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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
3i Group Plc | LSE:III | London | Ordinary Share | GB00B1YW4409 | ORD 73 19/22P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
36.00 | 1.27% | 2,879.00 | 2,875.00 | 2,877.00 | 2,886.00 | 2,850.00 | 2,862.00 | 1,360,533 | 16:35:11 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Investors, Nec | 2.57B | 4.57B | 4.6982 | 6.12 | 27.99B |
TIDMIII
RNS Number : 4327F
3i Group PLC
12 November 2015
3i Group plc announces half yearly results
to 30 September 2015
Another solid half year with each business making important progress
-- Good progression in NAV per share to 401 pence, after the payment of the 14 pence final FY2015 dividend
-- Strong performance in the Private Equity portfolio underpinned by continued earnings momentum in our key assets
-- Productive first half for Private Equity with selective investment of GBP208 million and realised proceeds
of GBP307 million
-- Infrastructure had a good first half, advising 3i Infrastructure plc on three new investments and contributing a special dividend of GBP51 million and cash income of GBP25 million to 3i
-- Debt Management assets under management now GBP7.5 billion as the team raised GBP0.8 billion of new assets from one new CLO in Europe and one new CLO in the US and launched the Global Income Fund
-- Efficient operating platform supported operating cash profit of GBP17 million
-- Well funded balance sheet with net debt of only GBP12 million
-- Interim dividend of 6.0 pence per share and expect to pay a full year dividend of at least 15 pence
per share
Simon Borrows, 3i's Chief Executive, commented:
"We have completed another solid half year with each business making important progress. The macro and market environment has clearly deteriorated over the course of this year and the steps we have taken since 2012 to create a more resilient business are proving their value.
We are enjoying good momentum across 3i and anticipate that the current environment will, over time, create attractive opportunities and we have the people, financial resources and agility to take advantage of them."
Financial highlights
Six months to/as Six months to/as Year to/as at at 30 September at 30 September 31 March 2015 2014 2015 ================================================ ================= ================= ============== Group Total return GBP168m GBP234m GBP659m Total return on opening shareholders' funds 4.4% 7.1% 19.9% Dividend per ordinary share 6.0p 6.0p 20.0p Operating expenses GBP63m GBP63m GBP131m As a percentage of assets under management(1) 0.9% 1.0% 1.0% Operating cash profit GBP17m GBP16m GBP28m ================================================ ================= ================= ============== Proprietary Capital Realisation proceeds GBP359m GBP324m GBP841m Uplift over opening book value(2) GBP29m/9% GBP36m/15% GBP145m/27% Money multiple 1.7x 1.8x 2.0x Gross investment return GBP272m GBP297m GBP805m As a percentage of opening 3i portfolio value 7.0% 8.3% 22.6% Operating profit (3) GBP204m GBP262m GBP721m Cash investment GBP294m GBP199m GBP474m 3i portfolio value GBP4,037m GBP3,672m GBP3,877m Gross debt GBP819m GBP831m GBP815m Net (debt)/cash GBP(12)m GBP(161)m GBP49m Gearing 0.3% 5% nil Liquidity GBP1,157m GBP1,020m GBP1,214m Net asset value GBP3,851m GBP3,426m GBP3,806m Diluted net asset value per ordinary share 401p 358p 396p ================================================ ================= ================= ============== Fund Management Total assets under management GBP13,469m GBP12,923m GBP13,474m Third-party capital GBP10,143m GBP9,566m GBP10,140m Proportion of third-party capital 75% 74% 75% Total fee income GBP58m GBP63m GBP125m Third-party fee income GBP37m GBP41m GBP80m Operating profit(3) GBP10m GBP13m GBP26m Underlying Fund Management profit(3,4) GBP13m GBP16m GBP33m Underlying Fund Management margin 22% 26% 26% =============================================== ================= ================= ============== 1 Annualised actual operating expenses, excluding restructuring costs of nil (September 2014: nil, March 2015: GBP1 million), as a percentage of weighted average assets under management. 2 Uplift over opening book value excludes refinancings. The September 2014 balance has been restated from GBP35 million to GBP36 million to exclude refinancings. 3 Operating profit for the Proprietary Capital and Fund Management activities excludes carried interest and performance fees payable/ receivable, which is not allocated between these activities. 4 Excludes Fund Management restructuring costs of nil (September 2014: nil, March 2015: GBP1 million) and amortisation costs of GBP3 million (September 2014: GBP3 million, March 2015: GBP6 million).
- ends -
For further information, please contact:
Silvia Santoro, Investor Relations Tel: 020 7975 Director 3258 Kathryn van der Kroft, Communications Tel: 020 7975 Director 3021
For further information regarding the announcement of 3i's Half-yearly results to 30 September 2015, including a live videocast of the results presentation at 10.00am (registration from 9.00am), please visit www.3i.com
Notes to editors
3i is a leading international investment manager focused on mid-market Private Equity, Infrastructure and Debt Management. Our core investment markets are northern Europe and North America. For further information, please visit: www.3i.com.
Notes to the announcement of the Half-yearly results
Note 1
All of the financial data in this announcement is taken from the Investment basis financial statements. This Half-yearly report has been prepared solely to provide information to shareholders. It should not be relied on by any other party or for any other purpose.
The financial information for the year ended 31 March 2015 contained within this announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The statutory accounts for the year to 31 March 2015, prepared under IFRS, have been reported on by Ernst and Young LLP and delivered to the Registrar of Companies. The report of the Auditor on these statutory accounts was unqualified and did not contain a statement under section 498(2) or section 498(3) of the Companies Act 2006.
Note 2
A pdf of the 3i Group plc Half-yearly report 2015 will be available on our website www.3i.com and is also attached below.
http://www.rns-pdf.londonstockexchange.com/rns/4327F_1-2015-11-11.pdf
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
The interim dividend is expected to be paid on 6 January 2016 to holders of ordinary shares on the register on 11 December 2015.
Disclaimer
The Half-yearly report has been prepared solely to provide information to shareholders. It should not be relied on by any other party or for any other purpose.
The Half-yearly report 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.
Basis
The numbers and commentary in the Overview and Interim management report reflects the Investment basis rather than IFRS. Detail on the differences and a reconciliation is included in the Reconciliation of the Investment basis to IFRS. The key measures of total return on equity and NAV are the same under both bases.
For definitions of our financial terms, used throughout this report, please see our glossary.
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November 12, 2015 02:01 ET (07:01 GMT)
We have enhanced the Half-yearly report to concentrate on those events and transactions that are significant to an understanding of 3i's financial performance in the period since the Annual report and accounts 2015. As a result the commentary has been streamlined to remove duplication and a number of Notes on the Financial Statements have been refined or deleted to focus on information that is material to this Half-yearly report.
Total return for the six months to 30 September 2015
Six months to Six months to 12 months to 30 September 30 September 31 March 2015 2014 2015 Investment basis GBPm GBPm GBPm --------------------------------------------------------------------- -------------- -------------- ------------- Realised profits over value on disposal of investments 29 35 162 Unrealised profits on revaluation of investments 167 307 684 Portfolio income Dividends 36 21 45 Income from loans and receivables 28 30 62 Fees receivable 5 2 6 Foreign exchange on investments 7 (98) (154) --------------------------------------------------------------------- -------------- -------------- ------------- Gross investment return 272 297 805 Fees receivable from external funds 37 41 80 Operating expenses (63) (63) (131) Interest receivable 2 1 3 Interest payable (24) (26) (49) Movement in the fair value of derivatives - (1) (1) Exchange movements (10) 25 40 Other income - 1 - --------------------------------------------------------------------- -------------- -------------- ------------- Operating profit before carry 214 275 747 Carried interest Carried interest and performance fees receivable from external funds (3) 19 80 Carried interest and performance fees payable (39) (45) (142) Acquisition related earn-out charges (4) (5) (8) --------------------------------------------------------------------- -------------- -------------- ------------- Operating profit 168 244 677 Income taxes 1 (3) (4) Re-measurements of defined benefit plans (1) (7) (14) --------------------------------------------------------------------- -------------- -------------- ------------- Total comprehensive income ("Total return") 168 234 659 --------------------------------------------------------------------- -------------- -------------- ------------- Total return on opening shareholders' funds 4.4% 7.1% 19.9% --------------------------------------------------------------------- -------------- -------------- -------------
OVERVIEW
Performance highlights
for the six months to 30 September 2015
Total RETURN ON EQUITY Assets under Management ("AUM") operating cash profit GBP13.5bn 4.4% GBP17m The solid performance across all AUM remained stable as the Cash income increased by 1% to GBP80 three businesses, despite the market fundraising activity in Debt million due to distributions from CLO volatility seen in our Management was offset by net equity and dividend second quarter, demonstrates the divestment income in Private Equity. Group's commercial and financial in resilience and Private Equity. Operating expenses remain well competitive positioning. controlled at less than 1% of AUM. -------------------------------------- -------------------------------------- -------------------------------------- Private Equity Infrastructure Debt Management realisation proceeds GBP307m NEW AUM raised GBP773m operating cash income GBP25m cash invested GBP208m fee income GBP17m Special dividend GBP51m Private Equity remained net divestors Ordinary dividends and advisory fees Debt Management closed two CLOs in in the first half as they continued resulted in GBP25 million of cash the first to focus on reducing income for 3i. half and launched the Global Income the number of companies in the Fund. portfolio. AUM increased to The Group also received a GBP51 GBP7.5 billion. The team completed two new million special dividend from 3i investments in our core industrials Infrastructure plc ("3iN") Good levels of income were generated sector in Europe, where our following the sale of Eversholt Rail from CLO distributions and fund expertise and network can create which has been recognised as realised management activities. longer term value. proceeds. -------------------------------------- -------------------------------------- --------------------------------------
Chairman's statement
"3i remains well positioned and reported a resilient performance in the first half despite the volatile economic environment"
Simon Thompson, Chairman
11 November 2015
Introduction
This is my first report to you since succeeding Sir Adrian Montague as Chairman at the Annual General Meeting in June 2015. Over the past few months, I have acquainted myself with both the 3i team and its shareholders. My first impressions are that 3i is well positioned in its chosen geographies and sectors with a distinct and well established strategy to deliver shareholder value. In this highly competitive and volatile market, I believe that 3i has both the financial and commercial strength to maximise the opportunities available to it.
Performance
Our performance in the first half of our financial year was resilient. The market environment has been characterised by reduced investor confidence as a result of uncertainties in the Eurozone, the impact of depressed commodity prices and concerns about the growth outlook for China and other emerging markets. While we are not immune to these developments, we are seeing the benefit of the strategic decision to reduce our presence in Asia and South America and to focus on our core sectors in northern Europe and North America.
Dividend
Our distribution policy is designed to give shareholders a direct share in the success of the Group's divestment activity. We made good progress on realisations in the first half and generated proceeds of GBP359 million. We also increased our investment activity but have announced a total interim dividend of 6.0 pence per share (September 2014: 6.0 pence per share) in recognition of the robust financial performance and the Board's confidence in the Group's longer term prospects. The dividend comprises of a base dividend of 2.7 pence (one third of our annual base dividend) and 3.3 pence of additional dividend.
BOARD CHANGES
As announced in October 2015, Alistair Cox retired as a Director of 3i on 10 November 2015, having served on the Board for six years. We thank him for his valued contribution to the Group.
Peter Grosch was appointed as a non-executive Director on 1 November 2015. He brings directly relevant geographic and sector experience as a director or supervisory board member of a number of private and public companies as well as being chairman of Euro-Diesel, a 3i investee company.
Outlook
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November 12, 2015 02:01 ET (07:01 GMT)
The macro-economic and geo-political landscape continues to be challenging and investor confidence is fragile. The outlook for growth is uncertain in many parts of the world, including the Eurozone and China, and this is resulting in volatility across financial markets. Given this context, we will remain cautious and disciplined in our investment approach, and focused on enhancing the value of our portfolio of investments, while supporting the continued development of our fund management activity.
Chief Executive's statement
"Another solid half year for 3i with each business making important progress"
Simon Borrows, Chief Executive
11 November 2015
Introduction
We have completed another solid half year with each business making important progress, underpinned by the sound fundamentals created from our restructuring in 2012.
The macro and market environment has clearly deteriorated over the course of this year but 3i is now well-placed to operate with resilience and capitalise on the opportunities this part of the cycle will create. Today, the Group benefits from a strong balance sheet, a portfolio of Private Equity investments with good earnings growth and capable investment teams working within disciplined investment processes.
Robust first half performance
3i generated a total return on shareholders' funds of 4.4% (September 2014: 7.1%) and a NAV per share of 401 pence (31 March 2015: 396 pence) after accounting for the payment of the 14 pence final dividend in July 2015. This performance was underpinned by continued strong earnings growth in the Private Equity portfolio and supported by good levels of dividend and fee income from Infrastructure and Debt Management. We continued to reduce the number of companies in our portfolio by realising smaller non-core assets early in the period. Realisation proceeds also benefited from a special dividend from 3iN following the sale of Eversholt Rail. In line with our policy, and in recognition of our confidence in our longer term prospects, we are announcing a 6.0 pence dividend which is comprised of one third of our base dividend (2.7 pence) and an additional dividend of 3.3 pence.
Business review
In Private Equity, the team delivered another good performance and generated a gross investment return of GBP246 million, or 8% on opening value (September 2014: GBP282 million, 10%). This was due to strong performances from a number of our larger assets, as evidenced by weighted average earnings growth, including the benefit of portfolio acquisitions, of 19% (31 March 2015: 19%) and 14% excluding Action (31 March 2015: 16%). Action delivered robust like for like earnings growth and made good progress with its international expansion plans, opening over 80 new stores in the calendar year to date. It announced the appointment of a new CEO and CFO to lead the business in the next stage of its strategic journey and is well set for a strong finish to its current financial year. Elsewhere in the portfolio, Element Materials Technology's performance benefited from a number of strategic acquisitions and Scandlines' valuation increased due to both strong trading and the expectation of further delays in the proposed competing fixed tunnel link.
In addition to the resilient performance of our existing investments, the flow of realisations has continued. A generally constructive market in the first quarter allowed us to dispose of some of our older, more challenged assets; this included the completion of some significant turnarounds. At their valuation low points, Azelis and Labco were held at GBP14 million and GBP24 million respectively; we received proceeds of GBP63 million and GBP42 million for each and freed up valuable investment team time to focus on origination and our newer investments. We achieved 9 complete exits and, in total, received proceeds of GBP307 million (September 2014: GBP316 million) from a combination of asset sales and an IPO. We recorded profits of GBP26 million, at an uplift of 9%. This uplift reflects the weight of realisations early in the first half. GBP71 million of the proceeds came from the quoted portfolio, where we have taken advantage of opportunities to sell down tranches of Quintiles.
We are making good progress with new investments. We completed two new transactions, Weener Plastic Packaging Group ("Weener Plastic") and Euro-Diesel, in our core industrials sector at sensible prices, as well as a further investment in GIF through the buyout of the founding family. At 30 September 2015, we had reduced the portfolio to 53 companies and 5 quoted holdings and the team continues to work on a busy pipeline of promising investment opportunities.
Our sector and geographic focus since the 2012 restructuring has limited the negative impact from the current broader geo-political and economic conditions. The impact of the lower oil price on the wider energy sector has had the most notable impact on JMJ, a leading safety management consultancy with a particular focus on major capital projects for the oil and gas industry. It has been very proactive in reducing its cost base to counter the impact of the falling oil price. Currency volatility created pressures in a small number of our portfolio companies, but the impact is limited to date.
Notwithstanding the volatility in the global equity markets in the first half, and in our second quarter in particular, the weighted average post discount EBITDA multiple increased to 10.7x (31 March 2015: 10.5x) reflecting the increased weighting of our higher rated assets. There was no change to the multiple used to value Action (post discount 13.5x) and, excluding Action, the average increased marginally to 9.4x (31 March 2015: 9.3x). Notably, we increased the multiple used to value Basic-Fit from 9.5x to 10.5x post discount to recognise the growth potential of this asset, as it upgrades its existing gyms and opens new ones. More generally, our policy of adjusting multiples as equity markets increased throughout the prior year, to reflect both our longer term view of cross-cycle sector values and our exit plans, meant our portfolio valuation was less impacted by the recent volatility than it might otherwise have been. The net effect of all the multiple changes was a value reduction of GBP24 million (September 2014: GBP13 million gain) and this was more than compensated for by the GBP171 million improvement in performance (September 2014: GBP209 million). Overall, our Private Equity portfolio companies remain well positioned in their chosen markets. This reflects our methodical and disciplined investment approach and the increased weight of our portfolio towards its stronger assets.
The Infrastructure team has been proactive in the origination of new investment opportunities. Against a backdrop of intense competition for infrastructure assets, and particularly for large core economic infrastructure businesses, the team has also shaped its investment focus towards mid-market economic infrastructure businesses and primary PPP and low-risk energy projects, which offer more attractive risk-adjusted returns in line with 3iN's target. The team is focused on sourcing opportunities in these areas and the early signs are encouraging.
Infrastructure had a good first half and contributed a gross investment return of GBP23 million, or 4% (September 2014: GBP22 million, 5%). The European portfolio continues to perform well and underpins the good levels of cash income for 3i.
3iN performed well in the period and reported a 7% total shareholder return for the six months to 30 September 2015 following a well received annual results announcement which included updated return targets. In line with its focus on mid-market infrastructure, PPP and low-risk energy sectors, the team announced the completion of three new investments (two further terminals alongside Oiltanking, ESVAGT and the West of Duddon Sands Offshore Transmission Owner) totalling GBP187 million. In its recent interim announcement, 3iN also recorded a good unrealised value uplift from its attractive portfolio of economic European assets with a notable increase in the valuation of its investment in Elenia, a Finnish energy distribution company.
3iN's positive performance was partially offset by the weaker performance of the India Infrastructure Fund, in which 3i also has a direct interest, which was valued at GBP54 million at 30 September 2015 (31 March 2015: GBP64 million). The valuation of this portfolio remains subject to rupee weakness as well as specific macro-economic issues impacting assets with exposure to the road and power sectors in India.
We continue to see good levels of fundraising activity in our Debt Management business although recent market volatility, particularly in the US, has resulted in a general reduction in investor appetite for CLOs. However, as a result of our strong investor relationships we had an active six months and grew AUM in our core CLO offering, closing one EUR413 million CLO in Europe and a US$511 million CLO in the US. Our investment in CLOs generated strong cash distributions (GBP14 million, September 2014: GBP6 million). The effect of these distributions, together with some market volatility, particularly in the US, reduced the mark to market valuation of our existing CLOs (GBP18 million reduction in the first half, September 2014: GBP10 million).
The team also made important progress in diversifying the business and launched an open ended senior debt fund, the Global Income Fund, with US$75 million of seed money from 3i. The US Senior Loan Fund outperformed its benchmarks in the period, helping to attract investors. In total, Debt Management generated GBP17 million of fee income, a slight decrease on the prior period's income of GBP18 million due to the timing of the new AUM raising, and increased assets under management to GBP7.5 billion (31 March 2015: GBP7.2 billion).
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We remain focused on fund management profitability and operating cash profit as measures to ensure cost discipline and operating expenses remained stable at GBP63 million in the first half (September 2014: GBP63 million). Due to improved distributions from CLO equity and a dividend from Scandlines, cash income increased by 1% to GBP80 million (September 2014: GBP79 million) and, as a result, operating cash profit increased in the period to GBP17 million (September 2014: GBP16 million). This focus is all the more important as Private Equity management fee income will continue to decline as we realise investments made in Eurofund V ("EFV") and fund new Private Equity investments with proprietary capital, rather than initiating a new Private Equity fundraising, in the short to medium term.
As well as selective recruitment of experienced investment professionals across the business, we launched a graduate recruitment programme in 2014 to start developing our own investment professionals and business leaders. A number of exceptional candidates applied and our first cohort joined the Group in September 2015.
Continuing to deliver value for investors
Our three-year transformation programme, which completed in March 2015, created a more resilient business both commercially and financially. The cornerstones of that programme, namely our emphasis on disciplined asset management, cash generation, cost control and fund management margins remain as relevant now as they were in June 2012. We remain committed to executing this strategy through our three diverse, yet complementary, business lines, as we believe this represents a differentiated and attractive value proposition that generates capital return and fund management income.
In Private Equity, we have an investment team with a proven ability to develop businesses internationally and drive operational efficiencies. Monetary policy over the last few years has contributed to large amounts of both equity and debt capital chasing a limited supply of investment opportunities and, in this environment, our principal constraint is our ability to source assets at appropriate prices. We intend to commit EUR500 million - EUR750 million of proprietary capital in four to seven investments per year subject to available opportunity and attractive pricing. However, as we start to observe a change in the cycle, we are finding more investment opportunities to consider and in the first half we announced and completed two investments totalling EUR272 million.
As we reduce the number of more challenged assets in our portfolio, the contribution to realisations from our stronger, core assets will increase in significance. High quality assets are less dependent on general market sentiment to generate good realisation proceeds but are necessarily less frequent and individually more material. The structured approach to exit plans implemented in 2012 allows us to anticipate this and plan accordingly.
Our Fund Management profitability objectives are driven by Infrastructure and Debt Management. In line with our strategy to grow Infrastructure's contribution to our Fund Management profits, we continue to leverage 3i's partnerships and broader investor network to originate new investments. Since the sale of Eversholt Rail, the team has made new investments of GBP187 million. In addition, the team's engaged asset management approach is driving increased value in 3iN's existing European portfolio.
Debt Management is well placed to manage regulatory changes in Europe and the US, as our proprietary capital allows us to support the establishment of our CLO vehicles and the team continues to have success in its fundraising activities. The changing regulatory landscape is having an impact on business models and the structure of vehicles that support CLOs, and 3i continues to monitor and adapt to these changes where appropriate. We are also continuing to diversify our product offering to address investor appetite for alternative debt products.
Our clear and consistent strategy is designed to deliver a robust performance across all three of our business lines. This is underpinned by our core investment capabilities across our chosen geographic and business sectors which allow us to evaluate and take risk-based decisions. Our strong balance sheet and efficient investment platform ensure this value creation is not diluted and returns can be distributed to shareholders or reinvested into new assets.
Outlook
The second quarter of our first half was noted as one of the most volatile in markets since the financial crisis. Against that backdrop, the steps that 3i has taken since 2012 to create a significantly more resilient business are proving their value.
We currently enjoy good momentum across 3i and anticipate that the current environment will, over time, create attractive opportunities for the Group and we now have the people, financial resources and agility to take advantage of them.
Key Performance Indicators
GROSS INVESTMENT RETURN ("GIR") NET ASSET VALUE total shareholder return ("NAV") ("TSR") ----------------------------------------------------------------------------------- --------------------------------------------------- ------------------------------------------------------------------- % of opening portfolio value NAV per share (pence) % ----------------------------------------------------------------------------------- --------------------------------------------------- ------------------------------------------------------------------- Financial year/Half year Financial year/Half year Financial year/Half year ----------------------------------------------------------------------------------- --------------------------------------------------- ------------------------------------------------------------------- FY2014 FY2015 HY2015 HY2016 FY2014 HY2015 FY2015 HY2016 FY2014 FY2015 HY2015 HY2016 ==================== ==================== ==================== ================= =========== =========== =========== ============ ============= ========== ========== ========== ================ 20 23 8 7 348 358 396 401 Share price 26 22 (4) (4) ==================== ==================== ==================== ================= =========== =========== =========== ============ ============= ========== ========== ========== ================ Dividend 4 5 4 3 ---------------------------------------------------------------------------------------------------------------------------------------- ============= ========== ========== ========== ================ GIR is how we measure the performance of our portfolio of NAV is a measure of the fair value of our proprietary investments TSR measures the return to our shareholders through the change in proprietary investments after the net costs of operating share price and dividends the business paid during the period ------------------------------------------------------------------ -------------------------------------------------------------------- ------------------------------------------------------------------- HY2016 progress HY2016 progress HY2016 progress * GIR of 7% demonstrates the resilience of the * Good progression of NAV per share to 401p after * TSR reflects the decrease in the share price from portfolio despite the impact of wider macro-economic paying the FY2015 final dividend of 14p per share 482p at 31 March 2015 to 466p at 30 September 2015, conditions on equity markets and our own portfolio following the general softening of markets and the final FY2015 dividend of 14p paid in July 2015 * Strong value weighted earnings growth of 19%, * The direct valuation impact from exposure to the including acquisitions, in Private Equity energy and commodity sectors, China and emerging * Good progress on realisations and continued earnings markets and currency volatility limited to a small momentum in the proprietary capital portfolio number of Private Equity portfolio companies and the * Good contribution to value growth and portfolio US CLOs in Debt Management income from 3iN, partially offset by further value * Expect to pay a dividend of at least 15.0p in total
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loss in the India fund in light of the macro-economic and are paying an interim dividend of 6.0p per share challenges in the sector * Significant currency volatility intra-period but the period end NAV impact was flat * Good portfolio income contribution from Debt Management was offset by negative mark to market movements on the portfolio ------------------------------------------------------------------ -------------------------------------------------------------------- ------------------------------------------------------------------- Key risks Key risks Key risks * Investment rate or quality of investments is lower * G20 political and economic uncertainty affects 3i's * Lower NAV due to investment under-performance or than expected core markets, impacts valuations and increases political and economic uncertainty foreign exchange volatility * Subdued M&A activity or high pricing in 3i's core * Volatility in equity markets markets could impact the timing of exits, cash * Unplanned increase in cost base, eg due to regulatory returns and investments changes * Appeal of our business model * Operational underperformance of portfolio companies impacting earnings growth and valuations * Regulatory or legal change materially affecting one or more of the Group's businesses * Failure to invest in people to support our activities ------------------------------------------------------------------ -------------------------------------------------------------------- ------------------------------------------------------------------- ASSETS UNDER MANAGEMENT UNDERLYING FUND OPERATING CASH ("AUM") MANAGEMENT profit PROFIT --------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------------------ GBPbn Profit (GBPm) and Margin (%) GBPm --------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------------------ Financial year/Half year Financial year/Half year Financial year/Half year --------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------------------ FY2014 HY2015 FY2015 HY2016 FY2014 FY2015 HY2015 HY2016 FY2014 FY2015 HY2015 HY2016 ================ ========== ========= ========= ================= =========== =========== =========== =========== ================ ================= ================= ================= ========= AUM 12.9 12.9 13.5 13.5 Profit 33 33 16 13 5 28 16 17 ================ ========== ========= ========= ================= =========== =========== =========== =========== ================ ================= ================= ================= ========= Proprietary Capital 3.4 3.3 3.3 3.3 Margin 26% 26% 26% 22% ================ ========== ========= ========= ================= =========== =========== =========== =========== ================ ================================================================== Third-party Capital 9.5 9.6 10.2 10.2 ================ ========== ========= ========= ================= ==================================================================== ================================================================== AUM forms the basis on which management fee income is generated. For Underlying Fund Management profit allows us to assess the Covering the annual cost of running our business with the annual funds out of their re-investment performance of our Fund Management cash income eliminates capital period, this is measured at residual cost business return dilution --------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------------------ HY2016 progress HY2016 progress HY2016 progress * Debt Management raised two new CLOs, as well as a * Underlying Fund Management profit and margin movement * Good progress in maintaining a positive operating US$150 million Global Income Fund which contributed reflects Private Equity divestment in managed funds cash profit to the new AUM of GBP0.8 billion and our decision to focus on proprietary capital rather than third-party funds in Private Equity * All three business lines contributed to cash income, * Total AUM was flat at GBP13.5 billion following net which increased to GBP80 million due to CLO equity divestment in Private Equity and Infrastructure * Operating expenses continue to be well managed and distributions and dividends from the Private Equity were less than 1% of AUM portfolio * Proprietary Capital AUM was flat at GBP3.3 billion, as the good flow of Private Equity realisations was * 3iN special dividend treated as a realisation and not largely replaced with new investments included in operating cash income * We remain disciplined on operating expenses, which were flat at GBP63 million --------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------------------ Key risks Key risks Key risks * Portfolio performance is weak or impacted by a legal, * G20 political and economic uncertainty affects * Portfolio performance, and therefore portfolio income, macro-economic/political and/or regulatory event investment opportunity or fundraising appetite is weak due to operational underperformance * Regulatory change limits 3i's ability to raise * Adverse fluctuations in financial markets impact our * Unplanned increase in cost base eg due to regulatory third-party capital fee-based businesses changes * Regulatory change adds to 3i's cost base --------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------------------------
INTERIM MANAGEMENT REPORT
Business review
PRIVATE EQUITY
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Private Equity delivered a good performance in the first half. Although market volatility was a feature of the period, its direct impact was limited to a small number of assets and the underlying strength and performance of our larger assets is demonstrated by the 19% increase in weighted average earnings (including the benefit of portfolio acquisitions) in the last twelve months. The gross investment return for the period was GBP246 million, or 8% on the opening portfolio (September 2014: GBP282 million, 10%).
Investment activity
The momentum seen in FY2015 continued, as the disposal of a number of our more challenging assets over the last three years allowed the investment teams to focus more of their activity on origination.
The Private Equity team invested in two new businesses in our core industrial sector in the period: Weener Plastic and Euro-Diesel. Headquartered in Germany, Weener Plastic designs, develops and manufactures added value caps, closures, roll-on balls, jars and bottles for a number of markets. We initially invested EUR251 million of proprietary capital and then set up a co-investment arrangement with a third-party investor to fund EUR50 million of our commitment. Euro-Diesel is a leading provider of diesel rotary uninterruptable power supply systems, based in Belgium, in which we invested EUR71 million of proprietary capital.
In both cases we had been working with the management teams and our Business Leaders Network for a significant amount of time before the respective sales processes started. Having stepped back from both processes, we were able to re-join after they failed to complete and secured the investments at good prices. 3i will use its network to support both businesses in the acceleration of their international expansion plans and maximise their operational efficiency. In addition to these new investments, we also took the opportunity to purchase a minority stake in GIF (2013 investment) from the founding family.
Table 1: Cash investment in the six months to 30 September 2015
Proprietary Total Capital investment investment Investment Type Business description Date GBPm GBPm ---------------- --------- ---------------------------------------------------- -------- ----------- ------------ Manufacturer of innovative plastic packaging Weener Plastic New systems Aug 15 183 144 Manufacturer of uninterruptible power supply Euro-Diesel New systems Sep 15 53 52 GIF Further International transmission testing specialist Aug 15 12 11 Other Further n/a n/a (1) 1 ---------------- --------- ---------------------------------------------------- -------- ----------- ------------ Total Private Equity investment 247 208 --------------------------------------------------------------------------------- -------- ----------- ------------
Realisations activity
Market conditions were favourable in the first half of the 2015 calendar year, enabling us to continue to dispose of a number of smaller non-core assets through both sales and an IPO.
We took advantage of opportunities to sell down one of our quoted investments. We disposed of two tranches of our holding in Quintiles, realising proceeds of GBP53 million. We also completed a successful IPO of UFO Moviez, realising GBP17 million. In total we received cash proceeds of GBP307 million (September 2014: GBP316 million) at an uplift of 9% over opening portfolio value (September 2014: 15%). The relatively small uplift reflects the fact that a number of assets were held on an imminent sales basis at 31 March 2015, or were from the quoted portfolio.
At 30 September 2015, there were 53 assets in the portfolio and 5 stakes in listed companies, down from 61 assets and 4 quoted stakes at 31 March 2015, and we remain on track to meet our longer term objective of holding fewer than 40 Private Equity investments.
Table 2: Realisations in the six months to 30 September 2015
31 March 3i Profit/(loss) Uplift Money on Calendar 2015 realised in the opening Residual multiple Country/ year value(1) proceeds period(2) value(2) value over Investment region invested GBPm GBPm GBPm % GBPm cost(3) IRR -------------- ----------- ----------- ----------- --------- -------------- --------- --------- --------- ------ Full realisations Azelis Benelux 2007 62 63 1 2% - 1.1x 1% Labco France 2008 36 42 6 17% - 0.7x (6)% Touchtunes USA 2011 39 38 1 3% 2 2.2x 23% Soyaconcept Nordic 2007 16 17 nil -% - 2.0x 13% Boomerang Spain 2008 7 11 4 57% - 0.6x (8)% Inspecta Nordic 2007 6 6 1 20% - 0.1x (40)% Other investments n/a n/a 4 7 3 n/a - n/a n/a Partial realisations(1,3) Quintiles USA 2008 50 53 3 6% 93 3.1x 24% Denmark/ Scandlines Germany 2007 38 38 nil -% 257 2.4x 25% UFO Moviez India 2007 14 17 3 21% 16 2.8x 16% Other investments n/a n/a 9 11 2 n/a 104 n/a n/a Deferred consideration Other investments n/a n/a 2 4 2 n/a n/a n/a n/a -------------- ----------- ----------- ----------- --------- -------------- --------- --------- --------- ------ Total Private Equity realisations 283 307 26 9% 472 1.6x n/a --------------- ----------------------- ----------- --------- -------------- --------- --------- --------- ------ For partial realisations, 31 March 2015 value represents value of stake 1 sold. 2 Cash proceeds in the period over opening value realised. 3 Cash proceeds over cash invested. For partial realisations and recapitalisations, valuations of any remaining investment are included in the multiple.
Assets under management
Total AUM decreased to GBP3.6 billion during the period (31 March 2015: GBP3.8 billion). The performance of EFV and the Growth Capital Fund continued to improve, with money multiples at 30 September 2015 of 1.5x and 1.8x respectively (31 March 2015: 1.4x, 1.7x). The Growth Capital Fund in particular benefited from the realisation of Labco and further quoted disposals of Quintiles. The investments made in EFV's 2010-2012 investment period, continue to show a particularly strong performance, with a money multiple of 2.8x at 30 September 2015 (31 March 2015: 2.6x), driven by the strong performance of Action, Element and Amor/Christ in particular.
Table 3: Assets under management at 30 September 2015
Remaining Gross Fee income 3i % money received commitment(1) invested multiple(2) in the Close Original Original 3i September September September period Private date fund size commitment Equity 2015 2015 2015 AUM GBPm -------------- --------- ---------- ------------ -------------- ---------- ------------ ---------- ----------- 3i Growth Capital Fund Mar 10 EUR1,192m EUR800m EUR346m 53% 1.8x EUR277m 1 3i Eurofund V Nov 06 EUR5,000m EUR2,780m EUR114m 94% 1.5x EUR1,968m 5 3i Eurofund IV Jun 04 EUR3,067m EUR1,941m EUR82m 95% 2.3x EUR487m - Other Various Various Various n/a n/a n/a GBP1,332m - -------------- --------- ---------- ------------ -------------- ---------- ------------ ---------- ----------- Total Private Equity AUM GBP3,598m 6 ------------------------- ---------- ------------ -------------- ---------- ------------ ---------- -----------
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1 All funds are beyond their investment period. 2 Gross money multiple is the cash returned to the fund plus remaining value as at 30 September 2015, as a multiple of cash invested.
outlook
The team made good progress in sourcing and completing new investment opportunities in the first half but will remain disciplined and selective in their approach. On the divestment side, it is likely that more realisations will come from our stronger investments, given the significant progress we have made to date in reshaping and streamlining the portfolio.
INFRASTRUCTURE
Infrastructure continued to make good progress and contributed a gross investment return of GBP23 million, or 4% on the opening portfolio (September 2014: GBP22 million, 5%). The performance of the underlying assets underpinned a good level of cash income to 3i, from both dividends and fee income from 3iN and other infrastructure funds managed by the team.
Investment adviser
In its capacity as investment adviser to 3iN, the team advised on three new investments totalling GBP187 million in the mid-market economic infrastructure and low-risk energy sectors. There is a good pipeline of investment opportunities but, given the competition in the sector, the team remains focused on sourcing assets that can generate returns for 3iN in line with its return targets.
3iN's underlying European portfolio continues to perform well and it has an attractive collection of economic infrastructure assets. In particular, the portfolio valuation has benefited from an improved regulatory environment and performance in Elenia, an electricity distribution and heating company based in Finland.
Under the terms of the advisory agreements, we received an advisory fee of GBP8 million (September 2014: GBP7 million).
3iN performance
In addition to its role as investment adviser, 3i holds a 34% (31 March 2015: 34%) stake in 3iN. 3iN continued to perform well in the period and the share price increased by a respectable 4% to 167 pence at 30 September 2015 (31 March 2015: 160 pence). The underlying uplift in 3iN's performance was driven by value growth across its core economic infrastructure portfolio, supported by the continued returns compression and the competitive market environment for large economic infrastructure.
3i's investment in 3iN contributed GBP19 million of value growth (September 2014: GBP17 million) and GBP11 million of dividend income (September 2014: GBP10 million). In July 2015, 3iN also paid a GBP150 million special dividend to shareholders, generated from its sale of Eversholt Rail. 3i's share of the special dividend, GBP51 million, was treated as realised proceeds.
Assets under management
The Infrastructure AUM decreased to GBP2.4 billion (31 March 2015: GBP2.5 billion) principally due to the payment of the special dividend from 3iN. In addition, the performance of the assets in the India Infrastructure Fund remains subject to economic pressures, with the power and road assets particularly affected. This, together with the ongoing depreciation in the value of the rupee resulted in a GBP9 million reduction in the value of 3i's share of the Indian portfolio to GBP54 million (31 March 2015: GBP64 million).
Table 4: Assets under management at 30 September 2015
Remaining Gross Fee income 3i % money received commitment invested multiple(1) in the Original Original 3i September September September period Close date fund size commitment 2015 2015 2015 AUM GBPm ----------- ----------- ----------- ------------ ------------ ---------- ------------ ------------- ---------- 3iN Mar 07 n/a n/a n/a n/a n/a GBP1,192m(2) 8 India fund Mar 08 US$1,195m US$250m US$36m 73% 0.5x US$584m(3) 2 BIIF May 08 GBP680m n/a n/a 90% n/a GBP592m 2 BEIF II July 06 GBP280m n/a n/a 97% 1.1x GBP98m 1 Other Various Various Various n/a n/a n/a GBP143m 1 ----------- ----------- ----------- ------------ ------------ ---------- ------------ ------------- ---------- Total Infrastructure AUM GBP2,377m 14 ------------------------ ------------------------------------- ---------- ------------ ------------- ---------- 1 Gross money multiple is the cash returned to the fund plus remaining value as at 30 September 2015, as a multiple of cash invested. 2 Based on latest published NAV (ex-dividend). 3 Adjusted to reflect 3iN's US$250 million share of the fund.
outlook
The team remains busy as it focuses on new investment opportunities in mid-market infrastructure, greenfield PPP and low-risk energy projects. We have made a number of senior hires, including a new origination partner, to support the strategic development and momentum of the business.
DEBT MANAGEMENT
We had another good period of fund-raising, closing two new CLOs and launching a new US$150 million Global Income Fund. AUM increased to GBP7.5 billion at 30 September 2015 (31 March 2015: GBP7.2 billion) as the GBP773 million of new AUM raised and favourable foreign exchange movements more than offset the run-off of older funds.
Fundraising activity
Debt Management has made good progress in generating AUM in the first half as the cash yield generated by CLO funds remained attractive. The team closed one CLO in Europe, Harvest XII, and one in the US, Jamestown VII, raising a total of GBP625 million new CLO AUM in the first half. In addition, we continue to operate CLO warehouse vehicles in both Europe and the US ahead of establishing new CLOs. There was significant volatility in August and September 2015 and, overall, the CLO market activity is below the peak seen in 2014 in the US in particular and transactions are taking longer to close in Europe.
In addition to our CLO offerings and following on from the successful launch of the European Middle Market Loan Fund, we continued to diversify our product offering and launched a new Global Income Fund with US$75 million of seed capital from 3i. The fund is an open ended senior debt fund that invests across the US and Europe and, as at 30 September 2015, had US$171 million under management. The US Senior Loan Fund also continued to perform strongly, outperforming its benchmarks, and AUM increased to US$199 million (31 March 2015: US$157 million).
Table 6 details Debt Management AUM.
Proprietary Capital investment
For regulatory reasons, 3i is required to hold a minimum 5% stake in the European CLOs it manages. We also structure our US CLOs in anticipation of the implementation of similar risk retention rules in the US in December 2016. Our ability to comply with the European risk retention rules, and future US rules, is important as managers who can provide most or all of the equity to a new CLO, and demonstrate the ability to comply with the regulatory rules, are increasingly at a competitive advantage.
As long-term holders of CLO equity positions, our returns are driven by the cash flows to maturity. CLO equity distributions contributed GBP14 million (September 2014: GBP6 million) to operating cash profit and the IRRs are attractive. However, in the interim, our valuations were subject to the market volatility and we recognised a mark to market loss of GBP18 million (September 2014: GBP10 million) in the first half. This was due, in part, to the distributions but also a number of other factors, such as concerns about interest rate rises and the oil and gas sector.
In addition to the investments 3i makes in the CLOs for regulatory reasons, 3i is also the first loss investor in the warehouse facilities used to accumulate loans prior to the launch of a CLO. At 30 September 2015 the total invested by 3i in these facilities was GBP51 million.
Table 5: Cash investment in the six months to 30 September 2015
Total 3i investment Investment Type Date GBPm ------------------------ ----------------------------- --------- ----------- Harvest XII New European CLO Aug 15 15 Jamestown VII New US CLO Aug 15 15 Global Income Fund Open ended senior debt fund Jun 15 48 European warehouses(1) Warehouse Various 6 Other n/a Various 2 ------------------------ ----------------------------- --------- ----------- Total Debt Management investment 86 ------------------------------------------------------- --------- ----------- 1 Net of cash received back from warehouses on the successful close of a CLO.
Including the US$75 million seed capital contributed to the Global Income Fund, we had GBP249 million (31 March 2015: GBP176 million) of proprietary capital invested in the Debt Management business at 30 September 2015.
outlook
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In general, current market volatility is impacting investor appetite for new CLOs. However, our strong relationships mean we expect to close at least one US CLO and one European CLO before the end of the financial year.
Table 6: Assets under management at 30 September 2015
Realised Annualised Par value equity equity Fee income Closing Reinvestment Maturity of fund money cash received in date period end date at launch multiple(1) Yield(2,3,4) AUM(5) the period ------------ --------- -------------- ---------- ---------- ------------ ------------- ---------- ------------ European CLO funds Harvest CLO XII Aug 15 Aug 19 Aug 29 EUR413m n/a n/a EUR401m Harvest CLO XI Mar 15 Mar 19 Mar 29 EUR415m 0.0x 9.2% EUR400m Harvest CLO X Nov 14 Nov 18 Nov 28 EUR467m 0.1x 17.2% EUR451m Harvest CLO IX Jul 14 Aug 18 Aug 26 EUR525m 0.2x 19.8% EUR508m Harvest CLO VIII Mar 14 Apr 18 Apr 26 EUR425m 0.2x 16.5% EUR413m Harvest CLO VII Sep 13 Oct 17 Oct 25 EUR310m 0.2x 10.2% EUR301m Windmill CLO I Oct 07 Dec 14 Dec 29 EUR500m 0.7x 9.3% EUR433m Axius CLO Oct 07 Nov 13 Nov 23 EUR350m 0.7x 8.7% EUR202m Coniston CLO Aug 07 Jun 13 Jul 24 EUR409m 1.0x 12.7% EUR197m Harvest CLO V Apr 07 May 14 May 24 EUR632m 0.7x 8.8% EUR477m Garda CLO Feb 07 Apr 13 Apr 22 EUR358m 1.4x 16.8% EUR134m Pre 2007 CLOs n/a n/a n/a EUR3,111m n/a n/a EUR640m ------------ --------- -------------- ---------- ---------- ------------ ------------- ---------- ------------ GBP3,359m GBP9m ------------ --------- -------------- ---------- ---------- ------------ ------------- ---------- ------------ US CLO funds Jamestown Aug 15 Jul 19 Jul 27 US$511m n/a n/a US$500m CLO VII Jamestown CLO VI Feb 15 Feb 19 Feb 27 US$750m 0.1x 13.6% US$749m Jamestown CLO V Dec 14 Jan 19 Jan 27 US$411m 0.1x 19.6% US$392m Jamestown CLO IV Jun 14 Jul 18 Jul 26 US$618m 0.3x 20.4% US$589m COA Summit CLO Mar 14 Apr 15 Apr 23 US$416m 0.4x 27.0% US$362m Jamestown CLO III Dec 13 Jan 18 Jan 26 US$516m 0.3x 16.8% US$495m Jamestown CLO II Feb 13 Jan 17 Jan 25 US$510m 0.5x 19.6% US$497m Jamestown CLO I Nov 12 Nov 16 Nov 24 US$461m 0.5x 19.0% US$444m Fraser Sullivan CLO VII Apr 12 Apr 15 Apr 23 US$459m 0.7x 20.3% US$442m COA Caerus CLO Dec 07 Jan 15 Dec 19 US$240m 1.8x 23.8% US$182m Pre 2007 n/a n/a n/a US$500m n/a n/a US$136m CLOs ------------ --------- -------------- ---------- ---------- ------------ ------------- ---------- ------------ GBP3,158m GBP6m ------------ --------- -------------- ---------- ---------- ------------ ------------- ---------- ------------ Other funds Global Jul 15 n/a n/a n/a n/a n/a US$171m Income Fund EMMF Nov 14 Nov 17 Nov 22 n/a n/a n/a EUR259m Vintage II Nov 11 Sep 13 n/a US$400m 0.4x 1.6x US$192m Palace Street I Aug 11 n/a n/a n/a n/a n/a EUR15m Senior Loan Jul 09 n/a n/a n/a n/a 7.3% US$199m Fund COA Fund(6) Nov 07 n/a n/a n/a n/a (0.1)% US$46m Vintage I Mar 07 Mar 09 Jan 22 EUR500m 4.2x 6.7x EUR282m European warehouse vehicles n/a n/a n/a n/a n/a n/a EUR223m ------------ --------- -------------- ---------- ---------- ------------ ------------- ---------- ------------ GBP977m GBP2m ------------------------------------------------ ---------- ------------ ------------- ---------- ------------ Total Debt Management AUM GBP7,494m GBP17m --------------------------------------------------- ---------- ------------ ------------- ---------- ------------ 1 Multiple of total equity distributions over par value of equity at launch. 2 Average annualised returns since inception of CLOs calculated as annualised cash distributions over par value of equity. Excludes unrealised equity remaining in CLO. 3 Vintage I & II returns are shown as gross money multiple which is cash returned to the Fund plus residual value as at 30 September 2015, as a multiple of cash invested. 4 The annualised returns for the COA Fund and Senior Loan Fund are the annualised net returns of the Funds since inception. 5 Includes par value of assets and principal cash amount. 6 The COA Fund AUM excludes the market value of investments the fund has made in 3i US Debt Management CLO funds (US$39 million as at 30 September 2015).
Financial review
Against a volatile market backdrop, the Group delivered a solid result in the first half.
Table 7: Summary financial data under the Investment basis
Six months to/as Six months to/as 12 months to/as at 30 September at 30 September at 31 March Investment basis 2015 2014 2015 ------------------------------------------------ ----------------- ----------------- ---------------- Total return GBP168m GBP234m GBP659m Total return on opening shareholders' funds 4.4% 7.1% 19.9% Dividend per ordinary share 6.0p 6.0p 20.0p Operating expenses GBP63m GBP63m GBP131m As a percentage of assets under management(1) 0.9% 1.0% 1.0% Operating cash profit GBP17m GBP16m GBP28m ------------------------------------------------ ----------------- ----------------- ---------------- Proprietary Capital Realisation proceeds GBP359m GBP324m GBP841m Uplift over opening book value(2) GBP29m/9% GBP36m/15% GBP145m/27% Money multiple 1.7x 1.8x 2.0x Gross investment return GBP272m GBP297m GBP805m As a percentage of opening 3i portfolio value 7.0% 8.3% 22.6% Operating profit (3) GBP204m GBP262m GBP721m Cash investment GBP294m GBP199m GBP474m 3i Portfolio value GBP4,037m GBP3,672m GBP3,877m Gross debt GBP819m GBP831m GBP815m Net (debt)/cash GBP(12)m GBP(161)m GBP49m Gearing 0.3% 5% nil Liquidity GBP1,157m GBP1,020m GBP1,214m Net asset value GBP3,851m GBP3,426m GBP3,806m Diluted net asset value per ordinary share 401p 358p 396p ------------------------------------------------ ----------------- ----------------- ---------------- Fund Management Total assets under management GBP13,469m GBP12,923m GBP13,474m Third-party capital GBP10,143m GBP9,566m GBP10,140m Proportion of third-party capital 75% 74% 75% Total fee income GBP58m GBP63m GBP125m Third-party fee income GBP37m GBP41m GBP80m
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Operating profit(3) GBP10m GBP13m GBP26m Underlying Fund Management profit(3,4) GBP13m GBP16m GBP33m Underlying Fund Management margin 22% 26% 26% ----------------------------------------------- ----------------- ----------------- ---------------- 1 Annualised actual operating expenses, excluding restructuring costs of nil (September 2014: nil, March 2015: GBP1 million), as a percentage of weighted average assets under management. 2 Uplift over opening book value excludes refinancings. The September 2014 balance has been restated from GBP35 million to GBP36 million to exclude refinancings. 3 Operating profit for the Proprietary Capital and Fund Management activities excludes carried interest and performance fees payable/ receivable, which is not allocated between these activities. 4 Excludes Fund Management restructuring costs of nil (September 2014: nil, March 2015: GBP1 million) and amortisation costs of GBP3 million (September 2014: GBP3 million, March 2015: GBP6 million).
Basis
3i prepares its statutory financial statements in accordance with IFRS. The introduction of IFRS 10 in 2014 was important for investment companies, such as 3i, as the investment entity exception eliminated the risk of having to consolidate portfolio investments. However, as described in our Annual report and accounts 2015, we also report using a non-GAAP "Investment basis" as we believe it aids users of our report to assess the Group's underlying operating performance. Total return and net assets are the same under the Investment basis and IFRS and we provide more detail on IFRS 10, as well as a reconciliation of our Investment basis financial statements to the IFRS statements.
Total return
3i generated a total return of GBP168 million, or a profit on opening shareholders' funds of 4.4% (September 2014: GBP234 million or 7.1%) in the first half, despite challenging market conditions, demonstrating the financial and commercial resilience of the business after the completion of its three-year transformation programme. The Proprietary Capital business delivered a gross investment return of GBP272 million (September 2014: GBP297 million) and an operating profit before carry of GBP204 million (September 2014: GBP262 million) due to a robust performance in the underlying portfolio companies. Underlying Fund Management operating profit before carry was GBP13 million (September 2014: GBP16 million).
Table 8: Total return for the six months to 30 September 2015
Six months to Six months to 12 months to 30 September 30 September 31 March 2015 2014 2015 Investment basis GBPm GBPm GBPm --------------------------------------------------------------------- -------------- -------------- ------------- Realised profits over value on disposal of investments 29 35 162 Unrealised profits on revaluation of investments 167 307 684 Portfolio income Dividends 36 21 45 Income from loans and receivables 28 30 62 Fees receivable 5 2 6 Foreign exchange on investments 7 (98) (154) --------------------------------------------------------------------- -------------- -------------- ------------- Gross investment return 272 297 805 Fees receivable from external funds 37 41 80 Operating expenses (63) (63) (131) Interest receivable 2 1 3 Interest payable (24) (26) (49) Movement in the fair value of derivatives - (1) (1) Exchange movements (10) 25 40 Other income - 1 - --------------------------------------------------------------------- -------------- -------------- ------------- Operating profit before carry 214 275 747 Carried interest Carried interest and performance fees receivable from external funds (3) 19 80 Carried interest and performance fees payable (39) (45) (142) Acquisition related earn-out charges (4) (5) (8) --------------------------------------------------------------------- -------------- -------------- ------------- Operating profit 168 244 677 Income taxes 1 (3) (4) Re-measurements of defined benefit plans (1) (7) (14) --------------------------------------------------------------------- -------------- -------------- ------------- Total comprehensive income ("Total return") 168 234 659 --------------------------------------------------------------------- -------------- -------------- ------------- Total return on opening shareholders' funds 4.4% 7.1% 19.9% --------------------------------------------------------------------- -------------- -------------- -------------
Proprietary capital returns
The Proprietary Capital business delivered an operating profit before carry of GBP204 million (September 2014: GBP262 million) principally due to strong weighted average earnings growth, including portfolio acquisitions, of 19% (31 March 2015: 19%) in the Private Equity portfolio and positive contributions from the Infrastructure and Debt Management businesses.
By business line, the gross investment return on the opening portfolio was 8% from Private Equity (September 2014: 10%), 4% from Infrastructure (September 2014: 5%) and 2% from Debt Management (September 2014: loss of 5%). Private Equity accounted for 81% of the proprietary capital portfolio at 30 September 2015 (31 March 2015: 81%) and remains the primary driver of Proprietary Capital returns.
Realised profits
Continued exit momentum in the first half resulted in 3i realising profits on disposal of GBP29 million (September 2014: GBP35 million) and proceeds totalling GBP359 million (September 2014: GBP324 million). Realisations were achieved at an uplift over opening value of 9%, which was lower than prior periods due to a number of assets being valued on an imminent sales basis at the beginning of the year.
As in previous periods, the majority of the realisations were from the Private Equity portfolio, which contributed proceeds of GBP307 million (September 2014: GBP316 million), including GBP71 million from the sale of quoted assets (September 2014: GBP68 million). The Private Equity realisations completed in the period generated an average money multiple of 1.6x over their investment life. Further detail is provided in Table 2 of the Private Equity section.
3iN returned GBP51 million via a special dividend during the period, following the completion of its sale of Eversholt Rail, and this was treated as realised proceeds. This generated a realised profit of GBP3 million due to the increase in the 3iN share price up until the date the dividend was paid.
Unrealised value movements
The unrealised value movement of GBP167 million (September 2014: GBP307 million) was due predominantly to strong earnings growth in a number of our key Private Equity assets.
Table 9: Unrealised profits/(losses) on revaluation of investments for the six months to 30 September
2015 2014 GBPm GBPm ------------------------------------------ ----- ----- Private Equity Earnings based valuations Performance 171 209 Multiple movements (24) 13 Other bases Uplift to imminent sale - 34 Discounted Cash Flow 28 33 Other movements on unquoted investments 1 7 Quoted portfolio (2) 12 Infrastructure Quoted portfolio 15 15 Discounted Cash Flow (4) (6) Debt Management(1) (18) (10) ------------------------------------------ ----- ----- Total 167 307 ------------------------------------------ ----- -----
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1 Debt Management includes value movements on the subordinated debt stakes in CLOs and our fund vehicles.
Private Equity unrealised value growth
Performance
The performance category measures the impact of earnings and net debt movements for the portfolio companies valued on an earnings basis. In general, when valuing a portfolio investment on an earnings basis, the earnings used in the September valuations are the last 12 months' management accounts data to June, unless the current year forecast indicates a lower maintainable earnings level. Where appropriate, adjustments are made to earnings on a pro forma basis for acquisitions, disposals and non-recurring items. In the case of Action, which is continuing to experience significant growth due to its store roll-out programme, a run-rate adjustment is made to its earnings for valuation purposes to reflect the profitability of recently opened stores.
Improvements in the performance of the portfolio valued on an earnings basis resulted in an increase in value of GBP171 million (September 2014: GBP209 million). Value weighted last 12 months earnings, including portfolio acquisitions, increased by 19% (31 March 2015: 19%), demonstrating that the portfolio's largest assets are delivering strong improvements in performance. Excluding Action, value weighted last 12 months earnings grew by 14% (31 March 2015: 16%).
The number of investments valued using forecast earnings increased to five at 30 September 2015 from two at 31 March 2015, representing 10% of the portfolio by value (31 March 2015: 3%).
Table 10: Portfolio earnings growth weighted by September 2015 carrying values(1)
3i carrying value 3i carrying value at 30 September 2015 at 31 March 2015 Last 12 months' (LTM) earnings growth GBPm GBPm -------------------------------------- --------------------- ------------------ <(20)% 9 32 (20) - (11)% 46 - (10) - (1)% 87 131 0 - 9% 755 753 10 - 19% 292 88 20 - 30% 995 387 >30% 194 868 -------------------------------------- --------------------- ------------------ 1 Includes all companies valued on an earnings basis where comparable earnings data is available. This represents 73% of the Private Equity portfolio by value (31 March 2015: 72%).
Net debt in the portfolio decreased to 2.8x EBITDA (31 March 2015: 3.1x).
Table 11: Ratio of debt to EBITDA weighted by September 2015 carrying values(1)
3i carrying value 3i carrying value at 30 September 2015 at 31 March 2015 Ratio of net debt to EBITDA GBPm GBPm ---------------------------- --------------------- ------------------ <1x 411 490 1 - 2x 193 483 2 - 3x 564 86 3 - 4x 1,136 428 4 - 5x 765 1,450 5 - 6x - 62 >6x - 6 ---------------------------- --------------------- ------------------ 1 This represents 94% of the Private Equity portfolio by value (31 March 2015: 95%).
Multiple movements
The weighted average EBITDA multiple of the Private Equity portfolio assets valued on an earnings basis increased from 11.2x at 31 March 2015 to 11.4x at 30 September 2015 before marketability discount, and from 10.5x to 10.7x after marketability discount. The multiple used to value Action, the largest asset by value, remained unchanged at 13.5x post discount. Excluding Action, the weighted average EBITDA multiple remained flat at 10.1x before marketability discount (31 March 2015: 10.1x) and was 9.4x after marketability discount (31 March 2015: 9.3x).
We increased the multiple used to value Basic-Fit from 9.5x at 31 March 2015 to 10.5x post discount to recognise the growth potential of this asset as it both upgrades its existing gyms and opens new ones.
Stock market multiples declined sharply in our second quarter but, as noted in the Annual report and accounts 2015, we consider other factors such as exit plans, relative performance and investment size when setting the multiples we use. As a result, we adjusted multiples down, when compared to the market, throughout 2014 as equity markets increased. In the first half we continued to adjust multiples in 19 out of the 30 companies (31 March 2015: 22 out of 33) valued on an earnings basis. However the valuation multiples declined for 10 companies and the net effect was a decrease in value of GBP24 million in the period (September 2014: GBP13 million increase).
Imminent sale
Portfolio companies which are well advanced in a negotiated sales process are valued on an imminent sale basis. No companies were valued on this basis at 30 September 2015.
Discounted Cash Flow
The Discounted Cash Flow (DCF) valuation basis is used to value portfolio companies with predictable and stable cash flows. As at 30 September 2015, the largest portfolio company valued on this basis was Scandlines, valued at GBP257 million. Its value increased by GBP30 million largely due to strong trading and the expectation of further delays in the opening of the proposed competing fixed link.
Quoted portfolio
The Private Equity quoted portfolio, including the UFO Moviez IPO that completed in the period, generated an unrealised value loss of GBP2 million (September 2014: GBP12 million gain) which is detailed in Table 12.
Table 12: Quoted portfolio movement for the six months to 30 September 2015
Opening Closing Total gross value Disposals Unrealised value at investment at 1 April at opening value Other 30 September return during 2015(1) book value movement movements 2015 the period Investment IPO date GBPm GBPm GBPm GBPm(2) GBPm GBPm ------------ ---------- ----------- ----------- ----------- ---------- ------------- -------------- Quintiles May 13 144 (50) 3 (4) 93 1 Dphone Jul 14 35 - (11) (2) 22 (13) Eltel Feb 15 47 - 4 - 51 4 Refresco Mar 15 47 (1) (1) 2 47 - UFO Moviez May 15 27 (15) 3 - 15 4 ------------ ---------- ----------- ----------- ----------- ---------- ------------- -------------- 300 (66) (2) (4) 228 (4) ------------------------ ----------- ----------- ----------- ---------- ------------- -------------- 1 For UFO which IPO'd during the period, this is the value pre-IPO. 2 Other movements includes foreign exchange.
Infrastructure unrealised value movement
The direct Infrastructure portfolio primarily consists of our 34% holding in 3iN. The 4% increase in 3iN's share price to 167 pence (31 March 2015: 160 pence) led to a value uplift of GBP19 million in the period (September 2014: GBP17 million). This positive performance was partially offset by a further decline in value of the India Infrastructure Fund which recorded an unrealised value reduction of GBP9 million (September 2014: GBP8 million reduction). The fund's investments continued to face a number of challenges together with the ongoing depreciation of the rupee.
Debt Management unrealised value movement
The Debt Management unrealised value reduction of GBP18 million in the first half (September 2014: GBP10 million) relates principally to the mark to market valuation of the CLO equity portfolio, and there are a number of factors that contribute to this movement. We received GBP14 million of cash distributions (September 2014: GBP6 million), included in portfolio income, that result in a corresponding value reduction. Broker quotes, which are used to support CLO valuations, also reflected general market concerns about liquidity and investor risk appetite. In the US in particular, potential interest rate rises and oil and gas sector concerns impacted this sentiment. The underlying cash flows of the CLOs remain sound, and our longer term view of returns remains positive.
Portfolio income
The portfolio generated income of GBP69 million in the period (September 2014: GBP53 million). The increase compared to the prior period was driven by dividends, with notable receipts including GBP14 million from Debt Management CLO distributions, GBP8 million from Scandlines and the GBP11 million ordinary distribution from 3iN. Income from loans and receivables was broadly stable at GBP28 million (September 2014: GBP30 million) and predominantly related to Private Equity assets.
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A further GBP5 million in net fees from the new investments in Weener Plastic and Euro-Diesel, as well as portfolio monitoring fees, were also recognised in the period (September 2014: GBP2 million).
Net foreign exchange movements
The Group recorded a total net foreign exchange loss of GBP3 million (September 2014: GBP73 million) during the period with the strengthening of sterling against the US dollar (2.4%) being partially offset by the weakening of sterling against the euro (1.6%). The net foreign exchange loss also reflects the translation of non-portfolio net assets, including non-sterling cash held at the balance sheet date.
Based on the portfolio as at 30 September 2015, a 1% movement in the euro and US dollar would give rise to a GBP20 million and GBP7 million movement in total return respectively.
Proprietary Capital costs
A proportion of the Group's operating expenses that are assessed as having been incurred in running a regulated and listed investment trust are allocated to Proprietary Capital. These include 100% of costs in relation to the CEO and Group Finance Director and elements of finance, IT, property and compliance. Proprietary Capital operating expenses continued to be well managed and were GBP15 million (September 2014: GBP13 million).
Synthetic fees, which are calculated on cost rather than value of assets, were marginally lower at GBP21 million (September 2014: GBP22 million) and reflect the lower level of proprietary capital being managed as a result of net divestment during the period.
Net interest payable
Gross interest payable declined to GBP24 million (September 2014: GBP26 million) due to the reduced costs associated with the 2016 revolving credit facility which was refinanced in September 2014. This facility was extended by one year to September 2020 at no extra cost, following an agreement with the participating banks in September 2015. The current gross debt position is detailed further in this Financial review and in Note 9 of the accounts.
Interest receivable increased marginally to GBP2 million (September 2014: GBP1 million) and reflected the higher cash balances held throughout the period.
FUND MANAGEMENT RETURNS
Table 13: Fund Management operating profit for the six months to 30 September
2015 2014 GBPm GBPm ---------------------------------------- ----- ----- Fees receivable from external funds 37 41 Synthetic fee from Proprietary Capital 21 22 Operating expenses (48) (50) ---------------------------------------- ----- ----- Operating profit before carry 10 13 ---------------------------------------- ----- ----- Amortisation costs 3 3 ---------------------------------------- ----- ----- Underlying Fund Management profit 13 16 ---------------------------------------- ----- -----
The Group's Fund Management income is driven by total AUM. At 30 September 2015, AUM was stable at GBP13.5 billion (31 March 2015: GBP13.5 billion) as the launch of two CLOs and the Global Income Fund within Debt Management were offset by a fall in AUM from the net divestment activity in Private Equity.
The Fund Management business generated an operating profit before carry of GBP10 million for the period (September 2014: GBP13 million). The reduction in profitability was driven principally by lower third-party fee income, which declined by 10% to GBP37 million (September 2014: GBP41 million) as a result of the ongoing divestment of older Private Equity assets that were partially funded with external capital. This was partially offset by continued cost discipline but the operating profit margin decreased to 17% (September 2014: 21%). On an underlying basis, excluding amortisation costs, operating profit was GBP13 million (September 2014: GBP16 million) at a margin of 22% (September 2014: 26%).
Total return
Table 14: Summarised total return for the 6 months to 30 September
2015 2014 GBPm GBPm ---------------------------------------------------------------------- ----- ----- Proprietary Capital operating profit before carry 204 262 Fund Management operating profit before carry 10 13 ---------------------------------------------------------------------- ----- ----- Operating profit before carry 214 275 ---------------------------------------------------------------------- ----- ----- Carried interest and performance fees receivable from external funds (3) 19 Carried interest and performance fees payable (39) (45) Acquisition related earn-out charges (4) (5) ---------------------------------------------------------------------- ----- ----- Operating profit 168 244 ---------------------------------------------------------------------- ----- ----- Tax 1 (3) Re-measurements of defined benefit plans (1) (7) ---------------------------------------------------------------------- ----- ----- Total comprehensive income ("Total return") 168 234 ---------------------------------------------------------------------- ----- ----- Total return on opening shareholders' funds 4.4% 7.1% ---------------------------------------------------------------------- ----- -----
Net carried interest and performance fees payable
We pay carried interest to our investment teams on proprietary capital invested and receive carried interest from third-party funds.
In Private Equity, we typically accrue carried interest at between 10 - 15% of gross investment return. The improved performance over the last 12 months means that the majority of assets by value are now held in schemes that would have met their performance hurdles, assuming that the portfolio was realised at the 30 September 2015 valuation. We accrued carried interest payable of GBP36 million (September 2014: GBP36 million) in the period.
We also accrued GBP3 million of carried interest payable to the Debt Management team (September 2014: GBP2 million) and nil to the Infrastructure team (September 2014: GBP7 million) as 3iN did not go through its performance hurdle in the first half. In total, we accrued for GBP39 million of carry payable in September 2015 (September 2014: GBP45 million).
The GBP(3) million carried interest receivable includes an GBP8 million one-off adjustment to the balance due from the Growth Capital Fund, which offsets the GBP5 million from Debt Management (September 2014: GBP4 million). Notwithstanding the recovery in fund performance, we are yet to accrue carried interest receivable from EFV, our largest third-party Private Equity fund.
Pension
There was a re-measurement loss on the Group's pension scheme of GBP1 million (30 September 2014: GBP7 million loss) during the period. The liability of the Group's UK defined benefit pension scheme declined in the period following an increase in the discount rate. However, this was offset by a fall in asset valuations, which were impacted by volatile financial markets.
We have launched a programme to offer our members flexibility in how they take their pension benefits following the Government's "Freedom and choice in pensions" changes announced in April 2014. This includes the provision of independent financial advice and a range of options for deferred and pensioner members.
Operating cash profit
Table 15: Operating cash profit for the six months to 30 September
2015 2014 GBPm GBPm --------------------------------------- ----- ----- Third-party capital fees 37 37 Cash portfolio fees 4 4 Cash portfolio dividends and interest 39 38 --------------------------------------- ----- ----- Cash income 80 79 --------------------------------------- ----- ----- Operating expenses(1) (63) (63) --------------------------------------- ----- ----- Operating cash profit 17 16 --------------------------------------- ----- ----- 1 Operating expenses are calculated on an accruals basis rather than cash.
3i made an operating cash profit of GBP17 million in the period (September 2014: GBP16 million). Cash income increased modestly to GBP80 million (September 2014: GBP79 million) principally due to increased dividends. Our Debt Management business generated good fund fee cash income of GBP18 million (September 2014: GBP17 million) which almost offset the reduced Private Equity fund management income. Cash fee income from our managed Private Equity funds and third parties decreased to GBP5 million (September 2014: GBP9 million).
Operating expenses incurred during the period were stable at GBP63 million (September 2014: GBP63 million), and decreased to 0.9% (September 2014: 1.0%) of AUM. We have recruited to support our investment teams, as detailed in the Chief Executive's statement, but remain focused on costs being 1% of AUM as an appropriate benchmark.
INVESTMENT CASH FLOWS
Investment and realisations
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Table 16: Investment activity - Proprietary Capital and Third-party Capital for the six months to 30 September
Proprietary Capital Proprietary and Third-party Capital(1) September 2015 September 2014 September 2015 September 2014 GBPm GBPm GBPm GBPm --------------------- --------------- --------------- -------------------- ------------------- Realisations 359 324 583 463 Cash investment (294) (199) (333) (180) --------------------- --------------- --------------- -------------------- ------------------- Net cash divestment 65 125 250 283 Non-cash investment (44) (55) (57) (69) --------------------- --------------- --------------- -------------------- ------------------- Net divestment 21 70 193 214 --------------------- --------------- --------------- -------------------- ------------------- 1 Third-party capital relates to Private Equity activity only.
Further detail on investment and realisations is included in the relevant business line sections.
BALANCE SHEET
Table 17: Simplified balance sheet and gearing
30 September 2015 31 March 2015 GBPm GBPm ---------------------------- ------------------ -------------- Investment portfolio value 4,037 3,877 ---------------------------- ------------------ -------------- Gross debt (819) (815) Cash and deposits 807 864 ---------------------------- ------------------ -------------- Net (debt)/cash (12) 49 Other net liabilities (174) (120) ---------------------------- ------------------ -------------- Net assets 3,851 3,806 ---------------------------- ------------------ -------------- Gearing(1) 0.3% nil ---------------------------- ------------------ -------------- 1 Gearing is net debt as a percentage of net assets.
The Proprietary Capital portfolio increased to GBP4,037 million at 30 September 2015 (31 March 2015: GBP3,877 million) as cash investment of GBP294 million and unrealised value growth of GBP167 million offset the realisations in the period.
The mix of the portfolio was broadly stable. Private Equity remained at 81% of the total portfolio (31 March 2015: 81%) while an increase in the Debt Management portfolio to 6% (31 March 2015: 5%) was offset by a fall in the Infrastructure portfolio to 13% (31 March 2015: 14%).The final FY2015 dividend payment, partially offset by operating cash inflows and net divestment, led to cash and deposits on the balance sheet decreasing to GBP807 million (31 March 2015: GBP864 million). We recognised a small increase in the sterling equivalent of the 2017 euro denominated bond and, as a result, the Group was in a net debt position of GBP12 million at 30 September 2015 (31 March 2015: GBP49 million net cash) and had gearing of 0.3% (31 March 2015: nil).
Liquidity
Liquidity remained strong at GBP1,157 million (31 March 2015: GBP1,214 million) and comprised cash and deposits of GBP807 million (31 March 2015: GBP864 million) and undrawn facilities of GBP350 million (31 March 2015: GBP350 million).
Foreign exchange
At 30 September 2015, 30% of the Group's net assets were denominated in sterling, 43% in euro, 25% in US dollar and 2% in other currencies. Although we do not implement structured hedging of the NAV, we may implement specific short-term hedging on entry or exit cash flows of an investment if appropriate.
Diluted NAV
The diluted NAV per share at 30 September 2015 was 401 pence (31 March 2015: 396 pence). The increase was driven by the total return in the period of GBP168 million (September 2014: GBP234 million), partially offset by the payment of the final FY2015 dividend of GBP133 million, or 14.0 pence per share (September 2014: GBP126 million, 13.3 pence per share).
Dividend
The Board has announced an interim dividend of 6.0p (September 2014: 6.0p). This comprises of a 2.7p base dividend and a 3.3p additional dividend and reflects our robust balance sheet and confidence in our longer term prospects. The interim dividend is expected to be paid on 6 January 2016 to those shareholders on the register at 11 December 2015.
Principal risks and uncertainties
The main elements of 3i's approach to risk management, its risk management process and governance structure are set out in the Risk section of the 3i Group Annual report and accounts 2015 which can be accessed via the link on the Investor Relations home page of the Group's website at www.3i.com.
In delivering the Group's strategy we face a number of risks. These are monitored continuously and managed by:
-- adhering to our clearly defined and established business model;
-- following an integrated risk management approach; and
-- maintaining our clearly defined risk appetites and key risk indicators.
During the six months to 30 September 2015, there was no significant change to our business model, risk management approach or risk appetite.
The principal risks and uncertainties for the remaining six months of the financial year are unchanged and summarised below. This is not a comprehensive list of all potential risks and uncertainties faced by the Group, but rather a summary of the risks which it currently believes may have a significant impact on its performance and future prospects.
External - Risks arising from external factors including political, legal, regulatory, economic and competitor changes which affect the Group's operations. There has been a significant amount of uncertainty in the Eurozone and the wider emerging markets' economies in 2015 and the Group continues to monitor these events closely. On 5 October 2015, the OECD published the final reports arising from its work on the Base Erosion and Profit Shifting ("BEPS") project. It is not clear which countries will implement these proposals and the timing and extent of implementation by those that do. The OECD has indicated that further detail on some of the proposals will be published during 2016. 3i will continue to monitor the impact of these proposals on its business and operations.
Investment - Risks in respect of specific asset investment decisions, the subsequent performance of an investment or exposure concentrations across business line portfolios.
Treasury and funding - Risks in relation to changes in market prices and rates, access to capital markets and third-party funds, and the Group's capital structure.
Operational - Risks arising from inadequate or failed processes, people and systems or from external factors affecting these. In the Group's ongoing assessment of operational risks in FY2016, which is informed by an analysis of its risk factors, the Group has paid particular attention to the increasingly sophisticated threat of cyber crime. We continue to review and improve our governance and controls to protect our information and infrastructure.
The Group Risk Committee meets quarterly. The risk review process includes the monitoring of dashboards which track the Group's financial performance and progress against its strategic objectives at a Group level and for each of the Group's business lines. This assists the Committee in its assessment of the key risks affecting the achievement of the Group's objectives and the effectiveness of current risk mitigation plans.
The Committee also has a number of focus areas, which are agreed in advance of each meeting. Topics discussed in the period included a review of cyber crime and a review of the changes to the UK Corporate Governance code.
This Half-yearly report provides an update on 3i's strategy and business performance, as well as market conditions, which are relevant to the Group's overall risk profile and should be viewed in the context of the Group's risk management framework and principal inherent risk factors as disclosed in the Annual report and accounts 2015.
Reconciliation of the Investment basis to IFRS
Background to investment basis NUMBERS USED IN THE INTERIM MANAGEMENT REPORT
The Group makes investments in portfolio companies directly, held by 3i Group plc, and indirectly, held through intermediate holding company and partnership structures ("Investment entity subsidiaries"). It also has other operational subsidiaries which provide services and other activities such as employment, regulatory activities, management and advice ("Trading subsidiaries"). The application of IFRS 10 requires us to fair value a number of Investment entity subsidiaries that were previously consolidated line by line. This fair value approach, applied at the Investment entity subsidiary level, effectively obscures the performance of our proprietary capital investments and associated transactions occurring in the Investment entity subsidiaries. The financial effect of the underlying portfolio companies and fee income, operating expenses and carried interest transactions occurring in Investment entity subsidiaries are aggregated into a single value. Other items which were previously eliminated on consolidation are now included separately.
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As a result we introduced separate non-GAAP "Investment basis" Statements of comprehensive income, financial position and cash flow in our Annual report and accounts 2014 to aid understanding of our results. The Interim management report is also prepared using the Investment basis as we believe it provides a more understandable view of our performance. Total return and net assets are the same under the Investment basis and IFRS; the Investment basis is simply a "look through" of IFRS 10 to present the underlying performance.
Reconciliation between investment basis and IFRS
A detailed reconciliation from the Investment basis to IFRS basis of the Statement of comprehensive income, Statement of financial position and Cash flow statement is shown after Principal risks and uncertainties.
Reconciliation of Statement of comprehensive income
Six months to 30 September 2015 Six months to 30 September 2014 Investment IFRS IFRS Investment IFRS IFRS basis adjustments basis basis adjustments basis (unaudited) (unaudited) (restated)(1) Note GBPm GBPm GBPm GBPm GBPm GBPm ------------------------ ----- ----------- ------------ ------------ ----------- ------------ --------------- Realised profits over value on the disposal of investments 3 29 (17) 12 35 (29) 6 Unrealised profits on the revaluation of investments 3 167 (166) 1 307 (203) 104 Fair value movements on Investment entity subsidiaries 2 - 207 207 - 219 219 Portfolio income Dividends 2 36 (4) 32 21 (6) 15 Income from loans and receivables 2 28 (15) 13 30 (12) 18 Fees receivable 5 - 5 2 1 3 Foreign exchange on investments 5 7 (8) (1) (98) 67 (31) ------------------------ ----- ----------- ------------ ------------ ----------- ------------ --------------- Gross investment return 272 (3) 269 297 37 334 ------------------------ ----- ----------- ------------ ------------ ----------- ------------ --------------- Fees receivable from external funds 4 37 - 37 41 1 42 Operating expenses 4 (63) - (63) (63) - (63) Interest receivable 4 2 - 2 1 - 1 Interest payable (24) - (24) (26) - (26) Movement in the fair value of derivatives - - - (1) - (1) Exchange movements 5 (10) 6 (4) 25 (58) (33) Income/(expense) from fair value subsidiaries - (31) (31) - 10 10 Other income - - - 1 - 1 ------------------------ ----- ----------- ------------ ------------ ----------- ------------ --------------- Operating profit before carry 214 (28) 186 275 (10) 265 ------------------------ ----- ----------- ------------ ------------ ----------- ------------ --------------- Carried interest and performance fees Receivable from external funds 4 (3) (7) (10) 19 - 19 Payable 4 (39) 22 (17) (45) 23 (22) Acquisition related earn-out charges (4) - (4) (5) - (5) ----------------------- ----- ----------- ------------ ------------ ----------- ------------ --------------- Operating profit 168 (13) 155 244 13 257 ------------------------ ----- ----------- ------------ ------------ ----------- ------------ --------------- Income taxes 4 1 (1) - (3) - (3) ------------------------ ----- ----------- ------------ ------------ ----------- ------------ --------------- Profit for the period 169 (14) 155 241 13 254 ------------------------ ----- ----------- ------------ ------------ ----------- ------------ --------------- Other comprehensive income Exchange differences on translation of foreign operations 5 - 14 14 - (13) (13) Re-measurements of defined benefit plans (1) - (1) (7) - (7) ----------------------- ----- ----------- ------------ ------------ ----------- ------------ --------------- Total comprehensive income for the period ("Total return") 2 168 - 168 234 - 234 ------------------------ ----- ----------- ------------ ------------ ----------- ------------ ---------------
Notes:
1 See Note 12 of the IFRS financial statements. 2 Applying IFRS 10 to the Statement of comprehensive income consolidates the line items of a number of previously consolidated subsidiaries into a single line item fair value movements on Investment entity subsidiaries. In the Investment basis accounts we have disaggregated these line items to analyse our total return as if these Investment entity subsidiaries were fully consolidated, consistent with prior periods. The adjustments simply reclassify the Statement of comprehensive income of the Group, and the total return is equal under the Investment basis and the IFRS basis. 3 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. 4 Other items also aggregated into the fair value movements on Investment entity subsidiaries line include fees receivable from external funds, audit fees, custodian fees, bank charges, other general and administration expenses, carried interest and tax. 5 On the Investment basis, the impact of the translation of foreign subsidiaries is included within the line items foreign exchange on investments and exchange movements rather than as a separate line item as required under IFRS. On an IFRS basis, the revaluation of assets and liabilities held by Investment entity subsidiaries is reflected in the fair value movements on Investment entity subsidiaries rather than being reflected as exchange movements.
Reconciliation of Statement of financial position
As at 30 September 2015 As at 31 March 2015 Investment IFRS IFRS Investment IFRS IFRS basis adjustments basis basis adjustments basis (unaudited) (audited) Note GBPm GBPm GBPm GBPm GBPm GBPm ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Assets Non-current assets Investments Quoted investments 1 682 (363) 319 763 (364) 399 Unquoted investments 1 3,355 (2,219) 1,136 3,114 (1,842) 1,272 Investments in Investment entities 1,3 - 2,417 2,417 - 2,079 2,079 ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Investment portfolio 4,037 (165) 3,872 3,877 (127) 3,750 ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Carried interest and performance
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fees receivable 1 36 (8) 28 43 - 43 Intangible assets 16 - 16 19 - 19 Retirement benefit surplus 137 - 137 136 - 136 Property, plant and equipment 4 - 4 4 - 4 Deferred income taxes 1 3 - 3 3 - 3 ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Total non-current assets 4,233 (173) 4,060 4,082 (127) 3,955 ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Current assets Carried interest and performance fees receivable - - - 45 - 45 Other current assets 1 64 (5) 59 85 (31) 54 Deposits 140 - 140 - - - Cash and cash equivalents 1,2 667 (5) 662 864 (3) 861 ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Total current assets 871 (10) 861 994 (34) 960 ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Total assets 5,104 (183) 4,921 5,076 (161) 4,915 ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Liabilities Non-current liabilities Carried interest and performance fees payable 1 (224) 152 (72) (214) 142 (72) Acquisition related earn-out charges payable - - - (10) - (10) Loans and borrowings (819) - (819) (815) - (815) Retirement benefit deficit (20) - (20) (19) - (19) Deferred income taxes (1) 1 - (3) 2 (1) Provisions 1 (3) - (3) (5) - (5) ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Total non-current liabilities (1,067) 153 (914) (1,066) 144 (922) ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Current liabilities Trade and other payables 1 (135) 18 (117) (169) 17 (152) Carried interest and performance fees payable 1 (22) 12 (10) (13) - (13) Acquisition related earn-out charges payable (20) - (20) (17) - (17) Current income taxes 1 (4) - (4) (2) - (2) Provisions 1 (5) - (5) (3) - (3) ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Total current liabilities (186) 30 (156) (204) 17 (187) ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Total liabilities (1,253) 183 (1,070) (1,270) 161 (1,109) ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Net assets 3,851 - 3,851 3,806 - 3,806 ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Equity Issued capital 719 - 719 719 - 719 Share premium 784 - 784 784 - 784 Other reserves 4 2,401 - 2,401 2,382 - 2,382 Own shares (53) - (53) (79) - (79) ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ---------- Total equity 3,851 - 3,851 3,806 - 3,806 ----------------------------- ----- ----------- ------------ ------------ ----------- ------------ ----------
Notes:
1 Applying IFRS 10 to the Statement of financial position aggregates the line items of a number of previously consolidated subsidiaries into the single line item investments in investment entities. In the Investment basis we have disaggregated these items to analyse our net assets as if the Investment entity subsidiaries were consolidated, consistent with prior periods. The adjustment reclassifies items in the 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 entities 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 are carried interest and other payables, and the Investment basis presentation again disaggregates these items. 2 Cash balances held in Investment entity subsidiaries are also aggregated into the investment in investment entities line. At 30 September 2015, GBP5 million of cash was held in subsidiaries that are now classified as Investment entity subsidiaries and is therefore included in the investments in investment entities line. 3 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 Statement of financial position of the Group. Prior to the adoption of IFRS 10, these balances would have been eliminated on consolidation. 4 Investment basis financial statements are prepared for performance measurement and therefore reserves are not analysed separately under this basis.
Reconciliation of Cash flow statement
6 months to 30 September 2015 6 months to 30 September 2014 Investment IFRS IFRS Investment IFRS IFRS basis adjustments basis basis adjustments basis (unaudited) (unaudited) (restated)(1) Note GBPm GBPm GBPm GBPm GBPm GBPm --------------------------- ----- ----------- ------------ ------------ ----------- ------------ -------------- Cash flow from operating activities Purchase of investments 2 (294) 206 (88) (199) 95 (104) Proceeds from investments 2 359 (180) 179 324 (217) 107 Cash divestment from traded portfolio 2 - - - 7 (7) - Net cash flow (to)/from Investment entity subsidiaries 2 - (24) (24) - 144 144 Portfolio interest received 2 3 - 3 18 (7) 11 Portfolio dividends received 2 36 (4) 32 20 (5) 15 Portfolio fees received 4 - 4 4 - 4 Fees received from external funds 37 - 37 37 - 37 Carried interest and
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performance fees received 49 - 49 4 - 4 Carried interest and performance fees paid 2 (18) 1 (17) (11) - (11) Acquisition related earn-out charges paid (11) - (11) (10) - (10) Operating expenses 2 (76) - (76) (71) 8 (63) Interest received 2 - 2 1 - 1 Interest paid (11) - (11) (15) - (15) Income taxes paid 1 - 1 (3) - (3) --------------------------- ----- ----------- ------------ ------------ ----------- ------------ -------------- Net cash flow from operating activities 81 (1) 80 106 11 117 --------------------------- ----- ----------- ------------ ------------ ----------- ------------ -------------- Cash flow from financing activities Purchase of B shares - - - (6) - (6) Dividend paid (133) - (133) (126) - (126) Net cash flow from derivatives - - - 2 - 2 --------------------------- ----- ----------- ------------ ------------ ----------- ------------ -------------- Net cash flow from financing activities (133) - (133) (130) - (130) --------------------------- ----- ----------- ------------ ------------ ----------- ------------ -------------- Cash flow from investing activities Purchases of property, plant and equipment (1) - (1) - - - Net cashflow to deposits (140) - (140) - - - --------------------------- ----- ----------- ------------ ------------ ----------- ------------ -------------- Net cash flow from investing activities (141) - (141) - - - --------------------------- ----- ----------- ------------ ------------ ----------- ------------ -------------- Change in cash and cash equivalents 3 (193) (1) (194) (24) 11 (13) Cash and cash equivalents at the start of the period 3 864 (3) 861 697 (23) 674 Effect of exchange rate fluctuations 2 (4) (1) (5) (3) 1 (2) --------------------------- ----- ----------- ------------ ------------ ----------- ------------ -------------- Cash and cash equivalents at the end of the period 3 667 (5) 662 670 (11) 659 --------------------------- ----- ----------- ------------ ------------ ----------- ------------ --------------
Notes:
1 Restated. See Note 12 of the IFRS financial statements. 2 The 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. 3 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 subsidiary vehicles. Cash held within Investment entity subsidiaries will not be shown in the IFRS statements but will be seen in the Investment basis statements.
IFRS FINANCIAL STATEMENTS
Condensed consolidated statement of comprehensive income
for the six months to 30 September 2015
Six months to Six months to 30 September 30 September 2015 2014 (unaudited) (unaudited) (restated)(1) Notes GBPm GBPm ------------------------------------------------------------------ ------ -------------- -------------- Realised profits over value on the disposal of investments 2 12 6 Unrealised profits on the revaluation of investments 3 1 104 Fair value movements on Investment entity subsidiaries 7 207 219 ------------------------------------------------------------------ ------ -------------- -------------- 220 329 Portfolio income Dividends 32 15 Income from loans and receivables 13 18 Fees receivable 5 3 Foreign exchange on investments (1) (31) ------------------------------------------------------------------ ------ -------------- -------------- Gross investment return 269 334 Fees receivable from external funds 37 42 Operating expenses (63) (63) Interest received 2 1 Interest paid (24) (26) Movement in the fair value of derivatives - (1) Exchange movements (4) (33) (Expense)/income from fair value subsidiaries (31) 10 Other income - 1 Carried interest Carried interest and performance fees receivable (10) 19 Carried interest and performance fees payable (17) (22) Acquisition related earn-out charges (4) (5) ------------------------------------------------------------------ ------ -------------- -------------- Operating profit before tax 155 257 Income taxes - (3) ------------------------------------------------------------------ ------ -------------- -------------- Profit for the period 155 254 ------------------------------------------------------------------ ------ -------------- -------------- Other comprehensive income that may be reclassified to the income statement: Exchange differences on translation of foreign operations 14 (13) Other comprehensive income that will not be reclassified to the income statement: Re-measurements of defined benefit plans (1) (7) ------------------------------------------------------------------ ------ -------------- -------------- Other comprehensive income for the period 13 (20) ------------------------------------------------------------------ ------ -------------- -------------- Total comprehensive income for the period ("Total return") 168 234 ------------------------------------------------------------------ ------ -------------- -------------- Earnings per share Basic (pence) 4 16.3 26.8 Diluted (pence) 4 16.2 26.6 ----------------------------------------------------------------- ------ -------------- -------------- 1 Restated. See Note 12.
Condensed consolidated statement of financial position
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as at 30 September 2015
30 September 31 March 2015 2015 (unaudited) (audited) Notes GBPm GBPm ------------------------------------------------------- ------------- ---------- Assets Non-current assets Investments Quoted investments 6 319 399 Unquoted investments 6 1,136 1,272 Investments in Investment entities 7 2,417 2,079 --------------------------------------------------- ------------- ---------- Investment portfolio 3,872 3,750 --------------------------------------------------- ------------- ---------- Carried interest and performance fees receivable 28 43 Intangible assets 16 19 Retirement benefit surplus 137 136 Property, plant and equipment 4 4 Deferred income taxes 3 3 --------------------------------------------------- ------------- ---------- Total non-current assets 4,060 3,955 ------------------------------------------------------- ------------- ---------- Current assets Carried interest and performance fees receivable - 45 Other current assets 59 54 Deposits 140 - Cash and cash equivalents 662 861 ------------------------------------------------------- ------------- ---------- Total current assets 861 960 ------------------------------------------------------- ------------- ---------- Total assets 4,921 4,915 ------------------------------------------------------- ------------- ---------- Liabilities Non-current liabilities Carried interest and performance fees payable (72) (72) Acquisition related earn-out charges payable - (10) Loans and borrowings 9 (819) (815) Retirement benefit deficit (20) (19) Deferred income taxes - (1) Provisions (3) (5) --------------------------------------------------- ------------- ---------- Total non-current liabilities (914) (922) ------------------------------------------------------- ------------- ---------- Current liabilities Trade and other payables (117) (152) Carried interest and performance fees payable (10) (13) Acquisition related earn-out charges payable (20) (17) Current income taxes (4) (2) Provisions (5) (3) --------------------------------------------------- ------------- ---------- Total current liabilities (156) (187) ------------------------------------------------------- ------------- ---------- Total liabilities (1,070) (1,109) ------------------------------------------------------- ------------- ---------- Net assets 3,851 3,806 ------------------------------------------------------- ------------- ---------- Equity Issued capital 719 719 Share premium 784 784 Capital redemption reserve 43 43 Share-based payment reserve 27 31 Translation reserve 230 216 Capital reserve 1,518 1,519 Revenue reserve 583 573 Own shares (53) (79) --------------------------------------------------- ------------- ---------- Total equity 3,851 3,806 ------------------------------------------------------- ------------- ----------
Condensed consolidated statement of changes in equity
For the six months to Share- 30 September 2015 (unaudited) ----------------------- Capital based ----------------------- Share Share redemption payment Translation Capital Revenue Own Total capital premium reserve reserve reserve reserve reserve shares Equity GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm ----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- ------- Total equity at the start of the period 719 784 43 31 216 1,519 573 (79) 3,806 Profit for the period - - - - - 108 47 - 155 Exchange differences on translation of foreign operations - - - - 14 - - - 14 Re-measurements of defined benefit plans - - - - - (1) - - (1) ----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- ------- Total comprehensive income for the period - - - - 14 107 47 - 168 ----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- ------- Share-based payments - - - 10 - - - - 10 Release on exercise/forfeiture of share options - - - (14) - - 14 - - Loss on sale of own shares - - - - - (26) - 26 - Ordinary dividends - - - - - - (51) - (51) Additional dividends - - - - - (82) - - (82) Issue of ordinary - - - - - - - - - shares ----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- ------- Total equity at the end of the period 719 784 43 27 230 1,518 583 (53) 3,851 ----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- ------- For the six months to Share- 30 September 2014 (unaudited) (restated)(1) ----------------------- Capital based ----------------------- Share Share redemption payment Translation Capital Revenue Own Total capital premium reserve reserve reserve reserve reserve shares Equity GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm ----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- ------- Total equity at the start of the period 718 782 43 19 243 1,050 542 (89) 3,308 Profit for the period(1) - - - - - 195 59 - 254 Exchange differences on translation of foreign operations(1) - - - - (13) - - - (13) Re-measurements of defined benefit plans - - - - - (7) - - (7) ----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- ------- Total comprehensive income for the period - - - - (13) 188 59 - 234 ----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- ------- Share-based payments - - - 9 - - - - 9 Release on exercise/forfeiture of share options - - - (4) - - 4 - - Loss on sale of own
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shares - - - - - (9) - 9 - Ordinary dividends - - - - - - (51) - (51) Additional dividends - - - - - (75) - - (75) Issue of ordinary shares - 1 - - - - - - 1 ----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- ------- Total equity at the end of the period 718 783 43 24 230 1,154 554 (80) 3,426 ----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- ------- 1 In accordance with the restatement detailed in Note 12, the capital reserve at 1 April 2014 has been restated from GBP1,051 million to GBP1,050 million and the translation reserve has been restated from GBP242 million to GBP243 million. We have restated the capital reserve profit for the period from GBP197 million to GBP195 million and the exchange differences on translation of foreign operations from GBP(15) million to GBP(13) million.
Condensed consolidated cash flow statement
for the six months to 30 September 2015
Six months to Six months to 30 September 30 September 2015 2014 (unaudited) (unaudited) (restated)(1) GBPm GBPm -------------------------------------------------------- -------------- -------------- Cash flow from operating activities Purchase of investments (88) (104) Proceeds from investments 179 107 Net cash flow (to)/from Investment entity subsidiaries (24) 144 Portfolio interest received 3 11 Portfolio dividends received 32 15 Portfolio fees received 4 4 Fees received from external funds 37 37 Carried interest and performance fees received 49 4 Carried interest and performance fees paid (17) (11) Acquisition related earn-out charges (11) (10) Operating expenses (76) (63) Interest received 2 1 Interest paid (11) (15) Income taxes paid 1 (3) -------------------------------------------------------- -------------- -------------- Net cash flow from operating activities 80 117 -------------------------------------------------------- -------------- -------------- Cash flow from financing activities Dividend paid (133) (126) Repurchase of B shares - (6) Net cash flow from derivatives - 2 -------------------------------------------------------- -------------- -------------- Net cash flow from financing activities (133) (130) -------------------------------------------------------- -------------- -------------- Cash flow from investing activities Purchase of property, plant and equipment (1) - Net cash flow to deposits (140) - -------------------------------------------------------- -------------- -------------- Net cash flow from investing activities (141) - -------------------------------------------------------- -------------- -------------- Change in cash and cash equivalents (194) (13) Cash and cash equivalents at the start of the period 861 674 Effect of exchange rate fluctuations (5) (2) -------------------------------------------------------- -------------- -------------- Cash and cash equivalents at the end of the period 662 659 -------------------------------------------------------- -------------- -------------- 1 Restated. See Note 12.
Notes to the financial statements
BASIS OF PREPARATION AND ACCOUNTING POLICIES
A Compliance with International Financial Reporting Standards ("IFRS")
The Half-yearly condensed consolidated financial statements of 3i Group plc have been prepared in accordance with the Disclosure Rules and Transparency Rules of the Financial Conduct Authority and IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board ('IASB') and as endorsed by the EU. These Half-yearly consolidated financial statements should be read in conjunction with the Annual report and accounts 2015.
Standards applied during the half year to 30 September 2015
There were no new standards applied during the half year to 30 September 2015. During the period, 3i Group plc applied a number of interpretations and amendments to standards as part of the IFRS lifecycle proposals which had an insignificant effect on these Half-yearly condensed consolidated financial statements.
The financial information for the year ended 31 March 2015 contained within this Half-yearly report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The statutory accounts for the year to 31 March 2015, prepared under IFRS, have been reported on by Ernst and Young LLP and delivered to the Registrar of Companies. The report of the Auditor on these statutory accounts was unqualified and did not contain a statement under section 498(2) or section 498(3) of the Companies Act 2006.
B Use of estimates and judgements
The preparation of the Half-yearly report requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The most significant techniques for estimation are described in the accounting policies on pages 90 to 128 of the Annual report and accounts 2015 and in "Portfolio valuation - an explanation". There was no change in the current period to the critical accounting estimates and judgements applied in 2015, which are stated on pages 91 to 92 of the Annual report and accounts 2015.
C Composition of Group
There were no material changes in the composition of the 3i Group in the half year to 30 September 2015.
D Future accounting developments
Information on future accounting developments and their potential effect on the financial statements of 3i are provided on page 90 of the Annual report and accounts 2015.
E Going concern
The financial statements are prepared on a going concern basis.
F Accounting policies
The accounting policies applied by 3i Group for these Half-yearly condensed consolidated financial statements are consistent with those described on pages 90 to 128 of the Annual report and accounts 2015, as are the methods of computation. Consistent with prior year, income on the most junior level of CLO capital is recognised as a dividend. GBP14 million (September 2014: GBP6 million) was received in the period.
1 Segmental analysis
The tables below are presented on the Investment basis which is the basis used by the chief-operating-decision-maker, the Chief Executive, to monitor the performance of the Group. A description of the Investment basis is provided in the Financial review and a reconciliation of the Investment basis to the IFRS financial statements is provided after Principal risks and uncertainties. Further detail on the Group's segmental analysis can be found on pages 93-95 of the Annual report and accounts 2015. The remaining Notes are prepared on an IFRS basis.
Investment basis Private Debt Proprietary Fund Six months to 30 September Equity Infrastructure Management Total Capital Management Total 2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm ----------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Realised profits over value on the disposal of investments 26 3 - 29 29 - 29 Unrealised profits/(losses) on the revaluation of investments 174 11 (18) 167 167 - 167 Portfolio income Dividends 11 11 14 36 36 - 36
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Income from loans and receivables 26 - 2 28 28 - 28 Fees receivable/(payable) 6 - (1) 5 5 - 5 Foreign exchange on investments 3 (2) 6 7 7 - 7 ----------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Gross investment return 246 23 3 272 272 - 272 ----------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Fees receivable from external funds 6 14 17 37 - 37 37 Synthetic fees - - - - (21) 21 - Operating expenses (31) (14) (18) (63) (15) (48) (63) Interest receivable 2 2 - 2 Interest payable (24) (24) - (24) Exchange movements (10) (10) - (10) ----------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Operating profit before carry 214 204 10 214 ----------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Carried interest and performance fees Receivable from external funds (8) - 5 (3) (3) Payable (36) - (3) (39) (39) Acquisition related earn-out charges - - (4) (4) (4) ----------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Operating profit 168 168 ----------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Income taxes 1 1 Other comprehensive income Re-measurements of defined benefit plans (1) (1) ---------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Total return 168 168 ----------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Net divestment/ (investment) Realisations 307 51 1 359 359 359 Cash investment (208) - (86) (294) (294) (294) ----------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- 99 51 (85) 65 65 65 ----------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Balance sheet Opening portfolio value at 1 April 2015 3,148 553 176 3,877 3,877 3,877 Investment 252 - 86 338 338 338 Value disposed (281) (48) (1) (330) (330) (330) Unrealised value movement 174 11 (18) 167 167 167 Other movement (18) (3) 6 (15) (15) (15) ----------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Closing portfolio value at 30 September 2015 3,275 513 249 4,037 4,037 4,037 ----------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Investment basis Private Debt Proprietary Fund Six months to 30 September Equity Infrastructure Management Total Capital Management Total 2014 GBPm GBPm GBPm GBPm GBPm GBPm GBPm =========================== ======== =============== =========== ======= ============ =========== ======= Realised profits over value on the disposal of investments 34 1 - 35 35 - 35 Unrealised profits/(losses) on the revaluation of investments 308 9 (10) 307 307 - 307 Portfolio income Dividends 5 10 6 21 21 - 21 Income from loans and receivables 27 - 3 30 30 - 30 Fees receivable/(payable) 3 - (1) 2 2 - 2 Foreign exchange on investments (95) 2 (5) (98) (98) - (98) --------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Gross investment return 282 22 (7) 297 297 - 297 --------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Fees receivable from external funds 9 14 18 41 - 41 41 Synthetic fees - - - - (22) 22 - Operating expenses (31) (14) (18) (63) (13) (50) (63) Interest receivable 1 1 - 1 Interest payable (26) (26) - (26) Movement in the fair value of derivatives (1) (1) - (1) Exchange movements 25 25 - 25 Other income 1 1 - 1 --------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Operating profit before carry 275 262 13 275 --------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Carried interest and performance fees Receivable from external funds 7 8 4 19 19 Payable (36) (7) (2) (45) (45) Acquisition related earn-out charges - - (5) (5) (5) --------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Operating profit 244 244 --------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Income taxes (3) (3) Other comprehensive income Re-measurements of defined benefit plans (7) (7) -------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Total return 234 234 --------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Net divestment/ (investment) Realisations 316 8 - 324 324 324 Cash investment (104) - (95) (199) (199) (199) --------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- 212 8 (95) 125 125 125 --------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Balance sheet Opening portfolio value at 1 April 2014 2,935 487 143 3,565 3,565 3,565 Investment 159 - 95 254 254 254
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Value disposed (282) (7) - (289) (289) (289) Unrealised value movement 308 9 (10) 307 307 307 Other movement (136) 2 (31) (165) (165) (165) --------------------------- -------- --------------- ----------- ------- ------------ ----------- ------- Closing portfolio value at 30 September 2014 2,984 491 197 3,672 3,672 3,672 --------------------------- -------- --------------- ----------- ------- ------------ ----------- -------
2 Realised profits over value on the disposal of investments
Six months to 30 September 2015 Unquoted Quoted investments investments Total GBPm GBPm GBPm ----------------------------------------------- ------------ ------------ ------ Realisations 148 31 179 Valuation of disposed investments (138) (29) (167) ----------------------------------------------- ------------ ------------ ------ 10 2 12 ----------------------------------------------- ------------ ------------ ------ Of which: - - profit recognised on realisations 10 2 12 - losses recognised on realisations - - - -------- ------------------------------------- ------------ ------------ ------ 10 2 12 ---------------------------------------------- ------------ ------------ ------ Six months to 30 September 2014 Unquoted Quoted investments investments Total (restated) (restated) (restated) GBPm GBPm GBPm ----------------------------------------------- ------------ ------------ ----------- Realisations 107 - 107 Valuation of disposed investments (101) - (101) ----------------------------------------------- ------------ ------------ ----------- 6 - 6 ----------------------------------------------- ------------ ------------ ----------- Of which: - - profit recognised on realisations 7 - 7 - losses recognised on realisations (1) - (1) ---------------------------------------------- ------------ ------------ ----------- 6 - 6 ---------------------------------------------- ------------ ------------ -----------
3 Unrealised profits/(losses) on the revaluation of investments
Six months to 30 September 2015 Unquoted Quoted investments investments Total GBPm GBPm GBPm -------------------------------------------- ------------ ------------ ------ Movement in the fair value of investments (14) 15 1 -------------------------------------------- ------------ ------------ ------ Of which: - unrealised gains 46 15 61 - unrealised losses (60) - (60) ------------------------------------------- ------------ ------------ ------ (14) 15 1 ------------------------------------------- ------------ ------------ ------ Six months to 30 September 2014 Unquoted Quoted investments investments Total (restated) (restated) (restated) GBPm GBPm GBPm ============================================ ============ ============ =========== Movement in the fair value of investments 93 11 104 -------------------------------------------- ------------ ------------ ----------- Of which: - unrealised gains 142 11 153 - unrealised losses (49) - (49) ------------------------------------------- ------------ ------------ ----------- 93 11 104 ------------------------------------------- ------------ ------------ -----------
4 Per share information
The calculation of basic earnings per share is based on the profit attributable to shareholders and the number of basic average shares. When calculating the diluted earnings per share, the weighted average number of shares in issue is adjusted for the effect of all dilutive share options and awards.
6 months 6 months to 30 September to 30 September 2015 2014 (restated) --------------------------------------------------------------------- ---------------- ---------------- Earnings per share (pence) Basic 16.3 26.8 Diluted 16.2 26.6 Earnings (GBPm) Profit for the period attributable to equity holders of the Company 155 254 --------------------------------------------------------------------- ---------------- ---------------- 6 months 6 months to 30 September to 30 September 2015 2014 Number Number ---------------------------------------------- ---------------- ---------------- Weighted average number of shares in issue Ordinary shares 972,524,749 972,013,634 Own shares (20,757,426) (25,467,918) ---------------------------------------------- ---------------- ---------------- Basic shares 951,767,323 946,545,716 ---------------------------------------------- ---------------- ---------------- Effect of dilutive potential ordinary shares Share options and awards 3,987,648 9,251,617 ---------------------------------------------- ---------------- ---------------- Diluted shares 955,754,971 955,797,333 ---------------------------------------------- ---------------- ---------------- 30 September 30 September 2015 2014 ---------------------------------------------------------- ------------- ------------- Net assets per share (pence) Basic 403 361 Diluted 401 358 ---------------------------------------------------------- ------------- ------------- Net assets (GBPm) Net assets attributable to equity holders of the Company 3,851 3,426 ---------------------------------------------------------- ------------- -------------
Basic NAV per share is calculated on 956,477,854 shares in issue at 30 September 2015 (30 September 2014: 947,926,954). Diluted NAV per share is calculated on diluted shares of 960,746,598 at 30 September 2015 (30 September 2014: 957,831,109).
5 Dividends
6 months to 6 months to 6 months to 6 months to 30 September 30 September 30 September 30 September 2015 2015 2014 2014 pence pence per share GBPm per share GBPm Declared and paid during the period Final dividend 14.0 133 13.3 126 14.0 133 13.3 126 Proposed interim dividend 6.0 57 6.0 57
6 Investment portfolio
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The basis for measuring the fair value of the investment portfolio is explained on page 101 of the Annual report and accounts 2015.
6 months to Year to 30 September 2015 31 March 2015 Non-current GBPm GBPm Opening book value 1,671 1,582 Additions 106 203 - of which loan notes with nil value (8) (48) Disposals and repayments (167) (216) Fair value movement 1 236 Other movements and net cash movements (148) (86) Closing book value 1,455 1,671 Quoted investments 319 399 Unquoted investments 1,136 1,272 Closing book value 1,455 1,671
The holding period of 3i's investment portfolio is on average greater than one year. For this reason the portfolio is classified as non-current. It is not possible to identify with certainty investments that will be sold within one year.
Additions include GBP18 million (31 March 2015: GBP69 million) in capitalised interest received by way of loan notes, of which GBP8 million (31 March 2015: GBP48 million) has been written down in the period to nil.
Included within the statement of comprehensive income is GBP13 million (31 March 2015: GBP38 million) of interest income, which reflects the net additions after write downs noted above, GBP3 million (31 March 2015: GBP14 million) of cash income and the capitalisation of prior year accrued income and non-capitalised accrued income nil (31 March 2015: GBP3 million).
Other movements include the transfer of assets to Investment entity subsidiaries, foreign exchange and conversions from one instrument into another.
7 Investments in investment entities
The basis for measuring the fair value of the investments in investment entities is explained on page 102 of the Annual report and accounts 2015.
6 months to Year to 30 September 2015 31 March 2015 Non-current GBPm GBPm Opening book value 2,079 1,909 Net cash flow to/(from) Investment entity subsidiaries 24 (272) Fair value movement on Investment entity subsidiaries 207 530 Transfer of assets to/(from) Investment entity subsidiaries 107 (88) Closing book value 2,417 2,079
All investment entities are classified as Level 3 in the fair value hierarchy, see Note 8 for details.
Restrictions
3i Group plc, the ultimate parent company, receives dividend income from its subsidiaries.
Support
3i Group plc provides ongoing support to its Investment entity subsidiaries for the purchase of portfolio investments.
The Group has no contractual commitments or current intentions to provide any financial or other support to its unconsolidated subsidiaries.
8 Fair values of assets and liabilities
This section should be read in conjunction with Note 12 on pages 103 to 105 of the Annual report and accounts 2015 which provide more detail about accounting policies adopted, the definitions of the three levels of fair value hierarchy, valuation methods used in calculating fair value, and the valuation framework which governs oversight of valuations. There have been no changes in the accounting policies adopted or the valuation methodologies used.
Valuation
The Group classifies financial instruments measured at fair value in the investment portfolio 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 No Level 2 financial instruments are observable either directly (ie as prices) or indirectly (ie derived from prices) Level 3 Inputs that are not based on observable market data Unquoted equity instruments and loan instruments
The table below shows the classification of financial instruments held at fair value into the valuation hierarchy at 30 September 2015:
As at 30 September 2015 As at 31 March 2015 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm Quoted investments 319 - - 319 399 - - 399 Unquoted investments - - 1,136 1,136 - - 1,272 1,272 Investment in investment entities - - 2,417 2,417 - - 2,079 2,079 Total 319 - 3,553 3,872 399 - 3,351 3,750
This disclosure only relates to the investment portfolio and the investments in our investment entities. Investments in investment entities are fair valued at the entity's net asset value with the significant part being attributable to the underlying portfolio. The underlying portfolio is valued under the same methodology as directly held investments with any other assets or liabilities within investment entities fair valued in accordance with the Group's accounting policies.
The fair value hierarchy also applies to loans and borrowings, see Note 9 for details.
Level 3 fair value reconciliation
Six months to Year to 30 September 31 March 2015 2015 GBPm GBPm Opening book value 1,272 1,324 Additions 106 201 - of which loan notes with nil value (8) (48) Disposals, repayments and write-offs (138) (136) Fair value movement (14) 117 Transfer of equity Level 3 to Level 1 - (112) Other movements(1) (82) (74) Closing book value 1,136 1,272 1 Other includes transfer of assets to Investment entity subsidiaries.
Unquoted investments valued using Level 3 inputs also had the following impact on the statement of comprehensive income; realised profits over value on disposal of investment of GBP10 million (September 2014: GBP6 million), dividend income of GBP24 million (September 2014: GBP9 million) and foreign exchange impact of nil (September 2014: GBP38 million loss).
Level 3 inputs are sensitive to assumptions made when ascertaining fair value as described in the Portfolio valuation - an explanation section. There are a number of non-observable inputs and a change in one or more of the underlying assumptions could result in a significant change in fair value.
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 then adjusted for factors including liquidity risk, growth potential and relative performance. They are also adjusted to represent our longer term view of performance through the cycle or our exit assumptions. The value weighted average multiple used when valuing the portfolio at 30 September 2015 was 9.6x (31 March 2015: 9.7x).
If the multiple used to value each unquoted investment valued on an earnings multiple basis as at 30 September 2015 decreased by 5%, the investment portfolio would decrease by GBP27 million (31 March 2015: GBP35 million) or 2% (31 March 2015: 2%). If the same sensitivity was applied to the underlying portfolio held by Investment entities, this would have a negative impact of GBP136 million (31 March 2015: GBP121 million) or 5% (31 March 2015: 5%).
If the multiple increased by 5% then the investment portfolio would increase by GBP25 million (31 March 2015: GBP33 million) or 2% (31 March 2015: 2%). If the same sensitivity was applied to the underlying portfolio held by Investment entities, this would have a positive impact of GBP135 million (31 March 2015: GBP122 million) or 5% (31 March 2015: 6%).
Alternative valuation methodologies - There are a number of alternative investment valuation methodologies used by the Group, for reasons specific to individual assets. The details of such valuation methodologies, and the inputs that are used, are given in the Portfolio valuation - an explanation section. Each methodology is used for a proportion of assets by value, and at 30 September 2015 the following techniques were used: 23% DCF, nil% imminent sale, 11% industry metric, 20% broker quotes and 5% other. If the value of all of the investments under this methodology moved by 5%, this would have an impact on the investment portfolio of GBP34 million (31 March 2015: GBP35 million) or 2% (31 March 2015: 2%). If the same sensitivity was applied to the underlying portfolio held by Investment entities, this would have an impact of GBP14 million (31 March 2015: GBP6 million) or 1% (31 March 2015: 0.3%).
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9 Loans and borrowings
The basis for measuring the loans and borrowings is explained on page 108 of the Annual report and accounts 2015.
30 September 31 March 2015 2015 GBPm GBPm Loans and borrowings are repayable as follows: Within one year - - In the second year 244 240 In the third year - - In the fourth year - - In the fifth year - - After five years 575 575 819 815
Principal borrowings include:
30 September 31 March 2015 2015 Rate Maturity GBPm GBPm Issued under the GBP2,000 million note issuance programme Fixed rate GBP200 million notes (public issue) 6.875% 2023 200 200 GBP400 million notes (public issue) 5.750% 2032 375 375 EUR350 million notes (public issue) 5.625% 2017 244 240 819 815 Committed multi-currency facilities GBP350 million LIBOR+0.60% 2020 - - - - Total loans and borrowings 819 815
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 GBP953 million (31 March 2015: GBP997 million), determined with reference to their published market prices which are classified as Level 1 in the fair value hierarchy as described in Note 8.
10 Contingent liabilities
30 September 31 March 2015 2015 GBPm GBPm Contingent liabilities relating to guarantees in respect of investee companies - 14
The Company has provided a guarantee to the Trustees of the 3i Group Pension Plan in respect of liabilities of 3i plc to the Plan. 3i plc is the sponsor of the 3i Group Pension Plan. On 4 April 2012 the Company transferred eligible assets (GBP150 million of ordinary shares in 3i Infrastructure plc as defined by the agreement) to a wholly owned subsidiary of the Group. The Company will retain all income and capital rights in relation to the 3i Infrastructure plc shares, as eligible assets, unless the Company becomes insolvent or fails to comply with material obligations in relation to the agreement with the Trustees, all of which are under its control. The fair value of eligible assets at 30 September 2015 was GBP181 million (31 March 2015: GBP193 million).
3i has entered into warehouse arrangements in Europe to support the creation of senior secured debt portfolios ahead of future CLO fund launches. Whilst in the warehouse phase, 3i is subject to optional margin calls in the event of market falls. The current capital at risk is restricted to GBP26 million at 30 September 2015 (31 March 2015: GBP15 million).
At 30 September 2015, there was no material litigation outstanding against the Company or any of its subsidiary undertakings.
11 Related parties
All related party transactions that took place in the half year to 30 September 2015 are consistent with the disclosures in Note 29 on pages 122 - 125 of the Annual report and accounts 2015. Related party transactions which have taken place in the period and have materially affected performance or the financial position of the Group and any material changes in related party transactions described in the Annual report and accounts 2015 that could materially affect the performance or the financial position of the Group are detailed below.
Limited partnerships
The Group manages a number of external funds which invest through limited partnerships. Group companies act as the general partners of these limited partnerships and exert significant influence over them. The following amounts have been included in respect of these limited partnerships:
Statement of comprehensive income Six months to Six months to 30 September 30 September 2015 2014 (restated) GBPm GBPm Carried interest receivable (15) 7 Fees receivable from external funds 14 17 Statement of financial position 30 September 31 March 2015 2015 GBPm GBPm Carried interest receivable 16 33
Investments
The Group makes investments in the equity of unquoted and quoted investments where it does not have control. This normally allows the Group to participate in the financial and operating policies of that company. It is presumed that it is possible to exert significant influence when the equity holding is greater than 20%. The Group has taken the investment entity exception as permitted by IFRS 10 and has not equity accounted for these investments, in accordance with IAS 28, but they are related parties. The total amounts included for investments where the Group has significant influence but not control are as follows:
Statement of comprehensive income Six months to Six months to 30 September 30 September 2015 2014 (restated) GBPm GBPm Realised profit over value on the disposal of investments 3 3 Unrealised (losses)/profits on the revaluation of investments (39) 7 Portfolio income 17 13 Statement of financial position 30 September 31 March 2015 2015 GBPm GBPm Unquoted investments 473 560
From time to time, transactions occur between related parties within the investment portfolio that the Group influences to facilitate the reorganisation or recapitalisation of an investee company. These transactions are made on an arm's length basis.
Advisory arrangements
The Group acts as an adviser to 3i Infrastructure plc, which is listed on the London Stock Exchange. The following amounts have been included in respect of this advisory relationship:
Statement of comprehensive income Six months to Six months to 30 September 30 September 2015 2014 (restated) GBPm GBPm Realised profits over value on the disposal of investments 2 - Unrealised profits on the revaluation of investments 11 10 Dividends 6 6 Fees receivable from external funds 6 5 Performance fees - 8 Statement of financial position 30 September 31 March 2015 2015 GBPm GBPm Quoted equity investments 269 288 Performance fees - 45
12 Restatement of prior period information
As explained in the significant accounting policies note on page 90 of the Annual report and accounts 2015, the Group had restated comparative information for the year ending 31 March 2014, following the early adoption of changes provided in the narrow scope amendment to IFRS 10. Similarly, the Condensed consolidated statement of comprehensive income and the Condensed consolidated cash flow statement, for the six months ending 30 September 2014 have been restated. The change has no effect on total return or net asset value as reported in the Group's prior year Half-yearly report.
The impact of this restatement on a line by line basis is presented below:
Impact on Condensed consolidated statement of comprehensive income for the six months ended
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30 September 2014
As originally Effect of Restated reported restatement presentation GBPm GBPm GBPm Unrealised profits on the revaluation of investments 108 (4) 104 Fair value movements on Investment entity subsidiaries 218 1 219 Income from loans and receivables 16 2 18 Foreign exchange on investments (28) (3) (31) Fees receivable from external funds 28 14 42 Operating expenses (56) (7) (63) Income from fair value subsidiaries 13 (3) 10 Carried interest and performance fees receivable 14 5 19 Carried interest and performance fees payable (21) (1) (22) Acquisition related earn-out charges (1) (4) (5) Income taxes (1) (2) (3) Exchange differences on translation of foreign operations (15) 2 (13) Other income statement items (41) - (41) Total comprehensive income for the year 234 - 234
Impact on Condensed consolidated cash flow statement for the six months ended 30 September 2014
As originally Effect of Restated reported restatement presentation GBPm GBPm GBPm Cash flow from operating activities Purchase of investments (82) (22) (104) Net cash flow from Investment entity subsidiaries 128 16 144 Portfolio interest received 8 3 11 Portfolio dividends received 14 1 15 Fees received from external funds 24 13 37 Carried interest and performance fees received 2 2 4 Carried interest and performance fees paid (10) (1) (11) Acquisition related earn-out charges paid - (10) (10) Operating expenses (61) (2) (63) Income taxes paid (2) (1) (3) Other cash flows (33) - (33) Change in cash and cash equivalents (12) (1) (13) Opening cash and cash equivalents 643 31 674 Effect of exchange rate fluctuations (2) - (2) Closing cash and cash equivalents 629 30 659
Independent review report to 3i Group plc
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the Half-yearly report for the six months ended 30 September 2015 which comprises the Condensed consolidated statement of comprehensive income, the Condensed consolidated statement of financial position, the Condensed consolidated statement of changes in equity, the Condensed consolidated cash flow statement, and the related notes 1 to 12. We have read the other information contained in the Half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The Half-yearly report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half-yearly report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in the Basis of preparation and accounting policies, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this Half-yearly report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half-yearly report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half-yearly report for the six months ended 30 September 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
11 November 2015
Statement of Directors' responsibilities
The Directors, who are required to prepare the financial statements on a going concern basis unless it is not appropriate, are satisfied that the Group has the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered information relating to present and future conditions, including future projections of profitability and cash flows.
The Directors confirm that to the best of their knowledge:
a) the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU;
b) the Interim Report includes a fair review of the information required by:
i) DTR 4.2.7R of the Disclosure Rules and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year ending 31 March 2016 and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and ii) DTR 4.2.8R of the Disclosure Rules and Transparency Rules, being (i) related party transactions that have taken place in the first six months of the financial year ending 31 March 2016 which have materially affected the financial position or performance of 3i Group during that period; and (ii) any changes in the related parties transactions described in the Annual report and accounts 2015 that could materially affect the financial position or performance of 3i Group during the first six months of the financial year ending 31 March 2016
The Directors of 3i Group plc and their functions are listed below.
The report is authorised for issue by order of the Board.
K J Dunn, Secretary
11 November 2015
BOARD OF DIRECTORS
Simon Thompson, Chairman
Simon Borrows, Chief Executive and Executive Director
Julia Wilson, Group Finance Director and Executive Director
Jonathan Asquith, Non-executive Director
Caroline Banszky, Non-executive Director
Peter Grosch, Non-executive Director
David Hutchison, Non-executive Director
Martine Verluyten, Non-executive Director
PORTFOLIO AND OTHER INFORMATION
Portfolio valuation - an explanation
POLICY
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The valuation policy is the responsibility of the Board, with additional oversight and annual review from the Valuations Committee. Our policy is to value 3i's investment portfolio at fair value and we achieve this by valuing investments on an appropriate basis, applying a consistent approach across the portfolio. The policy ensures that the portfolio valuation is compliant with the fair value guidelines under IFRS and, in so doing, is also compliant with the guidelines issued by the International Private Equity and Venture Capital valuation board (the "IPEV guidelines"). The policy covers the Group's Private Equity, Infrastructure and Debt Management investment valuations. Valuations of the investment portfolio of the Group and its subsidiaries are performed at each quarter end.
Fair value is the underlying principle and is defined as "the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date" (IPEV guidelines, December 2012). Fair value is therefore an estimate and, as such, determining fair value requires the use of judgement.
The quoted assets in our portfolio are valued at their closing bid price at the balance sheet date. The majority of the portfolio, however, is represented by unquoted investments.
PRIVATE EQUITY UNQUOTED VALUATION
To arrive at the fair value of the Group's unquoted Private Equity investments, we first estimate the entire value of the company we have invested in - the enterprise value. We then apportion that enterprise value between 3i, other shareholders and lenders.
Determining enterprise value
This enterprise value is determined using one of a selection of methodologies depending on the nature, facts and circumstances of the investment.
Where possible, we use methodologies which draw heavily on observable market prices, whether listed equity markets or reported merger and acquisition transactions, and trading updates from our portfolio.
As unquoted investments are not traded on an active market, the Group adjusts the estimated enterprise value by a liquidity discount. The liquidity discount is applied to the total enterprise value and we apply a higher discount for investments where there are material restrictions on our ability to sell at a time of our choosing.
The table in Portfolio valuation - an explanation outlines in more detail the range of valuation methodologies available to us, as well as the inputs and adjustments necessary for each.
Apportioning the enterprise value between 3i, other shareholders and lenders
Once we have estimated the enterprise value, the following steps are taken:
1. We subtract the value of any claims, net of free cash balances, that are more senior to the most senior of our investments.
2. The resulting attributable enterprise value is apportioned to the Group's investment, and equal ranking investments by other parties, according to contractual terms and conditions, to arrive at a fair value of the entirety of the investment. The value is then distributed amongst the different loan, equity and other financial instruments accordingly.
3. If the value attributed to a specific shareholder loan investment in a company is less than its par or nominal value, a shortfall is implied, which is recognised in our valuation. In exceptional cases, we may judge that the shortfall is temporary; to recognise the shortfall in such a scenario would lead to unrepresentative volatility and hence we may choose not to recognise the shortfall.
Other factors
In applying this framework, there are additional considerations that are factored into the valuation of some assets.
Impacts from structuring
Structural rights are instruments convertible into equity or cash at specific points in time or linked to specific events. For example, where a majority shareholder chooses to sell, and we have a minority interest, we may have the right to a minimum return on our investment.
Debt instruments, in particular, may have structural rights. In the valuation, it is assumed that third parties, such as lenders or holders of convertible instruments, fully exercise any structural rights they might have if they are "in the money", and that the value to the Group may therefore be reduced by such rights held by third parties. The Group's own structural rights are valued on the basis they are exercisable on the reporting date.
Assets classified as "terminal"
If we believe an investment has more than a 50% probability of failing in the 12 months following the valuation date, we value the investment on the basis of its expected recoverable amount in the event of failure. It is important to distinguish between our investment failing and the business failing; the failure of our investment does not always mean that the business has failed, just that our recoverable value has dropped significantly. This would generally result in the equity and loan components of our investment being valued at nil. Value movements in the period relating to investments classified as terminal are classified as provisions in our value movement analysis.
INFRASTRUCTURE UNQUOTED VALUATION
The primary valuation methodology used for infrastructure investments is the discounted cash flow method ("DCF"). Fair value is estimated by deriving the present value of the investment using reasonable assumptions of expected future cash flows and the terminal value and date, and the appropriate risk-adjusted discount rate that quantifies the risk inherent to the investment. The discount rate is estimated with reference to the market risk-free rate, a risk adjusted premium and information specific to the investment or market sector.
DEBT MANAGEMENT VALUATION
The Group's Debt Management business line typically invests in traded debt instruments and the subordinated notes that it is required to hold in the debt funds which it manages. The traded debt instruments and the subordinated notes are valued using a range of data including broker quotes (if available), 3i internal forecasts and discounted cash flow models, trading data (where available), and data from third-party valuation providers. Broker quotes and trading data for more liquid holdings are preferred.
% of portfolio valued on this Methodology Business line Description Inputs Adjustments basis Earnings multiples are applied to the earnings of the company to determine the enterprise value Earnings Reported earnings adjusted for non-recurring items, such as restructuring expenses, for significant corporate actions and, in exceptional cases, run-rate adjustments to arrive at maintainable earnings Most common measure is earnings before interest, tax, depreciation and amortisation ("EBITDA") Earnings used are usually the management accounts for the 12 months to the quarter end preceding the reporting period, unless data from forecasts or the latest audited accounts provides a more reliable
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picture of maintainable earnings Earnings multiples The earnings multiple is derived from comparable listed companies or relevant market transaction multiples We select companies in the same industry and, where possible, with a similar business model and profile in Most commonly used terms of size, Private Equity products, services valuation and customers, methodology growth rates and A marketability or geographic liquidity discount Used for investments focus is applied to the which are profitable enterprise value, and for which we can We adjust for typically between determine a set of relative 5% and 15%, using listed companies performance in the factors such as our and precedent set of comparables, alignment with transactions, where exit expectations management and other relevant, with and other investors and our similar company specific investment rights in Earnings Private Equity characteristics factors the deal structure 59% Infrastructure, Used for investments Closing bid price at No adjustments Quoted Private Equity in listed companies balance sheet date or discounts applied 17% We create a set of comparable listed companies and derive the implied values of the relevant metric We track and adjust this metric for relative performance, as is Used for investments the case of in industries which earnings multiples have well defined metrics as bases for Comparable valuation companies are - eg book value for selected using the An appropriate insurance same criteria as discount is applied, underwriters, or described for the depending on the Specific industry regulated asset earnings valuation metric metrics Private Equity bases for utilities methodology used 3% Used where an asset Contracted proceeds A discount of is in a sales for the typically 2.5% is process, a price has transaction, or applied to reflect been agreed but the best estimate of any uncertain Infrastructure, transaction has the expected adjustments to Imminent sale Private Equity not yet settled proceeds expected proceeds 0% Typically no further discount applied in Net asset value addition to that Infrastructure, Used for investments reported by the applied by the fund Fund Private Equity in unlisted funds fund manager manager 0% Long-term cash flows are discounted at a rate which is benchmarked against market data, where possible, or Discount already Appropriate for adjusted from the implicit in the businesses with rate at the initial discount rate long-term stable investment based on applied to long-term cash flows, changes in the risk cash flows - no Discounted cash flow Infrastructure, typically in profile of the further ("DCF") Private Equity infrastructure investment discounts applied 8% Broker quotes obtained from banks which trade the specific instruments concerned, benchmarked to a range of other data such as DCF, trade data and other quotes. Occasionally DCF, trade or other data may be used if available broker quotes are not considered to be Used to value traded representative No discount is Broker quotes Debt Management debt instruments of fair value applied 6% Values of separate Used where elements elements prepared of a business are on one of the Discounts applied to valued on different methodologies separate elements as Other Private Equity bases listed above above 7%
Equity shares are valued at the higher of an earnings or net assets methodology. Fixed income shares and loan investments are measured using amortised cost and any implied impairment, in line with IFRS.
Consistent with IPEV guidelines, all equity investments are held at fair value using the most appropriate methodology and no investments are held at historical cost.
Twenty five large investments
The 25 investments listed below account for 81% of the portfolio at 30 September 2015 (31 March 2015: 81%). This does not include the one investment that has been excluded for commercial reasons.
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In accordance with Section 29 of the Alternative Investment Fund Manager Directive ("AIFMD"), 3i Investments plc, as Alternative Investment Fund Manager ("AIFM"), encourages all controlled portfolio companies to make available to employees and investors an Annual report which meets the disclosure requirements of the Directive. 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 September March September Investment First invested in 2015 2015 2015 2015 Relevant transactions Description of business Valuation basis GBPm GBPm GBPm GBPm in the period Action Private Equity Non-food discount retailer Benelux 2 1 592 712 2011 Earnings 3i Infrastructure plc Infrastructure Quoted investment UK 302 270 481 450 GBP51m special company, investing in 2007 dividend following infrastructure the sale of Quoted Eversholt Rail Scandlines Private Equity Ferry operator between GBP46m of proceeds Denmark Denmark/ 114 114 262 257 and and Germany Germany income, net of 2007 transaction fees, DCF following sale of route between Helsingor and Helsingborg Amor/Christ Private Equity Distributor and retailer of Germany 129 129 165 174 jewellery 2010/2014 Earnings Weener Plastic Private Equity Supplier of plastic packaging Germany - 145 - 149 New investment solutions 2015 Price of recent investment Mayborn Private Equity Manufacturer and distributor UK 129 140 133 137 of baby products 2006 Earnings ACR Private Equity Pan-Asian non life reinsurance Singapore 105 105 120 120 2006 Industry metric Basic-Fit Private Equity Discount gyms operator Benelux 91 95 102 119 2013 Earnings Q Holding Private Equity Precision engineered US 100 100 109 117 elastomeric components 2014 manufacturer Earnings GIF Private Equity International Further investment transmission Germany 68 81 78 106 of testing specialist 2013 GBP11m Earnings Quintiles Private Equity Clinical research Sold 36% and outsourcing US 41 26 144 93 generated solutions 2008 proceeds of GBP53m Quoted AES Engineering Private Equity Manufacturer of mechanical UK 30 30 102 85 seals and support 1996 systems Earnings Mémora Private Equity Funeral service provider Spain 159 159 61 80 2008 Earnings Tato Private Equity Manufacture and sale of UK 2 2 80 72 speciality chemicals 1989 Earnings Geka Private Equity Manufacturer of brushes, Germany 69 69 53 63 applicators and 2012 packaging systems for the Earnings cosmetics industry Aspen Pumps Private Equity Manufacturer of pumps and UK 65 64 64 62 accessories for the 2015 air conditioning, Earnings heating and refrigeration industry Dynatect Private Equity Manufacturer of engineered, US 65 65 71 61 mission critical 2014 protective equipment Earnings Euro-Diesel Private Equity Manufacturer of uninterruptible Benelux - 52 - 52 New investment power supply systems 2015 Price of recent investment Agent Provocateur Private Equity Women's lingerie and associated UK 53 53 53 51 products 2007 Earnings MKM Private Equity Building materials supplier UK 22 22 43 51 2006 Earnings Eltel Networks Private Equity Infrastructure services for Sweden 13 13 47 51 electricity and 2007 telecoms networks Quoted OneMed Group Private Equity Distributor of consumable Sweden 117 122 47 49 medical products, 2011 devices and technology Earnings Global Income Fund Debt Management Debt Management open Europe/North - 48 - 49 New investment, ended fund with America launched in the first exposure to North half American and western 2015 European issuers Broker quotes Refresco Gerber Private Equity European bottler of soft drinks Benelux 30 29 47 47 and fruit juices for 2010 retailers and branded customers Quoted JMJ Private Equity Global Management US 42 42 53 44 Consultancy 2013 Earnings
1 Residual cost includes capitalised interest.
Glossary
Alternative Investment Funds ("AIFs") At 30 September 2015, 3i Investments plc as AIFM, managed five AIFs. These were 3i Group plc, 3i Growth Capital Fund, 3i Eurofund V, the European Middle Market Loan Fund and 3i Debt Management Global Income Fund.
Alternative Investment Fund Managers Directive ("AIFMD") became effective from July 2013. As a result, at 31 March 2015, 3i Investments plc is authorised as an Alternative Investment Fund Manager ("AIFM"), which in turn manages five AIFs.
Alternative Investment Fund Manager ("AIFM") is the regulated manager of AIFs. Within 3i, this is 3i Investments plc.
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.
Barclays Infrastructure Fund Management business ("BIFM") Acquired by 3i in November 2013 when it managed two active unlisted funds that invest in UK and European PPP and energy projects, with assets under management of over GBP700 million.
Board The Board of Directors of the Company.
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.
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Carried interest 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. Carry is only actually paid or received when the relevant performance hurdles are met, and the accrual is discounted to reflect expected payment periods.
Carry receivable is generated on third-party capital over the life of the relevant fund when relevant performance criteria are met.
We pay carry to our investment teams on proprietary capital invested and share a proportion of carry receivable from third-party funds. This total carry payable is provided through schemes which have been structured typically over two/three year vintages to maximise flexibility in resource planning.
Collateralised Loan Obligation ("CLO") is a form of securitisation where payments from multiple loans are pooled together and passed on to different classes of owners in various tranches.
Company 3i Group plc.
Discounting The reduction in present value at a given date of a future cash transaction at an assumed rate, using a discount factor reflecting the time value of money.
Dividend income from equity investments and CLO capital is recognised in the Statement of comprehensive income when the shareholders' rights to receive payment have been established.
Earnings before interest, tax, depreciation and amortisation ("EBITDA") EBITDA is defined as earnings before interest, tax, 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, Infrastructure and Debt Management 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") 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 is earned directly from investee companies when an investment is first made and through the life of the investment. Fees that are earned on a financing arrangement are considered to relate to a financial asset measured at fair value through profit or loss and are recognised when that investment is made. Fees that are earned on the basis of providing an ongoing service to the investee company are recognised as that service is provided.
Fees receivable from external funds are fees received by the Group, from third parties, for the management of private equity, infrastructure and debt management funds.
Foreign exchange on investments arises on investments made in currencies that are different from the functional currency of the Group. 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.
Fund Management A segment of the business focused on generating profits from the management of private equity, infrastructure and debt management funds.
Fund Management Operating profit comprises fee income from third parties as well as a synthetic fee received from the Proprietary Capital business, less operating expenses incurred by the Fund Management business.
Gross investment return ("GIR") 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 and foreign exchange movements. GIR is measured as a percentage of the opening portfolio value and is the principal tool for assessing our Proprietary Capital business.
Income from loans and receivables 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") 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.
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 Interim Management Report refers to this basis as we believe it provides a more understandable view of our performance.
Key Performance Indicators ("KPI") This is a measure by reference to which the development, performance or position of the Group can be measured effectively.
Money multiple Calculated as the cumulative distributions plus any residual value divided by paid-in capital.
Net asset value ("NAV") NAV is a measure of the fair value of our proprietary investments and the net costs of operating the business.
Operating cash profit Defined as the difference between our cash income (cash fees from managing third-party funds and cash income from our proprietary capital portfolio) and our accrued operating expenses, excluding restructuring costs.
Operating profit includes gross investment return, management fee income generated from managing external funds, the costs of running our business, net interest payable, movements in the fair value of derivatives, other losses and carried interest.
Portfolio income is that which 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. It is comprised of dividend income, income from loans and receivables and fee income.
Proprietary Capital A segment of the business focused on generating profits from 3i capital which is available to invest.
Proprietary Capital operating profit The profit comprises gross investment return, operating expenses, a fee paid to the Fund Management business and balance sheet funding expenses such as interest payable.
Public Private Partnership ("PPP") A 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 intra-segment 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.
Synthetic fee Internal fee payable to the Fund Management business for managing our proprietary capital.
Total return comprises operating profit less tax charge less movement in actuarial valuation of the historic defined benefit pension scheme.
Total shareholder return ("TSR") This 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.
Underlying Fund Management profit Calculated as fee income minus operating expenses related to Fund Management activities, excluding restructuring and amortisation costs.
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.
Value weighted earnings growth The growth in last 12 month earnings, when comparing to the preceding 12 months. This measure is the key driver of our private equity portfolio performance.
Information for shareholders
ANNUAL REPORTS ONLINE
If you would prefer to receive shareholder communications electronically in future, including annual reports and notices of meetings, please visit our Registrars' website at www.shareview.co.uk/clients/3isignup and follow the instructions there to register.
More general information on electronic communications is available on our website at
www.3i.com/investor-relations/shareholder-information
REGISTRARS
For shareholder administration enquiries, including changes of address, please contact:
Equiniti
Aspect House,
Spencer Road,
Lancing,
West Sussex BN99 6DA, UK
Telephone 0371 384 2031
Lines are open from 8.30am to 5.30pm, Monday to Friday.
(International callers +44 121 415 7183)
3i GROUP PLC
Registered office:
16 Palace Street,
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