TIDMIII
RNS Number : 3488T
3i Group PLC
14 November 2019
14 November 2019
3i Group plc announces results for the
six months to 30 September 2019
Good momentum across our portfolios
-- Total return of GBP767 million or 10% on opening
shareholders' funds (30 September 2018: GBP728 million, 10%) and
NAV per share of 873 pence (31 March 2019: 815 pence) after paying
the 20 pence second FY2019 dividend in July 2019.
-- Good trading performance across the Private Equity portfolio,
with underlying earnings growth underpinning a gross investment
return of GBP666 million or 11%. This was driven by assets
including Action, Hans Anders and Aspen Pumps.
-- Considered approach to new investment in Private Equity, with
the new investments in Magnitude Software completed and in Evernex
announced in the period. We also made seven bolt-on acquisitions
for portfolio companies and announced a further since the period
end, most of which were self-funded.
-- We have been working with our Eurofund V ("EFV") investors,
and have agreed a transaction to provide liquidity for the fund's
investors from the sale of their holding in Action. This
transaction values Action at a post-discount enterprise value of
EUR10.25 billion, representing a net multiple of 18.2x 30 September
2019 run-rate EBITDA and 20.3x 30 September 2019 LTM EBITDA. The
transaction is scheduled to close in early January 2020.
-- Good contribution from our Infrastructure business, with a
gross investment return of GBP88 million, or 9%, driven principally
by share price appreciation and dividend income from 3i
Infrastructure plc ("3iN"). Strong levels of investment activity
across our Infrastructure portfolios, with new investments and
bolt-on acquisitions completed or announced for 3iN, the 3i
European Operational Projects Fund and for our US Infrastructure
portfolio.
-- Positive contribution from Scandlines, which delivered a
gross investment return of GBP44 million in the period, or 8%,
driven by good trading performance. Scandlines also completed a
refinancing in the period, returning capital proceeds to 3i of
GBP70 million, in addition to dividend income of GBP21 million. A
further GBP6 million of dividend income was received earlier in the
period.
-- First FY2020 dividend of 17.5 pence per share to be paid in
respect of the first six months of the financial year, in line with
our dividend policy.
Simon Borrows, 3i's Chief Executive, commented:
"We saw good performance across our portfolios in the first half
of the year, reflected in an attractive total return of 10% for our
shareholders. Despite the uncertain macroeconomic environment, the
majority of our investments have moved into the second half of the
year with decent momentum. We are very pleased with the progress
made in providing liquidity to EFV investors through the sale of
their holdings in Action. Importantly, the proposed new
shareholding structure will maintain the 3i-led governance model at
Action."
Summary financial highlights under the Investment basis
3i prepares its statutory financial statements in accordance
with International Financial Reporting Standards as adopted by the
European Union ("IFRS"). However, we also report a non-GAAP
"Investment basis" which we believe aids users of our report to
assess the Group's underlying operating performance. The investment
basis (which is unaudited) is an alternative performance measure
("APM") and is described later in this document. Total return and
net assets are the same under the Investment basis and IFRS and we
provide a reconciliation of our Investment basis financial
statements to the IFRS statements later in this document.
Six months to/as Six months to/as 12 months to/as
at 30 September at 30 September at 31 March
Investment basis 2019 2018 2019
----------------------------------------------------------- ----------------- ----------------- ----------------
Total return GBP767m GBP728m GBP1,252m
% return on opening shareholders' funds 10% 10% 18%
Dividend per ordinary share 17.5p 15.0p 35.0p
=========================================================== ================= ================= ================
Gross investment return GBP798m GBP789m GBP1,407m
As a percentage of opening 3i portfolio value 11% 12% 21%
Cash investment GBP312m GBP779m GBP859m
Realisation proceeds GBP71m GBP1,057m GBP1,242m
Realised profit in the period(1) - GBP75m GBP132m
Money multiple on full realisations in Private Equity(2) n/a 4.8x 3.0x
3i portfolio value GBP8,551m GBP7,119m GBP7,553m
Gross debt GBP575m GBP575m GBP575m
Net cash GBP50m GBP512m GBP495m
Liquidity GBP975m GBP1,437m GBP1,420m
Diluted net asset value per ordinary share 873p 776p 815p
=========================================================== ================= ================= ================
1 Realised profits over opening value on the disposal of investments.
2 Cash proceeds over cash invested.
Disclaimer
These half-year results have been prepared solely to provide information to shareholders.
They should not be relied on by any other party or for any other purpose. These half-year
results may contain statements about the future, including certain statements about the future
outlook for 3i Group plc and its subsidiaries ("3i" or "the Group"). These are not guarantees
of future performance and will not be updated. Although we believe our expectations are based
on reasonable assumptions, any statements about the future outlook may be influenced by factors
that could cause actual outcomes and results to be materially different.
Enquiries:
Silvia Santoro, Group Investor Relations Director 020 7975 3258
Kathryn van der Kroft, Communications Director 020 7975 3021
A PDF copy of this release can be downloaded from www.3i.com/investor-relations
For further information, including a live videocast of the results presentation at 10.00am
on 14 November 2019, please visit www.3i.com
Half-year report
Chief Executive's review
Introduction
Our portfolio performed well in the six months to 30 September
2019 generating a total return of GBP767 million, or 10% (September
2018: GBP728 million, or 10%) on opening shareholders' funds. There
has been little change in the high level of competition for good
mid-market private equity and infrastructure assets and so we have
maintained our cautious positioning on new investment. We made one
new investment and signed a second in Private Equity, and made
three new investments in Infrastructure, including a proprietary
capital investment in the US, for which we have already signed a
significant bolt-on investment in October 2019. As expected, there
were no material realisations in Private Equity in the period,
whilst Scandlines completed an earlier than anticipated successful
refinancing and distribution in August 2019.
NAV per share increased to 873 pence (31 March 2019: 815 pence),
after the payment of the second FY2019 dividend of 20 pence in July
2019.
Private Equity
The macro-economic picture has clearly deteriorated this year
with slowing growth in Europe and China. Consumer and investor
confidence has also pulled back with weaker consumer spending and a
reduction in flow in financial markets. Despite this deterioration
in the macro economy, 91% (September 2018: 88%) of our top 20
investments by value grew earnings in the first half, although we
have seen trading slow in a number of industrial investments,
particularly those with exposure to the automotive sector.
Action performance
Action, our largest Private Equity investment, delivered another
period of very strong growth. In the ten months to the end of
October 2019, Action generated strong like-for-like ("LFL") sales
growth of 5.6% and opened 148 net new stores, taking its total to
1,473 stores across seven countries. Action has opened three new
distribution centres ("DCs") this year including its first DC in
Poland, an important milestone in its expansion in that country.
Action's supply chain has performed well this year with good stock
availability across all markets. Over the next 12 months it plans
to open two further DCs, one in Slovakia and its fourth in France.
This extensive network of DCs across Europe strengthens its supply
chain capabilities for existing stores and provides the foundation
for further expansion across existing and new geographies.
Proposed Action transaction
3i has facilitated an Action transaction that provides liquidity
to those investors in EuroFund V ("EFV") who need to exit as the
fund comes to the end of its life. Action's strong management,
ability to produce compounding growth, and excellent cash flow
generation continue to make the company a very attractive long-term
investment. As a result, a number of LP investors in EFV have
decided to reinvest in Action, in some cases increasing their
shareholdings. EFV's investment in Action is to be sold to new 3i
managed entities, the 3i 2020 Co-investment vehicles, that in
addition to reinvesting LP investors, will be backed by new
institutional investors and 3i.
The transaction values Action at a post discount enterprise
value of EUR10.25 billion, a net multiple of 18.2x 30 September
2019 run-rate EBITDA and 20.3x 30 September 2019 LTM EBITDA. This
is an exceptional return for EFV investors, delivering a gross
31.3x euro money multiple, or a 75% gross IRR over the eight years
since the original investment. The transaction is scheduled to
close in early January 2020, triggering the payment of EFV carry to
3i Group.
Prior to the transaction, Action is also expected to complete an
additional all senior EUR625 million refinancing which, together
with surplus cash in the business, will generate a total
distribution of c.EUR745 million to all pre-sale shareholders. We
intend to reinvest 3i's share of these proceeds back into Action,
along with the excess of the EFV carry receivable over the amounts
payable to the participants in the corresponding EFV carry payable
arrangement.
Although the final position will not be known until completion,
we expect to increase our net investment in Action to just under
50%. Importantly, the transaction preserves the 3i-led governance
model that has been so instrumental in the stewardship and value
creation of Action from the business since the investment was made
in 2011.
Other portfolio performance and activity
We have constructed a Private Equity portfolio that includes a
number of platform assets which are capable of growth through
acquisition as well as organically. Following Hans Anders'
acquisition of eyes + more in January 2019, the combined business
has performed well, with good like-for-like sales growth in the
year to date, on-budget store roll out and operational synergies
starting to come through into performance. Aspen Pumps has had a
strong half, with good organic growth in the core business, and has
integrated a number of bolt-on acquisitions, which have
strengthened its performance across all product categories and the
majority of its geographies. Outside of the newer investment
vintages, we maintain minority stakes in Tato and AES, two
long-standing UK assets, both of which performed well in the
period.
Our goal is to buy companies which benefit from long-term
secular growth trends and to apply disciplined, active management
to these portfolio companies to maximise shareholder returns. We
are, however, not immune to the more challenging macro-economic
headwinds across Europe. The team at Schlemmer continues to work
through operational challenges against a deteriorating automotive
industry backdrop. Formel D and Q Holding also saw a reduction in
the rate of growth as a result of contracting volumes in the
automotive sector.
As proprietary capital investors, we are not under pressure to
exit investments when market conditions are unfavourable or when we
believe a longer-term hold would yield greater returns for
shareholders. Excluding Action, 87% of the remaining value of our
Private Equity portfolio is within our more recent 2013-16 and
2016-19 vintages, with very few legacy assets remaining following
the significant number of exits completed over the past few years.
This means that many of our newer investments are still in the
active management phase of the investment life cycle, as we build
value either organically or through bolt-on acquisitions. As a
result, no Private Equity investments were sold in the first half.
However, we expect an increase in realisation activity from the
Private Equity portfolio in the second half, subject to market
conditions.
We remained selective and disciplined in our investment
approach, completing one new Private Equity investment in Magnitude
Software, a business and technology services provider assisting
corporates with data management within their SAP and Oracle
systems. We also signed the acquisition of Evernex, headquartered
in France, which provides third-party maintenance services for data
centre infrastructure. This investment, of c.GBP214 million,
completed at the end of October 2019. We also continued our focus
on buy-and-build opportunities, with seven bolt-on acquisitions for
our portfolio companies of which, one, Lampenwelt's acquisition of
Lampenlicht/QLF, required further funding from 3i. This
buy-and-build momentum has continued into October as Formel D
completed the acquisition of CPS Quality.
Infrastructure
3i Infrastructure plc ("3iN") performed strongly in the period
with a 7% increase in the share price to 295 pence at 30 September
2019 (March 2019: 275 pence) and provided good dividend and fee
income to 3i. The team completed investments in Joulz, which owns
and provides essential energy infrastructure equipment and services
in the Netherlands, and in Ionisos, a leading owner and operator of
cold sterilisation facilities headquartered in France.
In July 2019, we completed our second US infrastructure
investment, the GBP86 million acquisition of Regional Rail, which
owns and operates short-line freight railroads and rail-related
businesses throughout the Mid-Atlantic US. At the end of October
2019, we also announced the significant bolt-on acquisition of
Pinsly Railroad Company's Florida operations for Regional Rail,
which will be funded by 3i when it completes in Q4 FY2020. Our
European Operational Projects Fund continues to grow. In October
2019, we announced a EUR70 million acquisition of an 80% stake in
Sociedad Concesionaría Autovía Gerediaga Elorrio, S.A. ("AGESA"), a
Spanish motorway PPP, meaning that on completion the fund will have
deployed over 50% of its total commitments.
Corporate Assets
One of the reasons we decided to reinvest into Scandlines last
year is its ability to generate a good cash yield to 3i over the
longer term. In August 2019, and earlier than anticipated,
Scandlines successfully refinanced a large portion of its debt,
returning GBP91 million of total proceeds to 3i. Since our
reinvestment in June 2018, Scandlines has already returned over 20%
of our reinvestment amount.
Balance sheet and dividend
We closed the period with net cash of GBP50 million (31 March
2019: net cash of GBP495 million). In line with our dividend
policy, we will pay a first FY2020 dividend of 17.5 pence, which is
50% of our total FY2019 dividend. This first FY2020 dividend will
be paid to shareholders on 8 January 2020.
Outlook
Our investment teams remain busy while being cautious in their
review of new investment opportunities.
Our portfolio overall is performing well and the majority of our
investments have decent momentum going into the second half.
Simon Borrows
Chief Executive
Business and financial review
Private Equity
The Private Equity business generated a gross investment return
of GBP666 million (September 2018: GBP667 million), or 11% of the
opening portfolio value (September 2018: 11%), including a gain on
foreign exchange of GBP176 million (September 2018: GBP116
million). Action's trading performance was strong, and the momentum
in the rest of the Private Equity portfolio remains generally good,
albeit with some more mixed performance from those investments
challenged by macro-economic headwinds, for example in the
automotive sector.
Table 1: Gross investment return for the six months to 30
September
2019 2018
Investment basis GBPm GBPm
============================================================ ===== =====
Realised profits over value on the disposal of investments - 75
Unrealised profits on the revaluation of investments 429 417
Dividends 5 -
Interest income from investment portfolio 52 52
Fees receivable 4 7
Foreign exchange on investments 176 116
Gross investment return 666 667
============================================================ ===== =====
Gross investment return as a % of opening portfolio value 11% 11%
============================================================ ===== =====
Investment
Table 2: Private Equity cash investment in the six months to 30
September 2019
Proprietary
Total capital
investment investment
Investment Type Business description Date GBPm GBPm
==================== ========= ============================ ============================ =========== ============
Leading provider of unified
application data
Magnitude Software New management solutions May 2019 139 139
Acquisition of stakes in
EFV LP stakes Further EFV June 2019 61 61
Manufacturer of cable
management solutions for
the global automotive April 2019 and September
Schlemmer Further industry 2019 10 10
Online lighting specialist
Lampenwelt Further retailer July 2019 8 8
Other n/a n/a n/a 3 3
==================== ========= ============================ ============================ =========== ============
Total Private Equity investment 221 221
============================================================= ============================ =========== ============
In the first half, we completed the GBP139 million new
investment in Magnitude Software, and in July 2019 we signed our
c.GBP214 million new investment in Evernex which completed at the
end of October 2019 and will be the first in the new 2019-22
vintage of investments.
In June 2019, we purchased three additional LP stakes in EFV at
the March 2019 valuation, with 3i's investment totalling GBP61
million. In April, we provided additional funding of GBP8 million
to Schlemmer to support its operational restructuring and, in
September, we also acquired equity from Schlemmer management for a
value of GBP2 million.
We continued our focus on our buy-and-build acquisitions for a
number of our portfolio companies, most of which were self-funded,
with the exception of Lampenwelt's acquisition of Lampenlicht/QLF,
for which we provided GBP8 million of further funding.
Table 3: Private Equity bolt-on acquisitions in the six months
to 30 September 2019
Proprietary
capital
Name of investment
Asset acquisition Business description Date GBPm
============ ================= ===================================================== ================ ============
One of the leading online lighting players in the
Lampenwelt Lampenlicht/QLF Benelux July 2019 8
Aspen TNC Manufacturer of clips April 2019 -
Christ Valmano Online retailer of jewellery and watches in Germany May 2019 -
Havea Pasquali A leading pharmaceutical company in Italy May 2019 -
Basic-Fit Fitland The third largest fitness operator in the Dutch July 2019 -
market by number of clubs with a network of
37 clubs
Dynatect Thodacon A leading provider of waywipers and other critical August 2019 -
components for the industrial machining
and automation markets based in China
Formel D Vdynamics A German automotive engineering service provider September 2019 -
focused on physical and virtual testing of
automotive software and ECUs (electronic control
units)
Total Private Equity bolt-on investment 8
====================================================================================== ================ ============
In October 2019, we continued our buy-and-build strategy, with
Formel D completing the acquisition of CPS Quality, a specialist in
quality control activities with a focus on the automotive
industry.
There were no material realisations from the Private Equity
portfolio in the period to 30 September 2019.
Portfolio performance
Table 4: Unrealised profits/(losses) on the revaluation of
Private Equity investments(1) in the six months to 30 September
2019 2018
GBPm GBPm
=============================================== ===== =====
Action
Earnings growth 381 271
Multiple movements - -
Earnings based valuations (excluding Action)
Earnings growth 90 71
Multiple movements (19) 30
Other bases
Discounted cash flow - 2
Other movements in unquoted investments (11) (7)
Quoted portfolio (12) 50
============================================== ===== =====
Total 429 417
=============================================== ===== =====
1 More information on our valuation methodology, including definitions and rationale, is included
in our Annual report and accounts 2019 on pages 157 to 158.
Action valuation and performance
Having made significant investment in its DC infrastructure and
its planning, IT and purchasing functions, Action performed
strongly in the nine months to the end of September 2019,
delivering very good earnings growth, reflected in the GBP381
million (September 2018: GBP271 million) earnings-driven value
growth shown in Table 4. As the largest Private Equity investment
by value, it represented 47% of the Private Equity portfolio (31
March 2019: 45%).
At 30 September 2019, we did not change the methodology we use
to value Action, using run-rate earnings to 30 September 2019 and a
post discount run-rate multiple of 18.0x (31 March 2019: 18.0x).
This results in a value of GBP3,243 million (31 March 2019:
GBP2,731 million).The EFV transaction valuation which is described
in the CEO statement is marginally ahead of this 30 September 2019
valuation. We intend to maintain our current valuation methodology
going forward.
Earnings growth (excluding Action)
The implementation of buy-and-build plans is contributing to
good earnings growth for a number of our investments. Hans Anders,
the value for money optical retailer, performed well with organic
growth in the underlying business and in eyes + more, an
acquisition it completed in January 2019. Aspen Pumps and Royal
Sanders are also examples of assets which completed recent bolt-on
acquisitions that are performing well and recognising beneficial
synergies. Two of our longest standing investments in the
portfolio, Tato and AES, made good progress in the period.
A combination of market and operational challenges continued to
impact Schlemmer's profitability and this was reflected in the
decline in its earnings and a reduction in the multiple used to
value our investment. As a result, we recognised a GBP35 million
reduction in value on the asset in the period.
Overall, 91% of the top 20 assets by value (including Action) in
our Private Equity portfolio grew their earnings in the period
(September 2018: 88%). Two investments were valued using forecast
earnings at 30 September 2019 (31 March 2019: one), representing 3%
of the Private Equity portfolio by value (31 March 2019: 1%).
Table 5: Portfolio earnings growth of the top 20 Private Equity
investments(1)
3i carrying value
Number of companies at 30 September 2019
Last 12 months' earnings growth(2) at 30 September 2019 GBPm
=================================== ===================== =====================
<0% 3 586
0 - 9% 5 963
10 - 19% 7 4,336
>20% 5 774
=================================== ===================== =====================
1 This represents 96% of the Private Equity portfolio by value (31 March 2019: 97%). ACR is
excluded from this analysis because earnings are not its relevant valuation measure.
2 Calculated using valuation earnings in the top 20 investments, of which 17 used EBITDA, 2
used EBITA and 1 used run-rate earnings.
The weighted average net debt in the portfolio decreased to 3.7x
valuation earnings at 30 September 2019 (31 March 2019: 3.9x)
predominantly due to the strong performance and cash generation of
Action. Excluding Action, which was in the 3-4x category at the end
of the period, weighted average net debt was 3.8x (31 March 2019:
3.7x). Table 6 shows the ratio of net debt to valuation earnings by
portfolio value at 30 September 2019.
Table 6: Ratio of net debt to valuation earnings(1)
3i carrying value
Number of companies at 30 September 2019
Ratio of net debt to Valuation earnings at 30 September 2019 GBPm
======================================== ===================== =====================
<1x - -
1 - 2x 3 510
2 - 3x 3 334
3 - 4x 4 3,750
4 - 5x 6 976
5 - 6x 3 594
======================================== ===================== =====================
1 This represents 89% of the Private Equity portfolio by value (31 March 2019: 88%). Quoted
holdings, deferred consideration and companies with net cash are excluded from the calculation.
Multiple movements
For each of our assets valued on an earnings basis we considered
the impact of the new lease accounting standards, IFRS 16 and
Accounting Standards Codification 842 and, where appropriate, made
adjustments to aid the comparability of multiples. It is clear that
it will take some time for the effect of these new standards to be
fully absorbed into comparable multiples and so we are keeping our
policy under review. More importantly, in setting or changing a
multiple, we consider a number of factors such as relative
performance, investment size, comparable recent transactions and
exit plans, and monitor external equity markets.
As a result, at 30 September 2019, we selected multiples that
were lower than the comparable set in 14 out of 22 companies valued
on an earnings basis (31 March 2019: 12 out of 21).
The run-rate multiple used to value Action at 30 September 2019
remained unchanged at 18.0x post liquidity discount (31 March 2019:
18.0x). As at 30 September 2019, a 1.0x movement in Action's
post-discount multiple would increase or decrease the valuation of
3i's investment by GBP225 million (31 March 2019: GBP197
million).
Excluding Action, the weighted average EBITDA multiple decreased
marginally to 11.7x before liquidity discount (31 March 2019:
11.8x) and was 11.0x after liquidity discount (31 March 2019:
11.1x). The pre-discount multiples used to value the portfolio
ranged between 7.3x and 18.9x (31 March 2019: 7.5x to 18.9x) and
the post-discount multiples ranged between 6.9x and 18.0x (31 March
2019: 7.1x to 18.0x).
Quoted portfolio
Basic-Fit is currently the only quoted asset in the Private
Equity portfolio. We recognised an unrealised value loss of GBP12
million from Basic-Fit in the period (September 2018: GBP50 million
gain) as its share price decreased to EUR28.7 at 30 September 2019
(31 March 2019: EUR30.0). At 30 September 2019, our residual 18%
shareholding was valued at GBP249 million (31 March 2019: 18%
shareholding valued at GBP254 million).
Private Equity proprietary capital
At 30 September 2019, the portfolio consisted of 33 assets (31
March 2019: 32 assets). The value of 3i's Private Equity
proprietary capital increased to GBP6.9 billion (31 March 2019:
GBP6.0 billion) due to the value growth, investment in the period
and gains from foreign exchange translation.
Table 7: Private Equity proprietary capital
Proprietary capital value Vintage Proprietary capital value Vintage
30 September 2019 Multiple 31 March 2019 Multiple
Vintages(1) GBPm 30 September 2019 GBPm 31 March 2019
=================== ========================== ================== ========================== ==============
Buyouts 2010-2012 3,115 9.4x 2,679 8.5x
Growth 2010-2012 23 2.1x 25 2.1x
2013-2016 1,414 2.4x 1,325 2.3x
2016-2019 1,757 1.2x 1,503 1.2x
Other 594 n/a 491 n/a
=================== ========================== ================== ========================== ==============
Total 6,903 6,023
=================== ========================== ================== ========================== ==============
1 Assets included in these vintages are disclosed in the glossary towards the end of this document.
The value of the Private Equity portfolio including third-party
capital increased to EUR10.7 billion (31 March 2019: EUR9.6
billion) due to the increase in Action's valuation and new
investment in the period.
Table 8: Private Equity proprietary capital by 3i office
location
3i carrying value
at 30 September 2019
3i office location Number of companies GBPm
==================== ==================== =====================
Benelux 6 4,199
France 1 187
Germany 5 672
UK 9 732
US 6 954
Other 6 159
==================== ==================== =====================
Total 33 6,903
==================== ==================== =====================
Infrastructure
The Infrastructure business generated a gross investment return
of GBP88 million, or 9% of opening value in the period (September
2018: GBP107 million, 13%). This was mainly driven by 3iN's share
price appreciation and dividend income. The value of 3i's
proprietary capital invested in Infrastructure increased to
GBP1,163 million in the first half (31 March 2019: GBP1,001
million) due to the increase in 3iN's share price and the new
proprietary investment in Regional Rail.
Table 9: Gross investment return for the six months to 30
September
2019 2018
Investment basis GBPm GBPm
=========================================================== ===== =====
Unrealised profits on the revaluation of investments 59 76
Dividends 12 11
Interest income from investment portfolio 5 5
Foreign exchange on investments 17 15
Movement in the fair value of derivatives (5) -
=========================================================== ===== =====
Gross investment return 88 107
=========================================================== ===== =====
Gross investment return as a % of opening portfolio value 9% 13%
=========================================================== ===== =====
3iN
On 11 October 2019, 3iN announced that it had completed a
placing of 81 million shares (c.10% of its equity) at a price of
275 pence per share (representing a premium of c.19% on the March
2019 ex-dividend NAV per share), raising gross proceeds of c.GBP223
million. The proceeds were used to repay amounts drawn under 3iN's
revolving credit facility and to provide liquidity for further
investment. 3i, as the largest shareholder and Investment Manager
of 3iN, was supportive of the 3iN board's objective of diversifying
the company's shareholder base through the placing, and,
accordingly, did not subscribe for new shares. 3i now has a 30% (31
March 2019: 33%) holding in 3iN.
The 3iN portfolio continued to perform well, generating a total
return on opening NAV of 5.8% in the period (September 2018: 9%).
The team completed new investments in Ionisos and Joulz, and
assisted 3iN's portfolio company Valorem to acquire a 51% stake in
Force Hydraulique Antillaise SAS.
3iN paid a management fee to 3i of GBP15 million for the
six-month period to 30 September 2019 (September 2018: GBP15
million).
Table 10: Unrealised profits/(losses) on the revaluation of
Infrastructure investments(1) in the six months to 30 September
2019 2018
GBPm GBPm
===================== ===== =====
Quoted 53 82
Discounted cashflow 4 3
Fund 2 1
Other - (10)
===================== ===== =====
Total 59 76
===================== ===== =====
1 More information on our valuation methodology, including definitions and rationale, is included
in our Annual report and accounts 2019 on pages 157 to 158.
3iN's share price performed well in the first half, increasing
by 7% and closing at 295 pence on 30 September 2019 (31 March 2019:
275 pence). We recognised GBP53 million of unrealised value growth
on our 3iN investment and GBP12 million of dividend income
(September 2018: GBP82 million of unrealised value growth and GBP11
million of dividend income). At 30 September 2019, our investment
in 3iN was valued at GBP794 million (31 March 2019: GBP744
million).
US Infrastructure
In July 2019, we completed our GBP86 million investment in
Regional Rail, our second investment in US infrastructure after
Smarte Carte. At the end of October 2019, Regional Rail agreed the
significant acquisition of Pinsly Railroad Company's Florida
operations. This acquisition will be funded from 3i's balance sheet
when it completes in Q4 FY2020.
Both Smarte Carte and Regional Rail were valued on a DCF basis
at 30 September 2019. We recognised a small uplift on our valuation
of Smarte Carte, in addition to GBP5 million of interest income
received (September 2018: GBP5 million).
We executed a short-term hedging programme to mitigate the
foreign exchange translation risk of our investment in Regional
Rail. We recognised a GBP5 million gain on foreign exchange
translation for Regional Rail offset by a GBP5 million loss in the
period from the movement on the fair value of these
derivatives.
Fund management
The 3i European Operational Projects Fund announced investments
in four projects across Europe in April 2019 and in addition, at
the end of October 2019, the Fund agreed to invest EUR70 million
for the acquisition of an 80% stake in AGESA, the project company
for the Gerediaga-Elorrio motorway in Spain. The completion of this
acquisition will take investment to over 50% of the fund.
Infrastructure AUM increased to GBP4.6 billion (31 March 2019:
GBP4.2 billion) and we generated fee income of GBP22 million from
our fund management activities in the period (September 2018: GBP23
million).
Table 11: Assets under management as at 30 September 2019
Fee
income
% invested at earned in
Close 3i commitment/ Remaining 3i September AUM the period
Fund/strategy date Fund size share commitment 2019 GBPm GBPm
========================== ========= ========== =============== ============= ============== ====== ===========
3iN(1) Mar 07 n/a GBP794m n/a n/a 2,391 15
3i Managed Infrastructure
Acquisitions LP Jun 17 GBP698m GBP35m GBP5m 86% 788 3
3i European Operational
Projects Fund Apr 18 EUR456m EUR40m EUR26m 36% 156 1
BIIF May 08 GBP680m n/a n/a 90% 509 2
3i India Infrastructure
Fund Mar 08 US$1,195m US$250m US$35m 73% 113 -
3i managed accounts various n/a n/a n/a n/a 336 1
US Infrastructure various n/a n/a n/a n/a 289 -
========================== ========= ========== =============== ============= ============== ====== ===========
Total 4,582 22
===================================== ========== =============== ============= ============== ====== ===========
1 AUM based on the share price at 30 September 2019.
Corporate Assets
Scandlines performed well in the period, contributing a gross
investment return of GBP44 million (September 2018: GBP15
million(1) ) or 8% of opening portfolio value (September 2018:
3%(1) ). The business also completed an investment grade debt
refinancing in August 2019, returning cash proceeds to 3i of GBP91
million.
Table 12: Gross investment return for the six months to 30
September
2019 2018(1)
Investment basis GBPm GBPm
============================================================== ===== ========
Unrealised profit / (loss) on the revaluation of investments 10 (15)
Dividends 27 22
Foreign exchange on investments 16 8
Movement in the fair value of derivatives (9) -
============================================================== ===== ========
Gross investment return 44 15
============================================================== ===== ========
Gross investment return as a % of opening portfolio value 8% 3%
============================================================== ===== ========
1 September 2018 comparative is a three-month period from reinvestment in June 2018.
Portfolio performance
In August 2019, Scandlines raised an investment grade debt
facility, maintaining its BBB rating from Fitch and returning GBP70
million of capital proceeds to 3i, in addition to GBP21 million of
dividend income. A further GBP6 million of dividend income was
received earlier in the period. Since our reinvestment in June
2018, Scandlines has already returned 23% of our reinvestment
amount.
Scandlines is valued on a DCF basis and we recognised unrealised
value growth of GBP10 million (September 2018: GBP15 million loss)
from the investment in the period, as the successful refinancing
had a net positive impact on unrealised profit. Car segment
revenues have grown year to date, driven by leisure tickets and
border-shoppers on both routes. The freight segment experienced
lower volumes in the half, consistent with a slowdown in freight
transit between Germany and Scandinavia.
At 30 September 2019, Scandlines was valued at GBP485 million
(31 March 2019: GBP529 million) and the reduction in value reflects
the GBP70 million capital return.
Foreign exchange
We hedge our investment in Scandlines for foreign exchange
translation risks. We recognised a GBP7 million net gain on foreign
exchange translation (September 2018: GBP8 million) including a
GBP9 million fair value loss (September 2018: nil) from derivatives
in our hedging programme.
Overview of financial performance
3i generated a total return of GBP767 million, or a profit on
opening shareholders' funds of 10%, in the six months to 30
September 2019 (September 2018: GBP728 million, or 10%). The
diluted NAV per share at 30 September 2019 increased to 873 pence
(31 March 2019: 815 pence) after the payment of the second FY2019
dividend of GBP194 million, or 20 pence per share (September 2018:
GBP213 million, 22 pence per share).
Table 13: Gross investment return for the six months to 30
September
2019 2018
Investment basis GBPm GBPm
=========================================================== ===== =====
Private Equity 666 667
Infrastructure 88 107
Corporate Assets 44 15
Gross investment return 798 789
=========================================================== ===== =====
Gross investment return as a % of opening portfolio value 11% 12%
----------------------------------------------------------- ----- -----
Total comprehensive income ("Total return") 767 728
=========================================================== ===== =====
Total return on opening shareholders' funds 10% 10%
=========================================================== ===== =====
Gross investment return was GBP798 million in the period
(September 2018: GBP789 million) due to the strong earnings growth
of Action, good levels of dividend income from Scandlines and 3iN
and interest income generated from our more recent vintages. This
also includes a GBP195 million net currency gain on translation of
our investments (September 2018: GBP139 million gain). Further
information on the Private Equity, Infrastructure and Scandlines
valuations is included in their business reviews.
Operating expenses
Operating expenses decreased to GBP60 million in the first six
months of the year (September 2018: GBP62 million) as we remain
disciplined in managing our costs.
Table 14: Operating cash (loss)/profit for the six months to 30
September
2019 2018
GBPm GBPm
======================================= ===== =====
Cash fees from external funds 19 30
Cash portfolio fees 3 6
Cash portfolio dividends and interest 55 37
======================================= ===== =====
Cash income 77 73
Cash operating expenses (79) (69)
======================================= ===== =====
Operating cash (loss)/profit (2) 4
======================================= ===== =====
3i generated an operating cash loss of GBP2 million in the
period (September 2018: GBP4 million profit). Cash income increased
to GBP77 million (September 2018: GBP73 million) principally due to
the GBP27 million of dividends received from Scandlines (September
2018: GBP22 million). Cash operating expenses incurred during the
period increased to GBP79 million (September 2018: GBP69 million)
principally due to higher variable compensation costs. Our cash
operating expenses include GBP2 million of lease payments in
relation to property; the costs are now shown as financing
activities in the cash flow statement in accordance with IFRS 16
(September 2018: cash operating expenses include GBP2 million of
operating lease payments under International Accounting Standards
17).
Foreign exchange
At 30 September 2019, 82% of the Group's assets were denominated
in euros or US dollars (31 March 2019: 77%). The Group recorded a
total foreign exchange gain of GBP196 million net of derivatives
during the period (September 2018: GBP145 million gain) as sterling
weakened significantly against most major currencies due to
continued political uncertainty.
Table 15: Net assets and sensitivity by currency at 30 September
2019
Net 1%
assets sensitivity
FX rate GBPm % GBPm
============== ======== ======= ==== ============
Sterling n/a 1,386 16 n/a
Euro(1) 1.1306 5,492 65 50
US dollar(1) 1.2329 1,397 17 13
Danish krone 8.4414 165 2 1
Other n/a 35 - n/a
============== ======== ======= ==== ============
Total 8,475 100
============== ======== ======= ==== ============
1 Sensitivity impact is net of derivatives.
Carried interest and performance fees payable and receivable
We pay carried interest to participants in plans relating to our
proprietary capital invested. We also receive carried interest from
third-party funds and pay a portion to participants in our carry
plans. Carried interest at 30 September 2019 is calculated assuming
that remaining assets in the portfolio were realised at their fair
value at this date.
Table 16: Carried interest and performance fees for the six
months to 30 September
Consolidated statement of comprehensive income 2019 2018
GBPm GBPm
================================================== ===== =====
Carried interest and performance fees receivable
Private Equity 81 53
================================================== ===== =====
Total 81 53
================================================== ===== =====
Carried interest and performance fees payable
Private Equity (63) (79)
Infrastructure (5) (4)
================================================== ===== =====
Total (68) (83)
================================================== ===== =====
Net carried interest receivable/(payable) 13 (30)
================================================== ===== =====
Carried interest and performance fees receivable
The continued good performance of Action, the largest investment
in EFV, led to a corresponding increase of GBP82 million in the
carried interest receivable from EFV (September 2018: GBP54
million) and contributed to the increase in EFV's fund gross
multiple to 3.0x at 30 September 2019 (31 March 2019: 2.8x).
The overall carried interest and performance fees receivable
increased to GBP684 million (31 March 2019: GBP640 million), after
receipt of the GBP31 million 3iN performance fee in the period,
which had been accrued for at 31 March 2019.
Carried interest and performance fees payable
In Private Equity, we typically accrue net carried interest
payable at between 10% and 12% of gross investment return. We
accrued carried interest payable of GBP63 million (September 2018:
GBP79 million) for Private Equity in the period, of which GBP57
million relates to the team's share of carried interest receivable
from EFV (September 2018: GBP35 million). The PE 2013-16 vintage is
through its performance hurdle and is accruing carried interest
payable.
Carried interest is paid to participants when the performance
hurdles are passed in cash terms following cash proceeds received
from a realisation, refinancing event or other cash distribution.
Due to the time between investment and realisation, the schemes are
usually active for a number of years and their participants are
both current and previous employees of 3i. During the period, GBP32
million was paid to participants in the Private Equity plans
(September 2018: GBP37 million) predominantly as a result of the
OneMed and Etanco realisations in FY2019.
Overall, the effect of the income statement charge, the cash
payments, as well as the currency translation meant that the
balance sheet carried interest and performance fees payable
increased to GBP1,020 million (31 March 2019: GBP970 million). As a
result of the EFV transaction described in the CEO statement, it is
expected that EFV's share, GBP481 million (31 March 2019: GBP413
million), of the accrued carried interest will become payable to
participants in the Buyouts 2010-12 plan.
EFV carried interest receivable and payable
At 30 September 2019 the carried interest receivable accrued on
3i's balance sheet from EFV was GBP681 million (31 March 2019:
GBP602 million). As a result of the EFV transaction described in
the CEO statement, 3i should receive the carried interest
receivable from EFV on completion which is expected in January
2020. The proceeds received will primarily be used to settle the
amounts payable to the participants in the corresponding Buyouts
2010-12 carry payable plan.
Table 17: Carried interest and performance fees
Consolidated statement of financial position 30 September 31 March
2019 2019
GBPm GBPm
================================================== ============= =========
Carried interest and performance fees receivable
Private Equity 684 609
Infrastructure - 31
Total 684 640
================================================== ============= =========
Carried interest and performance fees payable
Private Equity (998) (942)
Infrastructure (22) (28)
================================================== ============= =========
Total (1,020) (970)
================================================== ============= =========
Impact of IFRS 15 on the recognition of carried interest
receivable
IFRS 15 introduced the judgement that variable revenue, such as
carried interest receivable, can only be recognised if it is highly
probable that a significant reversal will not occur. On completion
of the EFV transaction described in the CEO statement, EFV will go
through its hurdle and it is expected that the EFV carry receivable
will be crystallised. This increases the certainty that no
significant reversal of carried interest receivable will occur.
Balance sheet and NAV
Table 18: Simplified consolidated balance sheet
30 September 31 March
2019 2019
Investment basis GBPm GBPm
================================================== ============= =========
Investment portfolio 8,551 7,553
Gross debt (575) (575)
Cash and deposits 625 1,070
================================================== ============= =========
Net cash 50 495
================================================== ============= =========
Carried interest and performance fees receivable 684 640
Carried interest and performance fees payable (1,020) (970)
Other net assets 210 191
================================================== ============= =========
Net assets 8,475 7,909
================================================== ============= =========
Gearing(1) nil nil
================================================== ============= =========
1 Gearing is net debt as a percentage of net assets.
Net cash decreased to GBP50 million at 30 September 2019 (31
March 2019: GBP495 million) as a result of net investment of GBP241
million in the period and the payment of the second FY2019 dividend
of GBP194 million.
The investment portfolio value increased to GBP8,551 million at
30 September 2019 (31 March 2019: GBP7,553 million) driven by
unrealised value growth of GBP498 million, cash investment and
gains on foreign exchange translation.
Table 19: Investments and realisations by business line
30 September 31 March
2019 2019
Investment basis GBPm GBPm
========================= ============= =========
Cash investment
Private Equity (221) (332)
Infrastructure (91) 2
Corporate Assets - (529)
Total cash investment (312) (859)
========================= ============= =========
Cash realisations
Private Equity 1 1,235
Infrastructure - 7
Corporate Assets 70 -
========================= ============= =========
Total cash realisations 71 1,242
========================= ============= =========
Further information on investments and realisations is included
in the Private Equity, Infrastructure and Corporate Assets business
reviews.
Liquidity
Liquidity reduced to GBP975 million at 30 September 2019 (31
March 2019: GBP1,420 million) and comprised cash and deposits of
GBP625 million (31 March 2019: GBP1,070 million) and undrawn
facilities of GBP350 million (31 March 2019: GBP350 million).
Alternative Performance Measures ("APMs")
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed APMs.
The APMs that we use may not be directly comparable with those used
by other companies. Our Investment basis is itself an APM.
The explanation of and rationale for the Investment basis and
its reconciliation to IFRS is provided later in this document. The
table below defines our additional APMs and should be read in
conjunction with the Annual report and accounts 2019.
APM Purpose Calculation Reconciliation to
IFRS
Gross investment A measure of the performance It is calculated The equivalent balances
return as a percentage of our proprietary as the gross investment under IFRS and the
of opening portfolio investment portfolio. return, as shown reconciliation to
value For further information, in the Investment the Investment basis
see the Group KPIs basis Consolidated are shown in the
in our Annual report statement of comprehensive Reconciliation of
and accounts 2019. income, as a % of consolidated statement
the opening portfolio of comprehensive
value. income and the Reconciliation
of consolidated
statement of financial
position respectively.
================================ =========================== ==============================
Cash realisations Cash proceeds from The cash received The equivalent balance
our investments support from the disposal under IFRS and the
our returns to shareholders, of investments in reconciliation to
as well as our ability the period as shown the Investment basis
to invest in new opportunities. in the Investment is shown in the
For further information, basis Consolidated Reconciliation of
see the Group KPIs cash flow statement. consolidated cash
in our Annual report flow statement.
and accounts 2019.
================================ =========================== ==============================
Cash investment Identifying new opportunities The cash paid to The equivalent balance
in which to invest acquire investments under IFRS and the
proprietary capital in the period as reconciliation to
is the primary driver shown on the Investment the Investment basis
of the Group's ability basis Consolidated is shown in the
to deliver attractive cash flow statement. Reconciliation of
returns. For further consolidated cash
information, see the flow statement.
Group KPIs in our Annual
report and accounts
2019.
================================ =========================== ==============================
Operating cash By covering the cash The cash income The equivalent balance
profit/(loss) cost of running the from the portfolio under IFRS and the
business with cash (interest, dividends reconciliation to
income, we reduce the and fees) together the Investment basis
potential dilution with fees received is shown in the
of capital returns. from external funds Reconciliation of
For further information, less cash operating consolidated cash
see the Group KPIs expenses and leases flow statement.
in our Annual report payments as shown
and accounts 2019. on the Investment
basis Consolidated
cash flow statement.
The calculation
is shown in Table
14 of the Overview
of financial performance.
================================ =========================== ==============================
Net cash/(net A measure of the available Cash and cash equivalents The equivalent balance
debt) cash to invest in the plus deposits less under IFRS and the
business and an indicator loans and borrowings reconciliation to
of the financial risk as shown on the the Investment basis
in the Group's balance Investment basis is shown in the
sheet. Consolidated statement Reconciliation of
of financial position. consolidated statement
of financial position.
================================ =========================== ==============================
Gearing A measure of the financial Net debt (as defined The equivalent balance
risk in the Group's above) as a % of under IFRS and the
balance sheet. the Group's net reconciliation to
assets under the the Investment basis
Investment basis. is shown in the
It cannot be less Reconciliation of
than zero. consolidated statement
of financial position.
================================ =========================== ==============================
Principal risks and uncertainties
3i's risk appetite statement, approach to risk management and
governance structure are set out in the Risk section of the Annual
report and accounts 2019, which can be accessed on the Group's
website at www.3i.com.
The principal risks to the achievement of the Group's strategic
objectives for the remaining six months of its financial year are
unchanged from those reported on pages 48 to 53 of the Annual
report and accounts 2019, except for UK political uncertainty which
has been added as a separate risk. Otherwise, there have been no
material changes to the impact and likelihood of the Group's other
principal risks, which are summarised below. This is not a
comprehensive list of all potential risks and uncertainties faced
by the Group, but rather a summary of the risks which may have a
significant impact on its performance and future prospects.
External - Risks arising from external factors including
political, legal, regulatory, economic and competitor changes,
which affect the Group's operations. There is significant
continuing uncertainty in the outlook for the global economy, in
addition to the political uncertainty linked to the forthcoming UK
general election and UK's planned exit from the EU. Although we
cannot be immune to wider market conditions and political
instability, our balance sheet is well funded with low holding
company debt and a portfolio of international companies, and we
believe 3i is better placed than in the past. However, we continue
to monitor closely the wider implications of current geo-political
uncertainties as they develop.
Given that the longer-term implications of the UK's negotiations
to leave the EU have been unclear for some time, we implemented an
alternative regulatory strategy in 2018 to ensure continuity of our
business across a range of reasonably foreseeable scenarios. This
includes permission from the Luxembourg financial regulator, the
Commission de Surveillance du Secteur Financier, to establish and
operate an Alternative Investment Fund Manager ("AIFM") in
Luxembourg. Currently 65% of our portfolio is invested in northern
Europe, and our Luxembourg operation enables 3i to continue the
Group's activities in the region, if, as expected, the UK leaves
the EU.
Investment - Risks in respect of specific asset investment
decisions, the subsequent performance of an investment or exposure
concentrations across business line portfolios.
Operational - Risks arising from inadequate or failed processes,
people and systems or from external factors affecting these. We
continue to review and improve our governance and controls to
protect our information and operational infrastructure.
The Half-year report provides an update on 3i's strategy and
business performance, as well as on market conditions, which is
relevant to the Group's overall risk profile and should be viewed
in the context of the Group's risk management framework and
principal risks as disclosed in the Annual report and accounts
2019.
Reconciliation of the Investment basis to IFRS
Background to Investment basis numbers used in the Half-year
report
The Group makes investments in portfolio companies directly,
held by 3i Group plc, and indirectly, held through intermediate
holding company and partnership structures ("investment entity
subsidiaries"). It also has other operational subsidiaries, which
provide services and other activities such as employment,
regulatory activities, management and advice ("trading
subsidiaries"). The application of IFRS 10 requires the Group to
fair value a number of investment entity subsidiaries. This fair
value approach, applied at the investment entity subsidiary level,
effectively obscures the performance of our proprietary capital
investments and associated transactions occurring in the investment
entity subsidiaries. The financial effect of the underlying
portfolio companies and fee income, operating expenses and carried
interest transactions occurring in investment entity subsidiaries
are aggregated into a single value.
As a result, we include a separate non-GAAP "Investment basis"
consolidated statement of comprehensive income, financial position
and cash flow to aid understanding of our results. The Investment
basis is an APM and the Chief Executive's review and the Business
and financial review are prepared using the Investment basis, as we
believe it provides a more understandable view of our performance.
Total return and net assets are equal under the Investment basis
and IFRS; the Investment basis is simply a "look through" of IFRS
10 to present the underlying performance.
A more detailed explanation of the effect of IFRS 10 is provided
in the Annual report and accounts 2019 on page 39.
Reconciliation between Investment basis and IFRS
A detailed reconciliation from the Investment basis to IFRS
basis of the consolidated statement of comprehensive income,
consolidated statement of financial position and consolidated cash
flow statement is shown later in this document.
Reconciliation of consolidated statement of comprehensive
income
Six months to 30 September 2019 Six months to 30 September 2018
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
========================== ====== =========== ============ ============ =========== ============ ============
Realised profits over
value
on the disposal of
investments 1,2 - - - 75 (44) 31
Unrealised profits
on the revaluation of
investments 1,2 498 (436) 62 478 (386) 92
Fair value movements
on investment entity
subsidiaries 1 - 602 602 - 502 502
Portfolio income
Dividends 1,2 44 (31) 13 33 (26) 7
Interest income from
investment portfolio 1,2 57 (39) 18 57 (40) 17
Fees receivable 1,2 4 1 5 7 1 8
Foreign exchange on
investments 1,4 209 (168) 41 139 (108) 31
Movement in the fair
value of derivatives (14) - (14) - - -
========================== ====== =========== ============ ============ =========== ============ ============
Gross investment return 798 (71) 727 789 (101) 688
========================== ====== =========== ============ ============ =========== ============ ============
Fees receivable from
external funds 23 - 23 26 - 26
Operating expenses 1,3 (60) - (60) (62) - (62)
Interest received 2 - 2 1 - 1
Interest paid (18) - (18) (17) - (17)
Exchange movements 1,4 1 19 20 6 (4) 2
Income from investment
entity subsidiaries 1 - 10 10 - 10 10
Other income 3 (1) 2 1 - 1
Operating profit before
carried interest 749 (43) 706 744 (95) 649
========================== ====== =========== ============ ============ =========== ============ ============
Carried interest
Carried interest and
performance
fees receivable 1,3 81 (18) 63 53 5 58
Carried interest and
performance
fees payable 1,3 (68) 59 (9) (83) 89 6
========================= ====== =========== ============ ============ =========== ============ ============
Operating profit before
tax 762 (2) 760 714 (1) 713
========================== ====== =========== ============ ============ =========== ============ ============
Income taxes 1,3 (1) - (1) 2 (1) 1
========================== ====== =========== ============ ============ =========== ============ ============
Profit for the period 761 (2) 759 716 (2) 714
========================== ====== =========== ============ ============ =========== ============ ============
Other comprehensive income that
may be reclassified to the income
statement
Exchange differences
on translation of
foreign operations 1,4 - 2 2 - 2 2
Other comprehensive
income that will not be
reclassified to the
income statement
Re-measurement of
defined
benefit plans 6 - 6 12 - 12
========================= ====== =========== ============ ============ =========== ============ ============
Other comprehensive
income for
the period 6 2 8 12 2 14
========================== ====== =========== ============ ============ =========== ============ ============
Total comprehensive
income for
the period ("Total
return") 767 - 767 728 - 728
========================== ====== =========== ============ ============ =========== ============ ============
Notes:
1 Applying IFRS 10 to the consolidated statement of comprehensive income consolidates the line
items of a number of previously consolidated subsidiaries into a single line item "Fair value
movements on investment entity subsidiaries". In the Investment basis accounts we have disaggregated
these line items to analyse our total return as if these investment entity subsidiaries were
fully consolidated, consistent with prior periods. The adjustments simply reclassify the consolidated
statement of comprehensive income of the Group, and the total return is equal under the Investment
basis and the IFRS basis.
2 Realised profits, unrealised profits and portfolio income shown in the IFRS accounts only
relate to portfolio companies that are held directly by 3i Group plc and not those portfolio
companies held through investment entity subsidiaries. Realised profits, unrealised profits
and portfolio income in relation to portfolio companies held through investment entity subsidiaries
are aggregated into the single "Fair value movement on investment entity subsidiaries" line.
This is the most significant reduction of information in our IFRS accounts.
3 Other items also aggregated into the "Fair value movements on investment entity subsidiaries"
line include fees receivable from external funds, audit fees, administration expenses, carried
interest and tax.
4 Foreign exchange movements have been reclassified under the Investment basis as foreign currency
asset and liability movements. Movements within the investment entity subsidiaries are included
within "Fair value movements on investment entity subsidiaries".
Reconciliation of consolidated statement of financial
position
As at 30 September 2019 As at 31 March 2019
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (audited)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
==== ================================ =========== ============ ============ =========== ============ ==========
Assets
Non-current assets
Investments
Quoted investments 1 1,043 (544) 499 998 (529) 469
Unquoted investments 1 7,508 (6,078) 1,430 6,555 (5,362) 1,193
Investments in investment
entity subsidiaries 1,2 - 5,805 5,805 - 5,159 5,159
================================ ==== =========== ============ ============ =========== ============ ==========
Investment portfolio 8,551 (817) 7,734 7,553 (732) 6,821
================================ ==== =========== ============ ============ =========== ============ ==========
Carried interest and
performance
fees receivable 1 684 - 684 605 - 605
Other non-current assets 1 131 (106) 25 117 (93) 24
Intangible assets 10 - 10 11 - 11
Retirement benefit surplus 142 - 142 134 - 134
Property, plant and equipment 4 - 4 4 - 4
Right of use asset 21 - 21 - - -
Derivative financial
instruments 5 - 5 11 - 11
Total non-current assets 9,548 (923) 8,625 8,435 (825) 7,610
================================ ==== =========== ============ ============ =========== ============ ==========
Current assets
Carried interest and
performance
fees receivable 1 - 1 1 35 - 35
Other current assets 1 30 (1) 29 29 (5) 24
Current income taxes 1 - 1 12 - 12
Derivative financial
instruments 4 - 4 7 - 7
Deposits 50 - 50 50 - 50
Cash and cash equivalents 1 575 (10) 565 1,020 (37) 983
================================ ==== =========== ============ ============ =========== ============ ==========
Total current assets 660 (10) 650 1,153 (42) 1,111
================================ ==== =========== ============ ============ =========== ============ ==========
Total assets 10,208 (933) 9,275 9,588 (867) 8,721
================================ ==== =========== ============ ============ =========== ============ ==========
Liabilities
Non-current liabilities
Trade and other payables 1 (6) 6 - (8) 7 (1)
Carried interest and
performance
fees payable 1 (1,014) 926 (88) (926) 840 (86)
Loans and borrowings (575) - (575) (575) - (575)
Derivative financial
instruments (1) - (1) - - -
Lease liability (18) - (18) - - -
Retirement benefit deficit (27) - (27) (27) - (27)
Deferred income taxes (1) - (1) (1) - (1)
Provisions (1) - (1) (1) - (1)
================================ ==== =========== ============ ============ =========== ============ ==========
Total non-current liabilities (1,643) 932 (711) (1,538) 847 (691)
================================ ==== =========== ============ ============ =========== ============ ==========
Current liabilities
Trade and other payables 1 (73) 1 (72) (95) 1 (94)
Carried interest and
performance
fees payable 1 (6) - (6) (44) 19 (25)
Derivative financial
instruments (6) - (6) - - -
Lease liability (4) - (4) - - -
Current income taxes (1) - (1) (1) - (1)
Provisions - - - (1) - (1)
================================ ==== =========== ============ ============ =========== ============ ==========
Total current liabilities (90) 1 (89) (141) 20 (121)
================================ ==== =========== ============ ============ =========== ============ ==========
Total liabilities (1,733) 933 (800) (1,679) 867 (812)
================================ ==== =========== ============ ============ =========== ============ ==========
Net assets 8,475 - 8,475 7,909 - 7,909
================================ ==== =========== ============ ============ =========== ============ ==========
Equity
Issued capital 719 - 719 719 - 719
Share premium 787 - 787 787 - 787
Other reserves 3 7,006 - 7,006 6,445 - 6,445
Own shares (37) - (37) (42) - (42)
================================ ==== =========== ============ ============ =========== ============ ==========
Total equity 8,475 - 8,475 7,909 - 7,909
================================ ==== =========== ============ ============ =========== ============ ==========
Notes:
1 Applying IFRS 10 to the consolidated statement of financial position
aggregates the line items of investment entity subsidiaries into the
single line item "Investments in investment entity subsidiaries".
In the Investment basis, we have disaggregated these items to analyse
our net assets as if the investment entity subsidiaries were consolidated.
The adjustment reclassifies items in the consolidated statement of
financial position. There is no change to the net assets, although
for reasons explained below, gross assets and gross liabilities are
different.
The disclosure relating to portfolio companies is significantly reduced
by the aggregation, as the fair value of all investments held by investment
entity subsidiaries is aggregated into the "Investments in investment
entity subsidiaries" line. We have disaggregated this fair value and
disclosed the underlying portfolio holding in the relevant line item,
ie quoted investments or unquoted investments.
Other items which may be aggregated include carried interest and
other payables, and the Investment basis presentation again disaggregates
these items.
2 Intercompany balances between investment entity subsidiaries and trading
subsidiaries also impact the transparency of our results under the
IFRS basis. If an investment entity subsidiary has an intercompany
balance with a consolidated trading subsidiary of the Group, then
the asset or liability of the investment entity subsidiary will be
aggregated into its fair value, while the asset or liability of the
consolidated trading subsidiary will be disclosed as an asset or liability
in the consolidated statement of financial position of the Group.
3 Investment basis financial statements are prepared for performance
measurement and therefore reserves are not analysed separately under
this basis.
Reconciliation of consolidated cash flow statement
Six months to 30 September 2019 Six months to 30 September 2018
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
============================ ====== =========== ============ ============ =========== ============ ============
Cash flow from operating activities
Purchase of investments 1 (312) 158 (154) (779) 686 (93)
Proceeds from investments 1 71 (71) - 985 (164) 821
Cash outflow to investment
entity subsidiaries 1 - (31) (31) - (525) (525)
Net cash flow from
derivatives 1 - 1 - - -
Portfolio interest received 1 9 (3) 6 4 - 4
Portfolio dividends
received 1 46 (31) 15 33 (26) 7
Portfolio fees received 1 3 1 4 6 1 7
Fees received from external
funds 19 - 19 30 - 30
Carried interest and
performance
fees received 1 53 (19) 34 102 (1) 101
Carried interest and
performance
fees paid 1 (40) 14 (26) (46) 36 (10)
Carried interest held in
non-current assets 1 (11) 11 - - - -
Operating expenses paid (77) - (77) (69) - (69)
Co-investment loans
(paid)/received 1 - - - (6) 7 1
Income taxes
received/(paid) 10 - 10 (10) - (10)
Other cash income 2 - 2 - - -
---------------------------- ------ ----------- ------------ ------------ ----------- ------------ ------------
Net cash flow from
operating activities (226) 29 (197) 250 14 264
============================ ====== =========== ============ ============ =========== ============ ============
Cash flow from financing
activities
Purchase of own shares (18) - (18) - - -
Dividend paid (194) - (194) (213) - (213)
Lease payments (2) - (2) - - -
Interest received 1 1 1 2 1 - 1
Interest paid (12) - (12) (12) - (12)
Net cash flow from
financing activities (225) 1 (224) (224) - (224)
============================ ====== =========== ============ ============ =========== ============ ============
Cash flow from investing
activities
Purchase of property, plant
and equipment (1) - (1) (1) - (1)
Net cash flow from
investing activities (1) - (1) (1) - (1)
============================ ====== =========== ============ ============ =========== ============ ============
Change in cash and cash
equivalents 2 (452) 30 (422) 25 14 39
============================ ====== =========== ============ ============ =========== ============ ============
Cash and cash equivalents
at the start of the period 2 1,020 (37) 983 1,054 (82) 972
Effect of exchange rate
fluctuations 1 7 (3) 4 8 - 8
Cash and cash equivalents
at the end of the period 2 575 (10) 565 1,087 (68) 1,019
============================ ====== =========== ============ ============ =========== ============ ============
Notes:
1 The consolidated cash flow statement is impacted by the application
of IFRS 10 as cash flows to and from investment entity subsidiaries
are disclosed, rather than the cash flows to and from the underlying
portfolio.
Therefore, in our Investment basis financial statements, we have disclosed
our consolidated cash flow statement on a "look through" basis, in
order to reflect the underlying sources and uses of cash flows and
disclose the underlying investment activity.
2 There is a difference between the change in cash and cash equivalents
of the Investment basis financial statements and the IFRS financial
statements because there are cash balances held in investment entity
subsidiaries. Cash held within investment entity subsidiaries will
not be shown in the IFRS statements but will be seen in the Investment
basis statements.
IFRS Financial statements
Condensed consolidated statement of comprehensive income
Six months to Six months to
30 September 30 September
2019 2018
(unaudited) (unaudited)
Notes GBPm GBPm
=========================================================================== ======= ============== ==============
Realised profits over value on the disposal of investments - 31
Unrealised profits on the revaluation of investments 2 62 92
Fair value movements on investment entity subsidiaries 7 602 502
=========================================================================== ======= ============== ==============
Portfolio income
Dividends 13 7
Interest income from investment portfolio 18 17
Fees receivable 3 5 8
Foreign exchange on investments 41 31
Movement in the fair value of derivatives (14) -
=========================================================================== ======= ============== ==============
Gross investment return 727 688
Fees receivable from external funds 3 23 26
Operating expenses (60) (62)
Interest received 2 1
Interest paid (18) (17)
Exchange movements 20 2
Income from investment entity subsidiaries 10 10
Other income 2 1
Carried interest
Carried interest and performance fees receivable 3 63 58
Carried interest and performance fees payable (9) 6
========================================================================== ======= ============== ==============
Operating profit before tax 760 713
Income taxes (1) 1
=========================================================================== ======= ============== ==============
Profit for the period 759 714
=========================================================================== ======= ============== ==============
Other comprehensive income that may be reclassified to the income statement
Exchange differences on translation of foreign operations 2 2
Other comprehensive income that will not be reclassified to the income statement
Re-measurements of defined benefit plans 6 12
========================================================================== ======= ============== ==============
Other comprehensive income for the period 8 14
=========================================================================== ======= ============== ==============
Total comprehensive income for the period ("Total return") 767 728
=========================================================================== ======= ============== ==============
Earnings per share
Basic (pence) 4 78.4 73.8
Diluted (pence) 4 78.2 73.5
========================================================================== ======= ============== ==============
Condensed consolidated statement of financial position
30 September 31 March
2019 2019
(unaudited) (audited)
Notes GBPm GBPm
======================================================= ============= ==========
Assets
Non-current assets
Investments
Quoted investments 6 499 469
Unquoted investments 6 1,430 1,193
Investments in investment entity subsidiaries 7 5,805 5,159
=================================================== ============= ==========
Investment portfolio 7,734 6,821
=================================================== ============= ==========
Carried interest and performance fees receivable 684 605
Other non-current assets 25 24
Intangible assets 10 11
Retirement benefit surplus 142 134
Property, plant and equipment 4 4
Right of use asset 21 -
Derivative financial instruments 5 11
Total non-current assets 8,625 7,610
======================================================= ============= ==========
Current assets
Carried interest and performance fees receivable 1 35
Other current assets 29 24
Current income taxes 1 12
Derivative financial instruments 4 7
Deposits 50 50
Cash and cash equivalents 565 983
======================================================= ============= ==========
Total current assets 650 1,111
======================================================= ============= ==========
Total assets 9,275 8,721
======================================================= ============= ==========
Liabilities
Non-current liabilities
Trade and other payables - (1)
Carried interest and performance fees payable (88) (86)
Loans and borrowings (575) (575)
Derivative financial instruments (1) -
Lease liability (18) -
Retirement benefit deficit (27) (27)
Deferred income taxes (1) (1)
Provisions (1) (1)
=================================================== ============= ==========
Total non-current liabilities (711) (691)
======================================================= ============= ==========
Current liabilities
Trade and other payables (72) (94)
Carried interest and performance fees payable (6) (25)
Derivative financial instruments (6) -
Lease liability (4) -
Current income taxes (1) (1)
Provisions - (1)
=================================================== ============= ==========
Total current liabilities (89) (121)
======================================================= ============= ==========
Total liabilities (800) (812)
======================================================= ============= ==========
Net assets 8,475 7,909
======================================================= ============= ==========
Equity
Issued capital 719 719
Share premium 787 787
Capital redemption reserve 43 43
Share-based payment reserve 31 36
Translation reserve (1) (3)
Capital reserve 6,044 5,590
Revenue reserve 889 779
Own shares (37) (42)
=================================================== ============= ==========
Total equity 8,475 7,909
======================================================= ============= ==========
Condensed consolidated statement of changes in equity
For the six months to Share-
30 September 2019
(unaudited)
=======================
Capital based
=======================
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve reserve shares equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total equity at the
start of
the period(1) 719 787 43 36 (3) 5,590 779 (42) 7,909
Profit for the period - - - - - 665 94 - 759
Exchange differences
on translation of
foreign operations - - - - 2 - - - 2
Re-measurements of
defined benefit plans - - - - - 6 - - 6
Total comprehensive
income for the period - - - - 2 671 94 - 767
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Share-based payments - - - 11 - - - - 11
Release on
exercise/forfeiture
of share awards - - - (16) - - 16 - -
Exercise of share
awards - - - - - (23) - 23 -
Ordinary dividends - - - - - (194) - - (194)
Purchase of own shares - - - - - - - (18) (18)
Total equity at the
end of
the period 719 787 43 31 (1) 6,044 889 (37) 8,475
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
1 The adoption of IFRS 16 on 1 April 2019 resulted in the recognition
of a right of use asset of GBP23 million and lease liability of GBP23
million, with nil impact on retained earnings. See the Basis of preparation
and accounting policies for further details.
For the six months to Share-
30 September 2018
(unaudited)
=======================
Capital based
=======================
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve reserve shares equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total equity at the
start of
the period 719 786 43 32 (8) 4,700 778 (26) 7,024
Profit for the period - - - - - 622 92 - 714
Exchange differences
on translation of
foreign operations - - - - 2 - - - 2
Re-measurements of
defined benefit plans - - - - - 12 - - 12
Total comprehensive
income for the period - - - - 2 634 92 - 728
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Share-based payments - - - 9 - - - - 9
Release on
exercise/forfeiture
of share awards - - - (12) - - 12 - -
Exercise of share
awards - - - - - (13) - 13 -
Ordinary dividends - - - - - (164) (49) - (213)
Total equity at the
end of
the period 719 786 43 29 (6) 5,157 833 (13) 7,548
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Condensed consolidated cash flow statement
Six months to Six months to
30 September 30 September
2019 2018
(unaudited) (unaudited)
GBPm GBPm
====================================================== ============== ==============
Cash flow from operating activities
Purchase of investments (154) (93)
Proceeds from investments - 821
Cash outflow to investment entity subsidiaries (31) (525)
Net cash flow from derivatives 1 -
Portfolio interest received 6 4
Portfolio dividends received 15 7
Portfolio fees received 4 7
Fees received from external funds 19 30
Carried interest and performance fees received 34 101
Carried interest and performance fees paid (26) (10)
Operating expenses paid (77) (69)
Co-investment loans received - 1
Income taxes received/(paid) 10 (10)
Other cash income 2 -
====================================================== ============== ==============
Net cash flow from operating activities (197) 264
====================================================== ============== ==============
Cash flow from financing activities
Purchase of own shares (18) -
Dividend paid (194) (213)
Lease payments (2) -
Interest received 2 1
Interest paid (12) (12)
Net cash flow from financing activities (224) (224)
====================================================== ============== ==============
Cash flow from investing activities
Purchase of property, plant and equipment (1) (1)
Net cash flow from investing activities (1) (1)
====================================================== ============== ==============
Change in cash and cash equivalents (422) 39
====================================================== ============== ==============
Cash and cash equivalents at the start of the period 983 972
Effect of exchange rate fluctuations 4 8
Cash and cash equivalents at the end of the period 565 1,019
====================================================== ============== ==============
Notes to the financial statements
Basis of preparation and accounting policies
Compliance with International Financial Reporting Standards
("IFRS")
The Half-year condensed consolidated financial statements of 3i
Group plc have been prepared in accordance with the Disclosure
Rules and Transparency Rules of the Financial Conduct Authority and
IAS 34 Interim Financial Reporting as issued by the International
Accounting Standards Board ('IASB') and as endorsed by the European
Union. The Half-year condensed consolidated financial statements
should be read in conjunction with the Annual report and accounts
2019. The accounting policies applied by 3i Group plc for the
Half-year condensed consolidated financial statements are
consistent with those described on pages 104 to 144 of the Annual
report and accounts 2019, except for the adoption of certain new
accounting standards, further details of which are outlined below.
There was no change in the current period to the critical
accounting estimates and judgements applied in 2019, which are
stated on page 106 of the Annual report and accounts 2019.
The financial information for the year ended 31 March 2019
contained within this Half-year report does not constitute
statutory accounts as defined in section 434 of the Companies Act
2006. The statutory accounts for the year to 31 March 2019,
prepared under IFRS as endorsed by the EU, have been reported on by
Ernst & Young LLP and delivered to the Registrar of Companies.
The report of the Auditor on these statutory accounts was
unqualified and did not contain a statement under section 498(2) or
section 498(3) of the Companies Act 2006.
The Half-year condensed consolidated financial statements are
prepared on a going concern basis and presented to the nearest
million sterling (GBPm), the functional currency of the Group.
Accounting developments
On 1 April 2019, the Group adopted IFRS 16 Leases, which
replaces IAS 17 Leases.
The only impact on the Group relates to leases for use of office
space. These were previously 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 is calculated based on expected
future lease payments, discounted using the relevant incremental
borrowing rate. The ROU asset is recognised at cost less
accumulated depreciation and impairment losses, with depreciation
charged on a straight line basis over the life of the lease. In
determining the value of the ROU asset and lease liabilities, the
Group considers whether any leases contain lease extensions or
termination options that the Group is reasonably certain to
exercise.
The Group has applied the simplified retrospective approach to
IFRS 16 and therefore comparative information has not been
restated. On adoption of IFRS 16, the Group recognised an
additional GBP23 million ROU asset and GBP23 million lease
liability, with nil impact on retained earnings at 1 April 2019.
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%, with a weighted average incremental
borrowing rate of 2.04%. A reconciliation of the operating lease
commitment as at 31 March 2019 (Note 24 in 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 the Annual report and accounts 2019 (Note 24) 24
Impact of discounting using incremental borrowing rates
at 1 April 2019 (1)
----------------------------------------------------------- -----
Opening lease liability at 1 April 2019 23
----------------------------------------------------------- -----
During the period, GBP2 million was recognised in operating
expenses relating to depreciation of the ROU asset and nil was
recognised in interest paid relating to effective interest on the
lease liability, these amounts are not materially different to the
amounts which would have been recognised under IAS 17.
1 Segmental analysis
The tables below are presented on the Investment basis which is
the basis used by the chief operating decision maker, the Chief
Executive, to monitor the performance of the Group. A description
of the Investment basis and a reconciliation of the Investment
basis to the IFRS financial statements is provided earlier in this
document. Further detail on the Group's segmental analysis can be
found on pages 108 to 110 of the Annual report and accounts 2019.
The remaining Notes are prepared on an IFRS basis.
Investment basis
Private Corporate
Equity Infrastructure Assets Total
Six months to 30 September 2019 GBPm GBPm GBPm GBPm
=================================================== ======== =============== ========== ======
Realised profits over value on the disposal
of investments - - - -
Unrealised profits/(losses) on the revaluation
of investments 429 59 10 498
Portfolio income
Dividends 5 12 27 44
Interest income from investment portfolio 52 5 - 57
Fees receivable 4 - - 4
Foreign exchange on investments 176 17 16 209
Movement in the fair value of derivatives - (5) (9) (14)
=================================================== ======== =============== ========== ======
Gross investment return 666 88 44 798
=================================================== ======== =============== ========== ======
Fees receivable from external funds 1 22 - 23
Operating expenses (38) (21) (1) (60)
Interest received 2
Interest paid (18)
Exchange movements 1
Other income 3
=================================================== ======== =============== ========== ======
Operating profit before carried interest 749
=================================================== ======== =============== ========== ======
Carried interest
Carried interest and performance fees receivable 81 - - 81
Carried interest and performance fees payable (63) (5) - (68)
================================================== ======== =============== ========== ======
Operating profit 762
=================================================== ======== =============== ========== ======
Income taxes (1)
Other comprehensive income
Re-measurements of defined benefit plans 6
================================================== ======== =============== ========== ======
Total return 767
=================================================== ======== =============== ========== ======
Net divestment/(investment)
Realisations 1 - 70 71
Cash investment (221) (91) - (312)
=================================================== ======== =============== ========== ======
(220) (91) 70 (241)
=================================================== ======== =============== ========== ======
Balance sheet
Opening portfolio value at 1 April 2019 6,023 1,001 529 7,553
Investment(1) 289 91 - 380
Value disposed (1) - (70) (71)
Unrealised value movement 429 59 10 498
Other movement (including foreign exchange) 163 12 16 191
=================================================== ======== =============== ========== ======
Closing portfolio value at 30 September 2019 6,903 1,163 485 8,551
=================================================== ======== =============== ========== ======
1 Includes capitalised interest and other non-cash investment.
Investment basis
Private Corporate
Equity Infrastructure Assets Total
Six months to 30 September 2018 GBPm GBPm GBPm GBPm
=================================================== ======== =============== ========== ======
Realised profits over value on the disposal
of investments 75 - - 75
Unrealised profits/(losses) on the revaluation
of investments 417 76 (15) 478
Portfolio income
Dividends - 11 22 33
Interest income from investment portfolio 52 5 - 57
Fees receivable 7 - - 7
Foreign exchange on investments 116 15 8 139
=================================================== ======== =============== ========== ======
Gross investment return 667 107 15 789
=================================================== ======== =============== ========== ======
Fees receivable from external funds 3 23 - 26
Operating expenses (39) (23) - (62)
Interest received 1
Interest paid (17)
Exchange movements 6
Other income 1
=================================================== ======== =============== ========== ======
Operating profit before carried interest 744
=================================================== ======== =============== ========== ======
Carried interest
Carried interest and performance fees receivable 53 - - 53
Carried interest and performance fees payable (79) (4) - (83)
================================================== ======== =============== ========== ======
Operating profit 714
=================================================== ======== =============== ========== ======
Income taxes 2
Other comprehensive income
Re-measurements of defined benefit plans 12
================================================== ======== =============== ========== ======
Total return 728
=================================================== ======== =============== ========== ======
Net divestment/(investment)
Realisations(1,2) 1,052 5 - 1,057
Cash investment(2) (254) 4 (529) (779)
=================================================== ======== =============== ========== ======
798 9 (529) 278
=================================================== ======== =============== ========== ======
Balance sheet
Opening portfolio value at 1 April 2018 5,825 832 - 6,657
Investment(3) 320 (4) 529 845
Value disposed (977) (5) - (982)
Unrealised value movement 417 76 (15) 478
Other movement (including foreign exchange) 101 13 7 121
=================================================== ======== =============== ========== ======
Closing portfolio value at 30 September 2018 5,686 912 521 7,119
=================================================== ======== =============== ========== ======
1 Investment basis Cash flow statement differs due to the timing of realisation
cash flows in Private Equity.
2 The Scandlines transaction is presented gross in realisations (Private
Equity: GBP835 million) and cash investment (Corporate Assets: GBP529
million). Total realisations, net of the Scandlines reinvestment, are
GBP528 million and total net cash investment is GBP250 million.
3 Includes capitalised interest and other non-cash investment.
2 Unrealised profits/(losses) on the revaluation of
investments
Six months to 30 September 2019 Unquoted Quoted
investments investments Total
GBPm GBPm GBPm
============================================ ============ ============ ======
Movement in the fair value of investments 29 33 62
============================================ ============ ============ ======
Of which:
- unrealised gains 60 33 93
- unrealised losses (31) - (31)
=========================================== ============ ============ ======
29 33 62
=========================================== ============ ============ ======
Six months to 30 September 2018 Unquoted Quoted
investments investments Total
GBPm GBPm GBPm
============================================ ============ ============ ======
Movement in the fair value of investments 44 48 92
============================================ ============ ============ ======
Of which:
- unrealised gains 71 48 119
- unrealised losses (27) - (27)
=========================================== ============ ============ ======
44 48 92
=========================================== ============ ============ ======
3 Revenue
Items from the Consolidated statement of comprehensive income
which fall within the scope of IFRS 15 are included in the table
below:
Private
Equity Infrastructure Total
Six months to 30 September 2019 GBPm GBPm GBPm
===================================================== ======== =============== ======
Total revenue by geography(1)
UK 64 21 85
Northern Europe 2 1 3
North America 3 - 3
Total 69 22 91
===================================================== ======== =============== ======
Revenue by type
Fees receivable(2) from portfolio 5 - 5
Fees receivable from external funds 1 22 23
Carried interest and performance fees receivable(2) 63 - 63
Total 69 22 91
===================================================== ======== =============== ======
Private
Equity Infrastructure Total
Six months to 30 September 2018 GBPm GBPm GBPm
===================================================== ======== =============== ======
Total revenue by geography(1)
UK 61 7 68
Northern Europe 4 16 20
North America 4 - 4
Total 69 23 92
===================================================== ======== =============== ======
Revenue by type
Fees receivable(2) from portfolio 8 - 8
Fees receivable from external funds 3 23 26
Carried interest and performance fees receivable(2) 58 - 58
Total 69 23 92
===================================================== ======== =============== ======
1 For fees receivable from external funds and carried interest and performance fees receivable
the geography is based on the domicile of the fund.
2 Fees receivable and carried interest receivable above are different to the Investment basis
figures included in Note 1. This is due to the fact that Note 1 is disclosed on the Investment
basis and the table above is shown on the IFRS basis. For an explanation of the Investment
basis and a reconciliation between Investment basis and IFRS basis, see the relevant section
earlier in this document.
4 Per share information
The calculation of basic net assets per share is based on the
net assets and the number of shares in issue. When calculating the
diluted net assets per share, the number of shares in issue is
adjusted for the effect of all dilutive share awards.
30 September 31 March
2019 2019
========================================================== ============= =========
Net assets per share (GBP)
Basic 8.75 8.19
Diluted 8.73 8.15
Net assets (GBPm)
Net assets attributable to equity holders of the Company 8,475 7,909
========================================================== ============= =========
30 September 31 March
2019 2019
============================================== ============= ============
Number of shares in issue
Ordinary shares 973,041,002 973,000,665
Own shares (4,764,635) (7,014,008)
============================================== ============= ============
968,276,367 965,986,657
============================================== ============= ============
Effect of dilutive potential ordinary shares
Share awards 2,420,256 3,994,492
============================================== ============= ============
Diluted shares 970,696,623 969,981,149
============================================== ============= ============
The calculation of basic earnings per share is based on the
profit attributable to shareholders and the weighted average number
of shares in issue. When calculating the diluted earnings per
share, the weighted average number of shares in issue is adjusted
for the effect of all dilutive share awards.
6 months 6 months
to 30 September to 30 September
2019 2018
===================================================================== ================ ================
Earnings per share (pence)
Basic 78.4 73.8
Diluted 78.2 73.5
Earnings (GBPm)
Profit for the period attributable to equity holders of the Company 759 714
===================================================================== ================ ================
Basic earnings per share is calculated on weighted average
shares in issue of 968,015,436 for the period to 30 September 2019
(2018: 967,256,411). Diluted earnings per share is calculated on
diluted weighted average shares of 970,176,172 for the period to 30
September 2019 (2018: 971,004,710).
5 Dividends
6 months to 6 months to 6 months to 6 months to
30 September 30 September 30 September 30 September
2019 2019 2018 2018
pence pence
per share GBPm per share GBPm
===================================== ============= ============= ============= =============
Declared and paid during the period
Second dividend 20.0 194 22.0 213
===================================== ============= ============= ============= =============
20.0 194 22.0 213
===================================== ============= ============= ============= =============
Proposed first dividend 17.5 169 15.0 145
===================================== ============= ============= ============= =============
The dividend can be paid out of either the capital reserve or
the revenue reserve subject to the investment trust rules. The
distributable reserves of the parent company as at 31 March 2019
were GBP2,226 million (31 March 2018: GBP1,941 million) and the
Board reviews the distributable reserves bi-annually, including
consideration of any material changes since the most recent audited
accounts, ahead of proposing any dividend. The Board also reviews
the proposed dividends in the context of the requirements of being
an approved investment trust. Shareholders are given the
opportunity to approve the total dividend for the year at the
Company's Annual General Meeting. Details of the Group's continuing
viability and going concern can be found in the Risk management
section of the Annual report and accounts 2019.
6 Investment portfolio
This section should be read in conjunction with Note 11 on page
117 of the Annual report and accounts 2019, which provides more
detail about initial recognition and subsequent measurement of
investments at fair value.
6 months to Year to
30 September 2019 31 March 2019
Non-current GBPm GBPm
============================================= ================= =============
Opening fair value 1,662 2,096
============================================= ================= =============
Additions 173 150
- of which loan notes with nil value (6) (5)
Disposals, repayments and write offs - (793)
Fair value movement(1) 62 168
Other movements and net cash movements(2) 38 46
Closing fair value 1,929 1,662
============================================= ================= =============
Quoted investments 499 469
Unquoted investments 1,430 1,193
============================================= ================= =============
Closing fair value 1,929 1,662
============================================= ================= =============
1 All fair value movements relate to assets held at the end of the period.
2 Other movements includes the impact of foreign exchange and transfers
of investments to/from investment entity subsidiaries.
The holding period of 3i's investment portfolio is on average
greater than one year. For this reason the portfolio is classified
as non-current. It is not possible to identify with certainty
investments that will be sold within one year.
Additions include cash investment of GBP154 million (31 March
2019: GBP125 million) and GBP19 million (31 March 2019: GBP25
million) in capitalised interest received by way of loan notes, of
which GBP6 million (31 March 2019: GBP5 million) was written down
in the period to nil.
Included within the Consolidated statement of comprehensive
income is GBP18 million (31 March 2019: GBP33 million) of interest
income. This comprised the GBP19 million of capitalised interest
noted above, GBP6 million (31 March 2019: GBP6 million) of cash
income and the capitalisation of prior year accrued income and
non-capitalised income of GBP(7) million (2019: GBP7 million).
Quoted investments are classified as Level 1 in the fair value
hierarchy and unquoted investments are classified as Level 3 in the
fair value hierarchy; see Note 8 for details.
7 Investments in investment entity subsidiaries
Investments in investment entity subsidiaries are accounted for
as financial instruments at fair value through profit and loss in
accordance with IFRS 9. We determine that in the ordinary course of
business, the net asset value of investment entity subsidiaries is
considered to be the most appropriate to determine fair value. At
each reporting period, we consider whether any additional fair
value adjustments need to be made to the net asset value of the
investment entity subsidiaries. These adjustments may be required
to reflect market participants' considerations about fair value
that may include, but are not limited to, liquidity and the
portfolio effect of holding multiple investments within the
investment entity subsidiary. There was no particular circumstance
to indicate that a fair value adjustment was required and, after
due consideration, we concluded that the net asset values were the
most appropriate reflection of fair value at 30 September 2019.
Level 3 fair value reconciliation - investments in investment
entity subsidiaries
6 months to Year to
30 September 2019 31 March 2019
Non-current GBPm GBPm
======================================================= ================== ==============
Opening fair value 5,159 4,034
Net cash flow to investment entities 31 264
Fair value movement on investment entity subsidiaries 602 827
Transfer of assets to investment entity subsidiaries 13 34
======================================================= ================== ==============
Closing fair value 5,805 5,159
======================================================= ================== ==============
All investment entity subsidiaries are classified as Level 3 in
the fair value hierarchy, see Note 8 for details.
A 5% movement in the closing fair value of investments in
investment entity subsidiaries would have an impact of GBP290
million (31 March 2019: GBP258 million).
Restrictions
3i Group plc, the ultimate parent company, receives dividend
income from its subsidiaries. There are no restrictions on the
ability to transfer funds from these subsidiaries to the Group
except for a cash balance of GBP106 million (31 March 2019: GBP93
million) held on escrow in investment entity subsidiaries for
carried interest payable.
Support
3i Group plc provides, where necessary, ongoing support to its
investment entity subsidiaries for the purchase of portfolio
investments. During the period, there were net cash flows from the
Group to investment entity subsidiaries as noted in the table
above.
8 Fair values of assets and liabilities
This section should be read in conjunction with Note 13 on pages
119 to 121 of the Annual report and accounts 2019 which provides
more detail about accounting policies adopted, the definitions of
the three levels of fair value hierarchy, valuation methods used in
calculating fair value, and the valuation framework which governs
oversight of valuations. There have been no changes in the
accounting policies adopted or the valuation methodologies
used.
Valuation
The Group classifies financial instruments measured at fair
value according to the following hierarchy:
Level Fair value input description Financial instruments
======= ========================================================== =================================================
Level 1 Quoted prices (unadjusted) from active markets Quoted equity instruments
======= ========================================================== =================================================
Level 2 Inputs other than quoted prices included in Level 1 that Derivative financial instruments
are observable either directly (ie
as prices) or indirectly (ie derived from prices)
======= ========================================================== =================================================
Level 3 Inputs that are not based on observable market data Unquoted equity instruments and loan instruments
======= ========================================================== =================================================
The table below shows the classification of financial
instruments held at fair value into the valuation hierarchy at 30
September 2019:
As at 30 September 2019 As at 31 March 2019
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 499 - - 499 469 - - 469
Unquoted investments - - 1,430 1,430 - - 1,193 1,193
Investments in investment
entity
subsidiaries - - 5,805 5,805 - - 5,159 5,159
Other financial assets - 9 36 45 - 18 34 52
============================= ====== ====== ======= ======= ====== ====== ======= =======
Total 499 9 7,271 7,779 469 18 6,386 6,873
============================= ====== ====== ======= ======= ====== ====== ======= =======
Liabilities
Other financial liabilities - 7 - 7 - - - -
============================= ====== ====== ======= ======= ====== ====== ======= =======
Total - 7 - 7 - - - -
============================= ====== ====== ======= ======= ====== ====== ======= =======
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 7 details the Directors' considerations
about the fair value of the investment entity subsidiaries.
The fair values of the Group's other financial assets and
liabilities are not materially different from their carrying values
with the exception of loans and borrowings. At 30 September 2019
the fair value of loans and borrowings was GBP737 million (31 March
2019: GBP709 million), determined with reference to their published
market prices and the carrying value of the loans and borrowings
was GBP575 million (31 March 2019: GBP575 million).
Level 3 fair value reconciliation - unquoted investments
Six months to Year to
30 September 31 March
2019 2019
GBPm GBPm
========================================== ============= ========
Opening fair value 1,193 1,751
Additions 173 150
- of which loan notes with nil value (6) (5)
Disposals and repayments - (793)
Fair value movement 29 66
Other movements and net cash movements 41 24
Closing fair value 1,430 1,193
========================================== ============= ========
Unquoted investments valued using Level 3 inputs also had the
following impact on the Consolidated statement of comprehensive
income: realised profits over value on disposal of investment of
nil (September 2018: GBP31 million), dividend income of GBP6
million (September 2018: GBP1 million) and foreign exchange gains
of GBP42 million (September 2018: GBP31 million).
Level 3 inputs are sensitive to assumptions made when
ascertaining fair value as described in the Portfolio valuation -
an explanation section on pages 157 to 158 of the Annual report and
accounts 2019. On an IFRS basis, of the unquoted assets held at 30
September 2019 classified as Level 3, 74% (31 March 2019: 77%) were
valued using a multiple of earnings and the remaining 26% (31 March
2019: 23%) were valued using alternative valuation methodologies.
Of the underlying portfolio held by investment entity subsidiaries,
90% (31 March 2019: 88%) were valued using a multiple of earnings
and the remaining 10% (31 March 2019: 12%) were valued using
alternative valuation methodologies.
Assets move between Level 1 and Level 3 when an unquoted equity
investment lists on a quoted market exchange. There were no
transfers into or out of Level 3 in the period.
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 30 September 2019 was 12.0x (31 March
2019: 12.1x).
If the multiple used to value each unquoted investment valued on
an earnings multiple basis as at 30 September 2019 decreased by 5%,
the investment portfolio value would decrease by GBP69 million (31
March 2019: GBP57 million) or 4% (31 March 2019: 3%). If the same
sensitivity was applied to the underlying portfolio held by
investment entity subsidiaries, this would have a negative value
impact of GBP364 million (31 March 2019: GBP318 million) or 5% (31
March 2019: 5%).
If the multiple increased by 5% then the investment portfolio
value would increase by GBP68 million (31 March 2019: GBP57
million) or 4% (31 March 2019: 3%). If the same sensitivity was
applied to the underlying portfolio held by investment entity
subsidiaries, this would have a positive value impact of GBP362
million (31 March 2019: GBP318 million) or 5% (31 March 2019:
5%).
Alternative valuation methodologies - There are a number of
alternative investment valuation methodologies used by the Group,
for reasons specific to individual assets. The details of such
valuation methodologies, and inputs that are used, are given in the
Portfolio valuation - an explanation section on pages 157 to 158 of
the Annual report and accounts 2019. Each methodology is used for a
proportion of assets by value, and at 30 September 2019 the
following techniques were used under an IFRS basis: 13% DCF (31
March 2019: 7%), 9% industry metric (31 March 2019: 11%) and 4%
other (31 March 2019: 5%).
If the value of all of the investments valued under alternative
methodologies moved by 5%, this would have an impact on the
investment portfolio value of GBP19 million (31 March 2019: GBP14
million) or 1% (31 March 2019: 1%). If the same sensitivity was
applied to the underlying portfolio held by investment entity
subsidiaries, this would have a value impact of GBP31 million (31
March 2019: GBP33 million) or 0.5% (31 March 2019: 0.6%).
9 Contingent liabilities
The Company has provided a guarantee to the Trustees of the 3i
Group Pension Plan in respect of liabilities of 3i plc to the Plan.
3i plc is the sponsor of the 3i Group Pension Plan. On 4 April 2012
the Company transferred eligible assets (GBP150 million of ordinary
shares in 3i Infrastructure plc) as defined by the agreement to a
wholly owned subsidiary of the Group. The Company will retain all
income and capital rights in relation to the 3i Infrastructure plc
shares, as eligible assets, unless the Company becomes insolvent or
fails to comply with material obligations in relation to the
agreement with the Trustees, all of which are under its control.
The fair value of eligible assets held by this subsidiary at 30
September 2019 was GBP295 million (31 March 2019: GBP275 million).
As part of the latest triennial valuation of the Plan, the Company
has agreed to pay up to GBP50 million to the Plan if the Group's
gearing increases above 20%, gross debt rises above GBP1 billion or
net assets fall below GBP2 billion. In addition, if the gearing,
gross debt or net asset limits noted are reached, the Group may
also be required to increase the potential cover provided by the
contingent asset arrangement until the gearing, gross debt or net
assets improve.
At 30 September 2019, there was no material litigation
outstanding against the Company or any of its subsidiary
undertakings.
10 Related parties
All related party transactions that took place in the six months
ending 30 September 2019 are consistent in nature with the
disclosures in Note 30 on pages 137 to 139 of the Annual report and
accounts 2019. Related party transactions which took place in the
period and materially affected performance or the financial
position of the Group, together with any material changes in
related party transactions as described in the Annual report and
accounts 2019 that could materially affect the performance or the
financial position of the Group are detailed below.
Limited partnerships
The Group manages a number of external funds which invest
through limited partnerships. Group companies act as the general
partners of these limited partnerships and exert significant
influence over them. The following amounts have been recognised in
respect of these limited partnerships:
Consolidated statement of comprehensive income Six months to Six months to
30 September 30 September
2019 2018
GBPm GBPm
=================================================== ============== ==============
Carried interest and performance fees receivable 63 58
Fees receivable from external funds 6 10
=================================================== ============== ==============
Consolidated statement of financial position 30 September 31 March
2019 2019
GBPm GBPm
=================================================== ============= =========
Carried interest and performance fees receivable 685 609
=================================================== ============= =========
Investments
The Group makes investments in the equity of unquoted and quoted
investments where it does not have control but may be able to
participate in the financial and operating policies of that
company. IFRS presumes that it is possible to exert significant
influence when the equity holding is greater than 20%. The Group
has taken the investment entity exception as permitted by IFRS 10
and has not equity accounted for these investments, in accordance
with IAS 28, but they are related parties. The total amounts
included for investments where the Group has significant influence
but not control are as follows:
Consolidated statement of comprehensive income Six months to Six months to
30 September 30 September
2019 2018
GBPm GBPm
======================================================= ============== ==============
Unrealised profits on the revaluation of investments 18 25
Portfolio income 5 -
======================================================= ============== ==============
Consolidated statement of financial position 30 September 31 March
2019 2019
GBPm GBPm
============================================== ============= =========
Unquoted investments 440 415
---------------------------------------------- ------------- ---------
Management arrangements
The Group acted as Investment Manager to 3i Infrastructure plc
("3iN"), which is listed on the London Stock Exchange, for the
period to 30 September 2019. During the prior period, the Group
acted as an adviser until 3iN's decision to move its tax residence
and management to the UK, effective from 15 October 2018. The
following amounts have been recognised in respect of the management
and advisory relationship:
Consolidated statement of comprehensive income Six months to Six months to
30 September 30 September
2019 2018
GBPm GBPm
====================================================== ============== ==============
Unrealised profits on the revaluation of investments 33 48
Dividends 7 6
Fees receivable from external funds 16 15
====================================================== ============== ==============
Consolidated statement of financial position 30 September 31 March
2019 2019
GBPm GBPm
============================================== ============= =========
Quoted equity investments 499 469
Performance fees receivable - 31
============================================== ============= =========
Independent review report to 3i Group plc
Introduction
We have been engaged by 3i Group plc (the 'Company' or the
'Group') to review the condensed consolidated financial statements
in the Half-year report for the six months ended 30 September 2019
which comprises the Condensed consolidated statement of
comprehensive income, the Condensed consolidated statement of
financial position, the Condensed consolidated statement of changes
in equity, the Condensed consolidated cash flow statement, Basis of
preparation and accounting policies and the related notes 1 to 10
(together the 'condensed consolidated financial statements'). We
have read the other information contained in the Half-year report
and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed
consolidated financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The Half-year report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Half-year report in accordance with the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in the Basis of preparation and accounting
policies, the annual financial statements of the Group are prepared
in accordance with International Financial Reporting Standards as
adopted by the European Union. The condensed consolidated financial
statements included in this Half-year report have been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated financial statements in the Half-year
report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated financial
statements in the Half-year report for the six months ended 30
September 2019 are not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London, United Kingdom
13 November 2019
Statement of Directors' responsibilities
The Directors, who are required to prepare the financial
statements on a going concern basis unless it is not appropriate,
are satisfied that the Group has the resources to continue in
business for the foreseeable future. In making this assessment, the
Directors have considered information relating to present and
future conditions, including future projections of profitability
and cash flows.
The Directors confirm that to the best of their knowledge:
a) the condensed set of financial statements has been prepared
in accordance with IAS 34 "Interim Financial Reporting" as adopted
by the EU;
b) the Half-year report includes a fair review of the
information required by:
i) DTR 4.2.7R of the Disclosure Rules and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year ending 31 March 2020 and
their impact on the condensed set of financial statements; and
a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
ii) DTR 4.2.8R of the Disclosure Rules and Transparency Rules, being
(i) related party transactions that have taken place in the first
six months of the financial year ending 31 March 2020 which have
materially affected the financial position or performance of
3i Group during that period; and (ii) any changes in the related
party transactions described in the Annual report and accounts
2019 that could materially affect the financial position or performance
of 3i Group during the first six months of the financial year
ending 31 March 2020.
The Directors of 3i Group plc and their functions are listed
below.
The report is authorised for issue by order of the Board.
K J Dunn, Secretary
13 November 2019
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
Portfolio and other information
20 large investments
The 20 investments listed below account for 92% of the portfolio
value at 30 September 2019 (31 March 2019: 94%). One investment has
been excluded for commercial reasons.
Residual Residual
Business line cost(1) cost(1) Valuation Valuation
Geography March September March September
Investment First invested in 2019 2019 2019 2019 Relevant transactions
Description of Valuation basis GBPm GBPm GBPm GBPm in the period
business
====================== =================== ========= ========== ========== ========== ========================
Action* Private Equity 24 24 2,731 3,243
Non-food discount Netherlands
retailer
2011
Earnings
====================== =================== ========= ========== ========== ========== ========================
3i Infrastructure
plc* Infrastructure 307 305 744 794
Quoted investment UK
company, investing 2007
in infrastructure Quoted
====================== =================== ========= ========== ========== ========== ========================
Completed refinancing
Scandlines Corporate Assets 529 529 529 485 in
Ferry operator Denmark/Germany August 2019 and
between returned
Denmark and Germany 2018 GBP91 million to 3i.
DCF
Hans Anders* Private Equity 250 262 246 303
Value-for-money Netherlands
optical retailer 2017
Earnings
Q Holding* Private Equity 162 162 241 277
Manufacturer of US
precision
engineered 2014
elastomeric
components Earnings
====================== =================== ========= ========== ========== ========== ========================
Audley Travel* Private Equity 189 198 270 270
Provider of UK
experiential
tailor-made travel 2015
Earnings
Cirtec Medical* Private Equity 172 172 248 262
Outsourced medical US
device manufacturing 2017
Earnings
====================== =================== ========= ========== ========== ========== ========================
WP* Private Equity 187 196 241 253
Supplier of plastic Netherlands
packaging solutions 2015
Earnings
====================== =================== ========= ========== ========== ========== ========================
Basic-Fit Private Equity 8 8 254 249
Discount gyms Netherlands
operator
2013
Quoted
====================== =================== ========= ========== ========== ========== ========================
Smarte Carte* Infrastructure 164 164 181 194
Provider of US
self-serve
vended luggage carts, 2017
electronic lockers DCF
and
concession carts
====================== =================== ========= ========== ========== ========== ========================
Havea* Private Equity 147 153 174 187 Acquired Pasquali
(formerly Ponroy France Healthcare in May 2019.
Santé)
Manufacturer of 2017
natural
healthcare and Earnings
cosmetics
products
======================
AES Engineering Private Equity 30 30 172 178
Manufacturer of UK
mechanical
seals and support 1996
systems
Earnings
Formel D* Private Equity 147 152 169 177
Quality assurance Germany
provider
for the automotive 2017
industry Earnings
====================== =================== ========= ========== ========== ========== ========================
BoConcept* Private Equity 156 164 152 165
Urban living designer Denmark
2016
Earnings
====================== =================== ========= ========== ========== ========== ========================
Royal Sanders* Private Equity 135 135 147 163
Private label and Netherlands
contract
manufacturing 2018
producer of
personal care Earnings
products
ICE* Private Equity 129 129 155 156
Global travel and US
loyalty
company that connects 2018
leading brands, Earnings
travel
suppliers and end
consumers
====================== ========== ========== ==========
Magnitude Software* Private Equity - 139 - 145 New investment.
Leading provider of US
unified
application data 2019
management solutions Earnings
Tato Private Equity 2 2 117 139 GBP5m dividend
Manufacturer and UK received.
seller of
speciality chemicals 1989
Earnings
Lampenwelt* Private Equity 101 111 119 128
Online lighting Germany
specialist retailer 2017
Earnings
====================== ========== ========== ==========
ACR Private Equity 105 105 129 125
Pan-Asian non-life Singapore
reinsurance 2006
Industry metric
========== ========== ==========
* 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, Magnitude Software, Ponroy Santé, Royal
Sanders and Schlemmer.
Approved Investment Trust Company This is a particular UK tax
status maintained by 3i Group plc, the parent company of 3i Group.
An approved Investment Trust company is a UK company which meets
certain conditions set out in the UK tax rules which include a
requirement for the company to undertake portfolio investment
activity that aims to spread investment risk and for the company's
shares to be listed on an approved exchange. The "approved" status
for an investment trust must be agreed by the UK tax authorities
and its benefit is that certain profits of the company, principally
its capital profits, are not taxable in the UK.
Assets under management ("AUM") A measure of the total assets
that 3i has to invest or manages on behalf of shareholders and
third-party investors for which it receives a fee. AUM is measured
at fair value. In the absence of a third-party fund in Private
Equity, it is not a measure of fee generating capability.
Buyouts 2010-2012 vintage includes Action, Amor, 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.
Discounting The reduction in present value at a given date of a
future cash transaction at an assumed rate, using a discount factor
reflecting the time value of money.
EBITDA is defined as earnings before interest, taxation,
depreciation and amortisation and is used as the typical measure of
portfolio company performance.
EBITDA multiple Calculated as the enterprise value over EBITDA,
it is used to determine the value of a company.
Fair value movements on investment entity subsidiaries The
movement in the carrying value of Group subsidiaries, classified as
investment entities under IFRS 10, between the start and end of the
accounting period converted into sterling using the exchange rates
at the date of the movement.
Fee income (or Fees receivable) is earned for providing services
to 3i's portfolio companies and predominantly falls into one of two
categories. Negotiation and other transaction fees are earned for
providing transaction related services. Monitoring and other
ongoing service fees are earned for providing a range of services
over a period of time.
Fees receivable from external funds Fees receivable from
external funds are earned for providing management and advisory
services to a variety of fund partnerships and other entities. Fees
are typically calculated as a percentage of the cost or value of
the assets managed during the year and are paid quarterly, based on
the assets under management to date.
Gross investment return ("GIR") includes profit and loss on
realisations, increases and decreases in the value of the
investments we hold at the end of a period, any income received
from the investments such as interest, dividends and fee income,
movements in the fair value of derivatives and foreign exchange
movements. GIR is measured as a percentage of the opening portfolio
value.
Growth 2010-2012 vintage includes Element, Hilite, BVG, Go
Outdoors, Loxam, Touchtunes and WFCI.
Interest income from investment portfolio is recognised as it
accrues. When the fair value of an investment is assessed to be
below the principal value of a loan, the Group recognises a
provision against any interest accrued from the date of the
assessment going forward until the investment is assessed to have
recovered in value.
Investment basis Accounts prepared assuming that IFRS 10 had not
been introduced. Under this basis, we fair value portfolio
companies at the level we believe provides the most comprehensive
financial information.
Money multiple is calculated as the cumulative distributions
plus any residual value divided by paid-in capital.
Net asset value ("NAV") is a measure of the fair value of our
proprietary investments and the net costs of operating the
business.
Operating cash profit / loss is the difference between our cash
income (consisting of portfolio interest received, portfolio
dividends received, portfolio fees received and fees received from
external funds as per the Investment basis Consolidated cash flow
statement) and our operating expenses and lease payments (as per
the Investment basis Consolidated cash flow statement).
Operating profit Includes gross investment return, management
fee income generated from managing external funds, the costs of
running our business, net interest payable, other losses and
carried interest.
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 came 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.
Revenue reserve recognises all profits that are revenue in
nature or have been allocated to revenue.
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.
Information for shareholders
Note
The first FY2020 dividend is expected to be paid on 8 January
2020 to holders of ordinary shares on the register on
13 December 2019. The ex-dividend date will be 12 December
2019.
3i Group plc
Registered office:
16 Palace Street,
London SW1E 5JD, UK
Registered in England No. 1142830
An investment company as defined by section 833 of the Companies
Act 2006.
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
IR GGGUUGUPBPPW
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November 14, 2019 02:01 ET (07:01 GMT)
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