TIDMIII
RNS Number : 3486O
3i Group PLC
17 May 2018
17 May 2018
3i Group plc announces results for the year
to 31 March 2018
Strong all-round performance
-- Total return of GBP1,425 million or 24% on opening
shareholders' funds and NAV per share of 724 pence (31 March 2017:
604 pence)
-- Continued strong performance from Private Equity, with gross
investment return of GBP1,438 million or 30%, driven by Action,
Scandlines, ATESTEO and Basic-Fit in particular. The gross
investment return from investments completed between 2013 and 2016
was 29%
-- Private Equity team generated excellent realisations of
GBP1,002 million, announced a further c.GBP350 million of proceeds
to complete by the summer of 2018 and invested a total of GBP587
million in four new portfolio companies, as well as two important
further investments
-- A very good year for Infrastructure, which advised 3i
Infrastructure plc ("3iN") on six investments and commitments
totalling GBP525 million and the disposals of Elenia and AWG, which
helped to generate a total return of 29% for 3iN as well as a
special dividend of GBP143 million for 3i
-- Closed two European Infrastructure fund platforms, raising
assets of more than GBP1 billion, and invested GBP177 million in
our first US infrastructure investment, Smarte Carte
-- Total dividend of 30 pence per share for FY2018, with 22
pence to be paid in July subject to shareholder approval
Simon Borrows, 3i's Chief Executive, commented:
"3i delivered another strong all-round performance in FY2018,
generating a total return of 24%. Our investment teams had a very
busy year. We received GBP1,323 million of proceeds, announced a
further c.GBP350 million of realisations to complete by July 2018,
and invested GBP827 million, including in five new companies.
We enter FY2019 with good momentum across the Group. Our fund
management initiatives in Infrastructure, together with our
reinvestment into Scandlines, will generate important cash income
while our Private Equity portfolio remains well positioned to
generate top-tier capital returns. We remain confident in our
ability to deliver continued growth and our new dividend policy
provides shareholders with clarity on future distributions."
Financial highlights
Year to/as at Year to/as at
31 March 31 March
2018 2017
-------------------------------------------------------------- -------------- --------------
Group
Total return(1) GBP1,425m GBP1,592m
Operating expenses GBP121m GBP117m
Operating cash profit GBP11m GBP5m
============================================================== ============== ==============
Realisation proceeds(1) GBP1,323m GBP1,275m
- of which are the proceeds from the sale of Debt Management GBP152m GBP270m
Gross investment return GBP1,552m GBP1,755m
- As a percentage of opening 3i portfolio value 27% 40%
Cash investment GBP827m GBP638m
3i portfolio value GBP6,657m GBP5,675m
Gross debt GBP575m GBP575m
Net cash GBP479m GBP419m
Gearing(2) nil nil
Liquidity GBP1,404m GBP1,323m
Net asset value GBP7,024m GBP5,836m
Diluted net asset value per ordinary share 724p 604p
The FY2017 total return and realisation proceeds includes discontinued operations. Unless
1 stated, all balances are on continuing operations.
2 Gearing is net debt as a percentage of net assets.
S
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 2018, including a live videocast of the
results presentation at 09.30am, please visit www.3i.com.
Notes to editors
3i is a leading international investment manager focused on
mid-market Private Equity and Infrastructure. Our core investment
markets are northern Europe and North America. For further
information, please visit: www.3i.com.
Notes to the announcement of the results
Note 1
All of the financial data in this announcement is taken from the
Investment basis financial statements. The statutory accounts are
prepared under IFRS for the year to 31 March 2018 and have not yet
been delivered to the Registrar of Companies. The statutory
accounts for the year to 31 March 2017 have been delivered to the
Registrar of Companies. The auditor's reports on the statutory
accounts for these years are unqualified and do not contain any
matters to which the auditor drew attention by way of emphasis or
any statements under section 498(2) or (3) of the Companies Act
2006. This announcement does not constitute statutory accounts.
Note 2
Copies of the Annual report and accounts 2018 will be
distributed to shareholders on or soon after 29 May 2018.
Note 3
This announcement may contain statements about the future
including certain statements about the future outlook for 3i Group
plc and its subsidiaries ("3i"). These are not guarantees of future
performance and will not be updated. Although we believe our
expectations are based on reasonable assumptions, any statements
about the future outlook may be influenced by factors that could
cause actual outcomes and results to be materially different.
Note 4
Subject to shareholder approval, the proposed dividend is
expected to be paid on 20 July 2018 to holders of ordinary shares
on the register on 15 June 2018.
Chairman's statement
FY2018 was another successful year for 3i. Our two divisions
generated strong returns and we maintained our excellent track
record of realisations, generating proceeds of GBP1,323 million
(2017: GBP1,275 million). Importantly, we completed or announced
over GBP700 million of investment in Private Equity. In addition,
we completed our first Infrastructure investment in North America
and launched two Infrastructure funds in Europe to complement our
mandate for 3iN.
Market environment
FY2018 was a year dominated by global politics and increasing
tensions across the world stage. This, coupled with the expectation
of interest rate rises in the US, led to an increase in volatility
across capital markets, even though the broad macro-economic
picture remained strong. Financing markets remained relatively
robust throughout the year, more closely reflecting the healthy
macro-economic outlook.
The Group used this strong back-drop to sell a number of
significant investments across both divisions, which delivered
outstanding investment returns for shareholders. At the same time,
the Group's investment teams in key geographies originated
attractive new investments while remaining focused on price
discipline.
Performance and dividend
The Group's total return for the year was GBP1,425 million
(2017: GBP1,592 million). Net asset value increased to
724 pence per share (31 March 2017: 604 pence) and our return on
opening shareholders' funds was 24% (2017: 36%). We remained net
divestors in FY2018, ending the year with net cash of GBP479
million and liquidity of GBP1,404 million (31 March 2017: net cash
of GBP419 million and liquidity of GBP1,323 million). Immediately
after the year end, on 3 April 2018, we completed the GBP135
million investment in Royal Sanders announced in February 2018.
In recognition of the Group's financial performance in FY2018
and the strength of its balance sheet, the Board has recommended a
dividend of 22.0 pence (2017: 18.5 pence). This is made up of the
balance of the base dividend
(8 pence per share, after the 8 pence paid in January 2018) and
an additional dividend of 14.0 pence. Subject to shareholder
approval, the dividend will be paid to shareholders in July 2018
and makes a total dividend for the year of 30.0 pence (2017: 26.5
pence).
Our policy of paying a base and additional dividend was
introduced in May 2012. It has worked well as we reshaped the
Group's strategy and simplified our business model. Six years of
successful strategic delivery since then have supported an increase
in the total dividend from 8.1 pence in FY2013 to 30.0 pence in
FY2018.
In light of the Group's continued progress in executing its
strategy, we now propose to replace our base and additional
dividend policy with a simpler policy. The Board will maintain its
conservative balance sheet strategy, which excludes structural
gearing at the Group level, and will carefully consider the outlook
for investments and realisations and market conditions. Subject to
that, the Board will aim to maintain or grow the dividend each
year, from the 30.0 pence this year. We will continue to pay an
interim dividend, which we expect to set at 50% of the prior year's
total dividend, subject to the same considerations.
Board and management
After last year's changes, this year the composition of the
Board was stable. I would like to thank the Board, the management
team and all of our employees for their contribution to this year's
excellent results.
Outlook
We enter FY2019 with a high-performing portfolio of investments
in both of our divisions and a strong balance sheet. Competition in
both private equity and infrastructure remains intense, with high
asset prices demanding a disciplined approach to investment. But I
remain confident that the Group will be agile and opportunistic as
we navigate what looks likely to be another year of significant
economic and geo-political uncertainty.
Simon Thompson
Chairman
Chief Executive's statement
3i delivered another strong all-round performance in FY2018,
with NAV per share increasing by 20% to 724 pence (31 March 2017:
604 pence). Unlike FY2017, which included a GBP297 million gain on
currency translation, our total return of GBP1,425 million (2017:
GBP1,592 million) was after a GBP16 million loss on currency. This
return was 24% of opening shareholders' funds, marking the fourth
consecutive year of greater than 20% returns. This was a profitable
year for realisations; we received GBP1.3 billion of cash and
announced a further c.GBP350 million of proceeds which will
complete by summer 2018. It was also a good year for new
investment, with GBP827 million invested, including in five new
companies. So FY2018 was a very active year and further
confirmation of the Group's strategy and return potential.
A strong portfolio in Private Equity
In Private Equity, we have a quality investment portfolio, which
is performing strongly overall. Earnings increased in 91% of the
portfolio by value in the year (2017: 93%) and generated attractive
returns for shareholders.
Longer-term hold assets
Our largest Private Equity investment, Action, had another
strong year. Action's expansion continued at an impressive rate,
with 243 net new stores opened in calendar year 2017. Revenue grew
by 28% to EUR3.4 billion, like-for-like sales by 5.3% and EBITDA by
25% to EUR387 million (2017: EUR2.7 billion, 6.9% and EUR310
million). Action now has over 1,100 stores and intends to open more
stores in 2018 than 2017. New Action stores become profitable in
one year on average and the rapid expansion programme led to
another year of strong value growth.
Action's straightforward business model, built on a consistent,
one-store format and good quality but inexpensive products, has
been proven to work in seven countries so far. However, growth at
this pace requires very significant investment in logistics, supply
chain, IT, risk management and HR. To manage the enormous volume of
goods, Action opened a further two distribution centres ("DCs") in
2018 and commenced building two more.
The newer DCs will help support Action's expansion and reduce
costs in the future, as those stores that are a long distance from
a DC incur materially higher transport costs. Growth on this scale
is very challenging to manage and Action encountered its share of
issues in logistics and distribution and within certain product
categories in 2017. These challenges, together with building a
pan-European infrastructure to cope with the medium-term ambition
of EUR10 billion of revenues, will have a dampening effect on the
rate of profit growth expected this year, as they did in 2017. But
Action is an exceptional business, it is still likely to generate
sector-leading sales and profit growth in 2018 and this ongoing
investment in logistics and infrastructure will facilitate its
considerable medium-term growth potential.
Notwithstanding the above, Action remains very cash generative
due to its asset-light model and structurally negative working
capital, and the company completed its fifth refinancing in March
2018. The proceeds of the EUR2.4 billion refinancing supported a
return of capital to shareholders, of which 3i received GBP307
million, taking total distributions to 3i since investment to
GBP834 million, a 7.1x cash return to date.
Our other long-term hold asset, Scandlines, had a significant
year. 3i, together with Eurofund V ("EFV"), initially invested
EUR81 million (3i only: GBP31 million) to acquire a 40% stake in
Scandlines in 2007. We purchased a further 10% stake for EUR43
million (3i only: GBP21 million) in 2010 before acquiring the final
50% stake for EUR165 million (3i only: GBP77 million) in 2013.
Scandlines now has two highly efficient ferry routes linking
Continental Europe to Scandinavia and as a result of investing in
its ferry capacity, increasing the frequency of crossings and
investing in its border shops, generates significant and stable
cash flows. This characteristic meant that, in July 2017,
Scandlines completed an EUR862 million infrastructure debt
refinancing, which substantially reduced its long-term cost of
debt.
Together, these initiatives enabled us to announce the sale of
Scandlines to funds managed by First State Investments and Hermes
Investment Management for an equity value of EUR1.7 billion in
March 2018. This represents a 7.4x money multiple on our total
investment, and a 5.8x multiple on our further investment in 2013.
3i remains committed to the business and will reinvest c.EUR600
million to hold a 35% stake, alongside First State Investments and
Hermes Investment Management, as we expect to generate attractive
returns and receive regular cash dividends over the medium term.
This will provide an important contribution to the Group's
operating cash position.
Portfolio performance
The portfolio of investments put together between 2013 and 2016
is creating significant value with notable increases from
Basic-Fit, Scandlines, Audley Travel and Weener Plastic ("WP"). In
addition, we sold ATESTEO for a money multiple of 4.8x in February
2018. As at 31 March 2018, our 2013-2016 vintage had already
achieved a money multiple of 2.1x (31 March 2017: 1.7x).
It is inevitable that there will be some challenges in any
Private Equity portfolio and our German high street jeweller,
Christ, continues to suffer from structural changes in the retail
sector such as the heavily discounted Black Friday weekend and the
relentless shift to online. Christ saw the largest decline in value
of the year at GBP53 million and we are working with management to
develop a medium-term plan to help protect its strong brand as it
meets these headwinds.
We have been active investors over the last two years and,
because of the competitive environment, we have specifically
targeted primary buy-out or family company investments, as well as
companies that require a degree of operational improvement. Our
agenda on buying these companies can be very intensive in terms of
reshaping the business, restructuring finances, improving
operational efficiency, investing for growth and changing or
professionalising management. These situations often involve
significant early cash investment, as well as being operationally
disruptive.
This in turn means that returns can be modest in the early years
of our ownership but then accelerate rapidly towards exit.
Schlemmer, Formel D and BoConcept are good examples of investments
which are undergoing this type of radical change programme.
Our proprietary capital model means that we do not have the same
pressure to invest capital for the sake of generating fees. Our
teams have the time to seek out interesting companies and build
relationships with management teams long before any auction process
starts.
FY2018 was a good year for investment. We invested GBP587
million in four companies at sensible prices: Hans Anders,
Lampenwelt, Formel D and Cirtec Medical (including a follow-on
investment to support its acquisition of Vascotube). Our GBP135
million investment in Royal Sanders, announced in February 2018,
completed in April 2018. We also announced our c.$150 million
investment in ICE (International Cruise & Excursions), a
leading provider of loyalty and travel solutions in April 2018,
which is expected to complete by June 2018.
We have invested in a number of companies in recent years, such
as WP, Cirtec Medical ("Cirtec"), Ponroy Santé and Q Holding, which
are platform assets that can pursue growth through bolt-on
acquisitions or strategic M&A. All of these companies are in
sectors with high growth potential where there is significant
opportunity to scale up and build value. Recent acquisitions in our
portfolio ranged from smaller add-ons in WP to Cirtec's
transformative acquisition of Vascotube and Ponroy Santé's
acquisition of Aragan.
An outstanding year for Infrastructure
We have two broad priorities in Infrastructure. First, we are
focused on our advisory relationship with 3iN and the delivery of
good returns from its portfolio. Second, our expertise in the
sector is allowing us to develop complementary fund management
initiatives in Europe and North America in order to build the
Group's fund management income and contribute to our operating cash
position.
Our Infrastructure team had a very strong year. It advised 3iN
on its disposals of Elenia and AWG, 3iN's last investments in
regulated utilities, generating proceeds of GBP1.1 billion and
returns of 4.5x and 3.3x cost respectively. The value uplifts from
these sales were returned to 3iN shareholders via a GBP425 million
special dividend in March 2018, of which 3i received GBP143
million. In addition, we advised 3iN on six investments in
mid-market economic infrastructure businesses totalling GBP525
million. Our main priority this year will be to ensure that these
recent investments deliver good performance. The 3i team, together
with the 3iN Board, has done an outstanding job in repositioning
3iN's portfolio away from an increasing level of regulatory risk.
The realisations of Elenia and AWG produced excellent financial
returns and reinforced 3i's reputation as one of the leading
infrastructure investment teams in Europe.
3iN's total return for the year was 29%, the highest since its
IPO in 2007 and, for those shareholders who invested in 3iN's
GBP385 million capital raise in June 2016 (including 3i Group), the
31% return on their investment is impressive.
During the year, we raised two new funds, the GBP700 million 3i
Managed Infrastructure Acquisitions LP and the 3i European
Operational Projects Fund ("EOPF"). There was strong investor
demand for EOPF, which had its final close in April 2018 with
EUR456 million of commitments, ahead of its EUR400 million target.
The team is focused on sourcing assets for the fund and has
invested or committed to invest EUR85 million of that capital so
far.
Our new US Infrastructure team completed its first investment in
Smarte Carte in November 2017 as a seed for the North America fund
management strategy. We made a further investment in January 2018
to support Smarte Carte's acquisition of Aviation Mobility, and the
team completed a $225 million refinancing of Smarte Carte in March
2018. Over the last 12 months, we have recruited selectively to
build a team in the US and they are now busy with an interesting
pipeline of opportunities.
Our Infrastructure platform is an important source of fund
management fee income. As a result of the increase in investment
activity, we generated GBP50 million of fee income (2017: GBP36
million), a performance fee of GBP90 million from 3iN (2017: GBP4
million) and closed the year with assets under management of GBP3.4
billion (31 March 2017: GBP2.9 billion).
Proprietary capital model underpinned by our strong balance
sheet
We ended the year with net cash of GBP479 million (31 March
2017: GBP419 million). FY2018 was an outstanding year for
realisations but generally we expect to hold high levels of cash
and liquidity to ensure that we can continue to invest without
having to accelerate realisations ahead of their full
potential.
Our proprietary capital is the cornerstone of the 3i business
model, supported by a complementary fund management platform in
Infrastructure, which ensures our shareholders benefit from access
to our Private Equity investment returns with minimal dilution from
the costs of running our business. 3i aims to be the investor of
choice in its core sectors of Business and Technology Services,
Consumer and Industrial. Our long history of investing in the
mid-market with a consistent, local, on the ground, presence in
northern Europe and North America gives us a sustainable
origination advantage. Our ungeared balance sheet allows us to be
competitive and move fast for the right businesses.
To ensure that our proprietary capital model is as efficient as
possible, we remain disciplined on firm costs. We closed our Madrid
office this year following the sale of Mémora, our last significant
Private Equity asset in Spain. Operating cash profit increased to
GBP11 million (2017: GBP5 million) as advisory income from
Infrastructure improved and cash operating expenses declined
marginally to GBP115 million (2017: GBP116 million).
Outlook
We enter FY2019 with a good level of momentum across the Group
and, while the wider geo-political environment remains challenging,
we are confident in our ability to deliver continued strong growth
for shareholders together with healthy dividends. We will stay
focused on the mid market, maintain our discipline on pricing for
new investments and use the rigour of our investment processes to
manage our two portfolios actively.
I would like to thank the 3i team for their good work and
contribution to yet another strong year for the Group. These
excellent results are a further demonstration that 3i's strategy is
capable of delivering consistently good returns. Our fund
management initiatives, together with our reinvestment into
Scandlines, will generate important cash income for the Group while
our proprietary capital portfolio remains well positioned to
generate top tier capital returns.
Simon Borrows
Chief Executive
Private Equity
Business review
Our Private Equity business generated very strong returns in
FY2018 with a GIR of GBP1,438 million, or 30% on the opening
portfolio (2017: GBP1,624 million, 43%), and realisations of
GBP1,002 million (2017: GBP982 million). Despite continued
political uncertainty and highly competitive markets, assets
including Action, Audley Travel and Basic-Fit performed well. The
team made investments of GBP587 million and delivered very strong
returns from the realisation of ATESTEO and the upcoming exit of
Scandlines.
Investment activity
We had a very busy year, completing four new investments and a
number of further acquisitions. We invested GBP95 million in
Lampenwelt, the largest European online specialist retailer in the
lighting space and GBP172 million in Hans Anders, a value-for-money
optical retailer based in the Netherlands. We invested GBP132
million in Formel D, a service provider to the automotive and
component supply industry based in Germany, bringing in CITIC
Capital as a co-investor to facilitate Formel D's expansion in
China and GBP103 million in Cirtec, a leading provider of
outsourced medical device design, engineering and manufacturing,
headquartered in the US.
An important component of our investment strategy is our ability
to facilitate transformative M&A in our portfolio companies. In
November 2017, we completed a further investment in Cirtec to
support its acquisition of Vascotube, an outsourced medical device
manufacturer based in Germany. This transaction represented an
attractive opportunity to add a European manufacturer whose product
is used in the fast-growing minimally invasive sector that Cirtec
specialises in. We also invested GBP10 million in Ponroy Santé to
support its acquisition of Aragan, a designer and distributor of
premium pharmaceutical food supplements. Finally, together with
EFV, 3i acquired GBP11 million of Action shares from other
shareholders.
In addition to the GBP587 million investment completed in the
year to 31 March 2018, our GBP135 million investment in Royal
Sanders, a leading European private label and contract
manufacturing producer of personal care products, completed on 3
April 2018.
In April 2018, we also announced a c.$150 million investment in
International Cruises and Excursions, a global travel and loyalty
company that connects leading brands, travel suppliers and end
consumers. The acquisition is expected to complete by June
2018.
Table 1: Private Equity cash investment in the year to 31 March
2018
Proprietary
Total capital
investment investment
Investment Type Business description Date GBPm GBPm
------------------ -------------- ---------------------------------- --------------------- ---------- -----------
Online lighting specialist
Lampenwelt New retailer May 2017 96 95
Hans Anders New Value-for-money optical retailer May 2017 173 172
Quality assurance service provider
Formel D New for the automotive industry July 2017 150 132
BoConcept Over-funding Urban living designer July 2017 (11) (11)
Outsourced medical device
Cirtec New/Further manufacturing August/November 2017 173 172
Manufacturer of natural healthcare
and
Ponroy Santé Further (M&A) cosmetics products November 2017 11 10
Action Further Non-food discount retailer March 2018 19 11
Other n/a n/a n/a 8 6
------------------ -------------- ---------------------------------- --------------------- ---------- -----------
Total Private Equity investment 619 587
---------------------------------------------------------------------- --------------------- ---------- -----------
Realisations activity
Market conditions remained favourable, resulting in some highly
competitive exit processes. As a result, we generated proceeds of
GBP603 million from the sale of eight companies, realising an
average money multiple of 2.4x (2017: GBP621 million, 1.8x). The
sale of ATESTEO generated proceeds of GBP278 million and a money
multiple on our investment of 4.8x. This is an excellent result
from one of our 2013-2016 vintage investments. In addition, we
completed the sale of some of our older investments, such as Mémora
and MKM, as well as Óticas Carol, our last remaining investment in
Brazil. We sold all of our remaining quoted stakes in Dphone and
Refresco Gerber.
Where appropriate, we refinance our strongest assets when market
conditions and trading performance allow. In July 2017, Scandlines
completed an EUR862 million refinancing, which resulted in GBP50
million of proceeds for 3i. In November 2017, we completed the
second refinancing of ATESTEO, which generated proceeds of GBP30
million. Action's strong growth and cash flow generation enabled it
to de-lever rapidly during 2017, allowing a EUR2.4 billion
refinancing in March 2018, which resulted in a GBP307 million
distribution to 3i. Since our investment in 2011, Action has
returned GBP834 million of refinancing proceeds to 3i, a 7.1x cash
return on our investment to date.
In aggregate, we generated total proceeds of GBP1,002 million
(2017: GBP982 million) and realised profits of GBP199 million in
the year (2017: GBP38 million).
As at 31 March 2018, the portfolio comprised 35 assets and one
quoted stake (31 March 2017: 37 assets and three quoted
stakes).
In March 2018, we announced the sale of Scandlines and our
partial reinvestment together with funds managed by First State
Investments and Hermes Investment Management. The effect of these
transactions will be accounted for when the transaction completes,
expected to be in the summer of 2018.
Table 2: Private Equity realisations in the year to 31 March
2018
31 March Profit/(loss) Uplift
on
Calendar 2017 3i in the opening Residual
realised
year value(1) proceeds year(2) value(2) value Money
Investment Country invested GBPm GBPm GBPm % GBPm multiple(3) IRR
------------- ---------------- ---------- -------- -------- ------------- -------- -------- ----------- -----
Full realisations
ATESTEO Germany 2013 130 278 139 100% - 4.8x 51%
Mémora Spain 2008 86 119 32 37% - 1.4x 4%
MKM UK 2006 68 70 2 3% - 5.9x 19%
Refresco
Gerber Netherlands 2010 32 43 10 30% - 2.0x 13%
Foster and
Partners UK 2007 34 33 (1) (3)% - 1.8x 9%
Óticas
Carol Brazil 2013 19 27 9 50% - 1.9x 15%
Dphone Hong Kong 2006 21 26 6 30% - 2.2x 7%
Hobbs UK 2004 9 7 (2) (22)% - 0.2x (14)%
------------- ---------------- ---------- -------- -------- ------------- -------- -------- ----------- -----
Total realisations 399 603 195 48% - 2.4x n/a
------------------------------------------- -------- -------- ------------- -------- -------- ----------- -----
Refinancings(3)
Action Netherlands 2011 307 307 - - 2,064 24.5x 79%
Scandlines Denmark/Germany 2007/2013 50 50 - - 803 7.4x 34%
ATESTEO Germany 2013 30 30 - - - n/a n/a
------------- ---------------- ---------- -------- -------- ------------- -------- -------- ----------- -----
Total refinancings 387 387 - - 2,867 n/a n/a
------------------------------------------- -------- -------- ------------- -------- -------- ----------- -----
Partial realisations(1,3)
Other n/a n/a 4 6 - - 36 n/a n/a
Deferred consideration
Other n/a n/a 1 6 4 n/a - n/a n/a
------------- ---------------- ---------- -------- -------- ------------- -------- -------- ----------- -----
Total Private Equity
realisations 791 1,002 199 25% 2,903 n/a n/a
------------------------------- ---------- -------- -------- ------------- -------- -------- ----------- -----
1 For partial realisations, 31 March 2017 value represents value of stake sold.
2 Cash proceeds realised in the period over opening value.
3 Cash proceeds over cash invested. For partial realisations and refinancings, valuations of
any remaining investment are included in the multiple.
Portfolio valuation
The strong performance of the portfolio resulted in unrealised
value growth of GBP1,080 million (2017: GBP1,274 million).
Performance
The strong performance of the investments valued on an earnings
basis resulted in an increase in value of GBP541 million (2017:
GBP827 million) with the most significant contribution coming from
Action. At 31 March 2018, Action was valued using run-rate earnings
at 31 March 2018. Action's post discount run-rate multiple
increased to 16.5x (31 March 2017: 16.0x) resulting in a value of
GBP2,064 million (31 March 2017: GBP1,708 million) after the
receipt of GBP307 million from its refinancing. As the largest
Private Equity investment by value, it represented 35% of the
Private Equity portfolio (31 March 2017: 35%).
A number of investments in our 2013-2016 vintage such as Audley
Travel, Aspen Pumps, Q Holding and WP are delivering good earnings
growth, and therefore we recognised good value uplifts on these
assets in the year.
Audley Travel is a provider of luxury, tailor-made, holidays to
over 80 destinations worldwide, and serves clients principally in
the UK and the US. Since our investment in December 2015, Audley
has seen two successive years of strong revenue growth in the UK
and US and has continued to invest in order to further scale the
business. As a result, our GBP156 million investment was valued at
GBP233 million at 31 March 2018. 3i invested in WP, an innovative
plastic packaging manufacturer, in August 2015. The business
performed well in 2017, increasing market share. It completed one
small acquisition in 2017, as well as two further acquisitions in
early 2018. Our investment was valued at GBP244 million at 31 March
2018 (31 March 2017: GBP200 million).
The good performance of our strongest assets was partially
offset by specific weaknesses in a small number of portfolio
companies which are either exposed to the high street retail sector
or are undergoing a change programme. Christ, our German jewellery
retailer, saw the largest decline in value in the year (GBP53
million). Consistent with other retailers, Christ is subject to
structural changes in the market such as the increasing shift to
online shopping. Although Christ is maintaining market share, these
changes have impacted earnings.
Schlemmer has undertaken a significant operational
reorganisation of its activities in Germany and the US, which have
impacted earnings and liquidity this year. BoConcept was acquired
in the knowledge that its organisational and retail structure would
need careful review and good progress is being made to address
this. Finally, Euro-Diesel's growth was lower than expected this
year. Notwithstanding this, the company has a strong customer base
and a full pipeline of orders for 2018.
Overall, 91% of the assets in the portfolio valued on an
earnings basis, together with Scandlines and Basic-Fit, grew their
earnings in the year (2017: 93%). One investment was valued using
forecast earnings at 31 March 2018 (31 March 2017: one),
representing 1% of the portfolio by value (31 March 2017: 2%).
Table 4 shows the earnings growth of our top 20 assets.
Overall, net debt across the portfolio increased to 4.0x
earnings (31 March 2017: 3.3x) principally due to the refinancing
of Action and Scandlines. Excluding Action and Scandlines, the
ratio was 3.3x (31 March 2017: 2.9x). Table 5 shows the ratio of
net debt to earnings by portfolio value at 31 March 2018.
Table 3: Unrealised profits/(losses) on the revaluation of
Private Equity investments(1) in the year to 31 March
2018 2017
GBPm GBPm
------------------------------------------- ----- -----
Earnings based valuations
Performance 541 827
Multiple movements 144 239
Other bases
Uplift to imminent sale 3 8
Scandlines transaction value 302 -
Discounted cash flow 3 158
Other movements on unquoted investments 6 (1)
Quoted portfolio 81 43
------------------------------------------ ----- -----
Total 1,080 1,274
------------------------------------------- ----- -----
1 Further information on our valuation methodology, including definitions and rationale, is
included in the Portfolio valuation - an explanation section of the Annual report and accounts
2018.
Multiple movements
The increase in value due to multiple movements was GBP144
million (2017: GBP239 million increase). The run-rate multiple used
to value Action increased to 16.5x post liquidity discount at 31
March 2018 (31 March 2017: 16.0x) to reflect its continued strong
performance and potential for further growth in the seven countries
it operates in. Based on the valuation at 31 March 2018, a net 1x
movement in Action's post discount multiple would increase or
decrease the valuation of 3i's investment by GBP176 million (31
March 2017: GBP142 million).
Across the remainder of the portfolio, we increased multiples
for a number of assets where their performance or the strength of
their sector merited a review. Generally, we consider a number of
factors such as relative performance, investment size, comparable
recent transactions and exit plans. We also consider the current
strength of equity markets and, as a result, we selected multiples
that were lower than the comparable set in 14 out of the 21
companies valued on an earnings basis (31 March 2017: 14 out of
22).
Excluding Action, the weighted average EBITDA multiple increased
to 11.7x before liquidity discount (31 March 2017: 10.6x) and was
11.0x after liquidity discount (31 March 2017: 9.9x). The increase
in the weighted average multiple reflects in part the recent
investment in companies in higher rated sectors, such as Cirtec and
Lampenwelt, and the sale of assets held at lower multiples.
The pre-discount multiples used to value the portfolio ranged
between 8.5x and 17.4x (31 March 2017: 5.0x to 16.8x) and the post
discount multiples ranged between 6.3x and 16.5x (31 March 2017:
4.8x to 16.0x).
Table 4: Portfolio earnings growth of the top 20 Private
Equity(1) investments
3i carrying value
at 31 March 2018
Number of companies GBPm
--------- -------------------- ------------------
<0% 5 452
0 - 9% 6 1,599
10 - 19% 5 870
>20% 4 2,590
--------- -------------------- ------------------
1 Includes top 20 Private Equity companies by value. This represents 95% of the Private Equity
portfolio by value (31 March 2017: 91%).
Table 5: Ratio of net debt to earnings(1)
3i carrying value
at 31 March 2018
Number of companies GBPm
---------------------- -------------------- ------------------
<1x 1 29
1 - 2x 4 489
2 - 3x 4 615
3 - 4x 3 395
4 - 5x 8 3,581
of which Action 2,064
of which Scandlines 803
>5x - -
---------------------- -------------------- ------------------
1 This represents 88% of the Private Equity portfolio by value (31 March
2017: 87%). Quoted holdings, deferred consideration and companies with
net cash are excluded from the calculation.
Scandlines transaction value
In March 2018, we announced the sale of Scandlines for a total
equity value of EUR1.7 billion (31 March 2017 value: EUR1.1
billion). 3i valued its stake at GBP803 million at 31 March 2018
(31 March 2017: GBP538 million) and we recognised unrealised value
growth of GBP302 million to reflect the value of the transaction,
less a 2.5% discount.
At the completion of the sale, 3i will reinvest to hold a 35%
stake.
Quoted portfolio
Basic-Fit generated strong growth in its 2017 financial year
with revenue and profit up by 26% and 25% respectively. The
business ended the year with 521 clubs and 1.5 million members.
This strong performance was reflected in the share price increasing
to EUR23.35 at 31 March 2018 (31 March 2017: EUR16.27) and resulted
in an unrealised value gain of GBP81 million in the year. 3i's
stake was valued at GBP270 million at 31 March 2018 (31 March 2017:
GBP184 million).
Our quoted holdings in Dphone and Refresco Gerber were sold
during the year.
Assets under management
The value of 3i's proprietary capital increased to GBP5.8
billion in the year (31 March 2017: GBP4.8 billion).
The value of the portfolio including third-party capital
increased to EUR9.5 billion (31 March 2017: EUR8.1 billion).
Table 6: Quoted portfolio value movement for the year to 31
March 2018
Opening Closing
value at Disposals Unrealised value at
1 April at opening value Other 31 March
2017 book value movement movements(1) 2018
Investment IPO date GBPm GBPm GBPm GBPm GBPm
---------------- ----------- -------- ---------- ---------- ------------ --------
Dphone July 2014 21 (21) - - -
Refresco Gerber March 2015 32 (33) - 1 -
Basic-Fit June 2016 184 - 81 5 270
---------------- ----------- -------- ---------- ---------- ------------ --------
Total 237 (54) 81 6 270
----------------------------- -------- ---------- ---------- ------------ --------
1 Other movements include foreign exchange.
Table 7: Private Equity assets by geography as at 31 March
3i carrying value
2018
3i office location Number of companies GBPm
------------------- ------------------- -----------------
Benelux 6 2,789
France 2 211
Germany 6 1,493
UK 11 632
US 4 497
Other 7 203
------------------- ------------------- -----------------
Total 36 5,825
------------------- ------------------- -----------------
Table 8: Proprietary capital as at 31 March
Proprietary Proprietary
capital value capital value
2018 Multiple 2017 Multiple
Vintages GBPm 2018 GBPm 2017
------------------ ------------- -------- ------------- --------
Buyouts 2010-2012 2,139 7.2x 1,779 5.9x
Growth 2010-2012 33 2.2x 33 2.2x
2013-2016(1) 1,695 2.1x 1,607 1.7x
2016-2019(1) 1,057 1.1x 422 1.0x
Other 901 n/a 990 n/a
------------------ ------------- -------- ------------- --------
Total 5,825 4,831
------------------ ------------- -------- ------------- --------
1 Assets included in these vintages are disclosed in the
glossary.
Infrastructure
Business review
Infrastructure contributed a gross investment return of GBP113
million, or 16% on the opening portfolio (2017: GBP87 million,
17%). This was driven by 3iN's strong share price appreciation
together with good levels of dividend and fee income from both 3iN
and the other funds managed by the team.
Investment adviser to 3iN
In its capacity as 3iN's investment adviser, 3i advised on six
new investments, including the GBP186 million further investment to
acquire a majority position in Wireless Infrastructure Group and
the GBP125 million follow-on investment in Infinis to support its
acquisition of Alkane Energy. We also advised 3iN on its EUR201
million investment in Attero, announced at the end of March 2018.
In total, we advised 3iN on investments and commitments of GBP525
million in 2018 (2017: GBP479 million).
We advised 3iN on the realisation of its holdings in Elenia and
AWG, generating proceeds of GBP1,137 million. Elenia, the owner and
operator of the second largest electricity distribution business in
Finland and a complementary district heating business, was acquired
by 3iN in January 2012 as part of a consortium. In December 2017,
the consortium partners agreed to sell the business, which resulted
in proceeds of GBP738 million for 3iN.
3iN agreed to sell its stake in AWG, the supplier of water and
water recycling services to the east of England and Hartlepool, in
December 2017, having held its stake since its IPO in 2007. It
received proceeds of GBP399 million from the transaction in
February 2018.
In March 2018, GBP425 million of the proceeds were returned to
shareholders as a special dividend, representing substantially all
of the value uplift recorded on Elenia and AWG during the year. As
a 34% shareholder, 3i received GBP143 million of the special
dividend.
Overall, the 3iN portfolio continues to perform well and the
company generated an excellent total return of 29% in the year
(2017: 9%).
Under the terms of the investment advisory agreement, 3iN paid
an advisory fee of GBP34 million to 3i (2017: GBP25 million), with
the increase attributable to new investment activity, and a
NAV-based performance fee of GBP90 million (2017: GBP4 million). Of
this, GBP67 million is expected to be payable to the Infrastructure
team, with GBP9 million recognised during the year and the balance
deferred and expensed over a number of years.
Infrastructure portfolio performance
Quoted
The most significant component of the Group's infrastructure
portfolio is its 34% quoted stake in 3iN.
3iN's shares performed well in the year and the share price
closed at 214 pence on 31 March 2018 (31 March 2017: 189 pence).
3iN generated GBP27 million (2017: GBP23 million) of dividend
income as well as a special dividend of GBP143 million (2017: nil)
for 3i.
Discounted cash flow
As at 31 March 2018, 3i's largest Infrastructure investment
valued on a DCF basis was the investment in Smarte Carte, valued at
GBP167 million (31 March 2017: nil). Following the initial
investment in November 2017 as a seed for the North America fund
management strategy, 3i supported Smarte Carte's acquisition of
Aviation Mobility in January 2018. In March 2018, we completed a
$225 million refinancing of Smarte Carte.
3i also has an investment in the 3i India Infrastructure Fund,
which the team continues to manage to maximise value for fund
investors.
In total, the Infrastructure portfolio generated unrealised
value growth of GBP83 million (2017: GBP59 million).
Table 9: Unrealised profits/(losses) on the revaluation of
Infrastructure investments(1) in the year to 31 March
2018 2017
GBPm GBPm
--------------------- ---- ----
Quoted 67 63
Discounted cash flow 8 (4)
Fund NAV 8 -
--------------------- ---- ----
Total 83 59
--------------------- ---- ----
1 Further information on our valuation methodology, including definitions and rationale, is
included in the Portfolio valuation - an explanation section in our Annual report and accounts
2018.
Fund Management
We launched two funds in the year to complement our 3iN mandate
and generate increased cash income for 3i in the medium term.
In June 2017, we closed the c.GBP700 million 3i Managed
Infrastructure Acquisitions LP and invested GBP30 million into the
fund alongside two pension funds, ATP and APG. The fund holds
investments in East Surrey Pipelines, Belfast City Airport,
HerAmbiente and a number of discrete PPP projects.
In April 2018, we announced the final close of the 3i European
Operational Projects Fund with commitments of EUR456 million,
including a EUR40 million commitment from 3i. This fund purchased
the majority of the PPP assets held by 3i's existing BEIF II fund.
The fund has invested and committed to invest approximately EUR85
million in operational PPP projects across Europe.
Assets under management and advisory agreement
Infrastructure AUM increased to GBP3.4 billion (31 March 2017:
GBP2.9 billion) principally due to the new fund management
initiatives launched in the year, as well as to 3iN's share price
increase.
Table 10: Infrastructure portfolio value movement in the year to
31 March 2018
Opening Disposals Closing
value at at opening Unrealised value at
1 April book value Other 31 March
2017 Investment value(1) movement movements(2) 2018
Investment Valuation GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----------- --------- ----------- ----------- ----------- ------------- ---------
3iN Quoted 655 - (137) 67 (4) 581
Smarte Carte DCF - 177 (11) 7 (6) 167
3i Managed Infrastructure
Acquisitions LP NAV - 30 (1) 7 - 36
3i European Operational
Projects Fund NAV - 10 - 1 (1) 10
3i India Infrastructure
Fund DCF 41 - (1) 1 (3) 38
Other DCF 10 - (10) - - -
--------------------------- ----------- --------- ----------- ----------- ----------- ------------- ---------
Total 706 217 (160) 83 (14) 832
---------------------------------------- --------- ----------- ----------- ----------- ------------- ---------
1 For Smarte Carte, the disposal is shown at investment value.
2 Other movements include foreign exchange.
Table 11: Assets under management and advisory agreement as at
31 March 2018
% Fee
invested at income
3i Remaining 31 earned in
Close Fund commitment/ 3i March AUM 2018
Fund date size share commitment 2018 GBPm GBPm
----------------------------------------- -------- --------- ----------- ---------- ----------- ----- ---------
3iN(1) Mar 07 n/a GBP581m n/a n/a 1,731 34
3i Managed Infrastructure Acquisitions LP Jun 17 GBP698m GBP35m GBP5m 85% 707 5
3i European Operational Projects Fund(2) Nov 17 EUR251m EUR40m EUR29m 27% 65 -
BIIF May 08 GBP680m n/a n/a 90% 551 5
3i India Infrastructure Fund Mar 08 US$1,195m US$250m US$35m 73% 139 4
Other various various various n/a n/a 167 2
----------------------------------------- -------- --------- ----------- ---------- ----------- ----- ---------
Total 3,360 50
--------------------------------------------------- --------- ----------- ---------- ----------- ----- ---------
1 AUM based on the share price at 31 March 2018.
2 The final close of the 3i European Operational Projects Fund took place on 10 April 2018 with
commitments of EUR456 million. At 10 April 2018, the percentage invested was 15%.
Financial review
Strong financial performance
FY2018 was another year of strong financial performance. We
generated a gross investment return of GBP1,552 million (2017:
GBP1,755 million) and operating profit before carried interest of
GBP1,428 million (2017: GBP1,675 million).
The performance was driven by strong unrealised value growth
from Action, Scandlines and Basic-Fit, and the material uplifts
from the disposals of ATESTEO and Mémora in the year.
The Group recognised a loss of GBP16 million on foreign exchange
translation (2017: GBP297 million gain).
We generated a total return of GBP1,425 million or a profit on
opening shareholders' funds of 24% (2017: GBP1,592 million or 36%).
As a result of the strong performance in the year, the diluted NAV
per share at 31 March 2018 increased by 20% to 724 pence (31 March
2017: 604 pence).
Table 12: Total return for the year to 31 March
2018 2017
Investment basis GBPm GBPm
------------------------------------------------------------------------ ------ ------
Realised profits over value on the disposal of investments 207 38
Unrealised profits on the revaluation of investments 1,163 1,342
Portfolio income
Dividends 41 50
Interest income from investment portfolio 116 50
Fees receivable 14 6
Foreign exchange on investments 11 269
------------------------------------------------------------------------ ------ ------
Gross investment return 1,552 1,755
Fees receivable from external funds 57 46
Operating expenses (121) (117)
Interest received 2 2
Interest paid (37) (49)
Exchange movements (27) 28
Other income 2 10
------------------------------------------------------------------------ ------ ------
Operating profit before carried interest 1,428 1,675
Carried interest
Carried interest and performance fees receivable 228 279
Carried interest and performance fees payable (205) (434)
----------------------------------------------------------------------- ------ ------
Operating profit from continuing operations 1,451 1,520
Income taxes (26) 3
Re-measurements of defined benefit plans - (22)
------------------------------------------------------------------------ ------ ------
Total comprehensive income: continuing operations
("Total return from continued operations") 1,425 1,501
Total comprehensive income from discontinued operations, net of tax(1)
("Total return from discontinued operations") - 91
------------------------------------------------------------------------ ------ ------
Total comprehensive income ("Total return") 1,425 1,592
------------------------------------------------------------------------ ------ ------
Total return on opening shareholders' funds 24% 36%
------------------------------------------------------------------------ ------ ------
1 Discontinued operations included the results from 3i's Debt Management business, sold to Investcorp
in March 2017.
Alternative performance measures ("APMs")
In October 2015, the European Securities and Markets Authority ("ESMA") published guidelines
about the use of APMs. These are financial measures such as KPIs that are not defined under
IFRS. In our Strategic report we describe our financial performance under our Investment basis,
which is itself an APM, and use a number of other measures which, on account of being derived
from the Investment basis, are also APMs. Further information about our use of APMs, including
the applicable reconciliations to the IFRS equivalent where appropriate, is provided at the
end of the Financial review and should be read alongside our Investment basis to IFRS reconciliation.
Our APMs are gross investment return as a percentage of the opening investment portfolio value,
cash realisations, cash investment, operating cash profit, net cash/(debt) and gearing.
Realised profits
We generated total proceeds of GBP1,323 million (2017: GBP1,005
million) and a profit on disposal of GBP207 million (2017: GBP38
million). The majority of the realisations and uplift over opening
value were from the Private Equity portfolio, which contributed
GBP1,002 million of proceeds (2017: GBP982 million). Private Equity
realisations included the sales of ATESTEO (GBP278 million, 100%
uplift over opening value) and Mémora (GBP119 million, 37% uplift
over opening value) together with refinancing proceeds of GBP387
million from Action, Scandlines and ATESTEO.
Unrealised value movements
We recognised an unrealised value movement of GBP1,163 million
(2017: GBP1,342 million). Action's continued strong performance
contributed GBP610 million (2017: GBP911 million) to value growth.
Following the announcement of our agreement to sell Scandlines at
the end of March 2018, we recognised an unrealised value gain of
GBP302 million (2017: GBP155 million). The majority of the
portfolio continued to perform well, notably Basic-Fit, Audley
Travel, Q Holding, WP and AES.
Further information on the Private Equity and Infrastructure
valuations is included in the respective Business reviews.
Table 13: Unrealised profits on revaluation of investments
(continuing operations) for the year to 31 March
2018 2017
GBPm GBPm
--------------------------------- ----- -----
Private Equity 1,080 1,274
Infrastructure 83 59
Other (residual Debt Management) - 9
--------------------------------- ----- -----
Total 1,163 1,342
--------------------------------- ----- -----
Portfolio income
Portfolio income grew to GBP171 million during the year (2017:
GBP106 million) principally as a result of an increase in loan
interest income receivable following the material increase in
investment activity over the last two years. The majority of this
interest income is non-cash. We recognised GBP14 million of fee
income (2017: GBP6 million) due to transaction fees generated from
our investment activity and to a reduction in abort costs incurred
on prospective transactions. Dividend income reduced to GBP41
million (2017: GBP50 million) following the disposal of the
remaining Debt Management investments in the year.
Fees receivable from external funds
Fees receivable increased to GBP57 million (2017: GBP46 million)
due to increased advisory fee income from 3iN. 3i, as investment
adviser, receives a fee for sourcing and completing new investments
for 3iN. We advised 3iN on six investments with commitments of
GBP525 million, including the further investments in Wireless
Infrastructure Group and Infinis (2017: six investments and GBP479
million). In addition, we started to generate fee income from the
3i Managed Infrastructure Acquisitions LP, which closed in June
2017.
Operating expenses
Operating expenses increased to GBP121 million (2017: GBP117
million), principally due to a planned increase in staff costs as
we invest to support our origination and asset management
capability, as well as an increase in the Infrastructure team's
share of the 3iN advisory fee income referred to above.
Operating cash profit
3i generated an operating cash profit of GBP11 million in the
year (2017: GBP5 million). Cash income increased to GBP126 million
(2017: GBP121 million) principally due to the increase in
third-party capital fees in Infrastructure to GBP47 million (2017:
GBP37 million).
Table 14: Operating cash profit for the year to 31 March
2018 2017
GBPm GBPm
----------------------------------------------- ----- -----
Third-party capital fees 55 47
Cash portfolio fees 13 12
Cash portfolio dividends and interest 58 62
----------------------------------------------- ----- -----
Cash income from continuing operations 126 121
----------------------------------------------- ----- -----
Operating expenses from continuing operations (115) (116)
----------------------------------------------- ----- -----
Operating cash profit: continuing operations 11 5
----------------------------------------------- ----- -----
Operating cash profit: discontinued operations - 28
----------------------------------------------- ----- -----
Operating cash profit 11 33
----------------------------------------------- ----- -----
Net interest payable
Gross interest payable reduced to GBP37 million (2017: GBP49
million), following the repayment of the EUR331 million bond in
March 2017. Interest receivable on cash balances was GBP2 million
(2017: GBP2 million).
Carried interest and performance fees
The continued good performance of Action and the announcement of
the sale of Scandlines, the largest investments in our Private
Equity fund EFV, led to a GBP136 million increase in carried
interest receivable from EFV (2017: GBP272 million). This was
calculated assuming that the portfolio was realised at the 31 March
2018 valuation. The fund's gross multiple was 2.5x at 31 March 2018
(31 March 2017: 2.2x).
In Private Equity, we typically accrue carried interest payable
at between 10% and 15% of gross investment return. The majority of
assets by value are now held in schemes that would have met their
performance hurdles, assuming that the portfolio was realised at
the 31 March 2018 valuation. We accrued carried interest payable of
GBP196 million (2017: GBP431 million) for Private Equity, of which
GBP77 million relates to the Private Equity team's share of carried
interest receivable from EFV (2017: GBP202 million).
Carried interest is paid to participants when the performance
hurdles are passed in cash terms and then only when the cash
proceeds are actually received following a realisation, refinancing
event or other cash distribution. Due to the length of time between
investment and realisation, the schemes are usually active for a
number of years and their participants are both current and
previous employees of 3i. During the period, GBP43 million was paid
to participants in the Private Equity plans (2017: GBP127
million).
3iN pays a performance fee based on 3iN's NAV on an annual
basis, subject to a hurdle rate of return and a high watermark. The
continued strong performance of the assets held by 3iN, including
the significant uplifts achieved on the sales of Elenia and AWG,
resulted in the recognition of GBP90 million (2017: GBP4 million)
of performance fees receivable. The Infrastructure team receives a
share of the performance fee received from 3iN, with the majority
of payments deferred and expensed over a number of years. GBP9
million (2017: GBP3 million) was accrued as payable to the
Infrastructure team during the year out of a total potential
payable of GBP67 million.
Overall, the effect of the income statement charge, the cash
movement, as well as the currency translation meant that the
balance sheet carried interest and performance fees payable
increased to GBP870 million (31 March 2017: GBP685 million) and the
receivable increased to GBP596 million (31 March 2017: GBP366
million).
Table 15: Carried interest and performance fees for the year to
31 March
2018 2017
Statement of comprehensive income GBPm GBPm
------------------------------------------------- ----- -----
Carried interest and performance fees receivable
Private Equity 138 275
Infrastructure 90 4
------------------------------------------------- ----- -----
Total 228 279
------------------------------------------------- ----- -----
Carried interest and performance fees payable
Private Equity (196) (431)
Infrastructure (9) (3)
------------------------------------------------- ----- -----
Total (205) (434)
------------------------------------------------- ----- -----
Net carried interest receivable/(payable) 23 (155)
------------------------------------------------- ----- -----
Table 16: Carried interest and performance fees at 31 March
2018 2017
Statement of financial position GBPm GBPm
------------------------------------------------- ----- -----
Carried interest and performance fees receivable
Private Equity 505 359
Infrastructure 90 4
Other 1 3
------------------------------------------------- ----- -----
Total 596 366
------------------------------------------------- ----- -----
Carried interest and performance fees payable
Private Equity (839) (650)
Infrastructure (31) (35)
------------------------------------------------- ----- -----
Total (870) (685)
------------------------------------------------- ----- -----
Impact of IFRS 15
Carried interest receivable is within the scope of the new
revenue accounting standard, IFRS 15, which 3i will adopt from 1
April 2018. IFRS 15 introduces the concept that variable revenue
can only be recognised to the extent that it is highly probable
that a significant reversal will not occur. Our calculation of
carried interest, being the amount expected if all of the
underlying investments were realised at their fair values at the
balance sheet date, will remain unchanged. IFRS 15 requires us to
then consider if there are any specific constraints to our income
recognition. The factors that 3i intends to consider when applying
its accounting policy for carried interest receivable will include
the remaining duration of the fund, the current position in
relation to the cash hurdle, the remaining assets in the fund and
the potential for clawback.
The substantial majority of 3i's carried interest receivable is
due from EFV which went through its performance hurdle on an
accounting basis in FY2017. EFV has been extended to November 2019,
when we expect the fund to be closed. Following the announcement of
the sale of Scandlines on 26 March 2018, there are only four
remaining investments in the fund: Action, Christ, Etanco and
OneMed. Carried interest is only payable by the fund when proceeds
are received and the cash hurdle is met.
At 31 March 2018, EFV investments had generated proceeds of
EUR3.5 billion, including the proceeds from the upcoming sale of
Scandlines, and the fund was over 75% of the way towards its cash
hurdle. However, given the relative size and performance of Christ,
Etanco and OneMed, the actual payment of carried interest
receivable is dependent on the fund's realisation of Action. At 31
March 2018, the EFV investment in Action was valued at EUR1,815
million (31 March 2017: EUR1,540 million). Given the strong
performance of Action, and its forecast growth profile, and
consistent with our investment strategy for and valuation of the
asset, our current assessment is that we do not expect the adoption
of IFRS 15 to have a material impact on our recognition of carry
receivable from EFV.
As at 31 March 2018, the carried interest receivable accrued on
3i's balance sheet from EFV was GBP484 million (2017: GBP340
million), with a corresponding GBP334 million (31 March 2017:
GBP251 million) accrued as payable to the carry plan participants.
The overall net impact from EFV carried interest is GBP150 million
(31 March 2017: GBP89 million) or 15 pence per share (2017: 9 pence
per share).
As the Group has no plans to raise a third-party fund in Private
Equity in the medium term, the Group is not expected to receive
material amounts of carried interest receivable after the closure
of EFV.
Net foreign exchange movements
At 31 March 2018, 77% of the Group's net assets were denominated
in euros or US dollars. Following the strengthening of sterling
against the US dollar, the Group recorded a total net foreign
exchange loss of GBP16 million (2017: GBP297 million gain) in the
year.
The Group is a long-term investor and does not hedge its foreign
currency denominated portfolio. Where possible, flows from currency
realisations are matched with currency investments. Short-term
derivative contracts are used occasionally.
The net foreign exchange loss also reflects the translation of
non-portfolio net assets, including non-sterling cash held at the
balance sheet date.
Table 17: Net assets and sensitivity by currency at 31 March
2018
1% sensitivity
FX rate GBPm % GBPm
------------- ------- ----- --- --------------
Sterling n/a 1,390 20% n/a
Euro 1.1409 4,542 65% 45
US dollar 1.4031 862 12% 9
Danish krona 8.5047 137 2% 1
Other n/a 93 1% n/a
------------- ------- ----- --- --------------
Pension
The latest triennial valuation for the Group's UK defined
benefit scheme was completed on 25 September 2017, based on the
scheme's position at 30 June 2016. The outcome was an actuarial
deficit of GBP50 million but it was agreed with the trustees that
it was not necessary for the Group to make any immediate
contributions to the plan, taking into account the volatile market
conditions at the valuation date (immediately after the UK's
referendum to leave the EU), and improvements in market conditions
and liability management actions implemented since then. As part of
this valuation, the Group has agreed to pay up to GBP50 million to
the scheme if its gearing increases above 20%, gross debt exceeds
GBP1 billion, or net assets fall below GBP2 billion.
The scheme also benefits from a contingent asset arrangement,
details of which are provided in Note 25 of the Annual report and
accounts 2018. If the gearing, net debt or net asset thresholds
noted are crossed, the Group may be required to increase the
potential cover provided by the contingent arrangement until the
gearing, gross debt or net assets improve.
On an IAS 19 basis, there was a GBP1 million re-measurement gain
on the Group's UK pension scheme during the year (March 2017: GBP22
million loss) and the pension scheme remains in a surplus of GBP125
million (31 March 2017: GBP121 million).
The triennial valuation uses assumptions set at 30 June 2016. It
considers expected future returns on the Plan's assets against the
expected liabilities using a generally more prudent set of
assumptions. The IAS 19 accounting valuation compares the 31 March
2018 fair value of plan assets and liabilities, with the
liabilities calculated based on the expected future payments
discounted using AA corporate bond yields.
Tax
The Group's parent company has operated in the UK as an approved
investment trust company since its listing on the London Stock
Exchange in 1994. An approved investment trust is a UK investment
company which is required to meet certain conditions set out in the
UK tax rules to obtain and maintain its tax status. This approval
allows certain investment profits of the Company, broadly its
capital profits, to be exempt from tax in the UK.
The Group recognised a corporate tax expense of GBP26 million
for the year (2017: GBP3 million credit). This is higher than in
previous years due to increased levels of taxable income from
portfolio companies, reduced interest expenditure following the
repayment of a bond in March 2017 and a GBP90 million performance
fee from 3iN. Finally, the use of brought forward losses has been
restricted with effect from 1 April 2017.
Other assets
In March 2017, we sold our Debt Management business to
Investcorp. As part of the agreement we retained certain
investments, which are detailed in Table 18. We redeemed all of our
holdings by 31 December 2017, generating proceeds of GBP152
million.
Table 18: Other assets for the year to 31 March 2018
Opening Closing
value at value at
1 April Other 31 March
2017 Investment Divestment movement(1) 2018
Consolidated statement of financial position Currency GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- --------- -------- ---------- ---------- ----------- --------
CLO warehouses repaid EUR 1 - (1) - -
CLO equity retained EUR/US$ 50 - (46) (4) -
Global Income Fund US$ 79 23 (97) (5) -
Senior Loan Fund US$ 8 - (8) - -
--------------------------------------------- --------- -------- ---------- ---------- ----------- --------
Total 138 23 (152) (9) -
-------------------------------------------------------- -------- ---------- ---------- ----------- --------
1 Other movements include realised losses and foreign exchange.
Balance sheet
Net cash increased to GBP479 million (31 March 2017: GBP419
million) as the Group remained a net divestor in FY2018. The
investment portfolio value increased to GBP6,657 million at 31
March 2018 (31 March 2017: GBP5,675 million) as unrealised value
growth of GBP1,163 million and cash investment offset the value of
realisations in the year. Further information on investments and
realisations is included in the Private Equity and Infrastructure
business reviews.
Liquidity
Liquidity remained strong at GBP1,404 million (31 March 2017:
GBP1,323 million). Liquidity comprised cash and deposits of
GBP1,054 million (31 March 2017: GBP994 million) and undrawn
facilities of GBP350 million (31 March 2017: GBP329 million).
Dividend
The Board has recommended a dividend of 22.0 pence (2017: 18.5
pence). This is made up of the balance of the base dividend (8
pence per share, after the 8 pence paid in January 2018) and an
additional dividend of 14.0 pence. Subject to shareholder approval,
the dividend will be paid to shareholders in July 2018 and takes
the total dividend for the year to 30.0 pence (2017: 26.5
pence).
In light of the Group's continued progress in executing its
strategy, we propose to replace our base and additional dividend
policy with a simpler policy. The Board will maintain its
conservative balance sheet strategy, which excludes structural
gearing at the Group level, and will carefully consider the outlook
for investments and realisations, and market conditions. Subject to
that, the Board will aim to maintain or grow the dividend each
year. We will continue to pay an interim dividend, which we expect
to set at 50% of the prior year's total dividend, subject to the
same considerations.
With net cash of GBP479 million and liquidity of over GBP1
billion at 31 March 2018, the Group is well positioned to fund the
22.0 pence dividend. We expect to hold high levels of liquidity to
ensure that we can fund new investments without having to either
accelerate realisations ahead of plan or dispose of investments
when market conditions are not supportive. However, there may be
occasions in the future when the cash we hold materially exceeds
this need. If that is the case, the Board may consider other
methods of shareholder distributions and returns at that time.
Table 19: Simplified consolidated balance sheet at 31 March
2018 2017
Statement of financial position GBPm GBPm
------------------------------------------------- ----- -----
Investment portfolio 6,657 5,675
Gross debt (575) (575)
Cash 1,054 994
------------------------------------------------- ----- -----
Net cash 479 419
------------------------------------------------- ----- -----
Carried interest and performance fees receivable 596 366
Carried interest and performance fees payable (870) (685)
Other net assets 162 61
------------------------------------------------- ----- -----
Net assets 7,024 5,836
------------------------------------------------- ----- -----
Gearing(1) nil nil
------------------------------------------------- ----- -----
1 Gearing is net debt as a percentage of net assets.
Key accounting judgements and estimates
A key judgement is the assessment required to determine the degree of
control or influence the Group exercises and the form of any control
to ensure that the financial treatment of investment entities is accurate.
The introduction of IFRS 10 resulted in a number of intermediate holding
companies being presented at fair value, which has led to reduced transparency
of the underlying investment performance. As a result, the Group continues
to present a non-GAAP Investment basis set of financial statements to
ensure that the commentary in the Strategic report remains fair, balanced
and understandable. The reconciliation of the Investment basis to IFRS
is shown below.
In preparing these accounts, the key accounting estimates are the carrying
value of our investment assets, which are stated at fair value, and
the calculation of carried interest receivable and payable.
Given the importance of the valuation of investments, the Board has
a separate Valuations Committee to review the valuation policy, process
and application to individual investments. However, asset valuations
for unquoted investments are inherently subjective, as they are made
on the basis of assumptions which may not prove to be accurate. At 31
March 2018, 87% by value of the investment assets were unquoted (31
March 2017: 84%).
The valuation of the proprietary capital portfolio is a primary input
into the carried interest payable and receivable balances, which are
determined by reference to the valuation at 31 March 2018 and the underlying
investment management agreements.
Investment basis
Consolidated statement of comprehensive income
for the year to 31 March
2018 2017
GBPm GBPm
-------------------------------------------------------------- ----- -----
Realised profits over value on the disposal of investments 207 38
Unrealised profits on the revaluation of investments 1,163 1,342
Portfolio income
Dividends 41 50
Interest income from investment portfolio 116 50
Fees receivable 14 6
Foreign exchange gain on investments 11 269
-------------------------------------------------------------- ----- -----
Gross investment return 1,552 1,755
-------------------------------------------------------------- ----- -----
Fees receivable from external funds 57 46
Operating expenses (121) (117)
Interest receivable 2 2
Interest payable (37) (49)
Exchange movements (27) 28
Other income 2 10
-------------------------------------------------------------- ----- -----
Operating profit before carried interest 1,428 1,675
-------------------------------------------------------------- ----- -----
Carried interest
Carried interest and performance fees receivable 228 279
Carried interest and performance fees payable (205) (434)
------------------------------------------------------------- ----- -----
Operating profit from continuing operations 1,451 1,520
-------------------------------------------------------------- ----- -----
Income taxes (26) 3
-------------------------------------------------------------- ----- -----
Profit for the year from continuing operations 1,425 1,523
-------------------------------------------------------------- ----- -----
Profit for the year from discontinued operations, net of tax - 91
-------------------------------------------------------------- ----- -----
Profit for the year 1,425 1,614
-------------------------------------------------------------- ----- -----
Other comprehensive income
Re-measurements of defined benefit plans - (22)
------------------------------------------------------------- ----- -----
Total comprehensive income for the year ("Total return") 1,425 1,592
-------------------------------------------------------------- ----- -----
Consolidated statement of financial position
as at 31 March
2018 2017
GBPm GBPm
-------------------------------------------------- ------- -------
Assets
Non-current assets
Investments
Quoted investments 851 893
Unquoted investments 5,806 4,782
------------------------------------------------- ------- -------
Investment portfolio 6,657 5,675
================================================== ======= =======
Carried interest and performance fees receivable 503 359
Other non-current assets 113 106
Intangible assets 12 -
Retirement benefit surplus 125 121
Property, plant and equipment 4 5
-------------------------------------------------- ------- -------
Total non-current assets 7,414 6,266
-------------------------------------------------- ------- -------
Current assets
Carried interest and performance fees receivable 93 7
Other current assets 60 10
Current income taxes 3 2
Deposits - 40
Cash and cash equivalents 1,054 954
-------------------------------------------------- ------- -------
Total current assets 1,210 1,013
-------------------------------------------------- ------- -------
Total assets 8,624 7,279
-------------------------------------------------- ------- -------
Liabilities
Non-current liabilities
Trade and other payables (14) (29)
Carried interest and performance fees payable (764) (644)
Loans and borrowings (575) (575)
Retirement benefit deficit (23) (22)
Deferred income taxes (3) (1)
Provisions (1) (2)
-------------------------------------------------- ------- -------
Total non-current liabilities (1,380) (1,273)
-------------------------------------------------- ------- -------
Current liabilities
Trade and other payables (101) (125)
Carried interest and performance fees payable (106) (41)
Current income taxes (12) -
Provisions (1) (4)
-------------------------------------------------- ------- -------
Total current liabilities (220) (170)
-------------------------------------------------- ------- -------
Total liabilities (1,600) (1,443)
-------------------------------------------------- ------- -------
Net assets 7,024 5,836
-------------------------------------------------- ------- -------
Equity
Issued capital 719 719
Share premium 786 785
Other reserves 5,545 4,370
Own shares (26) (38)
-------------------------------------------------- ------- -------
Total equity 7,024 5,836
-------------------------------------------------- ------- -------
Consolidated cash flow statement
for the year to 31 March
2018 2017
GBPm GBPm
----------------------------------------------- ----- -----
Cash flow from operating activities
Purchase of investments (827) (692)
Proceeds from investments 1,277 1,063
Net cash flow from derivatives (10) -
Portfolio interest received 17 16
Portfolio dividends received 41 66
Portfolio fees received 13 11
Fees received from external funds 55 71
Carried interest and performance fees received 6 39
Carried interest and performance fees paid (48) (131)
Carried interest held in non-current assets (27) (56)
Acquisition related earn-out charges paid - (1)
Operating expenses paid (115) (131)
Co-investment loans 3 1
Income taxes paid (12) (2)
Other cash income - 2
----------------------------------------------- ----- -----
Net cash flow from operating activities 373 256
----------------------------------------------- ----- -----
Cash flow from financing activities
Issue of shares 1 1
Dividends paid (255) (230)
Interest received 2 2
Interest paid (36) (51)
Repayment of short-term borrowings - (264)
Repurchase of short-term borrowings - (17)
----------------------------------------------- ----- -----
Net cash flow from financing activities (288) (559)
----------------------------------------------- ----- -----
Cash flow from investing activities
Purchase of property, plant and equipment (2) (1)
Purchase of intangible assets (13) -
Proceeds from sale of Debt Management business - 232
Cash held in sold subsidiaries - (4)
Net cash flow from deposits 41 -
----------------------------------------------- ----- -----
Net cash flow from investing activities 26 227
----------------------------------------------- ----- -----
Change in cash and cash equivalents 111 (76)
----------------------------------------------- ----- -----
Cash and cash equivalents at the start of year 954 962
Effect of exchange rate fluctuations (11) 68
----------------------------------------------- ----- -----
Cash and cash equivalents at the end of year 1,054 954
----------------------------------------------- ----- -----
Background to Investment basis financial statements
The Group makes investments in portfolio companies directly,
held by 3i Group plc, and indirectly, held through intermediate
holding company and partnership structures ("Investment entity
subsidiaries"). It also has other operational subsidiaries which
provide services and other activities such as employment,
regulatory activities, management and advice ("Trading
subsidiaries"). The application of IFRS 10 requires us to fair
value a number of intermediate holding companies that were
previously consolidated line by line. This fair value approach,
applied at the intermediate holding company level, effectively
obscures the performance of our proprietary capital investments and
associated transactions occurring in the intermediate holding
companies.
The financial effect of the underlying portfolio companies and
fee income, operating expenses and carried interest transactions
occurring in Investment entity subsidiaries are aggregated into a
single value. Other items which were previously eliminated on
consolidation are now included separately.
To maintain transparency in our report and aid understanding we
introduced separate non-GAAP "Investment basis" Statements of
comprehensive income, financial position and cash flow in our 2014
Annual report and accounts. The Investment basis is an APM and the
Strategic report is prepared using the Investment basis as we
believe it provides a more understandable view of our performance.
Total return and net assets are equal under the Investment basis
and IFRS; the Investment basis is simply a "look through" of IFRS
10 to present the underlying performance.
Reconciliation of Investment basis and IFRS
A detailed reconciliation from the Investment basis to IFRS
basis of the Consolidated statement of comprehensive income,
Consolidated statement of financial position and Consolidated cash
flow statement is shown below.
Reconciliation of Investment basis and IFRS
Reconciliation of consolidated statement of comprehensive
income
for the year to 31 March
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2018 2018 2018 2017 2017 2017
Notes GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Realised profits/(losses) over value on
the disposal
of investments 1,2 207 (189) 18 38 (63) (25)
Unrealised profits on the revaluation of
investments 1,2 1,163 (777) 386 1,342 (1,080) 262
Fair value movements on investment entity
subsidiaries 1 - 848 848 - 1,041 1,041
Portfolio income
Dividends 1,2 41 (12) 29 50 (12) 38
Interest income from investment
portfolio 1,2 116 (90) 26 50 (40) 10
Fees receivable 1,2 14 3 17 6 3 9
Foreign exchange on investments 1,3 11 (23) (12) 269 (205) 64
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Gross investment return 1,552 (240) 1,312 1,755 (356) 1,399
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Fees receivable from external funds 57 - 57 46 - 46
Operating expenses 1,4 (121) 1 (120) (117) 1 (116)
Interest receivable 2 - 2 2 - 2
Interest payable (37) - (37) (49) - (49)
Exchange movements 1,3 (27) 84 57 28 14 42
Other income 2 - 2 10 - 10
Income from investment entity
subsidiaries 1 - 19 19 - 18 18
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Operating profit before carried interest 1,428 (136) 1,292 1,675 (323) 1,352
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Carried interest
Carried interest and performance fees
receivable 1,4 228 - 228 279 1 280
Carried interest and performance fees
payable 1,4 (205) 173 (32) (434) 326 (108)
---------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Operating profit from continuing
operations 1,451 37 1,488 1,520 4 1,524
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Income taxes 1,4 (26) 1 (25) 3 - 3
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Profit for the year from continuing
operations 1,425 38 1,463 1,523 4 1,527
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Profit for the year from discontinued
operations - - - 91 7 98
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Profit for the year 1,425 38 1,463 1,614 11 1,625
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Other comprehensive income
Exchange differences on translation of
foreign operations 1,3 - (38) (38) - (4) (4)
---------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Re-measurements of defined benefit plans - - - (22) - (22)
---------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Other comprehensive expense for the year
from continuing operations - (38) (38) (22) (4) (26)
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Other comprehensive expense for the year
from discontinued operations - - - - (7) (7)
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Total comprehensive income for the year
("Total return") 1,425 - 1,425 1,592 - 1,592
----------------------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
The IFRS basis is audited and the Investment basis is
unaudited.
Notes:
1 Applying IFRS 10 to the Consolidated statement of comprehensive income consolidates the line
items of a number of previously consolidated subsidiaries into a single line item "Fair value
movements on investment entity subsidiaries". In the "Investment basis" accounts we have disaggregated
these line items to analyse our total return as if these Investment entity subsidiaries were
fully consolidated, consistent with prior years. The adjustments simply reclassify the Consolidated
statement of comprehensive income of the Group, and the total return is equal under the Investment
basis and the IFRS basis.
2 Realised profits, unrealised profits, and portfolio income shown in the IFRS accounts only
relate to portfolio companies that are held directly by 3i Group plc and not those portfolio
companies held through Investment entity subsidiaries. Realised profits, unrealised profits,
and portfolio income in relation to portfolio companies held through Investment entity subsidiaries
are aggregated into the single "Fair value movement on investment entity subsidiaries" line.
This is the most significant reduction of information in our IFRS accounts.
3 Foreign exchange movements have been reclassified under the Investment basis as foreign currency
asset and liability movements. Movements within the Investment entity subsidiaries are included
within "Fair value movements on investment entities".
4 Other items also aggregated into the "Fair value movements on investment entity subsidiaries"
line include fees receivable from external funds, audit fees, administration expenses, carried
interest and tax.
Reconciliation of consolidated statement of financial
position
as at 31 March
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2018 2018 2018 2017 2017 2017
Notes GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Non-current assets
Investments
Quoted investments 1 851 (506) 345 893 (503) 390
Unquoted investments 1 5,806 (4,055) 1,751 4,782 (3,466) 1,316
Investments in investment entity
subsidiaries 1,2 - 4,034 4,034 - 3,483 3,483
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Investment portfolio 6,657 (527) 6,130 5,675 (486) 5,189
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Carried interest and performance fees
receivable 1 503 (5) 498 359 (5) 354
Other non-current assets 1 113 (85) 28 106 (56) 50
Intangible assets 12 - 12 - - -
Retirement benefit surplus 125 - 125 121 - 121
Property, plant and equipment 4 - 4 5 - 5
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Total non-current assets 7,414 (617) 6,797 6,266 (547) 5,719
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Current assets
Carried interest and performance fees
receivable 1 93 - 93 7 2 9
Other current assets 1 60 (26) 34 10 2 12
Current income tax receivable 3 - 3 2 - 2
Deposits - - - 40 - 40
Cash and cash equivalents 1 1,054 (82) 972 954 (23) 931
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Total current assets 1,210 (108) 1,102 1,013 (19) 994
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Total assets 8,624 (725) 7,899 7,279 (566) 6,713
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Liabilities
Non-current liabilities
Trade and other payables 1 (14) 13 (1) (29) 5 (24)
Carried interest and performance fees
payable 1 (764) 659 (105) (644) 520 (124)
Loans and borrowings (575) - (575) (575) - (575)
Retirement benefit deficit (23) - (23) (22) - (22)
Deferred income taxes (3) - (3) (1) 1 -
Provisions (1) - (1) (2) - (2)
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Total non-current liabilities (1,380) 672 (708) (1,273) 526 (747)
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Current liabilities
Trade and other payables 1 (101) 1 (100) (125) 22 (103)
Carried interest and performance fees
payable 1 (106) 51 (55) (41) 18 (23)
Current income taxes 1 (12) 1 (11) - - -
Provisions (1) - (1) (4) - (4)
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Total current liabilities (220) 53 (167) (170) 40 (130)
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Total liabilities (1,600) 725 (875) (1,443) 566 (877)
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Net assets 7,024 - 7,024 5,836 - 5,836
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Equity
Issued capital 719 - 719 719 - 719
Share premium 786 - 786 785 - 785
Other reserves 3 5,545 - 5,545 4,370 - 4,370
Own shares (26) - (26) (38) - (38)
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
Total equity 7,024 - 7,024 5,836 - 5,836
------------------------------------------- ----- ---------- ----------- ------ ---------- ----------- ------
The IFRS basis is audited and the Investment basis is
unaudited.
Notes:
1 Applying IFRS 10 to the Consolidated statement of financial position aggregates the line items
into the single line item "Investments in investment entity subsidiaries". In the Investment
basis we have disaggregated these items to analyse our net assets as if the Investment entity
subsidiaries were consolidated. The adjustment reclassifies items in the Consolidated statement
of financial position. There is no change to the net assets, although for reasons explained
below, gross assets and gross liabilities are different.
The disclosure relating to portfolio companies is significantly reduced by the aggregation,
as the fair value of all investments held by Investment entity subsidiaries is aggregated
into the "Investments in investment entity subsidiaries" line. We have disaggregated this
fair value and disclosed the underlying portfolio holding in the relevant line item, ie, quoted
equity investments or unquoted equity investments.
Other items which may be aggregated include carried interest and other payables, and the Investment
basis presentation again disaggregates these items.
2 Intercompany balances between Investment entity subsidiaries and trading subsidiaries also
impact the transparency of our results under the IFRS basis. If an Investment entity subsidiary
has an intercompany balance with a consolidated trading subsidiary of the Group, then the
asset or liability of the Investment entity subsidiary will be aggregated into its fair value,
while the asset or liability of the consolidated trading subsidiary will be disclosed as an
asset or liability in the Consolidated statement of financial position for the Group.
3 Investment basis financial statements are prepared for performance measurement and therefore
reserves are not analysed separately under this basis.
Reconciliation of consolidated cash flow statement
for the year to 31 March
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2018 2018 2018 2017 2017 2017
Notes GBPm GBPm GBPm GBPm GBPm GBPm
Cash flow from operating activities
Purchase of investments 1 (827) 357 (470) (692) 358 (334)
Proceeds from investments 1 1,277 (863) 414 1,063 (753) 310
Cash inflow from investment entity
subsidiaries 1 - 430 430 - 246 246
Net cash flow from derivatives (10) - (10) - - -
Portfolio interest received 1 17 (13) 4 16 (9) 7
Portfolio dividends received 1 41 (12) 29 66 (12) 54
Portfolio fees received 1 13 - 13 11 (2) 9
Fees received from external funds 55 - 55 71 - 71
Carried interest and performance fees
received 6 - 6 39 - 39
Carried interest and performance fees paid 1 (48) 8 (40) (131) 104 (27)
Carried interest held in non-current
assets 1 (27) 27 - (56) 56 -
Acquisition related earn-out charges paid - - - (1) - (1)
Operating expenses paid 1 (115) 1 (114) (131) - (131)
Co-investment loans 1 3 2 5 1 1 2
Income taxes paid 1 (12) 2 (10) (2) - (2)
Other cash income - - - 2 - 2
------------------------------------------ ----- ---------- ----------- ----- ---------- ----------- ------
Net cash flow from operating activities 373 (61) 312 256 (11) 245
------------------------------------------ ----- ---------- ----------- ----- ---------- ----------- ------
Cash flow from financing activities
Issue of shares 1 - 1 1 - 1
Dividends paid (255) - (255) (230) - (230)
Interest received 2 - 2 2 - 2
Interest paid (36) - (36) (51) - (51)
Repayment of short-term borrowings - - - (264) - (264)
Repurchase of short-term borrowings - - - (17) - (17)
------------------------------------------ ----- ---------- ----------- ----- ---------- ----------- ------
Net cash flow from financing activities (288) - (288) (559) - (559)
------------------------------------------ ----- ---------- ----------- ----- ---------- ----------- ------
Cash flow from investing activities
Purchase of property, plant and equipment (2) - (2) (1) - (1)
Purchase of intangible assets (13) - (13) - - -
Proceeds from sale of Debt Management
business - - - 232 - 232
Cash held in sold subsidiaries - - - (4) - (4)
Net cash flow from deposits 41 - 41 - - -
------------------------------------------ ----- ---------- ----------- ----- ---------- ----------- ------
Net cash flow from investing activities 26 - 26 227 - 227
------------------------------------------ ----- ---------- ----------- ----- ---------- ----------- ------
Change in cash and cash equivalents 2 111 (61) 50 (76) (11) (87)
------------------------------------------ ----- ---------- ----------- ----- ---------- ----------- ------
Cash and cash equivalents at the start of
year 2 954 (23) 931 962 (5) 957
Effect of exchange rate fluctuations 1 (11) 2 (9) 68 (7) 61
------------------------------------------ ----- ---------- ----------- ----- ---------- ----------- ------
Cash and cash equivalents at the end of
year 2 1,054 (82) 972 954 (23) 931
------------------------------------------ ----- ---------- ----------- ----- ---------- ----------- ------
The IFRS basis is audited and the Investment basis is
unaudited.
Notes:
1 The Consolidated cash flow statement is impacted by the application of IFRS 10 as cash flows
to and from Investment entity subsidiaries are disclosed, rather than the cash flows to and
from the underlying portfolio.
Therefore in our Investment basis financial statements, we have disclosed our cash flow statement
on a "look through" basis, in order to reflect the underlying sources and uses of cash flows
and disclose the underlying investment activity.
2 There is a difference between the change in cash and cash equivalents of the Investment basis
financial statements and the IFRS financial statements because there are cash balances held
in Investment entity subsidiaries. Cash held within Investment entity subsidiaries will not
be shown in the IFRS statements but will be seen in the Investment basis statements.
Alternative Performance Measures ("APMs")
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed
APMs.
The APMs that we use may not be directly comparable with those
used by other companies. Our Investment basis is itself an APM.
The explanation of and rationale for the Investment basis and
its reconciliation to IFRS is provided above.
The table below defines our additional APMs.
APM Purpose Calculation Reconciliation to IFRS
----------------- ------------------------ ---------------------------------- ----------------------------------
Gross investment A measure of the It is calculated as the The equivalent balances
return as performance of gross investment return, under IFRS and the reconciliation
a percentage our proprietary as shown in the Investment to the Investment basis
of opening investment portfolio. basis Consolidated statement are shown in the Reconciliation
portfolio of comprehensive income, of the consolidated
value For further information as a % of the opening statement of comprehensive
see the Group portfolio value. income and the Reconciliation
KPIs in our Annual of the consolidated
report and accounts statement of financial
2018. position respectively.
----------------- ------------------------ ---------------------------------- ----------------------------------
Cash realisations Cash proceeds The cash received from The equivalent balance
from our investments the disposal of investments under IFRS and the reconciliation
support our returns in the year as shown in to the Investment basis
to shareholders, the Investment basis Consolidated is shown in the Reconciliation
as well as our cash flow statement. of the consolidated
ability to invest cash flow statement.
in new opportunities.
For further information
see the Group
KPIs in our Annual
report and accounts
2018.
----------------- ------------------------ ---------------------------------- ----------------------------------
Cash investment Identifying new The cash paid to acquire The equivalent balance
opportunities investments in the year under IFRS and the reconciliation
in which to invest as shown on the Investment to the Investment basis
proprietary capital basis Consolidated cash is shown in the Reconciliation
is the primary flow statement. of the consolidated
driver of the cash flow statement.
Group's ability
to deliver attractive
returns.
For further information
see the Group
KPIs in our Annual
report and accounts
2018.
----------------- ------------------------ ---------------------------------- ----------------------------------
Operating By covering the The cash income from the The equivalent balance
cash profit cash cost of running portfolio (interest, dividends under IFRS and the reconciliation
the business with and fees) together with to the Investment basis
cash income, we fees received from external is shown in the Reconciliation
reduce the potential funds less cash operating of the consolidated
dilution of capital expenses as shown on the cash flow statement.
returns. Investment basis Consolidated
cash flow statement. The
calculation is shown in
Table 14 of the Financial
review.
----------------- ------------------------ ---------------------------------- ----------------------------------
Net cash/net A measure of the Cash and cash equivalents The equivalent balance
(debt) available cash plus deposits less loans under IFRS and the reconciliation
to invest in the and borrowings as shown to the Investment basis
business and an on is shown in the Reconciliation
indicator of the the Investment basis of the consolidated
financial risk Consolidated statement statement of financial
in the Group's of financial position. position.
balance sheet.
----------------- ------------------------ ---------------------------------- ----------------------------------
Gearing A measure of the Net debt (as defined above) The equivalent balance
financial risk as a % of the Group's under IFRS and the reconciliation
in the Group's net assets under the Investment to the Investment basis
balance sheet. basis. It cannot be less is shown in the Reconciliation
than zero. of the consolidated
statement of financial
position.
----------------- ------------------------ ---------------------------------- ----------------------------------
Risk management
Effective risk management underpins the successful delivery of
our strategy. Integrity, rigour and accountability are central to
our values and culture at 3i and are embedded in our approach to
risk management.
Understanding our risk appetite and culture
As both an investor and asset manager, 3i is in the business of
taking risk in order to seek to achieve its targeted returns for
fund investors and shareholders. The Board approves the strategic
objectives that determine the level and types of risk that 3i is
prepared to accept. The Board reviews 3i's strategic objectives and
risk appetite at least annually. The Group's risk management
framework is designed to support the delivery of the Group's
strategic objectives.
3i's risk appetite policy, which is consistent with previous
years, is built on rigorous and comprehensive investment procedures
and conservative capital management.
Culture
Integrity, rigour and accountability are central to our values
and culture and are embedded in our approach to risk management.
Our Investment Committee, which has oversight of the investment
pipeline development and approves new investments, significant
portfolio changes and divestments, is integral to ensuring a
consistent approach across the business. It ensures compliance with
3i's financial and strategic requirements, cultural values and
appropriate investment behaviours. Members of the Executive
Committee have responsibility for their own business or functional
areas and the Group expects individual behaviours to meet its high
standards of conduct. All employees share the responsibility for
upholding 3i's strong control culture and supporting effective risk
management. Senior managers, typically those who report to
Executive Committee members, are required to confirm their
individual and business area compliance annually. In addition, all
staff are assessed on how they have demonstrated 3i's values as
part of their annual appraisal. Finally, our Remuneration Committee
is responsible for ensuring the Group's remuneration culture is
weighted towards variable compensation where reward is strictly
dependant on performance.
The following sections explain how we control and manage the
risks in our business. They outline the key risks, our assessment
of their potential impact on our business in the context of the
current environment and how we seek to mitigate them.
Approach to risk governance
The Board is responsible for risk assessment, the risk
management process and for the protection of the Group's reputation
and brand integrity. It considers the most significant risks facing
the Group and uses quantitative analyses, such as the vintage
control which considers the portfolio concentration by geography
and sector, and liquidity reporting, where appropriate.
Non-executive oversight is also exercised through the Audit and
Compliance Committee which focuses on upholding standards of
integrity, financial reporting, risk management, going concern and
internal control. The Audit and Compliance Committee's activities
are discussed further in our Annual report and accounts 2018.
The Board has delegated the responsibility for risk oversight to
the Chief Executive. He is assisted by the Group Risk Committee
("GRC") in managing this responsibility, and guided by the Board's
appetite for risk and any specific limits set. The GRC maintains
the Group risk review, which summarises the Group's principal
risks, associated mitigating actions and key risk indicators, and
identifies any changes to the Group's risk profile. The risk review
is updated quarterly, with the last review in May 2018, and the
Chief Executive provides quarterly updates to each Audit and
Compliance Committee meeting. Investment Committee ensures a
consistent approach to investment processes across the
business.
In addition to the above, a number of other Board and Executive
committees contribute to the Group's overall risk governance
structure, as set out below.
Risk appetite
Our risk appetite is defined by our strategic objectives. We invest
capital in businesses that will deliver capital returns and portfolio
and fund management cash income to cover our costs, and increase returns
to our investors.
Investment risk
The substantial majority of the Group's capital is invested in Private
Equity. Before the Group commits to an investment, we assess the Private
Equity opportunity using the following criteria:
* return objective: individually assessed and subject
to a minimum target of 2x money multiple over four to
five years;
* geographic focus: core markets of northern Europe and
North America;
* sector expertise: focus on Business and Technology
Services, Consumer and Industrial; and
* vintage: invest up to GBP750 million per annum in
four to seven new investments in companies with an
enterprise value range of EUR100 million to EUR500
million at investment.
Investments made by 3iN need to be consistent with 3iN's overall return
target of 8% to 10% over the medium term and generate a mix of capital
and income returns. Other Infrastructure investments made by the Group
should be capable of delivering capital growth and fund management fees
which together generate mid-teens returns.
Capital management
3i adopts a conservative approach to managing its capital resources
as follows:
* there is no appetite for structural gearing at the
Group level, but short-term tactical gearing will be
used;
* the Group does not hedge its currency exposure but it
does match currency realisations with investments
where possible and takes out short-term hedges
occasionally to hedge investments and realisations
between signing and completion; and
* we have limited appetite for the dilution of capital
returns as a result of operating and interest
expenses. Both Private Equity and Infrastructure
generate cash income to mitigate this risk.
3i Group's Pillar 3 document can be found at www.3i.com
-------------------------------------------------------------------------------
The risk framework is augmented by a separate Risk Management
Function which has specific responsibilities under the FCA's
Investment Funds Sourcebook. It meets ahead of the GRC meetings to
consider the key risks impacting the Group, and any changes in the
relevant period where appropriate. It also considers the separate
risk reports for each Alternative Investment Fund ("AIF") managed
by the Group, including areas such as portfolio composition,
portfolio valuation, operational updates and team changes, which
are then considered by the GRC.
In practice, the Group operates a "three lines of defence"
framework for managing and identifying risk.
The first line of defence against outcomes outside our risk
appetite are our two divisions and their respective Managing
Partners.
Line management is supported by oversight and control functions
such as finance, human resources and legal which constitute the
second line of defence. The compliance function is also in the
second line of defence; its duties include reviewing the effective
operation of our processes in meeting regulatory requirements.
Internal audit provides independent assurance over the operation
of controls and is the third line of defence. The internal audit
programme includes the review of risk management processes and
recommendations to improve the internal control environment.
Role of Group Risk Committee in risk management
The quarterly Group risk review process includes the monitoring
of key strategic and financial metrics (such as KPIs) considered to
be indicators of potential changes in the Group's risk profile. The
GRC uses these to identify its principal risks. It then evaluates
the impact and likelihood of each risk, with reference to
associated measures and 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 FY2018, the GRC covered the following:
-- an update on the Group's Brexit planning process, including
the incorporation of an approved Alternative Investment Fund
Manager ("AIFM") in Luxembourg;
-- a semi-annual update on Environmental, Social, business
integrity and corporate Governance ("ESG") issues and themes,
especially with respect to its portfolio companies;
-- a review of the Group's stress tests to support its Internal
Capital Adequacy Assessment Process ("ICAAP") and Viability
statement;
-- a review of the Group's IT framework including cyber security and business resilience; and
-- the proposed risk disclosures in the 2018 Annual report and accounts.
There were no significant changes to the GRC's approach to risk
governance or its operation in FY2018 but we continued to refine
our framework for risk management where appropriate.
Role of Investment Committee in risk management
Our Investment Committee is fundamental to the management of
investment risk. The Investment Committee is involved in and
approves every step of the investment and realisation process.
The investment case presented at the outset of our investment
consideration process includes the expected benefit of operational
improvements, growth initiatives and M&A activity that will be
driven by our investment professionals together with the portfolio
company's management team. It will also include a view on the
likely exit strategy and timing.
The execution of this investment case is closely monitored:
-- our monthly portfolio monitoring reviews current performance
against budget and prior year and a set of traffic light indicators
and bespoke, forward looking KPIs; and
-- both Private Equity and Infrastructure hold semi-annual
reviews that focus on the longer-term performance and plan for the
investment compared to the original investment case, together with
any strategic developments and market outlook.
The monthly portfolio monitoring reviews and the semi-annual
reviews are attended by the Investment Committee and the senior
members of the investment teams.
Finally, we recognise the need to plan and execute a successful
exit at the optimum time for the portfolio company's development,
taking consideration of market conditions. This risk is closely
linked to the external economic environment. Exit plans are
refreshed where appropriate in the semi-annual portfolio reviews
and the divestment process is clearly defined and overseen by the
Investment Committee.
Individual portfolio company underperformance could have adverse
reputational consequences for the Group, even though the value
impact may not be material. We review our internal processes and
investment decisions in light of actual outcomes on an ongoing
basis.
Further details on 3i's approach as a responsible investor are
available at www.3i.com
Principal risks and mitigations
Aligning risk to our strategic objectives
Business and risk environment in FY2018
Although the business environment over the last 12 months has
been challenging, as a result of the ongoing political instability,
economic uncertainty and volatile market conditions, there has been
no significant change to our risk management approach.
The Directors have carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or
liquidity. We define our principal risks as those that have the
potential to impact the delivery of our strategic objectives
materially. We also maintain a log of risks which have the
potential to become principal risks but are not yet considered to
be so. This is called our "watch list". These risks are regularly
reviewed to determine if they have the potential to impact the
delivery of our strategy. In the year, none of our watch list risks
were considered sufficiently material to be classified as a
principal risk.
External
External risks are the risks to our business which are usually
outside of our direct control such as political, economic,
regulatory and competitor risks. In FY2018, we saw a general
deterioration in the geo-political environment, including an
increased likelihood of a trade war and an uncertain political
backdrop in the UK with the potential to impact investor
confidence. We concluded that these risks were not currently
material to our portfolio but we will continue to monitor
developments closely.
The longer-term implications of the UK's negotiations to leave
the EU on 3i's business remains unclear. Therefore, we have
implemented an alternative regulatory strategy to ensure continuity
of our business across a range of reasonably foreseeable scenarios.
This strategy includes permission from the Luxembourg regulator,
the CSSF, to establish an AIFM in Luxembourg, received in March
2018. 3i has had a presence in Luxembourg for many years. Currently
68% of our portfolio is invested in northern Europe, and this
approval will enable 3i to continue the Group's activities in
Europe after March 2019, when the UK is expected to leave the
EU.
Investment
Our overarching objective is to source attractive investment
opportunities at the right price and execute our investment plans
successfully.
As part of our portfolio monitoring, all of our new Private
Equity and Infrastructure investments in the year were subject to
rigorous review, including performance against a 180-day plan. We
continued to monitor the portfolio actively, and held additional
reviews for the small number of Private Equity assets where
operational improvements and reorganisation were particularly
intense. Investment teams are responsible for origination and asset
management and are rewarded with performance-based
remuneration.
Operational
Attracting and retaining key people is our most significant
operational risk. Our Remuneration Committee ensures that our
variable compensation schemes are in line with market practice.
Carried interest is an important incentive and rewards cash-to-cash
returns.
In addition, detailed succession plans are in place for each
division. The Board last completed its annual review of the Group's
organisational capability and succession plans in September 2017.
The success of the Group since the 2012 restructuring has led to
very modest (8%) levels of staff turnover.
The risk in relation to the new Infrastructure business
initiatives has decreased in view of the progress made to date. We
continued to enhance our cyber security management and reporting
and engaged an external firm to provide a dedicated Chief
Information Security Officer service in the year. Due to the nature
of our business, cyber security is not considered a principal risk
but is included on our watch list and remains under regular review
by the GRC and Audit and Compliance Committee.
Outlook
Competition for the best assets in our sectors remains intense,
with an environment of high prices requiring a disciplined approach
to investment. We remain focused on executing our strategy as we
navigate what looks to be another year of uncertainty.
Viability statement
The Directors have assessed 3i's viability over a three-year period
to March 2021. 3i conducts its strategic planning over a five-year period;
this statement is based on the first three years, which provides more
certainty over the forecasting assumptions used. 3i's strategic plan,
ICAAP and associated principal risks (as set out in our Annual report
and accounts 2018) are the foundation of the Directors' assessment.
The assessment is overseen by the Group Finance Director and is subject
to challenge by the GRC, review by the Audit and Compliance Committee
and approval by the Board.
Our Group strategic plan projects the performance, net asset value and
liquidity of 3i over a five-year period and is presented at the Directors'
annual strategy away day and updated throughout the year as appropriate.
At the strategy away day, the Directors consider the strategy and opportunities
for, and threats to, each business line and the Group as a whole. The
outcome of those discussions is included in the next iteration of the
strategic plan which is then used to support the viability assessment.
The Group's ICAAP and viability testing considers multiple severe, yet
plausible, individual and combined stress scenarios. They include a
severe downside economic scenario and the impact of a material single
asset event. The severe downside assumes that the global economy enters
a severe recession; global equities fall and long-term interest rates
reach new lows. The material single asset event considers the impact
of a significant asset experiencing a severe downturn in performance.
We project the amount of capital we need in the business to cover our
risks, including financial and operational risks, under such stress
scenarios. Our analysis shows that, while there may be a significant
impact on the Group's reported performance in the short term under these
scenarios, the resilience and quality of our balance sheet is such that
solvency is maintained and our business remains viable.
Taking the inputs from the strategic planning process, the ICAAP and
its stress scenarios, the Directors reviewed an assessment of the potential
effects of 3i's principal risks on its current portfolio and forecast
investment and realisation activity, and the consequent impact on 3i's
capital and liquidity.
Based on this assessment, the Directors have a reasonable expectation
that the Company and the Group will be able to continue in operation
and meet all their liabilities as they fall due up to at least March
2021.
---------------------------------------------------------------------------------
Audited financial statements
Consolidated statement of comprehensive income
for the year to 31 March
2018 2017
Notes GBPm GBPm
======================================================================== ====== ====== ======
Realised profits/(losses) over value on the disposal of investments 18 (25)
Unrealised profits on the revaluation of investments 386 262
Fair value movements on investment entity subsidiaries 848 1,041
Portfolio income
Dividends 29 38
Interest income from investment portfolio 26 10
Fees receivable 17 9
Foreign exchange on investments (12) 64
======================================================================== ====== ====== ======
Gross investment return 1,312 1,399
Fees receivable from external funds 57 46
Operating expenses (120) (116)
Interest received 2 2
Interest paid (37) (49)
Exchange movements 57 42
Income from investment entity subsidiaries 19 18
Other income 2 10
Carried interest
Carried interest and performance fees receivable 228 280
Carried interest and performance fees payable (32) (108)
Operating profit before tax 1,488 1,524
Income taxes 2 (25) 3
======================================================================== ====== ====== ======
Profit for the year from continuing operations 1,463 1,527
Profit for the year from discontinued operations, net of tax - 98
======================================================================== ====== ====== ======
Profit for the year 1,463 1,625
======================================================================== ====== ====== ======
Other comprehensive expense that may be reclassified to the income statement
Exchange differences on translation of foreign operations (38) (4)
Other comprehensive expense that will not be reclassified to the income statement
Re-measurements of defined benefit plans - (22)
======================================================================= ====== ====== ======
Other comprehensive expense for the year from continuing operations (38) (26)
======================================================================== ====== ====== ======
Other comprehensive expense for the year from discontinued operations - (7)
======================================================================== ====== ====== ======
Total comprehensive income for the year ("Total return") 1,425 1,592
======================================================================== ====== ====== ======
Earnings per share from continuing operations
Basic (pence) 3 151.7 159.0
Diluted (pence) 3 151.0 158.3
======================================================================== ====== ====== ======
Earnings per share
Basic (pence) 3 151.7 169.2
Diluted (pence) 3 151.0 168.4
======================================================================= ====== ====== ======
Dividend per share
Interim dividend per share paid (pence) 4 8.0 8.0
Dividend per share (pence) 4 22.0 18.5
======================================================================= ====== ====== ======
The Notes to the accounts form an integral part of these
financial statements.
Consolidated statement of financial position
as at 31 March
2018 2017
Notes GBPm GBPm
=================================================== ====== ====== ======
Assets
Non-current assets
Investments
Quoted investments 345 390
Unquoted investments 1,751 1,316
Investments in investment entity subsidiaries 4,034 3,483
=================================================== ====== ====== ======
Investment portfolio 6,130 5,189
=================================================== ====== ====== ======
Carried interest and performance fees receivable 498 354
Other non-current assets 28 50
Intangible assets 12 -
Retirement benefit surplus 125 121
Property, plant and equipment 4 5
Total non-current assets 6,797 5,719
=========================================================== ====== ======
Current assets
Carried interest and performance fees receivable 93 9
Other current assets 34 12
Current income taxes 3 2
Deposits - 40
Cash and cash equivalents 972 931
=========================================================== ====== ======
Total current assets 1,102 994
=========================================================== ====== ======
Total assets 7,899 6,713
=========================================================== ====== ======
Liabilities
Non-current liabilities
Trade and other payables (1) (24)
Carried interest and performance fees payable (105) (124)
Loans and borrowings 6 (575) (575)
Retirement benefit deficit (23) (22)
Deferred income taxes 2 (3) -
Provisions (1) (2)
=================================================== ====== ====== ======
Total non-current liabilities (708) (747)
=========================================================== ====== ======
Current liabilities
Trade and other payables (100) (103)
Carried interest and performance fees payable (55) (23)
Current income taxes (11) -
Provisions (1) (4)
=================================================== ====== ====== ======
Total current liabilities (167) (130)
=========================================================== ====== ======
Total liabilities (875) (877)
=========================================================== ====== ======
Net assets 7,024 5,836
=========================================================== ====== ======
Equity
Issued capital 719 719
Share premium 786 785
Capital redemption reserve 43 43
Share-based payment reserve 32 30
Translation reserve (8) 218
Capital reserve 4,700 3,390
Revenue reserve 778 689
Own shares (26) (38)
=================================================== ====== ====== ======
Total equity 7,024 5,836
=========================================================== ====== ======
The Notes to the accounts form an integral part of these
financial statements.
Simon Thompson
Chairman
16 May 2018
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
2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total equity at the
start of the year 719 785 43 30 218 3,390 689 (38) 5,836
Profit for the year - - - - - 1,318 145 - 1,463
Exchange differences
on translation of
foreign operations - - - - (38) - - - (38)
Total comprehensive
income for the year - - - - (38) 1,318 145 - 1,425
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Share-based payments - - - 17 - - - - 17
Release on exercise/
forfeiture of share
options - - - (15) - - 15 - -
Exercise of share
awards - - - - - (12) - 12 -
Ordinary dividends - - - - - (83) (71) - (154)
Additional dividends - - - - - (101) - - (101)
Issue of ordinary
shares - 1 - - - - - - 1
Transfer from
translation reserve
to capital reserve(1) - - - - (188) 188 - - -
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total equity at the
end of the year 719 786 43 32 (8) 4,700 778 (26) 7,024
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
1 Transfer relates to the translation reserve for Investment
entity subsidiaries that was not reclassified on adoption of IFRS
10.
Share-
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve reserve shares equity
2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total equity at the
start of the year 719 784 43 32 229 2,080 622 (54) 4,455
Profit for the year - - - - - 1,489 136 - 1,625
Exchange differences
on translation of
foreign operations - - - - (4) - - - (4)
Re-measurements of
defined benefit plans - - - - - (22) - - (22)
----------------------- -------- -------- ----------- -------- ------------ -------- -------- ------- -------
Other comprehensive
income from
discontinued
operations - - - - (7) - - - (7)
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total comprehensive
income for the year - - - - (11) 1,467 136 - 1,592
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Share-based payments - - - 18 - - - - 18
Release on exercise/
forfeiture of share
options - - - (20) - - 20 - -
Exercise of share
awards - - - - - (16) - 16 -
Ordinary dividends - - - - - (39) (89) - (128)
Additional dividends - - - - - (102) - - (102)
Issue of ordinary
shares - 1 - - - - - - 1
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
Total equity at the
end of the year 719 785 43 30 218 3,390 689 (38) 5,836
======================= ======== ======== =========== ======== ============ ======== ======== ======= =======
The Notes to the accounts form an integral part of these
financial statements.
Consolidated cash flow statement
for the year to 31 March
2018 2017
Notes GBPm GBPm
==================================================== ====== ====== ======
Cash flow from operating activities
Purchase of investments (470) (334)
Proceeds from investments 414 310
Cash inflow from investment entity subsidiaries 430 246
Net cash flow from derivatives (10) -
Portfolio interest received 4 7
Portfolio dividends received 29 54
Portfolio fees received 13 9
Fees received from external funds 55 71
Carried interest and performance fees received 6 39
Carried interest and performance fees paid (40) (27)
Acquisition related earn-out charges paid - (1)
Operating expenses paid (114) (131)
Co-investment loans received 5 2
Other cash income - 2
Income taxes paid (10) (2)
==================================================== ====== ====== ======
Net cash flow from operating activities 312 245
==================================================== ====== ====== ======
Cash flow from financing activities
Issue of shares 1 1
Dividend paid 4 (255) (230)
Repayment of short-term borrowings - (264)
Repurchase of short-term borrowings - (17)
Interest received 2 2
Interest paid (36) (51)
Net cash flow from financing activities (288) (559)
==================================================== ====== ====== ======
Cash flow from investing activities
Proceeds from sale of Debt Management business - 232
Cash held in disposed subsidiaries - (4)
Purchases of property, plant and equipment (2) (1)
Purchase of intangibles (13) -
Net cash flow from deposits 41 -
==================================================== ====== ====== ======
Net cash flow from investing activities 26 227
==================================================== ====== ====== ======
Change in cash and cash equivalents 50 (87)
==================================================== ====== ====== ======
Cash and cash equivalents at the start of the year 931 957
Effect of exchange rate fluctuations (9) 61
==================================================== ====== ====== ======
Cash and cash equivalents at the end of the year 972 931
==================================================== ====== ====== ======
The Notes to the accounts form an integral part of these
financial statements.
Company statement of financial position
as at 31 March
2018 2017
Notes GBPm GBPm
================================================== ====== ======== ========
Assets
Non-current assets
Investments
Quoted investments 345 390
Unquoted investments 1,751 1,295
================================================== ====== ======== ========
Investment portfolio 2,096 1,685
================================================== ====== ======== ========
Carried interest and performance fees receivable 539 358
Interests in Group entities 4,112 3,542
Other non-current assets 20 21
================================================== ====== ======== ========
Total non-current assets 6,767 5,606
================================================== ====== ======== ========
Current assets
Carried interest and performance fees receivable 3 1
Other current assets 2 4
Deposits - 40
Cash and cash equivalents 939 887
================================================== ====== ======== ========
Total current assets 944 932
================================================== ====== ======== ========
Total assets 7,711 6,538
================================================== ====== ======== ========
Liabilities
Non-current liabilities
Carried interest and performance fees payable - (16)
Loans and borrowings 6 (575) (575)
================================================== ====== ======== ========
Total non-current liabilities (575) (591)
================================================== ====== ======== ========
Current liabilities
Trade and other payables (527) (506)
Total current liabilities (527) (506)
================================================== ====== ======== ========
Total liabilities (1,102) (1,097)
================================================== ====== ======== ========
Net assets 6,609 5,441
================================================== ====== ======== ========
Equity
Issued capital 719 719
Share premium 786 785
Capital redemption reserve 43 43
Share-based payment reserve 32 30
Capital reserve 5,015 3,874
Revenue reserve 40 28
Own shares (26) (38)
================================================== ====== ======== ========
Total equity 6,609 5,441
================================================== ====== ======== ========
The Company profit for the year to 31 March 2018 is GBP1,405
million (2017: GBP1,650 million).
The Notes to the accounts form an integral part of these
financial statements.
Simon Thompson
Chairman
16 May 2018
Company statement of changes in equity
for the year to 31 March
Capital Share-based
Share Share redemption payment Capital Revenue Own Total
capital premium reserve reserve reserve reserve shares equity
2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ======== ======== =========== ============ ======== ======== ======= =======
Total equity at the
start of the year 719 785 43 30 3,874 28 (38) 5,441
Profit for the year - - - - 1,337 68 - 1,405
================================ ======== ======== =========== ============ ======== ======== ======= =======
Total comprehensive
income for the year - - - - 1,337 68 - 1,405
================================ ======== ======== =========== ============ ======== ======== ======= =======
Share-based payments - - - 17 - - - 17
Release on exercise/forfeiture
of share options - - - (15) - 15 - -
Exercise of share awards - - - - (12) - 12 -
Ordinary dividends - - - - (83) (71) - (154)
Additional dividends - - - - (101) - - (101)
Issue of ordinary shares - 1 - - - - - 1
================================ ======== ======== =========== ============ ======== ======== ======= =======
Total equity at the
end of the year 719 786 43 32 5,015 40 (26) 6,609
================================ ======== ======== =========== ============ ======== ======== ======= =======
Capital Share-based
Share Share redemption payment Capital Revenue Own Total
capital premium reserve reserve reserve reserve shares equity
2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ======== ======== =========== ============ ======== ======== ======= =======
Total equity at the
start of the year 719 784 43 32 2,462 16 (54) 4,002
Profit for the year - - - - 1,569 81 - 1,650
================================ ======== ======== =========== ============ ======== ======== ======= =======
Total comprehensive
income for the year - - - - 1,569 81 - 1,650
================================ ======== ======== =========== ============ ======== ======== ======= =======
Share-based payments - - - 18 - - - 18
Release on exercise/forfeiture
of share options - - - (20) - 20 - -
Exercise of share awards - - - - (16) - 16 -
Ordinary dividends - - - - (39) (89) - (128)
Additional dividends - - - - (102) - - (102)
Issue of ordinary shares - 1 - - - - - 1
================================ ======== ======== =========== ============ ======== ======== ======= =======
Total equity at the
end of the year 719 785 43 30 3,874 28 (38) 5,441
================================ ======== ======== =========== ============ ======== ======== ======= =======
The Notes to the accounts form an integral part of these
financial statements.
Company cash flow statement
for the year to 31 March
2018 2017
Notes GBPm GBPm
==================================================== ====== ====== ======
Cash flow from operating activities
Purchase of investments (468) (274)
Proceeds from investments 395 307
Distributions from subsidiaries 1,002 1,241
Drawdowns by subsidiaries (624) (763)
Net cash flow from derivatives (10) -
Portfolio interest received 4 6
Portfolio dividends received 25 30
Portfolio fees paid (2) (3)
Carried interest and performance fees received 4 15
Carried interest and performance fees paid (23) (28)
Acquisition related earn-out charges paid - (1)
Co-investment loans received 5 2
Net cash flow from operating activities 308 532
==================================================== ====== ====== ======
Cash flow from financing activities
Issue of shares 1 1
Dividend paid 4 (255) (230)
Repayment of short-term borrowings - (264)
Repurchase of short-term borrowings - (17)
Interest received 2 2
Interest paid (36) (51)
Net cash flow from financing activities (288) (559)
==================================================== ====== ====== ======
Cash flow from investing activities
Net cash flow from deposits 41 -
==================================================== ====== ====== ======
Net cash flow from investing activities 41 -
==================================================== ====== ====== ======
Change in cash and cash equivalents 61 (27)
==================================================== ====== ====== ======
Cash and cash equivalents at the start of the year 887 857
Effect of exchange rate fluctuations (9) 57
==================================================== ====== ====== ======
Cash and cash equivalents at the end of the year 939 887
==================================================== ====== ====== ======
The Notes to the accounts form an integral part of these
financial statements.
Significant accounting policies
Reporting entity
3i Group plc (the "Company") is a public limited company
incorporated and domiciled in England and Wales. The Consolidated
financial statements ("the Group accounts") for the year to 31
March 2018 comprise the financial statements of the Company and its
consolidated subsidiaries (collectively, "the Group").
The Group accounts have been prepared and approved by the
Directors in accordance with section 395 of the Companies Act 2006
and the Large and Medium-Sized Companies and Groups (Accounts and
Reports) Regulations 2008. The Company has taken advantage of the
exemption in section 408 of the Companies Act 2006 not to present
its Company statement of comprehensive income and related
Notes.
A Basis of preparation
The Group and Company accounts have been prepared and approved
by the Directors in accordance with all relevant International
Financial Reporting Standards ("IFRS") as issued by the
International Accounting Standards Board ("IASB"), and
interpretations issued by the IFRS Interpretations Committee for
the year ended 31 March 2018, endorsed by the European Union
("EU").
The following standards, amendments and interpretations have
been issued and endorsed by the EU, with implementation dates that
do not impact on these financial statements:
Effective for annual periods beginning on or after
--------------------------------------------------------------
IFRS 9 Financial instruments 1 January 2018
IFRS 15 Revenue from contracts with customers 1 January 2018
IFRS 16 Leases 1 January 2019
------- ------------------------------------- --------------
The Group does not anticipate that IFRS 9 will have a material
impact on its results. IFRS 16 is expected to result in an increase
in the Group's total assets and total liabilities but is not
anticipated to have a material impact on net assets or total
return.
The Group expects that IFRS 15 will only impact its accounting
policy for carried interest and performance fees receivable. This
is because IFRS 15 will introduce an assessment of the extent to
which it is highly probable that there will not be a significant
reversal of carried interest receivable when the uncertainty is
resolved. When making our assessment, the following will be
considered: remaining duration of the fund, position in relation to
the cash hurdle, the number of assets remaining in the fund and the
potential for clawback. The substantial majority of the Group's
carried interest receivable is from EFV and dependent on the
realisation of Action. Given Action's strong performance, its
forecast growth profile, and consistent with our investment and
expected exit strategy, our current assessment is that we do not
expect the adoption of IFRS 15 to have a material impact on the
recognition of carried interest receivable in the Group's results.
More details on our assessment of IFRS 15 are included in the
Financial review.
The principal accounting policies applied in the preparation of
the Group accounts are disclosed below, but where possible, they
have been shown as part of the Note to which they specifically
relate in order to assist the reader's understanding. These
policies have been consistently applied and apply to all years
presented.
The financial statements are prepared on a going concern basis
as disclosed in the Directors' report and presented to the nearest
million sterling (GBPm), the functional currency of the Company and
the Group.
B Basis of consolidation
In accordance with IFRS 10 the Company meets the criteria as an
investment entity and therefore is required to recognise
subsidiaries that also qualify as investment entities at fair value
through profit or loss. It does not consolidate the investment
entities it controls. Subsidiaries that provide investment related
services, such as advisory, management or employment services, are
not classified at fair value through profit and loss and continue
to be consolidated unless they are deemed investment entities, in
which case they are recognised at fair value.
Subsidiaries are entities controlled by the Group. Control, as
defined by IFRS 10, is achieved when the Group has all of the
following:
-- power over the relevant activities of the investee;
-- exposure, or rights, to variable returns from its involvement with the investee; and
-- the ability to affect those returns through its power over the investee.
The Group is required to determine the degree of control or
influence the Group exercises and the form of any control to ensure
that the financial treatment is accurate.
Subsidiaries are fully consolidated from the date on which the
Group effectively obtains control. All intra-group balances and
transactions with subsidiaries are eliminated upon consolidation.
Subsidiaries are de-consolidated from the date that control
ceases.
The Group comprises several different types of subsidiaries. The
Group re-assesses the function performed by each type of subsidiary
to determine its treatment under the IFRS 10 exception from
consolidation on an annual basis. The types of subsidiaries and
their treatment under IFRS 10 are as follows:
General Partners (GPs) - Consolidated
General Partners provide investment management services and do
not hold any direct investments in portfolio assets. These entities
are not investment entities.
Investment managers/advisers - Consolidated
These entities provide investment related services through the
provision of investment management or advice. They do not hold any
direct investments in portfolio assets. These entities are not
investment entities.
Holding companies of investment managers/advisers -
Consolidated
These entities provide investment related services through their
subsidiaries. Typically they do not hold any direct investment in
portfolio assets and these entities are not investment
entities.
Limited Partnerships and other intermediate investment holding
structures - Fair valued
The Group makes investments in portfolio assets through its
ultimate parent company as well as through other limited
partnerships and corporate subsidiaries which the Group has created
to align the interests of the investment teams with the performance
of the assets through the use of various carried interest schemes.
The purpose of these limited partnerships and corporate holding
vehicles, many of which also provide investment related services,
is to invest for investment income and capital appreciation. These
partnerships and corporate subsidiaries meet the definition of an
investment entity and are classified at fair value through profit
and loss.
Portfolio investments - Fair valued
Under IFRS 10, the test for accounting subsidiaries takes wider
factors of control as well as actual equity ownership into account.
In accordance with the investment entity exception, these entities
have been held at fair value with movements in fair value being
recognised in the Consolidated statement of comprehensive
income.
Associates - Fair valued
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating
policies. Investments that are held as part of the Group's
investment portfolio are carried in the Consolidated statement of
financial position at fair value even though the Group may have
significant influence over those companies.
Further detail on our application of IFRS 10 can be found in the
Reconciliation of Investment basis to IFRS section.
C Critical accounting judgements and estimates
The reported results of the Group are sensitive to the
accounting policies, assumptions and estimates that 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.
(a) Critical judgements
In the course of preparing the financial statements, one
judgement has been made in the process of applying the Group's
accounting policies, other than those involving estimations, that
has had a significant effect on the amounts recognised in the
financial statements as follows:
I. Assessment as an investment entity
The Board has concluded that the Company continues to meet the
definition of an investment entity as its strategic objective of
investing in portfolio investments and providing investment
management services to investors for the purpose of generating
returns in the form of investment income and capital appreciation
remains unchanged.
(b) Critical estimates
In addition to this significant judgement the Directors have
made two estimates, which they deem to have a significant risk of
resulting in a material adjustment to the amounts recognised in the
financial statements within the next financial year. The details of
these estimates are as follows:
I. Fair valuation of the investment portfolio
The investment portfolio, a material asset of the Group, is held
at fair value. Details of valuation methodologies used and the
associated sensitivities are disclosed in Note 5 Fair values of
assets and liabilities. Further information can be found in
Portfolio valuation - an explanation in our Annual report and
accounts 2018. Given the importance of this area, the Board has a
separate Valuations Committee to review the valuations policies,
process and application to individual investments. A report on the
activities of the Valuations Committee (including a review of the
assumptions made) is included in our Annual report and accounts
2018. In addition, sensitivity to a net 1x movement on Action's
multiple, the largest investment in our portfolio, is included the
Private Equity Business review.
II. Carried interest receivable and payable
Carried interest receivable and payable are calculated based on
the underlying agreements, and assuming all portfolio investments
are sold at their fair values at the balance sheet date. The actual
amounts of carried interest received and paid will depend on the
cash realisations of these portfolio investments and valuations may
change significantly in the next financial year. The fair valuation
of the investment portfolio is itself a critical estimate, as
detailed above. The sensitivity of carried interest to movements in
the investment portfolio is disclosed in our Annual report and
accounts 2018.
Valuation of the defined benefit schemes
The Group considered that the required estimate of an
appropriate discount rate in accordance with IAS 19 was not
sensitive enough to change the valuation of the pension scheme
materially and therefore it is no longer considered a critical
estimate. The sensitivity to changes in discount rates is shown in
our Annual report and accounts 2018.
D Other accounting policies
(a) Gross investment return
Gross investment return is equivalent to "revenue" for the
purposes of IAS 1. It represents the overall increase in net assets
from the investment portfolio net of deal-related costs and
includes foreign exchange movements in respect of the investment
portfolio. The substantial majority is investment income and
outside the scope of IAS 18 (and IFRS 15 from 1 April 2019). It is
analysed into the following components with the relevant standard
shown where appropriate:
I. Realised profits or losses over value on the disposal of
investments are the difference between the fair value of the
consideration in accordance with IFRS 13 received less any directly
attributable costs, on the sale of equity and the repayment of
interest income from the investment portfolio, and its carrying
value at the start of the accounting period, converted into
sterling using the exchange rates in force at the date of
disposal.
II. Unrealised profits or losses on the revaluation of
investments are the movement in the fair value of investments in
accordance with IFRS 13 between the start and end of the accounting
period converted into sterling using the exchange rates in force at
the date of fair value assessment.
III. Fair value movements on investment entity subsidiaries are
the movements in the fair value of Group subsidiaries which are
classified as investment entities under IFRS 10. The Group makes
investments in portfolio assets through these entities which are
usually limited partnerships or corporate subsidiaries.
IV. Portfolio income is that portion of income that is directly
related to the return from individual investments. It is recognised
to the extent that it is probable that there will be economic
benefit and the income can be reliably measured. The following
specific recognition criteria in accordance with IAS 18 must be met
before the income is recognised:
-- Dividends from equity investments are recognised in the
Consolidated statement of comprehensive income when the
shareholders' rights to receive payment have been established.
-- Interest income from investment portfolio is recognised as it
accrues 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.
-- 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 in accordance with IAS 21. 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
presentational currency, monetary assets and liabilities and
non-monetary assets held at fair value denominated in foreign
currencies are translated into sterling at the closing rates of
exchange at the balance sheet date. Foreign currency transactions
are translated into sterling at the average rates of exchange over
the year and exchange differences arising are taken to the
Consolidated statement of comprehensive income.
The statements of financial position of subsidiaries and
associates, which are not held at fair value, denominated in
foreign currencies are translated into sterling at the closing
rates. The statements of comprehensive income for these
subsidiaries and associates are translated at the average rates and
exchange differences arising are taken to other comprehensive
income. Such exchange differences are reclassified to the
Consolidated statement of comprehensive income in the period in
which the subsidiary or associate is disposed of.
Exchange movements in relation to forward foreign exchange
contracts are included within exchange movements in the
Consolidated statement of comprehensive income, where appropriate.
No forward foreign exchange contracts were held at the year
end.
(c) Treasury assets and liabilities
Short-term treasury assets and short and long-term treasury
liabilities are used in order to manage cash flows and minimise the
overall costs of borrowing.
Cash and cash equivalents comprise cash at bank and amounts held
in money market funds, which are readily convertible into cash and
there is an insignificant risk of changes in value. Financial
assets and liabilities are recognised in the balance sheet when the
relevant Group entity becomes a party to the contractual provisions
of the instrument. De-recognition occurs when rights to cash flows
from a financial asset expire, or when a liability is
extinguished.
Notes to the accounts
1 Segmental analysis
Operating segments are the components of the Group whose results
are regularly reviewed by the Group's chief operating decision
maker to make decisions about resources to be allocated to the
segment and assess its performance.
The Chief Executive, who is considered to be the chief operating
decision maker, managed the Group on the basis of business
divisions determined with reference to market focus, geographic
focus, investment funding model and the Group's management
hierarchy. A description of the activities, including products and
services offered by these divisions and the allocation of
resources, is given in the Strategic report of our Annual report
and accounts 2018. For the geographical segmental split, revenue
information is based on the locations of the assets held.
The segmental information that follows is presented on the basis
used by the Chief Executive to monitor the performance of the
Group. The reported segments are Private Equity, Infrastructure and
other, where other comprises the residual investments retained
following the sale of our Debt Management business. These
investments were sold during the year.
The segmental analysis is prepared on the Investment basis to
provide the most meaningful information to the reader of the
accounts.
Investment basis
-------------------------------------------------------------------- -------- --------------- --------- --------
Private
Equity Infrastructure Other(1) Total
Year to 31 March 2018 GBPm GBPm GBPm GBPm
==================================================================== ======== =============== ========= ========
Realised profits/(losses) over value on the disposal of investments 199 10 (2) 207
Unrealised profits on the revaluation of investments 1,080 83 - 1,163
Portfolio income
Dividends 5 27 9 41
Interest income from investment portfolio 112 4 - 116
Fees receivable 14 - - 14
Foreign exchange on investments 28 (11) (6) 11
==================================================================== ======== =============== ========= ========
Gross investment return 1,438 113 1 1,552
==================================================================== ======== =============== ========= ========
Fees receivable from external funds 7 50 - 57
Operating expenses (75) (46) - (121)
Interest receivable 2
Interest payable (37)
Exchange movements (27)
-------------------------------------------------------------------- -------- --------------- --------- --------
Other income 2
==================================================================== ======== =============== ========= ========
Operating profit before carry 1,428
==================================================================== ======== =============== ========= ========
Carried interest
Carried interest and performance fees receivable 138 90 - 228
Carried interest and performance fees payable (196) (9) - (205)
=================================================================== ======== =============== ========= ========
Operating profit 1,451
==================================================================== ======== =============== ========= ========
Income taxes (26)
Other comprehensive income
Re-measurements of defined benefit plans -
=================================================================== ======== =============== ========= ========
Total return 1,425
==================================================================== ======== =============== ========= ========
Net divestment/(investment)
Realisations(2) 1,002 169 152 1,323
Cash investment (587) (217) (23) (827)
==================================================================== ======== =============== ========= ========
415 (48) 129 496
==================================================================== ======== =============== ========= ========
Balance sheet
Opening portfolio value at 1 April 2017 4,831 706 138 5,675
Investment(3) 674 217 23 914
Value disposed (803) (159) (154) (1,116)
Unrealised value movement 1,080 83 - 1,163
Other movement(4) 43 (15) (7) 21
==================================================================== ======== =============== ========= ========
Closing portfolio value at 31 March 2018 5,825 832 - 6,657
==================================================================== ======== =============== ========= ========
1 The Other segment comprises the residual Debt Management portfolio.
2 GBP46 million in Private Equity relates to cash in transit at year end.
3 Includes capitalised interest and other non-cash investment.
4 Other movement relates to foreign exchange and the provisioning of capitalised interest.
A number of items are not managed by segment by the chief operating decision maker and therefore
have not been allocated to a specific segment.
Investment basis Total
--------------------------------------- -------- --------------- --------- ----------- -------------- --------
Private continuing Discontinued
Equity Infrastructure Other(1) operations operations(1) Total
Year to 31 March 2017 GBPm GBPm GBPm GBPm GBPm GBPm
======================================= ======== =============== ========= =========== ============== ========
Realised profits/(losses) over value
on the disposal of investments 38 (1) 1 38 - 38
Unrealised profits on the revaluation
of
investments 1,274 59 9 1,342 3 1,345
Portfolio income
Dividends 8 23 19 50 16 66
Interest income from investment
portfolio 50 - - 50 3 53
Fees receivable 6 - - 6 - 6
Foreign exchange on investments 248 6 15 269 16 285
======================================= ======== =============== ========= =========== ============== ========
Gross investment return 1,624 87 44 1,755 38 1,793
======================================= ======== =============== ========= =========== ============== ========
Fees receivable from external funds 10 36 - 46 25 71
Operating expenses (76) (41) - (117) (13) (130)
Interest receivable 2 - 2
Interest payable (49) - (49)
Exchange movements 28 (9) 19
--------------------------------------- -------- --------------- --------- ----------- -------------- --------
Other income 10 2 12
======================================= ======== =============== ========= =========== ============== ========
Operating profit before carry 1,675 43 1,718
======================================= ======== =============== ========= =========== ============== ========
Carried interest
Carried interest and performance
fees receivable 275 4 - 279 1 280
Carried interest and performance
fees payable (431) (3) - (434) - (434)
Operating profit 1,520 44 1,564
======================================= ======== =============== ========= =========== ============== ========
Profit on disposal of Debt Management
business before tax - 48 48
--------------------------------------- -------- --------------- --------- ----------- -------------- --------
Income taxes 3 (1) 2
Other comprehensive income
Re-measurements of defined benefit
plans (22) - (22)
====================================== ======== =============== ========= =========== ============== ========
Total return 1,501 91 1,592
======================================= ======== =============== ========= =========== ============== ========
Net divestment/(investment)
Realisations(2) 982 12 11 1,005 270 1,275
Cash investment (478) (131) (29) (638) (51) (689)
======================================= ======== =============== ========= =========== ============== ========
504 (119) (18) 367 219 586
======================================= ======== =============== ========= =========== ============== ========
Balance sheet
Opening portfolio value at 1 April
2016(3) 3,741 527 92 4,360 137 4,497
Investment(4) 548 131 29 708 51 759
Value disposed (944) (13) (10) (967) (191) (1,158)
Unrealised value movement 1,274 59 9 1,342 3 1,345
Other movement(5) 212 2 18 232 - 232
======================================= ======== =============== ========= =========== ============== ========
Closing portfolio value at 31 March
2017 4,831 706 138 5,675 - 5,675
======================================= ======== =============== ========= =========== ============== ========
1 Discontinued operations relate to the Debt Management business sold to Investcorp. Other relates
to the residual Debt Management investments retained by 3i.
2 Private Equity does not include proceeds paid from investee holding companies of GBP33 million.
Total proceeds from the sale of the Debt Management business were GBP270 million, of which
GBP17 million related to the investment made by 3i Group plc on behalf of Debt Management
Investments Ltd and GBP16 million related to an intercompany loan provided by 3i Group plc
to Debt Management US LLC and not included within the consolidated Group.
3 The opening portfolio values have been re-presented to reflect the classification of the Group's
Debt Management business sold to Investcorp as discontinued operations. The residual Debt
Management stakes are included within Other.
4 Includes capitalised interest and other non-cash investment.
5 Other movement relates to foreign exchange and the provisioning of capitalised interest.
A number of items are not managed by segment by the chief operating decision maker and therefore
have not been allocated to a specific segment.
Investment basis Northern North Rest of
UK Europe America World Total
Year to 31 March 2018 GBPm GBPm GBPm GBPm GBPm
============================================= ====== ========= ======== ======== =======
Gross investment return
Realised profits/(losses) over value on the
disposal of investments 9 154 (5) 49 207
Unrealised profits on the
revaluation of investments 148 932 67 16 1,163
Portfolio income 54 104 12 1 171
Foreign exchange on investments - 91 (55) (25) 11
============================================= ====== ========= ======== ======== =======
211 1,281 19 41 1,552
============================================= ====== ========= ======== ======== =======
Net divestment/(investment)
Realisations 270 782 91 180 1,323
Cash investment (32) (434) (361) - (827)
============================================= ====== ========= ======== ======== =======
238 348 (270) 180 496
============================================= ====== ========= ======== ======== =======
Balance sheet
Closing portfolio value at 31 March 2018 1,249 4,504 664 240 6,657
============================================= ====== ========= ======== ======== =======
Investment basis Northern North Rest of
UK Europe America World Total
Year to 31 March 2017 GBPm GBPm GBPm GBPm GBPm
============================================= ====== ========= ======== ======== =======
Gross investment return
Realised (losses)/profits over value on the
disposal of investments (33) 51 12 8 38
Unrealised profits/(losses) on the
revaluation of investments 160 1,183 12 (10) 1,345
Portfolio income/(expense) 34 77 15 (1) 125
Foreign exchange on investments 1 196 43 45 285
============================================= ====== ========= ======== ======== =======
162 1,507 82 42 1,793
============================================= ====== ========= ======== ======== =======
Net divestment/(investment)
Realisations 239 818 179 39 1,275
Cash investment (131) (488) (69) (1) (689)
============================================= ====== ========= ======== ======== =======
108 330 110 38 586
============================================= ====== ========= ======== ======== =======
Balance sheet
Closing portfolio value at 31 March 2017 1,309 3,639 349 378 5,675
============================================= ====== ========= ======== ======== =======
2 Income taxes
Accounting policy:
Income taxes represent the sum of the tax currently payable,
withholding taxes suffered and deferred tax. Tax is charged or
credited in the Consolidated statement of comprehensive income,
except where it relates to items charged or credited directly to
equity, in which case the tax is also dealt within equity.
The tax currently payable is based on the taxable profit for the
year. This may differ from the profit included in the Consolidated
statement of comprehensive income because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible.
To enable the tax charge to be based on the profit for the year,
deferred tax is provided in full on temporary timing differences,
at the rates of tax expected to apply when these differences
crystallise. Deferred tax assets are recognised only to the extent
that it is probable that sufficient taxable profits will be
available against which temporary differences can be set off. All
deferred tax liabilities are offset against deferred tax assets,
where appropriate, in accordance with the provisions of IAS 12.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
The main rate of UK corporation tax is 19% and is to be reduced
to 17% from 1 April 2020. This change will affect future UK
corporate taxes payable and the rate at which deferred tax assets
are expected to reverse.
2018 2017
GBPm GBPm
======================================================================================== ===== =====
Current taxes
Current year:
UK 22 -
Overseas 1 1
Prior year:
UK - -
Overseas (1) (4)
Deferred taxes
Deferred income taxes 3 -
======================================================================================== ===== =====
Total income tax charge/(credit) in the Consolidated statement of comprehensive income 25 (3)
======================================================================================== ===== =====
Reconciliation of income taxes in the Consolidated statement of
comprehensive income
The tax charge for the year is different to the standard rate of
corporation tax in the UK, currently 19% (2017: 20%), and the
differences are explained below:
2018 2017
GBPm GBPm
========================================================================================= ====== ======
Profit before tax 1,488 1,524
Profit before tax multiplied by rate of corporation tax in the UK of 19% (2017: 20%) 283 305
Effects of:
Non-taxable capital profits due to UK approved investment trust company status (257) (309)
Non-taxable dividend income (9) (6)
======================================================================================== ====== ======
17 (10)
========================================================================================= ====== ======
Other differences between accounting and tax profits:
Permanent differences - non-deductible items 2 -
Temporary differences on which deferred tax is not recognised 4 4
Overseas countries taxes - (3)
Recognition of previously unrecognised deferred tax on losses 5 -
Excess unutilised tax losses arising in the period - 6
Utilisation of brought forward losses (3) -
======================================================================================== ====== ======
Total income tax charge/(credit) in the Consolidated statement of comprehensive income 25 (3)
----------------------------------------------------------------------------------------- ------ ------
The affairs of the Group's parent company are directed so as to
allow it to meet the requisite conditions to continue to operate as
an approved investment trust company for UK tax purposes. An
approved investment trust company is a UK investment company which
is required to meet certain conditions set out in the UK tax rules
to obtain and maintain its tax status. This approval allows certain
investment profits of the Company, broadly its capital profits, to
be exempt from tax in the UK.
The Group has recognised a current UK corporation tax liability
of GBP22 million (2017: nil) for the year. This is higher than
previous years due to increased levels of taxable interest income
from portfolio companies, reduced interest expenditure following
the repayment of a bond in March 2017, and a GBP90 million
performance fee from 3iN following its disposals of AWG and Elenia
in the year. Finally, the use of losses brought forward has been
restricted with effect from 1 April 2017.
Including a net tax charge of GBP1 million (2017: nil) in the
fair valued entities, the Group recognised a total tax charge of
GBP26 million (2017: tax credit GBP3 million) under the Investment
basis.
Deferred income taxes
2018 2017
GBPm GBPm
============================================================= ===== =====
Opening deferred income tax asset
Tax losses 8 7
Income in accounts taxable in the future (8) (7)
Other - 3
============================================================= ===== =====
- 3
============================================================= ===== =====
Recognised through Consolidated statement of comprehensive income
Tax losses recognised (5) 1
Income in accounts taxable in the future 2 (1)
(3) -
============================================================= ===== =====
Recognised within discontinued operations
Deferred tax asset transferred with discontinued operations - (3)
============================================================= ===== =====
- (3)
============================================================= ===== =====
Closing deferred income tax liability
Tax losses 3 8
Income in accounts taxable in the future (6) (8)
(3) -
============================================================= ===== =====
At 31 March 2018, the Group had carried forward tax losses of
GBP1,400 million (31 March 2017: GBP1,390 million), capital losses
of GBP102 million (31 March 2017: GBP93 million) and other
temporary differences of GBP83 million (31 March 2017: GBP94
million). With the additional restrictions on utilising brought
forward losses introduced from 1 April 2017, and the uncertainty
that the Group will generate sufficient or relevant taxable profits
in the foreseeable future to utilise these amounts, no deferred tax
asset has been recognised in respect of these losses. Deferred
income taxes are calculated using an expected rate of corporation
tax in the UK of 19% (2017: 19%).
3 Per share information
The calculation of basic earnings per share is based on the
profit attributable to shareholders and the number of basic average
shares. When calculating the diluted earnings per share, the
weighted average number of shares in issue is adjusted for the
effect of all dilutive share options and awards.
2018 2017
=================================================================== ====== ======
Earnings per share (pence)
Basic earnings per share 151.7 169.2
- of which from continuing operations 151.7 159.0
- of which from discontinued operations - 10.2
Diluted earnings per share 151.0 168.4
- of which from continuing operations 151.0 158.3
- of which from discontinued operations - 10.1
Earnings (GBPm)
Profit for the year attributable to equity holders of the Company 1,463 1,625
- of which from continuing operations 1,463 1,527
- of which from discontinued operations - 98
=================================================================== ====== ======
2018 2017
============================== ============ ===============
Weighted average number of shares in issue
Ordinary shares 972,849,842 972,734,609
Own shares (8,758,180) (12,580,145)
============================== ============ ===============
964,091,662 960,154,464
============================== ============ ===============
Effect of dilutive potential ordinary shares
Share options and awards 4,613,775 4,710,808
============================== ============ =============
Diluted shares 968,705,437 964,865,272
============================== ============ ===============
2018 2017
========================================================== ====== ======
Net assets per share (GBP)
Basic 7.28 6.07
Diluted 7.24 6.04
========================================================== ====== ======
Net assets (GBPm)
Net assets attributable to equity holders of the Company 7,024 5,836
========================================================== ====== ======
Basic NAV per share is calculated on 965,040,405 shares in issue
at 31 March 2018 (31 March 2017: 961,458,801). Diluted NAV per
share is calculated on diluted shares of 969,773,150 at 31 March
2018 (31 March 2017: 966,553,549).
4 Dividends
2018 2018 2017 2017
pence per share GBPm pence per share GBPm
=================== ================ ===== ================ =====
Declared and paid during the year
Ordinary shares
Final dividend 18.5 178 16.0 154
Interim dividend 8.0 77 8.0 76
=================== ================ ===== ================ =====
26.5 255 24.0 230
=================== ================ ===== ================ =====
Proposed dividend 22.0 212 18.5 178
=================== ================ ===== ================ =====
The Group's current dividend policy was introduced in May 2016.
In accordance with this policy, the Group pays a base dividend of
16 pence per share and an additional dividend which is based on
cash realisations, the investment pipeline and the balance sheet at
year end. The Group will only pay an additional dividend if gross
debt is less than GBP1 billion and gearing is less than 20%, to
maintain its conservative balance sheet approach.
The dividend can be paid out of either the capital reserve or
the revenue reserve subject to the investment trust rules.
The distributable reserves of the parent company are GBP1,941
million (31 March 2017: GBP1,742 million) and the Board reviews the
distributable reserves bi-annually ahead of proposing any dividend.
The Board also reviews the proposed dividends in the context of the
requirements of being an approved Investment Trust. Details of the
Group's continuing viability and going concern can be found in the
Risk management section.
In light of the Group's continued progress in executing its
strategy, we now propose to replace our base and additional
dividend policy with a simpler policy. Further details are in the
Financial review.
5 Fair values of assets and liabilities
Accounting policy:
Financial instruments, other than those held at amortised cost,
are held at fair value and are designated irrevocably at inception.
In particular, 3i designates groups of financial instruments as
being at fair value when they are managed, and their performance
evaluated, on a fair value basis in accordance with a documented
risk management or investment strategy, and where information about
the groups of financial instruments is reported to management on
that basis.
(A) Classification
The following tables analyse the Group's assets and liabilities
in accordance with the categories of financial instruments in IAS
39:
Group Group Group Group
2018 2018 2017 2017
Designated Other Designated Other
at fair financial at fair financial
value value
through instruments Group through instruments Group
profit at amortised 2018 profit at amortised 2017
and and
loss cost Total loss cost Total
GBPm GBPm GBPm GBPm GBPm GBPm
====================================
Assets
Quoted investments 345 - 345 390 - 390
Unquoted investments 1,751 - 1,751 1,316 - 1,316
Investments in investment entities 4,034 - 4,034 3,483 - 3,483
Other financial assets - 653 653 - 425 425
====================================
Total 6,130 653 6,783 5,189 425 5,614
====================================
Liabilities
Loans and borrowings - 575 575 - 575 575
Other financial liabilities - 261 261 - 274 274
====================================
Total - 836 836 - 849 849
====================================
Company Company Company Company
2018 2018 2017 2017
Designated Other Designated Other
at fair financial at fair financial
value value
through instruments Company through instruments Company
profit at amortised 2018 profit at amortised 2017
and and
loss cost Total loss cost Total
GBPm GBPm GBPm GBPm GBPm GBPm
=============================
Assets
Quoted investments 345 - 345 390 - 390
Unquoted investments 1,751 - 1,751 1,295 - 1,295
Other financial assets - 564 564 - 384 384
=============================
Total 2,096 564 2,660 1,685 384 2,069
=============================
Liabilities
Loans and borrowings - 575 575 - 575 575
Other financial liabilities - 527 527 - 522 522
=============================
Total - 1,102 1,102 - 1,097 1,097
=============================
Within the Company GBP4,045 million (31 March 2017: GBP3,483
million) of the Interest in Group entities is held at fair
value.
(B) Valuation
The fair values of the Group's financial assets and liabilities,
not held at fair value, are not materially different from their
carrying values with the exception of loans and borrowings. The
fair value of the loans and borrowings is GBP718 million (31 March
2017: GBP741 million), determined with reference to their published
market prices. The carrying value of the loans and borrowings is
GBP575 million (31 March 2017: GBP575 million) and accrued interest
payable (included within trade and other payables) is GBP8 million
(31 March 2017: GBP8 million).
Valuation hierarchy
The Group classifies financial instruments measured at fair
value in the investment portfolio according to the following
hierarchy:
Level Fair value input description Financial instruments
=================================================
Level 1 Quoted prices (unadjusted) from active markets Quoted equity instruments
Level 2 Inputs other than quoted prices included in Level 1 that Fixed rate loan notes
are observable either directly (ie
as prices) or indirectly (ie derived from prices)
Level 3 Inputs that are not based on observable market data Unquoted equity instruments and loan instruments
=================================================
Unquoted equity instruments and debt instruments are measured in
accordance with the IPEV Guidelines with reference to the most
appropriate information available at the time of measurement.
Further information regarding the valuation of unquoted equity
instruments can be found in the section Portfolio valuation - an
explanation in our Annual report and accounts 2018.
The tables below show the classification of financial
instruments held at fair value into the valuation hierarchy at 31
March 2018:
Group Group Group Group Group Group Group Group
2018 2018 2018 2018 2017 2017 2017 2017
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
===============================================
Assets
Quoted investments 345 - - 345 390 - - 390
Unquoted investments - - 1,751 1,751 - - 1,316 1,316
Investments in investment entity subsidiaries - - 4,034 4,034 - - 3,483 3,483
===============================================
Total 345 - 5,785 6,130 390 - 4,799 5,189
===============================================
The above disclosure only relates to the investment portfolio
and the investments in our investment entity subsidiaries. We
determine that in the ordinary course of business, the net asset
values of an investment entity subsidiary are considered to be the
most appropriate to determine fair value. The underlying portfolio
is valued under the same methodology as directly held investments,
with any other assets or liabilities within investment entity
subsidiaries fair valued in accordance with the Group's accounting
policies. The Directors' considerations about the fair value of the
underlying investment entity subsidiaries are detailed in our
Annual report and accounts 2018.
Movements in the directly held investment portfolio categorised
as Level 3 during the year:
Group Group Company Company
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Opening book value 1,316 1,243 1,295 1,103
Additions from continuing operations 481 213 481 228
- of which loan notes with nil value - (10) - (10)
Additions from discontinued operations - 70 - 18
Disposals, repayments and write-offs from continuing operations (315) (292) (293) (288)
Disposals, repayments and write-offs from discontinued operations - (191) - (24)
Fair value movement from continuing operations(1) 346 224 346 218
Fair value movement from discontinued operations - 3 - -
Other movements and net cash movements from continuing operations(2) (77) 75 (78) 69
Other movements and net cash movements from discontinued operations(2) - (19) - (19)
Closing book value 1,751 1,316 1,751 1,295
1 All fair value movements relate to assets held at the end of the period.
2 Other movements include the impact of foreign exchange and the transfer
of an investment to an investment entity subsidiary.
On a continuing basis, unquoted investments valued using Level 3
inputs also had the following impact on the Consolidated statement
of comprehensive income: realised profits over value on disposal of
investment of GBP14 million (2017: realised loss of GBP26 million),
dividend income of GBP13 million (2017: GBP24 million) and foreign
exchange losses of GBP12 million (2017: foreign exchange gains of
GBP63 million).
Level 3 inputs are sensitive to assumptions made when
ascertaining fair value as described in the Portfolio valuation -
an explanation section. On an IFRS basis, of assets held at 31
March 2018, classified as Level 3, 40% (31 March 2017: 33%) were
valued using a multiple of earnings and the remaining 60% (31 March
2017: 67%) were valued using alternative valuation methodologies.
Of the underlying portfolio held by investment entity subsidiaries,
95% (31 March 2017: 96%) were valued using a multiple of earnings
and the remaining 5% (31 March 2017: 4%) were valued using
alternative valuation methodologies.
Assets move between Level 1 and Level 3 when an unquoted equity
investment lists on a quoted market exchange. There were no
transfers in or out of Level 3 during the year.
Valuation multiple - The valuation multiple is the main
assumption applied to a multiple of earnings based valuation. The
multiple is derived from comparable listed companies or relevant
market transaction multiples. Companies in the same industry and
geography and, where possible, with a similar business model and
profile are selected and then adjusted for factors including
liquidity risk, growth potential and relative performance. They are
also adjusted to represent our longer term view of performance
through the cycle or our exit assumptions. The value weighted
average post discount earnings multiple used when valuing the
portfolio at 31 March 2018 was 11.7x (31 March 2017: 10.2x).
If the multiple used to value each unquoted investment valued on
an earnings multiple basis as at 31 March 2018 decreased by 5%, the
investment portfolio would decrease by GBP43 million (31 March
2017: GBP18 million) or 2% (31 March 2017: 1%). If the same
sensitivity was applied to the underlying portfolio held by
investment entity subsidiaries, this would have a negative impact
of GBP270 million (31 March 2017: GBP224 million) or 6% (31 March
2017: 6%).
If the multiple increased by 5% then the investment portfolio
would increase by GBP35 million (31 March 2017: GBP16 million) or
2% (31 March 2017: 1%). If the same sensitivity was applied to the
underlying portfolio held by investment entity subsidiaries, this
would have a positive impact of GBP260 million (31 March 2017:
GBP215 million) or 6% (31 March 2017: 5%).
Alternative valuation methodologies - There are a number of
alternative investment valuation methodologies used by the Group,
for reasons specific to individual assets. The details of such
valuation methodologies, and inputs that are used, are given in the
Portfolio valuation - an explanation section in our Annual report
and accounts 2018.
Each methodology is used for a proportion of assets by value,
and at year end the following techniques were used under an IFRS
basis: 5% DCF (31 March 2017: 41%), nil broker quotes (31 March
2017: 4%), 45% imminent sale (31 March 2017: 2%), 7% industry
metric (31 March 2017: 10%) and 3% other (31 March 2017: 10%).
If the value of all of the investments valued under alternative
methodologies moved by 5%, this would have an impact on the
investment portfolio of GBP53 million (31 March 2017: GBP44
million) or 3% (31 March 2017: 3%). If the same sensitivity was
applied to the underlying portfolio held by investment entity
subsidiaries, this would have an impact of GBP10 million (31 March
2017: GBP7 million) or 0.3% (31 March 2017: 0.2%).
6 Loans and borrowings
Accounting policy:
All loans and borrowings are initially recognised at the fair
value of the consideration received. After initial recognition,
these are subsequently measured at amortised cost using the
effective interest method, which is the rate that exactly discounts
the estimated future cash flows through the expected life of the
liabilities. Financial liabilities are derecognised when they are
extinguished.
Group Group
2018 2017
GBPm GBPm
Loans and borrowings are repayable as follows:
Within one year - -
Between the second and fifth year 200 -
After five years 375 575
575 575
Principal borrowings include:
Group Group Company Company
2018 2017 2018 2017
Rate Maturity GBPm GBPm GBPm GBPm
Issued under the GBP2,000 million note issuance programme
Fixed rate
GBP200 million notes (public issue) 6.875% 2023 200 200 200 200
GBP375 million notes (public issue) 5.750% 2032 375 375 375 375
575 575 575 575
Committed multi-currency facilities
GBP350 million LIBOR+0.60% 2021 - - - -
- - - -
Total loans and borrowings 575 575 575 575
There has been no change in total financing liabilities for the
Group or the Company during the year as the cash flows relating to
the financing liabilities are equal to the income statement
expense. Accordingly, no reconciliation between the movement in
financing liabilities and the cash flow statement has been
presented.
The maturity of the Company's GBP350 million (31 March 2017:
GBP329 million) syndicated multi-currency facility is September
2021. The GBP350 million facility has no financial covenants.
All of the Group's borrowings are repayable in one instalment on
the respective maturity dates. None of the Group's interest-bearing
loans and borrowings are secured on the assets of the Group.
The fair value of the loans and borrowings is GBP718 million (31
March 2017: GBP741 million), determined with reference to their
published market prices. The loans and borrowings are included in
Level 2 of the fair value hierarchy.
In accordance with the FCA Handbook (FUNDS 3.2.2. R and Fund
3.2.6. R), 3i Investments plc, as AIFM of the Company is required
to calculate leverage in accordance with a set formula and disclose
this to investors. In line with this formula, leverage for the
Group is 111% (31 March 2017: 115%) and the Company is 105% (31
March 2017: 107%) under both the gross method and the commitment
method. The leverage for 3i Investments plc is 100% (31 March 2017:
100%) under both the gross method and the commitment method.
Under the Securities Financing Transactions Regulation ("SFTR")
and AIFMD, 3i is required to disclose certain information relating
to the use of securities financing transactions ("SFTs") and total
return swaps. At 31 March 2018, 3i was not party to any
transactions involving SFTs or total return swaps.
7 Related parties and interests in other entities
The Group has various related parties stemming from
relationships with limited partnerships managed by the Group, its
investment portfolio (including unconsolidated subsidiaries), its
advisory arrangements and its key management personnel. In
addition, the Company has related parties in respect of its
subsidiaries. Some of these subsidiaries are held at fair value
(unconsolidated subsidiaries) due to the treatment prescribed in
IFRS 10.
Related parties
Limited partnerships
The Group manages a number of external funds which invest
through limited partnerships. Group companies act as the general
partners of these limited partnerships and exert significant
influence over them. The following amounts have been included in
respect of these limited partnerships:
Group Group Company Company
2018 2017 2018 2017
Statement of comprehensive income GBPm GBPm GBPm GBPm
Carried interest receivable 138 276 183 276
Fees receivable from external funds 29 26 - -
Group Group Company Company
2018 2017 2018 2017
Statement of financial position GBPm GBPm GBPm GBPm
Carried interest receivable 500 356 541 356
Investments
The Group makes investments in the equity of unquoted and quoted
investments where it does not have control but may be able to
participate in the financial and operating policies of that
company. IFRS presumes that it is possible to exert significant
influence when the equity holding is greater than 20%. The Group
has taken the investment entity exception as permitted by IFRS 10
and has not equity accounted for these investments, in accordance
with IAS 28, but they are related parties. The total amounts
included for investments where the Group has significant influence
but not control are as follows:
Group Group Company Company
2018 2017 2018 2017
Statement of comprehensive income GBPm GBPm GBPm GBPm
Realised profit over value on the disposal of investments 7 - 11 -
Unrealised profits on the revaluation of investments 36 57 36 51
Portfolio income 9 17 5 7
Profit for the year from discontinued operations - 21 - 4
Group Group Company Company
2018 2017 2018 2017
Statement of financial position GBPm GBPm GBPm GBPm
Unquoted investments 380 429 380 407
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
2018 2017 2018 2017
Statement of comprehensive income GBPm GBPm GBPm GBPm
Realised profit over value on the disposal of investments 4 - 4 -
Unrealised profits on the revaluation of investments 40 38 40 38
Fees receivable from external funds 29 21 - -
Performance fees receivable 90 4 - -
Dividends 16 14 16 14
Group Group Company Company
2018 2017 2018 2017
Statement of financial position GBPm GBPm GBPm GBPm
Quoted equity investments 345 390 345 390
Performance fees receivable 90 4 - -
20 Large investments
The 20 investments listed below account for 93% of the portfolio
at 31 March 2018 (31 March 2017: 89%). 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. Controlled subsidiaries under IFRS are noted below.
None of these investments are UK Companies Act subsidiaries.
In accordance with Part 5 of The Alternative Investment Fund
Managers Regulations 2013 ("the Regulations"), 3i Investments plc,
as AIFM, requires all controlled portfolio companies to make
available to employees an annual report which meets the disclosure
requirements of the Regulations. These are available either on the
portfolio company's website or through filing with the relevant
local authorities.
Residual Residual
Business line cost(1) cost(1) Valuation Valuation
Geography March March March(2) March(2)
Investment First invested in 2017 2018 2017 2018 Relevant transactions
Description of business Valuation basis GBPm GBPm GBPm GBPm in the year
Action* Private Equity 1 12 1,708 2,064 Refinancing returned
Non-food discount retailer Netherlands GBP307m of proceeds
2011
Earnings
Scandlines* Private Equity 114 114 538 803 Refinancing returned
Ferry operator between Denmark/ GBP50m of proceeds in
Denmark and Germany Germany July 2017, sale
2007/2013 announced in March
Imminent sale 2018
3i Infrastructure plc* Infrastructure 399 310 655 581 Special dividend
Quoted investment company, UK returned GBP143m of
investing in infrastructure 2007 proceeds
Quoted
Basic-Fit Private Equity 11 11 184 270
Discount gyms operator Netherlands
2013
Quoted
WP* Private Equity 161 175 200 244
Supplier of plastic packaging Nertherlands
solutions 2015
Earnings
Audley Travel* Private Equity 177 195 185 233
Provider of experiential UK
tailor-made travel 2015
Earnings
Q Holding* Private Equity 162 162 222 229
Manufacturer of precision US
engineered elastomeric 2014
components Earnings
Cirtec Medical* Private Equity - 172 - 190 New investment
Outsourced medical device US
manufacturing 2017
Earnings
Hans Anders* Private Equity - 186 - 189 New investment
Value-for- money optical retailer Netherlands
2017
Earnings
Smarte Carte* Infrastructure - 166 - 167 New investment
Provider of self-serve vended US
luggage carts, electronic 2017
lockers and concession carts DCF
Schlemmer Group* Private Equity 162 174 154 152
Manufacturer of cable Germany
management solutions for 2016
the automotive industry Earnings
Ponroy Santé* Private Equity 123 139 122 145
Manufacturer of natural France
healthcare and cosmetics 2017
products Earnings
AES Engineering Private Equity 30 30 113 139
Manufacturer of mechanical UK
seals and support systems 1996
Earnings
BoConcept* Private Equity 140 142 146 137
Urban living designer Denmark
2016
Earnings
Formel D* Private Equity - 138 - 133 New investment
Quality assurance provider for Germany
the automotive industry 2017
Earnings
ACR Private Equity 105 105 135 129
Pan-Asian non-life Singapore
reinsurance 2006
Industry metric
Tato Private Equity 2 2 112 114
Manufacturer and seller of UK
speciality chemicals 1989
Earnings
Lampenwelt* Private Equity - 98 - 111 New investment
Online lighting specialist Germany
retailer 2017
Earnings
Aspen Pumps* Private Equity 78 86 88 108
Manufacturer of pumps and UK
accessories for the air 2015
conditioning, heating and Earnings
refrigeration industry
Euro-Diesel* Private Equity 57 62 95 82
Manufacturer of uninterruptible Belgium
power supply systems 2015
Earnings
1,722 2,479 4,657 6,220
* Controlled in accordance with IFRS.
1 Residual cost includes capitalised interest.
2 Numbers shown on an Investment basis.
Glossary
2013-2016 vintage includes Aspen Pumps, Audley Travel,
Basic-Fit, Dynatect, Euro-Diesel, ATESTEO, JMJ, Q Holding, WP,
Scandlines further (completed in December 2013), Christ, Geka,
Óticas Carol and Blue Interactive.
2016-2019 vintage includes BoConcept, Cirtec, Formel D, Hans
Anders, Lampenwelt, Ponroy Santé and Schlemmer.
Alternative Investment Funds ("AIFs") At 31 March 2018, 3i
Investments plc as AIFM, managed five AIFs. These were 3i Group
plc, 3i Growth Capital Fund, 3i Eurofund V, 3i Managed
Infrastructure Acquisitions LP and 3i European Operational Projects
Fund.
Alternative Investment Fund Manager ("AIFM") is the regulated
manager of AIFs. Within 3i, this is 3i Investments plc.
Approved Investment Trust Company This is a particular UK tax
status maintained by 3i Group plc, the parent company of 3i Group.
An approved Investment Trust company is a UK company which meets
certain conditions set out in the UK tax rules which include a
requirement for the company to undertake portfolio investment
activity that aims to spread investment risk and for the company's
shares to be listed on an approved exchange. The "approved" status
for an investment trust must be agreed by the UK tax authorities
and its benefit is that certain profits of the company, principally
its capital profits, are not taxable in the UK.
Assets under management ("AUM") A measure of the total assets
that 3i has to invest or manages on behalf of shareholders and
third-party investors for which it receives a fee. AUM is measured
at fair value. In the absence of a third-party fund in Private
Equity, it is not a measure of fee generating capability.
Automatic Exchange of Information ("AEOI") regulation covers the
combined legislative requirements of Common Reporting Standards
("CRS") and the Foreign Account Tax Compliance Act ("FATCA"). Both
sets of rules require financial groups to identify investors and
report details to their local authority who will then exchange the
information with other relevant tax authorities.
Board The Board of Directors of the Company.
Capital redemption reserve is established in respect of the
redemption of the Company's ordinary shares.
Capital reserve recognises all profits that are capital in
nature or have been allocated to capital. Following changes to the
Companies Act, the Company amended its Articles of Association at
the 2012 Annual General Meeting to allow these profits to be
distributable by way of a dividend.
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. Carried interest is only actually paid or
received when the relevant performance hurdles are met and the
accrual is discounted to reflect expected payment periods.
Carried interest receivable is generated on third-party capital
over the life of the relevant fund when relevant performance
criteria are met.
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.
Country by Country reporting ("CbC Reporting") refers to a
requirement for large multinational groups, operating in different
countries, to file an annual report with their head office tax
authority. This provides information about the activities of the
entities in the Group, on a country-by-country basis, across the
countries in which the Group operates. This new requirement applied
to the Group from 1 April 2016.
Discounting The reduction in present value at a given date of a
future cash transaction at an assumed rate, using a discount factor
reflecting the time value of money.
Discontinued operations are comprised of the assets and
liabilities associated with the Group's Debt Management business
sold to Investcorp in March 2017.
Dividend income from CLO capital is recognised in the Statement
of comprehensive income when the shareholders' rights to receive
payment have been established.
EBITDA is defined as earnings before interest, taxation,
depreciation and amortisation and is used as the typical measure of
portfolio company performance.
EBITDA multiple Calculated as the enterprise value over EBITDA,
it is used to determine the value of a company.
Executive Committee The Executive Committee is responsible for
the day-to-day running of the Group and comprises: the Chief
Executive, Group Finance Director, the Managing Partners of the
Private Equity and Infrastructure businesses and the Group's
General Counsel.
Fair value movements on investment entity subsidiaries The
movement in the carrying value of Group subsidiaries, classified as
investment entities under IFRS 10, between the start and end of the
accounting period converted into sterling using the exchange rates
at the date of the movement.
Fair value through profit or loss ("FVTPL") is an IFRS
measurement basis permitted for assets and liabilities which meet
certain criteria. Gains and losses on assets and liabilities
measured as FVTPL are recognised directly in the Statement of
comprehensive income.
Fee income 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 and
infrastructure 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.
Gross investment return ("GIR") includes profit and loss on
realisations, increases and decreases in the value of the
investments we hold at the end of a period, any income received
from the investments such as interest, dividends and fee income and
foreign exchange movements. GIR is measured as a percentage of the
opening portfolio value.
Interest income from investment portfolio is recognised as it
accrues. When the fair value of an investment is assessed to be
below the principal value of a loan, the Group recognises a
provision against any interest accrued from the date of the
assessment going forward until the investment is assessed to have
recovered in value.
International Financial Reporting Standards ("IFRS") are
accounting standards issued by the International Accounting
Standards Board ("IASB"). The Group's consolidated financial
statements are required to be prepared in accordance with IFRS, as
endorsed by the EU.
Investment basis Accounts prepared assuming that IFRS 10 had not
been introduced. Under this basis, we fair value portfolio
companies at the level we believe provides the most comprehensive
financial information.
The commentary in the Strategic report refers to this basis as
we believe it provides a more understandable view of our
performance.
Key Performance Indicators ("KPI") is a measure by reference to
which the development, performance or position of the Group can be
measured effectively.
Money multiple is calculated as the cumulative distributions
plus any residual value divided by paid-in capital.
Net asset value ("NAV") is a measure of the fair value of our
proprietary investments and the net costs of operating the
business.
OEM is an original equipment manufacturer.
Operating cash profit is the difference between our cash income
(consisting of portfolio interest received, portfolio dividends
received, portfolio fees received and fees received from external
funds as per the Investment basis Consolidated cash flow statement)
and our operating expenses (as per the Investment basis
Consolidated cash flow statement).
Operating profit Includes gross investment return, management
fee income generated from managing external funds, the costs of
running our business, net interest payable, 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 Shareholders' capital which is available to
invest to generate profits.
Public Private Partnership ("PPP") is a government service or
private business venture which is funded and operated through a
partnership of government and one or more private sector
companies.
Realised profits or losses over value on the disposal of
investments The difference between the fair value of the
consideration received, less any directly attributable costs, on
the sale of equity and the repayment of loans and receivables and
its carrying value at the start of the accounting period, converted
into sterling using the exchange rates at the date of disposal.
Revenue reserve recognises all profits that are revenue in
nature or have been allocated to revenue.
Segmental reporting Operating segments are reported in a manner
consistent with the internal reporting provided to the Chief
Executive who is considered to be the Group's chief operating
decision maker. All transactions between business segments are
conducted on an arm's length basis, with intrasegment revenue and
costs being eliminated on consolidation. Income and expenses
directly associated with each segment are included in determining
business segment performance.
Share-based payment reserve is a reserve to recognise those
amounts in retained earnings in respect of share-based
payments.
SORP means the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital
Trusts.
Total return Comprises operating profit less tax charge less
movement in actuarial valuation of the historic defined benefit
pension scheme.
Total shareholder return ("TSR") is the measure of the overall
return to shareholders and includes the movement in the share price
and any dividends paid, assuming that all dividends are reinvested
on their ex-dividend date.
Translation reserve comprises all exchange differences arising
from the translation of the financial statements of international
operations.
Unrealised profits or losses on the revaluation of investments
The movement in the carrying value of investments between the start
and end of the accounting period converted into sterling using the
exchange rates at the date of the movement.
List of Directors and their functions
The Directors of the Company and their functions are listed
below:
Simon Thompson, Chairman and Chairman of the Nominations
Committee
Simon Borrows, Chief Executive and Executive Director
Julia Wilson, Group Finance Director and Executive Director
Jonathan Asquith, non-executive Director, Deputy Chairman and
Chairman of the Remuneration Committee
Caroline Banszky, non-executive Director and Chairman of the
Audit and Compliance Committee
Stephen Daintith, non-executive Director
Peter Grosch, non-executive Director
David Hutchison, non-executive Director and Chairman of the
Valuations Committee
By order of the Board
K J Dunn
Company Secretary
16 May 2018
Registered Office: 16 Palace Street, London SW1E 5JD
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR KQLFFVEFLBBE
(END) Dow Jones Newswires
May 17, 2018 02:00 ET (06:00 GMT)
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