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.
END
FR EAPSSFDKNEFF
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May 16, 2019 02:00 ET (06:00 GMT)
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