care liquids business for Royal Sanders and, in February 2019, we invested a further GBP19 million of proprietary capital in ICE's merger with SOR Technology ("SOR").

We focused on originating acquisition opportunities for our portfolio companies in FY2019, as prices for new investments remained high. Over the last 12 months we completed a GBP50 million proprietary capital further investment in 'eyes + more' for Hans Anders, as well as bolt-on acquisitions for Cirtec Medical and Ponroy Santé, both of which required no additional equity contribution from 3i. These bolt-on acquisitions offer good potential for commercial and operational synergies, which we are already beginning to see in both companies.

At the end of March 2019, we announced the final investment in the 2016-19 vintage, Magnitude Software Inc, a leading provider of unified application data management solutions, operating in the US, the Netherlands, the UK, Canada and India. This investment, of c.GBP139 million, completed at the start of May 2019.

Formel D, the leading international provider of quality services for the automotive industry, was another notable performer of the 2016-19 vintage, generating strong profitability following implementation of a range of initiatives focusing on improving margins and working capital.

Schlemmer, a German manufacturer of cable management solutions for the global automotive industry, had a challenging 12 months and we reduced the value of this 2016-19 asset by GBP70 million. The company experienced some market volatility predominantly in Europe, ongoing operational difficulties in the US and Mexico and raw material price increases especially in China, affecting profitability and cash flow. As a result, 3i implemented a change in management with a new CEO and CFO and provided additional funding of GBP4 million in March 2019, to ease the liquidity issue. We are now confident the new management team has a clear plan to recover performance.

Another outstanding year for Infrastructure

In the 12 months to 31 March 2019, 3iN's share price appreciated by 29% to 275 pence, generating value growth of GBP167 million for the Group's 33% stake. This excellent share price increase reflects the successful management by our Infrastructure team, their impressive recent track record of realisations and the strong performance from the portfolio of European infrastructure assets.

Over the last few years, we have repositioned the 3iN portfolio away from assets with higher regulatory risk and generated significant investment gains for shareholders in the process. During the year 3iN disposed of its 33% stake in Cross London Trains ("XLT") for proceeds of GBP333 million, representing a 5.9x return and a 40% IRR. The value uplift from the sale contributed materially to a performance fee of GBP31 million for the Group. We increased our fee generating Infrastructure AUM by GBP300 million, as we manage new investments in Tampnet and Attero for 3iN and other investors. In addition to these investments, 3iN completed the acquisition by Infinis of Alkane Energy in the year, and in March 2019, 3iN announced a commitment to invest in Joulz, a leading owner and provider of essential energy infrastructure equipment and services in the Netherlands. The GBP190 million investment in Joulz completed in April 2019.

Demand for Infrastructure assets is strong and the team remains disciplined on price and, much like Private Equity, we look for bolt-on opportunities for the existing portfolio where appropriate. In the year, two such acquisitions for Wireless Infrastructure Group ("WIG") and one for TCR were completed, without further equity contribution from 3iN.

Our North American Infrastructure team announced its second investment at the beginning of April 2019, in Regional Rail LLC, a leading owner and operator of short-line freight railroads and rail-related businesses throughout the Mid-Atlantic US.

Apart from the gain in 3iN's share price, our Infrastructure platform remains an important source of cash income for the Group, generating GBP82 million (2018: GBP78 million) of cash income through its fund management activities and dividend income from Infrastructure.

Corporate Assets

In June 2018, we completed the sale and our subsequent 35% reinvestment into Scandlines, generating net proceeds to 3i of GBP306 million. Our decision to reinvest into Scandlines is consistent with our strategic objectives and we are already seeing the benefit of this through the considerable cash flows that the business is continuing to produce. Since the Group's reinvestment, we have received GBP28 million of dividend income, an important contribution to the Group's operating cash position.

Strong balance sheet, well positioned to deliver good returns to shareholders

We ended FY2019 with net cash of GBP495 million after returning GBP358 million of cash dividends to shareholders in the year. Our strong balance sheet means we can be competitive and move fast when we find the right proprietary capital investments without having to accelerate realisations ahead of their full potential.

Our people and values

We expect everyone at 3i to act with integrity, to be accountable for their behaviour, and to approach their roles with ambition, rigour and energy. This means demonstrating our culture and values while working hard towards achieving attractive returns for our shareholders and other investors.

Our long-standing Responsible Investment Policy informs our investment decisions and our behaviour as stewards of our assets. We are committed to the continuous improvement of our approach.

We have seen some changes in key personnel this year. The Co-Heads of our Private Equity division transitioned during the year, with Menno Antal and Alan Giddins handing over leadership to Pieter de Jong from our Dutch team and Peter Wirtz from our German team, who have become the new Co-Heads of Private Equity and I look forward to working with them in their new capacity. I would like to thank Menno and Alan for their strong contribution in leading the Private Equity team since 2010.

Outlook

For 3i, FY2020 appears to be starting in a similar way to FY2019 with geo-political uncertainty, volatile capital and currency markets, concerns about economic growth and a growing tide of funds looking to invest in private assets in particular.

We remain cautious in this environment, which will lead us to be careful about the pricing of new investments, while looking to put more capital behind those portfolio companies we already know well. So our focus will remain on bilateral or complex processes and our buy-and-build platforms.

The Group's portfolio of investments is positioned well and has good momentum for further growth. We have a clear strategic focus and are committed to using our active management processes to deliver another good year of progress for our shareholders.

I would like to thank the 3i team again for all their good work this year.

Simon Borrows

Chief Executive

Private Equity

Business review

Our Private Equity business performed well in FY2019 with a gross investment return of GBP1,148 million or 20% on the opening portfolio (2018: GBP1,438 million or 30%) and realisations of GBP1,235 million (2018: GBP1,002 million), including GBP835 million from the disposal of Scandlines. Despite the political and economic backdrop, strong performance from Action and a number of assets from our 2013-16 and 2016-19 vintages generated unrealised value growth of GBP916 million (2018: GBP1,080 million). In a highly competitive market, the team remained selective and disciplined on price, making two new investments and adding eight bolt-on acquisitions for existing portfolio companies.

Investment activity

Over the last twelve months, record levels of capital availability continued to drive competition for private assets. We have remained selective and disciplined on price when originating new investment opportunities and have also focused on further bolt-on acquisitions for our existing portfolio companies, an important part of building the strategic value of these assets.

In April 2018, we invested GBP135 million of proprietary capital in Royal Sanders, a private label and contract manufacturing producer of personal care products and in June 2018, we invested GBP110 million in ICE, a global travel and loyalty company that connects leading brands, travel suppliers and end consumers. Over the last two years we have focused on investing in more fragmented markets which offer buy-and-build growth opportunities. In addition to these initial proprietary investments, Royal Sanders completed its acquisition of McBride's European personal care liquids business in November 2018 and, in February 2019, 3i supported ICE's merger with SOR, a web-based travel technology platform, by contributing a further investment of GBP19 million. In January 2019, we also invested GBP50 million to support Hans Anders with the bolt-on acquisition of eyes + more, a fast growing value-for-money optical retailer headquartered in Germany.

A number of other portfolio companies also completed bolt-on acquisitions in the year, primarily funded from their own resources. In May 2018, WP completed its acquisition of Proenfar, a Colombia based manufacturer of pharmaceutical and cosmetics plastic packaging solutions for the Latin American market. In July 2018, Ponroy Santé continued its buy-and-build strategy with the acquisition of Densmore, a natural food supplement laboratory specialising in ophthalmic solutions. Ponroy Santé also announced its acquisition of Pasquali Healthcare, a leading pharmaceutical company in Italy at the end of FY2019. In October and December 2018, Cirtec Medical completed the acquisitions of Cactus Semiconductor and Metrigraphics LLC, expanding the company's product portfolio of cutting edge and technically advanced medical device components. In November 2018, Aspen Pumps acquired Advanced Engineering, the market leader in the manufacture and supply of coil cleaners and service equipment to the air conditioning and refrigeration industry.

In September 2018, we acquired GBP12 million of Action shares from other shareholders and in February 2019, we purchased a small additional LP stake in EFV, which further increased our holding in Action to 44.3%.

In addition to the GBP332 million of investment completed in the year, in March 2019, we announced a new investment in Magnitude Software Inc, a leading provider of unified application data management solutions, operating in the US, the Netherlands, the UK, Canada and India. This investment, of c.GBP139 million, completed at the start of May 2019.

Table 1: Private Equity cash investment in the year to 31 March 2019

 
                                                                                                           Proprietary 
                                                                                                    Total      capital 
                                                                                               investment   investment 
Investment       Type      Business description                               Date                   GBPm         GBPm 
---------------  --------  -------------------------------------------------  ---------------  ----------  ----------- 
                           Private label and contract manufacturing producer 
Royal Sanders    New        of personal care products                         April 2018              136          135 
ICE              New       Global travel and loyalty company                  June 2018               111          110 
Hans Anders(1)   Further   Value-for-money optical retailer                   January 2019             47           46 
ICE/SOR          Further   Web-based travel technology platform               February 2019            19           19 
Action           Further   Non-food discount retailer                         September 2018           20           12 
                           Manufacturer of cable management solutions for 
Schlemmer(2)     Further    the automotive industry                           March 2019                5            5 
EFV stake        Further   Acquisition of LP stake in Eurofund V              February 2019             4            4 
Other            n/a       n/a                                                n/a                       1            1 
---------------  --------  -------------------------------------------------  ---------------  ----------  ----------- 
Total Private Equity investment                                                                       343          332 
----------------------------------------------------------------------------  ---------------  ----------  ----------- 
 
 
  1    Investment of GBP46 million, includes the further investment in eyes + more of GBP50 million, 
        net of a GBP4 million loan repayment earlier in the year which was treated as negative cash 
        investment as this was received within the first year of our initial investment. 
  2    Investment of GBP5 million includes GBP1 million further investment in August 2018 and GBP4 
        million further investment in March 2019. 
 

Realisations activity

Market conditions remained favourable for exit in FY2019 and we generated GBP1,081 million of Private Equity proceeds (2018: GBP603 million) from the sale of five companies in the year, at an average money multiple of 3.0x.

On 21 June 2018, together with EFV, we sold Scandlines, generating proceeds of GBP835 million for our proprietary capital stake. The Scandlines disposal generated a money multiple of 7.7x on our investment and contributed GBP31 million to realised profit in the year, in addition to the uplift on sale we recognised in FY2018. This is an outstanding result having originally invested in Scandlines in 2007 and then, in a strategically significant step, increased our investment in 2013. Subsequently, the Group reinvested GBP529 million into Scandlines to acquire a 35% stake alongside First State Investments and Hermes Investment Management. This investment is now managed outside of the Private Equity business and is reported as a Corporate Asset.

We disposed of two 2011 assets at good recovery values. In September 2018, we sold Etanco for proceeds of GBP91 million and a realised profit of GBP24 million and, in March 2019, we completed the sale of OneMed returning proceeds of GBP96 million and generating a realised profit of GBP52 million. In addition, we sold our minority stake in SLR, a 2008 investment, for proceeds of GBP30 million and received our final payment of GBP29 million for Prisa Radio.

We took advantage of supportive equity market conditions to reduce our quoted holding in Basic-Fit, disposing of 24% of our equity holding and returning proceeds of GBP89 million. We retain an 18% stake in Basic-Fit, valued at GBP254 million at 31 March 2019.

We continue to refinance our most cash generative assets where appropriate for the business and where the market allows. In December 2018, Aspen Pumps completed a refinancing which resulted in a GBP49 million distribution to 3i, of which GBP48 million was recognised as capital proceeds and the remainder as income. Finally, in December 2018 Audley Travel completed a shareholder distribution of GBP25 million to 3i, of which GBP8 million was recognised as capital proceeds and the remainder as income.

In aggregate, we generated total Private Equity proceeds of GBP1,235 million (2018: GBP1,002 million) and realised profits of GBP131 million in the year (2018: GBP199 million).

Table 2: Private Equity realisations in the year to 31 March 2019

 
                                            31 March               Profit/(loss)  Uplift on 
                                  Calendar      2018  3i realised         in the    opening  Residual 
                                      year    value1     proceeds          year2     value2     value      Money 
Investment        Country         invested      GBPm         GBPm           GBPm          %      GBPm  multiple3   IRR 
----------------  ------------  ----------  --------  -----------  -------------  ---------  --------  ---------  ---- 
Full 
realisations 
                  Denmark/ 
Scandlines         Germany       2007/2013       803          835             31         4%         -       7.7x   34% 
Etanco            France              2011        66           91             24        36%         -       1.3x    3% 
OneMed            Sweden              2011        46           96             52       118%         -       0.9x  (1)% 
SLR               UK                  2008        29           30              1         3%         -       1.3x    2% 
Prisa Radio       Spain               2008        27           29              3        12%         -       0.7x  (6)% 
----------------  ------------  ----------  --------  -----------  -------------  ---------  --------  ---------  ---- 
Total realisations                               971        1,081            111        11%         -       3.0x   n/a 
------------------------------------------  --------  -----------  -------------  ---------  --------  ---------  ---- 
 
Refinancings3 
Aspen Pumps       UK                  2015        48           48              -          -       103       2.4x   24% 
----------------  ------------  ----------  --------  -----------  -------------  ---------  --------  ---------  ---- 
Total refinancings                                48           48              -          -       103       2.4x   24% 
------------------------------------------  --------  -----------  -------------  ---------  --------  ---------  ---- 
 
Capital 
distribution3 
Audley Travel     UK                  2015         8            8              -          -       270       1.9x   21% 
Partial 
realisations1,3 
Basic-Fit         Netherlands         2013        69           89             20        29%       254       5.3x   46% 
Other             n/a                  n/a         8            5            (4)      (44)%       241        n/a   n/a 
Deferred 
consideration 
Other             n/a                  n/a         -            4              4        n/a         -        n/a   n/a 
----------------  ------------  ----------  --------  -----------  -------------  ---------  --------  ---------  ---- 
Total Private Equity 
 realisations                                  1,104        1,235            131        12%       868        n/a   n/a 
------------------------------  ----------  --------  -----------  -------------  ---------  --------  ---------  ---- 
 
 
  1    For partial realisations, 31 March 2018 value represents value of 
        stake sold. 
  2    Cash proceeds realised in the period over opening value. 
  3    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 valuation

As at 31 March 2019, the portfolio comprised 31 assets and one quoted stake (31 March 2018: 35 assets and one quoted stake). The portfolio generated unrealised value growth of GBP916 million in the year (2018: GBP1,080 million) and was valued at GBP6,023 million at 31 March 2019 (31 March 2018: GBP5,825 million).

Performance

The continued strong performance of the investments valued on an earnings basis resulted in an increase in value of GBP654 million (2018: GBP541 million), with the most significant contribution coming from Action. At 31 March 2019, Action was valued using run-rate earnings to 31 March 2019 and a post discount run-rate multiple of 18.0x (31 March 2018: 16.5x), resulting in a value of GBP2,731 million (31 March 2018: GBP2,064 million). As the largest Private Equity investment by value, it represented 45% of the Private Equity portfolio (31 March 2018: 35%).

Our 2013-16 vintage is performing strongly. Audley Travel is a provider of luxury tailor-made holidays to over 80 destinations worldwide, serving clients principally in the UK and the US, and has had another strong year. Since our investment in 2015, we have further grown the UK business and are building a strong US business, investing in country specialists and expanding the roll-out of European destination offerings for US customers. As a result, our GBP156 million initial investment was valued at GBP270 million at 31 March 2019, after the receipt of the GBP25 million capital and interest distribution in the year.

A combination of organic growth and bolt-on acquisitions has consolidated Aspen Pumps as a global manufacturing leader of pumps and accessories for the air conditioning, heating and refrigeration industry. At 31 March 2019, our investment in Aspen Pumps was valued at GBP103 million (2018: GBP108 million), after the receipt of GBP49 million capital and interest proceeds from its refinancing in the year.

We completed a number of bolt-on acquisitions for assets within our 2016-19 vintage that add scale to these businesses and, in most cases, also generate operational synergies. The two new acquisitions for Cirtec Medical further expand the company's product portfolio, and the acquisition of Densmore continues Ponroy Santé's buy-and-build strategy. A combination of these acquisitions and growth in the core businesses are reflected in good earnings growth for Cirtec Medical and Ponroy Santé. The bolt-on acquisitions in Hans Anders, ICE and Royal Sanders are also adding value.

We continue to see a small number of asset specific challenges in the portfolio. Schlemmer experienced some market volatility predominantly in Europe, ongoing operational difficulties in the US and Mexico and higher raw material prices, against a more challenging automotive market backdrop. As a result, Schlemmer generated our largest decline in value in the year (GBP70 million), mainly attributable to performance. After a relatively slow start to the year, Euro-Diesel generated a record order intake in calendar year 2018, of which most will be manufactured and delivered in 2019. Finally, WP's performance recovered towards the end of its financial year, following pressure on profitability due to increasing resin prices, negative foreign exchange effects and temporarily weaker South American markets.

Overall, 93% of the portfolio by value, including Basic-Fit, grew their earnings in the year (2018: 91%). One investment was valued using forecast earnings at 31 March 2019 (31 March 2018: one), representing 1% of the portfolio by value (31 March 2018: 1%). Table 4 shows the earnings growth of our top 20 assets.

Net debt across the portfolio decreased slightly to 3.9x earnings (31 March 2018: 4.0x), principally due to a decrease in the leverage ratio for Action. Excluding Action, the ratio increased to 3.7x (31 March 2018: 3.3x) due to the mix of new investments and realisations in the year, a number of bolt-on acquisitions funded by leverage of the portfolio companies and the refinancing of Aspen Pumps. Table 5 shows the ratio of net debt to earnings by portfolio value at 31 March 2019.

Table 3: Unrealised profits/(losses) on the revaluation of Private Equity investments(1) in the year to 31 March

 
                                               2019   2018 
                                               GBPm   GBPm 
---------------------------------------------  ----  ----- 
Earnings based valuations 
     Performance                                654    541 
     Multiple movements                         219    144 
Other bases 
     Uplift to imminent sale                      -      3 
     Scandlines transaction value                 -    302 
     Discounted cash flow                         -      3 
     Other movements on unquoted investments   (12)      6 
     Quoted portfolio                            55     81 
  ------------------------------------------- 
Total                                           916  1,080 
---------------------------------------------  ----  ----- 
 
 
  1    Further information on our valuation methodology, including definitions and rationale, is 
        included in the Portfolio valuation - an explanation section in our Annual report and accounts 
        2019. 
 

Multiple movements

The increase in value due to multiple movements was GBP219 million (2018: GBP144 million increase). The run-rate multiple used to value Action increased to 18.0x post liquidity discount at 31 March 2019 (31 March 2018: 16.5x) to reflect its continued strong performance and our confidence in its future growth prospects. Based on the valuation at 31 March 2019, a 1x movement in Action's post-discount multiple would increase or decrease the valuation of 3i's investment by GBP197 million (31 March 2018: GBP176 million).

A common feature throughout FY2019 was volatility in equity markets, which was particularly acute in December 2018. Such unpredictable movements reinforce our strategy of taking a long-term view on the multiples used to value our portfolio companies. In setting and before changing a multiple, we consider a number of factors such as relative performance, investment size, comparable recent transactions and exit plans, as well as monitoring external equity markets. As a result, as at 31 March 2019, we selected multiples that were lower than the comparable set in 12 out of the 21 companies valued on an earnings basis (31 March 2018: 14 out of 21).

Excluding Action, the weighted average EBITDA multiple increased slightly to 11.8x before liquidity discount (31 March 2018: 11.7x) and was 11.1x after liquidity discount (31 March 2018: 11.0x).

The pre-discount multiples used to value the portfolio ranged between 7.5x and 18.9x (31 March 2018: 8.5x to 17.4x) and the post-discount multiples ranged between 7.1x and 18.0x (31 March 2018: 6.3x to 16.5x).

Table 4: Portfolio earnings growth of the top 20 Private Equity(1) investments

 
                                  3i carrying value 
                                   at 31 March 2019 
            Number of companies                GBPm 
=========  ====================  ================== 
 <0%                          3                 404 
 >0 - 9%                      4                 555 
 10 - 19%                     8               3,911 
 >20%                         5                 951 
=========  ====================  ================== 
 
 
      Includes top 20 Private Equity companies by value. This represents 97% of the Private Equity 
  1    portfolio by value (31 March 2018: 95%). 
 

Table 5: Ratio of net debt to earnings(1)

 
                                  3i carrying value 
                                   at 31 March 2019 
          Number of companies                  GBPm 
=======  ====================    ================== 
 <1x                        1                    71 
 1 - 2x                     2                   422 
 2 - 3x                     3                   318 
 3 - 4x                     2                   167 
 4 - 5x                     9                 4,081 
 >5x                        1                   248 
=======  ====================    ================== 
 
 
 1   This represents 88% of the Private Equity portfolio by value (31 March 
      2018: 88%). Quoted holdings, deferred consideration and companies 
      with net cash are excluded from the calculation. 
 

Quoted portfolio

Basic-Fit, the only quoted asset in the Private Equity portfolio, had another very strong year, which was reflected in its share price increase of 28% to EUR30.00 per share at 31 March 2019 (31 March 2018: EUR23.35). In its 2018 financial year, revenue and profit increased by 23% and 24% respectively and the business ended the year with 629 clubs and 1.8 million members.

We generated an unrealised value gain of GBP55 million from Basic-Fit in the year, in addition to realised profits of GBP20 million on the disposal of 24% of our shareholding in September 2018 at EUR30.50 per share. At 31 March 2019, our residual 18% shareholding was valued at GBP254 million.

Table 6: Quoted portfolio movement for the year to 31 March 2019

 
                                                                              Closing 
                              Opening   Disposals  Unrealised                value at 
                             value at  at opening       value         Other  31 March 
                         1 April 2018  book value    movement  movements(1)      2019 
Investment     IPO date          GBPm        GBPm        GBPm          GBPm      GBPm 
-----------  ----------  ------------  ----------  ----------  ------------  -------- 
Basic-Fit     June 2016           270        (69)          55           (2)       254 
-----------  ----------  ------------  ----------  ----------  ------------  -------- 
                                  270        (69)          55           (2)       254 
 ----------------------  ------------  ----------  ----------  ------------  -------- 
 
 
 1   Other movements include foreign exchange. 
 

Table 7: Private Equity assets by geography as at 31 March 2019

 
                                3i carrying 
                                      value 
                     Number of         2019 
3i office location   companies         GBPm 
-------------------  ---------  ----------- 
Benelux                      6        3,600 
France                       1          174 
Germany                      5          663 
UK                           9          672 
US                           5          750 
Other                        6          164 
-------------------  ---------  ----------- 
Total                       32        6,023 
-------------------  ---------  ----------- 
 

Assets under management

The value of 3i's proprietary capital invested in Private Equity increased to GBP6.0 billion in the year (31 March 2018: GBP5.8 billion).

Table 8: Private Equity proprietary capital as at 31 March

 
                      Proprietary              Proprietary 
                    capital value   Vintage  capital value   Vintage 
                             2019  multiple           2018  multiple 
Vintages                     GBPm      2019           GBPm      2018 
------------------  -------------  --------  -------------  -------- 
Buyouts 2010-2012           2,679      8.5x          2,139      7.2x 
Growth 2010-2012               25      2.1x             33      2.2x 
2013-20161                  1,325      2.3x          1,695      2.1x 
2016-20191                  1,503      1.2x          1,057      1.1x 
Other                         491       n/a            901       n/a 
------------------  -------------  --------  -------------  -------- 
Total                       6,023                    5,825 
------------------  -------------  --------  -------------  -------- 
 
 
 1   Assets included in these vintages are disclosed in the glossary. 
 

The value of the Private Equity portfolio, including third-party capital, increased to EUR9.6 billion (31 March 2018: EUR9.5 billion).

Infrastructure

Business review

Infrastructure contributed a gross investment return of GBP210million, or 25% on the opening portfolio (2018: GBP113 million, 16%). This was primarily driven by 3iN's outstanding share price appreciation of 29% and good levels of dividend income. 3iN generated GBP333 million of proceeds from the sale of XLT, which were recycled into the investment in Tampnet and a new commitment to invest in Joulz. We increased our fee generating AUM with the management of third-party stakes in Attero and Tampnet and continued to build our US Infrastructure platform with the announcement of our second proprietary capital investment in Regional Rail, LLC.

Investment manager to 3iN

Our role changed from Investment Adviser to Investment Manager of 3iN in October 2018, when 3iN moved its management and tax domicile from Jersey to the UK. The move was accompanied by 3iN successfully applying to HM Revenue & Customs for UK approved investment trust status. Under the terms of the new management agreement, 3i will receive a management fee of between 1.2% and 1.4% on a tiered basis and a performance fee of 20% of returns above a hurdle of 8% of the growth in NAV per share, with a deferral and clawback mechanism in the event of subsequent performance below the hurdle. The fees payable by 3iN to 3i for FY2019 are calculated on the same basis as the previous advisory agreement.

Under the terms of the advisory and management agreements, 3iN paid a management fee of GBP31 million to 3i (2018: GBP34 million) and a NAV based performance fee of GBP31 million (2018: GBP90 million).

3iN and 3i managed accounts investment

In June 2018, 3iN completed its investment in Attero by completing the GBP176 million acquisition for a 50% stake. In August 2018, 3iN syndicated 50% of the original investment amount to other investors whose stakes continue to be managed by 3i. In March 2019, 3iN, in consortium with Danish pension fund ATP, invested GBP375 million in Tampnet, a fibre-based communications infrastructure asset. Of this investment, GBP187 million is 3iN's proprietary capital and the remaining ATP stake is managed by 3i.

In addition to these investments, 3iN completed its FY2018 commitment with the acquisition by Infinis of Alkane Energy and, in March 2019, it announced a commitment to invest in Joulz, a leading owner and provider of essential energy infrastructure equipment and services in the Netherlands. The GBP190 million investment in Joulz completed in April 2019.

Finally, the platform investments in the 3iN portfolio made three bolt-on acquisitions in the year, including two acquisitions by WIG and a further by TCR, all of which were funded from the companies' own resources.

Realisations

In March 2019, 3iN sold its 33% stake in XLT for proceeds of GBP333 million, representing a 5.9x money multiple and a 40% IRR. This realisation generates an excellent return for shareholders and continues to reposition 3iN away from assets with higher regulatory risk.

3iN also refinanced Infinis, WIG, TCR and Attero during the year, all on attractive terms.

Performance

Overall, the 3iN portfolio continues to perform well and the company generated a total return on opening NAV of 15% in the year (2018: 29%), ahead of its target total return of between 8% and 10% per annum to be achieved over the medium term.

Performance of 3i's proprietary capital Infrastructure portfolio

Quoted stake in 3iN

The Group's proprietary capital infrastructure portfolio consists primarily of its 33% stake in 3iN.

3iN's share price performed very strongly in the year, increasing by 29% and closing at 275 pence on 31 March 2019 (31 March 2018: 214 pence). We recognised GBP167 million of unrealised value growth on our 3iN investment and GBP22 million of dividend income.

US Infrastructure

In April 2019, we announced an agreement to invest c.$112 million in Regional Rail, LLC, a leading owner and operator of short-line freight railroads and rail-related businesses throughout the Mid-Atlantic US. This is our second investment in US infrastructure, in addition to Smarte Carte.

As at 31 March 2019, Smarte Carte was valued on a DCF basis and we recognised an unrealised value gain of GBP3 million in the year, net of GBP12 million of capital and income proceeds received.

Table 9: Unrealised profits/(losses) on the revaluation of Infrastructure investments1 in the year to 31 March

 
                       2019  2018 
                       GBPm  GBPm 
---------------------  ----  ---- 
Quoted                  167    67 
Discounted cash flow    (7)     8 
Fund                      2     8 
---------------------  ----  ---- 
Total                   162    83 
---------------------  ----  ---- 
 
 
 1    Further information on our valuation methodology, including definitions 
       and rationale, is included in the portfolio valuation - an explanation 
       section in our Annual report and accounts 2019. 
 

Fund Management

In April 2018, the 3i European Operational Projects Fund had its final close, with commitments of EUR456 million. At 31 March 2019, the fund had invested EUR102 million out of this total commitment. 3i has a commitment of EUR40 million to this fund, EUR9 million of which has been drawn to invest in the fund.

Our 5% holding in 3i Managed Infrastructure Acquisitions LP generated unrealised value growth of GBP2 million, net of the GBP1 million dividend distribution received in the year. The underlying portfolio performed well overall in the year.

Infrastructure AUM increased to GBP4.2 billion (2018: GBP3.4 billion), principally due to the increase in 3iN's share price and 3i managed accounts.

Table 10: Infrastructure portfolio movement for the year to 31 March 2019

 
                                                   Opening                                                   Closing 
                                                  value at               Disposals  Unrealised              value at 
                                                   1 April              at opening       value       Other  31 March 
                                                      2018  Investment  book value    movement  movements1      2019 
Investment                             Valuation      GBPm        GBPm        GBPm        GBPm        GBPm      GBPm 
-----------------------------------  -----------  --------  ----------  ----------  ----------  ----------  -------- 
3iN                                       Quoted       581           -           -         167         (4)       744 
Smarte Carte                                 DCF       167           -         (6)           3          17       181 
3i Managed Infrastructure 
 Acquisitions Fund                           NAV        36           -           -           2           -        38 
3i European Operational Projects 
 Fund                                        NAV        10         (2)           -           -           -         8 
India Infrastructure Fund                    DCF        38           -           -        (10)           2        30 
-----------------------------------  -----------  --------  ----------  ----------  ----------  ----------  -------- 
                                                       832         (2)         (6)         162          15     1,001 
------------------------------------  ----------  --------  ----------  ----------  ----------  ----------  -------- 
 
 
 
 1    Other movements include foreign exchange. 
 

Table 11: Assets under management as at 31 March 2019

 
                                                                                                                   Fee 
                                                                                                   %            income 
                                                                         3i   Remaining  invested at         earned in 
                                           Close          Fund  commitment/          3i     31 March    AUM       2019 
Fund/strategy                              date           size        share  commitment         2019   GBPm       GBPm 
-----------------------------------------  --------  ---------  -----------  ----------  -----------  -----  --------- 
3iN1                                       Mar 07          n/a      GBP744m         n/a          n/a  2,232         31 
3i Managed Infrastructure Acquisitions LP  Jun 17      GBP698m       GBP35m       GBP5m          86%    751          6 
3i European Operational Projects Fund      Apr 18      EUR456m       EUR40m      EUR31m          22%     96          1 
BIIF                                       May 08      GBP680m          n/a         n/a          90%    528          5 
3i India Infrastructure Fund               Mar 08    US$1,195m      US$250m      US$35m          73%    110          4 
3i managed accounts                        various         n/a          n/a         n/a          n/a    300          2 
US Infrastructure                          various         n/a          n/a         n/a          n/a    181          - 
-----------------------------------------  --------  ---------  -----------  ----------  -----------  -----  --------- 
Total                                                                                                 4,198         49 
---------------------------------------------------  ---------  -----------  ----------  -----------  -----  --------- 
 
 
 1    AUM based on the share price at 31 March 2019. 
 

Corporate Assets

Business review

Investment activity

On 21 June 2018, the Group reinvested into Scandlines, alongside First State Investments and Hermes Investment Management. The Group reinvested GBP529 million to acquire a 35% stake in Scandlines. Scandlines is now being managed separately from the Private Equity and Infrastructure business lines and is hence reported as a Corporate Asset. At 31 March 2019, Scandlines was the only asset reported as a Corporate Asset.

Portfolio performance

Scandlines contributed a gross investment return of GBP49 million, or 9% of its reinvestment value. It is valued on a DCF basis and recognised an unrealised value gain of GBP9 million net of the GBP28 million of dividend distributions received in the year.

Foreign exchange

In January 2019, we implemented a hedging programme to help mitigate the foreign exchange translation risk on our reinvestment in Scandlines. This is because, unlike most private equity investments, it is an asset that we intend to hold for the longer term, with expected regular cash flows. The total notional size of the hedging programme is EUR500 million, which represents c.81% of the Scandlines value at 31 March 2019. As at 31 March 2019, we recognised a GBP12 million net gain on foreign exchange translation, which includes the GBP21 million movement from the hedging programme.

Table 12: Gross investment return in the period to 31 March(1)

 
                                                           2019 
Investment basis                                           GBPm 
---------------------------------------------------------  ---- 
Unrealised profits on the revaluation of investments          9 
Dividends                                                    28 
Foreign exchange on investments                             (9) 
Movement in the fair value of derivatives                    21 
---------------------------------------------------------  ---- 
Gross investment return                                      49 
---------------------------------------------------------  ---- 
Gross investment return as a % of its reinvestment value     9% 
---------------------------------------------------------  ---- 
 

1 Scandlines was moved to Corporate Assets in June 2018.

Financial review

Another year of strong financial performance

FY2019 was another year of strong financial performance in line with our strategic objective of generating mid to high teen returns through the cycle. We generated a gross investment return of GBP1,407 million (2018: GBP1,552 million) and operating profit before carried interest of GBP1,295 million (2018: GBP1,428 million).

We generated total return of GBP1,252 million, or a profit on opening shareholder funds of 18% (2018: GBP1,425 million or 24%). As a result of the good performance in the year, the diluted NAV per share at 31 March 2019 increased by 13% to 815 pence (31 March 2018: 724 pence) after paying dividends totalling 37 pence per share during the year.

The performance was mainly driven by strong unrealised value growth from Action, 3iN and the 2013-16 and 2016-19 Private Equity vintages.

Table 13: Total return for the year to 31 March

 
                                                               2019   2018 
Investment basis                                               GBPm   GBPm 
------------------------------------------------------------  -----  ----- 
Realised profits over value on the disposal of investments      132    207 
Unrealised profits on the revaluation of investments          1,087  1,163 
Portfolio income 
    Dividends                                                    63     41 
    Interest income from investment portfolio                   113    116 
    Fees receivable                                               9     14 
Foreign exchange on investments                                (18)     11 
Movement in the fair value of derivatives                        21      - 
------------------------------------------------------------  -----  ----- 
Gross investment return                                       1,407  1,552 
------------------------------------------------------------  -----  ----- 
Fees receivable from external funds                              53     57 
Operating expenses                                            (126)  (121) 
Interest received                                                 2      2 
Interest paid                                                  (36)   (37) 
Exchange movements                                              (3)   (27) 
Other (expense)/income                                          (2)      2 
------------------------------------------------------------  -----  ----- 
Operating profit before carried interest                      1,295  1,428 
------------------------------------------------------------  -----  ----- 
Carried interest 
    Carried interest and performance fees receivable            159    228 
    Carried interest and performance fees payable             (220)  (205) 
 -----------------------------------------------------------  -----  ----- 
Operating profit                                              1,234  1,451 
------------------------------------------------------------  -----  ----- 
Income taxes                                                     13   (26) 
Re-measurements of defined benefit plans                          5      - 
------------------------------------------------------------  -----  ----- 
Total comprehensive income ("Total return")                   1,252  1,425 
------------------------------------------------------------  -----  ----- 
Total return on opening shareholders' funds                     18%    24% 
------------------------------------------------------------  -----  ----- 
 

Investment basis and alternative performance measures ("APMs")

In our Strategic report we report our financial performance using our Investment basis. We do not consolidate our portfolio companies; as private equity and infrastructure investments they are not operating subsidiaries. IFRS 10 provides an exemption from consolidation but also requires us to fair value other companies in the Group (primarily intermediate holding companies and partnerships), which results in a loss of transparency. As explained in the Investment basis and Reconciliation of investment basis and IFRS sections below, the total financial position is the same under our audited IFRS financial statements and our Investment basis. The Investment basis is simply a "look through" of IFRS 10 to present the underlying performance and we believe it is more transparent to readers of our Annual report and accounts.

In October 2015, the European Securities and Markets Authority ("ESMA") published guidelines about the use of APMs. These are financial measures such as KPIs that are not defined under IFRS. Our Investment basis is itself an APM, and we use a number of other measures which, on account of being derived from the Investment basis, are also APMs.

Further information about our use of APMs, including the applicable reconciliations to the IFRS equivalent where appropriate, is provided at the end of the Financial review and should be read alongside the Investment basis to IFRS reconciliation. Our APMs are gross investment return as a percentage of the opening investment portfolio value, cash realisations, cash investment, operating cash profit, net cash/(debt) and gearing.

Realised profits

We generated gross proceeds of GBP1,242 million before the Scandlines reinvestment of GBP529 million (2018: GBP1,323 million) and realised profits of GBP132 million (2018: GBP207 million) in the year. Almost all of the realisation proceeds and uplift over the opening value were from the Private Equity portfolio, which contributed GBP1,235 million of proceeds and GBP131 million of realised profits (2018: GBP1,002 million, GBP199 million). This includes the sale of Scandlines (GBP31 million realised profit) and OneMed (GBP52 million realised profit), together with the partial disposal of our quoted holding in Basic-Fit, which generated a realised profit of GBP20 million.

Unrealised value movements

We recognised an unrealised value movement of GBP1,087 million (2018: GBP1,163 million). Action's continued strong performance contributed GBP701 million (2018: GBP610 million) to value growth. Our quoted portfolio generated an unrealised value gain of GBP222 million following share price appreciation of 29% for 3iN and 28% for Basic-Fit. The majority of the 2013-16 and 2016-19 portfolio continued to perform well, notably Cirtec Medical, Audley Travel, Aspen Pumps and Formel D, offsetting asset specific issues in Schlemmer and Euro-Diesel.

Further information on the Private Equity, Infrastructure and Scandlines valuations is included in the Business reviews.

Portfolio income

Portfolio income increased to GBP185 million during the year (2018: GBP171 million) principally due to the receipt of GBP28 million of dividend income from Scandlines. Loan interest income receivable from portfolio companies remained relatively stable at GBP113 million (2018: GBP116 million). The majority of this interest income is non-cash. Fee income reduced to GBP9 million (2018: GBP14 million) as a result of fewer Private Equity investments in the year.

Fees receivable from external funds

Fees received from external funds decreased to GBP53 million (2018: GBP57 million). 3i, as manager of EFV, received a fee based on the investment cost of the remaining assets in the fund. In January 2018, we agreed with the external investors in EFV to extend the life of the fund by a further year with effect from November 2018 and, as part of that agreement, 3i stopped receiving a management fee from that date.

3i, as Investment Manager to 3iN, receives a fee for sourcing and completing new investments and for the management of the portfolio. In FY2019, we received fee income of GBP31 million (2018: GBP34 million) from 3iN. In addition, we started to generate fee income from 3i managed accounts.

Operating expenses

Operating expenses increased to GBP126 million (2018: GBP121 million), principally due to a planned increase in staff cost for new roles and replacements across both the Private Equity and Infrastructure business lines to support our asset management capability and business initiatives.

Operating cash profit

We generated an operating cash profit of GBP46 million in the year (2018: GBP11 million). Cash income increased to GBP155 million (2018: GBP126 million), principally due to GBP28 million of dividend income received from Scandlines (2018: nil) and non-recurring cash interest of GBP18 million received from Audley Travel and Aspen Pumps.

Cash operating expenses were GBP109 million (2018: GBP115 million), which is lower than the GBP126 million (2018: GBP121 million) of operating expenses recognised in the Consolidated statement of comprehensive income as a result of share based payments and other non-cash expenses such as depreciation and amortisation.

Table 14: Unrealised profits on the revaluation of investments for the year to 31 March

 
                    2019   2018 
                    GBPm   GBPm 
Private Equity       916  1,080 
Infrastructure       162     83 
Corporate Assets       9      - 
-----------------  -----  ----- 
Total              1,087  1,163 
-----------------  -----  ----- 
 

Table 15: Operating cash profit for the year to 31 March

 
                                         2019   2018 
                                         GBPm   GBPm 
--------------------------------------  -----  ----- 
Cash fees from external funds              57     55 
Cash portfolio fees                        11     13 
Cash portfolio dividends and interest      87     58 
--------------------------------------  -----  ----- 
Cash income                               155    126 
--------------------------------------  -----  ----- 
Cash operating expenses                 (109)  (115) 
--------------------------------------  -----  ----- 
Operating cash profit                      46     11 
--------------------------------------  -----  ----- 
 

Carried interest and performance fees

We receive carried interest and performance fees from third-party funds. We also pay carried interest and performance fees to participants in plans relating to returns from investments. These are received and/or paid subject to meeting certain performance conditions. In Private Equity, we typically accrue net carried interest payable at between 10% and 12% of gross investment return.

The continued good performance of Action, the largest investment in our Private Equity fund, EFV, led to a GBP130 million increase in carried interest receivable from EFV (2018: GBP136 million). This was calculated assuming that the portfolio was realised at the 31 March 2019 valuation. The fund's gross multiple was 2.8x at 31 March 2019 (31 March 2018: 2.5x).

The majority of assets by value are now held in schemes that would have met their performance hurdles, assuming that the portfolio was realised at the 31 March 2019 valuation. The 2016-19 vintage is not yet through its performance hurdle, but is expected to meet it in FY2020, at which point we will accrue a catch up in carried interest payable on the returns to date. We accrued carried interest payable of GBP206 million (2018: GBP196 million) for Private Equity, of which GBP88 million relates to the Private Equity team's share of carried interest receivable from EFV (2018: GBP77 million).

Carried interest is paid to participants when the performance hurdles are passed in cash terms and then only when the cash proceeds have actually been received following a realisation, refinancing event or other cash distribution. Due to the length of time between investment and realisation, the schemes are usually active for a number of years and their participants are both current and previous employees of 3i. During the period, GBP77 million was paid to participants in the Private Equity plans (2018: GBP43 million).

3iN pays a performance fee based on 3iN's NAV on an annual basis, subject to a hurdle rate of return and a high watermark. The continued strong performance of the assets held by 3iN, including the significant uplift achieved on the sale of XLT, resulted in the recognition of GBP31 million (2018: GBP90 million) of performance fees receivable. The Infrastructure team receives a share of the performance fee received from 3iN, with the majority of payments deferred and expensed over a number of years. GBP14 million (2018: GBP9 million) was recognised as an expense during the year, relating to performance fees from both the current and previous years. The total potential payable relating to the FY2019 performance fee is GBP23 million, which together with the FY2018 performance fee, gave a remaining cumulative total potential payable for performance fees of GBP68 million.

Overall, the effect of the income statement charge, the cash movement, as well as the currency translation meant that the balance sheet carried interest and performance fees payable increased to GBP970 million (31 March 2018: GBP870 million) and the receivable increased to GBP640 million (31 March 2018: GBP596 million).

Table 16: Carried interest and performance fees for the year to 31 March

 
                                                    2019   2018 
Statement of comprehensive income                   GBPm   GBPm 
-------------------------------------------------  -----  ----- 
Carried interest and performance fees receivable 
Private Equity                                       128    138 
Infrastructure                                        31     90 
-------------------------------------------------  -----  ----- 
Total                                                159    228 
-------------------------------------------------  -----  ----- 
Carried interest and performance fees payable 
Private Equity                                     (206)  (196) 
Infrastructure                                      (14)    (9) 
-------------------------------------------------  -----  ----- 
Total                                              (220)  (205) 
-------------------------------------------------  -----  ----- 
Net carried interest (payable)/receivable           (61)     23 
-------------------------------------------------  -----  ----- 
 

Table 17: Carried interest and performance fees at 31 March

 
                                                    2019   2018 
Statement of financial position                     GBPm   GBPm 
-------------------------------------------------  -----  ----- 
Carried interest and performance fees receivable 
Private Equity                                       609    505 
Infrastructure                                        31     90 
Other                                                  -      1 
-------------------------------------------------  -----  ----- 
Total                                                640    596 
-------------------------------------------------  -----  ----- 
Carried interest and performance fees payable 
Private Equity                                     (942)  (839) 
Infrastructure                                      (28)   (31) 
-------------------------------------------------  -----  ----- 
Total                                              (970)  (870) 
-------------------------------------------------  -----  ----- 
 

Impact of IFRS 15 on the recognition of carried interest receivable

The IFRS 15 revenue recognition standard became applicable to 3i from 1 April 2018. Carried interest receivable is the only material balance within the scope of the standard. Our calculation of carried interest, being the amount expected if all of the underlying investments were realised at their fair value at the balance sheet date, remains unchanged. IFRS 15 introduces the concept that variable revenue can only be recognised to the extent that it is highly probable that a significant reversal will not occur. IFRS 15 requires us to consider if there are any specific constraints to our income recognition. The factors that 3i considers when making its judgement include the remaining duration of the fund, the current position in relation to the cash hurdle, the remaining assets in the fund and the potential for clawback.

The substantial majority of 3i's carried interest receivable is due from EFV, which has been extended to November 2019, when we expect the fund to come to an end and to have a significant liquidity event. At 31 March 2019, there were only two remaining investments in the fund: Action and Christ (31 March 2018: four). At 31 March 2019, EFV investments had generated proceeds of EUR3.7 billion and the fund was over 85% of the way towards meeting its cash hurdle. Given the relative size of Christ, the actual payment of carried interest receivable is dependent on the performance of Action. At 31 March 2019, EFV's investment in Action was valued at EUR2,439 million (31 March 2018: EUR1,815 million). Given the strong performance of Action and its expected growth profile, and consistent with our investment strategy for and valuation of the asset, we have concluded that IFRS 15 does not have an impact on our recognition of carried interest receivable at 31 March 2019.

As at 31 March 2019, the carried interest receivable accrued on 3i's balance sheet from EFV was GBP602 million (31 March 2018: GBP484 million), with a corresponding GBP413 million (31 March 2018: GBP334 million) accrued as payable to the carry plan participants. The overall net impact from EFV carried interest is GBP189 million (31 March 2018: GBP150 million) or 19 pence per share (2018: 15 pence per share).

As the Group has no plans to raise a third-party fund in Private Equity in the medium term, the Group is not expected to receive material amounts of carried interest receivable from Private Equity after the closure of EFV.

Net foreign exchange movements

At 31 March 2019, 77% of the Group's net assets were denominated in euros or US dollars (31 March 2018: 77%). Following the strengthening of sterling against the euro, partially offset by the weakening of sterling against the US dollar, the Group recorded a total net foreign exchange loss, before the movement in the fair value of hedging derivatives, of GBP21 million (2018: GBP16 million loss) in the year.

The Group's general policy remains not to hedge its foreign currency denominated portfolio. Where possible, flows from currency realisations are matched with currency investments. Short-term derivative contracts are used occasionally to manage transaction cash flows. However, in January 2019, we completed a hedging programme to help mitigate the foreign exchange translation risk on our reinvestment in Scandlines. The reinvestment in Scandlines is a longer term hold with relatively predictable cash flows. As at 31 March 2019 the notional amount of the forward foreign exchange contracts relating to Scandlines held by the Group was EUR500 million and the movement in fair value of the derivatives was a GBP21 million gain.

The net foreign exchange loss also reflects the translation of non-portfolio net assets, including non-sterling cash held at the balance sheet date.

Table 18: Net assets and sensitivity by currency at 31 March 2019

 
                                             1% 
                                    sensitivity 
               FX rate   GBPm    %         GBPm 
-------------  -------  -----  ---  ----------- 
Sterling           n/a  1,657  21%          n/a 
Euro(1)         1.1608  4,966  63%           45 
US dollar       1.3034  1,098  14%           11 
Danish krona    8.6667    152   2%            1 
Other              n/a     36    -          n/a 
-------------  -------  -----  ---  ----------- 
 
 
 1   Sensitivity impact is net of derivatives. 
 

Table 19: Simplified consolidated balance sheet at 31 March

 
                                                    2019   2018 
Statement of financial position                     GBPm   GBPm 
-------------------------------------------------  -----  ----- 
Investment portfolio                               7,553  6,657 
Gross debt                                         (575)  (575) 
Cash and deposits                                  1,070  1,054 
-------------------------------------------------  -----  ----- 
Net cash                                             495    479 
-------------------------------------------------  -----  ----- 
Carried interest and performance fees receivable     640    596 
Carried interest and performance fees payable      (970)  (870) 
Other net assets                                     191    162 
-------------------------------------------------  -----  ----- 
Net assets                                         7,909  7,024 
-------------------------------------------------  -----  ----- 
Gearing1                                             nil    nil 
-------------------------------------------------  -----  ----- 
 
 
 1   Gearing is net debt as a percentage of net assets. 
 

Pension

During the year, the Trustees of the 3i Group Pension Plan ("the Plan") completed a buy-in transaction, which is a bulk annuity purchase that will partially reduce member longevity risk. This is the second buy-in completed by the Plan, following the first transaction in FY2017. It is expected to improve the actuarial funding position of the Plan, which in turn influences the requirement for future cash contributions by 3i. The next triennial funding valuation will be based on the Plan's position at 30 June 2019. On an IAS 19 basis, there was an GBP8 million re-measurement gain on the Group's UK pension scheme during the year (2018: GBP1 million), which is net of a GBP14 million accounting charge from the most recent buy-in transaction.

Tax

The affairs of the Group's parent company continue to be directed to allow it to operate in the UK as an approved investment trust company. An approved investment trust is a UK investment company which is required to meet certain conditions set out in the UK tax rules to obtain and maintain its tax status. This approval allows certain investment profits of the Company, broadly its capital profits, to be exempt from tax in the UK.

The Group recognised a corporate tax credit of GBP13 million for the year (2018: GBP26 million charge). The credit recognised this year arose from a partial reversal of the UK corporate tax charge included in last year's accounts due to the final tax for 2018 being less than estimated. The Group's overall UK tax position for the financial year is dependent on the finalisation of the tax returns of the various corporate and partnership entities in the UK group.

Balance sheet

Net cash increased to GBP495 million (31 March 2018: GBP479 million) as the Group remained a net divestor in FY2019. The investment portfolio value increased to GBP7,553 million at 31 March 2019 (31 March 2018: GBP6,657 million) with unrealised value growth of GBP1,087 million and cash investment offsetting the value of realisations in the year.

Further information on investments and realisations is included in the Private Equity, Infrastructure and Corporate Assets Business reviews.

Liquidity

Liquidity remained strong at GBP1,420million (31 March 2018: GBP1,404 million). Liquidity comprised cash and deposits of GBP1,070 million (31 March 2018: GBP1,054 million) and undrawn facilities of GBP350 million (31 March 2018: GBP350 million).

Dividend

The Board has recommended a second FY2019 dividend of 20.0 pence (2018: 22.0 pence). Subject to shareholder approval, the dividend will be paid to shareholders in July 2019 and takes the total dividend for the year to 35.0 pence (2018: 30.0 pence).

With net cash of GBP495 million and liquidity of over GBP1 billion at 31 March 2019, the Group is well positioned to fund the second FY2019 dividend of 20.0 pence.

Brexit outlook

The primary, direct risk of the UK's anticipated exit from the EU ("Brexit") relates to the Group's UK regulatory "passports" to conduct certain investment activities within the EU. In certain scenarios, including that of a "hard Brexit", it is likely that the Group would no longer have the benefit of these regulatory passports. Therefore we have implemented an alternative regulatory structure, which includes an AIFM in Luxembourg, which has taken over the operations of 3i's existing branches in France, Germany and the Netherlands from 1 April 2019. This new structure will enable 3i to continue its activities in Europe regardless of the form and timing of Brexit.

The direct impact of Brexit on 3i's investment portfolio is not expected to be material, due to the limited number of our portfolio companies that operate between the UK and the EU.

Key accounting judgements and estimates

A key judgement is the assessment required to determine the degree of control or influence the Group exercises and the form of any control to ensure that the financial treatment of investment entities is accurate. The introduction of IFRS 10 resulted in a number of intermediate holding companies being presented at fair value, which has led to reduced transparency of the underlying investment performance. As a result, the Group continues to present a non-GAAP Investment basis set of financial statements to ensure that the commentary in the Strategic report remains fair, balanced and understandable. The reconciliation of the Investment basis to IFRS is shown further on in this document.

In preparing these accounts, the key accounting estimates are the carrying value of our investment assets, which are stated at fair value, and the calculation of carried interest receivable and payable.

Given the importance of the valuation of investments, the Board has a separate Valuations Committee to review the valuation policy, process and application to individual investments. However, asset valuations for unquoted investments are inherently subjective, as they are made on the basis of assumptions which may not prove to be accurate. At 31 March 2019, 87% by value of the investment assets were unquoted (31 March 2018: 87%).

The valuation of the proprietary capital portfolio is a primary input into the carried interest payable and receivable balances, which are determined by reference to the valuation at 31 March 2019 and the underlying investment management agreements. A further key judgement is the extent to which the calculated carry receivable can be recognised, on the basis that it is highly probable that there will not be a significant reversal.

Investment basis

Consolidated statement of comprehensive income

for the year to 31 March

 
                                                                             2019                    2018 
                                                                             GBPm                    GBPm 
=============================================================  ==================  ====================== 
 Realised profits over value on the disposal of investments                   132                     207 
 Unrealised profits on the revaluation of investments                       1,087                   1,163 
 Portfolio income 
  Dividends                                                                    63                      41 
  Interest income from investment portfolio                                   113                     116 
  Fees receivable                                                               9                      14 
 Foreign exchange on investments                                             (18)                      11 
 Movement in the value of derivatives                                          21                       - 
=============================================================  ==================  ====================== 
 Gross investment return                                                    1,407                   1,552 
=============================================================  ==================  ====================== 
 Fees receivable from external funds                                           53                      57 
 Operating expenses                                                         (126)                   (121) 
 Interest received                                                              2                       2 
 Interest paid                                                               (36)                    (37) 
 Exchange movements                                                           (3)                    (27) 
 Other (expense)/income                                                       (2)                       2 
=============================================================  ==================  ====================== 
 Operating profit before carried interest                                   1,295                   1,428 
=============================================================  ==================  ====================== 
 Carried interest 
  Carried interest and performance fees receivable                            159                     228 
  Carried interest and performance fees payable                             (220)                   (205) 
 ============================================================  ==================  ====================== 
 Operating profit                                                           1,234                   1,451 
=============================================================  ==================  ====================== 
 Income taxes                                                                  13                    (26) 
=============================================================  ==================  ====================== 
 Profit for the year                                                        1,247                   1,425 
=============================================================  ==================  ====================== 
 Other comprehensive income 
  Re-measurements of defined benefit plans                                      5                       - 
 ============================================================  ==================  ====================== 
 Total comprehensive income for the year ("Total return")                   1,252                   1,425 
=============================================================  ==================  ====================== 
 

Consolidated statement of financial position

as at 31 March

 
                                                         2019      2018 
                                                         GBPm      GBPm 
===================================================  ========  ======== 
 Assets 
 Non-current assets 
 Investments 
  Quoted investments                                      998       851 
  Unquoted investments                                  6,555     5,806 
 ==================================================  ========  ======== 
 Investment portfolio                                   7,553     6,657 
===================================================  ========  ======== 
 Carried interest and performance fees receivable         605       503 
 Other non-current assets                                 117       113 
 Intangible assets                                         11        12 
 Retirement benefit surplus                               134       125 
 Property, plant and equipment                              4         4 
 Derivative financial instruments                          11         - 
===================================================  ========  ======== 
 Total non-current assets                               8,435     7,414 
===================================================  ========  ======== 
 Current assets 
 Carried interest and performance fees receivable          35        93 
 Other current assets                                      29        60 
 Current income taxes                                      12         3 
 Derivative financial instruments                           7         - 
 Deposits                                                  50         - 
 Cash and cash equivalents                              1,020     1,054 
===================================================  ========  ======== 
 Total current assets                                   1,153     1,210 
===================================================  ========  ======== 
 Total assets                                           9,588     8,624 
===================================================  ========  ======== 
 Liabilities 
 Non-current liabilities 
 Trade and other payables                                 (8)      (14) 
 Carried interest and performance fees payable          (926)     (764) 
 Loans and borrowings                                   (575)     (575) 
 Retirement benefit deficit                              (27)      (23) 
 Deferred income taxes                                    (1)       (3) 
 Provisions                                               (1)       (1) 
===================================================  ========  ======== 
 Total non-current liabilities                        (1,538)   (1,380) 
===================================================  ========  ======== 
 Current liabilities 
 Trade and other payables                                (95)     (101) 
 Carried interest and performance fees payable           (44)     (106) 
 Current income taxes                                     (1)      (12) 
 Provisions                                               (1)       (1) 
===================================================  ========  ======== 
 Total current liabilities                              (141)     (220) 
===================================================  ========  ======== 
 Total liabilities                                    (1,679)   (1,600) 
===================================================  ========  ======== 
 Net assets                                             7,909     7,024 
===================================================  ========  ======== 
 Equity 
 Issued capital                                           719       719 
 Share premium                                            787       786 
 Other reserves                                         6,445     5,545 
 Own shares                                              (42)      (26) 
===================================================  ========  ======== 
 Total equity                                           7,909     7,024 
===================================================  ========  ======== 
 

Consolidated cash flow statement

for the year to 31 March

 
                                                    2019    2018 
                                                    GBPm    GBPm 
================================================  ======  ====== 
 Cash flow from operating activities 
 Purchase of investments                           (859)   (827) 
 Proceeds from investments                         1,261   1,277 
 Net cash flow from derivatives                        3    (10) 
 Portfolio interest received                          26      17 
 Portfolio dividends received                         61      41 
 Portfolio fees received                              11      13 
 Fees received from external funds                    57      55 
 Carried interest and performance fees received      104       6 
 Carried interest and performance fees paid         (86)    (48) 
 Carried interest held in non-current assets         (9)    (27) 
 Operating expenses paid                           (109)   (115) 
 Co-investment loans (paid)/received                 (3)       3 
 Income taxes paid                                  (10)    (12) 
 Net cash flow from operating activities             447     373 
================================================  ======  ====== 
 Cash flow from financing activities 
 Issue of shares                                       1       1 
 Purchase of own shares                             (29)       - 
 Dividends paid                                    (358)   (255) 
 Interest received                                     2       2 
 Interest paid                                      (39)    (36) 
 Net cash flow from financing activities           (423)   (288) 
------------------------------------------------  ------  ------ 
 Cash flow from investing activities 
 Purchase of property, plant and equipment           (3)     (2) 
 Purchase of intangible assets                         -    (13) 
 Net cash flow from deposits                        (50)      41 
================================================  ======  ====== 
 Net cash flow from investing activities            (53)      26 
================================================  ======  ====== 
 Change in cash and cash equivalents                (29)     111 
================================================  ======  ====== 
 Cash and cash equivalents at the start of year    1,054     954 
 Effect of exchange rate fluctuations                (5)    (11) 
================================================  ======  ====== 
 Cash and cash equivalents at the end of year      1,020   1,054 
================================================  ======  ====== 
 

Background to Investment basis financial statements

The Group makes investments in portfolio companies directly, held by 3i Group plc, and indirectly, held through intermediate holding company and partnership structures ("Investment entity subsidiaries"). It also has other operational subsidiaries which provide services and other activities such as employment, regulatory activities, management and advice ("Trading subsidiaries"). The application of IFRS 10 requires us to fair value a number of intermediate holding companies that were previously consolidated line by line. This fair value approach, applied at the intermediate holding company level, effectively obscures the performance of our proprietary capital investments and associated transactions occurring in the intermediate holding companies.

The financial effect of the underlying portfolio companies and fee income, operating expenses and carried interest transactions occurring in Investment entity subsidiaries are aggregated into a single value. Other items which were previously eliminated on consolidation are now included separately.

To maintain transparency in our report and aid understanding we introduced separate non-GAAP "Investment basis" Statements of comprehensive income, financial position and cash flow in our 2014 Annual report and accounts. The Investment basis is an APM and the Strategic report is prepared using the Investment basis as we believe it provides a more understandable view of our performance. Total return and net assets are equal under the Investment basis and IFRS; the Investment basis is simply a "look through" of IFRS 10 to present the underlying performance.

Reconciliation of Investment basis and IFRS

A detailed reconciliation from the Investment basis to IFRS basis of the Consolidated statement of comprehensive income, Consolidated statement of financial position and Consolidated cash flow statement is shown below.

Reconciliation of Investment basis and IFRS

Reconciliation of consolidated statement of comprehensive income

for the year to 31 March

 
                                              Investment          IFRS     IFRS   Investment          IFRS      IFRS 
                                                   basis   adjustments    basis        basis   adjustments     basis 
                                                    2019          2019     2019         2018          2018      2018 
                                      Notes         GBPm          GBPm     GBPm         GBPm          GBPm      GBPm 
===================================  ======  ===========  ============  =======  ===========  ============  ======== 
 Realised profits over value on the 
  disposal 
  of investments                        1,2          132          (99)       33          207         (189)        18 
 Unrealised profits on the 
  revaluation of investments            1,2        1,087         (919)      168        1,163         (777)       386 
 Fair value movements on investment 
  entity subsidiaries                     1            -           827      827            -           848       848 
 Portfolio income 
  Dividends                             1,2           63          (37)       26           41          (12)        29 
  Interest income from investment 
   portfolio                            1,2          113          (80)       33          116          (90)        26 
  Fees receivable                       1,2            9             2       11           14             3        17 
 Foreign exchange on investments        1,3         (18)            35       17           11          (23)      (12) 
 Movement in the fair value of 
  derivatives                                         21             -       21            -             -         - 
===================================  ======  ===========  ============  =======  ===========  ============  ======== 
 Gross investment return                           1,407         (271)    1,136        1,552         (240)     1,312 
===================================  ======  ===========  ============  =======  ===========  ============  ======== 
 Fees receivable from external 
  funds                                               53             -       53           57             -        57 
 Operating expenses                       4        (126)             -    (126)        (121)             1     (120) 
 Interest received                        1            2             1        3            2             -         2 
 Interest paid                                      (36)             -     (36)         (37)             -      (37) 
 Exchange movements                     1,3          (3)          (24)     (27)         (27)            84        57 
 Other (expense)/income                              (2)             -      (2)            2             -         2 
 Income from investment entity 
  subsidiaries                            1            -            66       66            -            19        19 
===================================  ======  ===========  ============  =======  ===========  ============  ======== 
 Operating profit before carried 
  interest                                         1,295         (228)    1,067        1,428         (136)     1,292 
===================================  ======  ===========  ============  =======  ===========  ============  ======== 
 Carried interest 
  Carried interest and performance 
   fees receivable                      1,4          159             4      163          228             -       228 
  Carried interest and performance 
   fees payable                         1,4        (220)           220        -        (205)           173      (32) 
 ==================================  ======  ===========  ============  =======  ===========  ============  ======== 
 Operating profit                                  1,234           (4)    1,230        1,451            37     1,488 
===================================  ======  ===========  ============  =======  ===========  ============  ======== 
 Income taxes                           1,4           13           (1)       12         (26)             1      (25) 
===================================  ======  ===========  ============  =======  ===========  ============  ======== 
 Profit for the year                               1,247           (5)    1,242        1,425            38     1,463 
-----------------------------------  ------  -----------  ------------  -------  -----------  ------------  -------- 
 Other comprehensive 
 income/(expense) 
  Exchange differences on 
   translation of foreign 
   operations                           1,3            -             5        5            -          (38)      (38) 
  Re-measurements of defined 
   benefit plans                                       5             -        5            -             -         - 
 ==================================  ======  ===========  ============  =======  ===========  ============  ======== 
 Other comprehensive 
  income/(expense) 
  for the year                                         5             5       10            -          (38)      (38) 
===================================  ======  ===========  ============  =======  ===========  ============  ======== 
 Total comprehensive income for the 
  year 
  ("Total return")                                 1,252             -    1,252        1,425             -     1,425 
===================================  ======  ===========  ============  =======  ===========  ============  ======== 
 

The IFRS basis is audited and the Investment basis is unaudited.

Notes:

 
1  Applying IFRS 10 to the Consolidated statement of comprehensive income consolidates the line 
    items of a number of previously consolidated subsidiaries into a single line item "Fair value 
    movements on investment entity subsidiaries". In the "Investment basis" accounts we have disaggregated 
    these line items to analyse our total return as if these Investment entity subsidiaries were 
    fully consolidated, consistent with prior years. The adjustments simply reclassify the Consolidated 
    statement of comprehensive income of the Group, and the total return is equal under the Investment 
    basis and the IFRS basis. 
2  Realised profits, unrealised profits, and portfolio income shown in the IFRS accounts only 
    relate to portfolio companies that are held directly by 3i Group plc and not those portfolio 
    companies held through Investment entity subsidiaries. Realised profits, unrealised profits, 
    and portfolio income in relation to portfolio companies held through Investment entity subsidiaries 
    are aggregated into the single "Fair value movement on investment entity subsidiaries" line. 
    This is the most significant reduction of information in our IFRS accounts. 
3  Foreign exchange movements have been reclassified under the Investment basis as foreign currency 
    asset and liability movements. Movements within the Investment entity subsidiaries are included 
    within "Fair value movements on investment entities". 
4  Other items also aggregated into the "Fair value movements on investment entity subsidiaries" 
    line include fees receivable from external funds, audit fees, administration expenses, carried 
    interest and tax. 
 

Reconciliation of consolidated statement of financial position

as at 31 March

 
                                                 Investment          IFRS    IFRS   Investment          IFRS    IFRS 
                                                      basis   adjustments   basis        basis   adjustments   basis 
                                                       2019          2019    2019         2018          2018    2018 
                                         Notes         GBPm          GBPm    GBPm         GBPm          GBPm    GBPm 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Assets 
 Non-current assets 
 Investments 
  Quoted investments                         1          998         (529)     469          851         (506)     345 
  Unquoted investments                       1        6,555       (5,362)   1,193        5,806       (4,055)   1,751 
 Investments in investment entity 
  subsidiaries                             1,2            -         5,159   5,159            -         4,034   4,034 
--------------------------------------  ------  -----------  ------------  ------  -----------  ------------  ------ 
 Investment portfolio                                 7,553         (732)   6,821        6,657         (527)   6,130 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Carried interest and performance fees 
  receivable                                 1          605             -     605          503           (5)     498 
 Other non-current assets                               117          (93)      24          113          (85)      28 
 Intangible assets                                       11             -      11           12             -      12 
 Retirement benefit surplus                             134             -     134          125             -     125 
 Property, plant and equipment                            4             -       4            4             -       4 
 Derivative financial instruments                        11             -      11            -             -       - 
--------------------------------------  ------  -----------  ------------  ------  -----------  ------------  ------ 
 Total non-current assets                             8,435         (825)   7,610        7,414         (617)   6,797 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Current assets 
 Carried interest and performance fees 
  receivable                                 1           35             -      35           93             -      93 
 Other current assets                        1           29           (5)      24           60          (26)      34 
 Current income taxes                                    12             -      12            3             -       3 
 Derivative financial instruments                         7             -       7            -             -       - 
 Deposits                                                50             -      50            -             -       - 
 Cash and cash equivalents                   1        1,020          (37)     983        1,054          (82)     972 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Total current assets                                 1,153          (42)   1,111        1,210         (108)   1,102 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Total assets                                         9,588         (867)   8,721        8,624         (725)   7,899 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Liabilities 
 Non-current liabilities 
 Trade and other payables                    1          (8)             7     (1)         (14)            13     (1) 
 Carried interest and performance fees 
  payable                                    1        (926)           840    (86)        (764)           659   (105) 
 Loans and borrowings                                 (575)             -   (575)        (575)             -   (575) 
 Retirement benefit deficit                            (27)             -    (27)         (23)             -    (23) 
 Deferred income taxes                                  (1)             -     (1)          (3)             -     (3) 
 Provisions                                             (1)             -     (1)          (1)             -     (1) 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Total non-current liabilities                      (1,538)           847   (691)      (1,380)           672   (708) 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Current liabilities 
 Trade and other payables                    1         (95)             1    (94)        (101)             1   (100) 
 Carried interest and performance fees 
  payable                                    1         (44)            19    (25)        (106)            51    (55) 
 Current income taxes                                   (1)             -     (1)         (12)             1    (11) 
 Provisions                                             (1)             -     (1)          (1)             -     (1) 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Total current liabilities                            (141)            20   (121)        (220)            53   (167) 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Total liabilities                                  (1,679)           867   (812)      (1,600)           725   (875) 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Net assets                                           7,909             -   7,909        7,024             -   7,024 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Equity 
 Issued capital                                         719             -     719          719             -     719 
 Share premium                                          787             -     787          786             -     786 
 Other reserves                              3        6,445             -   6,445        5,545             -   5,545 
 Own shares                                            (42)             -    (42)         (26)             -    (26) 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 Total equity                                         7,909             -   7,909        7,024             -   7,024 
======================================  ======  ===========  ============  ======  ===========  ============  ====== 
 

The IFRS basis is audited and the Investment basis is unaudited.

Notes:

 
1  Applying IFRS 10 to the Consolidated statement of financial position aggregates the line items 
    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 for 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

for the year to 31 March

 
                                                  Investment          IFRS     IFRS   Investment          IFRS    IFRS 
                                                       basis   adjustments    basis        basis   adjustments   basis 
                                                        2019          2019     2019         2018          2018    2018 
                                          Notes         GBPm          GBPm     GBPm         GBPm          GBPm    GBPm 
=======================================  ======  ===========  ============  =======  ===========  ============  ====== 
 Cash flow from operating activities 
 Purchase of investments                      1        (859)           734    (125)        (827)           357   (470) 
 Proceeds from investments                    1        1,261         (435)      826        1,277         (863)     414 
 Cash (outflow)/inflow from investment 
  entity subsidiaries                         1            -         (264)    (264)            -           430     430 
 Net cash flow from derivatives                            3             -        3         (10)             -    (10) 
 Portfolio interest received                  1           26          (20)        6           17          (13)       4 
 Portfolio dividends received                 1           61          (37)       24           41          (12)      29 
 Portfolio fees received                      1           11             1       12           13             -      13 
 Fees received from external funds                        57             -       57           55             -      55 
 Carried interest and performance fees 
  received                                    1          104           (2)      102            6             -       6 
 Carried interest and performance fees 
  paid                                        1         (86)            48     (38)         (48)             8    (40) 
 Carried interest held in non-current 
  assets                                      1          (9)             9        -         (27)            27       - 
 Operating expenses paid                      1        (109)             -    (109)        (115)             1   (114) 
 Co-investment loans (paid)/received          1          (3)             7        4            3             2       5 
 Income taxes paid                            1         (10)             -     (10)         (12)             2    (10) 
 Net cash flow from operating 
  activities                                             447            41      488          373          (61)     312 
=======================================  ======  ===========  ============  =======  ===========  ============  ====== 
 Cash flow from financing activities 
 Issue of shares                                           1             -        1            1             -       1 
 Purchase of own shares                                 (29)             -     (29)            -             -       - 
 Dividends paid                                        (358)             -    (358)        (255)             -   (255) 
 Interest received                                         2             -        2            2             -       2 
 Interest paid                                          (39)             -     (39)         (36)             -    (36) 
 Net cash flow from financing 
  activities                                           (423)             -    (423)        (288)             -   (288) 
=======================================  ======  ===========  ============  =======  ===========  ============  ====== 
 Cash flow from investing activities 
 Purchase of property, plant and 
  equipment                                              (3)             -      (3)          (2)             -     (2) 
 Purchase of intangible assets                             -             -        -         (13)             -    (13) 
 Net cash flow from deposits                            (50)             -     (50)           41             -      41 
=======================================  ======  ===========  ============  =======  ===========  ============  ====== 
 Net cash flow from investing 
  activities                                            (53)             -     (53)           26             -      26 
=======================================  ======  ===========  ============  =======  ===========  ============  ====== 
 Change in cash and cash equivalents          2         (29)            41       12          111          (61)      50 
=======================================  ======  ===========  ============  =======  ===========  ============  ====== 
 Cash and cash equivalents at the start 
  of year                                     2        1,054          (82)      972          954          (23)     931 
 Effect of exchange rate fluctuations         1          (5)             4      (1)         (11)             2     (9) 
=======================================  ======  ===========  ============  =======  ===========  ============  ====== 
 Cash and cash equivalents at the end 
  of year                                     2        1,020          (37)      983        1,054          (82)     972 
=======================================  ======  ===========  ============  =======  ===========  ============  ====== 
 

The IFRS basis is audited and the Investment basis is unaudited.

Notes:

 
1  The Consolidated cash flow statement is impacted by the application of IFRS 10 as cash flows 
    to and from Investment entity subsidiaries are disclosed, rather than the cash flows to and 
    from the underlying portfolio. Therefore in our Investment basis financial statements, we 
    have disclosed our cash flow statement on a "look through" basis, in order to reflect the 
    underlying sources and uses of cash flows and disclose the underlying investment activity. 
2  There is a difference between the change in cash and cash equivalents of the Investment basis 
    financial statements and the IFRS financial statements because there are cash balances held 
    in Investment entity subsidiaries. Cash held within Investment entity subsidiaries will not 
    be shown in the IFRS statements but will be seen in the Investment basis statements. 
 

Alternative Performance Measures ("APMs")

We assess our performance using a variety of measures that are not specifically defined under IFRS and are therefore termed APMs.

The APMs that we use may not be directly comparable with those used by other companies. Our Investment basis is itself an APM.

The explanation of and rationale for the Investment basis and its reconciliation to IFRS is provided above.

The table below defines our additional APMs.

 
 APM                 Purpose                     Calculation                      Reconciliation to IFRS 
==================  ==========================  ===============================  =============================== 
 Gross investment    A measure of the            It is calculated as              The equivalent balances 
  return as           performance of              the gross investment             under IFRS and the 
  a percentage        our proprietary             return, as shown in              reconciliation to the 
  of opening          investment portfolio.       the Investment basis             Investment basis are 
  portfolio                                       Consolidated statement           shown in the Reconciliation 
  value               For further information,    of comprehensive income,         of the consolidated 
                      see the Group KPIs          as a % of the opening            statement of comprehensive 
                      in our Annual report        portfolio value.                 income and the Reconciliation 
                      and accounts 2019.                                           of the consolidated 
                                                                                   statement of financial 
                                                                                   position respectively. 
==================  ==========================  ===============================  =============================== 
 Cash realisations   Cash proceeds from          The cash received from           The equivalent balance 
                      our investments             the disposal of investments      under IFRS and the 
                      support our returns         in the year as shown             reconciliation to the 
                      to shareholders,            in the Investment basis          Investment basis is 
                      as well as our              Consolidated cash flow           shown in the Reconciliation 
                      ability to invest           statement.                       of the consolidated 
                      in new opportunities.                                        cash flow statement. 
 
                      For further information, 
                      see the Group KPIs 
                      in our Annual report 
                      and accounts 2019. 
==================  ==========================  ===============================  =============================== 
 Cash investment     Identifying new             The cash paid to acquire         The equivalent balance 
                      opportunities in            investments in the               under IFRS and the 
                      which to invest             year as shown on the             reconciliation to the 
                      proprietary capital         Investment basis Consolidated    Investment basis is 
                      is the primary              cash flow statement.             shown in the Reconciliation 
                      driver of the Group's                                        of the consolidated 
                      ability to deliver                                           cash flow statement. 
                      attractive returns. 
 
                      For further information, 
                      see the Group KPIs 
                      in our Annual report 
                      and accounts 2019. 
==================  ==========================  ===============================  =============================== 
 Operating           By covering the             The cash income from             The equivalent balance 
  cash profit         cash cost of running        the portfolio (interest,         under IFRS and the 
                      the business with           dividends and fees)              reconciliation to the 
                      cash income, we             together with fees               Investment basis is 
                      reduce the potential        received from external           shown in the Reconciliation 
                      dilution of capital         funds less cash operating        of the consolidated 
                      returns.                    expenses as shown on             cash flow statement. 
                                                  the Investment basis 
                                                  Consolidated cash flow 
                                                  statement. The calculation 
                                                  is shown in Table 15 
                                                  of the Financial review. 
==================  ==========================  ===============================  =============================== 
 Net cash/net        A measure of the            Cash and cash equivalents        The equivalent balance 
  (debt)              available cash              plus deposits less               under IFRS and the 
                      to invest in the            loans and borrowings             reconciliation to the 
                      business and an             as shown on the Investment       Investment basis is 
                      indicator of the            basis Consolidated               shown in the Reconciliation 
                      financial risk              statement of financial           of the consolidated 
                      in the Group's              position.                        statement of financial 
                      balance sheet.                                               position. 
==================  ==========================  ===============================  =============================== 
 Gearing             A measure of the            Net debt (as defined             The equivalent balance 
                      financial risk              above) as a % of the             under IFRS and the 
                      in the Group's              Group's net assets               reconciliation to the 
                      balance sheet.              under the Investment             Investment basis is 
                                                  basis. It cannot be              shown in the Reconciliation 
                                                  less than zero.                  of the consolidated 
                                                                                   statement of financial 
                                                                                   position. 
==================  ==========================  ===============================  =============================== 
 

Risk management

Effective risk management underpins the successful delivery of our strategy. Integrity, rigour and accountability are central to our values and culture at 3i and are embedded in our approach to risk management.

Understanding our risk appetite and culture

As both an investor and asset manager, 3i is in the business of taking risks in order to seek to achieve its targeted returns for fund investors and shareholders. The Board approves the strategic objectives that determine the level and types of risk that 3i is prepared to accept. The Board reviews 3i's strategic objectives and risk appetite at least annually. The Group's risk management framework is designed to support the delivery of the Group's strategic objectives.

3i's risk appetite policy, which is consistent with previous years, is built on rigorous and comprehensive investment procedures and conservative capital management.

Culture

Integrity, rigour and accountability are central to our values and culture and are embedded in our approach to risk management. Our Investment Committee, which has oversight of the investment pipeline development and approves new investments, significant portfolio changes and divestments, is integral to ensuring a consistent approach across the business. It ensures compliance with 3i's financial and strategic requirements, cultural values and appropriate investment behaviours. Members of the Executive Committee have responsibility for their own business or functional areas and the Group expects individual behaviours to meet its high standards of conduct. All employees share the responsibility for upholding 3i's strong control culture and supporting effective risk management. Senior managers, typically those who report to Executive Committee members, are required to confirm their individual and business area compliance annually. In addition, all staff are assessed on how they demonstrate 3i's values as part of their annual appraisal. Finally, our Remuneration Committee is responsible for ensuring the Group's remuneration culture is weighted towards variable compensation where reward is strictly dependent on performance.

The following sections explain how we control and manage the risks in our business. They outline the key risks, our assessment of their potential impact on our business in the context of the current environment and how we seek to mitigate them.

Approach to risk governance

The Board is responsible for risk assessment, the risk management process and for the protection of the Group's reputation and brand integrity. It considers the most significant risks facing the Group and uses quantitative analyses, such as vintage controls which consider the portfolio concentration by geography and sector, and liquidity reporting, where appropriate.

Non-executive oversight is also exercised through the Audit and Compliance Committee which focuses on upholding standards of integrity, financial reporting, risk management, going concern and internal control. The Audit and Compliance Committee's activities are discussed further in the Audit and Compliance Committee report in our Annual report and accounts 2019.

The Board has delegated the responsibility for risk oversight to the Chief Executive. He is assisted by the Group Risk Committee ("GRC") in managing this responsibility, and guided by the Board's appetite for risk and any specific limits set. The GRC maintains the Group risk review, which summarises the Group's principal risks, associated mitigating actions and key risk indicators, and identifies any changes to the Group's risk profile. The review also incorporates a watch list of new and emerging risks for monitoring purposes. The risk review takes place four times a year, with the last review in May 2019, and the Chief Executive provides updates to each Audit and Compliance Committee meeting. Investment Committee ensures a consistent approach to investment processes across the business.

In addition to the above, a number of other Board and Executive Committee members contribute to the Group's overall risk governance structure.

Risk appetite

Our risk appetite is defined by our strategic objectives. We invest capital in businesses that will deliver capital returns and portfolio and fund management cash income to cover our costs, and increase returns to our investors.

Investment risk

The substantial majority of the Group's capital is invested in Private Equity. Before the Group commits to an investment, we assess the Private Equity opportunity using the following criteria:

-- return objective: individually assessed and subject to a minimum target of a 2x money multiple over four to five years;

   --      geographic focus: operate within our core markets of northern Europe and North America; 

-- sector expertise: focus on Business and Technology Services, Consumer, Industrial and Healthcare; and

-- vintage: invest up to GBP750 million per annum in four to seven new investments in companies with an enterprise value range of EUR100 million to EUR500 million at investment.

Investments made by 3iN need to be consistent with 3iN's overall return target of 8% to 10% over the medium term and generate a mix of capital and income returns. Other Infrastructure investments made by the Group should be capable of delivering capital growth and fund management fees which together generate mid-teen returns.

On occasion, the Group may conclude that it is in the interest of shareholders, and consistent with our strategic objectives, to hold a Private Equity investment for a longer period. Such an investment may be managed outside the Private Equity or Infrastructure businesses. The only investment currently in this "Corporate Assets" category is Scandlines.

Capital management

3i adopts a conservative approach to managing its capital resources as follows:

-- there is no appetite for structural gearing at the Group level, but short-term tactical gearing will be used;

-- the Group generally does not hedge its currency exposure for its Private Equity and Infrastructure assets but it does match currency realisations with investments, where possible, and may take out short-term hedges occasionally to hedge investments and realisations between signing and completion;

-- if appropriate, with due consideration of any associated liquidity risk, the Group will hedge a portion of its currency exposure on its longer term investments, such as Scandlines; and

-- we have limited appetite for the dilution of capital returns as a result of operating and interest expenses. All of our business lines generate cash income to mitigate this risk.

3i Group's Pillar 3 document can be found at www.3i.com

The risk framework is augmented by a separate Risk Management Function which has specific responsibilities under the FCA's Investment Funds Sourcebook. It meets ahead of the GRC meetings to consider the key risks impacting the Group, and any changes in the relevant period where appropriate. It also considers the separate risk reports for each Alternative Investment Fund ("AIF") managed by the Group, including areas such as portfolio composition, portfolio valuation, operational updates and team changes, which are then considered by the GRC.

In practice, the Group operates a "three lines of defence" framework for managing and identifying risk. The first line of defence against outcomes outside our risk appetite is constituted by our business functions themselves.

Line management is supported by oversight and control functions such as Finance, Human Resources and Legal which constitute the second line of defence. The Compliance function is also in the second line of defence; its duties include reviewing the effective operation of our processes in meeting regulatory requirements.

Internal Audit provides independent assurance over the operation of controls and is the third line of defence. The internal audit programme includes the review of risk management processes and recommendations to improve the internal control environment.

Role of Group Risk Committee in risk management

The quarterly Group risk review process includes the monitoring of key strategic and financial metrics (such as KPIs) considered to be indicators of potential changes in the Group's risk profile. The GRC uses these to identify its principal risks. It then evaluates the impact and likelihood of each risk, with reference to associated measures and KPIs. The adequacy of the mitigation plans is then assessed and, if necessary, additional actions are agreed and then reviewed at the subsequent meeting.

A number of focus topics are also agreed in advance of each meeting. In FY2019, the GRC covered the following:

   --      an update on the Group's implementation of Brexit readiness plans; 

-- semi-annual updates on Environmental, Social, business integrity and corporate Governance ("ESG") issues and themes, especially with respect to the Group's portfolio companies;

-- an update on the key themes, risks and trends from the Group's succession planning and capability review;

-- a review of the Group's stress tests to support its Internal Capital Adequacy Assessment Process ("ICAAP") and

Viability statement;

   --      a review of the Group's IT framework including cyber security and business resilience; 
   --      an update on the Group's business continuity and resilience planning and testing; and 
   --      the proposed risk disclosures in the 2019 Annual report and accounts. 

There were no significant changes to the GRC's approach to risk governance or its operation in FY2019 but we continued to refine our framework for risk management where appropriate.

Role of Investment Committee in risk management

Our Investment Committee is fundamental to the management of investment risk. The Investment Committee is involved in and approves every material step of the investment and realisation process.

The investment case presented at the outset of our investment consideration process includes the expected benefit of operational improvements, growth initiatives and M&A activity that will be driven by our investment professionals together with the portfolio company's management team. It will also include a view on the likely exit strategy and timing.

The execution of this investment case is closely monitored:

-- our monthly portfolio monitoring reviews assess current performance against budget, prior year and a set of traffic light indicators and bespoke, forward looking KPIs; and

-- we hold semi-annual reviews of all our assets. We focus on the longer-term performance and plan for the investment compared to the original investment case, together with any strategic developments, sustainability risks and opportunities, and market outlook.

The monthly portfolio monitoring reviews and the semi-annual reviews are attended by the Investment Committee and the senior members of the investment teams.

Finally, we recognise the need to plan and execute a successful exit at the optimum time for the portfolio company's development, taking consideration of market conditions. This risk is closely linked to the external economic environment. Exit plans are refreshed where appropriate in the semi-annual portfolio reviews and the divestment process is clearly defined and overseen by the Investment Committee.

Individual portfolio company underperformance could have adverse reputational consequences for the Group, even though the value impact may not be material. We review our internal processes and investment decisions in light of actual outcomes on an ongoing basis.

Further details on 3i's approach as a responsible investor are available at www.3i.com

Principal risks and mitigations - aligning risk to our

strategic objectives

Business and risk environment in FY2019

Although global political instability, economic uncertainty and volatile market conditions have continued throughout FY2019, there has been no significant change to our risk management approach.

The Directors have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. We define our principal risks as those that have the potential to impact the delivery of our strategic objectives materially. We also maintain a log of risks which includes new and emerging risks which may have the potential to become principal risks but are not yet considered to be so. This is called our "watch list". These risks are regularly reviewed to determine if they have the potential to impact the delivery of our strategy. In the year, none of our watch list risks were considered sufficiently material to be classified as a principal risk.

External

External risks are the risks to our business which are usually outside of our direct control such as political, economic, environmental, social, regulatory and competitor risks. In FY2019, we saw continued market volatility and a slow-down in economic growth. The combination of trade tensions between the US and China and Brexit concerns has weighed on investor sentiment. We concluded that these risks were not currently material to the overall performance of our portfolio but we will continue to monitor developments closely.

In preparation for the UK's anticipated exit from the EU, we have considered the possible risks that this will pose to the Group's business model and financial performance.

The primary, direct risk relates to the Group's UK regulatory "passports" to conduct certain investment activities within the EU. In certain scenarios, it is likely that the Group would no longer have the benefit of these regulatory passports. Therefore we have implemented an alternative regulatory structure, which includes an AIFM in Luxembourg, which now manages 3i's existing branches in France, Germany and the Netherlands. Our AIFM in Luxembourg has been established since April 2018 and the new branch structure became operational from 1 April 2019. Currently 66% of our portfolio is invested in northern Europe and this new structure will enable 3i to continue the Group's activities in Europe following the UK's anticipated exit from the EU.

The direct impact of Brexit on 3i's investment portfolio is not expected to be material, due to the limited number of our portfolio companies that operate between the UK and the EU. However, as described above, the broader macro-economic environment continues to be closely monitored.

Investment

Our overarching objective is to source attractive investment opportunities at the right price and execute our investment plans successfully.

As part of our portfolio monitoring, all of our new investments in the year were subject to rigorous review, including performance against a 180-day plan. We continued to monitor the portfolio actively, and held additional reviews for the small number of Private Equity assets where operational improvements and reorganisation were particularly intense. Investment teams are responsible for origination and asset management and are rewarded with performance-based remuneration.

Operational

Attracting and retaining key people is our most significant potential operational risk. Our Remuneration Committee ensures that our variable compensation schemes are in line with market practice. Carried interest is an important incentive and rewards cash-to-cash returns.

In addition, detailed succession plans are in place for each division. The Board last completed its annual review of the Group's organisational capability and succession plans in September 2018. The success of the Group since the 2012 restructuring has led to very modest 8% levels of staff turnover.

Since last year, the risk in relation to the new Infrastructure business initiatives has decreased and is no longer considered as a principal risk in view of the progress made to date. We continued to enhance our cyber security management and reporting, and engaged an external firm to provide a dedicated Chief Information Security Officer service. Due to the nature of our business, cyber security is not considered a principal risk but is included on our watch list in the Group risk review, which remains under regular review by the GRC and Audit and Compliance Committee.

Outlook

Competition for the best assets in our sectors remains intense, with an environment of high prices requiring a disciplined approach to investment. Although there are challenges in the industry, we remain focused on a clear and consistent strategy and a disciplined approach to investment.

Viability statement

The Directors have assessed 3i's viability over a three-year period to March 2022. 3i conducts its strategic planning over a five-year period; this statement is based on the first three years, which provides more certainty over the forecasting assumptions used. 3i's strategic plan, ICAAP and associated principal risks (as set out in our Annual report and accounts 2019) are the foundation of the Directors' assessment.

The assessment is overseen by the Group Finance Director and is subject to challenge by the Group Risk Committee, review by the Audit and Compliance Committee and approval by the Board.

Our Group strategic plan projects the performance, net asset value and liquidity of 3i over a five-year period and is presented at the Directors' annual strategy away day and updated throughout the year as appropriate. At the strategy away day, the Directors consider the strategy and opportunities for, and threats to, each business line and the Group as a whole. The outcome of those discussions is included in the next iteration of the strategic plan which is then used to support the viability assessment.

The Group's ICAAP and viability testing considers multiple severe, yet plausible, individual and combined stress scenarios. They include a severe downside economic scenario and the impact of a material single asset event. The severe downside assumes that the global economy enters a severe recession; global equities fall and long-term interest rates reach new lows. The material single asset event considers the impact of a significant asset experiencing a severe downturn in performance.

We project the amount of capital we need in the business to cover our risks, including financial and operational risks, under such stress scenarios. Our analysis shows that, while there may be a significant impact on the Group's reported performance in the short term under these scenarios, the resilience and quality of our balance sheet is such that solvency is maintained and our business remains viable.

Taking the inputs from the strategic planning process, the ICAAP and its stress scenarios, the Directors reviewed an assessment of the potential effects of 3i's principal risks on its current portfolio and forecast investment and realisation activity, and the consequent impact on 3i's capital and liquidity.

Based on this assessment, the Directors have a reasonable expectation that the Company and the Group will be able to continue in operation and meet all their liabilities as they fall due up to at least March 2022.

Audited financial statements

Consolidated statement of comprehensive income

for the year to 31 March

 
                                                                                  2019    2018 
                                                                        Notes     GBPm    GBPm 
====================================================================  =======  =======  ====== 
 Realised profits over value on the disposal of investments                         33      18 
 Unrealised profits on the revaluation of investments                              168     386 
 Fair value movements on investment entity subsidiaries                            827     848 
 Portfolio income 
  Dividends                                                                         26      29 
  Interest income from investment portfolio                                         33      26 
  Fees receivable                                                                   11      17 
 Foreign exchange on investments                                                    17    (12) 
 Movement in the fair value of derivatives                                          21       - 
====================================================================  =======  =======  ====== 
 Gross investment return                                                         1,136   1,312 
 Fees receivable from external funds                                                53      57 
 Operating expenses                                                              (126)   (120) 
 Interest received                                                                   3       2 
 Interest paid                                                                    (36)    (37) 
 Exchange movements                                                               (27)      57 
 Income from investment entity subsidiaries                                         66      19 
 Other (expense)/income                                                            (2)       2 
 Carried interest 
  Carried interest and performance fees receivable                                 163     228 
  Carried interest and performance fees payable                                      -    (32) 
 ===================================================================  =======  =======  ====== 
 Operating profit before tax                                                     1,230   1,488 
 Income taxes                                                               2       12    (25) 
====================================================================  =======  =======  ====== 
 Profit for the year                                                             1,242   1,463 
====================================================================  =======  =======  ====== 
 
 Other comprehensive income/(expense) that may be reclassified to the income statement 
  Exchange differences on translation of foreign operations                          5    (38) 
 Other comprehensive income that will not be reclassified to the income statement 
  Re-measurements of defined benefit plans                                           5       - 
 ===================================================================  =======  =======  ====== 
 Other comprehensive income/(expense) for the year                                  10    (38) 
====================================================================  =======  =======  ====== 
 Total comprehensive income for the year ("Total return")                        1,252   1,425 
====================================================================  =======  =======  ====== 
 
 Earnings per share 
  Basic (pence)                                                                  128.3   151.7 
  Diluted (pence)                                                                127.8   151.0 
 ===================================================================  =======  =======  ====== 
 

The Notes to the accounts section forms an integral part of these financial statements.

Consolidated statement of financial position

as at 31 March

 
                                                               2019    2018 
                                                      Notes    GBPm    GBPm 
===================================================  ======  ======  ====== 
 Assets 
 Non-current assets 
 Investments 
  Quoted investments                                            469     345 
  Unquoted investments                                        1,193   1,751 
 Investments in investment entity subsidiaries                5,159   4,034 
---------------------------------------------------  ------  ------  ------ 
 Investment portfolio                                         6,821   6,130 
---------------------------------------------------  ------  ------  ------ 
 Carried interest and performance fees receivable               605     498 
 Other non-current assets                                        24      28 
 Intangible assets                                               11      12 
 Retirement benefit surplus                                     134     125 
 Property, plant and equipment                                    4       4 
 Derivative financial instruments                                11       - 
===================================================  ======  ======  ====== 
 Total non-current assets                                     7,610   6,797 
===========================================================  ======  ====== 
 Current assets 
 Carried interest and performance fees receivable                35      93 
 Other current assets                                            24      34 
 Current income taxes                                            12       3 
 Derivative financial instruments                                 7       - 
 Deposits                                                        50       - 
 Cash and cash equivalents                                      983     972 
===========================================================  ======  ====== 
 Total current assets                                         1,111   1,102 
===========================================================  ======  ====== 
 Total assets                                                 8,721   7,899 
===========================================================  ======  ====== 
 Liabilities 
 Non-current liabilities 
 Trade and other payables                                       (1)     (1) 
 Carried interest and performance fees payable                 (86)   (105) 
 Loans and borrowings                                     6   (575)   (575) 
 Retirement benefit deficit                                    (27)    (23) 
 Deferred income taxes                                    2     (1)     (3) 
 Provisions                                                     (1)     (1) 
===================================================  ======  ======  ====== 
 Total non-current liabilities                                (691)   (708) 
===========================================================  ======  ====== 
 Current liabilities 
 Trade and other payables                                      (94)   (100) 
 Carried interest and performance fees payable                 (25)    (55) 
 Current income taxes                                           (1)    (11) 
 Provisions                                                     (1)     (1) 
===================================================  ======  ======  ====== 
 Total current liabilities                                    (121)   (167) 
===========================================================  ======  ====== 
 Total liabilities                                            (812)   (875) 
===========================================================  ======  ====== 
 Net assets                                                   7,909   7,024 
===========================================================  ======  ====== 
 Equity 
 Issued capital                                                 719     719 
 Share premium                                                  787     786 
 Capital redemption reserve                                      43      43 
 Share-based payment reserve                                     36      32 
 Translation reserve                                            (3)     (8) 
 Capital reserve                                              5,590   4,700 
 Revenue reserve                                                779     778 
 Own shares                                                    (42)    (26) 
===================================================  ======  ======  ====== 
 Total equity                                                 7,909   7,024 
===========================================================  ======  ====== 
 

The Notes to the accounts section forms an integral part of these financial statements.

Simon Thompson

Chairman

15 May 2019

Consolidated statement of changes in equity

for the year to 31 March

 
                                                            Share- 
                                                 Capital     based 
                            Share     Share   redemption   payment   Translation   Capital   Revenue      Own    Total 
                          capital   premium      reserve   reserve       reserve   reserve   reserve   shares   equity 
 2019                        GBPm      GBPm         GBPm      GBPm          GBPm      GBPm      GBPm     GBPm     GBPm 
=======================  ========  ========  ===========  ========  ============  ========  ========  =======  ======= 
 Total equity at the 
  start 
  of the year                 719       786           43        32           (8)     4,700       778     (26)    7,024 
 Profit for the year            -         -            -         -             -     1,096       146        -    1,242 
 Exchange differences 
  on translation of 
  foreign operations            -         -            -         -             5         -         -        -        5 
 Re-measurements of 
  defined benefit plans         -         -            -         -             -         5         -        -        5 
=======================  ========  ========  ===========  ========  ============  ========  ========  =======  ======= 
 Total comprehensive 
  income for the year           -         -            -         -             5     1,101       146        -    1,252 
=======================  ========  ========  ===========  ========  ============  ========  ========  =======  ======= 
 Share-based payments           -         -            -        19             -         -         -        -       19 
 Release on exercise/ 
  forfeiture of share 
  awards                        -         -            -      (15)             -         -        15        -        - 
 Exercise of share 
  awards                        -         -            -         -             -      (13)         -       13        - 
 Ordinary dividends             -         -            -         -             -     (198)     (160)        -    (358) 
 Purchase of own shares         -         -            -         -             -         -         -     (29)     (29) 
 Issue of ordinary 
  shares                        -         1            -         -             -         -         -        -        1 
 Total equity at the 
  end of the year             719       787           43        36           (3)     5,590       779     (42)    7,909 
=======================  ========  ========  ===========  ========  ============  ========  ========  =======  ======= 
 
 
                                                            Share- 
                                                 Capital     based 
                            Share     Share   redemption   payment   Translation   Capital   Revenue      Own    Total 
                          capital   premium      reserve   reserve       reserve   reserve   reserve   shares   equity 
 2018                        GBPm      GBPm         GBPm      GBPm          GBPm      GBPm      GBPm     GBPm     GBPm 
=======================  ========  ========  ===========  ========  ============  ========  ========  =======  ======= 
 Total equity at the 
  start 
  of the year                 719       785           43        30           218     3,390       689     (38)    5,836 
 Profit for the year            -         -            -         -             -     1,318       145        -    1,463 
 Exchange differences 
  on translation of 
  foreign operations            -         -            -         -          (38)         -         -        -     (38) 
=======================  ========  ========  ===========  ========  ============  ========  ========  =======  ======= 
 Total comprehensive 
  income for the year           -         -            -         -          (38)     1,318       145        -    1,425 
=======================  ========  ========  ===========  ========  ============  ========  ========  =======  ======= 
 Share-based payments           -         -            -        17             -         -         -        -       17 
 Release on exercise/ 
  forfeiture of share 
  awards                        -         -            -      (15)             -         -        15        -        - 
 Exercise of share 
  awards                        -         -            -         -             -      (12)         -       12        - 
 Ordinary dividends             -         -            -         -             -      (83)      (71)        -    (154) 
 Additional dividends           -         -            -         -             -     (101)         -        -    (101) 
 Issue of ordinary 
  shares                        -         1            -         -             -         -         -        -        1 
 Transfer from 
  translation reserve 
  to capital reserve(1)         -         -            -         -         (188)       188         -        -        - 
=======================  ========  ========  ===========  ========  ============  ========  ========  =======  ======= 
 Total equity at the 
  end of the year             719       786           43        32           (8)     4,700       778     (26)    7,024 
=======================  ========  ========  ===========  ========  ============  ========  ========  =======  ======= 
 
 
 1   Transfer relates to the translation reserve for Investment entity subsidiaries that was not 
      reclassified on adoption of IFRS 10. 
 

The Notes to the accounts section forms an integral part of these financial statements.

Consolidated cash flow statement

for the year to 31 March

 
                                                                       2019    2018 
                                                              Notes    GBPm    GBPm 
===========================================================  ======  ======  ====== 
 Cash flow from operating activities 
 Purchase of investments                                              (125)   (470) 
 Proceeds from investments                                              826     414 
 Cash (outflow)/inflow from investment entity subsidiaries            (264)     430 
 Net cash flow from derivatives                                           3    (10) 
 Portfolio interest received                                              6       4 
 Portfolio dividends received                                            24      29 
 Portfolio fees received                                                 12      13 
 Fees received from external funds                                       57      55 
 Carried interest and performance fees received                         102       6 
 Carried interest and performance fees paid                            (38)    (40) 
 Operating expenses paid                                              (109)   (114) 
 Co-investment loans received                                             4       5 
 Income taxes paid                                                     (10)    (10) 
===========================================================  ======  ======  ====== 
 Net cash flow from operating activities                                488     312 
===========================================================  ======  ======  ====== 
 Cash flow from financing activities 
 Issue of shares                                                          1       1 
 Purchase of own shares                                                (29)       - 
 Dividend paid                                                    4   (358)   (255) 
 Interest received                                                        2       2 
 Interest paid                                                         (39)    (36) 
===========================================================  ======  ======  ====== 
 Net cash flow from financing activities                              (423)   (288) 
===========================================================  ======  ======  ====== 
 Cash flow from investing activities 
 Purchases of property, plant and equipment                             (3)     (2) 
 Purchase of intangibles                                                  -    (13) 
 Net cash flow from deposits                                           (50)      41 
===========================================================  ======  ======  ====== 
 Net cash flow from investing activities                               (53)      26 
===========================================================  ======  ======  ====== 
 Change in cash and cash equivalents                                     12      50 
===========================================================  ======  ======  ====== 
 Cash and cash equivalents at the start of the year                     972     931 
 Effect of exchange rate fluctuations                                   (1)     (9) 
===========================================================  ======  ======  ====== 
 Cash and cash equivalents at the end of the year                       983     972 
===========================================================  ======  ======  ====== 
 

The Notes to the accounts section forms an integral part of these financial statements.

Company statement of financial position

as at 31 March

 
                                                                 2019      2018 
                                                      Notes      GBPm      GBPm 
===================================================  ======  ========  ======== 
 Assets 
 Non-current assets 
 Investments 
  Quoted investments                                              469       345 
  Unquoted investments                                          1,193     1,751 
 ==================================================  ======  ========  ======== 
 Investment portfolio                                           1,662     2,096 
===================================================  ======  ========  ======== 
 Carried interest and performance fees receivable                 655       539 
 Interests in Group entities                                    5,221     4,112 
 Other non-current assets                                          17        20 
 Derivative financial instruments                                  11         - 
===================================================  ======  ========  ======== 
 Total non-current assets                                       7,566     6,767 
===================================================  ======  ========  ======== 
 Current assets 
 Carried interest and performance fees receivable                   7         3 
 Other current assets                                               3         2 
 Derivative financial instruments                                   7         - 
 Deposits                                                          50         - 
 Cash and cash equivalents                                        958       939 
===================================================  ======  ========  ======== 
 Total current assets                                           1,025       944 
===================================================  ======  ========  ======== 
 Total assets                                                   8,591     7,711 
===================================================  ======  ========  ======== 
 Liabilities 
 Non-current liabilities 
 Loans and borrowings                                     6     (575)     (575) 
===================================================  ======  ========  ======== 
 Total non-current liabilities                                  (575)     (575) 
===================================================  ======  ========  ======== 
 Current liabilities 
 Trade and other payables                                       (483)     (527) 
 Total current liabilities                                      (483)     (527) 
===================================================  ======  ========  ======== 
 Total liabilities                                            (1,058)   (1,102) 
===================================================  ======  ========  ======== 
 Net assets                                                     7,533     6,609 
===================================================  ======  ========  ======== 
 Equity 
 Issued capital                                                   719       719 
 Share premium                                                    787       786 
 Capital redemption reserve                                        43        43 
 Share-based payment reserve                                       36        32 
 Capital reserve                                                5,979     5,015 
 Revenue reserve                                                   11        40 
 Own shares                                                      (42)      (26) 
===================================================  ======  ========  ======== 
 Total equity                                                   7,533     6,609 
===================================================  ======  ========  ======== 
 

The Company profit for the year to 31 March 2019 is GBP1,291 million (2018: GBP1,405 million).

The Notes to the accounts section forms an integral part of these financial statements.

Simon Thompson

Chairman

15 May 2019

Company statement of changes in equity

for the year to 31 March

 
                                                          Capital   Share-based 
                                     Share     Share   redemption       payment   Capital   Revenue      Own    Total 
                                   capital   premium      reserve       reserve   reserve   reserve   shares   equity 
 2019                                 GBPm      GBPm         GBPm          GBPm      GBPm      GBPm     GBPm     GBPm 
================================  ========  ========  ===========  ============  ========  ========  =======  ======= 
 Total equity at the 
  start of the year                    719       786           43            32     5,015        40     (26)    6,609 
 Profit for the year                     -         -            -             -     1,175       116        -    1,291 
================================  ========  ========  ===========  ============  ========  ========  =======  ======= 
 Total comprehensive 
  income 
  for the year                           -         -            -             -     1,175       116        -    1,291 
================================  ========  ========  ===========  ============  ========  ========  =======  ======= 
 Share-based payments                    -         -            -            19         -         -        -       19 
 Release on exercise/forfeiture 
  of share awards                        -         -            -          (15)         -        15        -        - 
 Exercise of share awards                -         -            -             -      (13)         -       13        - 
 Ordinary dividends                      -         -            -             -     (198)     (160)        -    (358) 
 Purchase of own shares                  -         -            -             -         -         -     (29)     (29) 
 Issue of ordinary shares                -         1            -             -         -         -        -        1 
================================  ========  ========  ===========  ============  ========  ========  =======  ======= 
 Total equity at the 
  end of the year                      719       787           43            36     5,979        11     (42)    7,533 
================================  ========  ========  ===========  ============  ========  ========  =======  ======= 
 
 
                                                          Capital   Share-based 
                                     Share     Share   redemption       payment   Capital   Revenue      Own    Total 
                                   capital   premium      reserve       reserve   reserve   reserve   shares   equity 
 2018                                 GBPm      GBPm         GBPm          GBPm      GBPm      GBPm     GBPm     GBPm 
================================  ========  ========  ===========  ============  ========  ========  =======  ======= 
 Total equity at the 
  start of the year                    719       785           43            30     3,874        28     (38)    5,441 
 Profit for the year                     -         -            -             -     1,337        68        -    1,405 
================================  ========  ========  ===========  ============  ========  ========  =======  ======= 
 Total comprehensive 
  income for the year                    -         -            -             -     1,337        68        -    1,405 
================================  ========  ========  ===========  ============  ========  ========  =======  ======= 
 Share-based payments                    -         -            -            17         -         -        -       17 
 Release on exercise/forfeiture 
  of share awards                        -         -            -          (15)         -        15        -        - 
 Exercise of share awards                -         -            -             -      (12)         -       12        - 
 Ordinary dividends                      -         -            -             -      (83)      (71)        -    (154) 
 Additional dividends                    -         -            -             -     (101)         -        -    (101) 
 Issue of ordinary shares                -         1            -             -         -         -        -        1 
================================  ========  ========  ===========  ============  ========  ========  =======  ======= 
 Total equity at the 
  end of the year                      719       786           43            32     5,015        40     (26)    6,609 
================================  ========  ========  ===========  ============  ========  ========  =======  ======= 
 

The Notes to the accounts section forms an integral part of these financial statements.

Company cash flow statement

for the year to 31 March

 
                                                                  2019    2018 
                                                       Notes      GBPm    GBPm 
====================================================  ======  ========  ====== 
 Cash flow from operating activities 
 Purchase of investments                                         (125)   (468) 
 Proceeds from investments                                         826     395 
 Distributions from subsidiaries                                   753   1,002 
 Drawdowns by subsidiaries                                     (1,023)   (624) 
 Net cash flow from derivatives                                      3    (10) 
 Portfolio interest received                                         6       4 
 Portfolio dividends received                                       24      25 
 Portfolio fees paid                                               (1)     (2) 
 Carried interest and performance fees received                     26       4 
 Carried interest and performance fees paid                          -    (23) 
 Co-investment loans received                                        4       5 
 Net cash flow from operating activities                           493     308 
====================================================  ======  ========  ====== 
 Cash flow from financing activities 
 Issue of shares                                                     1       1 
 Purchase of own shares                                           (29)       - 
 Dividend paid                                             4     (358)   (255) 
 Interest received                                                   2       2 
 Interest paid                                                    (36)    (36) 
 Net cash flow from financing activities                         (420)   (288) 
====================================================  ======  ========  ====== 
 Cash flow from investing activities 
 Net cash flow from deposits                                      (50)      41 
====================================================  ======  ========  ====== 
 Net cash flow from investing activities                          (50)      41 
====================================================  ======  ========  ====== 
 Change in cash and cash equivalents                                23      61 
====================================================  ======  ========  ====== 
 Cash and cash equivalents at the start of the year                939     887 
 Effect of exchange rate fluctuations                              (4)     (9) 
====================================================  ======  ========  ====== 
 Cash and cash equivalents at the end of the year                  958     939 
====================================================  ======  ========  ====== 
 

The Notes to the accounts section forms an integral part of these financial statements.

Significant accounting policies

Reporting entity

3i Group plc (the "Company") is a public limited company incorporated and domiciled in England and Wales. The consolidated financial statements ("the Group accounts") for the year to 31 March 2019 comprise the financial statements of the Company and its consolidated subsidiaries (collectively, "the Group").

The Group accounts have been prepared and approved by the Directors in accordance with section 395 of the Companies Act 2006 and the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008. The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its Company statement of comprehensive income and related Notes.

A Basis of preparation

The Group and Company accounts have been prepared and approved by the Directors in accordance with all relevant International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), and interpretations issued by the IFRS Interpretations Committee for the year ended 31 March 2019, endorsed by the European Union ("EU").

The following standards, amendments and interpretations have been issued and endorsed by the EU, with implementation dates that do not impact on these financial statements:

 
Effective for annual periods beginning on or after 
------------------------------------------------------ 
IFRS 16        Leases        1 January 2019 
-------------  ------------  ------------------------- 
 

IFRS 16 Leases replaces IAS 17 Leases and is effective for annual periods beginning on or after 1 January 2019. IFRS 16 will be adopted by the Group from 1 April 2019.

The only impact on the Group relates to leases for use of office space. These are currently classified as operating leases under IAS 17, with lease rentals charged to operating expenses on a straight line basis over the lease term. IFRS 16 requires lessees to recognise a lease liability, representing the present value of the obligation to make lease payments, and a related right of use ("ROU") asset. The lease liability will be calculated based on expected future lease payments, discounted using the relevant incremental borrowing rate. The ROU asset will be assessed for impairment annually and depreciated on a straight line basis.

IFRS 16 will therefore result in an increase in the Group's total assets and total liabilities as detailed below, but will not have a material impact on net assets or total return because the Group does not have material lease liabilities. There will be a non-material impact on the Group's Consolidated statement of comprehensive income as operating lease rentals (recognised in operating expenses) will be replaced with depreciation of the ROU asset (recognised in operating expenses) and effective interest recognised on the lease liability (recognised in interest paid).

On adoption of IFRS 16 at 1 April 2019, the Group will recognise an additional GBP23 million right of use asset and GBP23 million lease liability. When measuring the lease liability at 1 April 2019, future lease payments were discounted using a range of incremental borrowing rates between 0.75% and 3.35%. The Group will apply IFRS 16 using the simplified retrospective approach and therefore comparative information will not be restated. A reconciliation of the operating lease commitment as at 31 March 2019 (Note 24 of our Annual report and accounts 2019) to the opening lease liability at 1 April 2019 is presented below:

 
                                                                                                     GBPm 
========================================================================  =============================== 
 Operating lease commitments at 31 March 2019 as disclosed in Note 24*                                 24 
 Impact of discounting using incremental borrowing rate at 1 April 2019                               (1) 
========================================================================  =============================== 
 Opening lease liability at 1 April 2019                                                               23 
========================================================================  =============================== 
 

*Included in our Annual report and accounts 2019.

The principal accounting policies applied in the preparation of the Group accounts are disclosed below, but where possible, they have been shown as part of the Note to which they specifically relate in order to assist the reader's understanding. These policies have been consistently applied and apply to all years presented, except for in relation to the adoption of new accounting standards as indicated below.

The financial statements are prepared on a going concern basis as disclosed in the Directors' report and presented to the nearest million sterling (GBPm), the functional currency of the Company and the Group.

Accounting developments

On 1 April 2018, the Group adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from contracts with customers. The nature and effect of these changes are disclosed further below.

IFRS 9 Financial Instruments

IFRS 9 replaces the classification and measurement models previously contained in IAS 39 Financial Instruments: Recognition and Measurement.

The Group has applied IFRS 9 retrospectively, but has not restated comparative information.

The accounting for the Group's financial assets and liabilities is materially unchanged following the adoption of

IFRS 9.

IFRS 15 Revenue from contracts with customers

IFRS 15 supersedes IAS 11 Construction contracts, IAS 18 Revenue and related interpretations and applies to all revenue arising from contracts with customers.

Items in the Group's Consolidated statement of comprehensive income that are within the scope of IFRS 15 are fees receivable, fees receivable from external funds and carried interest and performance fees receivable. The accounting policies for these items are shown in Notes 4 and 14 of the Annual report and accounts 2019. The Group's accounting for fees receivable and fees receivable from external funds is unchanged. However, IFRS 15 has introduced a key judgement of the extent to which it is highly probable that there will not be a significant reversal of carried interest and performance fees receivable when the relevant uncertainty is resolved. Following a detailed review, it was concluded that the adoption of IFRS 15 had no impact on the carried interest and performance fees receivable recognised by the Group. Further details of our considerations around the adoption of IFRS 15 are included in the Financial review.

The Group has applied IFRS 15 using the modified retrospective method. As our recognition remained unchanged, no adjustment to the opening balance of retained earnings was required.

Revenue has been disaggregated in accordance with IFRS 15 in Note 4 of the Annual report and accounts 2019.

B Basis of consolidation

In accordance with IFRS 10 the Company meets the criteria as an investment entity and therefore is required to recognise subsidiaries that also qualify as investment entities at fair value through profit or loss. It does not consolidate the investment entities it controls. Subsidiaries that provide investment related services, such as advisory, management or employment services, are not accounted for at fair value through profit and loss and continue to be consolidated unless they are deemed investment entities, in which case they are recognised at fair value.

Subsidiaries are entities controlled by the Group. Control, as defined by IFRS 10, is achieved when the Group has all of the following:

   --      power over the relevant activities of the investee; 
   --      exposure, or rights, to variable returns from its involvement with the investee; and 
   --      the ability to affect those returns through its power over the investee. 

The Group is required to determine the degree of control or influence the Group exercises and the form of any control to ensure that the financial treatment is accurate.

Subsidiaries are fully consolidated from the date on which the Group effectively obtains control. All intra-group balances and transactions with subsidiaries are eliminated upon consolidation. Subsidiaries are de-consolidated from the date that control ceases.

The Group comprises several different types of subsidiaries. The Group re-assesses the function performed by each type of subsidiary to determine its treatment under the IFRS 10 exception from consolidation on an annual basis. The types of subsidiaries and their treatment under IFRS 10 are as follows:

General Partners (GPs) - Consolidated

General Partners provide investment management services and do not hold any direct investments in portfolio assets. These entities are not investment entities.

Investment managers/advisers - Consolidated

These entities provide investment related services through the provision of investment management or advice. They do not hold any direct investments in portfolio assets. These entities are not investment entities.

Holding companies of investment managers/advisers - Consolidated

These entities provide investment related services through their subsidiaries. Typically they do not hold any direct investment in portfolio assets and these entities are not investment entities.

Limited Partnerships and other intermediate investment holding structures - Fair valued

The Group makes investments in portfolio assets through its ultimate parent company as well as through other limited partnerships and corporate subsidiaries which the Group has created to align the interests of the investment teams with the performance of the assets through the use of various carried interest schemes. The purpose of these limited partnerships and corporate holding vehicles, many of which also provide investment related services, is to invest for investment income and capital appreciation. These partnerships and corporate subsidiaries meet the definition of an investment entity and are accounted for at fair value through profit and loss.

Portfolio investments - Fair valued

Under IFRS 10, the test for accounting subsidiaries takes wider factors of control as well as actual equity ownership into account. In accordance with the investment entity exception, these entities have been held at fair value with movements in fair value being recognised in the Consolidated statement of comprehensive income.

Associates - Fair valued

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Investments that are held as part of the Group's investment portfolio are carried in the Consolidated statement of financial position at fair value even though the Group may have significant influence over those companies.

Further detail on our application of IFRS 10 can be found in the Reconciliation of Investment basis to IFRS section.

C Critical accounting judgements and estimates

The reported results of the Group are sensitive to the accounting policies, assumptions and estimates that underpin the preparation of its financial statements. UK company law and IFRS require the Directors, in preparing the Group's financial statements, to select suitable accounting policies, apply them consistently and make judgements and estimates that are reasonable and prudent. The Group's estimates and assumptions are based on historical experience and expectation of future events and are reviewed periodically. The actual outcome may be materially different from that anticipated.

(a) Critical judgements

In the course of preparing the financial statements, two judgements have been made in the process of applying the Group's accounting policies, other than those involving estimations, that have had a significant effect on the amounts recognised in the financial statements as follows:

I. Assessment as an investment entity

The Board has concluded that the Company continues to meet the definition of an investment entity, as its strategic objective of investing in portfolio investments and providing investment management services to investors for the purpose of generating returns in the form of investment income and capital appreciation remains unchanged.

II. Carried interest receivable

Carried interest receivable is calculated based on the underlying agreements, and assuming all portfolio investments are sold at their fair values at the balance sheet date. In accordance with IFRS 15, the calculated carried interest receivable can only be recognised to the extent to which it is highly probable that there will not be a significant reversal when the relevant uncertainty is resolved. This judgement is made on a fund-by-fund basis, based on its specific circumstances, including consideration of: remaining duration of the fund, position in relation to the cash hurdle, the number of assets remaining in the fund and the potential for clawback.

(b) Critical estimates

In addition to these significant judgements the Directors have made two estimates, which they deem to have a significant risk of resulting in a material adjustment to the amounts recognised in the financial statements within the next financial year. The details of these estimates are as follows:

I. Fair valuation of the investment portfolio

The investment portfolio, a material asset of the Group, is held at fair value. Details of valuation methodologies used and the associated sensitivities are disclosed in Note 5 Fair values of assets and liabilities. Further information can be found in Portfolio valuation - an explanation in our Annual report and accounts 2019. Given the importance of this area, the Board has a separate Valuations Committee to review the valuations policies, process and application to individual investments. A report on the activities of the Valuations Committee (including a review of the assumptions made) is included in our Annual report and accounts 2019. In addition, sensitivity to a net 1x movement on Action's multiple, the largest investment in our portfolio, is included in the Private Equity Business review.

II. Carried interest receivable and payable

Carried interest receivable and payable are calculated based on the underlying agreements, and assuming all portfolio investments are sold at their fair values at the balance sheet date. The actual amounts of carried interest received and paid will depend on the cash realisations of these portfolio investments and valuations may change significantly in the next financial year. The fair valuation of the investment portfolio is itself a critical estimate, as detailed above. The sensitivity of carried interest to movements in the investment portfolio is disclosed in our Annual report and accounts 2019.

D Other accounting policies

(a) Gross investment return

Gross investment return is equivalent to "revenue" for the purposes of IAS 1. It represents the overall increase in net assets from the investment portfolio net of deal-related costs and includes foreign exchange movements in respect of the investment portfolio. The substantial majority is investment income and outside the scope of IFRS 15. It is analysed into the following components with the relevant standard shown where appropriate:

i. Realised profits or losses over value on the disposal of investments are the difference between the fair value of the consideration received in accordance with IFRS 13 less any directly attributable costs, on the sale of equity and the repayment of interest income from the investment portfolio, and its carrying value at the start of the accounting period, converted into sterling using the exchange rates in force at the date of disposal.

ii. Unrealised profits or losses on the revaluation of investments are the movement in the fair value of investments in accordance with IFRS 13 between the start and end of the accounting period converted into sterling using the exchange rates in force at the date of fair value assessment.

iii. Fair value movements on investment entity subsidiaries are the movements in the fair value of Group subsidiaries which are classified as investment entities under IFRS 10. The Group makes investments in portfolio assets through these entities which are usually limited partnerships or corporate subsidiaries.

iv. Portfolio income is that portion of income that is directly related to the return from individual investments. It is recognised to the extent that it is probable that there will be economic benefit and the income can be reliably measured. The following specific recognition criteria must be met before the income is recognised:

-- Dividends from equity investments are recognised in the Consolidated statement of comprehensive income when the shareholders' rights to receive payment have been established.

-- 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.

-- The accounting policy for fee income is included in Note 4 of the Annual report and accounts 2019.

v. Foreign exchange on investments arises on investments made in currencies that are different from the functional currency of the Group entity. Investments are translated at the exchange rate ruling at the date of the transaction in accordance with IAS 21. At each subsequent reporting date, investments are translated to sterling at the exchange rate ruling at that date.

vi. Movement in the fair value of derivatives relates to the change in fair value of forward foreign exchange contracts which have been used to minimise foreign currency risk in the investment portfolio.

(b) Foreign currency translation

For the Company and those subsidiaries whose balance sheets are denominated in sterling, which is the Company's functional and presentational currency, monetary assets and liabilities and non-monetary assets held at fair value denominated in foreign currencies are translated into sterling at the closing rates of exchange at the balance sheet date. Foreign currency transactions are translated into sterling at the average rates of exchange over the year and exchange differences arising are taken to the Consolidated statement of comprehensive income.

The statements of financial position of subsidiaries and associates, which are not held at fair value, denominated in foreign currencies are translated into sterling at the closing rates. The statements of comprehensive income for these subsidiaries and associates are translated at the average rates and exchange differences arising are taken to other comprehensive income. Such exchange differences are reclassified to the Consolidated statement of comprehensive income in the period in which the subsidiary or associate is disposed of.

(c) Treasury assets and liabilities

Short-term treasury assets, and short and long-term treasury liabilities are used in order to manage cash flows and minimise the overall costs of borrowing.

Cash and cash equivalents comprise cash at bank and amounts held in money market funds which are readily convertible into cash and there is an insignificant risk of changes in value. Financial assets and liabilities are recognised in the balance sheet when the relevant Group entity becomes a party to the contractual provisions of the instrument. De-recognition occurs when rights to cash flows from a financial asset expire, or when a liability is extinguished.

Notes to the accounts

1 Segmental analysis

Operating segments are the components of the Group whose results are regularly reviewed by the Group's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.

The Chief Executive, who is considered to be the chief operating decision maker, managed the Group on the basis of business divisions determined with reference to market focus, geographic focus, investment funding model and the Group's management hierarchy. A description of the activities, including products and services offered by these divisions and the allocation of resources, is given in the Strategic report. For the geographical segmental split, revenue information is based on the locations of the assets held.

The segmental information that follows is presented on the basis used by the Chief Executive to monitor the performance of the Group. The reported segments are Private Equity, Infrastructure and Corporate Assets. On 21 June 2018, the Group completed the sale and re-investment into Scandlines. The re-investment in Scandlines is managed as a Corporate Asset separate from the Private Equity and Infrastructure businesses and, as such, is shown separately in the segmental analysis. Corporate Assets replaced Other as a segment in FY2019. In FY2018, Other comprised the residual investments retained following the sale of our Debt Management business. These residual investments were sold in FY2018.

The segmental analysis is prepared on the Investment basis to provide the most meaningful information to the reader of the accounts. For more information on the Investment basis and a reconciliation between the Investment basis and IFRS see the Reconciliation of Investment basis and IFRS section above.

 
 Investment basis 
                                                                Private                    Corporate 
                                                                 Equity   Infrastructure      Assets     Total 
 Year to 31 March 2019                                             GBPm             GBPm        GBPm      GBPm 
=============================================================  ========  ===============  ==========  ======== 
 Realised profits over value on the disposal of investments         131                1           -       132 
 Unrealised profits on the revaluation of investments               916              162           9     1,087 
 Portfolio income 
  Dividends                                                          12               23          28        63 
  Interest income from investment portfolio                         103               10           -       113 
  Fees receivable                                                    10              (1)           -         9 
 Foreign exchange on investments                                   (24)               15         (9)      (18) 
 Movement in the fair value of derivatives                            -                -          21        21 
=============================================================  ========  ===============  ==========  ======== 
 Gross investment return                                          1,148              210          49     1,407 
=============================================================  ========  ===============  ==========  ======== 
 Fees receivable from external funds                                  4               49           -        53 
 Operating expenses                                                (77)             (48)         (1)     (126) 
 Interest receivable                                                                                         2 
 Interest payable                                                                                         (36) 
 Exchange movements                                                                                        (3) 
 Other expense                                                                                             (2) 
=============================================================  ========  ===============  ==========  ======== 
 Operating profit before carry                                                                           1,295 
=============================================================  ========  ===============  ==========  ======== 
 Carried interest 
  Carried interest and performance fees receivable                  128               31           -       159 
  Carried interest and performance fees payable                   (206)             (14)           -     (220) 
 ============================================================  ========  ===============  ==========  ======== 
 Operating profit                                                                                        1,234 
=============================================================  ========  ===============  ==========  ======== 
 Income taxes                                                                                               13 
 Other comprehensive income 
  Re-measurements of defined benefit plans                                                                   5 
 ============================================================  ========  ===============  ==========  ======== 
 Total return                                                                                            1,252 
=============================================================  ========  ===============  ==========  ======== 
 Net divestment/(investment) 
 Realisations(1)                                                  1,235                7           -     1,242 
 Cash investment                                                  (332)                2       (529)     (859) 
=============================================================  ========  ===============  ==========  ======== 
                                                                    903                9       (529)       383 
=============================================================  ========  ===============  ==========  ======== 
 Balance sheet 
 Opening portfolio value at 1 April 2018                          5,825              832           -     6,657 
 Investment(2)                                                      426              (2)         529       953 
 Value disposed                                                 (1,103)              (6)           -   (1,109) 
 Unrealised value movement                                          916              162           9     1,087 
 Other movement(3)                                                 (41)               15         (9)      (35) 
=============================================================  ========  ===============  ==========  ======== 
 Closing portfolio value at 31 March 2019                         6,023            1,001         529     7,553 
=============================================================  ========  ===============  ==========  ======== 
 
 
 1    Private Equity does not include GBP19 million received during the year which was recognised 
       as realised proceeds in FY2018. 
 2    Includes capitalised interest and other non-cash investment. 
 3    Other movement relates to foreign exchange and the provisioning of capitalised interest. 
 
   A number of items are not managed by segment by the chief operating decision maker and therefore 
   have not been allocated to a specific segment. 
 
 
 Investment basis 
                                                                       Private 
                                                                        Equity   Infrastructure   Other(1)     Total 
 Year to 31 March 2018                                                    GBPm             GBPm       GBPm      GBPm 
====================================================================  ========  ===============  =========  ======== 
 
 Realised profits/(losses) over value on the disposal of investments       199               10        (2)       207 
 Unrealised profits on the revaluation of investments                    1,080               83          -     1,163 
 Portfolio income 
  Dividends                                                                  5               27          9        41 
  Interest income from investment portfolio                                112                4          -       116 
  Fees receivable                                                           14                -          -        14 
 Foreign exchange on investments                                            28             (11)        (6)        11 
====================================================================  ========  ===============  =========  ======== 
 Gross investment return                                                 1,438              113          1     1,552 
====================================================================  ========  ===============  =========  ======== 
 Fees receivable from external funds                                         7               50          -        57 
 Operating expenses                                                       (75)             (46)          -     (121) 
 Interest receivable                                                                                               2 
 Interest payable                                                                                               (37) 
 Exchange movements                                                                                             (27) 
 Other income                                                                                                      2 
--------------------------------------------------------------------  --------  ---------------  ---------  -------- 
 Operating profit before carry                                                                                 1,428 
====================================================================  ========  ===============  =========  ======== 
 Carried interest 
  Carried interest and performance fees receivable                         138               90          -       228 
  Carried interest and performance fees payable                          (196)              (9)          -     (205) 
 ===================================================================  ========  ===============  =========  ======== 
 Operating profit                                                                                              1,451 
====================================================================  ========  ===============  =========  ======== 
 Income taxes                                                                                                   (26) 
 Other comprehensive income 
  Re-measurements of defined benefit plans                                                                         - 
 ===================================================================  ========  ===============  =========  ======== 
 Total return                                                                                                  1,425 
====================================================================  ========  ===============  =========  ======== 
 Net divestment/(investment) 
 Realisations(2)                                                         1,002              169        152     1,323 
 Cash investment                                                         (587)            (217)       (23)     (827) 
====================================================================  ========  ===============  =========  ======== 
                                                                           415             (48)        129       496 
====================================================================  ========  ===============  =========  ======== 
 Balance sheet 
 Opening portfolio value at 1 April 2017                                 4,831              706        138     5,675 
 Investment(3)                                                             674              217         23       914 
 Value disposed                                                          (803)            (159)      (154)   (1,116) 
 Unrealised value movement                                               1,080               83          -     1,163 
 Other movement(4)                                                          43             (15)        (7)        21 
====================================================================  ========  ===============  =========  ======== 
 Closing portfolio value at 31 March 2018                                5,825              832          -     6,657 
====================================================================  ========  ===============  =========  ======== 
 
 
 1    The Other segment comprises the residual Debt Management portfolio. 
 2    GBP46 million in Private Equity relates to cash in transit at year end. 
 3    Includes capitalised interest and other non-cash investment. 
 4    Other movement relates to foreign exchange and the provisioning of capitalised interest. 
 
   A number of items are not managed by segment by the chief operating decision maker and therefore 
   have not been allocated to a specific segment. 
 
 
 Investment basis                                    Northern     North 
                                                UK     Europe   America   Other    Total 
 Year to 31 March 2019                        GBPm       GBPm      GBPm    GBPm     GBPm 
==========================================  ======  =========  ========  ======  ======= 
 Gross investment return 
 Realised profits over value on the 
  disposal of investments                        2        126         -       4      132 
 Unrealised profits/(losses) on the 
  revaluation of investments                   289        745        85    (32)    1,087 
 Portfolio income                               60        111        15     (1)      185 
 Foreign exchange on investments                 -       (85)        54      13     (18) 
 Movement in fair value of derivatives           -         21         -       -       21 
==========================================  ======  =========  ========  ======  ======= 
                                               351        918       154    (16)    1,407 
==========================================  ======  =========  ========  ======  ======= 
 Net divestment/(investment) 
 Realisations                                   88      1,116         6      32    1,242 
 Cash investment                                 -      (730)     (129)       -    (859) 
==========================================  ======  =========  ========  ======  ======= 
                                                88        386     (123)      32      383 
==========================================  ======  =========  ========  ======  ======= 
 Balance sheet 
 Closing portfolio value at 31 March 2019    1,453      4,976       931     193    7,553 
==========================================  ======  =========  ========  ======  ======= 
 
 
 Investment basis                                       Northern     North 
                                                   UK     Europe   America   Other    Total 
 Year to 31 March 2018                           GBPm       GBPm      GBPm    GBPm     GBPm 
=============================================  ======  =========  ========  ======  ======= 
 Gross investment return 
 Realised profits/(losses) over value on the 
  disposal of investments                           9        154       (5)      49      207 
 Unrealised profits on the 
  revaluation of investments                      148        932        67      16    1,163 
 Portfolio income                                  54        104        12       1      171 
 Foreign exchange on investments                    -         91      (55)    (25)       11 
=============================================  ======  =========  ========  ======  ======= 
                                                  211      1,281        19      41    1,552 
=============================================  ======  =========  ========  ======  ======= 
 Net divestment/(investment) 
 Realisations                                     270        782        91     180    1,323 
 Cash investment                                 (32)      (434)     (361)       -    (827) 
=============================================  ======  =========  ========  ======  ======= 
                                                  238        348     (270)     180      496 
=============================================  ======  =========  ========  ======  ======= 
 Balance sheet 
---------------------------------------------  ------  ---------  --------  ------  ------- 
 Closing portfolio value at 31 March 2018       1,249      4,504       664     240    6,657 
=============================================  ======  =========  ========  ======  ======= 
 

2 Income taxes

Accounting policy:

Income taxes represent the sum of the tax currently payable, withholding taxes suffered and deferred tax. Tax is charged or credited in the Consolidated statement of comprehensive income, except where it relates to items charged or credited directly to equity, in which case the tax is also dealt with in equity.

The tax currently payable is based on the taxable profit for the year. This may differ from the profit included in the Consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

To enable the tax charge to be based on the profit for the year, deferred tax is provided in full on temporary timing differences, at the rates of tax expected to apply when these differences crystallise. Deferred tax assets are recognised only to the extent that it is probable that sufficient taxable profits will be available against which temporary differences can be set off. All deferred tax liabilities are offset against deferred tax assets, where appropriate, in accordance with the provisions of IAS 12.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

The main rate of UK corporation tax is 19% and is to be reduced to 17% from 1 April 2020. This change will affect future UK corporate taxes payable and the rate at which deferred tax assets are expected to reverse.

 
                                                                                            2019   2018 
                                                                                            GBPm   GBPm 
=========================================================================================  =====  ===== 
 Current taxes 
 Current year: 
  UK                                                                                           1     22 
  Overseas                                                                                     3      1 
 
 Prior year: 
  UK                                                                                        (14)      - 
  Overseas                                                                                     -    (1) 
 
 Deferred taxes 
 Current year                                                                                  -      3 
 Prior year                                                                                  (2)      - 
=========================================================================================  =====  ===== 
 Total income tax (credit)/charge in the Consolidated statement of comprehensive income     (12)     25 
=========================================================================================  =====  ===== 
 

Reconciliation of income taxes in the Consolidated statement of comprehensive income

The tax charge for the year is different to the standard rate of corporation tax in the UK, currently 19% (2018: 19%), and the differences are explained below:

 
                                                                                             2019    2018 
                                                                                             GBPm    GBPm 
=========================================================================================  ======  ====== 
 Profit before tax                                                                          1,230   1,488 
 Profit before tax multiplied by rate of corporation tax in the UK of 19% (2018: 19%)         234     283 
 Effects of: 
  Non-taxable capital profits due to UK approved investment trust company status            (213)   (257) 
  Non-taxable dividend income                                                                (12)     (9) 
 ========================================================================================  ======  ====== 
                                                                                                9      17 
=========================================================================================  ======  ====== 
 Other differences between accounting and tax profits: 
  Permanent differences - non-deductible items                                                (4)       2 
  Temporary differences on which deferred tax is not recognised                               (3)       4 
  Overseas countries taxes                                                                      3       - 
  Recognition of previously unrecognised deferred tax on losses                                 -       5 
  Prior year adjustments                                                                     (16)       - 
  Utilisation of brought forward losses                                                       (1)     (3) 
 ========================================================================================  ======  ====== 
 Total income tax (credit)/charge in the Consolidated statement of comprehensive income      (12)      25 
=========================================================================================  ======  ====== 
 

The affairs of the Group's parent company are directed so as to allow it to meet the requisite conditions to continue to operate as an approved investment trust company for UK tax purposes. An approved investment trust company is a UK investment company which is required to meet certain conditions set out in the UK tax rules to obtain and maintain its tax status. This approval allows certain investment profits of the Company, broadly its capital profits, to be exempt from tax in the UK.

Including a net tax credit of GBP1 million (2018: GBP1 million charge) in investment entity subsidiaries, the Group recognised a total tax credit of GBP13 million (2018: charge of GBP26 million) under the Investment basis. This tax credit arises as a result of finalising the Group's UK tax returns for FY2018.

Deferred income taxes

 
                                                           2019    2018 
                                                           GBPm    GBPm 
 Opening deferred income tax liability 
 Tax losses                                                   3       8 
 Income in accounts taxable in the future                   (6)     (8) 
                                                            (3)       - 
=======================================================  ======  ====== 
 Recognised through Consolidated statement of comprehensive income 
 Tax losses recognised                                      (3)     (5) 
 Income in accounts taxable in the future                     5       2 
=======================================================  ======  ====== 
                                                              2     (3) 
=======================================================  ======  ====== 
 Closing deferred income tax liability 
 Tax losses                                                   -       3 
 Income in accounts taxable in the future                   (1)     (6) 
=======================================================  ======  ====== 
                                                            (1)     (3) 
=======================================================  ======  ====== 
 

At 31 March 2019, the Group had carried forward tax losses of GBP1,419 million (31 March 2018: GBP1,400 million), capital losses of GBP87 million (31 March 2018: GBP102 million) and other temporary differences of GBP64 million (31 March 2018: GBP83 million). With the additional restrictions on utilising brought forward losses introduced from 1 April 2017, and the uncertainty that the Group will generate sufficient or relevant taxable profits in the foreseeable future to utilise these amounts, no deferred tax asset has been recognised in respect of these losses. Deferred income taxes are calculated using an expected rate of corporation tax in the UK of 19% (2018: 19%).

3 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.

 
                                                              2019    2018 
==========================================================  ======  ====== 
 Net assets per share (GBP) 
 Basic                                                        8.19    7.28 
 Diluted                                                      8.15    7.24 
 Net assets (GBPm) 
 Net assets attributable to equity holders of the Company    7,909   7,024 
==========================================================  ======  ====== 
 
 
 
                               2019           2018 
====================  =============  ============= 
 Number of shares in issue 
 Ordinary shares        973,000,665    972,897,006 
 Own shares             (7,014,008)    (7,856,601) 
====================  =============  ============= 
                        965,986,657    965,040,405 
====================  =============  ============= 
 Effect of dilutive potential ordinary shares 
 Share awards             3,994,492      4,732,745 
====================  =============  ============= 
 Diluted shares         969,981,149    969,773,150 
====================  =============  ============= 
 

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.

 
                                                                       2019    2018 
===================================================================  ======  ====== 
 Earnings per share (pence) 
 Basic earnings per share                                             128.3   151.7 
 Diluted earnings per share                                           127.8   151.0 
 Earnings (GBPm) 
 Profit for the year attributable to equity holders of the Company    1,242   1,463 
===================================================================  ======  ====== 
 

Basic earnings per share is calculated on weighted average shares in issue of 967,932,072 for the year to 31 March 2019 (2018: 964,091,662). Diluted earnings per share is calculated on diluted weighted average shares of 971,792,591 for the year to 31 March 2019 (2018: 968,705,437).

4 Dividends

 
                                 2019   2019              2018   2018 
                      pence per share   GBPm   pence per share   GBPm 
===================  ================  =====  ================  ===== 
 Declared and paid during the year 
 Ordinary shares 
 Second dividend                 22.0    213              18.5    178 
 First dividend                  15.0    145               8.0     77 
===================  ================  =====  ================  ===== 
                                 37.0    358              26.5    255 
===================  ================  =====  ================  ===== 
 Proposed dividend               20.0    193              22.0    212 
===================  ================  =====  ================  ===== 
 

The Group introduced a simplified dividend policy in May 2018. In accordance with this policy, subject to maintaining a conservative balance sheet approach, the Group aims to maintain or grow the dividend each year. The first dividend is expected to be set at 50% of the prior year's total dividend.

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 are GBP2,226 million (31 March 2018: GBP1,941 million) and the Board reviews the distributable reserves bi-annually ahead of proposing any dividend. The Board also reviews the proposed dividends in the context of the requirements of being an approved investment trust. Details of the Group's continuing viability and going concern can be found in the Risk management section.

5 Fair values of assets and liabilities

Accounting policy:

Financial instruments, other than those held at amortised cost, are held at fair value. In particular, 3i classifies groups of financial instruments at fair value through profit and loss when they are managed, and their performance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy, and where information about the groups of financial instruments is reported to management on that basis.

(A) Classification

The following tables analyse the Group's assets and liabilities in accordance with the categories of financial instruments in IFRS 9 (31 March 2018: IAS 39):

 
                                     Group          Group                Group          Group 
                                      2019           2019                 2018           2018 
                                Classified          Other           Classified          Other 
                                   at fair      financial              at fair      financial 
                                     value                               value 
                                   through    instruments   Group      through    instruments   Group 
                                    profit   at amortised    2019       profit   at amortised    2018 
                                       and                                 and 
                                      loss           cost   Total         loss           cost   Total 
                                      GBPm           GBPm    GBPm         GBPm           GBPm    GBPm 
=============================  ===========  =============  ======  ===========  =============  ====== 
 Assets 
 Quoted investments                    469              -     469          345              -     345 
 Unquoted investments                1,193              -   1,193        1,751              -   1,751 
 Investments in investment 
  entities                           5,159              -   5,159        4,034              -   4,034 
 Other financial assets                 52            654     706            -            653     653 
=============================  ===========  =============  ======  ===========  =============  ====== 
 Total                               6,873            654   7,527        6,130            653   6,783 
=============================  ===========  =============  ======  ===========  =============  ====== 
 Liabilities 
 Loans and borrowings                    -            575     575            -            575     575 
 Other financial liabilities             -            206     206            -            261     261 
=============================  ===========  =============  ======  ===========  =============  ====== 
 Total                                   -            781     781            -            836     836 
=============================  ===========  =============  ======  ===========  =============  ====== 
 
 
                                   Company        Company                Company        Company 
                                      2019           2019                   2018           2018 
                                Classified          Other             Classified          Other 
                                   at fair      financial                at fair      financial 
                                     value                                 value 
                                   through    instruments   Company      through    instruments   Company 
                                    profit   at amortised      2019       profit   at amortised      2018 
                                       and                                   and 
                                      loss           cost     Total         loss           cost     Total 
                                      GBPm           GBPm      GBPm         GBPm           GBPm      GBPm 
=============================  ===========  =============  ========  ===========  =============  ======== 
 Assets 
 Quoted investments                    469              -       469          345              -       345 
 Unquoted investments                1,193              -     1,193        1,751              -     1,751 
 Other financial assets                 34            666       700            -            564       564 
=============================  ===========  =============  ========  ===========  =============  ======== 
 Total                               1,696            666     2,362        2,096            564     2,660 
=============================  ===========  =============  ========  ===========  =============  ======== 
 Liabilities 
 Loans and borrowings                    -            575       575            -            575       575 
 Other financial liabilities             -            483       483            -            527       527 
=============================  ===========  =============  ========  ===========  =============  ======== 
 Total                                   -          1,058     1,058            -          1,102     1,102 
=============================  ===========  =============  ========  ===========  =============  ======== 
 

Within the Company, GBP5,163 million (31 March 2018: GBP4,045 million) of the Interest in Group entities is held at fair value.

(B) Valuation

The fair values of the Group's financial assets and liabilities not held at fair value, are not materially different from their carrying values, with the exception of loans and borrowings. The fair value of the loans and borrowings is GBP709 million (31 March 2018: GBP718 million), determined with reference to their published market prices. The carrying value of the loans and borrowings is GBP575 million (31 March 2018: GBP575 million) and accrued interest payable (included within trade and other payables) is GBP8 million (31 March 2018: GBP8 million).

Valuation hierarchy

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 
========  =========================================================  ================================================= 
 

Unquoted equity instruments and debt instruments are measured in accordance with the IPEV Guidelines with reference to the most appropriate information available at the time of measurement. Further information regarding the valuation of unquoted equity instruments can be found in the section Portfolio valuation - an explanation in our Annual report and accounts 2019.

The table below shows the classification of financial instruments held at fair value into the valuation hierarchy at 31 March 2019:

 
                                                  Group   Group     Group     Group   Group   Group    Group    Group 
                                                   2019    2019      2019      2019    2018    2018     2018     2018 
                                                  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                                 469       -         -       469     345       -        -      345 
 Unquoted investments                                 -       -     1,193     1,193       -       -    1,751    1,751 
 
 Investments in investment entity subsidiaries        -       -     5,159     5,159       -       -    4,034    4,034 
 Other financial assets                               -      18        34        52       -       -        -        - 
===============================================  ======  ======  ========  ========  ======  ======  =======  ======= 
 Total                                              469      18     6,386     6,873     345       -    5,785    6,130 
===============================================  ======  ======  ========  ========  ======  ======  =======  ======= 
 

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 fair valued in accordance with the Group's accounting policies. Note 12 of our Annual report and accounts 2019 details the Directors' considerations about the fair value of the underlying investment entity subsidiaries.

Movements in the directly held investment portfolio categorised as Level 3 during the year are set out in the table below:

 
                                              Group   Group   Company   Company 
                                               2019    2018      2019      2018 
                                               GBPm    GBPm      GBPm      GBPm 
===========================================  ======  ======  ========  ======== 
 Opening book value                           1,751   1,316     1,751     1,295 
 Additions                                      150     481       150       481 
 - of which loan notes with nil value           (5)       -       (5)         - 
 Disposals, repayments and write-offs         (793)   (315)     (793)     (293) 
 Fair value movement(1)                          66     346        66       346 
 Other movements and net cash movements(2)       24    (77)        24      (78) 
 Closing book value                           1,193   1,751     1,193     1,751 
===========================================  ======  ======  ========  ======== 
 
 
 1   All fair value movements relate to assets held at the end of the period. 
 2   Other movements include the impact of foreign exchange and transfers 
      of investments to/from investment entity subsidiaries. 
 

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 investments of GBP33 million (2018: GBP14 million), dividend income of GBP12 million (2018: GBP13 million) and foreign exchange gains of GBP17 million (2018: foreign exchange losses of GBP12 million).

Level 3 inputs are sensitive to assumptions made when ascertaining fair value as described in the Portfolio valuation - an explanation section. On an IFRS basis, of assets held at 31 March 2019 classified as Level 3, 77% (31 March 2018: 40%) were valued using a multiple of earnings and the remaining 23% (31 March 2018: 60%) were valued using alternative valuation methodologies. Of the underlying portfolio held by investment entity subsidiaries, 88% (31 March 2018: 95%) were valued using a multiple of earnings and the remaining 12% (31 March 2018: 5%) 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 in or out of Level 3 during the year.

Valuation multiple - The valuation multiple is the main assumption applied to a multiple of earnings based valuation. The multiple is derived from comparable listed companies or relevant market transaction multiples. Companies in the same industry and geography and, where possible, with a similar business model and profile are selected and 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. The value weighted average post discount earnings multiple used when valuing the portfolio at 31 March 2019 was 12.1x (31 March 2018: 11.7x).

If the multiple used to value each unquoted investment valued on an earnings multiple basis as at 31 March 2019 decreased by 5%, the investment portfolio value would decrease by GBP57 million (31 March 2018: GBP43 million) or 3% (31 March 2018: 2%). If the same sensitivity was applied to the underlying portfolio held by investment entity subsidiaries, this would have a negative value impact of GBP318 million (31 March 2018: GBP270 million) or 5% (31 March 2018: 6%).

If the multiple increased by 5% then the investment portfolio value would increase by GBP57 million (31 March 2018: GBP35 million) or 3% (31 March 2018: 2%). If the same sensitivity was applied to the underlying portfolio held by investment entity subsidiaries, this would have a positive value impact of GBP318 million (31 March 2018: GBP260 million) or 5% (31 March 2018: 6%).

Alternative valuation methodologies - There are a number of alternative investment valuation methodologies used by the Group, for reasons specific to individual assets. The details of such valuation methodologies, and inputs that are used, are given in the Portfolio valuation - an explanation section on in our Annual report and accounts 2019.

Each methodology is used for a proportion of assets by value, and at year end the following techniques were used under an IFRS basis: 7% DCF (31 March 2018: 5%), nil imminent sale (31 March 2018: 45%), 11% industry metric (31 March 2018: 7%) and 5% other (31 March 2018: 3%).

If the value of all of the investments valued under alternative methodologies moved by 5%, this would have an impact on the investment portfolio value of GBP14 million (31 March 2018: GBP53 million) or 1% (31 March 2018: 3%). If the same sensitivity was applied to the underlying portfolio held by investment entity subsidiaries, this would have a value impact of GBP33 million (31 March 2018: GBP10 million) or 0.6% (31 March 2018: 0.3%).

6 Loans and borrowings

Accounting policy:

All loans and borrowings are initially recognised at the fair value of the consideration received. After initial recognition, these are subsequently measured at amortised cost using the effective interest method, which is the rate that exactly discounts the estimated future cash flows through the expected life of the liabilities. Financial liabilities are derecognised when they are extinguished.

 
                                                   Group   Group 
                                                    2019    2018 
                                                    GBPm    GBPm 
================================================  ======  ====== 
 Loans and borrowings are repayable as follows: 
 Within one year                                       -       - 
 Between the second and fifth year                   200     200 
 After five years                                    375     375 
================================================  ======  ====== 
                                                     575     575 
================================================  ======  ====== 
 

Principal borrowings include:

 
                                                                                     Group   Group   Company   Company 
                                                                                      2019    2018      2019      2018 
                                                                   Rate   Maturity    GBPm    GBPm      GBPm      GBPm 
=========================================================  ============  =========  ======  ======  ========  ======== 
 Issued under the GBP2,000 million note issuance 
 programme 
 Fixed rate 
 GBP200 million notes (public issue)                             6.875%       2023     200     200       200       200 
 GBP375 million notes (public issue)                             5.750%       2032     375     375       375       375 
                                                                                       575     575       575       575 
=========================================================  ============  =========  ======  ======  ========  ======== 
 Committed multi-currency facilities 
 GBP350 million                                             LIBOR+0.60%       2021       -       -         -         - 
=========================================================  ============  =========  ======  ======  ========  ======== 
                                                                                         -       -         -         - 
=========================================================  ============  =========  ======  ======  ========  ======== 
 Total loans and borrowings                                                            575     575       575       575 
=========================================================  ============  =========  ======  ======  ========  ======== 
 

There was no change in total financing liabilities for the Group or the Company during the year as the cash flows relating to the financing liabilities were equal to the income statement expense. Accordingly, no reconciliation between the movement in financing liabilities and the cash flow statement has been presented.

The maturity of the Company's GBP350 million (31 March 2018: GBP350 million) syndicated multi-currency facility is September 2021, with the total size reducing to GBP328 million in September 2020. The GBP350 million facility has no financial covenants.

All of the Group's borrowings are repayable in one instalment on the respective maturity dates. None of the Group's interest-bearing loans and borrowings are secured on the assets of the Group.

The fair value of the loans and borrowings is GBP709 million (31 March 2018: GBP718 million), determined with reference to their published market prices. The loans and borrowings are included in Level 2 of the fair value hierarchy.

In accordance with the FCA Handbook (FUNDS 3.2.2. R and Fund 3.2.6. R), 3i Investments plc, as AIFM of the Company, is required to calculate leverage in accordance with a set formula and disclose this to investors. In line with this formula, leverage at 31 March 2019 for the Group is 96% (31 March 2018: 111%) and the Company is 84% (31 March 2018: 105%) under both the gross method and the commitment method. The leverage for 3i Investments plc at 31 March 2019 is 100% (31 March 2018: 100%) under both the gross method and the commitment method.

Under the Securities Financing Transactions Regulation ("SFTR") and AIFMD, 3i is required to disclose certain information relating to the use of securities financing transactions ("SFTs") and total return swaps. At 31 March 2019, 3i was not party to any transactions involving SFTs or total return swaps.

7 Related parties and interests in other entities

The Group has various related parties stemming from relationships with limited partnerships managed by the Group, its investment portfolio (including unconsolidated subsidiaries), its advisory arrangements and its key management personnel. In addition, the Company has related parties in respect of its subsidiaries. Some of these subsidiaries are held at fair value (unconsolidated subsidiaries) due to the treatment prescribed in IFRS 10.

Related parties

Limited partnerships

The Group manages a number of external funds which invest through limited partnerships. Group companies act as the general partners of these limited partnerships and exert significant influence over them. The following amounts have been included in respect of these limited partnerships:

 
                                        Group   Group   Company   Company 
                                         2019    2018      2019      2018 
 Statement of comprehensive income       GBPm    GBPm      GBPm      GBPm 
=====================================  ======  ======  ========  ======== 
 Carried interest receivable              132     138       158       183 
 Fees receivable from external funds       19      29         -         - 
=====================================  ======  ======  ========  ======== 
 
 
                                    Group   Group   Company   Company 
                                     2019    2018      2019      2018 
 Statement of financial position     GBPm    GBPm      GBPm      GBPm 
=================================  ======  ======  ========  ======== 
 Carried interest receivable          609     500       662       541 
=================================  ======  ======  ========  ======== 
 

Investments

The Group makes investments in the equity of unquoted and quoted investments where it does not have control but may be able to participate in the financial and operating policies of that company. IFRS presumes that it is possible to exert significant influence when the equity holding is greater than 20%. The Group has taken the investment entity exception as permitted by IFRS 10 and has not equity accounted for these investments, in accordance with IAS 28, but they are related parties. The total amounts included for investments where the Group has significant influence but not control are as follows:

 
                                                              Group   Group   Company   Company 
                                                               2019    2018      2019      2018 
 Statement of comprehensive income                             GBPm    GBPm      GBPm      GBPm 
===========================================================  ======  ======  ========  ======== 
 Realised profit over value on the disposal of investments        1       7         1        11 
 Unrealised profits on the revaluation of investments            23      36        23        36 
 Portfolio income                                                12       9        11         5 
===========================================================  ======  ======  ========  ======== 
 
 
                                    Group   Group   Company   Company 
                                     2019    2018      2019      2018 
 Statement of financial position     GBPm    GBPm      GBPm      GBPm 
=================================  ======  ======  ========  ======== 
 Unquoted investments                 415     380       415       380 
=================================  ======  ======  ========  ======== 
 

Advisory and management arrangements

The Group acted as an adviser to 3i Infrastructure plc ("3iN"), which is listed on the London Stock Exchange, for the period to 14 October 2018. Following the decision to move 3iN's tax residence and management to the UK, 3i Investments plc was appointed as 3iN's Investment Manager on 15 October 2018. The following amounts have been recognised in respect of the advisory and management arrangements:

 
                                                              Group   Group   Company   Company 
                                                               2019    2018      2019      2018 
 Statement of comprehensive income                             GBPm    GBPm      GBPm      GBPm 
===========================================================  ======  ======  ========  ======== 
 Realised profit over value on the disposal of investments        -       4         -         4 
 Unrealised profits on the revaluation of investments           102      40       102        40 
 Fees receivable from external funds                             31      29         -         - 
 Performance fees receivable                                     31      90         -         - 
 Dividends                                                       14      16        14        16 
===========================================================  ======  ======  ========  ======== 
 
 
                                    Group   Group   Company   Company 
                                     2019    2018      2019      2018 
 Statement of financial position     GBPm    GBPm      GBPm      GBPm 
=================================  ======  ======  ========  ======== 
 Quoted equity investments            469     345       469       345 
 Performance fees receivable           31      90         -         - 
=================================  ======  ======  ========  ======== 
 

20 large investments

The 20 investments listed below account for 94% of the portfolio at 31 March 2019 (31 March 2018: 93%). All investments have been assessed to establish whether they classify as accounting subsidiaries under IFRS and/or subsidiaries under the UK Companies Act. This assessment forms the basis of our disclosure of accounting subsidiaries in the financial statements.

The UK Companies Act defines a subsidiary based on voting rights, with a greater than 50% majority of voting rights resulting in an entity being classified as a subsidiary. IFRS 10 applies a wider test and, if a Group is exposed, or has rights to variable returns from its involvement with the investee and has the ability to affect these returns through its power over the investee then it has control, and hence the investee is deemed an accounting subsidiary. Controlled subsidiaries under IFRS are noted below. None of these investments are UK Companies Act subsidiaries.

In accordance with Part 5 of The Alternative Investment Fund Managers Regulations 2013 ("the Regulations"), 3i Investments plc, as AIFM, requires all controlled portfolio companies to make available to employees an annual report which meets the disclosure requirements of the Regulations. These are available either on the portfolio company's website or through filing with the relevant local authorities.

 
                                                       Residual  Residual 
                                   Business line          cost1     cost1  Valuation  Valuation 
                                   Geography              March     March      March      March    Relevant 
Investment                         First invested in       2018      2019       2018       2019    transactions 
Description of business            Valuation basis         GBPm      GBPm       GBPm       GBPm    in the year 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Action*                            Private Equity            12        24      2,064      2,731 
Non-food discount retailer         Netherlands 
                                   2011 
                                   Earnings 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
3i Infrastructure plc*             Infrastructure           310       307        581        744 
Quoted investment company,         UK 
investing in infrastructure        2007 
                                   Quoted 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Scandlines                         Corporate Assets           -       529          -        529    Full realisation 
Ferry operator between             Denmark/                                                        and 3i's partial 
Denmark and Germany                Germany                                                         reinvestment 
                                   2018                                                            completed on 21 
                                   DCF                                                             June 2018. 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Audley Travel*                     Private Equity           195       189        233        270    GBP25m distribution 
Provider of experiential           UK                                                              received. 
tailor-made travel                 2015 
                                   Earnings 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Basic-Fit                          Private Equity            11         8        270        254    Sold 3.7m shares 
Discount gyms operator             Netherlands                                                     at EUR30.5 per 
                                   2013                                                            share, generating 
                                   Quoted                                                          proceeds of 
                                                                                                   GBP89m. 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Cirtec Medical*                    Private Equity           172       172        190        248    Acquired Cactus 
Outsourced medical device          US                                                              Semiconductor in 
manufacturing                      2017                                                            October 2018 and 
                                   Earnings                                                        Metrigraphics in 
                                                                                                   December 2018. 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Hans Anders*                       Private Equity           186       250        189        246    Acquired eyes + 
Value-for-money optical retailer   Netherlands                                                     more in January 
                                   2017                                                            2019. 
                                   Earnings 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Q Holding*                         Private Equity           162       162        229        241 
Manufacturer of precision          US 
engineered elastomeric             2014 
components                         Earnings 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
WP*                                Private Equity           175       187        244        241 
Supplier of plastic                Netherlands 
packaging solutions                2015 
                                   Earnings 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Smarte Carte*                      Infrastructure           166       164        167        181 
Provider of self-serve vended      US 
luggage carts, electronic lockers  2017 
and concession carts               DCF 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Ponroy Santé*                 Private Equity           139       147        145        174    Acquired 
Manufacturer of natural            France                                                          Densmore in 
healthcare 
and cosmetics products             2017                                                            July 2018. 
                                   Earnings 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
AES Engineering                    Private Equity            30        30        139        172 
Manufacturer of mechanical seals   UK 
and support systems                1996 
                                   Earnings 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Formel D*                          Private Equity           138       147        133        169 
Quality assurance provider for     Germany 
the 
automotive industry                2017 
                                   Earnings 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
ICE*                               Private Equity             -       129          -        155    New investment. 
Global travel and loyalty company  US                                                              In February 
that connects leading brands,      2018                                                            2019, merged 
travel suppliers and end           Earnings                                                        with SOR. 
consumers 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
BoConcept*                         Private Equity           142       156        137        152 
Urban living designer              Denmark 
                                   2016 
                                   Earnings 
Royal Sanders*                     Private Equity             -       135          -        147    New investment. 
Private label and contract         Netherlands                                                     Acquired 
manufacturing producer of          2018                                                            McBride's 
personal care products             Earnings                                                        European 
                                                                                                   personal care 
                                                                                                   liquids business in 
                                                                                                   November 2018. 
ACR                                Private Equity           105       105        129        129 
Pan-Asian non-life reinsurance     Singapore 
                                   2006 
                                   Industry metric 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Lampenwelt*                        Private Equity            98       101        111        119 
Online lighting specialist         Germany 
retailer 
                                   2017 
                                   Earnings 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Tato                               Private Equity             2         2        114        117    GBP10m dividend 
Manufacturer and seller of         UK                                                              received. 
speciality chemicals               1989 
                                   Earnings 
---------------------------------  ------------------  --------  --------  ---------  ---------  --------------------- 
Aspen Pumps*                       Private Equity            86        41        108        103    Acquired 
Manufacturer of pumps and          UK                                                              Advanced 
accessories for the air            2015                                                            Engineering in 
conditioning, heating and          Earnings                                                        November 2018. 
refrigeration industry                                                                             Completed a 
                                                                                                   refinancing in 
                                                                                                   December 2018. 
                                                          2,129     2,985      5,183      7,122 
 ----------------------------------------------------  --------  --------  ---------  ---------  --------------------- 
 

* Controlled in accordance with IFRS.

1 Residual cost includes capitalised interest.

Glossary

2013-2016 vintage includes Aspen Pumps, Audley Travel, Basic-Fit, Dynatect, Euro-Diesel, ATESTEO, JMJ, Q Holding, WP, Scandlines further (completed in December 2013), Christ, Geka, Óticas Carol and Blue Interactive.

2016-2019 vintage includes BoConcept, Cirtec, Formel D, Hans Anders, ICE, Lampenwelt, Ponroy Santé, Royal Sanders and Schlemmer.

Alternative Investment Funds ("AIFs") At 31 March 2019, 3i Investments plc as AIFM, managed five AIFs. These were 3i Group plc, 3i Growth Capital Fund, 3i Eurofund V, 3i Managed Infrastructure Acquisitions LP and 3i Infrastructure plc. 3i Investments (Luxembourg) SA as AIFM, managed one AIF, 3i European Operational Projects Fund.

Alternative Investment Fund Manager ("AIFM") is the regulated manager of AIFs. Within 3i, this is 3i Investments plc and 3i Investments (Luxembourg) SA.

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.

Automatic Exchange of Information ("AEOI") regulation covers the combined legislative requirements of Common Reporting Standards ("CRS") and the Foreign Account Tax Compliance Act ("FATCA"). Both sets of rules require financial groups to identify investors and report details to their local authority who will then exchange the information with other relevant tax authorities.

B2B Business-to-business.

Board The Board of Directors of the Company.

Buyouts 2010-2012 vintage includes Action, Amor, Christ, 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.

Country by Country reporting ("CbC Reporting") refers to a requirement for large multinational groups, operating in different countries, to file an annual report with their head office tax authority. This provides information about the activities of the entities in the Group, on a country-by-country basis, across the countries in which the Group operates. This requirement applied to the Group from 1 April 2016.

Discounting The reduction in present value at a given date of a future cash transaction at an assumed rate, using a discount factor reflecting the time value of money.

EBITDA is defined as earnings before interest, taxation, depreciation and amortisation and is used as the typical measure of portfolio company performance.

EBITDA multiple Calculated as the enterprise value over EBITDA, it is used to determine the value of a company.

Executive Committee The Executive Committee is responsible for the day-to-day running of the Group and comprises: the Chief Executive; Group Finance Director; the Managing Partners of the Private Equity and Infrastructure businesses; and the Group's General Counsel.

Fair value movements on investment entity subsidiaries The movement in the carrying value of Group subsidiaries, classified as investment entities under IFRS 10, between the start and end of the accounting period converted into sterling using the exchange rates at the date of the movement.

Fair value through profit or loss ("FVTPL") is an IFRS measurement basis permitted for assets and liabilities which meet certain criteria. Gains and losses on assets and liabilities measured as FVTPL are recognised directly in the Statement of comprehensive income.

Fee income (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.

International Financial Reporting Standards ("IFRS") are accounting standards issued by the International Accounting Standards Board ("IASB"). The Group's consolidated financial statements are required to be prepared in accordance with IFRS, as endorsed by the EU.

Investment basis Accounts prepared assuming that IFRS 10 had not been introduced. Under this basis, we fair value portfolio companies at the level we believe provides the most comprehensive financial information.

The commentary in the Strategic report refers to this basis as we believe it provides a more understandable view of our performance.

Key Performance Indicator ("KPI") is a measure by reference to which the development, performance or position of the Group can be measured effectively.

Money multiple is calculated as the cumulative distributions plus any residual value divided by paid-in capital.

Net asset value ("NAV") is a measure of the fair value of our proprietary investments and the net costs of operating the business.

Operating cash profit is the difference between our cash income (consisting of portfolio interest received, portfolio dividends received, portfolio fees received and fees received from external funds as per the Investment basis Consolidated cash flow statement) and our operating expenses (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.

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. A new fee arrangement will come into place on 1 April 2019.

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.

Public Private Partnership ("PPP") is a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies.

Realised profits or losses over value on the disposal of investments The difference between the fair value of the consideration received, less any directly attributable costs, on the sale of equity and the repayment of loans and receivables and its carrying value at the start of the accounting period, converted into sterling using the exchange rates at the date of disposal.

Revenue reserve recognises all profits that are revenue in nature or have been allocated to revenue.

Segmental reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Executive who is considered to be the Group's chief operating decision maker. All transactions between business segments are conducted on an arm's length basis, with intrasegment revenue and costs being eliminated on consolidation. Income and expenses directly associated with each segment are included in determining business segment performance.

Share-based payment reserve is a reserve to recognise those amounts in retained earnings in respect of share-based payments.

SORP means the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts.

Syndication The sale of part of our investment in a portfolio company to a third party, usually within 12 months of our initial investment and for the purposes of facilitating investment by a co-investor or portfolio company management in line with our original investment plan. A syndication is treated as a negative investment rather than a realisation.

Total return Comprises operating profit less tax charge less movement in actuarial valuation of the historic defined benefit pension scheme.

Total shareholder return ("TSR") is the measure of the overall return to shareholders and includes the movement in the share price and any dividends paid, assuming that all dividends are reinvested on their ex--dividend date.

Translation reserve comprises all exchange differences arising from the translation of the financial statements of international operations.

Unrealised profits or losses on the revaluation of investments The movement in the carrying value of investments between the start and end of the accounting period converted into sterling using the exchange rates at the date of the movement.

List of Directors and their functions

The Directors of the Company and their functions are listed below:

Simon Thompson, Chairman and Chairman of the Nominations Committee

Simon Borrows, Chief Executive and Executive Director

Julia Wilson, Group Finance Director and Executive Director

Jonathan Asquith, non-executive Director, Deputy Chairman and Chairman of the Remuneration Committee

Caroline Banszky, non-executive Director and Chairman of the Audit and Compliance Committee

Stephen Daintith, non-executive Director

Peter Grosch, non-executive Director

David Hutchison, non-executive Director and Chairman of the Valuations Committee

Coline McConville, non-executive Director

By order of the Board

K J Dunn

Company Secretary

15 May 2019

Registered Office: 16 Palace Street, London SW1E 5JD

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

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May 16, 2019 02:00 ET (06:00 GMT)

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