TIDMIII
RNS Number : 8396M
3i Group PLC
14 May 2020
14 May 2020
3i Group plc announces results for the year to 31 March 2020
Resilient performance despite severe disruption from
COVID-19
-- Total return of GBP253 million or 3% on opening shareholders'
funds (March 2019: GBP1,252 million, 18%) and NAV per share of 804
pence (31 March 2019: 815 pence) after paying 37.5 pence of
dividends in the year.
-- Our Private Equity business delivered a gross investment
return of GBP352 million or 6% (March 2019: GBP1,148 million, 20%).
The portfolio had performed well overall in the 11 months to 29
February 2020 and was on track to generate returns consistent with
our strategic objectives before the significant impact of COVID-19
on the portfolio valuation at 31 March 2020. The pandemic has
impacted our travel, retail and automotive portfolio companies,
while companies in medical technology, personal care products,
e-commerce and other specialty manufacturers are experiencing
strong demand.
-- Action traded strongly in 2019 and in the first two months of
2020, but COVID-19 caused major short-term disruption to the
business, as it was forced to implement total or partial temporary
store closures in a number of countries. As of today, virtually all
of Action's stores have reopened and it is rebounding strongly now
that lockdowns are being lifted.
-- Earlier this year we closed the transaction to provide
liquidity to investors in Eurofund V from the realisation of the
Fund's investment in Action through a sale to the 3i 2020
Co-investment vehicles. This transaction achieved an enterprise
value of EUR10.25 billion and was funded by a combination of
rolling LPs, new LPs and 3i, which reinvested in Action to increase
its gross holding from 45.3% at 31 December 2019 to 52.6% at 31
March 2020. At 31 March 2020, we valued Action at a level
consistent with the valuation achieved in this transaction. This is
a step back from the valuation of the investment at the end of
December 2019, and is broadly equivalent to using Action's run-rate
earnings to March 2020 and reducing the multiple used to c.17x post
discount.
-- In competitive markets the Private Equity team maintained its
cautious approach to capital deployment, making three new
investments in the year in Evernex, Magnitude and a new
bioprocessing products platform, for a total of GBP413m. We
continued to focus on M&A activity by our portfolio companies
and completed 13 bolt-on acquisitions in total during the year,
most of which were self-funded.
-- Private Equity realisations (excluding Action) totalled
GBP446 million. Of note, we generated a 4.1x money multiple on our
realisation of Aspen Pumps, sold another tranche of Basic-Fit and
sold ACR, a challenged legacy investment.
-- Our Infrastructure business delivered a gross investment
return of GBP(39) million, or (4)% (March 2019: GBP210 million,
25%). The negative return was driven primarily by the decline in
the share price of 3i Infrastructure plc ("3iN") as a result of the
broader market volatility in March 2020. Our Infrastructure
portfolios have proven resilient to the impact of COVID-19 and most
portfolio companies have traded robustly through the pandemic.
-- During the year, 3iN deployed GBP376 million in two new
investments, Joulz and Ionisos, and generated proceeds of GBP581
million from the realisations of WIG and the UK projects portfolio.
Our North American Infrastructure team completed its second US
Infrastructure investment, with the acquisition of Regional Rail
and two bolt-on investments for a total of GBP175 million, funded
from our own balance sheet. We also continued to deploy capital in
the 3i European Operational Projects Fund, which is now c60%
invested.
-- Scandlines generated a gross investment return of GBP5
million, or 1% (March 2019: GBP49 million, 9%). The business
continued to perform well and produced solid results in 2019 and a
good contribution to portfolio income. The decision by the Danish
and German governments to close their borders to stem the spread of
COVID-19 had a significant short-term impact on car volumes in
particular, however freight continues to flow with good volumes.
This is reflected in the valuation at the end of March 2020.
-- Total dividend of 35 pence per share for FY2020, with a
dividend of 17.5 pence per share to be paid in July 2020 subject to
shareholder approval.
Simon Borrows, 3i's Chief Executive , commented:
"We delivered a solid return for FY2020 despite the severe
challenge posed by the COVID-19 pandemic and its impact on
portfolio performance in the last month of the year.
Throughout this pandemic, our focus has been first and foremost
on protecting the well-being of our own employees and those of our
portfolio companies and of the communities in which we all
collectively operate.
We enter our new financial year with a carefully assembled
portfolio of private equity and infrastructure companies and an
experienced team that has proved adept at managing these
investments against a deteriorating macro-economic backdrop. We
have been cautious investors for some years and have maintained a
strong balance sheet since our restructuring in 2012. This
conservative approach will help us to navigate the challenging
months ahead minimising significant interruptions so that we can
continue to generate attractive returns for our investors through
the cycle. "
Financial highlights
Year to/as at Year to/as at
31 March 31 March
2020 2019
------------------------------------------------- -------------- --------------
Group
Total return GBP253m GBP1,252m
Operating expenses GBP116m GBP126m
Operating cash profit GBP40m GBP46m
================================================= ============== ==============
Cash realisations GBP801m GBP1,261m
Gross investment return GBP318m GBP1,407m
- As a percentage of opening 3i portfolio value 4% 21%
Cash investment GBP1,248m GBP859m
3i portfolio value GBP8,098m GBP7,553m
Gross debt GBP575m GBP575m
Net cash GBP270m GBP495m
Gearing(1) nil nil
Liquidity GBP1,245m GBP1,420m
Net asset value GBP7,757m GBP7,909m
Diluted net asset value per ordinary share 804p 815p
Total dividend per share 35p 35p
1 Gearing is net debt as a percentage of net assets.
S
For further information, please contact:
Silvia Santoro
Group Investor Relations Director Tel: 020 7975 3258
Kathryn Van Der Kroft
Communications Director Tel: 020 7975 3021
For further information regarding the announcement of 3i's
annual results to 31 March 2020, including a live webcast of the
results presentation at 10.00am, please visit www.3i.com .
Notes to editors
3i is a leading international investment manager focused on
mid-market Private Equity and Infrastructure. Our core investment
markets are northern Europe and North America. For further
information, please visit: www.3i.com .
Notes to the announcement of the results
Note 1
All of the financial data in this announcement is taken from the
Investment basis financial statements. The statutory accounts are
prepared under IFRS for the year to 31 March 2020 and have not yet
been delivered to the Registrar of Companies. The statutory
accounts for the year to 31 March 2019 have been delivered to the
Registrar of Companies. The auditor's reports on the statutory
accounts for these years are unqualified and do not contain any
matters to which the auditor drew attention by way of emphasis or
any statements under section 498(2) or (3) of the Companies Act
2006. This announcement does not constitute statutory accounts.
Note 2
Copies of the Annual report and accounts 2020 will be
distributed to shareholders on or soon after 26 May 2020.
Note 3
This announcement may contain statements about the future
including certain statements about the future outlook for 3i Group
plc and its subsidiaries ("3i"). These are not guarantees of future
performance and will not be updated. Although we believe our
expectations are based on reasonable assumptions, any statements
about the future outlook may be influenced by factors that could
cause actual outcomes and results to be materially different.
Note 4
Subject to shareholder approval, the proposed second dividend is
expected to be paid on 17 July 2020 to holders of ordinary shares
on the register on 12 June 2020. The ex-dividend date will be 11
June 2020.
Chairman's statement
"Our priority is to support our employees and our portfolio
companies, while continuing to deliver superior
returns for our shareholders."
After a solid performance in FY2020, our Private Equity and
Infrastructure teams are actively engaging with our portfolio
companies to support and strengthen their resilience in FY2021.
Market environment and performance
Capital markets rallied in calendar year 2019, with the majority
of global indices reporting double digit growth, notwithstanding
significant political and economic uncertainty driven by the
US-China trade war, the terms of the UK's exit from the European
Union, and signs of slowing growth in major economies such as China
and Germany. As we reached the end of FY2020 having experienced 11
months of strong performance, the outbreak of the coronavirus
("COVID-19") pandemic and the economic impact of lockdown and
social distancing triggered sharp falls in pricing across global
markets and volatile exchange rates. We have seen significant price
reductions across the majority of asset classes, with tensions
between Russia and Saudi Arabia over crude oil supply exacerbating
the impact on commodities.
Despite record levels of fiscal and monetary stimulus being
deployed by governments and central banks, the impact on many
businesses of the public health response to COVID-19 has been rapid
and damaging. With the effective shutdown of business activity
across multiple sectors and geographies, many companies are
implementing severe cost saving measures and seeking to maintain
sufficient liquidity to manage through the crisis. Within our
diverse portfolio of private equity and infrastructure assets, we
have seen the full range of impact of the pandemic. Some of our
businesses are seeing an increase in sales of essential goods and
services. Certain companies are only lightly impacted. Others are
suffering significant reductions in revenue and, in selected cases,
need, or are likely to need, some form of liquidity support.
The fair value of our portfolio as at 31 March 2020 reflects the
impact of COVID-19. We have assessed the effect of the pandemic on
full-year projections for each of our portfolio companies, and the
current dislocation of capital markets on multiples and discount
rates. As a result, as at 31 March 2020, the Group's total return1
for the year was GBP253 million (2019: GBP1,252 million), net asset
value ("NAV") decreased to 804 pence per share (31 March 2019: 815
pence) and our return on opening shareholders' funds was 3% (2019:
18%). The impact of the crisis reflects our diverse portfolio, the
defensive nature of many of the individual companies, and our
consistent adoption over many years of long-term, through the
cycle, multiples and discount rates.
Dividend
We were net investors in FY2020, but still ended the year with
net cash of GBP270 million and liquidity of GBP1,245 million (31
March 2019: net cash of GBP495 million and liquidity of GBP1,420
million).
Our dividend policy is to maintain or grow the dividend
year-on-year, subject to balance sheet strength and the outlook for
investment and realisation levels. We are aware that some boards
have decided to prioritise cash over shareholder distributions, and
in some instances regulators have intervened to prevent dividend
payments. 3i has the benefit of a long-standing conservative
balance sheet strategy. We continue to pay all our employees,
support our contractor workforce and have the balance sheet
capacity to provide liquidity support to our portfolio companies,
if required. Recognising the importance of our dividend to
institutional and private shareholders in accordance with our
policy, the Board is therefore recommending that we maintain the
total dividend for FY2020 at the same level as the prior year.
Accordingly, the second FY2020 dividend will be 17.5 pence (2019:
20.0 pence), which together with the first FY2020 dividend of 17.5
pence per share paid in January 2020, takes the total dividend to
35.0 pence (2019: 35.0 pence).
Board and management
I am pleased to welcome Alexandra Schaapveld, who is a Dutch
national, who joined the Board as a non-executive Director on 1
January 2020. Alexandra was previously Head of Global Banking and
Markets in Western Europe for Royal Bank of Scotland and ABN Amro,
and is currently non-executive director of Société Générale. She
brings extensive financial services expertise in a number of
important markets for 3i and significant board experience in a
variety of sectors. She has joined the Valuations, Audit and
Compliance, and Nominations Committees.
I would like to thank Simon, Julia and the entire 3i team for
their outstanding response to COVID-19. Everyone should feel proud
of their contribution and the organisation as a whole has
demonstrated adaptability, resilience and great teamwork.
Outlook
As we enter FY2021, we face the most uncertain outlook for
generations. Our top priority in the coming months remains the
safety and well-being of our employees at 3i and the staff and
customers of our portfolio companies. We are confident that 3i's
resilient and diverse portfolio, balance sheet strength, and
geographic and sector expertise will enable us to navigate our way
through these extraordinary social and economic conditions, and
emerge from the crisis with renewed strength.
Simon Thompson
Chairman
13 May 2020
1 Total return is defined as Total comprehensive income for the
year, under both the Investment basis and the IFRS basis.
Chief Executive's statement
"In these unprecedented times of major social and economic
disruption, we delivered a solid result for the year."
We enter our new financial year with a carefully assembled
portfolio of private equity and infrastructure companies and an
experienced team that has proved adept at managing these
investments against a deteriorating macro-economic backdrop. We
have been cautious investors for some years and have maintained a
strong balance sheet since our restructuring in 2012. This
conservative approach will help us to navigate the challenging
months ahead minimising significant interruptions so that we can
continue to generate attractive returns for our investors through
the cycle.
Delivering attractive returns, however, is not in itself
sufficient, and we strive to achieve that by managing our business
and portfolio activities sustainably, with due regard to the
interests of all stakeholders involved. Our performance through the
initial phases of the COVID-19 pandemic is attributable to the
prudent management of our own balance sheet, operations and of the
portfolio. Throughout this pandemic, our focus has been first and
foremost on protecting the well-being of our own employees and
those of our portfolio companies and of the communities in which we
all collectively operate. We are confident that this will also,
over time, benefit us and our shareholders through more attractive
returns.
We generated a total return on shareholders' funds of GBP253
million, or 3% (2019: GBP1,252 million, or 18%), ending the year
with NAV per share of 804 pence (31 March 2019: 815 pence). The
COVID-19 pandemic and its many consequences had a material impact
on our 31 March 2020 valuations, which was partially offset by a
significant gain on foreign exchange of GBP215 million in the year.
We completed the Action Transaction (see the Action Transaction
overview section in the Business review) returning proceeds of
GBP402 million to the Group, which were subsequently reinvested
back into Action as part of a GBP591 million further investment,
increasing our gross equity stake to 52.6%. The competitive
environment for new investment throughout FY2020 meant we remained
cautious about the pricing of new investment opportunities.
However, we were able to deploy GBP413 million in three new Private
Equity investments and GBP175 million in a new proprietary capital
and bolt-on Infrastructure investment in North America.
Coronavirus pandemic
As we publish our Annual report and accounts FY2020, many
countries around the world are still very focused on managing the
COVID-19 pandemic and the significant and often tragic consequences
it is having on people's lives. Society and the global economy now
face a set of unprecedented challenges, the full extent of which is
for the moment uncertain. The unparalleled disruption caused by
this pandemic has been reflected in all major global indices, which
declined at a rate greater than during the financial crisis in
2008. There are many indicators suggesting that most major
economies will experience contraction in the first half of 2020,
and that this will extend through the second half of 2020 and
potentially into 2021. In response to this humanitarian crisis,
governments and central banks across the world have ramped up their
social and economic interventions to try and slow the spread of the
outbreak and lay the foundations for economies and businesses to
recover once the pandemic has passed.
In early March, we used our two Portfolio Company Review weeks
to establish a programme to assess each of our portfolio companies
against the likely impacts of the COVID-19 pandemic. We moved
quickly and by mid-March we had a clear assessment of the likely
disruption each company and its employees would face as well as new
forecasts for earnings, cash flow and liquidity. These revised
plans comprised a base forecast which anticipated a relaxation of
many lockdown measures in July with a more severe scenario for a
number of our travel and transportation assets. From this analysis
we agreed the necessary actions for our investment teams to take
with each company in order to properly comply with new
social-distancing and safety regulations and prepare for the
disruption of extensive and ongoing lockdown measures.
Since those plans were finalised in mid-March the overwhelming
majority of our portfolio companies are trading ahead of their new
base case forecasts. Given the defensive nature of much of our
portfolio and the relatively flexible nature of our portfolio
banking arrangements, we currently estimate that only a modest
number of companies will require future support from 3i Group,
which we are well placed to provide.
Since 2012, our focus at 3i has been to develop a diverse and
resilient portfolio that generates attractive returns for
shareholders, through the cycle, supported by a strong Group
balance sheet. Our new proprietary capital investments this year,
in data management software, IT infrastructure maintenance,
biopharma components and systems, and rail, further improve our
portfolio diversification and our closing net cash position of
GBP270 million and our new GBP400 million Revolving Credit Facility
("RCF") demonstrate our balance sheet strength. However, we are not
immune to severe market and economic shocks such as those generated
by the COVID-19 pandemic. For the first 11 months of FY2020, our
portfolio performance was generally strong across our business
lines. Since March the severity of responses to COVID-19 in Europe
and North America has had a varied impact across our investments.
Not surprisingly, the companies exposed to travel, transportation,
retail and automotive have been most affected. Conversely, those in
medical technology, personal care products, e-commerce and other
speciality manufacturers are experiencing strong demand.
Action transaction and performance
Action is the leading general merchandise discount retailer in
Europe, selling many essential and other products at very low
prices to its customers, and is our largest investment. 2019 was
another very strong calendar year for Action, which grew revenue by
21% to EUR5.1 billion, like-for-like ("LFL") sales by 5.6% and
EBITDA by 20% to EUR541 million (calendar year 2018: EUR4.2
billion, 3.2% and EUR450 million). The pace of store roll out
remained impressive, with 230 new stores in calendar year 2019,
which are performing well. At 31 March 2020, Action had 1,576
stores across seven countries. To deliver such strong performance
the business has invested significantly in organisational
capability and its supply chain. Action opened three new
distribution centres ("DCs") in 2019; Belleville in France, Peine
in Germany and Osla in Poland, as well as its first hub for
cross-docking of directly sourced products from Asia in Marseille.
The growth of its DC network and multi layered supply chain
capabilities means Action is well placed to capitalise on the
significant white space in existing and new countries
In the first 11 weeks of 2020, Action recorded very strong
performance with LFL sales growth of over 7% and a strong cash
position. Late in March 2020, as the outbreak of COVID-19
intensified across Europe, Action faced government-enforced
temporary closures of all of its stores in France, Belgium and
Austria and partial closure of stores in Germany and Poland.
However, all stores in the Netherlands remained open throughout the
crisis. As of early May 2020, virtually all the Action stores have
re-opened.
In the year, we successfully closed the realisation of the
entire investment in Action of Eurofund V ("EFV") at a EUR10.25
billion enterprise value ("EV"), based on performance to 30
September 2019. The sale was funded by a combination of rolling EFV
Limited Partners ("LPs"), 3i and a number of additional blue-chip
investors.
Action is a remarkable company and has become one of the most
successful private equity investments in the world. As a measure of
this success the sale of the 34% EFV equity stake in Action
produced a money multiple on original cost of over 31x and an
internal rate of return of 73%. Action remains very well positioned
as a deep value, scale retailer with significant scope for further
international expansion. We purchased Action in 2011 when it had
just 245 stores. Today, it has over 1,576 stores in seven countries
and has the white space potential to increase to over 6,000 in
Europe over the coming years. 3i is committed to supporting Action
to grow further and that is why we decided to reinvest GBP591
million of the GBP1,238 million cash distributions we have received
from Action in the nine years of ownership, increasing our gross
equity stake to 52.6% from 45.3% as part of the EFV transaction. 3i
and funds managed by 3i now control over 80% of the equity share
capital of Action.
The Action transaction provided a fair value which was based on
the five-year business plan of Action and its performance to 30
September 2019. Actual performance for 2019 and the first 11 weeks
of 2020 was ahead of this plan. COVID-19 has caused major
short-term disruption to the business, however there is no evidence
to suggest that Action will not revert to its strong fundamental
performance and growth. At 31 December 2019, and before the Action
transaction completed, we valued Action at GBP3,461 million. Given
Action's very strong trading in the first 11 weeks of 2020, we had
expected to see a further material value increase to 31 March 2020
owing to earnings growth. If we
re-evaluate Action in the light of the current trading and
temporary delay to roll-out plans, we believe stepping back to the
transaction value, which was based on financials to September 2019
is sensible, reflecting the uncertainty, implying an enterprise
value of EUR10.25 billion.
Many of our portfolio companies are contributing their expertise or making donations of goods
or money to mitigate the impact of the COVID-19 pandemic. For example:
-------------------------------------------------------------------------------------------------------------------
Action Action, Europe's leading general merchandise discount retailer, donated more than three million
pairs of gloves to each of the Dutch and French Red Cross for the benefit of hospitals and
other care institutions;
------------ -----------------------------------------------------------------------------------------------------
Havea The employees of Havea Group, a manufacturer of natural healthcare and cosmetics products,
have given paid annual leave back to the company, allowing it to make a donation of EUR150,000
to the Hôpitaux de France Foundation to support them at this time and to buy medical
equipment for COVID-19 patients;
------------ -----------------------------------------------------------------------------------------------------
Royal Royal Sanders, a private label and contract manufacturing producer of personal care products,
Sanders donated over 10,000 bottles of hand gels to hospitals across Belgium;
------------ -----------------------------------------------------------------------------------------------------
AES AESSEAL plc, a subsidiary of AES Engineering Ltd, a manufacturer of mechanical seals and support
Engineering systems, has provided 2,000 face visors free of charge to its local hospital. It has used
its global subsidiary network to assist a group of hospitals in the Hallam area, pro bono,
to source PPE. It is also offering free support to the National Health Service and its customers
in the set-up of thermal imaging cameras which will reduce the risk of those with a high temperature
being at work; and
------------ -----------------------------------------------------------------------------------------------------
Ionisos Ionisos, a leading owner and operator of cold sterilisation facilities servicing the medical,
pharmaceutical and cosmetics industries, is participating in a charitable effort in Spain
to manufacture 70,000 surgical masks, co-ordinated by the Association of Fashion Creators
of Spain.
------------ -----------------------------------------------------------------------------------------------------
Private Equity performance
Our Private Equity portfolio consists of 32 companies across
northern Europe, the UK and North America in four sectors: Business
and Technology Services; Consumer; Healthcare; and Industrial. In
the 12 months to 31 March 2020 this Private Equity portfolio
delivered a Gross Investment Return ("GIR") of 6% (2019: 20%). The
portfolio had performed well overall in the 11 months to 29
February 2020, and was on track to generate returns consistent with
our strategic objectives before the significant impact of COVID-19
on the portfolio valuation at 31 March 2020.
Our 2013-16 vintage generated significant cash returns in the
year. In January 2020, we completed the disposal of Aspen Pumps for
proceeds of GBP205 million which generated an overall money
multiple of 4.1x and IRR of 34% over the life of our investment. In
December 2019, we sold 5.3% of our shareholding in Basic-Fit at
EUR31.25 per share, generating proceeds of GBP76 million, taking
our total money multiple to date, including residual value, to over
4.0x. As a result of COVID-19, all of Basic-Fit's gyms have been
temporarily closed resulting in a 49% reduction in share price in
the year to 31 March 2020. We retain a 12.7% stake in the business,
valued at GBP93 million. In December 2019, we completed a
refinancing of Audley Travel, a tailor-made travel tour operator,
returning cash of GBP65 million to 3i. Audley Travel delivered good
organic revenue growth in both the UK and US in 2019 and this
momentum continued into January 2020, its largest booking month.
Since the outbreak of COVID-19, the market for travel services has
been severely impacted. The company has successfully repatriated
all its clients and is implementing a number of measures to
mitigate the reduction in new and existing bookings. Recognising
the impact of these events, we reduced the value of our investment
to GBP124 million. However, we believe that the fundamentals of
this business remain strong, and that it is well placed to recover
when travel restrictions are eased given its position of scale in
tailor made travel, its excellence in client service and the
diversity of its destination offering. We completed bolt-on
acquisitions for Q Holding, WP and Dynatect in the year. Despite
this challenging macro-economic environment, we expect to complete
the sale of Kinolt in August 2020, for proceeds of c.EUR96 million,
subject to
competition clearance.
The 2016-19 vintage of investments had a more mixed performance
in the year. Cirtec Medical performed strongly, driven by a
combination of organic growth and previous value accretive bolt-on
acquisitions. Similarly, Royal Sanders, the private label and
contract manufacturing producer of personal care products,
delivered growth rates that exceeded the general market. The two
McBride sites, acquired in 2018 which were loss making, are now
contributing a good profit. COVID-19 has not impacted either of
these businesses to date. Following Hans Anders' acquisition of
eyes + more in January 2019, the combined business had a strong
start to the year driven by good LFL performance, particularly in
eyes + more, on budget store roll out and a good level of
operational synergies. However, in the case of Hans Anders, the
COVID-19 pandemic has had a material impact on the 2020 earnings
and liquidity. Government-initiated measures resulted in almost all
stores being closed or open on an appointment only basis and,
despite cost saving measures, the business required an equity
injection from 3i of EUR22.5 million in April 2020 to support it
through this very difficult period. We continue to support Hans
Anders as we believe there is significant value upside once the
business resumes full operations. Most of the company's stores have
gradually resumed trading in the course of May 2020, with safety
measures in place to protect employees and customers.
ICE, our global provider of technology-based B2B2C travel-based
loyalty and reward solutions, is another business that has been
significantly impacted by COVID-19. The business had good momentum
running into the start of 2020, with its previous acquisition of
SOR Technologies performing strongly and good progress made
integrating its most recent bolt-on acquisition of WMPH. Since
March 2020, revenue generated from cruises, which contributes c.25%
of the total, has materially declined. We recognised a combined
value loss on both Hans Anders and ICE of GBP146 million to reflect
these short-term declines in earnings.
The automotive sector was challenged throughout 2019 before the
impact of the pandemic was felt on demand and supply. Formel D, the
leading international provider of quality services for the
automotive industry, performed well despite the challenging market
backdrop and also completed the acquisitions of CPS and Vdynamics.
European and US OEM plant shutdowns in mid March as a result of
COVID-19 have impacted Formel D's output and this is reflected in
the valuation at 31 March 2020. In December 2019, Schlemmer, a
German manufacturer of cable management solutions for the global
automotive industry, filed for administration in Germany. Schlemmer
had continued to suffer operational challenges in its North
American plants, as well as a significant decline in volumes in its
European plants in the second half of 2019. Despite further
financial support from 3i, we wrote down our investment to nil,
recognising a GBP103 million value loss in the year.
In October 2019, we completed the first investment in our
2019-22 vintage with the GBP214 million investment in Evernex, and
at the end of 2019 we completed a GBP60 million investment in a new
platform for the production of bioprocessing products. Both
companies continue to trade well through the disruption of
COVID-19. As we enter FY2021, our investment activity for the new
vintage will be lower than planned as we focus our resources and
energy on supporting our existing portfolio through the pandemic.
Our realisation activity is also expected to be limited. However at
the end of March 2020, we completed the sale of ACR, recognising
total realised proceeds of GBP105 million. The most significant
tranche of these realised proceeds is expected to be received in Q3
2020.
Infrastructure performance
The Group's 30% stake in 3i Infrastructure plc ("3iN") was
valued at GBP665 million at 31 March 2020, based on a share price
of 247 pence (31 March 2019: 275 pence). The impact of COVID-19 on
capital markets has been far reaching, even on resilient asset
classes such as infrastructure; 3iN had traded at a record high
share price of 317 pence in February 2020. By its nature, 3iN's
portfolio is defensive and less vulnerable to economic downturns.
To date, the social and economic disruption has had limited
operational impact on the 3iN investment portfolio with just TCR,
the airport ground handling equipment leasing business, impacted by
travel restrictions. Demand for infrastructure assets remained
strong in 2019 and 3iN capitalised on this with the realisations of
Wireless Infrastructure Group ("WIG") for proceeds of GBP387
million and IRR of 27%, and the UK projects portfolio for proceeds
of GBP194 million and an IRR of 15%. 3iN also completed new
acquisitions of Joulz, which owns and provides essential energy
infrastructure equipment and services in the Netherlands, and
Ionisos, a leading owner and operator of cold sterilisation
facilities headquartered in France. In addition to these
investments, 3iN completed the bolt-on acquisition by Valorem of
Force Hydraulique Antillaise SAS.
Our North American Infrastructure team completed its second US
infrastructure investment in July 2019, with the acquisition of
Regional Rail, which owns and operates short-line freight railroads
and rail-related businesses throughout the Mid-Atlantic US.
Subsequently, in December 2019, we supported Regional Rail's
strategically transformative acquisition of Pinsly Railroad
Company's Florida subsidiaries. In addition, in February 2020,
Regional Rail acquired Carolina Coastal Railway, taking our total
investment in Regional Rail and bolt-on acquisitions to GBP175
million. Short-line freight rail has been designated as an
essential service in the US, and the business is performing well.
US and global travel restrictions have had a significant impact on
Smarte Carte, our US luggage carts, lockers and strollers business,
impacting all revenue streams. The team is working on cost
mitigation and financing options to navigate this tough trading
period.
Scandlines performance
Scandlines continues to make good progress and has yielded a
strong cash return for 3i since our reinvestment in the last
financial year. In August 2019, it completed a successful
refinancing which returned GBP70 million to 3i. In addition, we
received a further GBP37 million in dividends in the year, meaning
Scandlines has returned 26% of our reinvestment in June 2018.
The Danish and German Governments' decision to impose border
controls in March 2020 due to COVID-19 has, however, had a major
short-term impact on car volumes in particular. However,
Scandlines' strategic importance to supply chains across the region
is evident and freight continues to flow with good volumes despite
the reduced economic activity across Europe. To reflect the
short-term impact to volumes from the temporary restrictions and
the
current elevated level of potential uncertainty on the
longer-term impact of the pandemic, we reduced the value of
Scandlines to GBP429 million from GBP464 million at 31 December
2019 (31 March 2019: GBP529 million pre-refinancing proceeds of
GBP70 million).
Strong, resilient balance sheet, well positioned to deliver good
returns to shareholders
We have had a conservative balance sheet strategy since our
restructuring in 2012. At 31 March 2020, we had gross cash of
GBP845 million, after returning GBP363 million of cash dividends to
shareholders in the year, and long-dated gross debt of GBP575
million. In March 2020, we completed the refinancing of our RCF,
increasing its amount from GBP350 million to GBP400 million in a
five-year facility with an option to extend annually for a further
two years. We also generated an operating cash profit of GBP40
million in the year meaning our income, before realisations, more
than covered our operating costs. This strong balance sheet is
important because we are under no pressure to sell assets to cover
our costs and can support our portfolio as required.
Our people and values
The 3i team is the heart of our business and we expect everyone
at 3i to act with integrity, to be accountable for their behaviour,
and to approach their roles with ambition, rigour and energy.
Our long-standing Responsible Investment Policy informs our
investment decisions and our behaviour as a manager of our assets.
We are committed to the continuous improvement of our approach.
The COVID-19 pandemic continues to have a significant impact on
people's lives. 3i supports a number of charities on an ongoing
basis. Given the increased demand that these charities are
experiencing at this time, we have chosen to make additional
donations to a number of them. We have also made donations to
charities or organisations addressing issues raised by COVID-19 in
the seven other countries in which we operate, on the
recommendation of our local teams. In addition, we matched our
employees' charitable donations during April, which will take our
annual total donations to c.GBP1 million. We are also supportive of
any of our employees who choose to volunteer with their local
healthcare service and are assisting them in this endeavour by
enabling them to work flexibly around what they choose to do.
Finally, we have set up a GBP5 million charitable fund to help
alleviate the impact of COVID-19 by supporting charities and
communities affected by the pandemic. Through this fund, we will
focus our support on organisations helping the most vulnerable in
those countries in which we and our portfolio companies operate.
The GBP5 million has been funded from Private Equity and
Infrastructure carry and performance fee arrangements which have
been provided for through the income statement in prior
periods.
Outlook
At the time of writing, the world continues to manage the
COVID-19 pandemic. For 3i and many other businesses, the next 12 to
24 months will be among the most challenging periods historically
in which to operate a business and generate a return. Our strong
balance sheet and lean cost base mean we are under no pressure to
realise assets in our portfolio before they reach their full
potential. We expect our investment rate to be lower than previous
years as our main focus for the next 12 months will be on managing
and growing our existing portfolio through some tough trading
conditions. We will, however, continue to build an interesting
pipeline of new and further investment opportunities.
We are confident that our diverse portfolio is well positioned
to continue the good momentum demonstrated throughout the majority
of FY2020 before the pandemic began and we see no reason to change
our financial objective of achieving mid to high teen returns
through the cycle for shareholders.
It is frustrating for all of us to produce such strong
performance over 11 months and then to see events outside our
control wreak such enormous social and economic damage. We are
fortunate to have such strong portfolio companies and finances at
3i, as well as such an experienced and reliable team of
professionals. We are adapting to the challenges posed by COVID-19
and continue with our usual purpose and caution to attain our
stated objectives, as well as helping some of those most at risk at
this time.
I have been very impressed with the way the 3i team has
responded to the challenge imposed by the COVID-19 outbreak and I
would like to thank them for all their good work this year.
Simon Borrows
Chief Executive
13 May 2020
Business review
COVID-19
COVID-19 presents a huge risk to the global economy, and to
individual companies and has had a severe impact on economic growth
forecasts worldwide. The impacts of COVID-19 are not all apparent
yet and the position will remain fluid until the length and extent
of the crisis become clearer. Evidently, not all industries or
companies will be impacted to the same degree. However, the effects
will be felt in a number of areas across 3i and the majority of its
portfolio companies. 3i continues to monitor and follow closely the
information released from governments, regulatory bodies and health
organisations in the countries in which 3i and its portfolio
companies operate.
3i's response to COVID-19 is set out in further detail
below.
People and operations
Lockdown, social distancing and economic hardship have
highlighted the importance of 3i and its portfolio companies' focus
on keeping employees safe, motivated and able to fulfil their roles
effectively. New methods of working have reshaped the work
environment and the ways in which people interact and communicate.
All 3i offices have been closed, or have had access significantly
restricted, in accordance with local regulations and guidance.
Business meetings and events are being held virtually, and all
international travel has been cancelled at least until we are
advised that it may resume safely. Particular effort has been made
to keep all of our people informed and engaged through regular
updates from management and team leaders. 3i has a detailed
business continuity plan for the whole organisation, which includes
contractors, and has taken the following steps in particular to
address the impact on people and any risks that the changing work
environment may present:
-- the implementation of a flexible work-from-home policy for
all our offices, facilitated through the use of remote login and
video and audio conferencing;
-- the provision of mental health and well-being advice and
guidance to employees, provided virtually by an experienced
external provider, and the provision of streamed fitness
classes;
-- frequent communication, sharing tools to help everyone work
effectively from home; and
-- restrictions on international business travel to limit
potential risk to staff.
Members of 3i's investment teams continue to interact regularly
with portfolio company management, and hold Board and review
meetings virtually. At a Group level, remote working has allowed 3i
to continue to hold effective Investment Committee, Board and other
regular meetings. There has been limited impact on 3i's ability to
facilitate discussion and enable informed decision making.
Technology
Managing the stability and digital risk of an organisation's
technology environment has become a key priority as firms seek to
implement social distancing whilst maintaining everyday operations.
The performance of 3i's systems is closely monitored to help ensure
the effective continuity of business operations. 3i's IT systems
have performed strongly against these new demands with the
continuation of high quality IT support and the provision of
effective and reliable video and audio teleconferencing software.
3i employees have been provided with additional hardware, where
required, to work effectively from home. The IT team has provided
training for all employees to become comfortable with this new
operating model and to ensure they can perform their jobs remotely.
The management of cyber security remains of paramount importance
and monitoring of the associated risk to the Group and its
portfolio companies continues.
Liquidity
3i has maintained a conservative balance sheet structure since
its strategic review in 2012, which should aid the Group in
navigating the current uncertain business environment. 3i has cash
of GBP845 million at 31 March 2020, low levels of debt, and has
recently completed a successful refinancing of its RCF, increasing
the size to GBP400 million and extending the maturity to 2025
without any financial covenants, providing the Group with a strong
source of additional
liquidity should it be called upon in the future. Levels of new
investments and realisations throughout FY2021 are likely to be
considerably lower than in prior years, with the principal focus of
investment during this period being on supporting existing
portfolio companies. Our investment teams are working closely with
the management of our portfolio companies in order to review their
short to medium-term cash forecast, working capital position and
bank covenants relating to their borrowings. Our expert teams are
dedicated to supporting our portfolio companies through this period
of uncertainty.
In accordance with its ongoing obligations, the Board will
ensure that there are sufficient reserves available at the time of
declaring and paying of the dividend. The Board has also assessed
and reviewed 3i's long-term viability. The Viability statement in
the Risk management section discloses and explains key assumptions
and future scenarios covered in preparing the Viability
statement.
Valuation approach at 31 March 2020
At 31 March 2020, our approach to valuation was substantially
consistent with our normal process and valuation policy. A key
focus of the portfolio fair value at 31 March 2020 was an
assessment of the impact of the COVID-19 pandemic on each portfolio
company. Our approach considered the performance of the portfolio
companies before the outbreak of COVID-19, the projected short-term
impact on their ability to generate earnings and cash flow and also
our longer-term view of their ability to recover and perform
against their investment cases. Our policy of taking a long-term
view on multiples against frequently volatile and dislocated
capital markets was also applied where appropriate. Given the
diversity of our portfolio, the impact has been varied, with
portfolio companies exposed to travel and transportation such as
ICE, Audley Travel and Smarte Carte, retail such as Action and Hans
Anders, and automotive such as Formel D, experiencing significant
disruption compared to those in medical technology, personal care
products, e-commerce and other speciality manufacturers, such as
Cirtec, Royal Sanders, Tato and Lampenwelt.
Portfolio management
Our investment teams are working with our portfolio companies in
order to manage the range of operational and financial issues that
have arisen, including ensuring employee health and safety in
accordance with government regulations, liquidity and supply chain
issues, and the effective preparation of short to mid-term
forecasts. We continue to monitor the portfolio performance
closely, through our positions on boards and working closely with
management teams.
These close working relationships and our well-established
monthly portfolio dashboard monitoring mean that the Investment
Committee has good access to information on the portfolio in this
rapidly changing environment. This has enabled it to respond
quickly to requests for support where needed, and to keep the Group
Board and its Committees regularly updated.
Private Equity
We back entrepreneurs and management teams of mid-market
businesses headquartered in northern Europe, the UK and North
America that can grow internationally. Once invested, we work
closely with our portfolio companies to achieve their full
potential, realising our investments at the appropriate time to
deliver strong cash-to-cash returns for 3i shareholders and other
investors.
At a glance
Gross investment return
GBP352m or 6%
(2019: GBP1,148m or 20%)
Investment
GBP1,062m
(2019: GBP332m)
Realised proceeds
GBP848m
(2019: GBP1,235m)
Portfolio growing earnings
93%(1)
(2019: 93%)
Portfolio value
GBP6,552m
(2019: GBP6,023m)
Number of companies
32
(2019: 32)
1 LTM earnings to 31 December 2019.
Our Private Equity portfolio delivered a Gross Investment Return
of GBP352 million or 6% on the opening portfolio (2019: GBP1,148
million or 20%). The portfolio had performed well overall in the 11
months to 29 February 2020 before the significant negative impact
of COVID-19 on the portfolio valuation at the end of March 2020.
Our team remained selective and disciplined on price despite a
competitive market throughout the year, completing three new
investments totalling GBP413 million. These new investments, with
end markets in biopharmaceuticals; data centre hardware and
critical IT assets; and application data solutions, have to date
proven resilient to the COVID-19 crisis.
In addition, 13 bolt-on acquisitions were completed by existing
portfolio companies in the year to 31 March 2020. There are a
number of potential further bolt-on acquisitions being reviewed at
the date of this report.
We generated realised proceeds of GBP848 million. The Action
transaction generated GBP402 million, which was subsequently
reinvested into Action as part of a GBP591 million further
investment, increasing our gross equity stake from 45.3% to 52.6%.
We also sold Aspen Pumps in the year, generating GBP205 million of
proceeds and an overall 4.1x return over the life of 3i's
investment.
TABLE 1: GROSS INVESTMENT RETURN FOR THE YEAR TO 31 MARCH
2020 2019
Investment basis GBPm GBPm
-------------------------------------------------------------- ---- -----
Realised profits over value on the disposal of investments 90 131
Unrealised (losses)/profits on the revaluation of investments (34) 916
Dividends 5 12
Interest income from investment portfolio 106 103
Fees receivable 9 10
Foreign exchange on investments 176 (24)
-------------------------------------------------------------- ---- -----
Gross investment return 352 1,148
-------------------------------------------------------------- ---- -----
Gross investment return as a % of opening portfolio value 6% 20%
-------------------------------------------------------------- ---- -----
The contribution of Action to the Private Equity performance is
detailed in Note 1 of the financial statements.
COVID-19 and our Private Equity portfolio
The COVID-19 pandemic presents unprecedented economic and
liquidity challenges for the majority of businesses. Infection
mitigation measures, including restrictions on travel and lockdowns
are creating significant disruption to core operations and global
supply chain processes.
Action transaction overview
In 2011, 3i invested GBP106 million in Action alongside EFV and
other co-investors. Since then, 3i has made several small further
investments to buy out exiting Action management and has also
bought several additional stakes in EFV in secondary Limited
Partner ("LP") transactions. At 31 December 2019, 3i's effective
equity holding in Action was 45.3%.
On 17 January 2020, we completed a transaction to provide
liquidity to investors in EFV by a realisation of the EFV
investment in Action through a sale to the 3i 2020 Co-investment
vehicles, for an enterprise value of EUR10.25 billion funded by a
combination of rolling LPs, new LPs and 3i (the "Transaction"). We
are delighted that GIC, AlpInvest Partners, Coller Capital,
HarbourVest Partners, J.P. Morgan Asset Management, Pantheon, as
well as investment funds managed by each of Aberdeen Standard
Investments, Goldman Sachs Asset Management and Neuberger Berman,
amongst others, have decided to either roll their existing
investment or make a significant new investment in the next chapter
of Action's growth story.
Action's remarkable growth and cash generation since the
original investment has allowed 3i to successfully refinance the
business five times prior to the Transaction. Prior to this
Transaction, 3i has received cash proceeds of GBP836 million for a
6.3x cash multiple. 3i received GBP402 million proceeds from this
Transaction bringing total proceeds to date to GBP1,238 million in
the nine years of our ownership. With its reinvestment of GBP591
million, the total cash invested by 3i is GBP724 million at a 6.6x
money multiple including unrealised value.
January 2020 Sale of EFV interest in Action
* The Transaction provided liquidity to EFV LPs through
the realisation of their investment in Action,
representing 34% of the equity of Action, at an
enterprise value of EUR10.25bn
Payment of EFV carry to 3i
Disposal of 3i's LP stake * Ahead of the Transaction, Action completed a
in Action held in EFV refinancing with a new term loan of EUR625m and 3i
and EFV received their pro-rata share of the
subsequent distribution
3i reinvestment into Action
* As a result of the Transaction, the relevant carry
hurdles were met resulting in EFV releasing carry it
owed to 3i
March 2020
* When EFV disposed of its entire stake in Action, 3i
also received its share of those proceeds from 3i's
own LP stake in EFV (acquired through secondary
transfers), equivalent to a 1.8% equity investment in
Action
* Following the receipt of: (i) the dividend proceeds;
(ii) carried interest from EFV; and (iii) the
proceeds from the disposal of its share of the EFV
proceeds, 3i reinvested GBP591m into Action both
through the 3i 2020 Co-investment vehicles and
directly, to purchase an additional equity stake of
9.1%, resulting in 3i holding a total gross equity
stake in Action of 52.6% as at 31 March 2020
Ongoing Action remains part of the
Private Equity business * There were no changes to the governance structure in
the way Action is managed as a result of the
Transaction. We will continue to report Action as
part of the Private Equity business, but have
provided separate disclosure about Action's
performance on pages 16 and 17 of our Annual report
and accounts 2020, and in Note 1 to the financial
statements
============================== ==================================================================
Action valuation
The Transaction was concluded after detailed due diligence was
conducted by sophisticated investors on the Action business model
and its five-year business plan and thus provided an independent
fair value. Prior to the impact of COVID-19 the business was
trading strongly and outperforming this plan. Although the pandemic
has since caused major short-term disruption to the business, there
is no evidence to suggest that Action will not bounce back strongly
now that the store portfolio has substantially re-opened. We
believe that the strength of the business model and the growth
potential offered by the white space opportunity ahead of Action
remains undiminished. Notwithstanding this, if we re-evaluate
Action in light of the current trading and temporary delay to
roll-out plans, stepping back to the Transaction value is sensible,
reflecting current uncertainties. This valuation level was also
triangulated against the relevant comparable peer group and the
results of DCF modelling. It is broadly equivalent to using Action
run-rate earnings to March 2020 and reducing the multiple used to
c.17x post discount.
Across our Private Equity portfolio, we have to date seen the
greatest impact on companies operating in travel, retail and
automotive. However, we have seen some of our businesses in
essential product manufacturing, e-commerce and healthcare
generating stable or increased revenues through the crisis. The
majority of our portfolio went into the crisis with good cash
generation.
In response to the COVID-19 pandemic, we have worked with
management teams to support an appropriate business response. The
first priority has been the health and safety of employees and
customers. All of our portfolio companies which have been impacted
have run scenarios based on a range of assumptions around the
duration and potential impact of the crisis. These have informed
mitigation strategies to help companies trade through the current
crisis. Where required we will also support our companies
financially, as we have done for Hans Anders providing EUR22.5
million in April 2020.
Because 2020 will likely continue to be a very challenging year,
we have increased our portfolio governance and monitoring
activities. Our focus is ensuring our portfolio companies are
positioned to recover well as they emerge from the crisis,
supporting the return to higher valuation levels and ultimately
strong cash returns upon final realisations in the future.
The impact of COVID-19 on portfolio performance and valuation is
further detailed on later in this section.
Investment activity
2019 saw a continued increase in "dry powder" in the Private
Equity asset class, as a result of increased fundraising and
relatively flat deal volumes. Purchase multiples continued to
increase, partly fuelled by high levels of leverage, with US buyout
transaction multiples reaching their highest level in 15 years.
In the year, we remained highly selective on new investment. We
completed three new investments, all in defensive sectors that have
been resilient following the impact of COVID-19 on wider markets.
Magnitude Software provides subscription software services which
support enterprise ERP solutions; Evernex provides essential IT
infrastructure maintenance services; and our new Bioprocessing
platform (which was all equity funded), is focused on defensive
areas of healthcare. Where appropriate, we will look to add value
accretive acquisitions for these companies, as well as supporting
the companies to deliver organic growth.
In addition to these three new investments, 13 bolt-on
acquisitions were completed across the existing portfolio, the
majority of which were funded from the portfolio company balance
sheets. These were a combination of complementary businesses in
existing geographies and acquisitions which further improve
geographic diversification and international growth potential.
Over the last 12 months, our Private Equity team invested a
total of GBP471 million across new, further, bolt-on and other
investments, in addition to the GBP591 million additional
investment in Action (as detailed in the Action Transaction
overview section).
As a result of the COVID-19 pandemic, investment activity for
the next 12 months is expected to be lower than in previous years.
In April 2020, we provided an equity injection of EUR22.5 million
to Hans Anders to support its operational cash flow while its
stores in most countries were closed or open on an appointment-only
basis as a result of the COVID-19 pandemic. Most of the company's
stores have gradually resumed trading in the course of May 2020,
with safety measures in place to protect employees and customers.
We will prioritise supporting such portfolio assets in the short
term, whilst continuing to build an interesting pipeline of new and
further investment opportunities.
New investments
Proprietary Capital
Assets Business description Date investment
---------------------- ---------------------------------------------------------- ------------- -------------------
Magnitude Software Leading provider of unified application data management May 2019 GBP139m
solutions
---------------------- ---------------------------------------------------------- ------------- -------------------
Evernex International provider of third-party maintenance services October 2019 GBP214m
for data centre infrastructure
---------------------- ---------------------------------------------------------- ------------- -------------------
Bioprocessing platform Single-use bioprocessing product platform November 2019 GBP60m
serving the biopharmaceutical sector
---------------------- ---------------------------------------------------------- ------------- -------------------
Total new Private Equity investments GBP413m
================================================================================== ============= ===================
Further investments
Proprietary Capital
Assets Further description Date investment
------------- ---------------------------------------------------------------------- ---------- -------------------
Action Reinvestment in Action as part of the EFV liquidity transaction, January GBP591m
increasing our gross equity 2020
stake to 52.6% (December 2019: 45.3%) and March
2020
------------- ---------------------------------------------------------------------- ---------- -------------------
EFV LP stakes Acquisition of three additional stakes in EFV at March 2019 valuation, June 2019 GBP61m
before the Action Transaction
------------- ---------------------------------------------------------------------- ---------- -------------------
Schlemmer Liquidity support April 2019 GBP10m
and
September
2019
------------- ---------------------------------------------------------------------- ---------- -------------------
Total Private Equity further investments GBP662m
===================================================================================== ========== ===================
Bolt-on investments
Business description of bolt-on Proprietary Capital
Assets Name of acquisition investments Date investment
---------- ------------------------ ----------------------------------------- ------------- -------------------
Lampenwelt + Lampenlicht/QLF One of the leading online lighting July 2019 GBP8m
players
in the Benelux
---------- ------------------------ ----------------------------------------- ------------- -------------------
ICE + WMPH We Make People Happy Vacations ("WMPH"), December GBP7m
a travel agency 2019
---------- ------------------------ ----------------------------------------- ------------- -------------------
Aspen + TNC Clips Manufacturer and distributor of clips and April 2019 -
related products for the air conditioning
industry
---------- ------------------------ ----------------------------------------- ------------- -------------------
Christ + Valmano Online retailer of jewellery and watches May 2019 -
in Germany
---------- ------------------------ ----------------------------------------- ------------- -------------------
Havea + Pasquali A leading skincare brand in Italy May 2019 -
---------- ------------------------ ----------------------------------------- ------------- -------------------
Basic-Fit + Fitland The third largest fitness operator in the July 2019 -
Dutch market by number of clubs with a
network of
37 clubs
---------- ------------------------ ----------------------------------------- ------------- -------------------
Dynatect + Thodacon A leading provider of waywipers and other August -
critical components for the industrial 2019
machining
and automation markets based in China
---------- ------------------------ ----------------------------------------- ------------- -------------------
Formel D + Vdynamics A German automotive engineering service September2019 -
provider focused on physical and virtual
testing of
automotive software and ECUs (electronic
control units)
---------- ------------------------ ----------------------------------------- ------------- -------------------
Formel D + CPS International quality service provider October -
2019
---------- ------------------------ ----------------------------------------- ------------- -------------------
Q Holding + TBL Performance Plastics A leading manufacturer of single-use October -
bioprocess components and systems 2019
---------- ------------------------ ----------------------------------------- ------------- -------------------
WP + Orange Poland A manufacturer of deodorant packaging November -
systems 2019
---------- ------------------------ ----------------------------------------- ------------- -------------------
AES + Van Geffen A Netherlands-based provider of January -
reliability and vibration monitoring 2020
service
---------- ------------------------ ----------------------------------------- ------------- -------------------
Evernex + Storex A South African provider of maintenance March -
services for critical data centre 2020
equipment
---------- ------------------------ ----------------------------------------- ------------- -------------------
Total Private Equity bolt-on investments from 3i balance sheet GBP15m
================================================================================== ============= ===================
Other
Proprietary Capital
Assets Description Date investment
-------------- ------------------------ ------------- -------------------
Hans Anders Return of overfunding December 2019 GBP(35)m
-------------- ------------------------ ------------- -------------------
Other n/a n/a GBP7m
-------------- ------------------------ ------------- -------------------
Total Private Equity other investments GBP(28)m
======================================== ============= ===================
Realisations activity
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. Aside from the GBP402 million proceeds generated from
the Action Transaction described earlier, we also generated GBP328
million of capital proceeds from our 2013-16 vintage in the year.
In January 2020, we completed the disposal of Aspen Pumps for
proceeds of GBP205 million. This realisation achieved an overall
money multiple of 4.1x and IRR of 34%, which validates the
effectiveness of our international buy-and-build strategy,
complementing strong organic growth in developing a multi-national
business.
We took advantage of supportive equity market conditions at the
end of 2019 to reduce our quoted holding in Basic-Fit, disposing of
2.9 million shares at a price of EUR31.25 per share, returning
proceeds of GBP76 million. We retain a 12.7% holding in that
business. We continue to refinance our most cash generative assets
where appropriate for the business and where the market allows. In
December 2019, Audley Travel completed a refinancing which resulted
in a GBP65 million distribution to 3i, of which GBP47 million was
recognised as capital proceeds and the remainder as income. In
October 2019, we received GBP12 million of proceeds from BoConcept
following the repayment of a shareholder loan.
Finally, at the end of March 2020, we completed the sale of ACR.
We recognised total realised proceeds of GBP105 million from this
sale, with the most significant tranche of these realised proceeds
expected to be received in Q3 2020. At 31 March 2020, the proceeds
of GBP105 million were a receivable on the Group's balance
sheet.
In aggregate, we generated total Private Equity proceeds of
GBP848 million (2019: GBP1,235 million) and realised profits of
GBP90 million in the year (2019: GBP131 million).
Realisation proceeds for the next 12 months are expected to be
lower than previous years. However, we go into the year ending 31
March 2021 having sold Kinolt for proceeds of c.EUR96 million, with
completion anticipated in August 2020 and being subject only to
competition clearance.
Approach to Private Equity portfolio valuation at 31 March
2020
At 31 March 2020, our approach to valuation was substantially
consistent with our policy and the process adopted in previous
years. We value the Private Equity portfolio on a "fair value"
basis, in line with the International Private Equity and Venture
Capital ("IPEV") guidelines, including the recent IPEV guidance
which addressed how to reflect the impact of COVID-19 in valuations
at 31 March 2020. In addition to our normal process, we placed
additional focus on the following areas when considering the impact
of COVID-19 on our Private Equity portfolio companies:
-- the performance of the portfolio company prior to the COVID-19 outbreak;
-- the potential impact on full-year projections for relevant KPIs;
-- our long-term, through the cycle view on multiples against
the dislocation of capital markets and the average of quoted
comparable peer sets;
-- the portfolio companies' liquidity; and
-- the potential impact on the long-term plan of the portfolio company.
Given the unprecedented social and economic disruption caused by
COVID-19, a higher level of judgement has been required to derive
the "fair value" of assets in our Private Equity portfolio. To
support our valuations, we have gathered a broad range of inputs
that cover historical, current and forward-looking data to
determine a fair value and where applicable we have used other
valuation methodologies to triangulate a proposed valuation.
The majority of our Private Equity valuations at 31 March 2020
have been derived using either last 12 months' earnings to 31
December 2019 or last 12 months' earnings to 31 March 2020. If
available and considered reasonably reliable a full-year 2020
forecast was considered and, in a small number of cases, used as
the basis of valuation. In all cases net debt was adjusted in
accordance with the earnings period used and adjustments were made
to capture any additional financing or significant cash outflows up
to 31 March 2020.
TABLE 2: PRIVATE EQUITY REALISATIONS IN THE YEAR TO 31 MARCH
2020
31 March Profit/(loss) Uplift on
Calendar 2019 3i realised in the opening Residual
year value1 proceeds year2 value2 value Money
Investment Country invested GBPm GBPm GBPm % GBPm multiple3 IRR
------------------ ------------ --------- -------- ----------- ------------- --------- -------- --------- ---
Full realisations
Aspen Pumps UK 2015 103 205 102 99% - 4.1x 34%
ACR Singapore 2006 129 105 (30) (23)% - 1.0x -
------------------ ------------ --------- -------- ----------- ------------- --------- -------- --------- ---
Total realisations 232 310 72 31% - 2.2x n/a
------------------------------------------- -------- ----------- ------------- --------- -------- --------- ---
Refinancings(3)
Audley Travel UK 2015 47 47 - - 124 1.4x 8%
------------------ ------------ --------- -------- ----------- ------------- --------- -------- --------- ---
Total refinancings 47 47 - - 124 1.4x 8%
------------------------------------------- -------- ----------- ------------- --------- -------- --------- ---
Partial
realisations(1,3)
Basic-Fit Netherlands 2013 74 76 2 3% 93 4.2x 37%
BoConcept Denmark 2016 12 12 - - 119 1.1x 2%
Other n/a n/a - 1 1 - n/a n/a n/a
Action transaction
Action transaction Netherlands 2011 387 402(4) 15 4% 3,536 6.6x 70%
------------------ ------------ --------- -------- ----------- ------------- --------- -------- --------- ---
Total Private Equity
realisations 752 848 90 12% 3,872 n/a n/a
-------------------------------- --------- -------- ----------- ------------- --------- -------- --------- ---
1 For partial realisations, 31 March 2019 value represents value
of stake sold.
2 Cash proceeds realised in the period over opening value.
3 Cash proceeds over cash invested. For partial realisations and
refinancings, valuations of any remaining investment are included
in the multiple. Money multiples are quoted on a GBP basis.
4 Action's realised proceeds include refinancing proceeds of
GBP289 million and proceeds from the disposal of
3i's LP stake in Action held in EFV of GBP113 million.
Our strategy of taking a long-term view on valuation multiples
has been consistently applied during various peaks and troughs in
equity markets over the last seven to eight years. In setting and
before changing a multiple we consider a number of factors such as
relative performance, investment size, comparable recent
transactions and exit plans, and the trading of equity markets. Our
approach at 31 March 2020 was consistent with this approach and we
were also conscious of not "double dipping" by taking both a market
driven multiple and earnings that were impacted by COVID-19. In
some cases, we reverted to a comparable peer group multiple whilst
in others we maintained a longer-term view. Further detail of
Action's valuation can be found in the Action Transaction overview
section above.
The table below summarises the approaches we have taken to
estimating fair value for the Private Equity portfolio, taking into
consideration the impact of COVID-19.
Performance
The portfolio had performed well overall in the 11 months to 29
February 2020. Whilst this period included the GBP103 million
write-down of the remaining value of Schlemmer, there was good
momentum across a number of other companies, with Action in
particular performing very strongly, and also the excellent
realisation of Aspen Pumps at a 99% uplift over its opening value
(and 4.1x / 34% IRR over its life). In the 12 months to 31 December
2019, 93% (2019: 93%) of the portfolio by value, including
Basic-Fit, grew earnings.
However, after February 2020, the global outbreak of COVID-19
and subsequent major social and economic disruption have had a
varied impact on our Private Equity portfolio, with companies
exposed to travel, retail and automotive experiencing significant
disruption, and those in the manufacturing, software or health and
personal care sectors experiencing more robust trading. Further
detail on Action's performance can be found on pages 16 and 17 of
our Annual report and accounts 2020.
ICE, a global provider of technology-based B2B2C travel-based
loyalty and reward solutions, had good momentum running into the
start of 2020, despite the loss of the RCI contract earlier in the
year, with its previous acquisition of SOR technologies performing
strongly and good progress made in integrating its most recent
bolt-on acquisition of WMPH. Similarly, Audley Travel, our provider
of tailor made travel, had a strong finish to 2019 and start to
2020. Global travel restrictions and lockdowns across most of the
world at the end of Q1 2020 have severely impacted travel services,
resulting in significant revenue reductions. As a result, we
reduced the value of both assets materially. Because it is
difficult to predict when travel restrictions will be lifted, and
therefore when consumer demand will increase, the value reduction
was reflected in the valuation multiple. At 31 March 2020, ICE was
valued at GBP69 million (2019: GBP155 million) and Audley Travel
was valued
at GBP124 million post-refinancing proceeds of GBP65 million (2019: GBP270 million).
In 2019 Hans Anders, a value-for-money optical retailer, made
good progress with its store roll-out plan and was already
recognising operational synergies from its acquisition of eyes +
more in January 2019. Due to various government-initiated measures
to combat the COVID-19 pandemic, at 31 March 2020 almost all its
stores were either closed or open on an appointment-only basis. As
a result of the material fall in revenue, we invested a further
EUR22.5 million in Hans Anders in April 2020 to support near-term
liquidity and help navigate the business through these tough
trading conditions. Most of the company's stores have gradually
resumed trading in the course of May 2020, with safety measures in
place to protect employees and customers. We reflected the value
reduction in Hans Anders through the latest earnings available. At
31 March 2020, Hans Anders was valued at GBP196 million (2019:
GBP246 million). We have also seen COVID-19 impact BoConcept and
Action (see the Action Transaction overview section above).
Conversely Lampenwelt, an e-commerce retailer of lighting, has seen
record sales in 2020 to date, and we recognised value growth of
GBP10 million.
Approach General application Examples
---------- ----------------------------------------------------------- -----------------------------------------------------------
No
material * LTM earnings to December 2019 * Cirtec has continued to trade well through the
change to pandemic
the
valuation * No material change to the valuation multiple
approach * Companies like Royal Sanders and Tato have benefited
from increased demand in certain of their products
* Used for portfolio companies that have continued to
trade well through the COVID-19 pandemic
---------- ----------------------------------------------------------- -----------------------------------------------------------
Impact of
COVID-19 * LTM earnings to March 2020 or forecast earnings * Hans Anders retails non-discretionary products and is
mainly expected to resume trading when restrictions are
reflected lifted in its markets. As a value-for-money retailer,
through * No material change to the valuation multiple it is also expected to trade well in less favourable
earnings economic conditions
* Used for companies for which the impact of COVID-19
will be limited in time for the duration of lockdowns
or other restrictions on trading
---------- ----------------------------------------------------------- -----------------------------------------------------------
Impact of
COVID-19 * LTM earnings to March 2020 * Audley Travel and ICE may suffer from continued
mainly restrictions to travel after the lifting of formal
reflected lockdowns, or from changes in consumer behaviour a
through * Material reduction in the valuation multiple nd
valuations perception of risk
multiple
* Approach used for companies for which the negative
impact of COVID-19 could endure beyond the duration
of any lockdown
* In these instances, the extent of the earnings
reduction in the current year and beyond is more
difficult to forecast with any degree of confidence
---------- ----------------------------------------------------------- -----------------------------------------------------------
The approach used to value Action is described separately in the
Action Transaction overview section above.
Throughout 2019, the automotive sector faced challenging
conditions and contracting volumes, which have since been
compounded by the COVID-19 pandemic. Formel D, the leading
international provider of quality services for the automotive
industry, performed well, despite the challenging market backdrop,
and also completed the acquisitions of CPS and Vdynamics. However,
since the start of Q1 2020, OEM plant shut-downs in China, Europe
and the US have impacted Formel D's production related services.
Similarly, Q Holding, a manufacturer of precision engineered
elastomeric components, experienced softer trading in its QSR
business that has exposure to the automotive industry, offsetting
good performance in its medical division. In December 2019,
Schlemmer filed for administration in Germany. Schlemmer, whose
primary end markets are in the automotive industry, faced several
operational challenges in its North American plants, as well as a
decline in volumes in its European plants. Despite further
financial support from 3i, we wrote down our investment in
Schlemmer to nil in December 2019, recognising a GBP103 million
value loss in the year.
Cirtec Medical performed strongly throughout 2019 and this
momentum has continued into 2020. A combination of organic growth
and previous value accretive bolt-on acquisitions which have
internationalised its footprint, have increased its exposure to
high-growth end markets that are important long-term value drivers.
Similarly, Royal Sanders, the private label and contract
manufacturing producer of personal care products, delivered growth
rates that exceeded the general market in 2019 and has performed
well into 2020. As a result, we increased our value in Cirtec to
GBP302 million (2019: GBP248 million) and Royal Sanders to GBP198
million (2019: GBP147 million). Tato, the manufacturer of
speciality chemicals, performed very strongly in the year, driven
by organic growth in most existing markets with particularly strong
growth in the Americas and China.
Table 3 shows the portfolio earnings growth of the top 20
Private Equity investments in 2019.
TABLE 3: PORTFOLIO EARNINGS GROWTH OF THE TOP 20 PRIVATE
EQUITY(1) INVESTMENT IN 2019
3i carrying value
at 31 March 2020
Number of companies GBPm
=========== ================================================= ============================================
<0% 3 413
0 - 9% 8 1,380
10 - 19% 3 466
>20% 6 4,186
=========== ================================================= ============================================
1 Includes top 20 Private Equity companies by value. This represents 98% of the Private Equity
portfolio by value (31 March 2019: 97%). Last 12 months' earnings to 31 December 2019.
Leverage
The leverage in our Private Equity portfolio comprises all
senior debt, which is competitively priced and will benefit from a
lower interest rate environment. It has a long-dated maturity
profile, with 93% not due for repayment until 2023 or later. We
completed a number of significant re-financings ahead of the
current COVID-19 crisis (including on Action), securing good terms
on each. Across the whole portfolio leverage was 4.1x (31 March
2019: 3.9x), with good covenant flexibility in place.
Table 4 shows the ratio of net debt to earnings by portfolio
value.
TABLE 4: RATIO OF NET DEBT TO EARNINGS(1)
3i carrying value
at 31 March 2020
Number of companies GBPm
======= ==================== ==================
<1x 2 205
1 - 2x 2 263
2 - 3x 1 24
3 - 4x 2 322
4 - 5x 8 4,644
5 - 6x 3 520
======= ==================== ==================
1 This represents 91% 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. Net debt and earnings
at 31 December 2019.
Multiple movements
The decrease in value due to multiple movements was GBP231
million (2019: GBP219 million increase).
The majority of global indices reported double digit growth in
2019, notwithstanding political and economic uncertainty. This
resulted in near historic highs in EV/EBITDA valuation multiples of
quoted comparable companies across most of our core sectors.
Towards the end of Q1 2020, equity markets fell significantly as a
result of the COVID-19 pandemic. A number of sectors have been
materially de-rated, including the travel, retail and automotive
sectors. A major consideration when determining our long-term view
on valuation multiples is the impact of macro-economic factors that
may alter or delay our investment case. As a result of the COVID-19
pandemic and subsequent disruption, we reduced a number of our
portfolio company multiples. The most significant decrease
(>1.0x) in multiple was for Audley Travel, ICE, BoConcept and
AES.
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.
Quoted portfolio
In its 2019 financial year Basic-Fit, the only quoted asset in
the Private Equity portfolio, increased its revenue and adjusted
EBITDA by 28% and 25% respectively. The business ended the year
with 784 clubs and 2.2 million members. In December 2019, we sold
5.3% of our shareholding in Basic-Fit at EUR31.25 per share,
generating proceeds of GBP76 million. As a result of COVID-19, all
Basic-Fit's gyms have been temporarily closed, resulting in a 49%
reduction in share price to EUR15.20 in the 12 months to 31 March
2020 (31 March 2019: EUR30.00). We retain a 12.7% stake in the
business, valued at GBP93 million as at 31 March 2020.
Assets under management
The value of 3i's proprietary capital invested in Private Equity
increased to GBP6.6 billion in the year (31 March 2019: GBP6.0
billion), as we were a net investor in the year.
The value of the Private Equity portfolio, including third-party
capital, increased to EUR9.9 billion (31 March 2019: EUR9.6
billion).
TABLE 5: UNREALISED (LOSSES)/PROFITS ON THE REVALUATION OF
PRIVATE EQUITY INVESTMENTS(1) IN THE YEAR TO 31 MARCH
2020 2019
GBPm GBPm
------------------------------------------------------------------------------ ----- -----
Earnings based valuations
Performance (excluding Action) (61) 214
Multiple movements (231) 219
Action performance to 31 December 2019/(2019: performance to 31 March 2019) 733 440
Action fair value adjustment at 31 March 2020 (272) -
Other bases
Uplift to imminent sale 1 -
Write off of Schlemmer (103) -
Discounted cash flow (9) -
Other movements on unquoted investments - (12)
Quoted portfolio (92) 55
------------------------------------------------------------------------------ ----- -----
Total (34) 916
------------------------------------------------------------------------------ ----- -----
1 Further information on our valuation methodology, including definitions and rationale, is
included in the Portfolio valuation - an explanation in our Annual report and accounts 2020.
TABLE 6: PRIVATE EQUITY ASSETS BY GEOGRAPHY AS AT 31 MARCH
2020
3i carrying value
20 20
3i office location Number of companies GBPm
------------------- ------------------- -----------------
Benelux 6 4,222
France 2 399
Germany 5 565
UK 8 486
US 7 850
Other 4 30
------------------- ------------------- -----------------
Total 32 6,552
------------------- ------------------- -----------------
TABLE 7: PRIVATE EQUITY PROPRIETARY CAPITAL AS AT 31 MARCH
Proprietary Proprietary
capital value Vintage capital value Vintage
2020 multiple 2019 multiple
Vintages GBPm 2020 GBPm 2019
--------------------- ------------- -------- ------------- --------
Buyouts 2010-2012(1) 1,623 9.5x 2,679 8.5x
Growth 2010-2012 20 2.1x 25 2.1x
2013-2016(1) 869 2.2x 1,325 2.3x
2016-2019(1) 1,472 1.0x 1,503 1.2x
2019-2022(1) 281 1.0x - -
Others(2) 2,287 n/a 491 n/a
--------------------- ------------- -------- ------------- --------
Total 6,552 6,023
--------------------- ------------- -------- ------------- --------
1 Assets included in these vintages are disclosed in the Glossary.
2 Includes value of GBP1,913 million held in Action through 3i Co-investment 2020 LP and 3i.
Infrastructure
We manage a range of funds investing principally in mid-market
economic infrastructure in Europe. 3i's Infrastructure team looks
at a range of investment opportunities across adjacent sectors to
utilities, transportation, communications and energy.
Infrastructure is a defensive asset class that is resilient and
provides a good source of income and fees for the Group, enhancing
returns on our proprietary capital. The team is also active in the
deployment of proprietary capital as part of our strategy to build
our North American Infrastructure platform.
At a glance
Gross investment return
GBP(39)m or (4)%
(2019: GBP210m or 25%)
AUM
GBP4,441m
(2019: GBP4,198m)
Cash income
GBP78m
(2019: GBP82m)
Infrastructure contributed a gross investment return of GBP(39)
million, or (4)% on the opening portfolio (2019: GBP210 million,
25%). The negative return was driven primarily by the impact of
COVID-19 on 3iN's share price which declined by 10% in the year.
3iN generated GBP581 million of proceeds from the sale of WIG and
the UK projects portfolio and made two new investments in Joulz and
Ionisos. We continued to build our US Infrastructure platform with
the completion of our second proprietary capital investment in
Regional Rail and two subsequent bolt-on acquisitions of short-line
freight railroads.
TABLE 8: GROSS INVESTMENT RETURN FOR THE YEAR TO 31 MARCH
Investment basis 2020 2019
GBPm GBPm
-------------------------------------------------------------- ----- -----
Realised profits over value on the disposal of investments - 1
Unrealised (losses)/profits on the revaluation of investments (92) 162
Dividends 26 23
Interest income from investment portfolio 12 10
Fees receivable - (1)
Foreign exchange on investments 21 15
Movement in the fair value of derivatives (6) -
-------------------------------------------------------------- ----- -----
Gross investment return (39) 210
-------------------------------------------------------------- ----- -----
Gross investment return as a % of opening portfolio value (4)% 25%
-------------------------------------------------------------- ----- -----
3iN performance
3iN's portfolio consists of economic infrastructure and
greenfield projects across the utilities, communications,
healthcare, transportation, energy and natural resources and social
infrastructure sectors. By nature, the portfolio is defensive and
less vulnerable to economic downturns. To date, the severe social
and economic disruption caused by COVID-19 has had limited
operational impact on the 3iN investment portfolio with TCR, the
airport ground handling equipment business, the portfolio company
most affected due to travel restrictions.
The portfolio generated a return on opening NAV of 11% (2019:
15%), ahead of 3iN's target total return of between 8-10% per annum
to be achieved over the medium term.
As investment manager to 3iN we received a management fee of
GBP28 million (2019: GBP31 million) and a NAV based performance fee
of GBP6 million (2019: GBP31 million).
3iN investment and realisations
3iN made two new acquisitions in the year; the GBP190 million
investment in Joulz, which owns and provides essential energy
infrastructure equipment and services in the Netherlands, and the
GBP186 million investment in Ionisos, a leading owner and operator
of cold sterilisation facilities headquartered in France. In
addition to these investments, 3iN completed the bolt-on
acquisition by Valorem of Force Hydraulique Antillaise SAS in the
year.
In March 2020, 3iN announced Joulz's acquisition of GreenFlux's
electric vehicle charging station business, with over 3,000
charging points across the Netherlands. This acquisition is the
first since 3iN invested in Joulz in April 2019 and is part of
Joulz's strategy to expand into other energy transition related
products and services for the B2B market.
Demand for infrastructure assets remained strong in FY2020. In
December 2019, 3iN completed the realisations of WIG for proceeds
of GBP387 million and IRR of 27% and of the UK projects portfolio
for proceeds of GBP194 million and IRR of 15%.
3iN placing
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 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%
(2019: 33%) holding in 3iN.
Performance of 3i's proprietary capital Infrastructure
portfolio
Quoted stake in 3iN
The Group's proprietary capital infrastructure portfolio
consists primarily of its 30% stake in 3iN.
The impact of COVID-19 on capital markets has been wide
reaching, affecting even defensive asset classes such as
Infrastructure. As a result, 3iN's share price decreased by 10%,
closing at 247 pence on 31 March 2020 (31 March 2019: 275 pence).
We recognised a GBP76 million unrealised value reduction on our 3iN
investment and received GBP24 million of dividend income (2019:
GBP22 million).
TABLE 9: UNREALISED (LOSSES)/PROFITS ON THE REVALUATION OF
INFRASTRUCTURE INVESTMENTS(1)
IN THE YEAR TO 31 MARCH
2020 2019
GBPm GBPm
--------------------- ----- -----
Quoted (76) 167
Discounted cash flow (16) (7)
Fund - 2
--------------------- ----- -----
Total (92) 162
--------------------- ----- -----
1 Further information on our valuation methodology, including definitions and rationale, is
included in the portfolio valuation - an explanation section in our Annual report and accounts
2020.
TABLE 10: INFRASTRUCTURE PORTFOLIO MOVEMENT FOR THE YEAR TO 31
MARCH 2020
Opening Closing
value at Disposals Unrealised value at
1 April at opening value Other 31 March
2019 Investment book value movement movements1 2020
Investment Valuation GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ---------- -------- ---------- ---------- ---------- ---------- --------
3iN Quoted 744 - - (76) (3) 665
Smarte Carte DCF 181 - - (22) 13 172
Regional Rail DCF - 175 - 10 10 195
3i Managed Infrastructure Acquisitions
Fund NAV 38 - - - - 38
3i European Operational Projects Fund NAV 8 11 - - 1 20
India Infrastructure Fund DCF 30 - - (4) 1 27
-------------------------------------- ---------- -------- ---------- ---------- ---------- ---------- --------
1,001 186 - (92) 22 1,117
------------------------------------------------- -------- ---------- ---------- ---------- ---------- --------
1 Other movements include foreign exchange.
North American Infrastructure
Our North American Infrastructure team completed its second
infrastructure investment in July 2019, with the acquisition of
Regional Rail, which owns and operates short-line freight railroads
and rail-related businesses throughout the Mid-Atlantic US. Part of
our investment thesis for acquiring Regional Rail is to build on
the existing platform by bolting on other short-line railroads
across its highly fragmented market. We have made a good start
towards this strategy with two bolt-on acquisitions. In December
2019, we supported Regional Rail's strategically transformative
acquisition of Pinsly Railroad Company's Florida operations and, in
February 2020, Regional Rail acquired Carolina Coastal Railway. The
total investment in Regional Rail including bolt-on acquisitions
was GBP175 million.
Regional Rail's operating profile has not been materially
impacted by the COVID-19 pandemic. All of Regional Rail's
operations are deemed "essential services" and have continued to
operate. At 31 March 2020, Regional Rail was valued on a DCF basis
and the resulting valuation was GBP195 million.
US and global travel restrictions are impacting all revenue
streams for Smarte Carte, our US luggage carts, lockers and
strollers business. The team is working on cost mitigation and
financing options to navigate this tough trading period. At 31
March 2020, Smarte Carte was valued on a DCF basis and the
resulting valuation was GBP172 million.
We executed a short-term hedging programme to mitigate the
foreign exchange translation risk of our investment in Regional
Rail. We recognised a GBP10 million gain on foreign exchange
translation for Regional Rail offset by a GBP6 million loss in the
year from the movement on the fair value of these derivatives.
Fund management
We have continued to deploy committed capital in our 3i European
Operational Projects Fund. In April 2019, we announced investments
in four projects across Europe. In October 2019 the Fund agreed to
invest EUR70 million for the acquisition of an 80% stake in
Sociedad Concesionaria Autovia Gerediaga Elorrio, SA ("AGESA"), the
project company for the Gerediaga-Elorrio motorway in Spain. The
fund continued its investment momentum into January 2020 with the
agreement to acquire a portfolio of eight operational projects in
France from DIF Infrastructure III. Following the completion of
this transaction in April, the Fund has deployed c.60% of its total
commitments.
Infrastructure AUM increased to GBP4.4 billion (2019: GBP4.2
billion), principally due to further investment in US
Infrastructure and 3i European Operational Projects Fund offsetting
the reduction in 3iN's share price.
TABLE 11: ASSETS UNDER MANAGEMENT AS AT 31 MARCH 2020
Fee
% income
3i Remaining invested at earned in
Close Fund commitment/ 3i 31 March AUM 2020
Fund/strategy date size share commitment 2020 GBPm GBPm
----------------------------------------- -------- --------- ----------- ---------- ----------- ----- ---------
3iN1 Mar 07 n/a GBP665m n/a n/a 2,202 28
3i Managed Infrastructure Acquisitions LP Jun 17 GBP698m GBP35m GBP5m 86% 756 6
3i European Operational Projects Fund Apr 18 EUR456m EUR40m EUR18m 52% 217 2
BIIF May 08 GBP680m n/a n/a 90% 486 4
3i India Infrastructure Fund Mar 08 US$1,195m US$250m US$35m 73% 102 -
3i managed accounts various n/a n/a n/a n/a 308 2
US Infrastructure various n/a n/a n/a n/a 370 -
----------------------------------------- -------- --------- ----------- ---------- ----------- ----- ---------
Total 4,441 42
--------------------------------------------------- --------- ----------- ---------- ----------- ----- ---------
1 AUM based on the share price at 31 March 2020.
Scandlines
Scandlines is held for its strategic value with the ability to
deliver long-term capital returns whilst generating a strong cash
income.
At a glance
Gross investment return
GBP5m or 1%
(2019: GBP49m or 9%)
Proceeds
GBP107m 1
(2019: GBP28m)2
1 Capital proceeds of GBP70 million and dividend distributions
of GBP37 million in FY2020.
2 Dividend distributions in FY2019.
Scandlines generated a gross investment return of GBP5 million
(March 2019: GBP49 million) or 1% of opening portfolio value (March
2019: 9%). The business completed an investment grade debt
refinancing in August 2019, returning capital proceeds of GBP70
million and dividend income of GBP21 million. We also received an
additional GBP16 million of dividend income in the year.
TABLE 12: GROSS INVESTMENT RETURN FOR THE YEAR TO 31 MARCH
Investment basis 2020 2019
GBPm GBPm
----------------------------------------------------------- ----- -----
Unrealised (loss)/profit on the revaluation of investments (46) 9
Dividends 37 28
Foreign exchange on investments 17 (9)
Movement in the fair value of derivatives (3) 21
----------------------------------------------------------- ----- -----
Gross investment return 5 49
----------------------------------------------------------- ----- -----
Gross investment return as a % of opening portfolio value 1% 9%
----------------------------------------------------------- ----- -----
Portfolio performance
Scandlines continues to perform well and produced solid results
in 2019. Leisure volumes were in line with 2018 whilst freight
volumes marginally declined due to weakened trade flows between
Scandinavia and continental Europe. This resulted in stable
revenues from Scandlines' two traffic routes despite weakening
market conditions. 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 GBP16 million of
dividend income was also received in the year. Since our
reinvestment in June 2018, Scandlines has already returned 26% of
our reinvestment amount.
The Danish and German Governments' decision to impose border
controls in March 2020 due to COVID-19 has had a major short-term
impact on car volumes in particular. However, Scandlines' strategic
importance to supply chains across the region is evident and
freight continues to flow with good volumes despite the reduced
economic activity across Europe. To reflect the short-term impact
to volumes from the temporary restrictions and the current elevated
level of potential uncertainty of the longer-term impact of the
pandemic, we reduced the value of Scandlines to GBP429 million from
GBP464 million at 31 December 2019 (31 March 2019: GBP529 million
pre refinancing proceeds of GBP70 million).
Management is working hard to ensure the resilience of the
business despite the tougher trading conditions caused by COVID-19
and we remain confident that Scandlines, as a vital piece of
infrastructure connecting continental Europe and Scandinavia, will
continue to provide strategic value to 3i over the medium term.
Foreign exchange
We hedge our investment in Scandlines for foreign exchange
translation risks. We recognised a GBP14 million net gain on
foreign exchange translation (March 2019: GBP12 million gain)
including a GBP3 million fair value loss (March 2019: GBP21 million
gain) from our hedging programme.
Financial review
Solid financial performance
We generated a gross investment return of GBP318 million in
FY2020 (2019: GBP1,407 million) and operating profit before carried
interest of GBP215 million (2019: GBP1,295 million).
The total return was GBP253 million, representing a profit on
opening shareholders' funds of 3% (2019: GBP1,252 million or 18%).
The diluted NAV per share at 31 March 2020 decreased by 1% to 804
pence (31 March 2019: 815 pence) after paying dividends totalling
37.5 pence per share during the year.
TABLE 13: TOTAL RETURN FOR THE YEAR TO 31 MARCH
Investment basis 2020 2019
GBPm GBPm
--------------------------------------------------------------- ----- -----
Realised profits over value on the disposal of investments 90 132
Unrealised (losses)/profits on the revaluation of investments (172) 1,087
--------------------------------------------------------------- ----- -----
Portfolio income
Dividends 68 63
Interest income from investment portfolio 118 113
Fees receivable 9 9
Foreign exchange on investments 214 (18)
Movement in the fair value of derivatives (9) 21
--------------------------------------------------------------- ----- -----
Gross investment return 318 1,407
--------------------------------------------------------------- ----- -----
Fees receivable from external funds 44 53
Operating expenses (116) (126)
Interest received 1 2
Interest paid (38) (36)
Exchange movements 1 (3)
Other income/(expense) 5 (2)
--------------------------------------------------------------- ----- -----
Operating profit before carried interest 215 1,295
--------------------------------------------------------------- ----- -----
Carried interest
Carried interest and performance fees receivable 85 159
Carried interest and performance fees payable (84) (220)
-------------------------------------------------------------- ----- -----
Operating profit 216 1,234
--------------------------------------------------------------- ----- -----
Income taxes (1) 13
Re-measurements of defined benefit plans 38 5
--------------------------------------------------------------- ----- -----
Total comprehensive income ("Total return") 253 1,252
--------------------------------------------------------------- ----- -----
Total return on opening shareholders' funds 3% 18%
--------------------------------------------------------------- ----- -----
Investment basis and alternative performance measures
("APMs")
In our Strategic report we report our financial performance
using our Investment basis. We do not consolidate our portfolio
companies; as private equity and infrastructure investments they
are not operating subsidiaries. IFRS 10 provides an exception from
consolidation but also requires us to fair value other companies in
the Group (primarily intermediate holding companies and
partnerships), which results in a loss of transparency. As
explained in the Investment basis and Reconciliation of investment
basis and IFRS sections below, the total comprehensive income and
net assets are the same under our audited IFRS financial statements
and our Investment basis. The Investment basis is simply a "look
through" of IFRS 10 to present the underlying performance and we
believe it is more transparent to readers of our Annual report and
accounts.
In October 2015, the European Securities and Markets Authority
("ESMA") published guidelines about the use of APMs. These are
financial measures such as KPIs that are not defined under IFRS.
Our Investment basis is itself an APM, and we use a number of other
measures which, on account of being derived from the Investment
basis, are also APMs.
Further information about our use of APMs, including the
applicable reconciliations to the IFRS equivalent where
appropriate, is provided at the end of the Financial review and
should be read alongside the Investment basis to IFRS
reconciliation. Our APMs are gross investment return as a
percentage of the opening investment portfolio value, cash
realisations, cash investment, operating cash profit, net
cash/(debt) and gearing.
Realised profits
We generated total realised proceeds of GBP918 million (2019:
GBP1,242 million) and realised profits of GBP90 million (2019:
GBP132 million) in the year, of which the Private Equity portfolio
contributed GBP848 million of proceeds and GBP90 million of
realised profits (2019: GBP1,235 million, GBP131 million). The
profits were generated from the sale of Aspen (GBP102 million
realised profit) and disposal of additional LP stakes in EFV as
part of the Action Transaction (GBP15 million realised profit). At
the end of March 2020, we completed the sale of ACR. We recognised
total realised proceeds of GBP105 million and a realised loss of
GBP30 million from this sale. The most significant tranche of these
realised proceeds is expected to be received in Q3 2020. Further
information on the Action Transaction can be found in the Business
review above.
Realisation proceeds for the next 12 months are expected to be
lower than in previous years. However, we go into the year ending
31 March 2021 having sold Kinolt for proceeds of c.EUR96 million,
with completion anticipated in August 2020 and being subject only
to competition clearance.
Unrealised value movements
We recognised an unrealised value loss of GBP172 million (2019:
GBP1,087 million gain). The COVID-19 pandemic and its many
consequences had a material impact on the valuation of some of our
portfolio companies as at 31 March 2020. Portfolio companies
exposed to travel, transportation, retail and automotive have been
most affected (Action, Audley Travel, ICE, Smarte Carte, Hans
Anders and Formel D). Conversely, those in medical, personal care
or cleaning products are experiencing increased demand (Royal
Sanders, Cirtec and Tato). Sharp falls in global capital markets
have resulted in an unrealised value loss of GBP168 million in our
quoted portfolio following share price declines of 10% for 3iN and
49% for Basic-Fit in the 12 months to 31 March 2020.
Further information on the Private Equity, Infrastructure and
Scandlines valuations is included in the Business reviews.
Portfolio income
Portfolio income increased to GBP195 million during the year
(2019: GBP185 million) principally due to the receipt of GBP37
million of dividend income from Scandlines (2019: GBP28 million).
Loan interest income receivable from portfolio companies increased
marginally to GBP118 million (2019: GBP113 million). The majority
of this interest income is non-cash. Fee income remained stable in
the year at GBP9 million (2019: GBP9 million). We expect a lower
level of portfolio income in FY2021 as we focus on preserving the
liquidity of some of our portfolio companies and because
realisations and refinancings (which can also produce income) are
also expected to be lower.
Fees receivable from external funds
Fees received from external funds decreased to GBP44 million
(2019: GBP53 million). Following the Action Transaction 3i will
receive an administration fee from the co-investment vehicles.
3i receives a fund management fee from 3iN, which amounted to
GBP28 million in FY2020 (2019: GBP31 million). 3i also received fee
income of GBP6 million (2019: GBP6 million) from 3i Managed
Infrastructure Acquisitions ("MIA") through advisory and management
fees and continued to generate fee income from other 3i managed
accounts and other funds.
Operating expenses
Operating expenses decreased to GBP116 million (2019: GBP126
million), principally due to lower employee costs and general,
careful cost management. 3i continues to focus on operating
expenses to reinforce the need to maintain good cost control and
achieve an operating cash profit.
TABLE 14: UNREALISED VALUE MOVEMENTS ON THE REVALUATION OF
INVESTMENTS FOR THE YEAR TO 31 MARCH
2020 2019
GBPm GBPm
--------------- ----- -----
Private Equity (34) 916
Infrastructure (92) 162
Scandlines (46) 9
--------------- ----- -----
Total (172) 1,087
--------------- ----- -----
Operating cash profit
We generated an operating cash profit of GBP40 million in the
year (2019: GBP46 million). Cash income increased to GBP160 million
(2019: GBP155 million), principally due to increased cash interest.
We received GBP37 million of dividend income from Scandlines (2019:
GBP28 million) and non-recurring cash interest of GBP25 million
from Audley Travel and Aspen Pumps.
TABLE 15: OPERATING CASH PROFIT FOR THE YEAR TO 31 MARCH
2020 2019
GBPm GBPm
-------------------------------------- ----- -----
Cash fees from external funds 44 57
Cash portfolio fees 12 11
Cash portfolio dividends and interest 104 87
-------------------------------------- ----- -----
Cash income 160 155
-------------------------------------- ----- -----
Cash operating expenses1 (120) (109)
-------------------------------------- ----- -----
Operating cash profit 40 46
-------------------------------------- ----- -----
1 Cash operating expenses include operating expenses paid and
lease payments.
Carried interest and performance fees
We receive carried interest and performance fees from
third-party funds. We also pay carried interest and performance
fees to participants in plans relating to returns from investments.
These are received and/or paid subject to meeting certain
performance conditions. In Private Equity, we typically accrue net
carried interest payable between 10% to 13% of gross investment
return.
Carried interest is paid to participants when the performance
hurdles are passed in cash terms, when the cash proceeds have been
received following a realisation, refinancing event or other cash
distribution. Due to the length of time between investment and
realisation, the schemes are usually active for a number of years
and their participants are both current and previous employees of
3i.
Following the sale of the EFV interest in Action, the relevant
EFV carry hurdles were met, with EFV releasing carry it owed to 3i
Group. The sum of GBP679 million was received by 3i Group from the
investors in EFV in January 2020. This payment also triggered the
equivalent hurdles in the so-called Buyouts 2010-12 carry scheme,
crystallising payments to the 81 individual participants in that
scheme, which will be made during FY2021. These carry payments are
calculated in accordance with the related partnership agreements,
and are not discretionary. They are a consequence of the successful
sale of EFV investments and reflect the outstanding success of
Action, the 10-year duration of the Buyouts 2010-12 carry scheme,
and also include the repayment of significant co-investment made by
the individual participants starting in 2010.
Given the age of the scheme, the majority of the recipients no
longer work at 3i. Total payments made will be GBP547 million; the
reduction in 3i's opening cash of GBP845 million will be GBP438
million, with the remainder being funded by the release of an
escrow account held separately on the balance sheet. 3i will
continue to accrue carried interest in accordance with the Buyouts
2010-12 carry scheme agreements in relation to the residual Action
stake held through the Buyouts 2010-12 carry scheme.
During the period, GBP35 million was paid to participants in the
Private Equity plans (2019: GBP77 million).
3iN pays a performance fee based on 3iN's NAV on an annual
basis, subject to a hurdle rate of return and a high watermark. The
continued strong performance of the assets held by 3iN, including
the significant uplift achieved on the sale of WIG, resulted in the
recognition of GBP6 million (2019: GBP31 million) of performance
fees receivable. The Infrastructure team receives a share of the
performance fee received from 3iN, with the majority of payments
deferred and expensed over a number of years. GBP21 million (2019:
GBP14 million) was recognised as an expense during the year,
relating to performance fees from both the current and previous
years. The total potential payable relating to the FY2020
performance fee is GBP6 million, which together with the prior
periods' performance fees, results in a remaining cumulative total
potential payable for performance fees of GBP58 million.
TABLE 16: CARRIED INTEREST AND PERFORMANCE FEES FOR THE YEAR TO
31 MARCH
2020 2019
Statement of comprehensive income GBPm GBPm
------------------------------------------------- ----- -----
Carried interest and performance fees receivable
Private Equity 79 128
Infrastructure 6 31
------------------------------------------------- ----- -----
Total 85 159
------------------------------------------------- ----- -----
Carried interest and performance fees payable
Private Equity (63) (206)
Infrastructure (21) (14)
------------------------------------------------- ----- -----
Total (84) (220)
------------------------------------------------- ----- -----
Net carried interest payable 1 (61)
------------------------------------------------- ----- -----
TABLE 17: CARRIED INTEREST AND PERFORMANCE FEES AT 31 MARCH
2020 2019
Statement of financial position GBPm GBPm
------------------------------------------------- ------- -----
Carried interest and performance fees receivable
Private Equity 11 609
Infrastructure 6 31
------------------------------------------------- ------- -----
Total 17 640
------------------------------------------------- ------- -----
Carried interest and performance fees payable
Private Equity (998) (942)
Infrastructure (40) (28)
------------------------------------------------- ------- -----
Total (1,038) (970)
------------------------------------------------- ------- -----
Net foreign exchange movements
At 31 March 2020, 78% of the Group's net assets were denominated
in euros or US dollars (31 March 2019: 77%). Following the
weakening of sterling against the euro and US dollar, the Group
recorded a total net foreign exchange gain of GBP215 million,
before the GBP9 million loss from the movement in the fair value of
hedging derivatives (2019: GBP21 million gain) in the year.
The Group's general policy remains not to hedge its foreign
currency denominated portfolio. Where possible, flows from currency
realisations are matched with currency investments. Short-term
derivative contracts are used occasionally to manage transaction
cash flows. Hedging of our reinvestment in Scandlines remains in
place to mitigate the foreign exchange translation risk associated
with our investment in Scandlines which is considered a longer-term
hold with relatively predictable cash flows. During the year, we
also completed a hedging programme to help mitigate the foreign
exchange translation risk on our investment in Regional Rail. As at
31 March 2020 the notional amount of the forward foreign exchange
contracts held by the Group was EUR500 million for Scandlines and
$112 million for Regional Rail and the movement in fair value of
the derivatives was a GBP9 million loss.
The net foreign exchange gain also reflects the translation of
non-portfolio net assets, including non-sterling cash held at the
balance sheet date.
Pension
During the year, the Group and the Trustees of the 3i Group
Pension Plan ("the Plan") commenced an exercise to consider a
possible "buyout" of the Plan. This would involve the Trustees
first completing a further "buyin" transaction with an insurance
company to secure all remaining uninsured liabilities in the Plan,
following which the expectation would be that the Plan's Trustees
would, ultimately and at the appropriate time, exercise their right
to convert the buyin policies held in the Plan into individual
annuity policies in the names of Plan members.
Such a buyin would eliminate risks to the Group from factors
such as inflation, interest rate movements, investment returns and
longevity, whilst continuing to deliver benefits promised to Plan
members. Following the exercise by the Trustees of their right to
convert the buyin policies into individual annuity policies, all
responsibility for paying members' benefits would transfer from the
Plan to the relevant insurance companies.
The last triennial funding valuation was based on the Plan's
position at 30 June 2016. On an IAS 19 basis, the Plan remains in
surplus and there was a GBP36 million re-measurement gain during
the year (2019: GBP8 million). The liability of the Plan increased
in the year following a decrease in the discount rate. This was
offset by an increase in the underlying asset valuations.
TABLE 18: NET ASSETS AND SENSITIVITY BY CURRENCY AT 31 MARCH
1%
sensitivity
FX rate GBPm % GBPm
------------- ------- ----- --- -----------
Sterling n/a 1,511 20% n/a
Euro1 1.1305 4,904 63% 48
US dollar1 1.2404 1,191 15% 12
Danish krone 8.4381 119 2% 1
Other n/a 32 - n/a
------------- ------- ----- --- -----------
1 Sensitivity impact is net of derivatives.
TABLE 19: SIMPLIFIED CONSOLIDATED BALANCE SHEET AT 31 MARCH
2020 2019
Statement of financial position GBPm GBPm
------------------------------------------------- ------- -----
Investment portfolio 8,098 7,553
Gross debt (575) (575)
Cash and deposits 845 1,070
------------------------------------------------- ------- -----
Net cash 270 495
------------------------------------------------- ------- -----
Carried interest and performance fees receivable 17 640
Carried interest and performance fees payable (1,038) (970)
Other net assets 410 191
------------------------------------------------- ------- -----
Net assets 7,757 7,909
------------------------------------------------- ------- -----
Gearing(1) nil nil
------------------------------------------------- ------- -----
1 Gearing is net debt as a percentage of net assets.
Tax
The affairs of the Group's parent company continue to be
directed to allow it to operate in the UK as an approved investment
trust company. An approved investment trust is a UK investment
company which is required to meet certain conditions set out in the
UK tax rules to obtain and maintain its tax status. This approval
allows certain investment profits of the Company, broadly its
capital profits, to be exempt from tax in the UK. The Group's tax
charge for the year was GBP1 million (2019: GBP13 million credit).
The Group's overall UK tax position for the financial year is
dependent on the finalisation of the tax returns of the various
corporate and partnership entities in the UK group.
Balance sheet
Net cash decreased to GBP270 million (31 March 2019: GBP495
million) as the Group became a net investor in FY2020. The
investment portfolio value increased to GBP8,098 million at 31
March 2020 (31 March 2019: GBP7,553 million) with a foreign
exchange gain and cash investment offsetting the value of
realisations in the year.
Further information on investments and realisations is included
in the Private Equity, Infrastructure and Scandlines Business
reviews.
Liquidity
Liquidity remained strong at GBP1,245 million (31 March 2019:
GBP1,420 million). Liquidity comprised cash and deposits of GBP845
million (31 March 2019: GBP1,070 million) and undrawn facilities of
GBP400 million (31 March 2019: GBP350 million). In March we
completed a successful refinancing of our RCF, increasing the size
to GBP400 million and extending the maturity to 2025 without any
financial covenants, which ensures the Group continues to have
access to additional liquidity if necessary.
Dividend
The Board has recommended a second FY2020 dividend of 17.5 pence
(2019: 20.0 pence). Subject to shareholder approval, the dividend
will be paid to shareholders in July 2020 and takes the total
dividend for the year to 35.0 pence (2019: 35.0 pence).
In addition to the expected agreed proceeds from the
realisations of ACR and Kinolt in FY2021, the Group had cash and
liquidity of GBP1,245 million as at 31 March 2020, and is therefore
well positioned to fund the second FY2020 dividend of 17.5
pence.
Corporate Assets
Our Corporate Assets segment was formed following our sale and
reinvestment into Scandlines in June 2018. At that time, it was
considered possible that the Action Transaction would result in the
transfer of our holding in Action to Corporate Assets from Private
Equity. However, there were no changes to the governance of Action
as a result of the Transaction and Action continues to be reported
as part of the Private Equity segment. For simplicity, we have
therefore eliminated reference to Corporate Assets and referred to
Scandlines where necessary.
Key accounting judgements and estimates
A key judgement is the assessment required to determine the
degree of control or influence the Group exercises and the form of
any control to ensure that the financial treatment of investment
entities is accurate. The introduction of IFRS 10 resulted in a
number of intermediate holding companies being presented at fair
value, which has led to reduced transparency of the underlying
investment performance. As a result, the Group continues to present
a non-GAAP Investment basis set of financial statements to ensure
that the commentary in the Strategic report remains fair, balanced
and understandable. The reconciliation of the Investment basis to
IFRS is shown further on in this document.
In preparing these accounts, the key accounting estimates are
the carrying value of our investment assets, which is stated at
fair value, and the calculation of carried interest payable.
Given the importance of the valuation of investments, the Board
has a separate Valuations Committee to review the valuation policy,
process and application to individual investments. However, asset
valuations for unquoted investments are inherently subjective, as
they are made on the basis of assumptions which may not prove to be
accurate. At 31 March 2020, 91% by value of the investment assets
were unquoted (31 March 2019: 87%).
The valuation of the proprietary capital portfolio is a primary
input into the carried interest payable and receivable balances,
which are determined by reference to the valuation at 31 March 2020
and the underlying investment management agreements.
Investment basis
Consolidated statement of comprehensive income
for the year to 31 March
2020 2019
GBPm GBPm
--------------------------------------------------------------- ----- -----
Realised profits over value on the disposal of investments 90 132
Unrealised (losses)/profits on the revaluation of investments (172) 1,087
Portfolio income
Dividends 68 63
Interest income from investment portfolio 118 113
Fees receivable 9 9
Foreign exchange on investments 214 (18)
Movement in the fair value of derivatives (9) 21
--------------------------------------------------------------- ----- -----
Gross investment return 318 1,407
--------------------------------------------------------------- ----- -----
Fees receivable from external funds 44 53
Operating expenses (116) (126)
Interest received 1 2
Interest paid (38) (36)
Exchange movements 1 (3)
Other income/(expense) 5 (2)
--------------------------------------------------------------- ----- -----
Operating profit before carried interest 215 1,295
--------------------------------------------------------------- ----- -----
Carried interest
Carried interest and performance fees receivable 85 159
Carried interest and performance fees payable (84) (220)
-------------------------------------------------------------- ----- -----
Operating profit 216 1,234
--------------------------------------------------------------- ----- -----
Income taxes (1) 13
--------------------------------------------------------------- ----- -----
Profit for the year 215 1,247
--------------------------------------------------------------- ----- -----
Other comprehensive income
Re-measurements of defined benefit plans 38 5
--------------------------------------------------------------- ----- -----
Total comprehensive income for the year ("Total return") 253 1,252
--------------------------------------------------------------- ----- -----
Consolidated statement of financial position
as at 31 March
2020 2019
GBPm GBPm
-------------------------------------------------- ------- -------
Assets
Non-current assets
Investments
Quoted investments 758 998
Unquoted investments 7,340 6,555
------------------------------------------------- ------- -------
Investment portfolio 8,098 7,553
-------------------------------------------------- ------- -------
Carried interest and performance fees receivable 11 605
Other non-current assets 26 117
Intangible assets 9 11
Retirement benefit surplus 173 134
Property, plant and equipment 5 4
Right of use asset 19 -
Derivative financial instruments 7 11
-------------------------------------------------- ------- -------
Total non-current assets 8,348 8,435
-------------------------------------------------- ------- -------
Current assets
Carried interest and performance fees receivable 6 35
Other current assets 296 29
Current income taxes 2 12
Derivative financial instruments 6 7
Deposits - 50
Cash and cash equivalents 845 1,020
-------------------------------------------------- ------- -------
Total current assets 1,155 1,153
-------------------------------------------------- ------- -------
Total assets 9,503 9,588
-------------------------------------------------- ------- -------
Liabilities
Non-current liabilities
Trade and other payables (5) (8)
Carried interest and performance fees payable (505) (926)
Loans and borrowings (575) (575)
Retirement benefit deficit (25) (27)
Lease liability (16) -
Derivative financial instruments (2) -
Deferred income taxes (1) (1)
Provisions (3) (1)
-------------------------------------------------- ------- -------
Total non-current liabilities (1,132) (1,538)
-------------------------------------------------- ------- -------
Current liabilities
Trade and other payables (73) (95)
Carried interest and performance fees payable (533) (44)
Lease liability (4) -
Derivative financial instruments (2) -
Current income taxes (2) (1)
Provisions - (1)
-------------------------------------------------- ------- -------
Total current liabilities (614) (141)
-------------------------------------------------- ------- -------
Total liabilities (1,746) (1,679)
-------------------------------------------------- ------- -------
Net assets 7,757 7,909
-------------------------------------------------- ------- -------
Equity
Issued capital 719 719
Share premium 788 787
Other reserves 6,328 6,445
Own shares (78) (42)
-------------------------------------------------- ------- -------
Total equity 7,757 7,909
-------------------------------------------------- ------- -------
Consolidated cash flow statement
for the year to 31 March
2020 2019
GBPm GBPm
----------------------------------------------- ------- -----
Cash flow from operating activities
Purchase of investments (1,279) (859)
Proceeds from investments 801 1,261
Net cash flow from derivatives - 3
Portfolio interest received 34 26
Portfolio dividends received 70 61
Portfolio fees received 12 11
Fees received from external funds 44 57
Carried interest and performance fees received 696 104
Carried interest and performance fees paid (44) (86)
Carried interest held in non-current assets (14) (9)
Operating expenses paid (116) (109)
Co-investment loans paid (8) (3)
Income taxes received/(paid) 10 (10)
Other cash income 2 -
----------------------------------------------- ------- -----
Net cash flow from operating activities 208 447
----------------------------------------------- ------- -----
Cash flow from financing activities
Issue of shares 1 1
Purchase of own shares (59) (29)
Dividends paid (363) (358)
Lease payments (4) -
Interest received 1 2
Interest paid (42) (39)
----------------------------------------------- ------- -----
Net cash flow from financing activities (466) (423)
----------------------------------------------- ------- -----
Cash flow from investing activities
Purchase of property, plant and equipment (3) (3)
Net cash flow from deposits 50 (50)
----------------------------------------------- ------- -----
Net cash flow from investing activities 47 (53)
----------------------------------------------- ------- -----
Change in cash and cash equivalents (211) (29)
----------------------------------------------- ------- -----
Cash and cash equivalents at the start of year 1,020 1,054
Effect of exchange rate fluctuations 36 (5)
----------------------------------------------- ------- -----
Cash and cash equivalents at the end of year 845 1,020
----------------------------------------------- ------- -----
Background to Investment basis financial statements
The Group makes investments in portfolio companies directly,
held by 3i Group plc, and indirectly, held through intermediate
holding company and partnership structures ("Investment entity
subsidiaries"). It also has other operational subsidiaries which
provide services and other activities such as employment,
regulatory activities, management and advice ("Trading
subsidiaries"). The application of IFRS 10 requires us to fair
value a number of intermediate holding companies that were
previously consolidated line by line. This fair value approach,
applied at the intermediate holding company level, effectively
obscures the performance of our proprietary capital investments and
associated transactions occurring in the intermediate holding
companies.
The financial effect of the underlying portfolio companies and
fee income, operating expenses and carried interest transactions
occurring in Investment entity subsidiaries are aggregated into a
single value. Other items which were previously eliminated on
consolidation are now included separately.
To maintain transparency in our report and aid understanding we
introduced separate non-GAAP "Investment basis" Statements of
comprehensive income, financial position and cash flow in our 2014
Annual report and accounts. The Investment basis is an APM and the
Strategic report is prepared using the Investment basis as we
believe it provides a more understandable view of our performance.
Total return and net assets are equal under the Investment basis
and IFRS; the Investment basis is simply a "look through" of IFRS
10 to present the underlying performance.
Reconciliation of Investment basis and IFRS
A detailed reconciliation from the Investment basis to IFRS
basis of the Consolidated statement of comprehensive income,
Consolidated statement of financial position and Consolidated cash
flow statement is shown below.
Reconciliation of Investment basis and IFRS
Reconciliation of consolidated statement of comprehensive
income
for the year to 31 March
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
20 20 20 20 20 20 201 9 201 9 201 9
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Realised profits/(losses) over value
on the disposal of investments 1,2 90 (119) (29) 132 (99) 33
Unrealised (losses)/profits on the
revaluation
of investments 1,2 (172) 144 (28) 1,087 (919) 168
Fair value movements on investment entity
subsidiaries 1 - 191 191 - 827 827
Portfolio income
Dividends 1,2 68 (46) 22 63 (37) 26
Interest income from investment portfolio 1,2 118 (81) 37 113 (80) 33
Fees receivable 1,2 9 2 11 9 2 11
Foreign exchange on investments 1,3 214 (178) 36 (18) 35 17
Movement in the fair value of derivatives (9) - (9) 21 - 21
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Gross investment return 318 (87) 231 1,407 (271) 1,136
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Fees receivable from external funds 44 - 44 53 - 53
Operating expenses 4 (116) - (116) (126) - (126)
Interest received 1 1 1 2 2 1 3
Interest paid (38) - (38) (36) - (36)
Exchange movements 1,3 1 25 26 (3) (24) (27)
Income from investment entity subsidiaries 1 - 19 19 - 66 66
Other income/(expense) 5 (2) 3 (2) - (2)
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Operating profit before carried interest 215 (44) 171 1,295 (228) 1,067
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Carried interest
Carried interest and performance fees
receivable 1,4 85 (18) 67 159 4 163
Carried interest and performance fees
payable 1,4 (84) 61 (23) (220) 220 -
------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Operating profit 216 (1) 215 1,234 (4) 1,230
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Income taxes 1,4 (1) - (1) 13 (1) 12
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Profit for the year 215 (1) 214 1,247 (5) 1,242
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Other comprehensive income/(expense)
Exchange differences on translation of
foreign operations 1,3 - 1 1 - 5 5
Re-measurements of defined benefit plans 38 - 38 5 - 5
------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Other comprehensive income for the year 38 1 39 5 5 10
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Total comprehensive income
for the year ("Total return") 253 - 253 1,252 - 1,252
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
The IFRS basis is audited and the Investment basis is
unaudited.
Notes:
1 Applying IFRS 10 to the Consolidated statement of comprehensive income consolidates the line
items of a number of previously consolidated subsidiaries into a single line item "Fair value
movements on investment entity subsidiaries". In the "Investment basis" accounts we have disaggregated
these line items to analyse our total return as if these Investment entity subsidiaries were
fully consolidated, consistent with prior years. The adjustments simply reclassify the Consolidated
statement of comprehensive income of the Group, and the total return is equal under the Investment
basis and the IFRS basis.
2 Realised profits, unrealised profits, and portfolio income shown in the IFRS accounts only
relate to portfolio companies that are held directly by 3i Group plc and not those portfolio
companies held through Investment entity subsidiaries. Realised profits, unrealised profits,
and portfolio income in relation to portfolio companies held through Investment entity subsidiaries
are aggregated into the single "Fair value movement on investment entity subsidiaries" line.
This is the most significant reduction of information in our IFRS accounts.
3 Foreign exchange movements have been reclassified under the Investment basis as foreign currency
asset and liability movements. Movements within the Investment entity subsidiaries are included
within "Fair value movements on investment entities".
4 Other items also aggregated into the "Fair value movements on investment entity subsidiaries"
line include fees receivable from external funds, audit fees, administration expenses, carried
interest and tax.
Reconciliation of consolidated statement of financial
position
as at 31 March
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2020 2020 2020 2019 2019 2019
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Assets
Non-current assets
Investments
Quoted investments 1 758 (340) 418 998 (529) 469
Unquoted investments 1 7,340 (4,304) 3,036 6,555 (5,362) 1,193
Investments in investment entity subsidiaries 1,2 - 3,936 3,936 - 5,159 5,159
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Investment portfolio 8,098 (708) 7,390 7,553 (732) 6,821
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Carried interest and performance fees
receivable 1 11 - 11 605 - 605
Other non-current assets 26 (3) 23 117 (93) 24
Intangible assets 9 - 9 11 - 11
Retirement benefit surplus 173 - 173 134 - 134
Property, plant and equipment 5 - 5 4 - 4
Right of use asset 19 - 19 - - -
Derivative financial instruments 7 - 7 11 - 11
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Total non-current assets 8,348 (711) 7,637 8,435 (825) 7,610
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Current assets
Carried interest and performance fees
receivable 1 6 1 7 35 - 35
Other current assets 1 296 (152) 144 29 (5) 24
Current income taxes 2 - 2 12 - 12
Derivative financial instruments 6 - 6 7 - 7
Deposits - - - 50 - 50
Cash and cash equivalents 1 845 (74) 771 1,020 (37) 983
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Total current assets 1,155 (225) 930 1,153 (42) 1,111
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Total assets 9,503 (936) 8,567 9,588 (867) 8,721
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Liabilities
Non-current liabilities
Trade and other payables 1 (5) 5 - (8) 7 (1)
Carried interest and performance fees payable 1 (505) 439 (66) (926) 840 (86)
Loans and borrowings (575) - (575) (575) - (575)
Retirement benefit deficit (25) - (25) (27) - (27)
Lease liability (16) - (16) - - -
Derivative financial instruments (2) - (2) - - -
Deferred income taxes (1) - (1) (1) - (1)
Provisions (3) - (3) (1) - (1)
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Total non-current liabilities (1,132) 444 (688) (1,538) 847 (691)
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Current liabilities
Trade and other payables 1 (73) - (73) (95) 1 (94)
Carried interest and performance fees payable 1 (533) 492 (41) (44) 19 (25)
Lease liability (4) - (4) - - -
Derivative financial instruments (2) - (2) - - -
Current income taxes (2) - (2) (1) - (1)
Provisions - - - (1) - (1)
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Total current liabilities (614) 492 (122) (141) 20 (121)
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Total liabilities (1,746) 936 (810) (1,679) 867 (812)
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Net assets 7,757 - 7,757 7,909 - 7,909
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Equity
Issued capital 719 - 719 719 - 719
Share premium 788 - 788 787 - 787
Other reserves 3 6,328 - 6,328 6,445 - 6,445
Own shares (78) - (78) (42) - (42)
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
Total equity 7,757 - 7,757 7,909 - 7,909
--------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- -----
The IFRS basis is audited and the Investment basis is
unaudited.
Notes:
1 Applying IFRS 10 to the Consolidated statement of financial position aggregates the line items
into the single line item "Investments in investment entity subsidiaries". In the Investment
basis we have disaggregated these items to analyse our net assets as if the Investment entity
subsidiaries were consolidated. The adjustment reclassifies items in the Consolidated statement
of financial position. There is no change to the net assets, although for reasons explained
below, gross assets and gross liabilities are different. The disclosure relating to portfolio
companies is significantly reduced by the aggregation, as the fair value of all investments
held by Investment entity subsidiaries is aggregated into the "Investments in investment entity
subsidiaries" line. We have disaggregated this fair value and disclosed the underlying portfolio
holding in the relevant line item, ie, quoted investments or unquoted investments. Other items
which may be aggregated include carried interest and other payables, and the Investment basis
presentation again disaggregates these items.
2 Intercompany balances between Investment entity subsidiaries and trading subsidiaries also
impact the transparency of our results under the IFRS basis. If an Investment entity subsidiary
has an intercompany balance with a consolidated trading subsidiary of the Group, then the
asset or liability of the Investment entity subsidiary will be aggregated into its fair value,
while the asset or liability of the consolidated trading subsidiary will be disclosed as an
asset or liability in the Consolidated statement of financial position for the Group.
3 Investment basis financial statements are prepared for performance measurement and therefore
reserves are not analysed separately under this basis.
Reconciliation of consolidated cash flow statement
for the year to 31 March
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2020 2020 2020 2019 2019 2019
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Cash flow from operating activities
Purchase of investments 1 (1,279) 629 (650) (859) 734 (125)
Proceeds from investments 1 801 (792) 9 1,261 (435) 826
Cash inflow/(outflow) from investment entity
subsidiaries 1 - 186 186 - (264) (264)
Net cash flow from derivatives - - - 3 - 3
Portfolio interest received 1 34 (24) 10 26 (20) 6
Portfolio dividends received 1 70 (46) 24 61 (37) 24
Portfolio fees received 1 12 (1) 11 11 1 12
Fees received from external funds 44 - 44 57 - 57
Carried interest and performance fees
received 1 696 (18) 678 104 (2) 102
Carried interest and performance fees paid 1 (44) 13 (31) (86) 48 (38)
Carried interest held in non-current assets 1 (14) 14 - (9) 9 -
Operating expenses paid 1 (116) - (116) (109) - (109)
Co-investment loans (paid)/received 1 (8) - (8) (3) 7 4
Income taxes received/(paid) 1 10 - 10 (10) - (10)
Other cash income 2 - 2 - - -
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Net cash flow from operating activities 208 (39) 169 447 41 488
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Cash flow from financing activities
Issue of shares 1 - 1 1 - 1
Purchase of own shares (59) - (59) (29) - (29)
Dividends paid (363) - (363) (358) - (358)
Lease payments (4) - (4) - - -
Interest received 1 1 2 2 - 2
Interest paid (42) - (42) (39) - (39)
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Net cash flow from financing activities (466) 1 (465) (423) - (423)
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Cash flow from investing activities
Purchase of property, plant and equipment (3) - (3) (3) - (3)
Net cash flow from deposits 50 - 50 (50) - (50)
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Net cash flow from investing activities 47 - 47 (53) - (53)
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Change in cash and cash equivalents 2 (211) (38) (249) (29) 41 12
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Cash and cash equivalents at the start of
year 2 1,020 (37) 983 1,054 (82) 972
Effect of exchange rate fluctuations 1 36 1 37 (5) 4 (1)
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
Cash and cash equivalents at the end
of year 2 845 (74) 771 1,020 (37) 983
-------------------------------------------- ----- ---------- ----------- ----- ---------- ----------- ------
The IFRS basis is audited and the Investment basis is
unaudited.
Notes:
1 The Consolidated cash flow statement is impacted by the application of IFRS 10 as cash flows
to and from Investment entity subsidiaries are disclosed, rather than the cash flows to and
from the underlying portfolio. Therefore in our Investment basis financial statements, we
have disclosed our cash flow statement on a "look through" basis, in order to reflect the
underlying sources and uses of cash flows and disclose the underlying investment activity.
2 There is a difference between the change in cash and cash equivalents of the Investment basis
financial statements and the IFRS financial statements because there are cash balances held
in Investment entity subsidiaries. Cash held within Investment entity subsidiaries will not
be shown in the IFRS statements but will be seen in the Investment basis statements.
Alternative Performance Measures ("APMs")
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed
APMs.
The APMs that we use may not be directly comparable with those
used by other companies. Our Investment basis is itself an APM.
The explanation of and rationale for the Investment basis and
its reconciliation to IFRS is provided above.
The table below defines our additional APMs.
Gross investment return as a percentage of opening portfolio value
----------------------------------------------------------------------------------------------------------------------
Purpose Calculation Reconciliation to IFRS
-------------------------------------- -------------------------------------- --------------------------------------
A measure of the performance of our It is calculated as the gross The equivalent balances under IFRS and
proprietary investment portfolio. investment return, as shown in the the reconciliation to the Investment
Investment basis Consolidated basis are shown
statement of comprehensive income, as in the Reconciliation of the
a % of the opening portfolio value. consolidated statement of
comprehensive income and the
Reconciliation
of the consolidated statement of
financial position respectively.
-------------------------------------- -------------------------------------- --------------------------------------
Cash realisations
----------------------------------------------------------------------------------------------------------------------
Purpose Calculation Reconciliation to IFRS
-------------------------------------- -------------------------------------- --------------------------------------
Cash proceeds from our investments The cash received from the disposal of The equivalent balance under IFRS and
support our returns to shareholders, investments in the year as shown in the reconciliation to the Investment
as well as our ability the Investment basis is shown
to invest in new opportunities. basis Consolidated cash flow in the Reconciliation of the
statement. consolidated cash flow statement.
-------------------------------------- -------------------------------------- --------------------------------------
Cash investment
----------------------------------------------------------------------------------------------------------------------
Purpose Calculation Reconciliation to IFRS
-------------------------------------- -------------------------------------- --------------------------------------
Identifying new opportunities in which The cash paid to acquire investments The equivalent balance under IFRS and
to invest proprietary capital is the in the year as shown on the Investment the reconciliation to the Investment
primary driver basis Consolidated basis is shown
of the Group's ability to deliver cash flow statement. in the Reconciliation of the
attractive returns. consolidated cash flow statement.
-------------------------------------- -------------------------------------- --------------------------------------
Operating cash profit
----------------------------------------------------------------------------------------------------------------------
Purpose Calculation Reconciliation to IFRS
-------------------------------------- -------------------------------------- --------------------------------------
By covering the cash cost of running The cash income from the portfolio The equivalent balance under IFRS and
the business with cash income, we (interest, dividends and fees) the reconciliation to the Investment
reduce the potential together with fees received basis is shown
dilution of capital returns. from external funds less cash in the Reconciliation of the
operating expenses as shown on the consolidated cash flow statement.
Investment basis Consolidated
cash flow statement. The calculation
is shown in Table 15 of the Financial
review.
-------------------------------------- -------------------------------------- --------------------------------------
Net cash/net (debt)
----------------------------------------------------------------------------------------------------------------------
Purpose Calculation Reconciliation to IFRS
-------------------------------------- -------------------------------------- --------------------------------------
A measure of the available cash to Cash and cash equivalents plus The equivalent balance under IFRS and
invest in the business and an deposits less loans and borrowings as the reconciliation to the Investment
indicator of the financial shown on the Investment basis is shown
risk in the Group's balance sheet. basis Consolidated statement in the Reconciliation of the
of financial position. consolidated statement of financial
position.
-------------------------------------- -------------------------------------- --------------------------------------
Gearing
----------------------------------------------------------------------------------------------------------------------
Purpose Calculation Reconciliation to IFRS
-------------------------------------- -------------------------------------- --------------------------------------
A measure of the financial risk in the Net debt (as defined above) as a % of The equivalent balance under IFRS and
Group's balance sheet. the Group's net assets under the the reconciliation to the Investment
Investment basis. It basis is shown
cannot be less than zero. in the Reconciliation of the
consolidated statement of financial
position.
-------------------------------------- -------------------------------------- --------------------------------------
Risk management
Effective risk management underpins the successful delivery of
our strategy and longer-term sustainability of the business.
Integrity, rigour and accountability are central to our values and
culture at 3i and are embedded in our approach to risk
management.
Understanding our risk appetite and culture
As both an investor and asset manager, 3i is in the business of
taking risks in order to seek to achieve its targeted returns for
fund investors and shareholders. The Board approves the strategic
objectives that determine the level and types of risk that 3i is
prepared to accept. The Board reviews 3i's strategic objectives and
risk appetite at least annually. The Group's risk management
framework is designed to support the delivery of the Group's
strategic objectives and the longer-term sustainability of the
business and its investment portfolio.
3i's risk appetite policy, which is consistent with previous
years, is built on rigorous and comprehensive investment procedures
and conservative capital management.
Culture
Integrity, rigour and accountability are central to our values
and culture and are embedded in our approach to risk management.
Our Investment Committee, which has oversight of the investment
pipeline development and approves new investments, significant
portfolio changes and divestments, is integral to ensuring a
consistent approach across the business. This includes compliance
with 3i's financial and strategic requirements, cultural values and
appropriate investment behaviours. Members of the Executive
Committee have responsibility for their own business or functional
areas and the Group expects individual behaviours to meet its high
standards of conduct. All employees share the responsibility for
upholding 3i's strong control culture and supporting effective risk
management. Senior managers, typically those who report to
Executive Committee members, are required to confirm their
individual and business area compliance annually. In addition, all
staff are required to comply with regulatory conduct rules and are
assessed on how they demonstrate 3i's values as part of their
annual appraisal. Finally, our Remuneration Committee is
responsible for ensuring the Group's remuneration culture is
weighted towards variable compensation where reward is strictly
dependent on performance.
The following sections explain how we control and manage the
risks in our business. They outline the key risks, our assessment
of their potential impact on our business in the context of the
current environment and how we seek to mitigate them.
Approach to risk governance
The Board is responsible for risk assessment, the risk
management process and for the protection of the Group's
reputation, brand integrity and longer-term sustainability. It
considers the most significant risks facing the Group and uses
quantitative analyses, such as vintage controls which consider the
portfolio concentration by geography and sector, periodic reporting
of financial and non-financial KPIs from the portfolio, including
ESG indicators, and liquidity reporting, where appropriate.
Non-executive oversight is also exercised through the Audit and
Compliance Committee which focuses on upholding standards of
integrity, financial reporting, risk management, going concern and
internal control. The Audit and Compliance Committee's activities
are discussed further in this document in the Audit and Compliance
Committee report.
The Board has delegated the responsibility for risk oversight to
the Chief Executive. He is assisted by the Group Risk Committee
("GRC") in managing this responsibility, and guided by the Board's
appetite for risk and any specific limits set. The GRC maintains
the Group risk review, which summarises the Group's principal
risks, associated mitigating actions and key risk indicators, and
identifies any changes to the Group's risk profile. The review also
incorporates a watch list of new and emerging risks for monitoring
purposes. The risk review takes place four times a year, with the
last review in April 2020, and the Chief Executive provides updates
to each Audit and Compliance Committee meeting. Investment
Committee ensures a consistent approach to investment and portfolio
management processes across the business.
In addition to the above, a number of other Board and Executive
Committee members contribute to the Group's overall risk governance
structure.
Risk appetite
Our risk appetite is defined by our strategic objectives. We
invest capital in businesses that will deliver capital returns and
portfolio and fund management cash income to cover our costs, and
increase returns to our investors.
Investment risk
The substantial majority of the Group's capital is invested in
Private Equity. Before the Group commits to an investment, we
assess the Private Equity opportunity using the following
criteria:
-- return objective: individually assessed and subject to a
minimum target of a 2x money multiple over four to five years;
-- geographic focus: operate within our core markets of northern
Europe, the UK and North America;
-- sector expertise: focus on Business and Technology Services,
Consumer, Industrial and Healthcare;
-- responsible investment: ESG risk profile in line with the
criteria and exclusions set out in our Responsible Investment
policy; and
-- vintage: invest up to GBP750 million per annum in four to
seven new investments in companies with an enterprise value range
of EUR100 million to EUR500 million at investment.
Investments made by 3iN need to be consistent with 3iN's overall
return target of 8% to 10% over the medium term and generate a mix
of capital and income returns. Other Infrastructure investments
made by the Group should be capable of delivering capital growth
and fund management fees which together generate mid-teen returns.
All Infrastructure investments are also made subject to the
criteria set out in the Group's Responsible Investment Policy.
On occasion, the Group may conclude that it is in the interest
of shareholders, and consistent with our strategic objectives, to
hold a Private Equity investment for a longer period. Such an
investment may be managed outside the Private Equity or
Infrastructure businesses. The only investment currently in this
category is Scandlines.
Capital management
3i adopts a conservative approach to managing its capital
resources as follows:
-- the Group may raise long-term debt or use other financing
from time to time, to manage investment and realisation flows. It
has no appetite for structural gearing at the Group level but a
tolerance to operate within a range of GBP500 million net cash to
GBP500 million net debt;
-- the Group generally does not hedge its currency exposure for
its Private Equity and Infrastructure assets, but it does match
currency realisations with investments, where possible, and may
take out short-term hedges occasionally to hedge investments and
realisations between signing and completion;
-- if appropriate, with due consideration of any associated
liquidity risk, the Group will hedge a portion of its currency
exposure on its longer-term investments, such as Scandlines;
and
-- we have limited appetite for the dilution of capital returns
as a result of operating and interest expenses. All of our business
lines generate cash income to mitigate this risk.
3i Group's Pillar 3 document can be found at www.3i.com
The risk framework is augmented by a separate Risk Management
Function which has specific responsibilities under the FCA's
Investment Funds Sourcebook. It meets ahead of the GRC meetings to
consider the key risks impacting the Group, and any changes in the
relevant period where appropriate. It also considers the separate
risk reports for each Alternative Investment Fund ("AIF") managed
by the Group, including areas such as portfolio composition,
portfolio valuation, operational updates and team changes, which
are then considered by the GRC.
In practice, the Group operates a "three lines of defence"
framework for managing and identifying risk:
-- The first line of defence against outcomes outside our risk
appetite is constituted by our business functions themselves.
-- Line management is supported by oversight and control
functions such as Finance, Human Resources and Legal which
constitute the second line of defence. The Compliance function is
also in the second line of defence; its duties include reviewing
the effective operation of our processes in meeting regulatory
requirements.
-- Internal Audit provides independent assurance over the
operation of controls and is the third line of defence. The
internal audit programme includes the review of risk management
processes and recommendations to improve the internal control
environment.
Role of Group Risk Committee in risk management
The quarterly Group risk review process includes the monitoring
of key strategic and financial metrics (such as KPIs) considered to
be indicators of potential changes in the Group's risk profile. The
GRC uses these to identify its principal risks. It then evaluates
the impact and likelihood of each risk, with reference to
associated measures and KPIs. The adequacy of the mitigation plans
is then assessed and, if necessary, additional actions are agreed
and then reviewed at the subsequent meeting.
A number of focus topics are also agreed in advance of each
meeting. In FY2020, the GRC covered the following:
-- a review of the Group's IT framework including cyber
security, systems' developments and IT resilience;
-- a review of updates to the Group's Responsible Investment Policy and approach to sanctions;
-- a report on the benchmarking of 3i's principal risk
disclosures against a suitable peer group of investment companies
and asset managers;
-- an update on the Group's business continuity and resilience planning and testing;
-- a review of the risk implications of the COVID-19 outbreak
and an update on contingency planning;
-- an update on risks in relation to Action (including
concentration risk) from a 3i Group perspective, following the
Action Transaction (please refer to the Action Transaction overview
section above);
-- a review of the Group's stress tests to support its Internal
Capital Adequacy Assessment Process ("ICAAP") and Viability
statement;
-- semi-annual updates on Environmental, Social, Governance
("ESG") and sustainability issues and themes with respect to the
Group's portfolio companies; and
-- the proposed risk disclosures in the 2020 Annual report and accounts.
There were no significant changes to the GRC's overall approach
to risk governance or its operation in FY2020 but we continued to
refine our framework for risk management where appropriate.
Role of Investment Committee in risk management
Our Investment Committee is fundamental to the management of
investment risk. The Investment Committee is involved in and
approves every material step of the investment portfolio management
and realisation process.
We carry out our investment activities under our rigorous
Responsible Investment Policy, which is embedded in our processes
and informs the Investment Committee's assessment of each
investment opportunity.
The investment case presented at the outset of our investment
consideration process includes the expected benefit of operational
improvements, growth initiatives, opportunities arising from
initiatives to mitigate the impact of sustainability-related
challenges, and M&A activity that will be driven by our
investment professionals together with the portfolio company's
management team. It will also include a view on the likely exit
strategy and timing. In evaluating new and existing investments,
the Investment Committee also takes account of
sustainability-related risks, including the impact of environmental
factors on the markets each company serves and demand for its
products, the resilience of each company's assets and supply chain
and the feasibility and cost of initiatives to reduce the company's
environmental footprint.
The execution of this investment case is closely monitored:
-- our monthly portfolio monitoring reviews assess current
performance against budget, prior year and a set of traffic light
indicators and bespoke, forward looking financial and non-financial
KPIs; and
-- we hold semi-annual reviews of all our assets. We focus on
the longer-term performance and plan for the investment compared to
the original investment case, together with any strategic
developments, a detailed assessment of ESG and sustainability risks
and opportunities, and market outlook.
The monthly portfolio monitoring reviews and the semi-annual
reviews are attended by the Investment Committee and the senior
members of the investment teams. Non-executive Directors are
invited to attend the semi-annual reviews.
Finally, we recognise the need to plan and execute a successful
exit at the optimum time for the portfolio company's development,
taking consideration of market conditions. This risk is closely
linked to the external economic environment. Exit plans are
refreshed where appropriate in the semi-annual portfolio reviews
and the divestment process is clearly defined and overseen by the
Investment Committee.
Individual portfolio company underperformance could have adverse
reputational consequences for the Group, even though the value
impact may not be material. We review our internal processes and
investment decisions in light of actual outcomes on an ongoing
basis.
Further details on 3i's approach as a responsible investor and a
summary of our Responsible Investment Policy are available at
www.3i.com
Principal risks and mitigations
- aligning risk to our strategic objectives
Business and risk environment in FY2020
The impact of the COVID-19 pandemic has been at the forefront of
our risk assessment and mitigation planning processes since early
March 2020. Our first priority has been to protect and support our
employees during this period. We have also taken steps to try to
minimise any operational disruption to the Group by activating our
contingency plans and putting in place a comprehensive range of
measures. We have worked with our portfolio companies to do
likewise. The speed of events and uncertainty regarding both the
duration and impact of COVID-19 has required our assessment and
planning to be updated on a frequent basis.
The Directors have carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or
liquidity. We define our principal risks as those that have the
potential to impact the delivery of our strategic objectives
materially. We also maintain a log of risks which includes new and
emerging risks which may have the potential to become principal
risks but are not yet considered to be so. This is called our
"watch list". These risks are regularly reviewed to determine if
they have the potential to impact the delivery of our strategy. In
the year, we reclassified the risk around the outcome of the UK/EU
trade negotiations from the watch list to a principal risk. We also
added operational disruption to the Group from COVID-19, along with
similar exposures within the portfolio, as new principal risks.
External
External risks are the risks to our business which are usually
outside of our direct control such as political, economic,
environmental, social, regulatory and competitor risks.
As already noted, the impact of COVID-19 on global economic
growth and market volatility, towards the end of FY2020 and beyond,
has increased both of these principal risks compared to last year.
Extensive travel restrictions, quarantines and other social
distancing measures are having a significant and increasingly
adverse economic impact, with some sectors being particularly hard
hit in the short term by the resultant sharp falls in consumer and
business demand. Some of our portfolio companies operate in the
retail, travel and transportation sectors which have been directly
affected by lockdown and travel bans. We continue to monitor the
situation closely.
The EU and UK signed a withdrawal agreement in January 2020;
however, there remains uncertainty regarding the UK's future
trading relationship with the EU, and the economic impact on both
parties in the event that a new trade agreement is not reached. We
have considered the possible outcomes and the risks that this will
pose to the Group's business model and financial performance.
Our regulatory structure includes a regulated subsidiary in
Luxembourg, currently with branches in Germany and the Netherlands.
Our French operations are now conducted on an unregulated basis.
Currently 70% of our portfolio is invested in northern Europe and
these structures will enable 3i to operate its investment
activities in Europe beyond the UK/ EU current transition period
which ends in December 2020.
The direct impact of changes to the UK/EU trading relationship
on 3i's investment portfolio is not expected to be material, due to
the limited number of our portfolio companies that operate between
the UK and the EU.
Investment
Our overarching objective is to source attractive investment
opportunities at the right price and execute our investment plans
successfully.
As part of our portfolio monitoring, all of our new investments
in the year were subject to rigorous review, including performance
against a 180-day plan. We continued to monitor the portfolio
actively, and held additional reviews for the small number of
Private Equity assets where operational improvements and
reorganisation were particularly intense.
Our investment and portfolio monitoring processes include an
enhanced ESG and sustainability assessment, which enables current
and emerging risks and opportunities to be tracked on a systematic
basis.
Investment teams are responsible for origination and asset
management and are rewarded with performance-based
remuneration.
Operational
The potential operational disruption of the COVID-19 pandemic to
the Group was classified as a principal risk towards the end of
FY2020. We were able to activate our existing incident management
and business continuity plans supplemented by a comprehensive
contingency plan. Please refer to the Business review for more
detail on our response to COVID-19.
Attracting and retaining key people remains a significant
potential operational risk. Our Remuneration Committee ensures that
our variable compensation schemes are in line with market practice.
Carried interest is an important long-term incentive and only
rewards cash-to-cash returns.
In addition, detailed succession plans are in place for each
division. The Board last completed its annual review of the Group's
organisational capability and succession plans in September 2019.
The success of the Group since the 2012 restructuring has led to
very modest levels of voluntary staff turnover (9% in FY2020).
New and emerging risks
The GRC maintains a watch list of risks which are deemed of
sufficient importance to require active monitoring by the GRC, but
are not currently regarded as principal risks to the achievement of
the Group's strategic objectives. Risks on the watch list may be
reclassified as principal risks and vice versa based on the GRC's
assessment. During the year, for example, the risk relating to the
renegotiation of the UK/EU trading treaty and COVID-19 risk were
each classified as principal risks.
The current watch list includes some portfolio related risks,
such as concentration and specific sector exposures; tax risks in
relation to changing rules; cyber security; and ESG risks and
reporting requirements.
We recognise the increasing impact that environmental and
climate-related risks are having on businesses and communities
across the world. The Group is not directly exposed to material
environmental or climate-related risks. We monitor and manage any
direct environmental and climate-related risks through our
comprehensive risk governance framework and compliance processes
and procedures, which also ensure that 3i is compliant with all
applicable environmental legislation and reporting
requirements.
We are, however, potentially exposed to environmental and
climate-related risks through the portfolio. Our investment
strategy is to make a limited number of new investments each year,
selected within our target sectors and geographies on the basis of
their compatibility with our return targets. We carry out our
investment activities under a rigorous Responsible Investment
policy and have the flexibility to screen out businesses which have
unsustainable environmental practices, or which are exposed to
excessive risks. Once invested, we monitor environmental and
climate-related risks closely, and use our influence to ensure that
our portfolio companies are compliant with emerging regulations and
legislation in this field, to encourage the development of more
environmentally sustainable behaviours in our portfolio companies
as well as investments to mitigate the impact of our companies'
environmental impact.
Our annual stress test scenario planning, which underpins our
Viability statement, also models a range of environmental impacts
on our portfolio, including an increase in physical risks relating
to climate change, changes in regulation and in consumer
preferences.
Outlook
The near-term outlook will be dependent on the extent and
duration of the disruption related to the COVID-19 pandemic, the
economic impact and the effectiveness of government
counter-measures. The position remains fluid and the full effects,
which are not all apparent, are likely to be long-lasting.
3i continues to operate with limited disruption to its
day-to-day operations and has worked closely with portfolio
management teams to support their respective contingency plans.
Enhanced portfolio monitoring and reporting processes have been put
in place to identify any short-term liquidity or covenant test
issues and other actions needed to support portfolio companies
through this unprecedented period of uncertainty. The impact of
COVID-19 on the longer-term plans of the portfolio companies will
be subject to regular updates and assessments as part of this
enhanced monitoring.
Levels of new investments and realisations over the next 12
months are likely to be considerably lower than in prior years,
with our principal focus being on supporting the existing portfolio
during this period, as noted above. Beyond this, we remain focused
on a clear and consistent strategy and a disciplined approach to
investment while continuing to look to put more capital behind
those portfolio companies we already know well. We expect
competition for the best assets in our sectors to remain intense
and prices high. Accordingly, our focus will continue to be on
bilateral or complex processes and our buy-and-build platforms.
Going concern and Viability statement
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic report in our Annual report and
accounts 2020. The financial position of the Group, its cash flows,
liquidity position, and borrowing facilities are described in
Financial review, earlier in this document. In addition, the
Directors have taken account of the Group's risk management process
described in the Risk management section of our Annual report and
accounts 2020. The Directors have made an assessment of going
concern, taking into account both the Group's current performance
and the Group's outlook, which considered the impact of the
COVID-19 pandemic, using the information available up to the date
of issue of these financial statements.
The Group has maintained a conservative balance sheet structure
for the past eight years, which should aid it in navigating the
current uncertain business environment. The Group manages and
monitors liquidity regularly ensuring it is adequate and
sufficient. This is supported by its monitoring of investments,
realisations, operating expenses and receipt of portfolio cash
income. At 31 March 2020, liquidity remained strong at GBP1,245
million (31 March 2019: GBP1,420 million). Liquidity comprised cash
and deposits of GBP845 million (31 March 2019: GBP1,070 million)
and undrawn facilities of GBP400 million (31 March 2019: GBP350
million). In March, the Group completed a successful refinancing of
its RCF, increasing the size to GBP400 million and extending the
maturity to 2025 without any financial covenants, ensuring that the
Group continues to have access to additional liquidity where
necessary. This financial position and liquidity profile provide
confidence that the Group has sufficient financial resources for
the foreseeable future. As a consequence, the Directors believe
that the Company and the Group are well positioned to manage its
and their businesses and liabilities as they fall due.
The Directors have acknowledged their responsibilities in
relation to the financial statements for the year to 31 March 2020.
After making the assessment on going concern, the Directors
considered it appropriate to prepare the financial statements of
the Company and the Group on a going concern basis, having
considered the impact of COVID-19 on their operations and
portfolio. The Group has sufficient financial resources and
liquidity and is well positioned to manage business risks in the
current economic environment and can continue operations for a
period of at least 12 months from the date of this report. The
Directors have also considered key dependencies set out within the
Risk Management section including investment and operational
requirements.
Viability statement
The Directors have assessed 3i's viability over a three-year
period to March 2023. 3i conducts its strategic planning over a
five-year period; this statement is based on the first three years,
which provides more certainty over the forecasting assumptions
used. 3i's strategic plan, ICAAP and associated principal risks, as
set out in the Risk management section of our Annual report and
accounts 2020 are the foundation of the Directors' assessment.
The assessment is overseen by the Group Finance Director and is
subject to challenge by the Group Risk Committee, review by the
Audit and Compliance Committee and approval by the Board.
The Group's strategic plan projects the performance, net asset
value and liquidity of 3i over a five-year period and is presented
at the Directors' annual strategy conference in December and
updated throughout the year as appropriate. At the strategy
conference, the Directors consider the strategy and opportunities
for, and threats to, each business line and the Group as a whole.
The outcome of those discussions is included in the next iteration
of the strategic plan which is then used to support the viability
assessment. The next iteration of the Plan will reflect the effect
of the COVID-19 pandemic. For the purpose of this statement, the
effect of the pandemic has been treated as a stress to the base
position considered in December and updated for the 31 March 2020
valuations.
The Group's ICAAP and viability testing considers multiple
severe, yet plausible, individual and combined stress scenarios
which are as follows:
-- Widespread economic turmoil - considers the impact of a
widespread economic crisis similar to the global financial crisis
experienced in 2008
-- Concentration risk - considers a material event in a single
large asset in the investment portfolio
-- Combined scenario with a widespread economic turmoil and
concentration risk - considers both occurring at the same time
-- Loss of key personnel - considers the impact of the loss of
key Private Equity and Infrastructure personnel
-- Impact of a significant event - considers the impact of
several portfolio companies not being able to withstand the impact
of the event, leading to a loss in permanent value following
operational underperformance, covenant breaches, fraud, a cyber
security breach or other ESG issues
-- Climate change - considers the impact of climate change on
3i's portfolio, driven by changes in consumer behaviour,
regulations, and other physical and business risks
-- COVID-19 - considers the impact of the COVID-19 outbreak on
the Group and portfolio companies
The assessment projects the amount of capital the Group needs in
the business to cover its risks, including financial and
operational risks, under such stress scenarios. The analysis shows
that, while there may be a significant impact on the Group's
reported performance in the short term under a number of these
scenarios, the resilience and quality of the balance sheet is such
that solvency is maintained and the business remains viable.
Taking the inputs from the strategic planning process, the ICAAP
and its stress scenarios, the Directors reviewed an assessment of
the potential effects of 3i's principal risks on its current
portfolio and forecast investment and realisation activity, and the
consequent impact on 3i's capital and liquidity.
Based on this assessment, the Directors have a reasonable
expectation that the Company and the Group will be able to continue
in operation and meet all their liabilities as they fall due up to
at least March 2023.
Audited financial statements
Consolidated statement of comprehensive income
for the year to 31 March
2020 2019
Notes GBPm GBPm
======================================================================== ===== ===== =====
Realised (losses)/profits over value on the disposal of investments (29) 33
Unrealised (losses)/profits on the revaluation of investments (28) 168
Fair value movements on investment entity subsidiaries 191 827
Portfolio income
Dividends 22 26
Interest income from investment portfolio 37 33
Fees receivable 11 11
Foreign exchange on investments 36 17
Movement in the fair value of derivatives (9) 21
======================================================================== ===== ===== =====
Gross investment return 231 1,136
Fees receivable from external funds 44 53
Operating expenses (116) (126)
Interest received 2 3
Interest paid (38) (36)
Exchange movements 26 (27)
Income from investment entity subsidiaries 19 66
Other income/(expense) 3 (2)
Carried interest
Carried interest and performance fees receivable 67 163
Carried interest and performance fees payable (23) -
======================================================================= ===== ===== =====
Operating profit before tax 215 1,230
Income taxes (1) 12
======================================================================== ===== ===== =====
Profit for the year 214 1,242
======================================================================== ===== ===== =====
Other comprehensive (expense)/income that may be reclassified to the income statement
Exchange differences on translation of foreign operations 1 5
Other comprehensive income that will not be reclassified to the income statement
Re-measurements of defined benefit plans 38 5
======================================================================= ===== ===== =====
Other comprehensive income for the year 39 10
======================================================================== ===== ===== =====
Total comprehensive income for the year ("Total return") 253 1,252
======================================================================== ===== ===== =====
Earnings per share
Basic (pence) 2 22.1 128.3
Diluted (pence) 2 22.1 127.8
======================================================================= ===== ===== =====
The Notes to the accounts section in our Annual report and
accounts 2020 forms an integral part of these financial
statements.
Consolidated statement of financial position
as at 31 March
2020 2019
Notes GBPm GBPm
================================================== ===== ===== =====
Assets
Non-current assets
Investments
Quoted investments 418 469
Unquoted investments 3,036 1,193
Investments in investment entity subsidiaries 3,936 5,159
-------------------------------------------------- ----- ----- -----
Investment portfolio 7,390 6,821
-------------------------------------------------- ----- ----- -----
Carried interest and performance fees receivable 11 605
Other non-current assets 23 24
Intangible assets 9 11
Retirement benefit surplus 173 134
Property, plant and equipment 5 4
Right of use asset 19 -
Derivative financial instruments 7 11
================================================== ===== ===== =====
Total non-current assets 7,637 7,610
========================================================= ===== =====
Current assets
Carried interest and performance fees receivable 7 35
Other current assets 144 24
Current income taxes 2 12
Derivative financial instruments 6 7
Deposits - 50
Cash and cash equivalents 771 983
========================================================= ===== =====
Total current assets 930 1,111
========================================================= ===== =====
Total assets 8,567 8,721
========================================================= ===== =====
Liabilities
Non-current liabilities
Trade and other payables - (1)
Carried interest and performance fees payable (66) (86)
Loans and borrowings 5 (575) (575)
Retirement benefit deficit (25) (27)
Lease liability (16) -
Derivative financial instruments (2) -
Deferred income taxes (1) (1)
Provisions (3) (1)
================================================== ===== ===== =====
Total non-current liabilities (688) (691)
========================================================= ===== =====
Current liabilities
Trade and other payables (73) (94)
Carried interest and performance fees payable (41) (25)
Lease liability (4) -
Derivative financial instruments (2) -
Current income taxes (2) (1)
Provisions - (1)
================================================== ===== ===== =====
Total current liabilities (122) (121)
========================================================= ===== =====
Total liabilities (810) (812)
========================================================= ===== =====
Net assets 7,757 7,909
========================================================= ===== =====
Equity
Issued capital 719 719
Share premium 788 787
Capital redemption reserve 43 43
Share-based payment reserve 33 36
Translation reserve (2) (3)
Capital reserve 5,432 5,590
Revenue reserve 822 779
Own shares (78) (42)
================================================== ===== ===== =====
Total equity 7,757 7,909
========================================================= ===== =====
The Notes to the accounts section in our Annual report and
accounts 2020 forms an integral part of these financial
statements.
Simon Thompson
Chairman 13 May 2020
Consolidated statement of changes in equity
for the year to 31 March
Share-
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve reserve shares equity
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ======= ======= ========== ======= =========== ======= ======= ====== ======
Total equity at the start
of the year(1) 719 787 43 36 (3) 5,590 779 (42) 7,909
Profit for the year - - - - - 21 193 - 214
Exchange differences
on translation of
foreign operations - - - - 1 - - - 1
Re-measurements of defined
benefit plans - - - - - 38 - - 38
================================ ======= ======= ========== ======= =========== ======= ======= ====== ======
Total comprehensive
income for the year - - - - 1 59 193 - 253
================================ ======= ======= ========== ======= =========== ======= ======= ====== ======
Share-based payments - - - 16 - - - - 16
Release on exercise/
forfeiture of share awards - - - (19) - - 19 - -
Exercise of share awards - - - - - (23) - 23 -
Ordinary dividends - - - - - (194) (169) - (363)
Purchase of own shares - - - - - - - (59) (59)
Issue of ordinary shares - 1 - - - - - - 1
Total equity at the
end of the year 719 788 43 33 (2) 5,432 822 (78) 7,757
================================ ======= ======= ========== ======= =========== ======= ======= ====== ======
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 Risk management section for further details.
Share-
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve reserve shares equity
2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ======= ======= ========== ======= =========== ======= ======= ====== ======
Total equity at the start
of the year 719 786 43 32 (8) 4,700 778 (26) 7,024
Profit for the year - - - - - 1,096 146 - 1,242
Exchange differences
on translation of
foreign operations - - - - 5 - - - 5
Re-measurements of defined
benefit plans - - - - - 5 - - 5
================================ ======= ======= ========== ======= =========== ======= ======= ====== ======
Total comprehensive
income for the year - - - - 5 1,101 146 - 1,252
================================ ======= ======= ========== ======= =========== ======= ======= ====== ======
Share-based payments - - - 19 - - - - 19
Release on exercise/
forfeiture of share awards - - - (15) - - 15 - -
Exercise of share awards - - - - - (13) - 13 -
Ordinary dividends - - - - - (198) (160) - (358)
Purchase of own shares - - - - - - - (29) (29)
Issue of ordinary shares - 1 - - - - - - 1
Total equity at the
end of the year 719 787 43 36 (3) 5,590 779 (42) 7,909
================================ ======= ======= ========== ======= =========== ======= ======= ====== ======
The Notes to the accounts section in our Annual report and
accounts 2020 forms an integral part of these financial
statements.
Consolidated cash flow statement
for the year to 31 March
2020 2019
Notes GBPm GBPm
========================================================== ===== ===== =====
Cash flow from operating activities
Purchase of investments (650) (125)
Proceeds from investments 9 826
Cash inflow/(outflow) from investment entity subsidiaries 186 (264)
Net cash flow from derivatives - 3
Portfolio interest received 10 6
Portfolio dividends received 24 24
Portfolio fees received 11 12
Fees received from external funds 44 57
Carried interest and performance fees received 678 102
Carried interest and performance fees paid (31) (38)
Operating expenses paid (116) (109)
Co-investment loans (paid)/received (8) 4
Income taxes received/(paid) 10 (10)
Other cash income 2 -
========================================================== ===== ===== =====
Net cash flow from operating activities 169 488
========================================================== ===== ===== =====
Cash flow from financing activities
Issue of shares 1 1
Purchase of own shares (59) (29)
Dividend paid 3 (363) (358)
Lease payments (4) -
Interest received 2 2
Interest paid (42) (39)
========================================================== ===== ===== =====
Net cash flow from financing activities (465) (423)
========================================================== ===== ===== =====
Cash flow from investing activities
Purchases of property, plant and equipment (3) (3)
Net cash flow from deposits 50 (50)
========================================================== ===== ===== =====
Net cash flow from investing activities 47 (53)
========================================================== ===== ===== =====
Change in cash and cash equivalents (249) 12
========================================================== ===== ===== =====
Cash and cash equivalents at the start of the year 983 972
Effect of exchange rate fluctuations 37 (1)
========================================================== ===== ===== =====
Cash and cash equivalents at the end of the year 771 983
========================================================== ===== ===== =====
The Notes to the accounts section in our Annual report and
accounts 2020 forms an integral part of these financial
statements.
Company statement of financial position
as at 31 March
2020 2019
Notes GBPm GBPm
=================================================== ====== ======== =======
Assets
Non-current assets
Investments
Quoted investments 418 469
Unquoted investments 3,036 1,193
================================================== ====== ======== =======
Investment portfolio 3,454 1,662
=================================================== ====== ======== =======
Carried interest and performance fees receivable 22 655
Interests in Group entities 4,023 5,221
Other non-current assets 14 17
Derivative financial instruments 7 11
=================================================== ====== ======== =======
Total non-current assets 7,520 7,566
=================================================== ====== ======== =======
Current assets
Carried interest and performance fees receivable 46 7
Other current assets 122 3
Derivative financial instruments 6 7
Deposits - 50
Cash and cash equivalents 742 958
=================================================== ====== ======== =======
Total current assets 916 1,025
=================================================== ====== ======== =======
Total assets 8,436 8,591
=================================================== ====== ======== =======
Liabilities
Non-current liabilities
Loans and borrowings 5 (575) (575)
Derivative financial instruments (2) -
=================================================== ====== ======== =======
Total non-current liabilities (577) (575)
=================================================== ====== ======== =======
Current liabilities
Trade and other payables (483) (483)
Derivative financial instruments (2) -
Total current liabilities (485) (483)
=================================================== ====== ======== =======
Total liabilities (1,062) (1,058)
=================================================== ====== ======== =======
Net assets 7,374 7,533
=================================================== ====== ======== =======
Equity
Issued capital 719 719
Share premium 788 787
Capital redemption reserve 43 43
Share-based payment reserve 33 36
Capital reserve 5,812 5,979
Revenue reserve 57 11
Own shares (78) (42)
=================================================== ====== ======== =======
Total equity 7,374 7,533
=================================================== ====== ======== =======
The Company profit for the year to 31 March 2020 is GBP246
million (2019: GBP1,291 million).
The Notes to the accounts section in our Annual report and
accounts 2020 forms an integral part of these financial
statements.
Simon Thompson
Chairman
13 May 2020
Company statement of changes in equity
for the year to 31 March
Capital Share-based
Share Share redemption payment Capital Revenue Own Total
capital premium reserve reserve reserve reserve shares equity
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ======== ======== =========== ============ ======== ======== ======= =======
Total equity at the
start of the year 719 787 43 36 5,979 11 (42) 7,533
Profit for the year - - - - 50 196 - 246
================================ ======== ======== =========== ============ ======== ======== ======= =======
Total comprehensive
income
for the year - - - - 50 196 - 246
================================ ======== ======== =========== ============ ======== ======== ======= =======
Share-based payments - - - 16 - - - 16
Release on exercise/forfeiture
of share awards - - - (19) - 19 - -
Exercise of share awards - - - - (23) - 23 -
Ordinary dividends - - - - (194) (169) - (363)
Purchase of own shares - - - - - - (59) (59)
Issue of ordinary shares - 1 - - - - - 1
================================ ======== ======== =========== ============ ======== ======== ======= =======
Total equity at the
end of the year 719 788 43 33 5,812 57 (78) 7,374
================================ ======== ======== =========== ============ ======== ======== ======= =======
Capital Share-based
Share Share redemption payment Capital Revenue Own Total
capital premium reserve reserve reserve reserve shares equity
2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ======== ======== =========== ============ ======== ======== ======= =======
Total equity at the
start of the year 719 786 43 32 5,015 40 (26) 6,609
Profit for the year - - - - 1,175 116 - 1,291
================================ ======== ======== =========== ============ ======== ======== ======= =======
Total comprehensive
income
for the year - - - - 1,175 116 - 1,291
================================ ======== ======== =========== ============ ======== ======== ======= =======
Share-based payments - - - 19 - - - 19
Release on exercise/forfeiture
of share awards - - - (15) - 15 - -
Exercise of share awards - - - - (13) - 13 -
Ordinary dividends - - - - (198) (160) - (358)
Purchase of own shares - - - - - - (29) (29)
Issue of ordinary shares - 1 - - - - - 1
================================ ======== ======== =========== ============ ======== ======== ======= =======
Total equity at the
end of the year 719 787 43 36 5,979 11 (42) 7,533
================================ ======== ======== =========== ============ ======== ======== ======= =======
The Notes to the accounts section in our Annual report and
accounts 2020 forms an integral part of these financial
statements.
Company cash flow statement
for the year to 31 March
2020 2019
Notes GBPm GBPm
=================================================== ===== ===== =======
Cash flow from operating activities
Purchase of investments (650) (125)
Proceeds from investments 9 826
Distributions from subsidiaries 1,009 753
Drawdowns by subsidiaries (925) (1,023)
Net cash flow from derivatives - 3
Portfolio interest received 10 6
Portfolio dividends received 24 24
Portfolio fees paid (1) (1)
Carried interest and performance fees received 685 26
Co-investment loans (paid)/received (8) 4
Other cash income 2 -
Net cash flow from operating activities 155 493
=================================================== ===== ===== =======
Cash flow from financing activities
Issue of shares 1 1
Purchase of own shares (59) (29)
Dividend paid 3 (363) (358)
Interest received 2 2
Interest paid (38) (36)
Net cash flow from financing activities (457) (420)
=================================================== ===== ===== =======
Cash flow from investing activities
Net cash flow from deposits 50 (50)
=================================================== ===== ===== =======
Net cash flow from investing activities 50 (50)
=================================================== ===== ===== =======
Change in cash and cash equivalents (252) 23
=================================================== ===== ===== =======
Cash and cash equivalents at the start of the year 958 939
Effect of exchange rate fluctuations 36 (4)
=================================================== ===== ===== =======
Cash and cash equivalents at the end of the year 742 958
=================================================== ===== ===== =======
The Notes to the accounts section in our Annual report and
accounts 2020 forms an integral part of these financial
statements.
Significant accounting policies
Reporting entity
3i Group plc (the "Company") is a public limited company
incorporated and domiciled in England and Wales. The consolidated
financial statements ("the Group accounts") for the year to 31
March 2020 comprise the financial statements of the Company and its
consolidated subsidiaries (collectively, "the Group").
The Group accounts have been prepared and approved by the
Directors in accordance with section 395 of the Companies Act 2006
and the Large and Medium-Sized Companies and Groups (Accounts and
Reports) Regulations 2008. The Company has taken advantage of the
exemption in section 408 of the Companies Act 2006 not to present
its Company statement of comprehensive income and related
Notes.
A Basis of preparation
The Group and Company accounts have been prepared and approved
by the Directors in accordance with all relevant International
Financial Reporting Standards ("IFRS") as issued by the
International Accounting Standards Board ("IASB"), and
interpretations issued by the IFRS Interpretations Committee for
the year ended 31 March 2020, endorsed by the European Union
("EU").
The Group did not implement the requirements of any other
standards or interpretations that were in issue; these were not
required to be adopted by the Group for the year ended 31 March
2020. No other standards or interpretations have been issued that
are expected to have a material impact on the Group's financial
statements.
The principal accounting policies applied in the preparation of
the Group accounts are disclosed below, but where possible, they
have been shown as part of the Note to which they specifically
relate in order to assist the reader's understanding. These
policies have been consistently applied and apply to all years
presented, except for in relation to the adoption of new accounting
standards as indicated below.
Going concern
The financial information presented within these financial
statements has been prepared on a going concern basis as disclosed
in the Directors' report and presented to the nearest million
sterling (GBPm), the functional currency of the Company and the
Group.
On 30 January 2020, the World Health Organization declared the
outbreak of coronavirus ("COVID-19") to be a public health
emergency of international concern. COVID-19 presents the biggest
risk to the global economy and to individual companies since the
2008 financial crisis and has had a severe impact on economic
growth forecasts worldwide. The impacts of COVID-19 are not all
apparent already, and the position will remain fluid until the
length and extent of the crisis becomes clearer. Clearly, however
not all industries or companies will be impacted to the same
degree. However, the effects will be felt in a number of areas
across 3i and its portfolio companies. 3i continues to monitor and
follow closely the information released from governments,
regulatory bodies and health organisations in the countries in
which 3i and its portfolio companies operate.
The full extent to which the COVID-19 pandemic may impact the
Group's results, operations and liquidity is uncertain. Management
continues to monitor the impact that the COVID-19 pandemic has on
the Group and its portfolio companies.
The Directors have made an assessment of going concern, taking
into account both the Group's current performance and the Group's
outlook, which considered the impact of the COVID-19 pandemic,
using information available to the date of issue of these financial
statements. As part of this assessment the Directors
considered:
-- an analysis of the adequacy of the Group's liquidity,
solvency and regulatory capital position. The analysis used has
modelled a number of adverse scenarios to assess the potential
impact that COVID-19 may have on the Group's operations and
portfolio companies, as well as other scenarios detailed in the
Viability statement in the Risk management section. The Group
manages and monitors liquidity regularly ensuring it is adequate
and sufficient and is underpinned by its monitoring of investments,
realisations, operating expenses and receipt of portfolio cash
income. At 31 March 2020, liquidity remained strong at GBP1,245
million (31 March 2019: GBP1,420 million). Liquidity comprised cash
and deposits of GBP845 million (31 March 2019: GBP1,070 million)
and undrawn facilities of GBP400 million (31 March 2019: GBP350
million);
-- any potential valuation concerns with respect to the Group's
assets as set out in the financial statements. The approach to
valuations was consistent with the normal process and valuation
policy. A key focus of the portfolio valuations at 31 March 2020
was an assessment of the impact of the COVID-19 pandemic on each
portfolio company, considering the performance before the outbreak
of COVID-19, as well as the projected short-term impact on the
ability to generate earnings and cash flows, and also the
longer-term view of their ability to recover;
-- the operational resilience of the Group's critical functions
includes the well-being of 3i's staff and the resilience of IT
systems. COVID-19 has emphasised the importance of 3i and its
portfolio companies' focus on keeping employees safe, motivated and
able to continue to fulfil their roles effectively where possible;
and
-- a detailed assessment of the Group's supplier base,
considering any single points of failure and focus on suppliers
experiencing financial stress. The assessment also includes the
consideration of contingency plans should suppliers be deemed at
risk.
Having performed the assessment on going concern, the Directors
considered it appropriate to prepare the financial statements of
the Company and Group on a going concern basis. The Group has
sufficient financial resources and liquidity and is well placed to
manage business risks in the current economic environment and can
continue operations for a period of at least 12 months from the
date of issue of these financial statements.
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(1) 24
Impact of discounting using incremental borrowing rate at 1 April
2019 (1)
------------------------------------------------------------------ ----
Opening lease liability at 1 April 2019 23
------------------------------------------------------------------ ----
1 Included in Note 24 of our Annual report and accounts
2019.
During the year, GBP4 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.
B Basis of consolidation
In accordance with IFRS 10 the Company meets the criteria as an
investment entity and therefore is required to recognise
subsidiaries that also qualify as investment entities at fair value
through profit or loss. It does not consolidate the investment
entities it controls. Subsidiaries that provide investment related
services, such as advisory, management or employment services, are
not accounted for at fair value through profit and loss and
continue to be consolidated unless they are deemed investment
entities, in which case they are recognised at fair value.
Subsidiaries are entities controlled by the Group. Control, as
defined by IFRS 10, is achieved when the Group has all of the
following:
-- power over the relevant activities of the investee;
-- exposure, or rights, to variable returns from its involvement
with the investee; and
-- the ability to affect those returns through its power over
the investee.
The Group is required to determine the degree of control or
influence the Group exercises and the form of any control to ensure
that the financial treatment is accurate.
Subsidiaries are fully consolidated from the date on which the
Group effectively obtains control. All intragroup balances and
transactions with subsidiaries are eliminated upon consolidation.
Subsidiaries are de-consolidated from the date that control
ceases.
The Group comprises several different types of subsidiaries. The
Group reassesses the function performed by each type of subsidiary
to determine its treatment under the IFRS 10 exception from
consolidation on an annual basis. The types of subsidiaries and
their treatment under IFRS 10 are as follows:
General Partners ("GPs") - Consolidated
General Partners provide investment management services and do
not hold any direct investments in portfolio assets. These entities
are not investment entities.
Investment managers/advisers - Consolidated
These entities provide investment related services through the
provision of investment management or advice. They do not hold any
direct investments in portfolio assets. These entities are not
investment entities.
Holding companies of investment managers/advisers -
Consolidated
These entities provide investment related services through their
subsidiaries. Typically they do not hold any direct investment in
portfolio assets and these entities are not investment
entities.
Limited Partnerships and other intermediate investment holding
structures - Fair valued
The Group makes investments in portfolio assets through its
ultimate parent company as well as through other limited
partnerships and corporate subsidiaries which the Group has created
to align the interests of the investment teams with the performance
of the assets through the use of various carried interest schemes.
The purpose of these limited partnerships and corporate holding
vehicles, many of which also provide investment related services,
is to invest for investment income and capital appreciation. These
partnerships and corporate subsidiaries meet the definition of
an investment entity and are accounted for at fair value through
profit and loss.
Portfolio investments - Fair valued
Under IFRS 10, the test for accounting subsidiaries takes wider
factors of control as well as actual equity ownership into account.
In accordance with the investment entity exception, these entities
have been held at fair value with movements in fair value being
recognised in the Consolidated statement of comprehensive
income.
Associates - Fair valued
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating
policies. Investments that are held as part of the Group's
investment portfolio are carried in the Consolidated statement of
financial position at fair value even though the Group may have
significant influence over those companies.
Further detail on our application of IFRS 10 can be found in the
Reconciliation of Investment basis to IFRS section.
C Critical accounting judgements and estimates
The reported results of the Group are sensitive to the
accounting policies, assumptions and estimates that underpin the
preparation of its financial statements. UK company law and IFRS
require the Directors, in preparing the Group's financial
statements, to select suitable accounting policies, apply them
consistently and make judgements and estimates that are reasonable
and prudent. The Group's estimates and assumptions are based on
historical experience and expectation of future events and are
reviewed periodically. The actual outcome may be materially
different from that anticipated.
(a) Critical judgements
In the course of preparing the financial statements, one
judgement has been made in the process of applying the Group's
accounting policies, other than those involving estimations, that
has had a significant effect on the amounts recognised in the
financial statements as follows:
I. Assessment as an investment entity
The Board has concluded that the Company continues to meet the
definition of an investment entity, as its strategic objective of
investing in portfolio investments and providing investment
management services to investors for the purpose of generating
returns in the form of investment income and capital appreciation
remains unchanged.
(b) Critical estimates
In addition to these significant judgements the Directors have
made two estimates, which they deem to have a significant risk of
resulting in a material adjustment to the amounts recognised in the
financial statements within the next financial year. The details of
these estimates are as follows:
I. Fair valuation of the investment portfolio
The investment portfolio, a material asset of the Group, is held
at fair value. Details of valuation methodologies used and the
associated sensitivities are disclosed in Note 13 Fair values of
assets and liabilities (Note 4 in this document). Further
information can be found in Portfolio valuation - an explanation in
our Annual report and accounts 2020. Given the importance of this
area, the Board has a separate Valuations Committee to review the
valuations policies, process and application to individual
investments. A report on the activities of the Valuations Committee
(including a review of the assumptions made) is included in the
Valuations Committee Report in our Annual report and accounts
2020.
II. Carried interest payable
Carried interest payable is calculated based on the underlying
agreements, and assuming all portfolio investments are sold at
their fair values at the balance sheet date. The actual amounts of
carried interest paid will depend on the cash realisations of these
portfolio investments and valuations may change significantly in
the next financial year. The fair valuation of the investment
portfolio is itself a critical estimate, as detailed above. The
sensitivity of carried interest payable to movements in the
investment portfolio is disclosed in Note 15 in our Annual report
and accounts 2020.
In the comparative period, in addition to the above critical
judgements and estimates, there was a critical judgement around
carried interest receivable and a critical estimate around carried
interest receivable. Following the receipt of the GBP678 million
carried interest receivable this year, the majority due from EFV,
which has met its performance conditions and is in liquidation,
these items are no longer considered critical judgements or
estimates for the year to 31 March 2020. With only one portfolio
company remaining, which could give rise to carried interest
received, the carried interest receivable balance is GBP18 million
and is no longer material and is not expected to be so in the
foreseeable future.
D Other accounting policies
(a) Gross investment return
Gross investment return is equivalent to "revenue" for the
purposes of IAS 1. It represents the overall increase in net assets
from the investment portfolio net of deal-related costs and
includes foreign exchange movements in respect of the investment
portfolio. The substantial majority is investment income and
outside the scope of IFRS 15. It is analysed into the following
components with the relevant standard shown where appropriate:
i. Realised profits or losses over value on the disposal of
investments are the difference between the fair value of the
consideration received in accordance with IFRS 13 less any directly
attributable costs, on the sale of equity and the repayment of
interest income from the investment portfolio, and its carrying
value at the start of the accounting period, converted into
sterling using the exchange rates in force at the date of
disposal.
ii. Unrealised profits or losses on the revaluation of
investments are the movement in the fair value of investments in
accordance with IFRS 13 between the start and end of the accounting
period converted into sterling using the exchange rates in force at
the date of fair value assessment.
iii. Fair value movements on investment entity subsidiaries are
the movements in the fair value of Group subsidiaries which are
classified as investment entities under IFRS 10. The Group makes
investments in portfolio assets through these entities which are
usually limited partnerships or corporate subsidiaries.
iv. Portfolio income is that portion of income that is directly
related to the return from individual investments. It is recognised
to the extent that it is probable that there will be economic
benefit and the income can be reliably measured. The following
specific recognition criteria must be met before the income is
recognised:
-- Dividends from equity investments are recognised in the
Consolidated statement of comprehensive income when the
shareholders' rights to receive payment have been established.
-- Interest income from investment portfolio is recognised as it
accrues. When the fair value of an investment is assessed to be
below the principal value of a loan, the Group recognises a
provision against any interest accrued from the date of the
assessment going forward until the investment is assessed to have
recovered in value.
-- The accounting policy for fee income is included in Note 4 of
the Annual report and accounts 2020.
v. Foreign exchange on investments arises on investments made in
currencies that are different from the functional currency of the
Group entity. Investments are translated at the exchange rate
ruling at the date of the transaction in accordance with IAS 21. At
each subsequent reporting date, investments are translated to
sterling at the exchange rate ruling at that date.
vi. Movement in the fair value of derivatives relates to the
change in fair value of forward foreign exchange contracts which
have been used to minimise foreign currency risk in the investment
portfolio. See Note 18 in our Annual report and accounts 2020 for
more details.
(b) Foreign currency translation
For the Company and those subsidiaries whose balance sheets are
denominated in sterling, which is the Company's functional and
presentational currency, monetary assets and liabilities and
non-monetary assets held at fair value denominated in foreign
currencies are translated into sterling at the closing rates of
exchange at the balance sheet date. Foreign currency transactions
are translated into sterling at the average rates of exchange over
the year and exchange differences arising are taken to the
Consolidated statement of comprehensive income.
The statements of financial position of subsidiaries and
associates, which are not held at fair value, denominated in
foreign currencies are translated into sterling at the closing
rates. The statements of comprehensive income for these
subsidiaries and associates are translated at the average rates and
exchange differences arising are taken to other comprehensive
income. Such exchange differences are reclassified to the
Consolidated statement of comprehensive income in the period in
which the subsidiary or associate is disposed of.
(c) Treasury assets and liabilities
Short-term treasury assets, and short and long-term treasury
liabilities are used in order to manage cash flows.
Cash and cash equivalents comprise cash at bank and amounts held
in money market funds which are readily convertible into cash and
there is an insignificant risk of changes in value. Financial
assets and liabilities are recognised in the balance sheet when the
relevant Group entity becomes a party to the contractual provisions
of the instrument. De-recognition occurs when rights to cash flows
from a financial asset expire, or when a liability is
extinguished.
Notes to the accounts
1 Segmental analysis
Operating segments are the components of the Group whose results
are regularly reviewed by the Group's chief operating decision
maker to make decisions about resources to be allocated to the
segment and assess its performance.
The Chief Executive, who is considered to be the chief operating
decision maker, managed the Group on the basis of business
divisions determined with reference to market focus, geographic
focus, investment funding model and the Group's management
hierarchy. A description of the activities, including products and
services offered by these divisions and the allocation of
resources, is given in the Strategic report. For the geographical
segmental split, revenue information is based on the locations of
the assets held. To aid the readers' understanding we have split
out Action, Private Equity's largest asset, into a separate column.
This is not regarded as a new reported segment.
The segmental information that follows is presented on the basis
used by the Chief Executive to monitor the performance of the
Group. The reported segments are Private Equity, Infrastructure and
Scandlines, which was previously reported as Corporate Assets.
The segmental analysis is prepared on the Investment basis to
provide the most meaningful information to the reader of the
accounts. For more information on the Investment basis and a
reconciliation between the Investment basis and IFRS section
earlier in this document.
1 Segmental analysis continued
Investment basis
Private Of which
Equity Action Infrastructure Scandlines Total(5)
Year to 31 March 2020 GBPm GBPm GBPm GBPm GBPm
=========================================================== ======= ======== ============== ========== ========
Realised profits over value on the disposal of investments 90 15 - - 90
Unrealised (losses)/profits on the revaluation of
investments (34) 461 (92) (46) (172)
Portfolio income
Dividends 5 - 26 37 68
Interest income from investment portfolio 106 - 12 - 118
Fees receivable 9 2 - - 9
Foreign exchange on investments 176 79 21 17 214
Movement in the fair value of derivatives - - (6) (3) (9)
=========================================================== ======= ======== ============== ========== ========
Gross investment return 352 557 (39) 5 318
=========================================================== ======= ======== ============== ========== ========
Fees receivable from external funds 2 42 - 44
Operating expenses (72) (41) (3) (116)
Interest receivable 1
Interest payable (38)
Exchange movements 1
Other income 5
=========================================================== ======= ======== ============== ========== ========
Operating profit before carry 215
=========================================================== ======= ======== ============== ========== ========
Carried interest
Carried interest and performance fees receivable 79 6 - 85
Carried interest and performance fees payable (63) (21) - (84)
========================================================== ======= ======== ============== ========== ========
Operating profit 216
=========================================================== ======= ======== ============== ========== ========
Income taxes (1)
Other comprehensive income
Re-measurements of defined benefit plans 38
========================================================== ======= ======== ============== ========== ========
Total return 253
=========================================================== ======= ======== ============== ========== ========
Net divestment/(investment)
Realisations(1) 848 402 - 70 918
Cash Investment(2) (1,062) (651)(6) (186) - (1,248)
=========================================================== ======= ======== ============== ========== ========
(214) (249) (186) 70 (330)
=========================================================== ======= ======== ============== ========== ========
Balance sheet
Opening portfolio value at 1 April 2019 6,023 2,731 1,001 529 7,553
Investment(3) 1,155 651 186 - 1,341
Value disposed (759) (387) - (70) (829)
Unrealised value movement (34) 461 (92) (46) (172)
Other movement(4) 167 80 22 16 205
=========================================================== ======= ======== ============== ========== ========
Closing portfolio value at 31 March 2020 6,552 3,536 1,117 429 8,098
=========================================================== ======= ======== ============== ========== ========
1 Realised proceeds may differ from cash proceeds due to timing of cash receipts. In FY2020
we have recognised GBP117 million of realised proceeds in Private Equity which are to be received
in FY2021.
2 Cash investment includes a GBP31 million syndication of cash investment in Private Equity,
which is to be received in FY2021. This differs to the cash flow due to the timing of the
syndication to be received.
3 Includes capitalised interest and other non-cash investment.
4 Other movement relates to foreign exchange and the provisioning of capitalised interest.
5 The total is the sum of Private Equity, Infrastructure and Scandlines, "Of which Action" is
part of Private Equity.
6 Cash investment includes GBP60 million of purchased LP stakes in EFV prior to the Action Transaction
and GBP591 million of reinvestment as part of the Action Transaction in the Private Equity
section of the Business review.
A number of items are not managed by segment by the chief operating decision maker and therefore
have not been allocated to a specific segment.
1 Segmental analysis continued
Investment basis
Private Of which
Equity Action Infrastructure Scandlines(4) Total(5)
Year to 31 March 2019 GBPm GBPm GBPm GBPm GBPm
======================================================== ======= ======== ============== ============= ========
Realised profits over value on the disposal of
investments 131 - 1 - 132
Unrealised profits on the revaluation of investments 916 701 162 9 1,087
Portfolio income
Dividends 12 - 23 28 63
Interest income from investment portfolio 103 - 10 - 113
Fees receivable 10 1 (1) - 9
Foreign exchange on investments (24) (50) 15 (9) (18)
Movement in the fair value of derivatives - - - 21 21
======================================================== ======= ======== ============== ============= ========
Gross investment return 1,148 652 210 49 1,407
======================================================== ======= ======== ============== ============= ========
Fees receivable from external funds 4 49 - 53
Operating expenses (77) (48) (1) (126)
Interest receivable 2
Interest payable (36)
Exchange movements (3)
Other expense (2)
======================================================== ======= ======== ============== ============= ========
Operating profit before carry 1,295
======================================================== ======= ======== ============== ============= ========
Carried interest
Carried interest and performance fees receivable 128 31 - 159
Carried interest and performance fees payable (206) (14) - (220)
======================================================= ======= ======== ============== ============= ========
Operating profit 1,234
======================================================== ======= ======== ============== ============= ========
Income taxes 13
Other comprehensive income
Re-measurements of defined benefit plans 5
======================================================= ======= ======== ============== ============= ========
Total return 1,252
======================================================== ======= ======== ============== ============= ========
Net divestment/(investment)
Realisations(1) 1,235 - 7 - 1,242
Cash Investment (332) (16) 2 (529) (859)
======================================================== ======= ======== ============== ============= ========
903 (16) 9 (529) 383
======================================================== ======= ======== ============== ============= ========
Balance sheet
Opening portfolio value at 1 April 2018 5,825 2,064 832 - 6,657
Investment(2) 426 16 (2) 529 953
Value disposed (1,103) - (6) - (1,109)
Unrealised value movement 916 701 162 9 1,087
Other movement(3) (41) (50) 15 (9) (35)
======================================================== ======= ======== ============== ============= ========
Closing portfolio value at 31 March 2019 6,023 2,731 1,001 529 7,553
======================================================== ======= ======== ============== ============= ========
1 Private Equity does not include GBP19 million received during the year which was recognised
as realised proceeds in FY2018.
2 Includes capitalised interest and other non-cash investment.
3 Other movement relates to foreign exchange and the provisioning of capitalised interest.
4 During the year Corporate Assets was renamed to Scandlines.
5 The total is the sum of Private Equity, Infrastructure and Scandlines, "Of which Action" is
part of Private Equity.
A number of items are not managed by segment by the chief operating decision maker and therefore
have not been allocated to a specific segment.
1 Segmental analysis continued
Investment basis Northern North
UK Europe America Other Total
Year to 31 March 2020 GBPm GBPm GBPm GBPm GBPm
============================================ ====== ======== ======= ===== =======
Gross investment return
Realised profits/(losses) over value on the
disposal of investments 102 17 - (29) 90
Unrealised (losses)/profits on the
revaluation of investments (109) 112 (167) (8) (172)
Portfolio income 49 133 17 (4) 195
Foreign exchange on investments - 142 65 7 214
Movement in fair value of derivatives - (3) (6) - (9)
============================================ ====== ======== ======= ===== =======
42 401 (91) (34) 318
============================================ ====== ======== ======= ===== =======
Net divestment/(investment)
Realisations 252 560 - 106 918
Cash investment - (928) (320) - (1,248)
============================================ ====== ======== ======= ===== =======
252 (368) (320) 106 (330)
============================================ ====== ======== ======= ===== =======
Balance sheet
Closing portfolio value at 31 March 2020 1,190 5,698 1,153 57 8,098
============================================ ====== ======== ======= ===== =======
Investment basis Northern North
UK Europe America Other Total
Year to 31 March 2019 GBPm GBPm GBPm GBPm GBPm
========================================= ===== ======== ======= ===== ======
Gross investment return
Realised profits over value on the
disposal of investments 2 126 - 4 132
Unrealised profits/(losses) on the
revaluation of investments 289 745 85 (32) 1,087
Portfolio income 60 111 15 (1) 185
Foreign exchange on investments - (85) 54 13 (18)
Movement in fair value of derivatives - 21 - - 21
========================================= ===== ======== ======= ===== ======
351 918 154 (16) 1,407
========================================= ===== ======== ======= ===== ======
Net divestment/(investment)
Realisations 88 1,116 6 32 1,242
Cash investment - (730) (129) - (859)
========================================= ===== ======== ======= ===== ======
88 386 (123) 32 383
========================================= ===== ======== ======= ===== ======
Balance sheet
Closing portfolio value at 31 March 2019 1,453 4,976 931 193 7,553
========================================= ===== ======== ======= ===== ======
2 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.
2020 2019
========================================================= ===== =====
Net assets per share (GBP)
Basic 8.06 8.19
Diluted 8.04 8.15
Net assets (GBPm)
Net assets attributable to equity holders of the Company 7,757 7,909
========================================================= ===== =====
2020 2019
=================== ============== ============
Number of shares in issue
Ordinary shares 973,074,585 973,000,665
Own shares (10,398,032) (7,014,008)
=================== ============== ============
962,676,553 965,986,657
=================== ============== ============
Effect of dilutive potential ordinary shares
Share awards 1,649,348 3,994,492
=================== ============== ============
Diluted shares 964,325,901 969,981,149
=================== ============== ============
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.
2020 2019
================================================================== ==== =====
Earnings per share (pence)
Basic earnings per share 22.1 128.3
Diluted earnings per share 22.1 127.8
Earnings (GBPm)
Profit for the year attributable to equity holders of the Company 214 1,242
================================================================== ==== =====
Basic earnings per share is calculated on weighted average
shares in issue of 968,001,540 for the year to 31 March 2020 (2019:
967,932,072). Diluted earnings per share is calculated on diluted
weighted average shares of 969,674,941 for the year to 31 March
2020 (2019: 971,792,591).
3 Dividends
2020 2020 2019 2019
pence per share GBPm pence per share GBPm
================== =============== ==== =============== ====
Declared and paid during the year
Ordinary shares
Second dividend 20.0 194 22.0 213
First dividend 17.5 169 15.0 145
================== =============== ==== =============== ====
37.5 363 37.0 358
================== =============== ==== =============== ====
Proposed dividend 17.5 168 20.0 193
================== =============== ==== =============== ====
The Group introduced a simplified dividend policy in May 2018.
In accordance with this policy, subject to maintaining a
conservative balance sheet approach, the Group aims to maintain or
grow the dividend each year. The first dividend has been set at 50%
of the prior year's total dividend.
The dividend can be paid out of either the capital reserve or
the revenue reserve subject to the investment trust rules.
The distributable reserves of the parent company are GBP3,863
million (31 March 2019: GBP2,226 million) and the Board reviews the
distributable reserves bi-annually, including consideration of any
material changes since the most recent audited accounts, ahead of
proposing any dividend. The Board also reviews the proposed
dividends in the context of the requirements of being an approved
investment trust. Shareholders are given the opportunity to approve
the total dividend for the year at the Company's Annual General
Meeting. Details of the Group's continuing viability and going
concern can be found in the Risk management section.
4 Fair values of assets and liabilities
Accounting policy:
Financial instruments, other than those held at amortised cost,
are held at fair value. In particular, 3i classifies groups of
financial instruments at fair value through profit and loss when
they are managed, and their performance evaluated, on a fair value
basis in accordance with a documented risk management or investment
strategy, and where information about the groups of financial
instruments is reported to management on that basis.
(A) Classification
The following tables analyse the Group's assets and liabilities
in accordance with the categories of financial instruments in IFRS
9:
Group Group Group Group
2020 2020 2019 2019
Classified Other Classified Other
at fair financial at fair financial
value value
through instruments Group through instruments Group
profit at amortised 2020 profit at amortised 2019
and and
loss cost Total loss cost Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================= =========== ============= ====== ========== ============ =====
Assets
Quoted investments 418 - 418 469 - 469
Unquoted investments 3,036 - 3,036 1,193 - 1,193
Investments in investment
entities 3,936 - 3,936 5,159 - 5,159
Other financial assets 57 141 198 52 654 706
============================= =========== ============= ====== ========== ============ =====
Total 7,447 141 7,588 6,873 654 7,527
============================= =========== ============= ====== ========== ============ =====
Liabilities
Loans and borrowings - 575 575 - 575 575
Other financial liabilities 4 200 204 - 206 206
============================= =========== ============= ====== ========== ============ =====
Total 4 775 779 - 781 781
============================= =========== ============= ====== ========== ============ =====
Company Company Company Company
2020 2020 2019 2019
Classified Other Classified Other
at fair financial at fair financial
value value
through instruments Company through instruments Company
profit at amortised 2020 profit at amortised 2019
and and
loss cost Total loss cost Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================= =========== ============= ======== ========== ============ =======
Assets
Quoted investments 418 - 418 469 - 469
Unquoted investments 3,036 - 3,036 1,193 - 1,193
Other financial assets 38 179 217 34 666 700
============================= =========== ============= ======== ========== ============ =======
Total 3,492 179 3,671 1,696 666 2,362
============================= =========== ============= ======== ========== ============ =======
Liabilities
Loans and borrowings - 575 575 - 575 575
Other financial liabilities 4 483 487 - 483 483
============================= =========== ============= ======== ========== ============ =======
Total 4 1,058 1,062 - 1,058 1,058
============================= =========== ============= ======== ========== ============ =======
Within the Company, GBP3,938 million (31 March 2019: GBP5,163
million) of the Interest in Group entities is held at fair
value.
(B) Valuation
The fair values of the Group's financial assets and liabilities
not held at fair value, are not materially different from their
carrying values, with the exception of loans and borrowings. The
fair value of the loans and borrowings is GBP671 million (31 March
2019: GBP709 million), determined with reference to their published
market prices. The carrying value of the loans and borrowings is
GBP575 million (31 March 2019: GBP575 million) and accrued interest
payable (included within trade and other payables) is GBP8 million
(31 March 2019: GBP8 million).
Valuation hierarchy
The Group classifies financial instruments measured at fair
value according to the following hierarchy:
Level Fair value input description Financial instruments
======== ========================================================= =================================================
Level 1 Quoted prices (unadjusted) from active markets Quoted equity instruments
Level 2 Inputs other than quoted prices included in Level 1 that Derivative financial instruments
are observable either directly (ie
as prices) or indirectly (ie derived from prices)
Level 3 Inputs that are not based on observable market data Unquoted equity instruments and loan instruments
======== ========================================================= =================================================
Unquoted equity instruments and debt instruments are measured in
accordance with the IPEV Guidelines with reference to the most
appropriate information available at the time of measurement.
Further information regarding the valuation of unquoted equity
instruments can be found in the section Portfolio valuation - an
explanation of our Annual report and accounts 2020.
The table below shows the classification of financial
instruments held at fair value into the valuation hierarchy at 31
March 2020:
Group Group Group Group Group Group Group Group
2020 2020 2020 2020 2019 2019 2019 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 418 - - 418 469 - - 469
Unquoted investments - - 3,036 3,036 - - 1,193 1,193
Investments in investment entity subsidiaries - - 3,936 3,936 - - 5,159 5,159
Other financial assets - 13 44 57 - 18 34 52
Liabilities
Other financial liabilities - (4) - (4) - - - -
=============================================== ====== ====== ====== ====== ===== ===== ====== ======
Total 418 9 7,016 7,443 469 18 6,386 6,873
=============================================== ====== ====== ====== ====== ===== ===== ====== ======
We determine that, in the ordinary course of business, the net
asset value of an investment entity subsidiary is considered to be
the most appropriate to determine fair value. The underlying
portfolio is valued under the same methodology as directly held
investments, with any other assets or liabilities within investment
entity subsidiaries fair valued in accordance with the Group's
accounting policies. Note 12 in our Annual report and accounts 2020
details the Directors' considerations about the fair value of the
underlying investment entity subsidiaries.
Movements in the directly held investment portfolio categorised
as Level 3 during the year are set out in the table below:
Group Group Company Company
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
=========================================== ====== ====== ======== ========
Opening book value 1,193 1,751 1,193 1,751
Additions 1,929 150 1,929 150
- of which loan notes with nil value (6) (5) (6) (5)
Disposals, repayments and write-offs (142) (793) (142) (793)
Fair value movement(1) 20 66 20 66
Other movements and net cash movements(2) 42 24 42 24
Closing book value 3,036 1,193 3,036 1,193
=========================================== ====== ====== ======== ========
1 All fair value movements relate to assets held at the end of the period.
2 Other movements include the impact of foreign exchange and accrued
interest.
Unquoted investments valued using Level 3 inputs also had the
following impact on the Consolidated statement of comprehensive
income: realised losses over value on disposal of investments of
GBP29 million (2019: GBP33 million profit), dividend income of GBP7
million (2019: GBP12 million) and foreign exchange gains of GBP36
million (2019: GBP17 million).
Level 3 inputs are sensitive to assumptions made when
ascertaining fair value as described in the Portfolio valuation -
an explanation section. On an IFRS basis, of assets held at 31
March 2020 classified as Level 3, 33% (31 March 2019: 77%) were
valued using a multiple of earnings and the remaining 67% (31 March
2019: 23%) were valued using alternative valuation methodologies.
Of the underlying portfolio held by investment entity subsidiaries,
41% (31 March 2019: 88%) were valued using a multiple of earnings
and the remaining 59% (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 in or out of Level 3 during the year.
Valuation multiple - The valuation multiple is the main
assumption applied to a multiple of earnings-based valuation. The
multiple is derived from comparable listed companies or relevant
market transaction multiples. Companies in the same industry and
geography and, where possible, with a similar business model and
profile are selected and multiples are then adjusted for factors
including liquidity risk, growth potential and relative
performance. They are also adjusted to represent our longer-term
view of performance through the cycle or our exit assumptions.
Consideration has also been given to the impact of COVID-19 for the
valuation at 31 March 2020. The pre-discount multiple used to value
the portfolio ranged between 8.0x and 14.5x (31 March 2019: 7.5x
and 18.9x).
If the multiple used to value each unquoted investment valued on
an earnings multiple basis as at 31 March 2020 decreased by 5%, the
investment portfolio value would decrease by GBP68 million (31
March 2019: GBP57 million) or 2% (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 GBP148 million (31 March 2019: GBP318 million) or 3% (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 2% (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 GBP148
million (31 March 2019: GBP318 million) or 3% (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 in our Annual report
and accounts 2020.
Each methodology is used for a proportion of assets by value,
and at year end the following techniques were used under an IFRS
basis: 55% transaction value (31 March 2019: nil), 10% DCF (31
March 2019: 7%), nil industry metric (31 March 2019: 11%) and 2%
other (31 March 2019: 5%).
Transaction value has been used to value Action at 31 March 2020
following on from the Action Transaction. To arrive at the fair
value, detailed due diligence was completed by sophisticated
investors on the Action business model and its 5-year plan. Further
information can be found in the Private Equity section of the
Business review.
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 GBP101 million (31 March 2019: GBP14
million) or 3% (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 GBP126 million (31
March 2019: GBP33 million) or 3% (31 March 2019: 0.6%).
5 Loans and borrowings
Accounting policy:
All loans and borrowings are initially recognised at the fair
value of the consideration received. After initial recognition,
these are subsequently measured at amortised cost using the
effective interest method, which is the rate that exactly discounts
the estimated future cash flows through the expected life of the
liabilities. Financial liabilities are derecognised when they are
extinguished.
Group Group
2020 2019
GBPm GBPm
=============================================== ===== =====
Loans and borrowings are repayable as follows:
Within one year - -
Between the second and fifth year 200 200
After five years 375 375
=============================================== ===== =====
575 575
=============================================== ===== =====
Principal borrowings include:
Group Group Company Company
2020 2019 2020 2019
Rate Maturity GBPm GBPm GBPm GBPm
========================================================= ============ ========= ====== ====== ======== ========
Issued under the GBP2,000 million note issuance
programme
Fixed rate
GBP200 million notes (public issue) 6.875% 2023 200 200 200 200
GBP375 million notes (public issue) 5.750% 2032 375 375 375 375
575 575 575 575
========================================================= ============ ========= ====== ====== ======== ========
Committed multi-currency facilities
GBP400 million LIBOR+0.50% 2025 - - - -
========================================================= ============ ========= ====== ====== ======== ========
- - - -
========================================================= ============ ========= ====== ====== ======== ========
Total loans and borrowings 575 575 575 575
========================================================= ============ ========= ====== ====== ======== ========
During the year the Company refinanced its syndicated
multi-currency facility to 2025 (2019: 2021); increasing the size
to GBP400 million (2019: GBP350 million) and improving pricing. The
GBP400 million facility has no financial covenants. The RCF has
two, one year extension options which if successfully exercised
would extend the maturity date to April 2027. In addition, the
Company has the right to seek additional lending commitments to
increase the size of the RCF to GBP500 million, provided that
existing lenders have a right of first refusal.
All of the Group's borrowings are repayable in one instalment on
the respective maturity dates. None of the Group's interest-bearing
loans and borrowings are secured on the assets of the Group. The
fair value of the loans and borrowings is GBP671 million (31 March
2019: GBP709 million), determined with reference to their published
market prices. The loans and borrowings are included in Level 2 of
the fair value hierarchy.
In accordance with the FCA Handbook (FUNDS 3.2.2. R and Fund
3.2.6. R), 3i Investments plc, as AIFM of the Company, is required
to calculate leverage in accordance with a set formula and disclose
this to investors. In line with this formula, leverage at 31 March
2020 for the Group is 115% (31 March 2019: 96%) and the Company is
104% (31 March 2019: 84%) under both the gross method and the
commitment method. The leverage for 3i Investments plc at 31 March
2020 is 100% (31 March 2019: 100%) under both the gross method and
the commitment method.
Under the Securities Financing Transactions Regulation ("SFTR")
and AIFMD, 3i is required to disclose certain information relating
to the use of securities financing transactions ("SFTs") and total
return swaps. At 31 March 2020, 3i was not party to any
transactions involving SFTs or total return swaps.
Reconciliation of liabilities arising from financing
activities
The changes in the Group's liabilities arising from financing
activities are classified as follows:
Loans and borrowings Lease liability Loans and borrowings Lease liability
2020 2020 2019 2019
GBPm GBPm GBPm GBPm
----------------------------- -------------------- --------------- -------------------- ---------------
Opening liability 575 - 575 -
Adoption of IFRS 16 - Leases - 23 - -
Additions - 1 - -
Repayments - (4) - -
Closing liability 575 20 575 -
------------------------------- -------------------- --------------- -------------------- ---------------
20 large investments
The 20 investments listed below account for 95% of the portfolio
at 31 March 2020 (31 March 2019: 94%). All investments have been
assessed to establish whether they classify as accounting
subsidiaries under IFRS and/or subsidiaries under the UK Companies
Act. This assessment forms the basis of our disclosure of
accounting subsidiaries in the financial statements.
The UK Companies Act defines a subsidiary based on voting
rights, with a greater than 50% majority of voting rights resulting
in an entity being classified as a subsidiary. IFRS 10 applies a
wider test and, if a Group is exposed, or has rights to variable
returns from its involvement with the investee and has the ability
to affect these returns through its power over the investee then it
has control, and hence the investee is deemed an accounting
subsidiary. Controlled subsidiaries under IFRS are noted below.
None of these investments are UK Companies Act subsidiaries.
In accordance with Part 5 of The Alternative Investment Fund
Managers Regulations 2013 ("the Regulations"), 3i Investments plc,
as AIFM, requires all controlled portfolio companies to make
available to employees an annual report which meets the disclosure
requirements of the Regulations. These are available either on the
portfolio company's website or through filing with the relevant
local authorities.
Residual Residual
Business line cost(1) cost(1) Valuation Valuation
Geography March March March March Relevant
Investment First invested in 2020 2019 2020 2019 transactions
Description of business Valuation basis GBPm GBPm GBPm GBPm in the year
------------------------ ------------------ -------- -------- --------- --------- ----------------------
Action* Private Equity 614 24 3,536 2,731 Refer to Action
General merchandise Netherlands Transaction in the
discount
retailer 2011/2020 Private Equity
Fair value section
------------------------ ------------------ -------- -------- --------- --------- ----------------------
3i Infrastructure plc* Infrastructure 305 307 665 744
Quoted investment UK
company,
investing in 2007
infrastructure
Quoted
------------------------ ------------------ -------- -------- --------- --------- ----------------------
Scandlines Scandlines 529 529 429 529 Refinancing
Ferry operator between Denmark/ in August 2019
Denmark and Germany Germany and returned
2018 GBP91 million to 3i
DCF
------------------------ ------------------ -------- -------- --------- --------- ----------------------
Cirtec Medical* Private Equity 172 172 302 248
Outsourced medical US
device manufacturing 2017
Earnings
WP*
Supplier of plastic Private Equity Acquisition of Orange
packaging Netherlands 206 187 244 241 Poland
solutions 2015 in November 2019
Earnings
Q Holding* Private Equity 162 162 222 241 Sale of Silicone
Manufacturer of US Altimex and TBL
precision
engineered elastomeric 2014 Performance Plastics
components Earnings to
combine with 3i's
new investment in
our Bioprocessing
platform
------------------------ ------------------ -------- -------- --------- --------- ----------------------
Evernex* Private Equity 219 - 217 - New investment
Provider of third-party France acquisition of Storex
maintenance services for 2019 in March
data centre
infrastructure Earnings 2020
Royal Sanders* Private Equity 135 135 198 147
Private label and Netherlands
contract
manufacturing producer 2018
of
personal care products Earnings
------------------------ ------------------ -------- -------- --------- --------- ----------------------
Tato Private Equity 2 2 196 117 GBP5 million
Manufacturer and seller UK dividend
of
speciality chemicals 1989 received
Earnings
------------------------ ------------------ -------- -------- --------- --------- ----------------------
Hans Anders* Private Equity 221 250 196 246 Return of
Value-for-money optical Netherlands overfunding of
retailer 2017 GBP35 million in
Earnings December 2019
------------------------ ------------------ -------- -------- --------- --------- ----------------------
Regional Rail* Infrastructure 175 - 195 - New investment
Owns and operates US acquisition of
short-line 2019 Pinsley Railroad
freight railroads and DCF Company's Florida
rail-related businesses operations
and Carolina Coastal
Railway
----------------------- ------------------- -------- -------- --------- --------- ----------------------
Havea* (formerly Ponroy
Santé)
Manufacturer
of natural Private Equity
healthcare and France
cosmetics 2017 Acquisition of
products Earnings 155 147 182 174 Pasquali in May 2019
Smarte Carte* Infrastructure 167 164 172 181 Acquisition of Feel
Provider of self-serve US Good Chairs in
vended 2017 October 2019
luggage carts, DCF
electronic
lockers and concession
carts
AES Engineering Private Equity 30 30 158 172 Acquisition of Van
Manufacturer of UK Geffen in January
mechanical 1996 2020
seals and support
systems
Earnings
Lampenwelt* Private Equity 113 101 144 119 Acquisition of
Online lighting Germany Lampenlicht/QLF in
specialist 2017 July 2019
retailer
Earnings
Formel D* Private Equity 154 147 141 169 Acquisition of
Quality assurance Germany Vdynamics in
provider 2017 September 2019 and
for the automotive Earnings CPS in October 2019
industry
Audley Travel* Private Equity 137 189 124 270 Completed
Provider of UK refinancing in
experiential 2015 December 2019 and
tailor-made travel Earnings returned GBP65
million to 3i
Magnitude Software* Private Equity 139 - 121 - New investment
Leading provider of US
unified
application data 2019
management solutions Earnings
----------------------- ------------------- -------- -------- --------- --------- ----------------------
BoConcept* Private Equity 149 156 119 152
Urban living designer Denmark
2016
Earnings
----------------------- ------------------- -------- -------- --------- --------- ----------------------
Basic-Fit Private Equity 6 8 93 254 Acquisition of
Discount gyms operator Netherlands Fitland in July 2019
2013 Sold 2.9 million
Quoted shares at EUR31.25
per share,
generating proceeds
of GBP76 million
3,790 2,710 7,654 6,735
------------------- -------- -------- --------- --------- ----------------------
* Controlled in accordance with IFRS.
1 Residual cost includes capitalised interest.
Glossary
2013-2016 vintage includes Aspen Pumps, Audley Travel,
Basic-Fit, Dynatect, Kinolt, ATESTEO, JMJ, Q Holding, WP,
Scandlines further (completed in December 2013), Christ, Geka,
Óticas Carol and Blue Interactive.
2016-2019 vintage includes BoConcept, Cirtec, Formel D, Hans
Anders, ICE, Lampenwelt, Havea, Royal Sanders and Schlemmer.
Alternative Investment Funds ("AIFs") At 31 March 2020, 3i
Investments plc as AIFM, managed five AIFs. These were 3i Group
plc, 3i Growth Capital Fund, 3i Eurofund V, 3i Managed
Infrastructure Acquisitions LP and 3i Infrastructure plc. 3i
Investments (Luxembourg) SA as AIFM, managed one AIF, 3i European
Operational Projects Fund.
Alternative Investment Fund Manager ("AIFM") is the regulated
manager of AIFs. Within 3i, this is 3i Investments plc and 3i
Investments (Luxembourg) SA.
Approved Investment Trust Company This is a particular UK tax
status maintained by 3i Group plc, the parent company of 3i Group.
An approved Investment Trust company is a UK company which meets
certain conditions set out in the UK tax rules which include a
requirement for the company to undertake portfolio investment
activity that aims to spread investment risk and for the company's
shares to be listed on an approved exchange. The "approved" status
for an investment trust must be agreed by the UK tax authorities
and its benefit is that certain profits of the company, principally
its capital profits, are not taxable in the UK.
Assets under management ("AUM") A measure of the total assets
that 3i has to invest or manages on behalf of shareholders and
third-party investors for which it receives a fee. AUM is measured
at fair value. In the absence of a third-party fund in Private
Equity, it is not a measure of fee generating capability.
Automatic Exchange of Information ("AEOI") regulation covers the
combined legislative requirements of Common Reporting Standards
("CRS") and the Foreign Account Tax Compliance Act ("FATCA"). Both
sets of rules require financial groups to identify investors and
report details to their local authority who will then exchange the
information with other relevant tax authorities.
B2B Business-to-business.
Board The Board of Directors of the Company.
Buyouts 2010-2012 vintage includes Action, Amor, Element,
Etanco, Hilite, OneMed and Trescal.
Capital redemption reserve is established in respect of the
redemption of the Company's ordinary shares.
Capital reserve recognises all profits that are capital in
nature or have been allocated to capital. Following changes to the
Companies Act, the Company amended its Articles of Association at
the 2012 Annual General Meeting to allow these profits to be
distributable by way of a dividend.
Carried interest payable is accrued on the realised and
unrealised profits generated taking relevant performance hurdles
into consideration, assuming all investments were realised at the
prevailing book value. Carried interest is only actually paid when
the relevant performance hurdles are met and the accrual is
discounted to reflect expected payment periods.
Carried interest receivable The Group earns a share of profits
from funds which it manages on behalf of third parties. These
profits are earned when the funds meet certain performance
conditions and are paid by the fund once these conditions have been
met on a cash basis. The carried interest receivable may be subject
to clawback provisions if the performance of the fund deteriorates
following carried interest being paid.
Company 3i Group plc.
Country-by-Country reporting ("CbC Reporting") refers to a
requirement for large multinational groups, operating in different
countries, to file an annual report with their head office tax
authority. This provides information about the activities of the
entities in the Group, on a country-by-country basis, across the
countries in which the Group operates.
Discounting The reduction in present value at a given date of a
future cash transaction at an assumed rate, using a discount factor
reflecting the time value of money.
EBITDA is defined as earnings before interest, taxation,
depreciation and amortisation and is used as the typical measure of
portfolio company performance.
EBITDA multiple Calculated as the enterprise value over EBITDA,
it is used to determine the value of a company.
Executive Committee The Executive Committee is responsible for
the day-to-day running of the Group and comprises: the Chief
Executive; Group Finance Director; the Managing Partners of the
Private Equity and Infrastructure businesses; and the Group's
General Counsel.
Fair value movements on investment entity subsidiaries The
movement in the carrying value of Group subsidiaries, classified as
investment entities under IFRS 10, between the start and end of the
accounting period converted into sterling using the exchange rates
at the date of the movement.
Fair value through profit or loss ("FVTPL") is an IFRS
measurement basis permitted for assets and liabilities which meet
certain criteria. Gains and losses on assets and liabilities
measured as FVTPL are recognised directly in the Statement of
comprehensive income.
Fee income (or Fees receivable) is earned for providing services
to 3i's portfolio companies and predominantly falls into one of two
categories. Negotiation and other transaction fees are earned for
providing transaction related services. Monitoring and other
ongoing service fees are earned for providing a range of services
over a period of time.
Fees receivable from external funds Fees receivable from
external funds are earned for providing management and advisory
services to a variety of fund partnerships and other entities. Fees
are typically calculated as a percentage of the cost or value of
the assets managed during the year and are paid quarterly, based on
the assets under management to date.
Foreign exchange on investments arises on investments made in
currencies that are different from the functional currency of the
Group entity. Investments are translated at the exchange rate
ruling at the date of the transaction. At each subsequent reporting
date investments are translated to sterling at the exchange rate
ruling at that date.
Gross investment return ("GIR") includes profit and loss on
realisations, increases and decreases in the value of the
investments we hold at the end of a period, any income received
from the investments such as interest, dividends and fee income,
movements in the fair value of derivatives and foreign exchange
movements. GIR is measured as a percentage of the opening portfolio
value.
Growth 2010-2012 vintage includes Element, Hilite, BVG, Go
Outdoors, Loxam, Touchtunes and WFCI.
Interest income from investment portfolio is recognised as it
accrues. When the fair value of an investment is assessed to be
below the principal value of a loan, the Group recognises a
provision against any interest accrued from the date of the
assessment going forward until the investment is assessed to have
recovered in value.
International Financial Reporting Standards ("IFRS") are
accounting standards issued by the International Accounting
Standards Board ("IASB"). The Group's consolidated financial
statements are required to be prepared in accordance with IFRS, as
endorsed by the EU.
Investment basis Accounts prepared assuming that IFRS 10 had not
been introduced. Under this basis, we fair value portfolio
companies at the level we believe provides the most comprehensive
financial information.
The commentary in the Strategic report refers to this basis as
we believe it provides a more understandable view of our
performance.
Key Performance Indicator ("KPI") is a measure by reference to
which the development, performance or position of the Group can be
measured effectively.
Money multiple is calculated as the cumulative distributions
plus any residual value divided by paid-in capital.
Net asset value ("NAV") is a measure of the fair value of our
proprietary investments and the net costs of operating the
business.
Operating cash profit is the difference between our cash income
(consisting of portfolio interest received, portfolio dividends
received, portfolio fees received and fees received from external
funds as per the Investment basis Consolidated cash flow statement)
and our operating expenses 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.
Public Private Partnership ("PPP") is a government service or
private business venture which is funded and operated through a
partnership of government and one or more private sector
companies.
Realised profits or losses over value on the disposal of
investments The difference between the fair value of the
consideration received, less any directly attributable costs, on
the sale of equity and the repayment of loans and receivables and
its carrying value at the start of the accounting period, converted
into sterling using the exchange rates at the date of disposal.
Revenue reserve recognises all profits that are revenue in
nature or have been allocated to revenue.
Segmental reporting Operating segments are reported in a manner
consistent with the internal reporting provided to the Chief
Executive who is considered to be the Group's chief operating
decision maker. All transactions between business segments are
conducted on an arm's length basis, with intrasegment revenue and
costs being eliminated on consolidation. Income and expenses
directly associated with each segment are
included in determining business segment performance.
Share-based payment reserve is a reserve to recognise those
amounts in retained earnings in respect of share-based
payments.
SORP means the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital
Trusts.
Syndication The sale of part of our investment in a portfolio
company to a third party, usually within 12 months of our initial
investment and for the purposes of facilitating investment by a
co-investor or portfolio company management in line with our
original investment plan. A syndication is treated as a negative
investment rather than a realisation.
Total return Comprises operating profit less tax charge less
movement in actuarial valuation of the historic defined benefit
pension scheme.
Total shareholder return ("TSR") is the measure of the overall
return to shareholders and includes the movement in the share price
and any dividends paid, assuming that all dividends are reinvested
on their ex -- dividend date.
Translation reserve comprises all exchange differences arising
from the translation of the financial statements of international
operations.
Unrealised profits or losses on the revaluation of investments
The movement in the carrying value of investments between the start
and end of the accounting period converted into sterling using the
exchange rates at the date of the movement.
List of Directors and their functions
The Directors of the Company and their functions are listed
below:
Simon Thompson, Chairman
Simon Borrows, Chief Executive and Executive Director
Julia Wilson, Group Finance Director and Executive Director
Jonathan Asquith, Deputy Chairman and Senior Independent
Director
Caroline Banszky, non-executive Director
Stephen Daintith, non-executive Director
Peter Grosch, non-executive Director
David Hutchison, non-executive Director
Coline McConville, non-executive Director
Alexandra Schaapveld, non-executive Director
By order of the Board
K J Dunn
Company Secretary
13 May 2020
Registered Office: 16 Palace Street, London SW1E 5JD
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAFSDFDDEEAA
(END) Dow Jones Newswires
May 14, 2020 02:00 ET (06:00 GMT)
3i (LSE:III)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
3i (LSE:III)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024