TIDMIII
RNS Number : 1280N
3i Group PLC
14 May 2015
14 May 2015
3i Group plc announces full year results
to 31 March 2015
All three businesses are performing well
-- Strong total return of 20% (GBP659m) in the year
-- Good flow of Private Equity realisations with proceeds of
GBP831m; continued selective investment of GBP369m in four
transactions and strong earnings growth in the portfolio
underpinned a GBP719m investment return
-- Gross investment return of 20% in Infrastructure, which
benefited from a 25% total shareholder return from 3i
Infrastructure plc, its strongest performance since IPO
-- Debt Management raised GBP2.4bn AUM during the year, closing
6 CLOs and diversifying its offering through the EUR250m first
close of the European Middle Market Loan Fund
-- Continued material improvement in cash income and ongoing
operational efficiency led to operating cash profit
of GBP28m
-- Robust balance sheet with gross debt and interest costs
reduced to GBP815m and GBP49m respectively. Net cash of GBP49m and
nil gearing at 31 March 2015
-- 14% increase in NAV to 396 pence per share, despite
significant foreign exchange headwinds of GBP114m or 12 pence per
share
-- Proposed final dividend of 14.0 pence per share, bringing the
total dividend for FY2015 to 20.0 pence per share, subject to
shareholder approval
Simon Borrows, 3i's Chief Executive, commented:
"This has been a strong year for 3i with all three of our
businesses performing well. We have reshaped our business model and
our shareholders are benefiting from attractive returns and
dividends. We look forward with confidence."
Financial highlights
Year to/as at Year to/as at
31 March 31 March
2015 2014
------------------------------------------------- -------------- --------------
Group
Total return GBP659m GBP478m
- Total return on opening shareholders' funds 19.9% 16.3%
Dividend per ordinary share 20.0p 20.0p
Operating expenses GBP131m GBP136m
- As a percentage of assets under management 1.0% 1.0%
Operating cash profit GBP28m GBP5m
================================================= ============== ==============
Proprietary Capital
Realisation proceeds GBP841m GBP677m
- Uplift over opening book value(1) GBP145m/27% GBP191m/45%
- Money multiple 2.0x 1.8x
Gross investment return(2) GBP805m GBP665m
- As a percentage of opening 3i portfolio value 22.6% 20.2%
Operating profit (3) GBP721m GBP539m
Cash investment GBP474m GBP337m
3i portfolio value GBP3,877m GBP3,565m
Gross debt GBP815m GBP857m
Net cash/(debt) GBP49m GBP(160)m
Gearing nil 5%
Liquidity GBP1,214m GBP1,197m
Net asset value GBP3,806m GBP3,308m
Diluted net asset value per ordinary share 396p 348p
Fund Management
Total assets under management GBP13,474m GBP12,911m
- Third party capital GBP10,140m GBP9,508m
- Proportion of third party capital 75% 74%
Total fee income GBP125m GBP127m
- Third-party fee income GBP80m GBP76m
Operating profit(3) GBP26m GBP19m
Underlying Fund Management profit(3,4) GBP33m GBP33m
- Underlying Fund Management margin 26% 26%
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(1) Uplift over opening book value excludes refinancings. The
2014 balance has been restated from GBP202m to GBP191m to
exclude refinancings.
(2) Gross investment return includes portfolio fees of nil (2014:
GBP3 million) allocated to Fund Management.
(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 GBP1m and
amortisation costs of GBP6m (2014: GBP8 million, GBP6 million).
ENDS
For further information, please contact:
Silvia Santoro, Investor Relations Director Tel: 020 7975 3258
Kathryn van der Kroft, Communications Director Tel: 020 7975 3021
For further information regarding the announcement of 3i's
annual results to 31 March 2015, including a live videocast of the
results presentation at 10.00am, please visit www.3i.com.
Notes to editors
3i is a leading international investment manager focused on
mid-market Private Equity, 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 results
Note 1
All of the financial data in this announcement is taken from the
Investment basis financial statements. The statutory accounts are
prepared under IFRS for the year to 31 March 2015 and have not yet
been delivered to the Registrar of Companies. The statutory
accounts for the year to 31 March 2014 have been delivered to the
Registrar of Companies. The auditors' reports on the statutory
accounts for these years are unqualified and do not contain any
matters to which the auditor drew attention by way of emphasis or
any statements under section 498(2) or (3) of the Companies Act
2006. This announcement does not constitute statutory accounts.
Note 2
Copies of the Annual report and accounts 2015 will be
distributed to shareholders on or soon after 26 May 2015.
Note 3
This announcement has been prepared solely to provide
information to shareholders. It should not be relied on by any
other party for any other purpose.
This announcement may contain statements about the future
including certain statements about the future outlook for 3i Group
plc and its subsidiaries ("3i"). These are not guarantees of future
performance and will not be updated. Although we believe our
expectations are based on reasonable assumptions, any statements
about the future outlook may be influenced by factors that could
cause actual outcomes and results to be materially different.
Note 4
Subject to shareholder approval, the proposed final dividend is
expected to be paid on 24 July 2015 to holders of ordinary shares
on the register on 19 June 2015.
Excellent progress and strong results
Chairman's statement
"2015 has been another good year and 3i continues to make
excellent progress
against its strategic plan."
Sir Adrian Montague
Chairman
When I joined 3i in 2010, I believed that it was fundamentally a
strong business which had not recovered purpose and direction since
the financial crisis. The appointment of Simon Borrows as Chief
Executive in 2012, and the subsequent strategic review, resulted in
a clear set of objectives designed to enable 3i to generate
long-term value through the economic cycle. 3i has focused back to
its core sectors and geographies, underpinned by a strengthened
investment process and by a disciplined approach to cost
management. I am pleased to report that Simon and his management
team have made excellent progress against these objectives and the
3i of today is a more resilient and high performing operation.
Performance
In 2015 all three businesses contributed to the good
performance. Against an unstable macro-economic environment and
geo-political landscape we generated strong realisations of GBP841
million (2014: GBP677 million). We added four new companies to our
Private Equity portfolio with total cash invested of GBP369 million
(2014: GBP276 million). With significant levels of capital
searching for good investment and returns as well as the
continuation of central bank measures such as quantitative easing,
we have invested selectively. We have focused on companies where
our sector expertise and international experience can generate
enhanced returns. Our Infrastructure business performed well and
our holding in 3i Infrastructure plc delivered a 25% total
shareholder return, its strongest annual return since its IPO in
2007. Debt Management benefited from a very good year of fund
raising in its CLO funds and, in an important diversification,
launched a EUR250 million European Middle Market Loan fund.
Dividend
The Board has declared a total dividend of 20.0p (2014: 20.0p)
for 2015. This is made up of an 8.1p base dividend and an 11.9p
additional dividend, making a total of 20.0p for the year after
taking into account the interim dividend paid in January 2015. Due
to net divestment in the year and our robust balance sheet, we have
proposed an additional dividend above the top end of our 15% - 20%
distribution range, equivalent to 23% of gross realised proceeds.
Subject to shareholder approval, we will pay the final dividend of
14.0p (2014: 13.3p) in July 2015.
Outlook
We remain cautious about the current environment. Many financial
markets are at or near all time highs and currencies are subject to
increased volatility. We are focused on enhancing the value of our
existing investment portfolio as well as pursuing investment
opportunities if the strategic and financial case is strong.
Board changes
I will be stepping down as Chairman after the AGM in June 2015.
The Board has announced that Simon Thompson will succeed me as
Chairman. Simon is an experienced FTSE 100 chairman and
non-executive director. He joined the Board in April and will take
over from me in June. It has been a great privilege to serve in the
role of Chairman over the last five years as 3i has progressively
recovered its poise, and I am confident that, in its 70th year, I
am leaving the Group in very capable hands.
I wish 3i, its employees, investors and all of its stakeholders
every success for the future.
Strategic report
Delivering our strategic plan
Chief Executive's review
"This has been a strong year for 3i with all three of our
businesses performing well. We have reshaped our business model and
our shareholders are benefiting from attractive returns and
dividends. We look forward with confidence."
Simon Borrows
Chief Executive
Introduction
We are now at the end of our three-year restructuring and have
met or exceeded all of the priorities set out in our scorecard.
Since 2012, we have made considerable progress by streamlining and
refocusing 3i into a more resilient business capable of generating
long-term value through the economic cycle. This is reflected in
this year's strong performance and good progress against all of the
Group's KPIs over the last three years.
This year's financial results build on the momentum established
last year. 3i generated a total shareholder return of 27%, compared
to 6% for the FTSE 100. All three of our businesses performed well
and contributed to the Group's total return on shareholders' funds
of 20% (2014: 16%) and 14% increase in NAV per share to 396p (31
March 2014: 348p). The strong performance was achieved despite
significant foreign exchange headwinds, with the euro alone
depreciating by 13% against sterling, reducing the NAV per share by
12 pence.
How we performed in the year
Private Equity had another very successful year, generating a
gross investment return of GBP719 million, or 24% on opening value
(2014: GBP647 million, 24%). This reflected strong earnings growth
and a flow of realisations ahead of our expectations at this time
last year. Earnings growth of 19% was driven by our larger assets
such as Action, Element and Basic-Fit, and a significant reduction
in investments with declining earnings.
During the year, our Private Equity team generated total
proceeds of GBP831 million (2014: GBP669 million) from
realisations. These included GBP155 million returned as a result of
refinancings (2014: GBP59 million). Favourable debt markets have
allowed us to enhance capital structures and introduce higher
leverage in a number of our best performing and highly cash
generative assets. Despite this, average debt to EBITDA within the
portfolio remained stable at 3.1x (2014: 3.1x). Proceeds from
refinancings are generally returned as a repayment of shareholder
loans, and do not usually generate a profit over value. Excluding
refinancings, we realised profits of GBP144 million over opening
valuation, an overall uplift of 27%, from a combination of asset
sales and IPOs (2014: GBP190 million, 45%), including sales of
Hilite at 2.1x and Vedici at 2.0x original cost.
In particular, the sustained, constructive market backdrop for
realisations has meant that we have made very good progress in
selling some of our smaller, more challenged investments and the
number of portfolio companies has reduced to 65 at 31 March 2015
(31 March 2014: 81). The sale of Azelis, signed in February 2015
and completed in May 2015, is an excellent example of the potential
for recovery, when we are able to focus on more intensive asset
management. Over the last few years we have changed the Chairman
and management at Azelis and agreed a new plan and financial
structure which has underpinned its successful recovery and exit.
We recognised GBP40 million of value growth in the year against an
opening value of GBP26 million at 31 March 2014.
In strong equity markets, we have also had the opportunity to
IPO investments such as Eltel, Refresco and Phibro.
We generated GBP273 million in proceeds from quoted equity sales
at, or post, IPO. Strong performance from our quoted portfolio,
including prior listings such as Quintiles, has meant that the
Private Equity quoted portfolio generated GBP177 million in value
growth and realised profits of 49% on the opening value.
Notwithstanding the strong overall performance, our portfolio
companies are not immune to wider macro issues and we had to reduce
the value of one investment materially during the course of the
year. Inspecta, which had been impacted by the economic environment
in Finland and Russia, declined in value by GBP32 million during
the year. We announced the sale of Inspecta in April 2015 and
expect it to complete in the first half of FY2016, with proceeds in
line with our 31 March 2015 valuation.
Although we have continued to be net divestors, we have
maintained the investment momentum started in FY2014. Our approach
remains selective, as the availability of competing capital can
quickly move prices outside our target returns. However, our sector
and market expertise has continued to deliver attractive
opportunities during the year. We invested in two US headquartered
businesses, Q Holding and Dynatect, and a UK business, Aspen Pumps,
which have ambitious plans to grow internationally. Together with
our Eurofund V investors, we also invested in Christ, a
German-based jewellery retailer, alongside our existing investment
in Amor. During the year our portfolio companies made over 20
acquisitions, representing a combined enterprise value of over
EUR400 million, funded almost entirely out of the companies' own
finances. These acquisitions are an important part of building the
strategic value of our portfolio companies, including delivering
their international growth potential. In total we made cash
investments of GBP457 million, of which GBP369 million was 3i's
proprietary capital (2014: GBP372 million, GBP276 million).
We continue to review a wide number of opportunities, but many
are not pursued if we judge that the sale price is likely to move
beyond where we see value.
Our longer term hold investments now account for approximately
50% of our portfolio value, and their strong performance, together
with realisations, has led to material improvement in Eurofund V
and the Growth Capital Fund, with multiples of 1.4x and 1.7x of
invested capital respectively (31 March 2014: 1.1x, 1.3x
respectively).
Infrastructure had a good year as gross investment return
increased to GBP96 million, or 20% (2014: GBP2 million, 0%). The
European portfolio continued to perform well and the dividends and
advisory fees from 3iN generated a good level of cash income for
the Group.
3iN's total shareholder return was 25% in the year, following
the highly successful sale of its holding in Eversholt Rail. This
transaction demonstrates how competitive the environment for large
European Core infrastructure investments has become, as sovereign
wealth and pension funds increase their investment appetite in the
face of prolonged low interest rates. The team achieved a good
level of new investment for 3iN, with GBP114 million of total
investment commitments in the year (2014: GBP80 million). The
Infrastructure team used its expertise gained through an existing
investment in Oystercatcher and its strong relationship with
Oiltanking to invest EUR107 million in two oil storage facilities
in the Netherlands and Belgium. The team also completed five PPP
deals, committing a total of GBP37 million.
3iN has a portfolio of high quality Core infrastructure assets
and this is reflected in significant increases in value in addition
to Eversholt Rail. Core infrastructure accounted for 83% of 3iN's
total investments at 31 March 2015.
3i has recognised GBP30 million of advisory and management fees
(2014: GBP24 million) and GBP45 million of performance fees during
the period (2014: nil). GBP35 million of these fees was accrued as
carry payable to the investment team (2014: nil). This carry will
be paid out to the team over a number of years.
The more favourable credit markets ensured that Debt Management
had a good year of fundraising, launching six CLOs in Europe and
North America and increasing AUM by 12% to GBP7.2 billion (31 March
2014: GBP6.5 billion). The team also launched a European Middle
Market Loan Fund with an investment mandate that permits a wider
range of investments, typically investing in smaller businesses
than CLOs. In the US, our Senior Loan Fund passed the $100 million
milestone which has created more investor interest in the product.
Both initiatives were important steps in diversifying the business
beyond CLOs and generating additional fee income. In total, Debt
Management recognised fee income of GBP34 million in FY2015 (2014:
GBP32 million), as new fundraising offset the effect of the run-off
of older funds.
The CLO markets are subject to increased regulatory change.
Regulators in Europe have mandated that CLO managers hold a minimum
amount of capital investments in their products. The US market has
introduced a similar practice although the corresponding
legislation does not come into force until December 2016. 3i is
well placed to comply with these changes given its proprietary
capital. 3i supported the development of the business and invested
GBP79 million in new CLOs in the year (2014: GBP40 million). These
equity investments generate a good cash yield which, together with
the fee income, is an important component of our operating cash
profit.
In 2012 we were operating with a substantial annual operating
cash loss and, as this was diluting capital returns to investors,
we set a KPI to achieve an operating cash profit. We undertook a
significant transformation programme, focusing on recurring fee
income and operational efficiencies and as a result, in FY2014, we
recorded a first annual profit of GBP5m. This measure improved
significantly to GBP28 million in FY2015. All of the businesses
have contributed to increased cash income with additional
fundraising in Debt Management and strong portfolio income from
Private Equity and Infrastructure. Operating expenses also declined
in FY2015 to GBP131 million or 1.0% of AUM (2014: GBP136 million,
1.0%). These costs included GBP12 million relating to acquisitions
made since 2012 and GBP1 million of restructuring costs (2014: GBP6
million, GBP9 million). To reflect increased activity levels, we
have recruited to support origination in both Private Equity and
Infrastructure and fundraising in Debt Management. The Group has
also now launched a Graduate Programme and will welcome its first
graduates in the Autumn. Looking forward, further cost efficiencies
are not expected and expenses will increase marginally as the
businesses continue to grow.
Maintaining the profitability of the combined fund management
platform is a key component of operating cash profit. This measure
improved in the year, as Debt Management's fundraising offset the
expected decline in Private Equity fees as a result of its strong
realisations. Actual fund management profit grew strongly to GBP26
million, with a margin of 21% (2014: GBP19 million, 15%).
Underlying profit, after restructuring and acquisition costs, was
stable at GBP33 million, with a margin of 26% (2014: GBP33m,
26%).
Reflecting our confidence in the future growth and cash
generation capacity of the business, we have announced a final
dividend ahead of our established guidance. We propose to pay a
total dividend for the year of 20 pence per share (2014: 20 pence
per share). This results in a final dividend for 2015 of 14.0p,
subject to shareholder approval.
What we have achieved in the last three years
To strengthen 3i both commercially and financially, our emphasis
has been on asset management, cash generation, cost control and
fund management margins. We have now completed our transformation
programme and our performance against our June 2012 objectives is
summarised on the next page and detailed below.
The six asset management initiatives were an essential part of
the strategic plan as Private Equity is, and will continue to be,
the biggest contributor to value growth for the Group. Since 2012
we have rebalanced the Private Equity business, selling off
non-core or underperforming assets and refocusing on a smaller
number of high growth middle-market companies. Over the longer term
we aim to have a portfolio of fewer than 40 investments and, to
date, we have made very good progress. The number of assets has
reduced to 65 at 31 March 2015 (31 March 2012: 124) and 89% of
assets by value are now held in our core geographies of northern
Europe and North America (31 March 2012: 77%). The improvement in
asset management is also producing quantifiable results. Unrealised
value growth over the last three years has principally been driven
by earnings which have improved to 19% in 2015 (2012: 9%). This was
driven by excellent performance in our largest assets and a
material reduction in smaller and non-core assets with negative
earnings growth. 22% of the portfolio by value at 31 March 2012 had
negative earnings growth compared to 7% at 31 March 2015. Early
indications on the new investments made since 2012 are very
promising.
This stronger portfolio of assets was valued at an average of
10.5x EBITDA (post discount) at 31 March 2015 compared to 14.6x
EBITDA for the FTSE 250.
The Group's AUM has increased by 9% per annum to GBP13.5 billion
at 31 March 2015 (31 March 2012: GBP10.5 billion) predominantly
driven by Infrastructure and Debt Management. Infrastructure
acquired a PPP platform in 2013, which is delivering deal flow to
3iN, and Debt Management expanded in the US via an acquisition in
2012. Debt Management, in particular, has successfully raised new
funds in both Europe and the US in the last two years.
A critical part of our strategic plan was to reduce the
operating cost base in order to use shareholders' capital for
distribution or reinvestment. Against a March 2012 run-rate cost
base of GBP185 million, we have savings of GBP70 million and
reduced costs to 1.0% of AUM (2012: 1.6%). Headcount reduced by 45%
to 240 at 31 March 2015, excluding acquisitions, and 276 including
acquisitions (31 March 2012: 435).
In 2012 we set out a target capital allocation model to
rebalance returns to our investors. Over the last three years we
have generated GBP2,124 million of realisation proceeds, invested
GBP766 million in new Private Equity investments, and GBP189
million to support Debt Management fundraising. Following the
reduction of gross debt of GBP542 million, we initiated an enhanced
shareholder distribution policy in July 2013. Including the
proposed final dividend for this year we will have returned GBP506
million of dividends to shareholders, whilst reaching a net cash
position and maintaining a robust balance sheet to support longer
term net asset growth.
At the end of our three-year restructuring, the Group has three
diverse, but complementary, businesses underpinned by the expertise
of our people and differentiated by our selective investment
approach and disciplined focus on returns.
The scorecard below reports on our achievements against the
objectives set following the Chief Executive's strategic review as
announced in June 2012.
3i's total shareholder return between 28 June 2012 and 31 March
2015 significantly outperformed benchmarks
3i Group plc +177%
FTSE 250 +72%
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FTSE 100 +36%
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achievements against 2012 objectives
1 2 3 4 5
Create a leaner Improve consistency Re-focus and Grow third-party Materially reduce
organisation and discipline re-shape the AUM and income gross debt and
with a cost base of investment Private Equity funding costs
more closely processes and business
aligned with asset management
its income approach
------------------------ ---------------------- ---------------------- ------------------
Achieved GBP70m Monthly dashboard Closed eight AUM up to GBP13.5bn Gross debt of
of ongoing savings monitoring of offices and refocused (2012: GBP10.5bn), GBP815m at 31
by March 2015, performance across activity in northern representing March 2015 halved
compared to original the Private Equity Europe and North a 9% CAGR. from GBP1,623m
GBP40m target. portfolio. America. Platform acquisitions at 31 March 2012.
Headcount reduced Detailed exit Selective recruitment in US Debt Management Gross interest
by 37% to 276 strategy in place to support future and European costs reduced
at 31 March 2015, for every asset. investment activity. Infrastructure by 52% to GBP49m,
including 36 Controls in place Number of portfolio added GBP2.8bn 18% below the
from new acquisitions. to minimise risk companies reduced of AUM. target of GBP60m
Actual costs, of over investment from 124 at 31 GBP3.5bn of new (2012: GBP103m).
including acquisitions, at the top of March 2012 to funds raised RCF refinanced
were GBP131m the cycle. 65 at 31 March in last 18 months. and term extended
in FY2015 (2012: Significant improvement 2015, with a to at least 2019.
GBP180m) representing in overall portfolio particular focus Nil gearing at
1.0% of AUM (2012: performance with on realising 31 March 2015
1.6%). earnings growth lower value and (2012: 18%).
of 19% in FY2015 underperforming
(2012: 9%). assets.
Eight new investments
in Germany, Benelux,
US and UK since
2012.
------------------------ ---------------------- ---------------------- ------------------
Our business today
Today 3i offers a differentiated and attractive value
proposition. By combining proprietary capital investing and the
management of third-party capital, our business model generates
capital returns and recurring fund management income. 3i is the
largest single investor in its Private Equity and Infrastructure
funds and this ensures that the interests of our shareholders, our
fund investors and co-investors are aligned. It also enables us to
retain a material share of the "alpha-generating" returns from
mid-market private equity and infrastructure investing. Recurring
management fee income contributes to the financial resilience of
the business and eliminates the capital dilution caused by the
costs of running the business. Capital growth and regular dividends
evidence our progress and provide long-term value for our
shareholders.
In Private Equity, our strong international network of local
investment teams and proven ability to develop businesses
internationally allows us to build credibility with management and
vendors. Our proprietary capital affords us flexibility and speed,
which differentiates our competitive position.
Combining our focus on driving operational excellence within our
portfolio companies and an institutional approach to the process of
investment management supports our strategic objective to achieve
our target of at least 2x our money invested over three to five
years.
Monetary policy across the developed world has led to an
abundance of equity and debt capital chasing a limited supply of
investment opportunities. So the principal constraint on our
activity is investment opportunity at sensible prices. We expect to
invest in four to seven new investments a year and commit EUR500 -
EUR750 million. But we will only do this if investments meet our
demanding strategic and financial criteria. Given the strength of
the Group's financial position, and the scale of potential
investment, we intend to fund this activity principally from
proprietary capital.
As a result, we have decided not to initiate a new third-party
fundraising in the short to medium term, notwithstanding our
improved performance.
The impact of central bank intervention on sovereign wealth and
pension fund managers' appetite for infrastructure investing is
expected to persist. Although the Infrastructure team is actively
participating in bidding processes, our priority, as investment
adviser to 3iN, is to maintain a disciplined approach to new
investments. The team continues to monitor and review opportunities
in adjacent markets, including new sectors and geographies. In the
meantime, significant value growth in the existing portfolio is
supporting 3iN's NAV appreciation and the business will continue to
be an important contributor to our fund management profitability
and to operating cash profit.
Our Debt Management business is principally a fund management
platform; its calls on 3i's proprietary capital are limited to
regulatory requirements and seed capital for new product
development. Aided by the positive market conditions throughout
FY2014 and FY2015, our US and European teams were very successful
in raising new funds. We expect this general environment to persist
as banks continue to actively manage their lending exposures by
syndicating assets to alternative funds such as CLOs. The current
appetite for yield is also supportive for our new product offerings
such as the European Middle Market Loan Fund and the US Senior Loan
Fund.
Outlook
3i is demonstrably a more resilient business, both commercially
and financially, than it was when we started the restructuring
three years ago. The focus we have placed on embedding
institutional quality investment management processes throughout
the businesses and our ongoing cost discipline has generated real
results. We are confident that this, along with the expertise and
integrity of our people, will underpin our aim to generate
attractive shareholder returns through the cycle.
None of this progress would have been possible without the
dedication and hard work of the 3i team. I would like to thank them
for their application and good work over the period to bring 3i
back to today's healthy position. I would also like to take this
opportunity to thank Sir Adrian Montague, our departing Chairman.
He has been a pleasure to work with over the last three years and
he has revamped our Board in line with the restructuring of the
Group.
We look to the future with confidence in the knowledge that
there is still much more to achieve at 3i.
How we performed
Key Performance Indicators
GROSS INVESTMENT RETURN ("GIR") NET ASSET VALUE TOTAL SHAREHOLDER RETURN ("TSR")
("NAV")
% of opening portfolio value NAV per share (p) %
Financial year As at 31 March Financial year
--------------------------------------------------------------- ------------------------------------------------------------------
FY2013 FY2014 FY2015 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
------------------- ---------------------- ------------------- ------------------- --------------------- --------------- ------------- ------------- -------------------
19 20 23 311 348 396 TSR 54 30 27
------------------- ---------------------- ------------------- ------------------- --------------------- --------------- ------------- ------------- -------------------
Share price 50 26 22
--------------------------------------------------------------- --------------- ------------- ------------- -------------------
Dividend 4 4 5
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Rationale Rationale Rationale
GIR is how we measure the performance of proprietary NAV is a measure of the fair value of our proprietary TSR measures the return to our shareholders through the change in
investments portfolio investments after the net costs of operating share price and dividends
the business paid during the period
--------------------------------------------------------------- ------------------------------------------------------------------
2015 progress 2015 progress 2015 progress
* Strong Private Equity performance demonstrates the * Good progression in NAV per share to 396p, up 14% * TSR of 27% reflecting an increase in share price from
benefits of the asset management improvement over the year 398p at close 28 March 2014 to 482p at close 31 March
initiatives 2015, the final FY2014 dividend of 13.3p paid in July
2014 and the interim FY2015 dividend of 6.0p paid in
* Strong Private Equity and Infrastructure GIR, the January 2015
* Good flow of Private Equity realisations delivered primary contributors to 48p NAV growth
realised profits over opening value of GBP144m
representing an uplift of 27% (excluding * Good flow of realisations and strong balance sheet
refinancings) * Sterling materially strengthened against the euro in resulted in proposed additional dividend of 11.9p per
the year, offset by its weakening against the US share for the year over base annual dividend of 8.1p
dollar, resulting in a net translation loss of per share, bringing the total for FY2015 to 20.0p per
* Value uplifts and realisations from the European GBP114m on net assets in the year, which reduced NAV share
infrastructure portfolio led to a material increase by 12p
in the value of 3iN
* Negative foreign exchange movements in the year of
GBP154m on our investment 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 and 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
* The 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/(LOSS)
GBPbn Profit (GBPm) and Margin (%) GBPm
Financial year Financial year Financial year
----------------------------------------------------------------- ---------------------------------------------------------------
FY2013 FY2014 FY2015 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
------------ ------------ ------------------ ------------- ------------- ------------- -------------------- ------------------ ----------------- ------------------------
AUM 12.9 12.9 13.5 Profit GBP17m GBP33m GBP33m (8) 5 28
------------ ------------ ------------------ ------------- ------------- ------------- -------------------- ------------------ ----------------- ------------------------
Proprietary
Capital 3.7 3.4 3.3 Margin 13% 26% 26%
------------ ------------ ------------------ ------------- ------------- ------------- -------------------- ------------------ ----------------- ------------------------
Third-party
Capital 9.2 9.5 10.2
------------ ------------ ------------------ ------------- ------------- ------------- -------------------- ------------------ ----------------- ------------------------
Rationale Rationale Rationale
AUM forms the basis on which management fee income is generated. Underlying Fund Management profit allows us to assess the Covering the annual cost of running our business with the
For funds out of their reinvestment performance of our Fund Management annual cash income eliminates capital
period, this is measured at residual cost business return dilution
----------------------------------------------------------------- ---------------------------------------------------------------
2015 progress 2015 progress 2015 progress
* Total AUM grew by 4% to GBP13.5bn * Underlying Fund Management profit remained stable at * Operating cash profit improved significantly to
GBP33m in the year, as reduced fees from Private GBP28m
Equity were offset by growth in fees from Debt
* Growth in third-party AUM to GBP10.2bn (75% of total Management and Infrastructure
AUM) * Good cash income generated by the Private Equity
portfolio and increased AUM in Debt Management and
* Divestment activity led to a reduction of 8% in Infrastructure funds
* New funds raised in the year included six new CLOs Private Equity AUM and a reduction in total fee
and the first close of a EUR250m European Middle income (including synthetic fee) of 14%
Market Loan Fund which offset the effect of Private * Further enhanced the Group's operational efficiency
Equity realisations and the normal attrition in Debt following the cost reduction programme initiated in
Management as funds mature * Infrastructure fee income increased by 25% as we 2012
recognised a full year of income from the BIFM PPP
funds
* Proprietary Capital AUM stable at GBP3.3bn as the
good flow of Private Equity realisations largely
replaced with new investments * Debt Management AUM increased by 12% and fee income
increased by 6%
----------------------------------------------------------------- ---------------------------------------------------------------
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,
macroeconomic/political conditions and/or regulatory investment opportunity or fundraising appetite is weak due to operational underperformance
event
* Adverse fluctuations in financial markets impact our * Unplanned increase in cost base eg due to regulatory
* Regulatory change limits 3i's ability to raise fee-based businesses changes
third-party capital
* Regulatory change adds to 3i's cost base
----------------------------------------------------------------- ---------------------------------------------------------------
Business review
This business review reports on the activity of each of our
businesses. Financial performance is summarised in the Chief
Executive's review and reported in detail in the Financial
review.
Private Equity
Business lines
"A strong performance across all aspects of the business,
including GBP457 million of investment."
Alan Giddins and Menno Antal
Managing Partners and Co-heads of Private Equity
Private Equity is the largest contributor to the Proprietary
Capital returns; accounting for 81% of the Proprietary Capital
portfolio at 31 March 2015 (31 March 2014: 82%). The portfolio's
performance was strong in the year; driven by growth of 19% in
earnings and good realisations, through sales and IPOs as well as
refinancings. The gross investment return was GBP719 million for
the year, or 24% on the opening portfolio (2014: GBP647 million,
24%).
Investment activity
We increased the amount of investment in the year and completed
four new transactions. In total GBP457 million was invested;
including GBP369 million of 3i's Proprietary Capital (2014: three,
GBP372 million, GBP276 million).
Each new investment demonstrates our origination and investment
execution strengths. We invested in Q Holding and Dynatect, which
are both leading US headquartered industrial businesses with clear
strategies to accelerate their growth internationally. Our sector
focus and proven experience in achieving international growth and
diversification, recently demonstrated by Mold-Masters and Hilite,
were important as key differentiators against competing US private
equity firms for both investments.
Table 1 : Private Equity cash investment in the year to 31 March
2015
Proprietary
Proprietary capital value
Total capital at 31 March
investment investment 2015
Investment Type Business description Date GBPm GBPm GBPm
============ ========= ================================ ================ =========== ============ ==============
Jewellery and watch retailer in
Christ New(1) Germany December 2014 173 99 165
Manufacturer of specialist
moulded rubber and silicone
Q Holding New components December 2014 102 100 109
Manufacturer of engineered,
mission critical protective
Dynatect New equipment September 2014 66 65 71
Manufacturer of condensate
Aspen New removal pumps February 2015 65 64 64
Acquisition of LP stake in
EFV stake Further Eurofund V June 2014 27 27 n/a
Other(2) Further n/a 24 14 n/a
============ =========================================== =============== =========== ============ ==============
Total 457 369
=========================================================================== =========== ============ ==============
1 Christ was acquired alongside Amor as a follow on investment for Eurofund
V and is now recorded as a single investment "Amor/Christ".
2 The value in the table above includes Amor.
Other includes further investment to support the portfolio, including
acquisition funding or working capital.
We also invested in Christ, a German-based jewellery retailer,
and Aspen Pumps, a UK-based specialist manufacturer of condensate
removal pumps. Christ was acquired through Eurofund V, alongside
our investment in Amor. We had followed Christ as a potential
target since late 2012. This positioned us well when the process
started, allowing us to move quickly and secure the investment.
Similarly, we had followed Aspen since early 2014, allowing us to
develop a good understanding of the business and broader market
environment as well as build relationships with management, which
gave us good insight when a sales process was initiated.
In June 2014, we took the opportunity to purchase a small
additional stake in Eurofund V at the 31 March 2014 NAV, adjusted
for cash flows, which further increased our exposure to investments
we know well.
An important part of building the strategic value of our
portfolio companies, including achieving international expansion,
is an active acquisition programme. Our portfolio companies made
over 20 acquisitions in the year, with a combined enterprise value
of over EUR400 million, primarily funded from the companies' own
cash and banking facilities.
Realisations activity
Realisations, refinancings and IPOs generated GBP831 million of
proceeds during the year. Excluding refinancings of GBP155 million,
this represented an uplift over opening value of GBP144 million, or
27% (2014: GBP190 million, 45%). The uplift was lower than the
prior year due to a number of investments being valued on an
imminent sales basis at 31 March 2014. Proceeds from refinancings
are usually recognised primarily as a repayment of shareholder
loans with minimal uplifts as a result.
In addition to the number of notable larger exits and IPOs, we
continued to sell smaller and non-core assets. At 31 March 2015,
there were 65 investments in the Private Equity portfolio, down
from 81 at 31 March 2014. In the longer term, we expect to hold a
portfolio of fewer than 40 Private Equity investments.
Table 2 details the Private Equity realisations activity in the
year.
Table 2: Private Equity realisations in the year to 31 March
2015
31 March Uplift on Money
3i
Calendar 2014 realised Profit/(loss) opening Residual multiple
in the
year value proceeds year(1) value(1) value over
Investment Country invested GBPm GBPm GBPm % GBPm cost(2) IRR
=============== ========== ========== ========= ========= ============== ========== ========= ========= =====
Full
realisations
Hilite Germany 2011 133 151 25 20% - 2.1x 31%
Phibro USA 2009 93 122 27 28% - 1.7x 11%
Vedici France 2010 58 83 27 48% - 2.0x 17%
LHI China 2008 33 40 8 25% 2 2.8x 18%
John Hardy Hong Kong 2007 25 25 - -% 2 1.6x 7%
Gain Capital USA 2008 12 10 (2) (17)% - 0.9x (2)%
WFCI France 2011 - 10 10 100% - 0.8x (6)%
Derprocon Spain 2000 5 7 1 17% - 2.0x 7%
Café y Te Spain 2006 4 6 2 50% - 0.5x (7)%
Other
investments n/a n/a - 2 2 n/a - n/a n/a
Partial
realisations
Eltel Nordic 2007 63 87 24 38% 47 0.9x (1)%
Foster +
Partners UK 2007 66 66 - -% 40 1.8x 10%
Quintiles USA 2008 25 29 4 16% 144 3.1x 24%
Refresco Benelux 2010 15 25 10 67% 47 1.6x 11%
Other
investments n/a n/a 7 9 2 n/a 150 n/a n/a
Refinancings
Action Benelux 2011 95 113 18 19% 592 7.1x 80%
Element Benelux 2010 22 23 1 5% 145 3.0x 31%
Amor(3) Germany 2010 21 19 (2) (10)% 55 1.6x 15%
Deferred
consideration
Other
investments n/a n/a - 4 4 n/a n/a n/a n/a
=============== ========== ========== ========= ========= ============== ========== ========= ========= =====
Total 677 831 161 24% 1,224 2.0x n/a
======================================= ========= ========= ============== ========== ========= ========= =====
1 Cash proceeds in the year over opening value realised.
2 Cash proceeds over cash invested. For partial realisations and refinancings,
31 March 2014 value reflects the element being disposed and valuations
of any remaining investment are included in the multiple.
3 Loss on disposal offset by income received.
Assets under management
AUM declined to GBP3.8 billion at 31 March 2015 (31 March 2014:
GBP4.1 billion) as a result of net divestment activity. AUM is
calculated as the original cost of our managed portfolio and, while
this has reduced, the value of the portfolio has increased to
GBP4.8 billion (2014: GBP4.6 billion) as a result of strong value
growth.
The performance of Eurofund V and the Growth Capital Fund
continued to improve with money multiples at 31 March 2015 of 1.4x
and 1.7x respectively (31 March 2014: 1.1x, 1.3x). The investments
made in the second half of Eurofund V, post 2010, are showing a
particularly strong performance, with a money multiple of 2.6x at
31 March 2015 (31 March 2014: 2.1x).
The Group is well placed to fund the current level of activity
from current resources and future realisations. Consequently we
have no plans to initiate a new Private Equity fundraising in the
short to medium term, notwithstanding the success of the team in
improving the performance of our most recent funds.
The results of the business have been delivered by an
internationally cohesive team, further strengthened by recruitment
at associate level in the year.
Table 3: Assets under management
Fee
Remaining Gross income
3i % money received
commitment invested multiple(1) in the
Original Original 3i at March at March at March year
Private Equity Close date fund size commitment 2015 2015 2015 AUM GBPm
================= ============ ========== ============ =========== ========= ============ ========== =========
3i Growth
Capital Fund Mar 2010 EUR1,192m EUR800m EUR376m 53% 1.7x EUR472m 2
3i Eurofund V Nov 2006 EUR5,000m EUR2,780m EUR118m 94% 1.4x EUR2,310m 11
3i Eurofund IV Jun 2004 EUR3,067m EUR1,941m EUR78m 96% 2.3x EUR471m -
Other Various Various Various n/a n/a n/a GBP1,098m -
================= ============ ========== ============ =========== ========= ============ ========== =========
Total Private Equity AUM GBP3,785m 13
=============================== ========== ============ =========== ========= ============ ========== =========
1 Gross money multiple is the cash returned to the fund plus remaining value as at 31 March
2015, as a multiple of cash invested.
Infrastructure
"The business delivered a strong result, driven by the
performance of its investment in 3i Infrastructure plc."
Ben Loomes and Phil White
Managing Partners and Co-heads of Infrastructure
Infrastructure generates returns for Proprietary Capital,
primarily through our holding in 3iN, and Fund Management returns
from advisory and management fees from 3iN, PPP funds and the
legacy Indian Infrastructure fund. Infrastructure performed
strongly in the year with a gross investment return of GBP96
million,
or 20% on the opening portfolio (2014: GBP2 million, 0%). The
business generated GBP30 million (2014: GBP24 million)
of advisory and management fees across its funds and GBP10
million of net performance fees (2014: nil).
INVESTMENTS ADVISER TO 3iN
In its capacity as 3iN's investment adviser, 3i advised on six
new investments including the acquisition of holdings in two
further oil storage facilities and a number of primary PPP
projects. In total, 3iN committed GBP114 million to new investment
in 2015 (2014: GBP80 million).
We also advised 3iN on the exit of its holding in Eversholt
Rail, one of the three leading rail rolling stock companies in the
UK. Eversholt Rail was acquired by 3iN in December 2010 as part of
a consortium. In January 2015, all of the consortium partners
agreed to sell the business. This resulted in proceeds of
approximately GBP381 million for 3iN, inclusive of a GBP15 million
dividend received by 3iN in December 2014. This compares to a 31
March 2014 valuation of GBP160 million.
In July 2014, 3iN's shareholders approved a number of amendments
to its Investment Advisory Agreement with 3i. These included the
extension of the fixed term of the agreement for a period of four
years, with one year's rolling notice thereafter.
Under the terms of the investment advisory agreement, 3i
received an advisory fee of GBP17 million (2014: GBP16 million) and
a NAV-based performance fee of GBP45 million (2014: nil), of which
GBP34 million (2014: nil) is accrued as payable to the team. Actual
payments will be made over a number of years. A further GBP1
million in performance fees payable to the team has been accrued as
a result of performance of other reward schemes.
3iN PERFORMANCE
In addition to its role as investment adviser, 3i holds a 34%
(2014: 34%) stake in 3iN. 3iN performed strongly in the year; the
share price increased by 19% to 160 pence at 31 March 2015 (31
March 2014: 135 pence) and it delivered a 25% total shareholder
return in the year, the strongest annual return since the IPO in
2007.
In total, 3i's investment in 3iN contributed GBP77 million of
value growth (2014: GBP5 million) and GBP20 million of dividend
income in 2015 (2014: GBP21 million). This uplift was underpinned
by the exit of Eversholt Rail, and value growth across its Core
infrastructure portfolio, supported by the continued returns
compression and consequent reduction in discount rates applied.
ASSETS UNDER MANAGEMENT
Due to the growth in 3iN's NAV, AUM increased to GBP2.5 billion
(31 March 2014: GBP2.3 billion). 3iN's strong performance offset a
small value reduction in the India Infrastructure Fund following
the first realisations of investments in the Fund, and where the
portfolio continues to face a number of challenges. 3i's share of
the Indian portfolio is now valued at GBP64 million (2014: GBP75
million).
In line with our strategy to grow Infrastructure's contribution
to our Fund Management profits, we continue to explore
opportunities to grow AUM. Our acquisition of BIFM in 2013
broadened the Infrastructure team's skill set and market access
and, as the business grows, we expect to continue to enhance both
our investment and support capabilities.
Debt Management
"Six new CLOs and important product diversification added GBP2.4
billion of new AUM."
Jeremy Ghose
Managing Partner, and CEO, 3i Debt Management
Debt Management is principally a Fund Management business which
primarily generates returns through managing third-party capital
through CLOs and other senior debt focused funds. We also generate
Proprietary Capital returns from 3i's investment in funds managed
by Debt Management. Such investments are made to support new
products or for regulatory purposes and totalled GBP105 million
during the year (2014: GBP61 million).
The Debt Management team had a good year of fundraising, closing
six new CLOs and a new EUR250 million European Middle Market Loan
Fund. AUM grew to GBP7.2 billion at the end of the year (31 March
2014: GBP6.5 billion) as GBP2.4 billion of new AUM was offset by
run-off and foreign exchange movements of GBP1.7 billion of AUM.
The business generated GBP34 million of fee income in the year
(2014: GBP32 million).
Fundraising activity
In the year the team closed three CLOs in Europe and three in
the US, raising a total of GBP2.2 billion new CLO AUM. We continue
to operate CLO warehouse vehicles in both Europe and the US ahead
of establishing new CLO vehicles. We also held a first close of the
European Middle Market Loan Fund at EUR250 million, entirely with
third-party funds. This is a new fund established to invest in
smaller businesses than we typically target in the CLOs and is an
important diversification.
The US Senior Loan Fund, an open-ended fund, performed strongly
and outperformed its benchmarks in the year. AUM increased to $157
million at 31 March 2015 (31 March 2014: $79 million).
The team was able to take advantage of strong CLO markets and
grow AUM without increasing resource in the year but is likely to
require some incremental additional resource for further AUM
growth, particularly as we look to diversify and grow our non-CLO
product offering.
Table 4 details Debt Management AUM.
Regulatory environment
The regulatory environment continues to evolve. European
regulation now in force requires CLO sponsors or originators to
retain a 5% minimum stake in each CLO raised. Similar rules are
being introduced in the US and many new US CLOs are being
structured to comply with both the European rules and the future US
rules. This is concentrating the CLO market to those managers with
access to long-term capital, such as 3i, but it is also giving rise
to new business models and vehicles to support future CLOs, which
3i continues to monitor.
Valuations and income
Debt Management generated a negative gross investment return of
GBP10 million (2014: GBP16 million profit), primarily as a result
of an unrealised value reduction of GBP25 million during the year
(2014: GBP10 million gain). As noted above, 3i is required to hold
at least 5% of the European CLOs it manages. We typically invest in
the most junior ranked level subordinated notes, which we account
for as equity given its characteristics. During the year, we
typically invested at or near par in the most junior ranked
subordinated notes to satisfy the 5% holding requirement. In most
cases, third-party investors have invested at a discount to 3i's
investment, which sets an external reference point for valuation.
This resulted in a fair value reduction of GBP5 million in the
year. Value also reduced as a result of strong distributions from
the CLO portfolio; GBP16 million of income was recognised. Finally,
in our older European CLOs and Palace Street 1, there were a small
number of underlying assets that were restructured in the year,
contributing to value losses.
The performance of all of the CLOs launched in the last two
years is very good, with early performance ahead of plan. There
were no defaults and distributions are providing an annualised
yield of between 8% and 20%.
Table 4: Assets under management - Debt Management
Realised Annualised Fee
income
Value equity equity received
in
Close Reinvestment Maturity of fund money cash the year
date period end date at Multiple(2) Yield(3, 4, 5) AUM GBPm
launch(1)
============ ========= ============== ========== ========== ============ =============== ========== ==========
European
CLO funds
Harvest CLO
XI Mar-15 Mar-19 Mar-29 EUR525m n/a n/a EUR400m -
Harvest CLO
X Nov-14 Nov-18 Nov-28 EUR467m n/a n/a EUR450m 0.6
Harvest CLO
IX July-14 Aug-18 Aug-26 EUR525m 0.1x 19.6% EUR508m 1.3
Harvest CLO
VIII Mar-14 Apr-18 Apr-26 EUR425m 0.1x 12.3% EUR413m 1.4
Harvest CLO
VII Sep-13 Oct-17 Oct-25 EUR310m 0.1x 8.3% EUR302m 0.7
Windmill
CLO I Oct-07 Dec-14 Dec-29 EUR500m 0.6x 8.6% EUR479m 2.2
Axius CLO Oct-07 Nov-13 Nov-23 EUR350m 0.6x 8.3% EUR234m 1.6
Coniston
CLO Aug-07 Jun-13 Jul-24 EUR409m 1.0x 12.6% EUR237m 1.1
Harvest CLO
V Apr-07 May-14 May-24 EUR632m 0.6x 8.1% EUR539m 3.2
Garda CLO Feb-07 Apr-13 Apr-22 EUR358m 1.3x 16.8% EUR162m 1.3
Pre 2007
CLOs n/a n/a n/a EUR3,111m n/a n/a EUR900m 7.6
GBP3,354m
============ ========= ============== ========== ========== ============ =============== ========== ==========
US CLO
funds
Jamestown
CLO VI Feb-15 Mar-19 Mar-27 US$750m n/a n/a US$750m 0.2
Jamestown
CLO V Dec-14 Jan-19 Jan-27 US$411m n/a n/a US$402m 0.3
Jamestown
CLO IV Jun-14 Jul-18 Jul-26 US$618m 0.1x 16.8% US$599m 1.2
COA Summit
CLO Mar-14 Apr-15 Apr-23 US$416m 0.3x 30.5% US$400m 0.6
Jamestown
CLO III Dec-13 Jan-18 Jan-26 US$516m 0.1x 14.9% US$499m 1.2
Jamestown
CLO II Feb-13 Jan-17 Jan-25 US$510m 0.4x 19.2% US$501m 1.6
Jamestown
CLO I Nov-12 Nov-16 Nov-24 US$461m 0.4x 18.8% US$453m 1.4
Fraser
Sullivan
CLO VII Apr-12 Apr-15 Apr-23 US$459m 0.6x 20.8% US$454m 0.7
COA Caerus
CLO Dec-07 Jan-15 Dec-19 US$240m 1.6x 23.7% US$240m n/a
Pre 2007
CLOs n/a n/a n/a US$1,000m n/a n/a US$354m 1.8
GBP3,145m
============ ========= ============== ========== ========== ============ =============== ========== ==========
Other funds
EMMF Nov-14 Nov-17 Nov-22 n/a n/a n/a EUR250m 0.1
Vintage II Nov-11 Sept-13 n/a US$400m n/a 1.5x US$201m 0.9
Palace
Street I Aug-11 n/a n/a n/a 0.9x 1.9% EUR3m n/a
Senior Loan
Fund Jul-09 n/a n/a n/a n/a 8.0% US$157m 0.3
COA Fund(6) Nov-07 n/a n/a n/a n/a 0.4% US$35m 0.3
Vintage I Mar-07 Mar-09 Jan-22 EUR500m 2.9x 6.2x EUR327m 2.6
Pre 2007
funds n/a n/a n/a EUR300m n/a n/a EUR25m 0.2
European n/a n/a n/a n/a n/a n/a EUR48m n/a
Warehouse
vehicles
GBP740m
================================================ ========== ============ =============== ========== ==========
Total Debt Management AUM
GBP7,239m
=================================================== ========== ============ =============== ========== ==========
1 Includes cost of assets and principal cash amount.
2 Multiple of total equity distributions over par value of equity at launch.
3 Average annualised returns since inception of CLOs calculated as annualised
cash distributions over par value of equity. Excludes unrealised equity
remaining in CLO.
4 Vintage I & II returns are shown as gross money multiple which is cash
returned to the Fund plus value as at 31 March 2015, as a multiple of
cash invested.
5 The annualised returns for the COA fund and Senior Loan Fund are the
annualised net returns of the Funds since inception.
6 The COA Fund AUM excludes the market value of investments the fund has
made in 3i US Debt Management CLO funds (US$54 million as at 31 March
2015).
Financial review
"All of our three businesses are performing well as demonstrated
by these strong results."
Julia Wilson
Group Finance Director
The Group delivered a strong result in the year. The table below
summarises our key financial data under the investment basis.
Table 5: Summary financial data
Year to/as at Year to/as at
31 March 31 March
Investment basis 2015 2014
================================================ ============== ==============
Group
Total return GBP659m GBP478m
Total return on opening shareholders' funds 19.9% 16.3%
Dividend per ordinary share 20.0p 20.0p
Operating expenses GBP131m GBP136m
As a percentage of assets under management 1.0% 1.0%
Operating cash profit GBP28m GBP5m
================================================ ============== ==============
Proprietary Capital
Realisation proceeds GBP841m GBP677m
Uplift over opening book value(1) GBP145m/27% GBP191m/45%
Money multiple 2.0x 1.8x
Gross investment return(2) GBP805m GBP665m
As a percentage of opening 3i portfolio value 22.6% 20.2%
Operating profit (3) GBP721m GBP539m
Cash investment GBP474m GBP337m
3i portfolio value GBP3,877m GBP3,565m
Gross debt GBP815m GBP857m
Net cash/(debt) GBP49m GBP(160)m
Gearing nil 5%
Liquidity GBP1,214m GBP1,197m
Net asset value GBP3,806m GBP3,308m
Diluted net asset value per ordinary share 396p 348p
================================================ ============== ==============
Fund Management
Total assets under management GBP13,474m GBP12,911m
Third-party capital GBP10,140m GBP9,508m
Proportion of third-party capital 75% 74%
Total fee income GBP125m GBP127m
Third-party fee income GBP80m GBP76m
Operating profit(3) GBP26m GBP19m
Underlying Fund Management profit(3,4) GBP33m GBP33m
Underlying Fund Management margin 26% 26%
=============================================== ============== ==============
1 Uplift over opening book value excludes refinancings. The 2014 balance
has been restated from GBP202 million to GBP191 million to exclude
refinancings.
2 Gross investment return includes portfolio fees of nil (2014: GBP3
million) allocated to Fund Management.
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.
Excludes Fund Management restructuring costs of GBP1 million and amortisation
4 costs of GBP6 million (2014: GBP8 million, GBP6 million).
Basis
3i adopted IFRS 10 in 2014 as its investment entity exception
prevented the risk of investment companies, such as 3i, having to
consolidate their portfolio investments.
However, as described in our 2014 Annual Report and Accounts, 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 audited IFRS statements, at the end of this
section.
Total return
The Group generated a total return of GBP659 million, or a
profit on opening shareholders' funds of 19.9% (2014: GBP478
million or 16.3%) in 2015, reflecting further progress and
achievement of our strategic priorities. Operating profit before
carry for the Proprietary Capital business was GBP721 million
(2014: GBP539 million). Strong underlying portfolio performance
generated a gross investment return of GBP805 million, despite
negative foreign exchange movements on the portfolio of GBP154
million (2014: GBP665 million and negative GBP113 million). Fund
Management operating profit before carry was GBP26 million (2014:
GBP19 million). Further details regarding the performance during
the year is provided below.
Table 6: Total return for the year to 31 March
2015 2015 2015 2014 2014 2014
Proprietary Fund Proprietary Fund
Capital Management Total Capital Management Total
Investment basis GBPm GBPm GBPm GBPm GBPm GBPm
============================================ ============ =========== ======= ============ =========== =======
Realised profits over value on disposal of
investments 162 - 162 202 - 202
Unrealised profits on revaluation of
investments 684 - 684 475 - 475
Portfolio income
Dividends 45 - 45 44 - 44
Income from loans and receivables 62 - 62 50 - 50
Fees receivable 6 - 6 4 3 7
Foreign exchange on investments (154) - (154) (113) - (113)
============================================ ============ =========== ======= ============ =========== =======
Gross investment return 805 - 805 662 3 665
============================================ ============ =========== ======= ============ =========== =======
Fees receivable from external funds - 80 80 - 73 73
Synthetic fees (45) 45 - (51) 51 -
Operating expenses(1) (32) (99) (131) (28) (108) (136)
Interest receivable 3 - 3 3 - 3
Interest payable (49) - (49) (54) - (54)
Movement in the fair value of derivatives (1) - (1) 10 - 10
Exchange movements 40 - 40 (3) - (3)
Other (loss)/income - - - - - -
============================================ ============ =========== ======= ============ =========== =======
Operating profit before carry 721 26 747 539 19 558
Carried interest and performance fees
receivable 80 3
Carried interest and performance fees
payable (142) (85)
Acquisition related earn-out charges (8) (6)
Operating profit 677 470
Income taxes (4) (3)
Re-measurements of defined benefit plans (14) 11
Total comprehensive income
("Total return") 659 478
Total return on opening shareholders' funds 19.9% 16.3%
============================================ ============ =========== ======= ============ =========== =======
1 Includes restructuring costs of nil (2014: GBP1 million) and GBP1 million
(2014: GBP8 million) for Proprietary Capital and Fund Management respectively.
Proprietary capital returns
Operating profit before carry on our Proprietary Capital
increased by 34% to GBP721 million (2014: GBP539 million) due to
strong value growth in the portfolio and good uplifts on
realisations. This performance is despite foreign exchange losses
of GBP114 million (2014: GBP116 million) which have principally
resulted from the weakening of the euro against sterling.
By business line, the gross investment return on the opening
portfolio was 24% from Private Equity (2014: 24%) and 20% from
Infrastructure (2014: 0%) while Debt Management recorded a loss of
7% (2014: profit of 20%) as a result of mark to market movements
which reduced CLO equity valuations. Private Equity accounts for
81% of the Proprietary Capital portfolio at 31 March 2015 (31 March
2014: 82%) and remains the primary driver of Proprietary Capital
returns.
Realised profits
Realised profits of GBP162 million in the year to 31 March 2015
(2014: GBP202 million) were driven by another year of strong exits,
with realisation proceeds totalling GBP841 million (2014: GBP677
million). Realisations, excluding refinancings, were achieved at an
uplift over opening value of 27%, which was lower than the 45%
achieved in 2014 due to a number of assets being valued on an
imminent sales basis at the beginning of the year. This past year
also saw a higher level of refinancing activity, which results in
cash proceeds with limited realised profit but concentrates value
in the remaining investment. We continue to pursue realisations
through careful exit planning, and in the current environment of
high prices, will take advantage of opportunities to divest should
they arise.
The majority of the realisations were from the Private Equity
portfolio, which contributed GBP831 million (2014: GBP669 million),
including GBP155 million of refinancing proceeds (2014: GBP59
million). Table 2, in the Private Equity section, details the
Private Equity realisations in the year and sets out the accounting
uplift reflected in this year's total return and the longer-term
cash-to-cash results. The Private Equity realisations completed in
the year have generated a money multiple of 2.0x over their
investment life.
We also made our first realisation from our Indian
Infrastructure portfolio, with the partial sale of the quoted
shares held in Adani Power. This generated GBP10 million of
proceeds at an uplift over the opening value of GBP1 million.
Unrealised value movements
Unrealised value movement was very positive in the year,
predominantly due to strong value growth from the Private Equity
portfolio. The table below summarises the revaluation movement by
category and each category is discussed further below.
Table 7: Unrealised profits/(losses) on revaluation of
investments for the year to 31 March
2015 2014
GBPm GBPm
======================================================== ========= ========
Private Equity
Earnings based valuations
Performance 417 182
Multiple movements 64 216
Other bases
Provisions - -
Uplift to imminent sale 22 9
Discounted cash flow 89 11
Other movements on unquoted investments 3 (10)
Quoted portfolio 46 70
Infrastructure
Quoted portfolio 77 6
Discounted Cash Flow (9) (19)
Debt Management (25) 10
========================================================= ======== ========
Total 684 475
========================================================= ======== ========
Private Equity unrealised value growth
The Private Equity portfolio performed strongly with value
growth of GBP641 million in the year (2014: GBP478 million). This
was underpinned by good value weighted earnings growth of 19%
(2014: 19%) and a multiple increase of 6% (2014: 20%), following
rises in quoted comparable multiples during the year and the
re-rating of a small number of assets. Net debt remained stable at
3.1x EBITDA notwithstanding the fact that we took advantage of
favourable debt conditions to refinance a number of our high
quality companies (2014: 3.1x). The majority of the portfolio (93%
by value, 2014: 87%) grew its earnings in the year and the larger
investments continue to perform very well.
Consistent with good performance and strong equity markets, our
opening quoted portfolio and the successful IPOs of Phibro, Eltel,
Dphone and Refresco during the year, resulted in unrealised value
growth of GBP46 million in addition to realised profits of GBP63
million in the year.
Performance
Improvements in the performance of the portfolio valued on an
earnings basis resulted in an increase in value of GBP417 million
(2014: GBP182 million). Value weighted earnings, the most relevant
measure of NAV impact, increased by 19% (2014: 19%) in the year.
Action, as our largest asset, with over 30% earnings growth in the
12 months, is a big contributor to this measure. Excluding Action,
the earnings growth is still a very robust 16% and now includes all
our recent investments. Acquisitions, principally funded from
portfolio companies' balance sheets, contributed 2% of the 19%
growth.
Table 8: Portfolio earnings growth weighted by March 2015
carrying values(1)
3i carrying value
at 31 March 2015
Last 12 months' (LTM) earnings growth (GBPm)
-------------------------------------- ------------------
<(20)% 32
(20) - (11)% -
(10) - (1)% 131
0 - 9% 753
10 - 19% 88
20 - 30% 387
>30% 868
====================================== ==================
1 Includes all companies valued on an earnings basis where comparable earnings data is available.
This represents 72% of the
Private Equity portfolio by value.
Although performance overall was good, there were a small number
of investments where company and geography specific issues impacted
value. In total, value reductions of GBP44 million, in relation to
seven assets, offset the general improvement. The largest single
negative movement related to Inspecta where performance was
impacted by the economic environment in Finland and Russia.
Inspecta reduced in value from GBP34 million at 31 March 2014 to
GBP6 million at 31 March 2015. After the year end, we agreed an
exit for this investment which is in line with the year-end
valuation.
Forecast earnings, used when the forecast EBITDA outlook is
lower than the last 12 months' data, were used for only two
investments at 31 March 2015, representing 6% of the portfolio by
number and 3% by value (2014: four, 9% by number and 3% by value).
Table 8 shows the earnings growth rates across the portfolio.
In the case of Action, the Dutch headquartered discount
retailer, EBITDA for valuation purposes is adjusted to reflect a
run-rate basis. Action is growing strongly due, in part, to its
successful store roll-out programme. We believe this run-rate
methodology fairly reflects the high growth characteristics of this
business, and therefore its maintainable earnings. Following a
number of IPOs by more directly comparable businesses in the
discount retail sector in the last 18 months, we have also reviewed
the valuation comparable set for Action. We have increased the
EBITDA multiple applied to Action's run-rate earnings to 14.2x
pre-liquidity discount and 13.5x post-discount (2014: 13.2x,
12.5x). Based on the run-rate earnings and capital structure at 31
March 2015, a 1x movement in the EBITDA multiple applied would
increase or decrease Action's value by GBP56 million. At GBP592
million (2014: GBP501 million), Action is the largest Private
Equity investment by value, representing 19% of the Private Equity
portfolio (2014: 17%).
We took the opportunity to refinance a number of high quality
companies, both increasing and extending the maturity of portfolio
debt, with 88% of the debt now repayable in 2017 or later (2014:
65%). Table 9 shows the ratio of net debt to EBITDA weighted by
portfolio value.
Table 9: Ratio of debt to EBITDA - Private Equity portfolio
weighted by March 2015 carrying values(1)
3i carrying value at 31 March 2015
Ratio of net debt to EBITDA (GBPm)
<1x 610
1 - 2x 483
2 - 3x 86
3 - 4x 428
4 - 5x 1,450
5 - 6x 62
>6x 6
============================ ===================================
1 This represents 99% of the Private Equity portfolio by value.
Multiple movements
Equity markets performed strongly throughout the year and the
average EBITDA multiple in the FTSE 250 increased by 10% to 14.6x
in the year (source: Capital IQ, excluding investment companies and
banks). As a matter of policy, we select an appropriate multiple
for each investment based on a comparable set of quoted companies
and adjust these comparable multiple sets with discounts and
occasionally premiums to take account of relevant size, sector,
growth and cycle considerations as appropriate. Against a strong
market backdrop, we have continued to apply a high level of
adjustments to reflect our caution about realistic valuation
uplifts.
The average EBITDA multiple used to value the Private Equity
portfolio increased by 6% to 11.2x before liquidity discount (2014:
10.6x) and 10.5x after liquidity discount (2014: 9.9x). This
translated into a positive movement in the year of GBP64 million
(2014: GBP216 million), including GBP45 million relating to the
Action multiple change. Excluding Action, the average EBITDA
multiple increased by 3% to 10.1x pre discount (2014: 9.8x) and
9.3x (2014: 9.0x) post discount.
Imminent sale
Four exit processes were sufficiently progressed to value on an
imminent sales basis at 31 March 2015 and the uplift to imminent
sale was GBP22 million (2014: GBP9 million). All four have been
announced since 31 March 2015 and are: Azelis, Inspecta, Touchtunes
and Soyaconcept.
Discounted cash flow
The largest investment valued using DCF in the Private Equity
portfolio is the Danish/German ferry group, Scandlines, which
recorded value growth of GBP94 million. Scandlines' largest ferry
route, Rødby-Puttgarden, is expected to have direct competition
from a new tunnel (the Fehmarn Belt project) at some point in the
future. In light of recent public commentary around expected
potential delays to the opening of this new tunnel, we have moved
back our assumption for the likely tunnel opening date in the
latest 31 March 2015 DCF valuation of Scandlines. This change,
combined with the profitable sale of a JV route in the year, were
the primary drivers of the increase in the value of our investment
in Scandlines in the period.
Quoted portfolio
The Private Equity quoted portfolio, including IPOs in the year,
generated unrealised value growth of GBP46 million (2014: GBP70
million). The investments in Gain and Phibro were fully divested in
the year and are noted in the realisations table . Table 10 details
the movement in the year and closing quoted portfolio.
Table 10: Quoted portfolio movement for the year to 31 March
2015
Total gross
Opening Disposals Unrealised Closing value investment
value at at opening value Other at 31 March return during
1 April 2014 book value growth movements 2015 the year
Investment IPO date GBPm(1) GBPm GBPm GBPm(2) GBPm GBPm
============== ================= ============= =========== =========== ========== ============== ==============
Pre 31 March
Quintiles 2014 122 (26) 30 18 144 52
Eltel February 2015 99 (62) 9 1 47 63
Phibro April 2014 93 (95) - 2 - 30
Refresco March 2015 57 (15) 4 1 47 31
Dphone July 2014 34 - 3 (2) 35 11
Pre 31 March
Gain Capital 2014 12 (13) - 1 - (1)
============== ================= ============= =========== =========== ========== ============== ==============
417 (211) 46 21 273 186
================================= ============= =========== =========== ========== ============== ==============
1 For portfolio companies with an IPO during the year, this is the value
pre-IPO.
2 Other movements include dividends and foreign exchange.
Infrastructure unrealised value movement
The Infrastructure portfolio primarily consists of our 34%
holding in 3iN. 3iN grew strongly in value during the year, as a
result of the divestment of Eversholt Rail and a re-rating of a
number of the remaining Core infrastructure investments following a
year of returns compression in the market. 3iN generated value
growth of GBP77 million for 3i Group in the year, driven by a 19%
increase in the share price to 160 pence (2014: 135 pence). This
was slightly offset by further modest falls in value of the Indian
Infrastructure portfolio as the investments continued to face a
number of challenges.
Debt Management unrealised value movement
The unrealised value movement in Debt Management comprises
mark-to-market valuations on both the CLO equity and the direct
investments held through warehouses, the US Senior Loan Fund and
Palace Street I. Of the unrealised loss of GBP25 million in the
year (2014: GBP10 million gain), GBP22 million has been recognised
on CLO equity. Three factors have driven the CLO prices. Firstly,
as funds make distributions, they effectively convert value to
portfolio income; GBP16 million of distributions were received by
3i in the year. Secondly, new investments into European CLOs have
typically been made by 3i, as sponsor, at par value but other
investors often invest at a discount. This can result in a fall in
value in the short term as the independent market prices we source
typically trend towards the non-sponsor trades. This resulted in a
fair value reduction of GBP5 million in the year. Long-term cash
returns remain unaffected (ie the valuation volatility at the time
of issue is not considered to be an indicator of long-term cash
returns of the CLO). Finally, a number of the older CLOs had
exposure to two poorer performing pre-crisis assets, which were
restructured in the year and further reduced value.
The remaining GBP3 million value loss related principally to the
wind down of Palace Street I, which had exposure to the same two
restructured assets.
Portfolio income
Income from the portfolio increased by 15% and was GBP113
million in the year to 31 March 2015 (2014: GBP98 million) of which
GBP80 million was received in cash (2014: GBP57 million). Dividends
of GBP45 million were received (2014: GBP44 million), including
GBP20 million from 3iN (2014: GBP21 million) and GBP16 million from
Debt Management CLO investments (2014: GBP10 million). Interest
income totalled GBP62 million (2014: GBP50 million), with GBP56
million (2014: GBP46 million) generated from Private Equity
investments and GBP6 million (2014: GBP4 million) generated from
Debt Management investments. Approximately 75% of Private Equity
interest income is capitalised and received on exit, although
activity in the portfolio during the year resulted in a higher
element of interest being received as cash.
Net foreign exchange movements
The total net foreign exchange loss of GBP114 million (2014:
GBP116 million) was driven by the strengthening of sterling against
the euro (12.5%), Brazilian real (20.9%) and Swedish krona (15.7%)
resulting in losses of GBP175 million, GBP6 million and GBP13
million respectively. Sterling weakened against the US dollar
(12.4%) and Indian rupee (7.8%) during the year, resulting in gains
of GBP76 million and GBP5 million respectively. The net foreign
exchange loss reflects losses on non-sterling denominated portfolio
assets, as well as the translation of non-portfolio net assets,
including non-sterling cash held at the balance sheet date and
gross debt.
As at 31 March 2015, a 1% movement in the euro, US dollar and
the Swedish Krona would give rise to a GBP16 million, GBP8 million
and GBP1 million movement in total return respectively.
The net assets of the Group by currency are shown in Table 11
below.
Table 11: Net asset of the Group by currency at 31 March
2015
GBPm %
=============== ====== ===
Sterling 1,271 33
Euro 1,367 36
US dollar 990 26
Swedish krona 20 1
Other 158 4
=============== ====== ===
Proprietary Capital costs
Proprietary Capital costs include 100% of costs in relation to
the CEO, Group Finance Director and General Counsel and elements of
finance, IT, property, legal and regulatory, strategy and human
resources. Operating expenses increased by 14% to GBP32 million
(2014: GBP28 million) as the Group recognised the costs of
regulatory changes.
Synthetic fees, as defined in the glossary, of GBP45 million
(2014: GBP51 million) reflect the lower level of Proprietary
Capital being managed as a result of net divestment activity,
predominantly in Private Equity.
Net interest payable
The gross interest paid was GBP49 million (2014: GBP54 million)
and 18% below the target set in 2012 to reduce interest paid to
GBP60 million per annum. Included within this year's expense is
GBP1.5 million of arrangement fees in relation to the Group's
Revolving Credit Facility ("RCF") which were written off when it
was replaced with a new GBP350 million facility. The new facility
will reduce ongoing financing costs by GBP1.5 million per year.
The current gross debt position is detailed further in the
Balance Sheet section of this Financial Review and in
Note 16 of the Accounts (Note 7 in this document).
Cash interest received remained stable at GBP3 million (2014:
GBP3 million).
Fund Management returns
The Group's Fund Management income is driven by total AUM, which
was GBP13.5 billion at 31 March 2015 (31 March 2014: GBP12.9
billion). The launch of six CLOs, the European Middle Market Loan
Fund and further commitments to the US Senior Loan Fund in the Debt
Management business offset a fall in AUM arising from net
divestment activity in Private Equity. The proportion of
third-party assets under management grew marginally to 75% (2014:
74%).
An increase in third-party fee income and a fall in operating
expenses were offset by a fall in synthetic fees applied from the
Proprietary Capital business as a result of net divestment in
Private Equity.
As a result of the completion of our transformation plan, Fund
Management improved both its absolute profit and profit margin to
GBP26 million and 21% respectively (2014: GBP19 million, 15%).
Excluding restructuring and amortisation costs, underlying
operating profit and margin remained stable at GBP33 million (2014:
GBP33 million) and 26% (2014: 26%).
Table 12: Fund Management underlying profit for the year to 31
March
2015 2014
GBPm GBPm
======================================== ===== ======
Fees receivable from external funds(1)
Private Equity 16 20
Infrastructure 30 24
Debt Management 34 32
======================================== ===== ======
Synthetic fees
Private Equity 42 47
Infrastructure 3 3
Debt Management - 1
======================================== ===== ======
Total fee income 125 127
======================================== ===== ======
Fund Management operating expenses (99) (108)
======================================== ===== ======
Operating profit before carry 26 19
======================================== ===== ======
Restructuring costs 1 8
Amortisation costs 6 6
======================================== ===== ======
Underlying Fund Management profit 33 33
======================================== ===== ======
1 Includes nil portfolio related income in 2015 (2014: GBP3 million).
Total return
Table 13: Summarised total return for the year to 31 March
2015 2014
GBPm GBPm
====================================================================== ====== ======
Proprietary Capital operating profit before carry 721 539
Fund Management operating profit before carry 26 19
Operating profit before carry 747 558
====================================================================== ====== ======
Carried interest and performance fees receivable from external funds 80 3
Carried interest and performance fees payable (142) (85)
Acquisition related earn-out charges (8) (6)
====================================================================== ====== ======
Operating profit 677 470
====================================================================== ====== ======
Tax (4) (3)
Re-measurement of defined benefit plans (14) 11
====================================================================== ====== ======
Total comprehensive income ("Total return") 659 478
====================================================================== ====== ======
Total return on opening shareholders' funds 19.9% 16.3%
====================================================================== ====== ======
Net carried interest and performance fees payable
Net carried interest and performance fees payable decreased in
the year, with a net payable of GBP62 million (31 March 2014: GBP82
million payable). On a gross basis, carried interest and
performance fees payable increased to GBP142 million (2014: GBP85
million) and the receivable increased to GBP80 million (2014: GBP3
million).
Our largest Private Equity fund, Eurofund V, which includes
assets purchased in 2007-12, has not yet met the performance hurdle
due to the performance of the 2007-09 vintages. Although we have
seen a strong recovery in that fund's multiple to 1.4x (March 2014:
1.1x)invested capital, with 2010-12 investments valued at 2.6x
(March 2014: 2.1x), the drag from these earlier investments means
that we have not yet recognised carry receivable from this
fund.
Assets in the Growth Capital Fund include Quintiles,
Refresco-Gerber, Touchtunes and BVG and, as a result of their
strong performance, its multiple on invested capital is now 1.7x
(March 2014: 1.3x). We are now recognising carry receivable on an
accruals basis and GBP25 million was recognised in the year (31
March 2014: nil).
We pay carry to our Private Equity 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 historically
over two or three year vintages to maximise flexibility in resource
planning. The improved performance of the Private Equity portfolio
over the last two years means that the majority of assets by value
are now held in carry payable schemes that have met their
performance hurdles, assuming the portfolio was realised at its 31
March 2015 valuation. Carry payable typically will increase or
decrease in line with the gross investment return at rates between
10% and 15%. The gross investment return in Private Equity of
GBP719 million (2014: GBP647 million) resulted in an accrual of
GBP103 million carry payable in the year, or 14% of gross
investment return (31 March 2014: GBP82 million, 13%). Carry is
usually only paid once the hurdles are passed in cash terms and,
during the year, GBP7 million was paid (2014: GBP19 million).
3iN pays a performance fee on an annual basis, subject to a
hurdle rate of return and a high-water mark based on net asset
value. The strong performance of the European assets held by 3iN,
including the exit of Eversholt Rail, resulted in an accrual of
GBP45 million of performance fees receivable in the year (31 March
2014: nil). Our Infrastructure investment team shares in the
performance fee receivable from 3iN, with the majority of
individual payments deferred over a number of years. Carry payable
to the Infrastructure team of GBP35 million has been accrued (2014:
nil) including GBP34 million in relation to the 3iN performance
fee.
Pension
The IAS19 liabilities of the Group's defined benefit pension
schemes have been impacted by decreases in their discount rates,
driven by the AA corporate bond yields. This resulted in a
re-measurement loss of GBP14 million (2014: GBP11 million gain) for
the year. On an IAS19 basis the pension scheme remains in a
significant surplus.
The 2013 triennial valuation of the UK defined benefit pension
scheme was completed in March 2014. It resulted in a very small
surplus and consequently no further contributions were made, or are
planned, as a result of this valuation.
Operating cash profit
Table 14: Operating cash profit for the year to 31 March
2015 2014
GBPm GBPm
================================================== ===== =====
Third-party capital fees 78 75
Cash portfolio fees 10 4
Cash portfolio dividends and interest 70 53
================================================== ===== =====
Cash income 158 132
================================================== ===== =====
Total operating expenses(1) 131 136
Less: Restructuring costs (1) (9)
================================================== ===== =====
Operating expenses excluding restructuring costs 130 127
================================================== ===== =====
Operating cash profit 28 5
================================================== ===== =====
1 Operating expenses are calculated on an accrual basis.
Third-party fees increased during the year following the launch
of six Debt Management CLOs and the European Middle Market Loan
Fund. Alongside growth in third-party fees we have focused on
generating cash income from the portfolio. Increased investment
into cash yielding Debt Management funds has generated good income
and the Private Equity portfolio has benefited from increased deal
fees on higher levels of activity. Consequently, the Group has been
able to materially improve its operating cash income to GBP158
million (2014: GBP132 million) despite the net divestment activity
in Private Equity.
Total operating expenses declined by 4% to GBP131 million (2014:
GBP136 million) as restructuring costs, which comprise redundancy,
office closures and organisational changes, reduced to GBP1 million
(2014: GBP9 million) as we reached the end of our transformation
plan. Excluding restructuring costs, operating expenses increased
by 2% to GBP130 million (2014: GBP127 million) principally due to
an increase in variable compensation resulting from share based
payments. Operating expenses as a percentage of weighted average
AUM remained stable at 1.0% (2014: 1.0%), as a result of the
continuing cost focus combined with the new CLO fund launches in
the year. We expect costs to rise marginally as we look to grow the
business, increase activity and deal with increased regulation but
we expect costs to remain at c1.0% of AUM.
In total, the operating cash profit position increased strongly
to GBP28 million (2014: GBP5 million).
Cash flow
Investment and realisations
Cash proceeds from realisations of GBP841 million (2014: GBP677
million) were partly offset by cash investment of GBP474 million
(2014: GBP337 million) and resulted in net cash inflow of GBP367
million (2014: GBP340 million). A further GBP140 million of
investment was in non-cash form (2014: GBP167 million) and total
investment was GBP614 million (2014: GBP504 million).
Further detail on investment and realisations is included in the
relevant business line sections.
Table 15: Investment activity - Proprietary Capital and
third-party capital for the year to 31 March
Proprietary Capital Proprietary and Third-party Capital
2015 2014 2015 2014
GBPm GBPm GBPm GBPm
===================== ========== ========== ================== ==================
Realisations 841 677 1,363 1,129
Cash investment (474) (337) (562) (517)
===================== ========== ========== ================== ==================
Net cash divestment 367 340 801 612
Non-cash investment (140) (167) (191) (279)
Net divestment 227 173 610 333
===================== ========== ========== ================== ==================
Balance sheet
Table16: Simplified balance sheet as at 31 March
2015 2014
GBPm GBPm
============================ ======= ===========
Investment portfolio value 3,877 3,565
Gross debt (815) (857)
Cash 864 697
============================ ======= ===========
Net cash / (debt) 49 (160)
Other net liabilities (120) (97)
============================ ======= ===========
Net assets 3,806 3,308
============================ ======= ===========
The Proprietary Capital portfolio increased to GBP3,877 million
at 31 March 2015 (31 March 2014: GBP3,565 million) as cash
investment of GBP474 million and unrealised value growth of GBP684
million offset the good realisations and the negative impact of
foreign exchange movements.
The mix of the portfolio remained broadly stable. The marginal
decline in Private Equity to 81% (31 March 2014: 82%) was offset by
a 1% increase in Debt Management to 5% (31 March 2014: 4%). The
weighting of the Infrastructure portfolio remained stable at 14%
(31 March 2014: 14%).
Net divestment activity and an operating cash profit led to cash
on the balance sheet increasing to GBP864 million (31 March 2014:
GBP697 million). Combined with a reduction in the sterling
equivalent of the 2017 euro denominated bond, the Group was in a
net cash position of GBP49 million at 31 March 2015 (31 March 2014:
GBP160 million net debt) ahead of paying the final dividend for
FY2015.
Gearing and borrowings
Table 17: Gearing and borrowings as at 31 March
2015 2014
================= ========= ==========
Gross debt GBP815m GBP857m
Net cash/(debt) GBP49m GBP(160)m
Gearing nil 5%
================= ========= ==========
Gearing reduced to nil at 31 March 2015 (31 March 2014: 5%) as
the Group ended the year in a net cash position. Overall
shareholders' funds increased to GBP3,806 million (31 March 2014:
GBP3,308 million) following the total return of GBP659 million in
the year to 31 March 2015.
Liquidity
Total liquidity was substantially unchanged at 31 March 2015
compared to 31 March 2014 at GBP1,214 million (31 March 2014:
GBP1,197 million). Cash and deposits increased to GBP864 million
(31 March 2014: GBP697 million) as a result of net divestment and
undrawn facilities reduced to GBP350 million (31 March 2014: GBP500
million) following the RCF refinancing.
Foreign exchange hedging
As a result of the reduction in non-sterling gross debt, and the
increased concentration of the portfolio into a smaller number of
individually significant assets, the use of derivatives for
portfolio value hedging purposes is less effective. As a result,
derivatives are no longer used to hedge currency movements on a
portfolio basis and foreign exchange risk is considered as an
integral part of the investment process. Specific short-term
hedging on entry or exit of an investment may be used as
appropriate.
Diluted NAV
The diluted NAV per share at 31 March 2015 was 396 pence (31
March 2014: 348 pence). This was driven by the total return in the
year of GBP659 million (2014: GBP478 million), and partially offset
by dividend payments in the year of GBP183 million (2014: GBP114
million).
Dividend
The Board has declared a total dividend of 20.0p (2014: 20.0p)
for 2015. This is made up of a 8.1p base dividend and an 11.9p
additional dividend. Due to our current net divestment activity and
robust balance sheet, we have proposed an additional dividend above
the top end of our 15%-20% distribution range, equivalent to 23% of
gross realised proceeds. Subject to shareholder approval, we will
pay the final dividend of 14.0p (2014: 13.3p) on 24 July 2015 to
shareholders on the register at 19 June 2015.
Key accounting judgements
In preparing these accounts, the key accounting judgement
relates to the carrying value of our investment assets which are
stated at fair value.
Given the importance of this area, the Board has a separate
Valuations Committee to review the valuations policies, process and
application to individual investments. However, asset valuations
for non-quoted investments are inherently subjective, as they are
made on the basis of assumptions which may not prove to be
accurate. At 31 March 2015 80% of the investment assets were
non-quoted (31 March 2014: 84%).
Accounting for investment entities: an assessment is required to
determine the degree of control or influence the Group exercises
and the form of any control to ensure that the financial treatment
is accurate. IFRS 10 has resulted in a number of intermediate
holding companies being presented at fair value which has led to
reduced transparency of the underlying investment performance. As a
result the Group continues to present an alternative non-GAAP
investment basis set of financial statements to ensure that the
commentary in the Strategic report remains fair, balanced and
understandable.
Investment basis
CONSOLIDATED Statement of comprehensive income
Total Total
2015 2014
GBPm GBPm
============================================================= ====== ======
Realised profits over value on the disposal of investments 162 202
Unrealised profits on the revaluation of investments 684 475
Portfolio income
Dividends 45 44
Income from loans and receivables 62 50
Fees receivable 6 7
Foreign exchange (loss) on investments (154) (113)
============================================================= ====== ======
Gross investment return 805 665
============================================================= ====== ======
Fees receivable from external funds 80 73
Operating expenses (131) (136)
Interest receivable 3 3
Interest payable (49) (54)
Movement in the fair value of derivatives (1) 10
Foreign exchange gain/(loss) 40 (3)
Operating profit before carry 747 558
============================================================= ====== ======
Carried interest
Carried interest and performance fees receivable 80 3
Carried interest and performance fees payable (142) (85)
Acquisition related earn-out charges (8) (6)
============================================================ ====== ======
Operating profit 677 470
Income taxes (4) (3)
============================================================= ====== ======
Profit for the year 673 467
============================================================= ====== ======
Other comprehensive income
Re-measurements of defined benefit plans (14) 11
============================================================ ====== ======
Total comprehensive income for the year ("Total return") 659 478
============================================================= ====== ======
Investment basis
CONSOLIDATED Statement of financial position
Total Total
2015 2014
GBPm GBPm
=================================================== ======== ===========
Assets
Non-current assets
Investments
Quoted investments 763 554
Unquoted investments 3,114 3,011
================================================== ======== ===========
Investment portfolio 3,877 3,565
Carried interest and performance fees receivable 43 17
Intangible assets 19 26
Retirement benefit surplus 136 137
Property, plant and equipment 4 5
Deferred income taxes 3 3
=================================================== ======== ===========
Total non-current assets 4,082 3,753
=================================================== ======== ===========
Current assets
Carried interest and performance fees receivable 45 -
Other current assets 85 92
Derivative financial instruments - 2
Cash and cash equivalents 864 697
=================================================== ======== ===========
Total current assets 994 791
=================================================== ======== ===========
Total assets 5,076 4,544
=================================================== ======== ===========
Liabilities
Non-current liabilities
Carried interest and performance fees payable (214) (106)
Acquisition related earn-out charges payable (10) (18)
Loans and borrowings (815) (849)
B shares - (6)
Retirement benefit deficit (19) (14)
Deferred income taxes (3) (2)
Provisions (5) (5)
=================================================== ======== ===========
Total non-current liabilities (1,066) (1,000)
=================================================== ======== ===========
Current liabilities
Trade and other payables (169) (198)
Carried interest and performance fees payable (13) (11)
Acquisition related earn-out charges payable (17) (10)
Derivative financial instruments - (4)
Current income taxes (2) (4)
Deferred income taxes - (1)
Provisions (3) (8)
=================================================== ======== ===========
Total current liabilities (204) (236)
=================================================== ======== ===========
Total liabilities (1,270) (1,236)
=================================================== ======== ===========
Net assets 3,806 3,308
=================================================== ======== ===========
Equity
Issued capital 719 718
Share premium 784 782
Other reserves 2,382 1,897
Own shares (79) (89)
=================================================== ======== ===========
Total equity 3,806 3,308
=================================================== ======== ===========
Investment basis
CONSOLIDATED Cash flow statement
2015 2014
GBPm GBPm
================================================ ====== ======
Cash flow from operating activities
Purchase of investments (474) (337)
Proceeds from investments 841 677
Cash divestment from traded portfolio 21 14
Portfolio interest received 26 9
Portfolio dividends received 44 44
Portfolio fees received 10 4
Fees received from external funds 78 75
Carried interest received 6 5
Carried interest and performance fees paid (13) (25)
Acquisition related earn-out charges paid (10) -
Operating expenses (117) (128)
Interest received 3 3
Interest paid (54) (57)
Income taxes paid (5) (7)
================================================ ====== ======
Net cash flow from operating activities 356 277
================================================ ====== ======
Cash flow from financing activities
Issue of shares 3 -
Repurchase of B shares (6) -
Dividend paid (183) (114)
Repayment of short-term borrowings - (164)
Net cash flow from derivatives 9 (32)
================================================ ====== ======
Net cash flow from financing activities (177) (310)
================================================ ====== ======
Cash flow from investing activities
Acquisition of management contracts - 2
Net cash flow from deposits - 90
================================================ ====== ======
Net cash flow from investing activities - 92
================================================ ====== ======
Change in cash and cash equivalents 179 59
Cash and cash equivalents at the start of year 697 656
Effect of exchange rate fluctuations (12) (18)
================================================ ====== ======
Cash and cash equivalents at the end of year 864 697
================================================ ====== ======
Reconciliation of Investment basis to IFRS
Background to investment basis financial statements
The Group makes investments in portfolio companies directly,
held by 3i Group plc, and indirectly, held through intermediate
holding company and partnership structures ("Investment entity
subsidiaries"). It also has other operational subsidiaries which
provide services and other activities such as employment,
regulatory activities, management and advice ("Trading
subsidiaries"). The application of IFRS 10 requires us to fair
value a number of intermediate holding companies that were
previously consolidated line by line. This fair value approach,
applied at the intermediate holding company level, effectively
obscures the performance of our proprietary capital investments and
associated transactions occurring in the intermediate holding
companies. The financial effect of the underlying portfolio
companies and fee income, operating expenses and carried interest
transactions occurring in Investment entity subsidiaries are
aggregated into a single value. Other items which were previously
eliminated on consolidation are now included separately.
As a result we introduced separate non-GAAP "Investment basis"
Statements of comprehensive income, financial position and cash
flow in our 2014 Annual Report and Accounts to aid understanding of
our results. The Strategic 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 equal
under the Investment basis and IFRS; the Investment basis is simply
a "look through" of IFRS 10 to present the underlying performance.
The two diagrams below illustrate these changes, together with an
illustrative example to show how information can be aggregated.
Recent IFRS 10 developments
The IASB issued a narrow scope amendment to IFRS 10 in December
2014, and subsequently the Group has revisited its initial
assessment of all of its subsidiaries, resulting in a small number
of entities now being consolidated rather than fair valued in the
IFRS financial statements. The Group has chosen to adopt the
changes provided in the narrow scope amendment, and has accounted
for the change in treatment retrospectively. The change has no
effect on total return or net asset value as reported in the
Group's IFRS financial statements. The Investment basis statements
are unchanged, as the entities now being consolidated in the IFRS
statements have always been consolidated in the Investment basis.
Given the judgement involved in interpreting the standard, and
ongoing discussion amongst the IASB and practitioners, similar
changes in future years remain possible.
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 below.
Reconciliation of CONSOLIDATED Statement
of comprehensive income
IFRS IFRS
Investment IFRS IFRS Investment adjustments basis
basis adjustments basis basis (restated) (restated)
2015 2015 2015 2014 2014 2014
Note GBPm GBPm GBPm GBPm GBPm GBPm
================================== ===== =========== ============ ====== =========== ============ ===========
Realised profits over value
on the disposal of investments 1,2 162 (108) 54 202 (56) 146
Unrealised profits on the
revaluation of investments 1,2 684 (448) 236 475 (394) 81
Fair value movements on
investment entity subsidiaries 1 - 530 530 - 433 433
Portfolio income
Dividends 1,2 45 (9) 36 44 (19) 25
Income from loans and
receivables 1,2 62 (24) 38 50 (21) 29
Fees receivable 6 - 6 7 - 7
Foreign exchange on investments 1,3 (154) 105 (49) (113) 68 (45)
================================== ===== =========== ============ ====== =========== ============ ===========
Gross investment return 805 46 851 665 11 676
================================== ===== =========== ============ ====== =========== ============ ===========
Fees receivable from external
funds 1 80 - 80 73 2 75
Operating expenses 1 (131) 9 (122) (136) - (136)
Interest receivable 3 - 3 3 - 3
Interest payable (49) - (49) (54) - (54)
Movement in the fair value of
derivatives (1) - (1) 10 - 10
Exchange movements 1,3 40 (101) (61) (3) (39) (42)
Income from fair value
subsidiaries 1 - 1 1 - 8 8
Operating profit before carry 747 (45) 702 558 (18) 540
================================== ===== =========== ============ ====== =========== ============ ===========
Carried interest
Carried interest and performance
fees receivable 80 - 80 3 - 3
Carried interest and performance
fees payable 1 (142) 70 (72) (85) 68 (17)
Acquisition related earn-out
charges (8) - (8) (6) - (6)
================================= ===== =========== ============ ====== =========== ============ ===========
Operating profit 677 25 702 470 50 520
================================== ===== =========== ============ ====== =========== ============ ===========
Income taxes 1 (4) 2 (2) (3) - (3)
================================== ===== =========== ============ ====== =========== ============ ===========
Profit for the year 673 27 700 467 50 517
================================== ===== =========== ============ ====== =========== ============ ===========
Other comprehensive income
Exchange differences
on translation of foreign
operations 1,3 - (27) (27) - (50) (50)
Re-measurements of defined
benefit plans (14) - (14) 11 - 11
================================= ===== =========== ============ ====== =========== ============ ===========
Total comprehensive income for
the year ("Total return") 659 - 659 478 - 478
================================== ===== =========== ============ ====== =========== ============ ===========
Notes:
1 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
years. 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.
2 Realised profits, unrealised profits, and portfolio income shown in
the IFRS accounts only relate to portfolio companies that are held
directly by 3i Group plc and not those portfolio companies held through
investment entity subsidiaries. Realised profits, unrealised profits,
and portfolio income in relation to portfolio companies held through
investment entity subsidiaries are aggregated into the single "Fair
value movement on investment entity subsidiaries" line. This is the
most significant reduction of information in our IFRS accounts.
3 Foreign exchange movements have been reclassified under the Investment
basis as foreign currency asset and liability movements within the
investment entity subsidiaries are included within fair value movements
on investment entities.
4 Other items also aggregated into the "Fair value movements on investment
entity subsidiaries" line include fees receivable from external
funds, audit fees, custodian fees, bank charges, other general and
administration expenses, carried interest and tax.
Reconciliation of CONSOLIDATED Statement of financial
position
IFRS IFRS
Investment IFRS IFRS Investment adjustments basis
basis adjustments basis basis (restated) (restated)
2015 2015 2015 2014 2014 2014
Note GBPm GBPm GBPm GBPm GBPm GBPm
================================ ===== =========== ============ ======== =========== ============ ===========
Assets
Non-current assets
Investments
Quoted investments 1 763 (364) 399 554 (296) 258
Unquoted investments 1 3,114 (1,842) 1,272 3,011 (1,687) 1,324
Investments in investment
entities 1,3 - 2,079 2,079 - 1,909 1,909
================================ ===== =========== ============ ======== =========== ============ ===========
Investment portfolio 3,877 (127) 3,750 3,565 (74) 3,491
================================ ===== =========== ============ ======== =========== ============ ===========
Carried interest and
performance
fees receivable 1 43 - 43 17 - 17
Intangible assets 1 19 - 19 26 (1) 25
Retirement benefit surplus 136 - 136 137 - 137
Property, plant and equipment 4 - 4 5 - 5
Deferred income taxes 1 3 - 3 3 - 3
================================ ===== =========== ============ ======== =========== ============ ===========
Total non-current assets 4,082 (127) 3,955 3,753 (75) 3,678
================================ ===== =========== ============ ======== =========== ============ ===========
Current assets
Carried interest and
performance
fees receivable 45 - 45 - - -
Other current assets 1 85 (31) 54 92 (16) 76
Derivative financial
instruments - - - 2 - 2
Cash and cash equivalents 1,2 864 (3) 861 697 (23) 674
================================ ===== =========== ============ ======== =========== ============ ===========
Total current assets 994 (34) 960 791 (39) 752
================================ ===== =========== ============ ======== =========== ============ ===========
Total assets 5,076 (161) 4,915 4,544 (114) 4,430
================================ ===== =========== ============ ======== =========== ============ ===========
Liabilities
Non-current liabilities
Carried interest and
performance fees payable 1 (214) 142 (72) (106) 76 (30)
Acquisition related earn-out
charges payable (10) - (10) (18) - (18)
Loans and borrowings (815) - (815) (849) - (849)
B shares - - - (6) - (6)
Retirement benefit deficit (19) - (19) (14) - (14)
Deferred income taxes (3) 2 (1) (2) - (2)
Provisions 1 (5) - (5) (5) - (5)
================================ ===== =========== ============ ======== =========== ============ ===========
Total non-current liabilities (1,066) 144 (922) (1,000) 76 (924)
================================ ===== =========== ============ ======== =========== ============ ===========
Current liabilities
Trade and other payables 1 (169) 17 (152) (198) 32 (166)
Carried interest and
performance fees payable 1 (13) - (13) (11) 5 (6)
Acquisition related earn-out
charges payable (17) - (17) (10) - (10)
Derivative financial
instruments - - - (4) - (4)
Current income taxes 1 (2) - (2) (4) - (4)
Deferred income taxes 1 - - - (1) 1 -
Provisions 1 (3) - (3) (8) - (8)
================================ ===== =========== ============ ======== =========== ============ ===========
Total current liabilities (204) 17 (187) (236) 38 (198)
================================ ===== =========== ============ ======== =========== ============ ===========
Total liabilities (1,270) 161 (1,109) (1,236) 114 (1,122)
================================ ===== =========== ============ ======== =========== ============ ===========
Net assets 3,806 - 3,806 3,308 - 3,308
================================ ===== =========== ============ ======== =========== ============ ===========
Equity
Issued capital 719 - 719 718 - 718
Share premium 784 - 784 782 - 782
Other reserves 4 2,382 - 2,382 1,897 - 1,897
Own shares (79) - (79) (89) - (89)
================================ ===== =========== ============ ======== =========== ============ ===========
Total equity 3,806 - 3,806 3,308 - 3,308
================================ ===== =========== ============ ======== =========== ============ ===========
Notes:
1 Applying IFRS 10 to the Statement of financial position aggregates
the line items into the single line item "Investment 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. 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 equity investments, unquoted equity investments or loans
and receivables.
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 31 March
2015 GBP3 million (2014 restated: GBP23 million) of cash was held in
subsidiaries that are now classified as investment entity subsidiaries
and is
therefore included in the "Investment 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 for 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 CONSOLIDATED Cash flow statement
IFRS IFRS
Investment IFRS IFRS Investment adjustments basis
basis adjustments basis basis (restated) (restated)
2015 2015 2015 2014 2014 2014
Note GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ===== =========== ============ ====== =========== ============ ===========
Cash flow from operating activities
Purchase of investments 1 (474) 358 (116) (337) 189 (148)
Proceeds from investments 1 841 (571) 270 677 (223) 454
Cash divestment from traded
portfolio 1 21 (21) - 14 (14) -
Cash inflow from fair value
subsidiaries 1 - 272 272 - 62 62
Portfolio interest received 1 26 (12) 14 9 (3) 6
Portfolio dividends received 1 44 (9) 35 44 (19) 25
Portfolio fees received 10 - 10 4 2 6
Fees received from external funds 1 78 (1) 77 75 - 75
Carried interest and performance
fees received 1 6 - 6 5 - 5
Carried interest and performance
fees paid 1 (13) (1) (14) (25) 10 (15)
Acquisition related earn-out
charges paid (10) - (10) - - -
Operating expenses (117) 1 (116) (128) (3) (131)
Interest received 3 - 3 3 - 3
Interest paid (54) - (54) (57) - (57)
Income taxes paid 1 (5) - (5) (7) - (7)
==================================== ===== =========== ============ ====== =========== ============ ===========
Net cash flow from operating
activities 356 16 372 277 1 278
==================================== ===== =========== ============ ====== =========== ============ ===========
Cash flow from financing activities
Dividend paid (183) - (183) (114) - (114)
Repayment of short-term borrowings - - - (164) - (164)
Issue of shares 3 - 3 - - -
Repurchase of B shares (6) - (6) - - -
Net cash flow from derivatives 9 - 9 (32) - (32)
==================================== ===== =========== ============ ====== =========== ============ ===========
Net cash flow from financing
activities (177) - (177) (310) - (310)
==================================== ===== =========== ============ ====== =========== ============ ===========
Cash flow from investing activities
Acquisition of management contracts 1 - - - 2 (2) -
Net cash flow from deposits - - - 90 - 90
==================================== ===== =========== ============ ====== =========== ============ ===========
Net cash flow from investing
activities - - - 92 (2) 90
==================================== ===== =========== ============ ====== =========== ============ ===========
Change in cash and cash equivalents 2 179 16 195 59 (1) 58
Cash and cash equivalents at the
start of year 2 697 (23) 674 656 (23) 633
Effect of exchange rate
fluctuations 1 (12) 4 (8) (18) 1 (17)
==================================== ===== =========== ============ ====== =========== ============ ===========
Cash and cash equivalents at the
end of year 2 864 (3) 861 697 (23) 674
==================================== ===== =========== ============ ====== =========== ============ ===========
Notes:
1 The Consolidated cash flow statement is impacted by the application
of IFRS 10 as cash flows to and from Investment entity subsidiaries
are disclosed, rather than the cash flows to and from the underlying
portfolio.
Therefore in our Investment basis financial statements, we have disclosed
our cash flow statement on a "look through" basis, in order to
reflect the underlying sources and uses of cash flows and disclose
the underlying investment activity.
2 There is a difference between the change in cash and cash equivalents
of the Investment basis financial statements and the IFRS financial
statements because there are cash balances held in investment entity
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.
Key risks and mitigations
Effective risk assessment underpins the successful delivery of
our strategy. Integrity and responsibility are central to our
values at 3i and are embedded in our approach to risk
management.
This section explains how we control and manage the risks in our
business. It outlines the key risks, our assessment of their
potential impact on our business in the context of the current
environment and how we mitigate them.
Approach to risk governance
The Board seeks to achieve an appropriate balance between taking
risk and generating returns for shareholders and is responsible for
risk assessment, the risk management process and for the protection
of the Group's reputation and brand integrity. It considers the
most significant risks facing the Group and uses quantitative
analyses, such as the vintage control and weekly liquidity
reporting, where appropriate. Non-executive oversight of the risk
management process is exercised through the Audit and Compliance
Committee with respect to standards of integrity, financial
reporting, risk management, going concern and internal control.
The Board has delegated the responsibility for risk oversight to
the Chief Executive. He is assisted by the Group Risk Committee
("GRC") in managing this responsibility, guided by the Board's
appetite for risk and any specific limits set. The GRC maintains
the Group risk review, which summarises the Group's principal
risks, associated mitigating actions and key risk indicators, and
identifies any changes to the Group's risk profile. The risk review
is updated quarterly and the Chief Executive provides an update at
each Audit and Compliance Committee meeting where the Committee
members contribute views and raise questions. The last risk
appraisal was completed in early May 2015.
Following the implementation of AIFMD in July 2014, we further
augmented risk governance with a separate Risk Management Function.
This group meets ahead of the GRC meetings to consider separate
risk reports for each AIF managed by the Group, including areas
such as portfolio composition, operational updates and team
changes, which are then also considered by the GRC.
Assurance on the robustness and effectiveness of the Group's
overarching risk management processes and compliance with relevant
policies is provided to the Audit and Compliance Committee through
the independent assessment by Internal Audit and the work of Group
Compliance on regulatory risks.
3i Group's Pillar 3 document can be found at www.3i.com
Risk management framework
The Group's risk management framework is designed to support the
delivery of the Group's strategic objectives.
The key principles that underpin risk management in the Group
are:
-- The Board and Group Executive Committee promote a culture in
which risks are identified, assessed and reported in an open,
transparent and objective manner; and
-- The over-riding priority is to protect the Group's long-term
viability and reputation and produce sustainable, medium to
long-term cash-to-cash returns.
Managing the Group's Environmental, Social and Governance risks
is central to how we do business and is integral to our risk
management framework.
Risk management is embedded within all areas of the business.
Members of the Executive Committee have responsibility for their
own business areas and the Group expects individual behaviours to
mirror the culture and core values of the Group. All employees
share the responsibility of upholding 3i's control culture and
supporting effective risk management to enable us to deliver our
strategy. Senior managers are required to confirm their individual
and business area compliance. In addition, all staff are assessed
on their awareness of the Group's values and compliance with them
as part of their annual appraisal.
In practice, the Group operates a "three lines of defence"
framework for managing and identifying risk. The first line of
defence against undesirable outcomes is the business function and
the respective Managing Partners across Private Equity,
Infrastructure and Debt Management. Line management is supported by
oversight and control functions such as Compliance, Finance and
Legal which constitute the second line of defence. The Compliance
monitoring programme reviews the effective operation of our
processes in meeting regulatory requirements.
Internal Audit provides retrospective, independent assurance
over the operation of controls and is the third line of defence.
The internal audit programme includes the review of risk management
processes and recommendations to improve the control
environment.
Risk review process
The Group risk review process includes the monitoring of key
strategic and financial metrics considered to be indicators of
potential changes in its risk profile. The review includes, but is
not limited to, the following reference data:
-- Financial performance and strategic dashboards;
-- Vintage control and asset allocation analysis;
-- Macroeconomic and M&A market overview;
-- Liquidity management;
-- Capital adequacy, including stress testing;
-- Operating expenses;
-- Portfolio performance reports for Private Equity,
Infrastructure and Debt Management;
-- Risk reports for managed Alternative Investment Funds;
and
-- Quarterly Group risk log.
In addition to the above, the GRC considers the impact of any
changes and developments on its risk profile, strategic delivery
and reputation quarterly.
The GRC uses the above to identify a number of key risks. It
then evaluates the impact and likelihood of each key risk, with
reference to associated measures and key performance indicators.
The adequacy of the mitigation plans is then assessed and, if
necessary, additional actions are agreed and then reviewed at the
subsequent meeting.
A number of focus topics are also agreed in advance of each
meeting. In FY2015 the GRC covered topics such as business
continuity; cyber and physical security; Responsible Investing
("RI")/Environmental, Social and Governance ("ESG") reporting;
investment concentration risk; and the Group's progress on
implementing regulatory changes.
There were no significant changes to the Group's approach to
risk governance or its operation in FY2015 but we have continued to
refine our framework for risk management and reporting further to
the implementation of AIFMD and the Group's approach to RI/ESG.
Further details on 3i's approach as a responsible investor are
available at www.3i.com
Review of principal risks
The disclosures on the following pages are not an exhaustive
list of risks and uncertainties faced by the Group, but rather a
summary of those principal risks which are under active review by
the GRC and Board, and have the potential to affect materially the
achievement of the Group's strategic objectives and impact its
financial performance, reputation and brand integrity.
The Group's risk profile and appetite remains broadly stable.
While there have been a number of emerging external risks
separately identified this year, for example cyber crime, the Group
believes that its consistent strategy, institutional approach to
investment and strong culture have helped it to maintain its stable
risk profile.
External
The external environment remains challenging. The key economies
in which the Group operates are showing signs of recovery against a
background of low interest rates and the effects of quantitative
easing in the Eurozone. The potential for increased volatility or
shocks, however, remains; for example, from increased geopolitical
instability. In addition the regulatory environment continues to
evolve and conduct of business risk remains in sharp focus.
The Group is subject to a range of additional regulatory and tax
reporting requirements. These include the European Alternative
Investment Fund Management Directive ("AIFMD"), regulations under
the European Market Infrastructure Regulation ("EMIR"), Capital
Requirements Directive IV ("CRDIV"), revisions to the Client Asset
rules ("CASS") and the introduction of the Foreign Account Tax
Compliance Act ("FATCA"). These changes have resulted in a
significant increase in reporting requirements, operational
complexity and cost to the business. However, they have had limited
practical effect on 3i's ability to deliver its strategy. Managing
these changes has been a key priority and the subject of regular
updates to Executive Committee and the Board. Future developments
include possible changes to the international tax system arising
from the OECD G20 Base Erosion and Profit Shifting ("BEPS")
project.
Investment
The most significant risks are our ability to source attractive
investment opportunities, maximise the value available from our
portfolio and manage the timings of exits and cash returns. These
risks are closely linked to the economic environment noted above.
We continue to focus on sectors and geographies where our expertise
and network can drive significant outperformance. The ability to
invest and realise successfully and to minimise the risk of issues
in the portfolio is also key to maintaining the Group's reputation
and networks in its markets.
The Executive Committee actively monitors investments from
origination to realisation with robust monthly management
information supported by Valuation Committee and Board
oversight.
In addition there are a number of risks specific to each
business line as follows:
Private Equity
As the investment portfolio becomes more concentrated,
additional steps have been taken to increase the frequency and
scope of monitoring of the more material assets. Individual
portfolio company failures could have adverse reputational
consequences for the Group, even if the value impact is not
material.
Infrastructure
Strong investor demand for yield is challenging the business'
ability to maintain investment rates in quality assets. The
business is adapting its strategy but remains focused on pursuing
new investments while considering fund raising options and
inorganic opportunities. Many of the investments in the
infrastructure portfolio provide essential services to their
community and the rigorous management of their performance is
therefore critical.
Debt Management
The principal risk is the ability to grow AUM profitably, in
line with its business plan. The business is also exposed to
potential volatility in the fixed income markets and the effects of
regulatory changes, including the Risk Retention and Volcker rules
(effective from 2016 and 2017 respectively) which will impact the
structure of the US CLO funds. Specifically, during the warehouse
phase of establishing CLOs, we are exposed to market volatilities
and potential for further capital calls.
Operational
The key areas of potential operational risk include the loss of
key people and whether the investor skill sets and business
development capabilities can support the Group's strategic
delivery. Detailed resource plans are in place at the business line
level and the Board conducts an annual review of the Group's
organisational capability and succession assessment. The last
review was conducted in September 2014.
The GRC also received regular updates on regulation, currency
risk and cyber security. In response to the growing threat posed by
cyber crime, we conducted a detailed review of the threat posed by
the external environment, the adequacy of the group's internal
control framework and our ability to respond to such an event. The
Group also conducted a review of its business continuity
capabilities. The findings and proposed enhancements were discussed
and are being implemented across the Group.
List of Directors and their functions
The Directors of the Company and their functions are listed
below:
Sir Adrian Montague, Chairman and Chairman of the Nominations
Committee
Simon Thompson, non-executive Director and Chairman
Designate
Simon Borrows, Chief Executive and executive Director
Julia Wilson, Group Finance Director and executive Director
Jonathan Asquith, non-executive Director, Deputy Chairman and
Chairman of the Remuneration Committee
Caroline Banszky, non-executive Director and Chairman of the
Audit and Compliance Committee
Alistair Cox, non-executive Director
David Hutchison, non-executive Director and Chairman of the
Valuations Committee
Martine Verluyten, non-executive Director
By order of the Board
K J Dunn
Company Secretary
13 May 2015
Registered Office: 16 Palace Street, London SW1E 5JD
Audited financial statements
Consolidated statement of comprehensive income
for the year to 31 March
2015 2014
(restated)(1)
Notes GBPm GBPm
------------------------------------------------------------------------------------- ------ ------ ---------------
Realised profits over value on the disposal of investments 2 54 146
Unrealised profits on the revaluation of investments 3 236 81
Fair value movements on investment entity subsidiaries 530 433
------------------------------------------------------------------------------------- ------ ------ ---------------
820 660
------------------------------------------------------------------------------------- ------ ------ ---------------
Portfolio income
Dividends 36 25
Income from loans and receivables 38 29
Fees receivable 6 7
Foreign exchange on investments (49) (45)
------------------------------------------------------------------------------------- ------ ------ ---------------
Gross investment return 851 676
Fees receivable from external funds 80 75
Operating expenses (122) (136)
Interest received 3 3
Interest paid (49) (54)
Movement in the fair value of derivatives (1) 10
Exchange movements (61) (42)
Income from fair value subsidiaries 1 8
Carried interest
Carried interest and performance fees receivable 80 3
Carried interest and performance fees payable (72) (17)
Acquisition related earn-out charges (8) (6)
------------------------------------------------------------------------------------ ------ ------ ---------------
Operating profit before tax 702 520
Income taxes 4 (2) (3)
------------------------------------------------------------------------------------- ------ ------ ---------------
Profit for the year 700 517
------------------------------------------------------------------------------------- ------ ------ ---------------
Other comprehensive expense that may be reclassified to the income statement
Exchange differences on translation of foreign operations (27) (50)
Other comprehensive income that will not be reclassified to the income statement
Re-measurements of defined benefit plans (14) 11
------------------------------------------------------------------------------------- ------ ------ ---------------
Other comprehensive income for the year (41) (39)
------------------------------------------------------------------------------------- ------ ------ ---------------
Total comprehensive income for the year ("Total return") 659 478
------------------------------------------------------------------------------------- ------ ------ ---------------
Earnings per share
Basic (pence) 5 73.9 54.8
Diluted (pence) 5 72.9 54.5
------------------------------------------------------------------------------------ ------ ------ ---------------
Dividend per share
Interim dividend per share paid (pence) 6 6.0 6.7
Final dividend per share (pence) 6 14.0 13.3
------------------------------------------------------------------------------------ ------ ------ ---------------
1 Restated. See Note 9.
Consolidated statement of financial position
as at 31 March
2015 2014
(restated)(1)
Notes GBPm GBPm
------------------------------------------------------- -------- --------------
Assets
Non-current assets
Investments
Quoted investments 399 258
Unquoted investments 1,272 1,324
Investments in investment entities 2,079 1,909
--------------------------------------------------- -------- --------------
Investment portfolio 3,750 3,491
--------------------------------------------------- -------- --------------
Carried interest and performance fees receivable 43 17
Intangible assets 19 25
Retirement benefit surplus 136 137
Property, plant and equipment 4 5
Deferred income taxes 4 3 3
--------------------------------------------------- -------- --------------
Total non-current assets 3,955 3,678
------------------------------------------------------- -------- --------------
Current assets
Carried interest and performance fees receivable 45 -
Other current assets 54 76
Derivative financial instruments - 2
Cash and cash equivalents 861 674
------------------------------------------------------- -------- --------------
Total current assets 960 752
------------------------------------------------------- -------- --------------
Total assets 4,915 4,430
------------------------------------------------------- -------- --------------
Liabilities
Non-current liabilities
Carried interest and performance fees payable (72) (30)
Acquisition related earn-out charges payable (10) (18)
Loans and borrowings 7 (815) (849)
B shares - (6)
Retirement benefit deficit (19) (14)
Deferred income taxes 4 (1) (2)
Provisions (5) (5)
--------------------------------------------------- -------- --------------
Total non-current liabilities (922) (924)
------------------------------------------------------- -------- --------------
Current liabilities
Trade and other payables (152) (166)
Carried interest and performance fees payable (13) (6)
Acquisition related earn-out charges payable (17) (10)
Derivative financial instruments - (4)
Current income taxes 4 (2) (4)
Provisions (3) (8)
--------------------------------------------------- -------- --------------
Total current liabilities (187) (198)
------------------------------------------------------- -------- --------------
Total liabilities (1,109) (1,122)
------------------------------------------------------- -------- --------------
Net assets 3,806 3,308
------------------------------------------------------- -------- --------------
Equity
Issued capital 719 718
Share premium 784 782
Capital redemption reserve 43 43
Share-based payment reserve 31 19
Translation reserve 216 243
Capital reserve 1,519 1,050
Revenue reserve 573 542
Own shares (79) (89)
--------------------------------------------------- -------- --------------
Total equity 3,806 3,308
------------------------------------------------------- -------- --------------
1 Restated. See Note 9.
Sir Adrian Montague
Chairman
13 May 2015
Consolidated statement of changes in equity
for the year to 31 March
Share-
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve reserve shares equity
2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total equity at the
start of the year(1) 718 782 43 19 243 1,050 542 (89) 3,308
Income for the year 599 101 700
Exchange differences
on translation of
foreign operations (27) (27)
Re-measurements of
defined benefit plans (14) (14)
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total comprehensive
income for the year - - - - (27) 585 101 - 659
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Share-based payments 19 19
Release on forfeiture
of share options (7) 7 -
Exercise of share
awards (10) 10 -
Ordinary dividends (77) (77)
Additional dividends (106) (106)
Issue of ordinary
shares 1 2 3
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total equity at the
end of the year 719 784 43 31 216 1,519 573 (79) 3,806
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Share-
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve reserve shares equity
2014 (restated)(1) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total equity at the
start of the year 718 780 43 17 293 700 487 (104) 2,934
Income for the year 392 125 517
Exchange differences
on translation of
foreign operations (50) (50)
Re-measurements of
defined benefit plans 11 11
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total comprehensive
income for the year - - - - (50) 403 125 - 478
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Share-based payments 8 8
Release on forfeiture
of share options (6) 6 -
Exercise of share
awards (15) 15 -
Ordinary dividends (76) (76)
Additional dividends (38) (38)
Issue of ordinary
shares 2 2
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Total equity at the
end of the year 718 782 43 19 243 1,050 542 (89) 3,308
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
1 Restated. See Note 9.
Consolidated cash flow statement
for the year to 31 March
2015 2014
(restated)(1)
GBPm GBPm
------------------------------------------------ ------ --------------
Cash flow from operating activities
Purchase of investments (116) (148)
Proceeds from investments 270 454
Cash inflow from fair value subsidiaries 272 62
Portfolio interest received 14 6
Portfolio dividends received 35 25
Portfolio fees received 10 6
Fees received from external funds 77 75
Carried interest and performance fees received 6 5
Carried interest and performance fees paid (14) (15)
Acquisition related earn-out fees paid (10) -
Operating expenses (116) (131)
Interest received 3 3
Interest paid (54) (57)
Income taxes paid (5) (7)
------------------------------------------------ ------ --------------
Net cash flow from operating activities 372 278
------------------------------------------------ ------ --------------
Cash flow from financing activities
Issue of shares 3 -
Repurchase of B shares (6) -
Dividend paid (183) (114)
Repayment of short-term borrowings - (164)
Net cash flow from derivatives 9 (32)
------------------------------------------------ ------ --------------
Net cash flow from financing activities (177) (310)
------------------------------------------------ ------ --------------
Cash flow from investing activities
Net cash flow from deposits - 90
------------------------------------------------ ------ --------------
Net cash flow from investing activities - 90
------------------------------------------------ ------ --------------
Change in cash and cash equivalents 195 58
Cash and cash equivalents at the start of year 674 633
Effect of exchange rate fluctuations (8) (17)
------------------------------------------------ ------ --------------
Cash and cash equivalents at the end of year 861 674
------------------------------------------------ ------ --------------
1 Restated. See Note 9.
Company statement of financial position
as at 31 March
2015 2014
Notes GBPm GBPm
------------------------------------------------------- -------- --------
Assets
Non-current assets
Investments
Quoted investments 399 258
Unquoted investments 1,163 1,283
Investment portfolio 1,562 1,541
--------------------------------------------------- -------- --------
Carried interest and performance fees receivable 33 8
Interests in Group and fair value entities 1,561 1,735
Total non-current assets 3,156 3,284
------------------------------------------------------- -------- --------
Current assets
Other current assets 341 303
Derivative financial instruments - 2
Cash and cash equivalents 735 605
------------------------------------------------------- -------- --------
Total current assets 1,076 910
------------------------------------------------------- -------- --------
Total assets 4,232 4,194
------------------------------------------------------- -------- --------
Liabilities
Non-current liabilities
Carried interest and performance fees payable (2) (2)
Acquisition related earn-out charges payable (10) (16)
Loans and borrowings 7 (815) (849)
B shares - (6)
Total non-current liabilities (827) (873)
------------------------------------------------------- -------- --------
Current liabilities
Trade and other payables (327) (292)
Acquisition related earn-out charges payable (11) (10)
Derivative financial instruments - (4)
Total current liabilities (338) (306)
------------------------------------------------------- -------- --------
Total liabilities (1,165) (1,179)
------------------------------------------------------- -------- --------
Net assets 3,067 3,015
------------------------------------------------------- -------- --------
Equity
Issued capital 719 718
Share premium 784 782
Capital redemption reserve 43 43
Share-based payment reserve 31 19
Capital reserve 1,400 1,368
Revenue reserve 90 85
Total equity 3,067 3,015
------------------------------------------------------- -------- --------
Sir Adrian Montague
Chairman
13 May 2015
Company statement of changes in equity
Share-
Capital based
Share Share redemption payment Capital Revenue Total
capital premium reserve reserve reserve reserve equity
2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- -------- -------- ----------- -------- -------- --------
Total equity at the start of the year 718 782 43 19 1,368 85 3,015
Profit for the year 138 75 213
----------------------------------------- -------- -------- -------- --------
Total comprehensive income for the year 138 75 213
----------------------------------------- -------- -------- -------- --------
Share-based payments 19 19
Release on forfeiture of share options (7) 7 -
Ordinary dividends (77) (77)
Additional dividends (106) (106)
Issue of ordinary shares 1 2 3
----------------------------------------- -------- -------- -------- --------
Total equity at the end of the year 719 784 43 31 1,400 90 3,067
----------------------------------------- -------- -------- -------- --------
Share-
Capital based
Share Share redemption payment Capital Revenue Total
capital premium reserve reserve reserve reserve equity
2014 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- -------- -------- ----------- -------- -------- --------
Total equity at the start of the year 718 780 43 17 1,336 144 3,038
Profit for the year 70 11 81
----------------------------------------- -------- -------- -------- --------
Total comprehensive income for the year 70 11 81
----------------------------------------- -------- -------- -------- --------
Share-based payments 8 8
Release on forfeiture of share options (6) 6 -
Ordinary dividends (76) (76)
Additional dividends (38) (38)
Issue of ordinary shares 2 2
----------------------------------------- -------- -------- -------- --------
Total equity at the end of the year 718 782 43 19 1,368 85 3,015
----------------------------------------- -------- -------- -------- --------
Company cash flow statement
for the year to 31 March
Company Company
2015 2014
GBPm GBPm
------------------------------------------------- -------- --------
Cash flow from operating activities
Purchase of investments (28) (108)
Proceeds from investments 270 454
Net distributions/(drawdowns) from subsidiaries 143 (217)
Portfolio interest received 11 6
Portfolio dividends received 29 25
Portfolio fees received (1) (2)
Carried interest and performance fees received 1 -
Carried interest and performance fees paid (11) -
Operating expenses (44) -
Interest received 3 3
Interest paid (54) (57)
Income taxes paid - -
------------------------------------------------- -------- --------
Net cash flow from operating activities 319 104
------------------------------------------------- -------- --------
Cash flow from financing activities
Dividend paid (183) (114)
Issue of shares 3 -
Repurchase of B shares (6) -
Net cash flow from derivatives 9 (32)
------------------------------------------------- -------- --------
Net cash flow from financing activities (177) (146)
------------------------------------------------- -------- --------
Cash flow from investing activities
Net cash flow from deposits - 90
------------------------------------------------- -------- --------
Net cash flow from investing activities - 90
------------------------------------------------- -------- --------
Change in cash and cash equivalents 142 48
Cash and cash equivalents at the start of year 605 573
Effect of exchange rate fluctuations (12) (16)
------------------------------------------------- -------- --------
Cash and cash equivalents at the end of year 735 605
------------------------------------------------- -------- --------
Significant accounting policies
Reporting entity
3i Group plc (the "Company") is a public limited company
incorporated and domiciled in England and Wales. The Consolidated
financial statements ("the Group accounts") for the year to 31
March 2015 comprise the financial statements of the Company and its
consolidated subsidiaries (collectively, "the Group").
The Group accounts have been prepared and approved by the
Directors in accordance with Section 395 of the Companies Act 2006
and the Large and Medium-Sized Companies and Groups (Accounts and
Reports) Regulations 2008. The Company has taken advantage of the
exemption in Section 408 of the Companies Act 2006 not to present
its Company Statement of comprehensive income and related
Notes.
A number of key accounting policies are disclosed below, but
where possible, accounting policies have been shown as part of the
Note that they specifically relate to in order to assist the
reader's understanding.
A Compliance with International Financial Reporting Standards
("IFRS")
The Group accounts have been prepared and approved by the
Directors in accordance with all relevant IFRSs as issued by the
International Accounting Standards Board ("IASB"), and
interpretations issued by the IFRS Interpretations Committee,
endorsed by the European Union ("EU").
In the year the Group adopted the following amendment:
IFRS 10 (Revised) - Consolidated Financial Statements
The IASB issued a narrow scope amendment to IFRS 10 in December
2014, and subsequently the Group has revisited and is now
consolidating two Debt Management entities and a small number of
subsidiaries rather than fair valuing them in the IFRS financial
statements. This is due to additional guidance in the narrow scope
amendment clarifying the treatment of entities which invest for
capital appreciation but also provide investment related services.
The Group has chosen to adopt the changes provided in the narrow
scope amendment early, and has applied the change retrospectively.
The change has no effect on total return or net asset value as
reported in the Group's prior year IFRS financial statements.
Comparative information has been restated and the effect is shown
in Note 9.
The following standards, amendments and interpretations have
been issued with implementation dates, subject to EU endorsement in
some cases, which do not impact on these financial statements:
Effective for annual periods beginning on or after
IFRS Annual improvements 2010 to 2012 and 2011 to 2013 1 July 2014
IFRS Annual improvements 2012 to 2014 1 July 2016
IFRS 15 Revenue from contracts with customers 1 January 2017
IFRS 9 Financial instruments 1 January 2018
The impact of future standards and amendments on the financial
statements is being assessed by the Group and the Company.
B Basis of preparation
The financial statements are prepared on a going concern basis
as disclosed in the Directors' Report.
C Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control, as
defined by IFRS 10, is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over
the investee. Subsidiaries are fully consolidated from the date on
which the Group effectively obtains control. They are
de-consolidated from the date that control ceases.
3i Group plc is an investment entity and, as such, does not
consolidate the investment entities it controls. Most of the
Group's interests in subsidiaries are recognised at fair value
through profit or loss. Those subsidiaries which provide investment
related services, such as advisory, management or employment
services are not classified at fair value through profit and loss
and continue to be consolidated unless they are deemed investment
entities, in which case they are fair valued.
The acquisition method of accounting is used to account for the
acquisition of subsidiaries. Under the acquisition method of
accounting, with some limited exceptions, the assets, liabilities
and contingent liabilities of a subsidiary are measured at their
fair values at the date of acquisition. Any non-controlling
interest is measured either at fair value or at the non-controlling
interest's proportion of the net assets acquired. Acquisition
related costs are accounted for as expenses when incurred, unless
directly related to the issue of debt or equity securities. Any
excess of the cost of acquisition over net assets is capitalised as
goodwill. All intra-group balances, transactions, income and
expenses are eliminated.
(ii) Associates
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating
policies. Investments that are held as part of the Group's
investment portfolio are carried in the statement of financial
position at fair value even though the Group may have significant
influence over those companies.
(iii) Joint ventures
Interests in joint ventures that are held as part of the Group's
investment portfolio are carried in the balance sheet at fair
value.
(iv) Composition of the Group
The Group is made up of several different types of subsidiaries.
The Group re-assesses the function performed by each type of
subsidiary to determine its treatment under the IFRS 10 exception
from consolidation. The types of subsidiaries and their treatment
under IFRS 10 are as follows:
General Partners (GPs) - Consolidated
-- General Partners provide investment management services and
do not hold any direct investments in portfolio assets. These
entities are not investment entities.
Investment managers/advisers - Consolidated
-- These entities provide investment related services through
the provision of investment management or advice. They do not hold
any direct investments in portfolio assets. These entities are not
investment entities.
Investment managers/advisers which also hold investments -
Consolidated
-- These entities provide investment related services through
the provision of investment management or advice and also hold
investments in managed assets, typically due to regulatory reasons
or investor expectations. The primary purpose of these entities is
to provide investment related services and therefore they are not
classified as investment entities.
Holding companies of investment managers/advisers -
Consolidated
-- These entities provide investment related services through
their subsidiaries. They do not hold any direct investment in
portfolio assets and these entities are not investment
entities.
Limited Partnerships and other intermediate investment holding
structures - Fair valued
-- The Group makes investments in portfolio assets through its
ultimate parent company as well as through other limited
partnership and corporate subsidiaries which the Group has created
to align the interests of the investment teams with the performance
of the assets through the use of various carried interest schemes.
The purpose of these limited partnerships and corporate holding
vehicles, many of which also provide investment related services,
is to invest for investment income and capital appreciation. These
partnerships meet the definition of an investment entity and are
classified at fair value through the profit and loss.
Portfolio investments - Fair valued
Following the introduction of IFRS 10, the test for accounting
subsidiaries has been altered to take wider factors of control as
well as actual equity ownership into account. This has resulted in
30 investments being classified as accounting subsidiaries. In
accordance with the investment entity exception, these entities
have been held at fair value with movements in fair value going
through the Statement of comprehensive income. With one exception
(Palace Street I) none of these subsidiaries is a UK Companies Act
subsidiary.
Structured entities - Fair valued
-- The Group has interests in a number of unconsolidated
structured entities, their current carrying value and a description
of their activities is included in Note 8.
D Critical accounting estimates and judgements
The reported results of the Group are sensitive to the
accounting policies, assumptions and estimates that underlie the
preparation of its financial statements. UK company law and IFRS
require the Directors, in preparing the Group's financial
statements, to select suitable accounting policies, apply them
consistently and make judgements and estimates that are reasonable
and prudent. The Group's estimates and assumptions are based on
historical experience and expectation of future events and are
reviewed periodically. The actual outcome may be materially
different from that anticipated.
The judgements and assumptions involved in the Group's
accounting policies that are considered by the Board to be the most
important to the portrayal of its financial condition are the fair
valuation of the investment portfolio and the fair valuation of
each investment entity subsidiary. The investment portfolio is held
at fair value. Given the importance of this area, the Board has a
separate Valuations Committee to review the valuations policies,
process and application to individual investments. A report on the
activities of the Valuations Committee is included in the
Governance section of the Annual report.
Further detail on the assessment as an investment entity is as
follows:
a) Assessment as an investment entity
Entities that meet the definition of an investment entity within
IFRS 10 are required to account for most investments in controlled
entities, as well as investments in associates and joint ventures,
at fair value through profit and loss.
The Board has concluded that the Company continues to meet the
definition of an investment entity as its strategic objective of
investing in portfolio investments and providing investment
management services to investors for the purpose of generating
returns in the form of investment income and capital appreciation
remains unchanged.
The Group is required to determine the degree of control or
influence the Group exercises and the form of any control to ensure
that the financial treatment is accurate. Following the IASB's
narrow scope amendment to IFRS 10, issued in December 2014, the
Company revisited its assessment of all of its subsidiaries and has
consolidated two Debt Management entities and reclassified a small
number of subsidiaries. Comparative information has been restated
to reflect the adoption of the amendment to IFRS 10 and the impact
is shown in Note 9. Further detail on our detailed review of our
application of IFRS 10, including the amendment, can be found at
the end of the Financial Review section.
b) Valuation of the defined benefit scheme
The Group also considers the valuation of the IAS 19 defined
benefit scheme to be a significant estimate. The Group reviews its
assumptions annually with its independent actuaries.
E Other accounting policies
A) Revenue Recognition
Gross investment return is equivalent to "revenue" for the
purposes of IAS 1. It represents the overall increase in net assets
from the investment portfolio net of deal-related costs and
includes foreign exchange movements in respect of the investment
portfolio. Investment income is analysed into the following
components:
i. Realised profits or losses over value on the disposal of
investments are 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 in force at the date of
disposal.
ii. Unrealised profits or losses on the revaluation of
investments are the movement in the carrying value of investments
between the start and end of the accounting period converted into
sterling using the exchange rates in force at the date of the
movement.
iii. Fair value movements on investment entity subsidiaries are
the movements in the carrying value of Group subsidiaries which are
classified as investment entities under IFRS 10. The Group makes
investments in portfolio assets through these entities which are
usually limited partnerships or corporate subsidiaries.
iv. Portfolio income is that portion of income that is directly
related to the return from individual investments. It is recognised
to the extent that it is probable that there will be economic
benefit and the income can be reliably measured. The following
specific recognition criteria must be met before the income is
recognised:
-- Dividends from equity investments are recognised in the
Statement of comprehensive income when the shareholders' rights to
receive payment have been established. Income received on the
investment in the most junior ranked level of CLO capital is
recognised as a dividend. GBP16 million was received in the year
(2014: GBP10 million).
-- Income from loans and receivables is recognised as it accrues
by reference to the principal outstanding and the effective
interest rate applicable, which is the rate that exactly discounts
the estimated future cash flows through the expected life of the
financial asset to the asset's carrying value. 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. Income received on the
instruments in the most junior level of CLO capital is recognised
as a dividend. GBP16 million was received in the year (2014: GBP10
million).
-- 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.
v. Foreign exchange on investments arises on investments made in
currencies that are different from the functional currency of the
Group entity. Investments are translated at the exchange rate
ruling at the date of the transaction. At each subsequent reporting
date investments are translated to sterling at the exchange rate
ruling at that date.
B) Foreign currency translation
For the Company and those subsidiaries whose balance sheets are
denominated in sterling which is the Company's functional and
presentation currency, monetary assets and liabilities denominated
in foreign currencies are translated into sterling at the closing
rates of exchange at the balance sheet date. Foreign currency
transactions are translated into sterling at the average rates of
exchange over the year and exchange differences arising are taken
to the income statement.
The balance sheets of subsidiaries and associates denominated in
foreign currencies are translated into sterling at the closing
rates. The Statements of comprehensive income for these
subsidiaries and associates are translated at the average rates and
exchange differences arising are taken to other comprehensive
income. Such exchange differences are reclassified to the Income
statement in the period in which the subsidiary or associate is
disposed of.
C) Treasury assets and liabilities
Short-term treasury assets and short and long-term treasury
liabilities are used in order to manage cash flows and minimise the
overall costs of borrowing.
Cash and cash equivalents comprise cash at bank and short-term
deposits. Financial assets and liabilities are recognised in the
balance sheet when the relevant Group entity becomes a party to the
contractual provisions of the instrument. De-recognition occurs
when rights to cash flows from a financial asset expire, or when a
liability is extinguished.
Notes to the accounts
1 Segmental analysis
Operating segments are the components of the entity whose
results are regularly reviewed by the entity's chief operating
decision maker to make decisions about resources to be allocated to
the segment and assess its performance.
The Chief Executive, who is considered to be the chief operating
decision maker, manages the Group on two bases. Firstly, as
business divisions determined with reference to market focus,
geographic focus, investment funding model and the Group's
management hierarchy. Secondly, in line with the strategy of the
Group, he considers separate Proprietary Capital and Fund
Management businesses focused on investment returns and Fund
Management profits respectively. A description of the activities,
including products and services offered by these divisions and the
allocation of resources, is given in the Strategic report.
The segmental information that follows is presented on the
Investment basis which is the basis used by the Chief Executive to
monitor the performance of the Group. The remaining Notes are
prepared on the IFRS basis.
1 Segmental analysis
Private Debt Proprietary Fund
Equity Infrastructure Management Total Capital Management Total
Year to 31 March 2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Realised profits over value on the
disposal of investments 161 1 - 162 162 - 162
Unrealised profits/(losses) on the
revaluation of investments 641 68 (25) 684 684 - 684
Portfolio income
Dividends 9 20 16 45 45 - 45
Income from loans and receivables 56 - 6 62 62 - 62
Fees receivable/(payable) 8 (1) (1) 6 6 - 6
Foreign exchange on investments (156) 8 (6) (154) (154) - (154)
Gross investment return 719 96 (10) 805 805 - 805
Fees receivable from external funds 16 30 34 80 - 80 80
Synthetic fees - - - - (45) 45 -
Operating expenses(1) (66) (31) (34) (131) (32) (99) (131)
Interest receivable 3 3 - 3
Interest payable (49) (49) - (49)
Movement in the fair value of
derivatives (1) (1) - (1)
Exchange movements 40 40 - 40
Operating profit before carry 747 721 26 747
Carried interest
Carried interest and performance fees
receivable 28 45 7 80 80
Carried interest and performance fees
payable (103) (35) (4) (142) (142)
Acquisition related earn-out charges - - (8) (8) (8)
Operating profit 677 677
Income taxes (4) (4)
Other comprehensive income
Re-measurements of defined benefit
plans (14) (14)
Total return 659 659
Net divestment/
(investment)
Realisations 831 10 - 841 841 841
Cash investment (369) - (105) (474) (474) (474)
462 10 (105) 367 367 367
Balance sheet
Opening portfolio value at 1 April
2014 2,935 487 143 3,565 3,565 3,565
Investment(2) 509 - 105 614 614 614
Value disposed (670) (9) - (679) (679) (679)
Unrealised value movement 641 68 (25) 684 684 684
Other movement(3) (267) 7 (47) (307) (307) (307)
Closing portfolio value at 31 March
2015 3,148 553 176 3,877 3,877 3,877
Includes restructuring costs of nil, nil and GBP1 million for Private
Equity, Infrastructure and Debt Management, respectively, and nil and
1. GBP1 million for Proprietary Capital and Fund Management, respectively.
2. Includes capitalised interest and other non-cash investment.
Other relates to foreign exchange and the provisioning of capitalised
interest. In Debt Management, GBP41 million relates to capital withdrawn
3. from the Palace Street I portfolio.
Private Debt Proprietary Fund
Equity Infrastructure Management Total Capital Management Total
Year to 31 March 2014 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Realised profits over value on the
disposal of investments 201 1 - 202 202 - 202
Unrealised profits/(losses) on the
revaluation of investments 478 (13) 10 475 475 - 475
Portfolio income
Dividends 13 21 10 44 44 - 44
Income from loans and receivables 46 - 4 50 50 - 50
Fees receivable/(payable) 9 - (2) 7 4 3 7
Foreign exchange on investments (100) (7) (6) (113) (113) - (113)
Gross investment return 647 2 16 665 662 3 665
Fees receivable from external funds 17 24 32 73 - 73 73
Synthetic fees - - - - (51) 51 -
Operating expenses(1) (79) (23) (34) (136) (28) (108) (136)
Interest receivable 3 3 - 3
Interest payable (54) (54) - (54)
Movement in the fair value of
derivatives 10 10 - 10
Exchange movements (3) (3) - (3)
Operating profit before carry 558 539 19 558
Carried interest
Carried interest and performance fees
receivable (1) - 4 3 3
Carried interest and performance fees
payable (82) - (3) (85) (85)
Acquisition related earn-out charges - - (6) (6) (6)
Operating profit 470 470
Income taxes (3) (3)
Other comprehensive income
Re-measurements of defined benefit
plans 11 11
Total return 478 478
Net divestment/
(investment)
Realisations 669 2 6 677 677 677
Cash investment (276) - (61) (337) (337) (337)
393 2 (55) 340 340 340
Balance sheet
Opening portfolio value at 1 April 2013 2,707 507 81 3,295 3,295 3,295
Investment(2) 443 - 61 504 504 504
Value disposed (468) (1) (6) (475) (475) (475)
Unrealised value movement 478 (13) 10 475 475 475
Other movement(3) (225) (6) (3) (234) (234) (234)
Closing portfolio value at 31 March
2014 2,935 487 143 3,565 3,565 3,565
1. Includes restructuring costs of GBP7 million, GBP1 million and GBP1 million for Private Equity,
Infrastructure and Debt Management, respectively, and
GBP1 million and GBP8 million for Proprietary Capital and Fund Management, respectively.
2. Includes capitalised interest and other non-cash investment.
3. Other relates to foreign exchange and the provisioning of capitalised interest.
Continental Rest of
UK Europe The Americas Asia World Total
Year to 31 March 2015 GBPm GBPm GBPm GBPm GBPm GBPm
Gross investment return
Realised profits over value on the disposal of investments 2 121 29 10 - 162
Unrealised profits/(losses) on the revaluation of
investments 106 531 36 12 (1) 684
Portfolio income 56 42 13 2 - 113
Foreign exchange on investments (2) (218) 40 25 1 (154)
162 476 118 49 - 805
Net divestment/(investment)
Realisations 70 532 161 77 1 841
Cash Investment (109) (186) (179) - - (474)
(39) 346 (18) 77 1 367
Balance sheet
Value of investment portfolio at the end of the year 1,148 1,947 483 297 2 3,877
Continental Rest of
UK Europe The Americas Asia World Total
Year to 31 March 2014 GBPm GBPm GBPm GBPm GBPm GBPm
Gross investment return
Realised profits over value on the disposal of investments 77 89 28 7 1 202
Unrealised profits/(losses) on the revaluation of
investments 33 357 124 (39) - 475
Portfolio income 47 36 16 2 - 101
Foreign exchange on investments (1) (38) (36) (38) - (113)
156 444 132 (68) 1 665
Net divestment/(investment)
Realisations 218 343 70 43 3 677
Cash Investment (41) (238) (58) - - (337)
177 105 12 43 3 340
Balance sheet
Value of investment portfolio at the end of the year 1,058 1,817 361 325 4 3,565
2 Realised profits over value on the disposal of investments
2015 2015
Unquoted Quoted 2015
investments investments Total
GBPm GBPm GBPm
Realisations 155 115 270
Valuation of disposed investments (136) (80) (216)
19 35 54
Of which:
- - profit recognised on realisations 21 35 56
- losses recognised on realisations (2) - (2)
19 35 54
2014 2014
Unquoted Quoted 2014
investments investments Total
(restated) (restated) (restated)
GBPm GBPm GBPm
Realisations 442 12 454
Valuation of disposed investments (298) (10) (308)
144 2 146
Of which:
- - profit recognised on realisations 148 2 150
- losses recognised on realisations (4) - (4)
144 2 146
3 Unrealised profits/(losses) on the revaluation of
investments
2015 2015
Unquoted Quoted 2015
investments investments Total
GBPm GBPm GBPm
Movement in the fair value of investments 117 119 236
Of which:
- unrealised gains 193 119 312
- unrealised losses (76) - (76)
117 119 236
2014 2014
Unquoted Quoted 2014
Investments Investments Total
(restated) (restated) (restated)
GBPm GBPm GBPm
Movement in the fair value of investments 67 14 81
Of which:
- unrealised gains 126 14 140
- unrealised losses (59) - (59)
67 14 81
4 Income taxes
Accounting policy:
Income taxes represent the sum of the tax currently payable,
withholding taxes suffered and deferred tax. Tax is charged or
credited in the Statement of comprehensive income, except where it
relates to items charged or credited directly to equity, in which
case the tax is also dealt with in equity.
The tax currently payable is based on the taxable profit for the
year. This may differ from the profit included in the Statement of
comprehensive income because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible.
To enable the tax charge to be based on the profit for the year,
deferred tax is provided in full on temporary timing differences,
at the rates of tax expected to apply when these differences
crystallise. Deferred tax assets are recognised only to the extent
that it is probable that sufficient taxable profits will be
available against which temporary differences can be set off. All
deferred tax liabilities are offset against deferred tax assets in
accordance with the provisions of IAS 12 "Income taxes".
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
2014
2015 (restated)
GBPm GBPm
Current taxes
Current year (3) (6)
Deferred taxes
Deferred income taxes 1 3
Total income taxes in the Statement of comprehensive income (2) (3)
Reconciliation of income taxes in the Statement of comprehensive
income
The tax charge for the year is different to the standard rate of
corporation tax in the UK, currently 21% (2014: 23%), and the
differences are explained below:
2014
2015 (restated)
GBPm GBPm
Profit before tax 702 520
Profit before tax multiplied by rate of corporation tax in the UK of 21% (2014: 23%) (147) (120)
Effects of:
Utilisation of previously unrecognised deferred tax 3 7
Non-taxable dividend income 6 6
Permanent differences (6) -
Foreign tax (2) (4)
Capital profits 145 137
Excess tax losses arising in the period (1) (29)
Total income taxes in the Statement of comprehensive income (2) (3)
The Group's realised profits, fair value adjustments and
impairment losses are primarily included in the Company, the
affairs of which are directed so as to allow it to be approved as
an investment trust. An investment trust is exempt from tax on
capital gains, therefore the Group's capital return is
substantially non-taxable.
Including GBP2 million of tax charges incurred in fair valued
entities, the total tax charge for the Group was GBP4 million under
the Investment basis presentation.
Deferred income taxes
2014
2015 (restated)
GBPm GBPm
Opening deferred income tax asset
Tax losses 12 9
Income in accounts taxable in the future (12) (11)
Other 1 1
1 (1)
Recognised through Statement of comprehensive income
Tax losses utilised (5) 3
Income in accounts taxable in the future 5 -
Other 1 -
1 3
Recognised on acquisition
Income in accounts taxable in the future - (1)
- (1)
Closing deferred income tax asset
Tax losses 7 12
Income in accounts taxable in the future (7) (12)
Other 2 1
2 1
At 31 March 2015, the Group had carried forward tax losses of
GBP1,409 million (2014: GBP1,360 million), capital losses of GBP98
million (2014: GBP78 million) and other temporary differences of
GBP12 million (2014: GBP12 million). It is uncertain that the Group
will generate sufficient taxable profits in the foreseeable future
to utilise these amounts and therefore no deferred tax asset has
been recognised in respect of these losses. Deferred income taxes
are calculated using an expected rate of corporation tax in the UK
of 20% (2014: 20%).
5 Per share information
The calculation of basic net assets 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.
As at 31 March 2015 2014
Earnings per share (pence)
Basic 73.9 54.8
Diluted 72.9 54.5
Earnings (GBPm)
Profit for the year attributable to equity holders of the Company 700 517
As at 31 March 2015 2014
Weighted average number of shares in issue
Ordinary shares 972,141,887 971,574,471
Own shares (24,825,193) (28,285,335)
947,316,694 943,289,136
Effect of dilutive potential ordinary shares
Share options and awards 12,293,543 5,627,447
Diluted shares 959,610,237 948,916,583
As at 31 March 2015 2014
Net assets per share (GBP)
Basic 4.01 3.50
Diluted 3.96 3.48
Net assets (GBPm)
Net assets attributable to equity holders of the Company 3,806 3,308
Basic NAV per share is calculated on 948,610,924 shares in issue
at 31 March 2015 (31 March 2014: 945,028,804). Diluted NAV per
share is calculated on diluted shares of 961,432,940 at 31 March
2015 (31 March 2014: 951,531,950).
6 Dividends
2015 2015 2014 2014
pence per share GBPm pence per share GBPm
Declared and paid during the year
Ordinary shares
Final dividend 13.3 126 5.4 51
Interim dividend 6.0 57 6.7 63
19.3 183 12.1 114
Proposed final dividend 14.0 133 13.3 126
7 Loans and borrowings
Accounting policy:
All loans and borrowings are initially recognised at the fair
value of the consideration received. After initial recognition,
these are subsequently measured at amortised cost using the
effective interest method, which is the rate that exactly discounts
the estimated future cash flows through the expected life of the
liabilities. Financial liabilities are derecognised when they are
extinguished.
Group Group Company Company
2015 2014 2015 2014
GBPm GBPm GBPm GBPm
Loans and borrowings are repayable as follows:
Within one year - - - -
In the second year 240 - 240 -
In the third year - 274 - 274
In the fourth year - - - -
In the fifth year - - - -
After five years 575 575 575 575
815 849 815 849
Principal borrowings include:
Group Group Company Company
2015 2014 2015 2014
Rate Maturity GBPm GBPm GBPm GBPm
Issued under the GBP2,000 million note issuance programme
Fixed rate
GBP200 million notes (public issue) 6.875% 2023 200 200 200 200
GBP400 million notes (public issue) 5.750% 2032 375 375 375 375
EUR350 million notes (public issue) 5.625% 2017 240 274 240 274
815 849 815 849
Committed multi-currency facilities
GBP350 million LIBOR+0.60% 2019 - - - -
GBP50 million LIBOR+1.50% 2016 - - - -
GBP450 million LIBOR+1.00% 2016 - - - -
- - - -
Total loans and borrowings 815 849 815 849
During the period, the GBP450 million syndicated multi-currency
facility was replaced with a GBP350 million syndicated
multi-currency facility with a maturity date of September 2019. The
Company has the option to request one year extensions at the first
and second year anniversary of the facility, which may be granted
at the discretion of each lender individually. The new GBP350
million facility has no financial covenants.
The GBP50 million multi-currency facility was cancelled during
the period.
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 GBP997 million
(2014: GBP942 million), determined with reference to their
published market prices. The loans and borrowings are included in
Level 1 of the fair value hierarchy.
Under AIFMD, the Group is required to calculate leverage in
accordance with a set formula and disclose this to investors. In
line with AIFMD, leverage is 117% (2014: 127%) under the gross
method and 120% (2014: 133%) under the commitment method.
8 Related parties and interests in other entities
The Group has various related parties stemming from
relationships with limited partnerships managed by the Group, its
investment portfolio (including unconsolidated subsidiaries), its
advisory arrangements and its key management personnel. In
addition, the Company has related parties in respect of its
subsidiaries. Some of these subsidiaries are held at fair value
(unconsolidated subsidiaries) due to the treatment prescribed in
IFRS 10.
Related parties
Limited partnerships
The Group manages a number of external funds which invest
through limited partnerships. Group companies act as the general
partners of these limited partnerships and exert significant
influence over them. The following amounts have been included in
respect of these limited partnerships:
Group Group Company Company
2015 2014 2015 2014
Statement of comprehensive income GBPm GBPm GBPm GBPm
Carried interest receivable 28 (1) 28 (1)
Fees receivable from external funds 34 33 - -
Group Group Company Company
2015 2014 2015 2014
Statement of financial position GBPm GBPm GBPm GBPm
Carried interest receivable 33 8 33 8
Investments
The Group makes minority investments in the equity of unquoted
and quoted investments. 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%. These
investments are not equity accounted for (as permitted by IFRS 10)
but are related parties. The total amounts included for these
investments are as follows:
Group
Group 2014 Company Company
2015 (restated) 2015 2014
Statement of comprehensive income GBPm GBPm GBPm GBPm
Realised profit/(loss) over value on the disposal of investments 13 12 13 12
Unrealised profits on the revaluation of investments 3 62 15 59
Portfolio income 26 12 17 11
Group
Group 2014 Company Company
2015 (restated) 2015 2014
Statement of financial position GBPm GBPm GBPm GBPm
Unquoted investments 560 587 450 542
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:
Group Group Company Company
2015 2014 2015 2014
Statement of comprehensive income GBPm GBPm GBPm GBPm
Unrealised profits on the revaluation of investments 46 3 46 3
Fees receivable from external funds 12 10 - -
Performance fees receivable 45 - - -
Dividends 12 12 12 12
Group Group Company Company
2015 2014 2015 2014
Statement of financial position GBPm GBPm GBPm GBPm
Quoted equity investments 288 242 288 242
Performance fees receivable 45 - - -
Subsidiaries
Transactions between the Company and its fully consolidated
subsidiaries, which are related parties of the Company, are
eliminated on consolidation. Details of related party transactions
between the Company and its subsidiaries are detailed below.
Management, administrative and secretarial arrangements
The Company has appointed 3i Investments plc, a wholly-owned
subsidiary of the Company incorporated in England and Wales, as
investment manager of the Group. 3i Investments plc received a fee
of GBP13 million (2014: GBP23 million) for this service.
The Company has appointed 3i plc, a wholly-owned subsidiary of
the Company incorporated in England and Wales, to provide the
Company with a range of administrative and secretarial services. 3i
plc received a fee of GBP145 million (2014: GBP98 million) for this
service.
Other subsidiaries
The Company borrows funds from, and lends funds to certain
subsidiaries and pays and receives interest on the outstanding
balances. The interest income that is included in the Company's
Statement of comprehensive income is GBP1 million (2014: GBP2
million) and the interest expense included is nil (2014: GBP1
million).
Key management personnel
The Group's key management personnel comprise the members of the
Executive Committee and the Board's non-executive Directors. The
following amounts have been included in respect of these
individuals:
Group
Group 2014
2015 (restated)
Statement of comprehensive income GBPm GBPm
Salaries, fees, supplements and benefits in kind 5 5
Cash bonuses(1) 4 5
Carried interest and performance fees payable 17 10
Share-based payments 5 3
2014 charge restated to reflect cash bonus only. For further detail,
1. see Directors' remuneration report.
No termination benefits were paid to Executive Directors during the year
or the prior year.
Group Group
2015 2014
Statement of financial position GBPm GBPm
Bonuses and share-based payments 14 7
Carried interest and performance fees payable within one year 5 1
Carried interest and performance fees payable after one year 21 6
Carried interest paid in the year to key management personnel
was GBP3 million (2014: GBP3 million).
Unconsolidated structured entities
The application of IFRS 12 requires additional disclosure on the
Group's exposure to unconsolidated structured entities.
The Group has exposure to a number of unconsolidated structured
entities as a result of its investment activities across its
Private Equity, Infrastructure and Debt Management business lines.
These structured entities fall into four categories, namely CLO's,
debt management warehouses, closed end limited partnerships
(Private Equity and Infrastructure funds) and investments in
certain portfolio investments.
The nature, purpose and activities of these entities are
detailed below along with the nature of risks associated with these
entities and the maximum exposure to loss.
CLO structured entities
The Group manages CLO vehicles as part of its Debt Management
business. These funds predominantly invest in senior secured loans
and are financed by investors seeking credit rated, structured,
investment returns.
The Group manages these funds, in return for a management fee.
The Group also typically invests into the equity tranche of these
funds. The Group's attributable stakes in these entities are held
at fair value, fees receivable are recognised on an accruals basis
and performance fees are accrued when relevant performance hurdles
are met.
The risk and maximum exposure to loss arising from the Group's
involvement with these entities are summarised below:
Carrying amount
Assets Liabilities Net Maximum loss exposure
GBPm GBPm GBPm GBPm
Balance sheet line item of asset or liability
Unquoted investments 119 - 119 119
Fee income receivable 7 - 7 7
Total 126 - 126 126
At 31 March 2015, the total CLO assets under management were
GBP6.5 billion (2014: GBP5.8 billion). The Group earned dividend
income of GBP16 million (2014: GBP8 million) and fee income of
GBP30 million (2014: GBP7 million) during the year from CLO
structured entities.
Warehouse structured entities
Ahead of future CLO fund launches, warehouse facilities are
usually established to support the creation of senior secured debt
portfolios. These entities are financed by the Group along with the
bank appointed to operate the warehouse facility. The Group makes a
commitment to the warehouse, typically taking the first loss
position and is at risk for margin calls if the portfolio
underperforms. The Group's attributable stakes in these warehouses
are held at fair value.
The risk and maximum exposure to loss arising from the Group's
involvement with these entities are summarised below:
Carrying amount
Assets Liabilities Net Maximum loss exposure
GBPm GBPm GBPm GBPm
Balance sheet line item of asset or liability
Unquoted investments 43 - 43 43
Total 43 - 43 43
At 31 March 2015, the total net asset value of the warehouse
entities was GBP43 million (2014: GBP17 million). The Group earned
interest income of GBP6 million (2014: GBP2 million) during the
year from warehouse structured entities.
Closed end limited partnerships
The Group manages a number of closed end limited partnerships,
which are primarily Private Equity or Infrastructure focused, in
return for a management fee. The purpose of these partnerships is
to invest in Private Equity or Infrastructure investments for
capital appreciation. Limited Partners, which in some cases may
include the Group, finance these entities by committing capital to
them and cash is drawn down or distributed for financing investment
activity.
The Group's attributable stakes in these entities are held at
fair value, fees receivable are recognised on an accruals basis and
carried interest is accrued when relevant performance hurdles are
met.
The risk and maximum exposure to loss arising from the Group's
involvement with these entities are summarised below:
Carrying amount
Assets Liabilities Net Maximum loss exposure
GBPm GBPm GBPm GBPm
Balance sheet line item of asset or liability
Carried interest receivable 33 - 33 33
Total 33 - 33 33
At 31 March 2015, the total assets under management relating to
these entities was GBP2.2 billion (2014: GBP2.5 billion). The Group
earned fee income of GBP31 million (2014: GBP33 million) and
carried interest of GBP28 million (2014: GBP(1) million) in the
year.
Investments that are structured entities
The Group makes investments on behalf of itself and third party
funds that it manages, for capital appreciation purposes. In a
small number of cases, these investments fall under the
classification of a structured entity as they are funds managed by
the General Partner under a limited partnership agreement.
The Group's attributable stakes in these entities are held at
fair value.
The risk and maximum exposure to loss arising from the Group's
involvement with these entities are summarised below:
Carrying amount
Assets Liabilities Net Maximum loss exposure
GBPm GBPm GBPm GBPm
Balance sheet line item of asset or liability
Unquoted investments 2 - 2 2
Total 2 - 2 2
At 31 March 2015, the total fair value of these investments,
including stakes held by third parties was GBP33 million (2014:
GBP53 million). The Group recognised an unrealised loss of GBP1
million from investments that are structured entities (2014: GBP1
million realised profit).
Regulatory information relating to fees:
Under AIFMD, 3i Investments plc acts as an Alternative
Investment Fund Manager ("AIFM") to 3i Group plc. In performing the
activities and functions of the AIFM, the AIFM or another 3i
company may pay or receive fees, commissions or non-monetary
benefits to or from third parties of the following nature:
-- Transaction fees: 3i companies receive monitoring and
directors' fees from portfolio companies. The amount is agreed with
the portfolio company at the time of the investment but may be
re-negotiated. Where applicable, 3i may also receive fees on the
completion of transactions such as acquisitions, re-financing or
syndication either from the portfolio company or a co-investor.
Transaction fees paid to 3i are included in portfolio income
-- Payments for third party services: 3i companies may retain
the services of third party consultants; for example for an
independent director or other investment management specialist
expertise. The amount paid varies in accordance with the nature of
the service and the length of the service period and is usually,
but not always, paid/reimbursed by the portfolio companies. The
payment may involve a flat fee, retainer or success fee. Such
payments, where borne by 3i companies, are usually included in
portfolio income.
-- Payments for services from 3i companies: One 3i company may
provide investment advisory services to another 3i company and
receive payment for such service.
9 Restatement of prior period information
As explained in the Significant accounting policies, the Group
has restated comparative information where relevant, following the
early adoption of changes provided in the narrow scope amendment to
IFRS 10.
The impact of this restatement on a line by line basis is
presented below.
Impact on Consolidated statement of comprehensive income for the
year ended 31 March 2014
As originally reported Effect of restatement Restated presentation
GBPm GBPm GBPm
Unrealised profit on the revaluation of
investments 77 4 81
Fair value movements on investment entity
subsidiaries 454 (21) 433
Fees receivable from external funds 50 25 75
Operating expenses (118) (18) (136)
Interest receivable 2 1 3
(Expense)/income from fair value subsidiaries (5) 13 8
Carried interest and performance fees receivable (1) 4 3
Carried interest and performance fees payable (16) (1) (17)
Acquisition related earn-out charges - (6) (6)
Income taxes (2) (1) (3)
Other income statement items 37 - 37
Total comprehensive income for the year 478 - 478
Impact on Consolidated statement of financial position as at 31
March 2014
As originally reported Effect of restatement Restated presentation
GBPm GBPm GBPm
Assets
Unquoted investments 1,279 45 1,324
Investments in investment entities 1,973 (64) 1,909
Carried interest and performance fees
receivable 8 9 17
Intangible assets 10 15 25
Deferred income taxes 1 2 3
Other current assets 72 4 76
Cash and cash equivalents 643 31 674
Other assets 402 - 402
Total assets 4,388 42 4,430
Liabilities
Carried interest and performance fees payable (26) (4) (30)
Acquisition related earn-out charges payable (2) (16) (18)
Deferred income taxes - non current - (2) (2)
Provisions (4) (1) (5)
Trade and other payables (158) (8) (166)
Acquisition related earn-out charges payable - (10) (10)
Current income tax (2) (2) (4)
Deferred income taxes - current (1) 1 -
Other liabilities (887) - (887)
Total liabilities (1,080) (42) (1,122)
Equity
Translation reserve 242 1 243
Capital, revenue and other reserve 1,051 (1) 1,050
Other reserves 2,015 - 2,015
Total equity 3,308 - 3,308
Impact on Consolidated cash flow statement for the year ended 31
March 2014
As originally reported Effect of restatement Restated presentation
GBPm GBPm GBPm
Cash flow from operating activities
Purchase of investments (114) (34) (148)
Proceeds from investments 452 2 454
Cash inflow from fair value subsidiaries 46 16 62
Portfolio fees received 4 2 6
Fees received from external funds 52 23 75
Carried interest and performance fees received 1 4 5
Carried interest and performance fees paid (20) 5 (15)
Operating expenses (125) (6) (131)
Income taxes paid (3) (4) (7)
Other cash flows (243) - (243)
Change in cash and cash equivalents 50 8 58
Opening cash and cash equivalents 610 23 633
Effect of exchange rate fluctuations (17) - (17)
Closing cash and cash equivalents 643 31 674
Portfolio and other information
25 large investments
The 25 investments listed below account for 81% of the portfolio
at 31 March 2015 (2014: 75%).
For each of our investments we have assessed whether they
classify as accounting subsidiaries under IFRS and/or subsidiaries
under the UK Companies Act. This assessment forms the basis of our
disclosure of accounting subsidiaries in the financial
statements.
The UK Companies Act defines a subsidiary based on voting
rights, with a greater than 50% majority of voting rights resulting
in an entity being classified as a subsidiary. IFRS 10 applies a
wider test and, if a Group is exposed, or has rights to variable
returns from its involvement with the investee and has the ability
to affect these returns through its power over the investee then it
has control, and hence the investee is deemed an accounting
subsidiary. Accounting subsidiaries under IFRS 10 within the 25
large investments below are noted. None of these investments are UK
Companies Act subsidiaries.
In accordance with Section 29 of the Alternative Investment Fund
Manager Directive ("AIFMD"), 3i Investments plc, as 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 cost Valuation Valuation
Geography March March March March
Investment First invested in 2014 2015 2014 2015 Relevant transactions
Description of business Valuation basis GBPm GBPm GBPm GBPm in the year
Action* Private Equity 57 2 501 592
Non-food discount Benelux
retailer
2011 Refinancing returned
Earnings GBP113m of proceeds.
3i Infrastructure plc* Infrastructure 302 302 404 481
Quoted investment UK
company,
investing in 2007 GBP20m dividends paid
infrastructure
Quoted to 3i Group.
Scandlines* Private Equity 108 114 193 262
Ferry operator between Denmark/
Denmark
and Germany Germany
2007
DCF
Follow on investment
Amor / Christ* Private Equity 50 129 70 165 in Christ
Distributor and Germany of GBP99m to acquire
retailer of Christ, a
affordable jewellery 2010 / 2014 leading retailer for
jewellery
Earnings and watches in
Germany.
Element Materials
Technology* Private Equity 78 62 124 145
Materials testing and Benelux
inspection
2010
Earnings
Quintiles Private Equity 52 41 122 144
Clinical research US
outsourcing
solutions 2008
Quoted
Mayborn* Private Equity 113 129 116 133
Manufacturer and UK
distributor
of baby products 2006
Earnings
ACR Private Equity 105 105 101 120
Pan-Asian non life Singapore
reinsurance
2006
Industry metric
Q Holding* Private Equity - 100 - 109
Precision engineered US
elastomeric components 2014
manufacturer Earnings New investment.
AES Engineering Private Equity 30 30 96 102
Manufacturer of UK
mechanical
seals and support 1996
systems
Earnings
Basic Fit* Private Equity 84 91 82 102
Discount gyms operator Benelux
2013
Earnings
Tato Private Equity 2 2 85 80
Manufacture and sale of UK
speciality chemicals 1989
Earnings
GIF* Private Equity 64 68 65 78
International Germany
transmission
testing specialist 2013
Earnings
Dynatect* Private Equity - 65 - 71
Manufacturer of US
engineered,
mission critical 2014
protective
equipment Earnings New investment.
Aspen Pumps* Private Equity - 65 - 64
Manufacture of pumps and UK
accessories for the air 2015
conditioning,
heating and Earnings New investment.
refrigeration industry
Azelis* Private Equity 72 76 26 62
Pan-European speciality Luxembourg
chemical distributor 2007 Exit completed in May
Imminent sale 2015.
Mémora* Private Equity 141 159 67 61
Funeral service provider Spain
2008
Earnings
JMJ* Private Equity 44 42 43 53
Global management US
consultancy
2013
Earnings
Geka* Private Equity 56 69 55 53
Manufacturer of brushes, Germany
applicators and 2012
packaging
systems for the Earnings
cosmetics industry
Agent Provocateur* Private Equity 49 53 35 53
Women's lingerie and UK
assorted
products 2007
Earnings
Refresco Gerber Private Equity 46 30 42 47
European bottler of soft Benelux IPO in March 2015
drinks and
fruit juices for 2010 generating GBP25m of
retailers and branded
customers Quoted proceeds.
OneMed Group* Private Equity 108 117 44 47
Distributor of Sweden
consumable
medical products, 2011
devices and technology Earnings
Eltel Networks* Private Equity 89 13 70 47
Infrastructure services Sweden IPO in February 2015
for
electricity and telecoms 2007 generating GBP87m of
networks Quoted proceeds.
MKM Private Equity 20 22 27 43
Building materials UK
supplier
2006
Earnings
Etanco* Private Equity 80 87 44 40
Designer, manufacturer France
and
distributor of fasteners 2011
and
fixings systems Earnings
1,750 1,973 2,412 3,154
* IFRS accounting subsidiary
Glossary
Alternative Investment Funds ("AIFs") At 31 March 2015, 3i
Investments plc as AIFM, managed four AIFs. These were 3i Group
plc, 3i Growth Capital Fund, 3i Eurofund V and the European Middle
Market Loan Fund.
Alternative Investment Fund Managers Directive ("AIFMD") became
effective from July 2013. As a result, at 31 March 2015, 3i
Investments plc is registered as an Alternative Investment Fund
Manager ("AIFM"), which in turn manages four 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 The capital reserve recognises all profits that
are capital in nature or have been allocated to capital. Following
changes to the Companies Act the Company amended its Articles of
Association at the 2012 Annual General Meeting to allow these
profits to be distributable by way of a dividend.
Carried interest 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 historically over two year
vintages to maximise flexibility in resource planning.
Collateralised Loan Obligation ("CLO") 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, taxation,
depreciation and amortisation and is used as the typical measure of
portfolio company performance.
EBITDA multiple Calculated as the enterprise value over EBITDA,
it is used to determine the value of a company.
Executive Committee The Executive Committee is responsible for
the day-to-day running of the Group and comprises: the Chief
Executive, Group Finance Director, the Managing Partners of the
Private Equity, 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 income
statement.
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 entity. Investments are translated at the exchange rate
ruling at the date of the transaction. At each subsequent reporting
date investments are translated to sterling at the exchange rate
ruling at that date.
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 Strategic 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 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 shareholders 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAESLFLFSEEF
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