TIDMIII
RNS Number : 0192Z
3i Group PLC
11 May 2023
11 May 2023
3i Group plc announces results for the year
to 31 March 2023
Very strong FY2023 performance in challenging markets
-- Total return of GBP4,585 million or 36% on opening
shareholders' funds (2022: GBP4,014 million, 44%) and NAV per share
of 1,745 pence (31 March 2022: 1,321 pence). This includes a 65
pence per share gain on foreign exchange translation.
-- Our Private Equity business delivered a gross investment
return of GBP4,966 million or 40% (2022: GBP4,172 million, 47%).
This result was driven primarily by Action's very strong
performance in FY2023, with a good contribution from a number of
our other portfolio companies operating in the value-for-money and
private label, healthcare, industrial technology and business and
technology services. We saw weaker trading in a small proportion of
our portfolio, most notably our discretionary consumer segment.
-- Action delivered annual revenue growth of 30% and EBITDA
growth of 46% in 2022 and has started 2023 well. Action's LTM
run-rate EBITDA to P3 2023, which ended on 2 April 2023, was
EUR1,439 million (3 April 2022: EUR1,012 million), representing a
42% increase over the same period last year. This strong
performance supported value growth of GBP3,708 million for Action
in the year, in addition to cash dividend distributions to 3i of
GBP325 million.
-- The Private Equity team invested GBP381 million in the year,
deploying capital in four new investments and three bolt-on
acquisitions. In addition, our Private Equity portfolio companies
completed a further eight bolt-on acquisitions funded through their
own balance sheets. Realisations from the Private Equity portfolio
totalled GBP857 million in the year and included the sales of Havea
and Christ at uplifts of 50% and 45% respectively to their opening
values, as well as the sales of Q Holding's QSR and Precision
Components businesses, and of its Twinsburg site.
-- Our Infrastructure business generated a gross investment
return of GBP86 million, or 6% (2022: GBP241 million, 21%). This
return was impacted by the decline in the share price of 3i
Infrastructure plc ("3iN"), despite its strong NAV return in the
year, offset in part by good contributions from our US
Infrastructure assets, including notably Smarte Carte.
-- The portfolio continues to trade resiliently in the current
environment, with 83% exposure to the value-for-money and private
label, infrastructure and healthcare sectors.
-- Across the Group, we received over GBP1.3 billion of cash
primarily via portfolio company realisations and income in the
year. After repaying the GBP200 million fixed-rate bond due in
March 2023, we ended the year with liquidity of GBP1.3 billion, net
debt of GBP363 million and gearing of 2%.
-- T otal dividend of 53.0 pence per share for FY2023, with a
second FY2023 dividend of 29.75 pence per share to be paid in July
2023 subject to shareholder approval.
Simon Borrows, 3i's Chief Executive , commented:
"Our portfolio has been carefully assembled and its resilience
and consistent financial performance in recent years reflects the
benefits of thematic investing, disciplined pricing and active
asset management. No portfolio company reflects this approach
better than Action, which continues to be 3i's largest and most
resilient portfolio investment. We are now focused on developing a
select number of other companies to fulfil their potential to also
become long-term compounders for the Group. Whilst we expect
macroeconomic conditions to remain challenging in the near term, we
have started FY2024 with good momentum and are confident that we
have the right people, portfolio and processes to continue to
compound value from our portfolio and deliver consistent returns
through the cycle."
Financial highlights
Year to/as Year to/as
at at
31 March 31 March
2023 2022
------------------------------------------------ ---------- ----------
Group
Total return GBP4,585m GBP4,014m
Operating expenses GBP(138)m GBP(128)m
Operating cash profit GBP364m GBP340m
------------------------------------------------ ---------- ----------
Realised proceeds GBP857m GBP788m
Gross investment return GBP5,104m GBP4,525m
- As a percentage of opening 3i portfolio value 36% 43%
Cash investment GBP397m GBP543m
3i portfolio value GBP18,388m GBP14,305m
Gross debt GBP775m GBP975m
Net debt GBP(363)m GBP(746)m
Gearing(1) 2% 6%
Liquidity GBP1,312m GBP729m
Net asset value GBP16,844m GBP12,754m
Diluted net asset value per ordinary share 1,745p 1,321p
Total dividend per share 53.0p 46.5p
1 Gearing is net debt as a percentage of net assets.
S
For further information, please contact:
Silvia Santoro
Group Investor Relations Director Tel: 020 7975 3258
Kathryn van der Kroft Tel: 020 7975 3021
Communications Director
For further information regarding the announcement of 3i's
annual results to 31 March 2023, including a live webcast of the
results presentation at 10.00am, please visit www.3i.com.
Notes to editors
3i is a leading international investment manager focused on
mid-market Private Equity and Infrastructure. Our core investment
markets are northern Europe and North America. For further
information, please visit: www.3i.com.
Notes to the announcement of the results
Note 1
All of the financial data in this announcement is taken from the
Investment basis financial statements. The statutory accounts are
prepared under IFRS for the year to 31 March 2023 and have not yet
been delivered to the Registrar of Companies. The statutory
accounts for the year to 31 March 2022 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 2023 will be posted to
shareholders on or soon after Wednesday 24 May 2023
Note 3
This announcement may contain statements about the future
including certain statements about the future outlook for 3i Group
plc and its subsidiaries ("3i"). These are not guarantees of future
performance and will not be updated. Although we believe our
expectations are based on reasonable assumptions, any statements
about the future outlook may be influenced by factors that could
cause actual outcomes and results to be materially different.
Note 4
Subject to shareholder approval, the proposed second dividend is
expected to be paid on Friday 28 July 2023 to holders of ordinary
shares on the register on Friday 23 June 2023. The ex-dividend date
will be Thursday 22 June 2023.
Chairman's statement
"We delivered a very strong return in FY2023, as we continue to
benefit from our clear strategy, consistent execution and
investment discipline.
While we are not immune from the impacts of the current
macroeconomic uncertainty, the Group's financial strength and
quality portfolio put us in a good position to continue to deliver
attractive returns through the economic cycle."
3i delivered a very strong result in FY2023, despite significant
macroeconomic headwinds, as we continue to benefit from our clear
strategy, consistent execution and investment discipline.
Performance
I am pleased to report that 3i delivered a very strong set of
results in the financial year to 31 March 2023 ("FY2023"), with a
total return of GBP4,585 million (2022: GBP4,014 million). Net
asset value ("NAV") increased to 1,745 pence per share (31 March
2022: 1,321 pence) and our total return on opening shareholders'
funds was 36% (2022: 44%). This result was driven predominantly by
the strong performance of Action, our largest investment, as well
as by good contributions from the majority of our remaining
portfolio.
Market environment
FY2023 was dominated by the geopolitical and macroeconomic
consequences of Russia's invasion of Ukraine and the gradual global
recovery from the pandemic. Governments and central banks have had
to deal with the consequences of high inflation and increasing
energy prices, which resulted in significant increases in interest
rates globally. The defensive characteristics of many of our
portfolio companies have enabled them to continue to mitigate many
of these macroeconomic headwinds, and in some cases make value
accretive acquisitions. A small pocket of our portfolio exposed to
discretionary consumer spending did, however, see significant
underperformance in the year.
Investment activity across the buyout market slowed in 2022 and
we continued to deploy capital selectively in businesses that
operate in sectors that we know well and are supported by long-term
growth trends. The Group invested GBP397 million in the year in new
acquisitions and further investments in our existing
businesses.
Dividend
Our dividend policy is to maintain or grow the dividend
year-on-year, subject to the strength of our balance sheet and the
outlook for investment and realisations. In FY2023, we generated
significant cash inflow of over GBP1.3 billion from our portfolio
companies, whilst remaining cautious and disciplined in our
investment activity and supporting portfolio companies, where
necessary. Following the repayment of the GBP200 million fixed-rate
2023 bond in March 2023, we reduced our fixed debt to GBP775
million, which contributed to a reduction in gearing to 2% at 31
March 2023 (31 March 2022: 6%). In line with the Group's policy and
in recognition of the Group's financial performance, the Board
recommends a second FY2023 dividend of 29.75 pence (2022: 27.25
pence), subject to shareholder approval, which will take the total
dividend to 53.0 pence (2022: 46.5 pence).
Board and people
As announced in November 2021, Julia Wilson, formerly Group
Finance Director, retired from the Board on 30 June 2022 after the
2022 AGM. James Hatchley joined the Board as Group Finance Director
Designate on 12 May 2022 and became Group Finance Director upon
Julia's retirement. Jasi Halai joined the Board as Chief Operating
Officer on 12 May 2022. Both James and Jasi have settled very well
into their respective roles.
After nine years' service as a non-executive Director, Caroline
Banszky will not be standing for re-election at the 2023 AGM and
accordingly will retire from the Board at the end of that Meeting.
I would like to thank her for her outstanding contribution to the
Board's deliberations.
Environmental, Social, and Governance ("ESG")
I am pleased with the progress we have made across all areas of
our ESG agenda and I am encouraged by the level of engagement
across our portfolio of investments. Led by the Chief Executive's
ESG Committee, the focus has been principally on improving our
ability to identify and manage climate risk across the portfolio
and take advantage of any transition opportunities that may arise.
We have embedded dedicated resource in our investment teams, to
engage with the portfolio and explore opportunities to improve the
sustainability of our investments. We also continue to prepare the
Group to comply with ESG regulatory reporting requirements.
Outlook
We start FY2024 with a portfolio of assets that we have
carefully constructed around sectors and themes supported by
long-term growth trends, with a clear strategy of delivering
sustainable returns through underlying organic growth and effective
implementation of value accretive buy-and-build acquisitions.
Whilst the Group and portfolio are not immune to a further
sustained period of macroeconomic and geopolitical uncertainty, we
are confident that our financial strength and quality portfolio
will provide the Group with the flexibility to navigate these and
continue to deliver attractive returns through all stages of the
economic cycle.
David Hutchison
Chairman
10 May 2023
Chief Executive's statement
"Our portfolio has been carefully assembled and its resilience
and consistent financial performance in recent years reflect the
benefits of thematic investing, disciplined pricing and active
asset management. We have started FY2024 with good momentum and are
confident that we have the right people, portfolio and processes to
continue to compound value from our portfolio and deliver
consistent returns through the cycle."
Despite adverse global economic conditions, 3i delivered a very
strong result in FY2023, underpinned by another year of excellent
growth from Action and resilient performance across the majority of
the rest of our portfolio. In challenging markets, we maintained
our investment and pricing discipline, deploying capital across new
investments and value accretive bolt-on acquisitions. We also
continued to generate significant cash proceeds via realisations at
healthy premiums to opening value and strong portfolio income.
In FY2023, we continued to execute our well-established
strategy, making good progress against our key performance
indicators ("KPIs"), and generated a total return on shareholders'
funds of GBP4,585 million, or 36% (2022: GBP4,014 million, or 44%),
ending the year with a NAV per share of 1,745 pence (31 March 2022:
1,321 pence). The majority of our portfolio companies have been
navigating effectively through the high inflation, elevated
interest rates, supply chain disruption, rising commodity prices
and overall weaker consumer sentiment that have characterised
FY2023. Whilst Action's performance was the most significant
contribution to the Group's FY2023 return, we also saw particularly
good or resilient trading from other portfolio companies operating
in the value-for-money and private label, healthcare, industrial
technology, business technology and services and infrastructure
sectors. We are not, however, immune to the prevailing
macroeconomic headwinds, and we saw softer trading in a small
number of our portfolio companies. We therefore recognised a
meaningful unrealised value loss in two of our companies with
discretionary consumer end-markets, to reflect weaker trading and
the derating of valuation peers.
Private Equity transaction activity across the market slowed
considerably in 2022 compared to 2021, as debt markets became less
supportive and pricing expectations remained difficult to align. We
were nevertheless able to complete four new investments in Private
Equity and two in Infrastructure, in sectors and markets supported
by long-term growth trends.
Bolt-on acquisitions across both of our portfolios remain an
integral part of our long-term value creation strategy, enabling
growth in the portfolio without taking on costly leverage.
Accordingly, in FY2023, we completed a total of 11 bolt-on
acquisitions for our Private Equity portfolio companies and three
for our North American Infrastructure portfolio.
We also generated significant realised proceeds in FY2023,
capitalising on demand for assets with a proven track record of
through-the-cycle growth and the ability to execute and integrate
bolt-on acquisitions. In total, across the Group, we generated over
GBP1.3 billion of cash in the year from realisations and portfolio
income.
Including the impact from foreign exchange hedging, 71% of the
Group's net assets are denominated in euros or US dollars and we
generated a GBP623 million gain (2022: GBP9 million gain) on
foreign exchange translation as a result of sterling weakness. This
includes a GBP122 million gain from our new medium-term foreign
exchange hedging programme that we implemented for the Group in
October and November 2022, and the existing hedging programme for
Scandlines. For further details on the Group's foreign exchange
hedging programme see the Financial review later in this
document.
Private Equity performance
In the year to 31 March 2023 , our Private Equity portfolio,
including Action, generated a Gross Investment Return ("GIR") of
GBP 4,966 million or 40% on opening value (2022: GBP4,172 million,
or 47%). Action generated a GIR of GBP 4,344 million, or 61% , on
its opening value. The softer performance across some of our
discretionary consumer portfolio companies detracted from the
resilient performance of the remainder of the ex-Action portfolio,
with 90% of our portfolio companies by value growing earnings in
the last 12 months ("LTM") to the end of 31 December 2022 . In
addition, our Private Equity portfolio is prudently funded, with a
long-dated maturity profile and the interest rate risk
substantially hedged.
Action
Action, the fastest growing non-food discounter in Europe and
our largest portfolio company, delivered another year of very
impressive performance. For its financial year ending 1 January
2023, Action generated net sales of EUR8,859 million, 30% ahead of
2021 and like- for-like ("LFL") sales growth of 18.1% driven by
higher footfall and a higher number of transactions. The removal of
the remaining limited Covid-19 restrictions in the first quarter of
2022 also contributed to this performance. Sales grew across all of
Action's 14 product categories, with particularly good sales of
daily essential products.
In the 12 months to 1 January 2023, Action delivered operating
EBITDA of EUR1,205 million, 46% ahead of 2021 and an all-time high
EBITDA margin of 13.6%. Action's buying power, flexibility in its
category assortment and ability to absorb some of the inflationary
pressure enabled it to manage both cost and pricing effectively,
whilst maintaining and, in many instances, increasing its pricing
advantage compared to its competitors.
Action's simple, efficient and scalable operating model allows
the business to expand seamlessly across existing and new
geographies. The business added 280 new stores in 2022, setting
another store opening record. Stores across all countries are
performing well with some of the more recent markets, such as
Poland and the Czech Republic, showing particularly strong growth.
Action has also moved out of the pilot phase in Italy and Spain
given these markets exceeded initial expectations and Action is now
fully committed to a full scale expansion in these two sizable new
countries. On 2 March 2023, Action opened its first store in
Slovakia, its 11th country. At the end of Action's P3 2023 (which
ended on 2 April 2023), Action had 2,297 stores across 11
countries, with considerable white space to roll out in both
existing and new geographies.
Action largely mitigated external supply chain challenges in
2022 . It did so by leveraging its heavy investment in network
capacity and through improved planning capabilities and
collaboration with logistics partners. This resulted in increased
product availability in stores to meet high customer demand. In
addition, Action continues to develop its mix of suppliers, with an
increasing share of directly sourced products and further
geographical diversification. In 2022, the business also continued
to enhance its supply chain infrastructure, opening a new hub in Le
Havre and ramped up capacity in the distribution centres ("DCs") in
Verrières, Bieruń and Bratislava. Action plans to open two new DCs
in 2023, which will increase its existing DC network capacity of
c.2,700 stores by another c.400 stores.
Action's Sustainability Programme is a fundamental pillar of its
strategy and growth trajectory, and the business has made
significant progress in its delivery. In 2022, Action completed a
circularity assessment of all 14 product categories looking at
design and use, which has enabled the business to define circular
improvements in the buying process going forward. The business also
increased its use of sustainably sourced cotton to 90% and
sustainably sourced timber to 92% and reduced its Scope 1 and 2
CO(2) emissions by 40% from a 2021 baseline, which is an important
step towards achieving its pledge to reduce the emissions from its
own operations by 60% by 2030, from a baseline year of 2021.
Action continues to generate very strong cash flow, with cash
conversion of 78% in 2022, as a result of its one-year cash payback
for new stores and low capital intensity. The business paid an
interim dividend to shareholders in December 2022, of which 3i
received GBP159 million, and a second dividend in March 2023 of
which 3i received GBP166 million. After paying the dividends,
Action had a cash balance of EUR365 million as at 2 April 2023 and
a net debt to run-rate earnings ratio of 1.8x.
In March 2023, we completed a transaction to provide liquidity
for existing external investors in Action, who are invested via our
3i 2020 Co-investment Programme ("Programme"). As part of this
transaction, we purchased a small additional stake in Action,
investing GBP30 million through the Programme based on the December
2022 net asset value, increasing our equity stake from 52.7% to
52.9%. At the same time, we crystallised a portion of the carried
interest liability relating to Action, which is expected to result
in a payment by 3i of c.GBP200 million in carried interest to the
participants in the relevant carry plans in May 2023.
The valuation of our 52.9% stake in Action at 31 March 2023 of
GBP11,188 million (2022: GBP7,165 million) reflects the robust
growth in Action's LTM run-rate EBITDA to EUR1,439 million (P3
2023), its low leverage and its current LTM run-rate EBITDA
valuation multiple of 18.5x net of the liquidity discount. We take
a long-term, through-the-cycle view on the multiple we use to value
Action and take comfort from the fact that its continued excellent
growth meant that its valuation at 31 March 2022 translated to only
13.0x the run-rate EBITDA achieved one year later. In addition, its
most important operating KPIs compare very favourably with those of
its peer group, which consists of North American and European
value-for-money retailers.
In the first three periods to 2 April 2023, Action performed
strongly, with LFL sales growth of 24.3% and 34 new stores added.
Since 31 March 2023, we successfully allocated and signed an
amendment and extension of Action's senior debt facilities on
attractive terms. This included upsizing and extending the final
maturities of a substantial portion of Action's senior term debt
and revolving credit facility ("RCF"). Action's total senior debt
facilities after the closing of the transaction will be EUR3,625
million including a EUR500m undrawn multi-currency RCF.
Healthcare portfolio companies
Our healthcare portfolio continues to demonstrate its resilient
and secular growth characteristics, driving good performance in
FY2023. SaniSure followed up a very strong 2021 with further
outperformance in 2022, as a result of operational efficiencies and
elevated demand for its products. Whilst industry demand has
moderated since the start 2023, we remain very confident of
SaniSure's fundamental growth prospects. The business and its
growth potential will continue to be enhanced by its active
buy-and-build strategy, including the recent acquisition of Q
Holding's Twinsburg site, which has added to its capability and
diversified its client portfolio.
Cirtec Medical delivered another year of top-line growth,
offsetting short-term supply chain headwinds which have now largely
been resolved. The business continued to add high value,
differentiated capabilities and end-market diversification, with
its strategic acquisition of Precision Components from Q
Holding.
We continued to support the development of ten23 Health, our
pharmaceutical products contract development and manufacturing
organisation ("CDMO"), with a further investment of GBP36 million
in the year.
Consumer portfolio companies (excluding Action)
Our value-for-money and private label businesses continued to
perform well in FY2023, but a number of our discretionary consumer
businesses have been disproportionately impacted by weaker consumer
sentiment.
Despite significant raw material and energy price inflation in
2022, Royal Sanders sustained its strong growth through increased
volumes with key customers and outperformance of the four bolt-on
acquisitions completed since our initial investment in 2018. In
April 2023, Royal Sanders completed the acquisition of Lenhart, its
fifth since we first invested, further strengthening its position
in the DACH region, and reinforcing its role as a key consolidator
in a highly fragmented market. A combination of effective
operational performance and positive contributions from recent
bolt-on acquisitions has supported Dutch Bakery's good result in
2022.
nexeye delivered good top-line growth and margin performance in
its financial year ending January 2023, driven by a comparatively
attractive price point for its customers. It added 23 stores in the
year and accelerated online appointments across its German
business. Trading at the start of 2023 has recovered, following
softer trading in Q3 2022 as consumer uncertainty impacted overall
market demand.
Over the last 12 months, we have seen a significant recovery in
bookings for Audley Travel and arrivia, two of our travel assets.
Audley Travel's key destinations gradually reopened in 2022,
leading to a strong recovery in bookings, driven by pent-up demand
and supported by Audley's differentiated brand proposition. arrivia
has seen good performance in its membership business, as well as a
strong pick up in cruise and travel bookings.
Following a solid first quarter of 2022, both Luqom and YDEON
experienced a significant drop in order intake across their online
platforms for the remainder of the calendar year, as a result of
weaker consumer confidence and inflationary concerns. Across this
same period, e-commerce peers of both portfolio companies de-rated
materially, reflecting the challenging external trading conditions.
These were key considerations in support of the combined GBP357
million unrealised value decrease we recognised across these two
portfolio companies in FY2023. We believe the longer-term growth
fundamentals of each business remain and, through initiatives such
as Luqom's further international expansion and YDEON's addition of
lower cost products to its range, both businesses are positioning
themselves for recovery.
BoConcept has to an extent mitigated lower footfall and order
intake through its international diversification, franchise model
and effective margin management.
Business and Technology Services portfolio companies
WilsonHCG delivered strong organic growth in 2022, and in
January 2023 it completed the bolt-on acquisition of Personify,
enabling it to accelerate its growth in the life sciences and
healthcare end markets. The business is well positioned to navigate
any prolonged slowdown in the North American hiring market, whilst
new customer wins continue to diversify its customer base. MAIT
traded resiliently in the year, as the IT services market continues
to demonstrate a strong growth outlook. Following the bolt-on
acquisition in June 2022 of Nittmann & Pekoll, an Austrian ERP
specialist, the business has now completed five bolt-on
acquisitions since we first invested in 2021, all of which are
integrating well.
Evernex continued its buy-and-build activity, with the strategic
acquisitions of XS International and Integra, enabling the business
to expand its footprint in the US, Nordic, and Benelux markets.
Short-term trading has been impacted by a post-pandemic increase in
new IT equipment investment, affecting the renewal of maintenance
contracts, although this was largely offset by a number of new
contract wins in the year.
Industrial Technology portfolio companies
AES performed very well financially, strategically and
operationally throughout 2022 and into the first quarter of 2023,
driven by strong demand in its global pump and rotating equipment
end market. The business has continued to invest and scale up,
driving further reliability in its offering and helping to generate
new customer wins.
Having traded strongly in the first half of 2022, Tato saw
trading soften through the second half of 2022 with weaker end
market demand and supply challenges for key input chemicals
resulting in price inflation and margin pressure. Tato successfully
leveraged its scale and global footprint to maintain good customer
supply, and margin performance has improved since the turn of the
year.
Following three years of significant operational and market
disruption, Formel D has made encouraging steps in its earnings
recovery. Whilst trading was soft through the first half of 2022
driven by prolonged Covid-19 shutdowns in China and intermittent
supply chain issues as a result of Russia's invasion of Ukraine,
the second half of 2022 and start of 2023 have been more
encouraging with an easing of supply chain issues and margin
improvement from contract renegotiations.
Private Equity investment
Unfavourable debt markets and economic uncertainty suppressed
buyout market activity in 2022 compared to a more buoyant market in
2021. Our approach to new investment has remained consistent and we
maintain our selective and disciplined approach, leveraging our
offices and international network to identify attractive and
sensibly priced new investments and value accretive bolt-on
acquisitions for our portfolio companies.
In FY2023 we completed four new Private Equity investments
totalling GBP221 million. Our digitalisation, automation and big
data investment theme underpins three of these new investments: the
GBP94 million investment in xSuite, an accounts payable invoice
automation software provider; the GBP37 million investment in dé
VakantieDiscounter ("VakantieDiscounter"), a technology-enabled
online travel agency in the Benelux focused on affordable holidays;
and the GBP30 million investment in Digital Barriers, a provider of
unique video compression technology.
Our extensive consumer sector expertise will enable us to
support the global expansion thesis for our GBP60 million
investment in Konges Sløjd, which offers apparel and other products
for babies and children.
Across the Private Equity portfolio, we completed 11 bolt-on
acquisitions in the year. We supported Luqom's acquisition of
Brumberg, a B2B lighting brand, arrivia's acquisition of RedWeek,
an online timeshare rental marketplace, and WilsonHCG's acquisition
of Personify, a provider of RPO to specialised end markets, with
total further investment of GBP63 million. Our portfolio companies
also completed eight self-funded bolt-on investments in the year,
including the acquisitions by SaniSure and Cirtec Medical of two
components of Q Holding's medical business, as well as bolt-on
acquisitions by Dutch Bakery, MAIT, Evernex and AES.
Further details on our Private Equity investment activity can be
found in the Private Equity section.
Private Equity realisations
Despite challenging market conditions, we generated total
capital realisation proceeds of GBP857 million in the year,
demonstrating the appeal of our portfolio companies, many of which
have shown resilience at all stages of the economic cycle.
Our sale of Havea in October 2022 endorsed our long-standing
buy-and-build approach. During our five-year holding period, the
business delivered double-digit organic growth and completed and
integrated five acquisitions which, combined with a significant
strategic transformation, transitioned Havea from a family-owned
business to a European leader in consumer healthcare and wellbeing.
This disposal generated proceeds for 3i of GBP471 million,
representing a 50% uplift on the value of the investment at 31
March 2022, a sterling money multiple of 3.1x and an IRR of
24%.
During the year, we received total proceeds of GBP332 million
from three partial disposals by Q Holding. In Q1 FY2023 we
completed the disposal of Q Holding's QSR division receiving total
proceeds of GBP199 million and in Q4 FY2023 we received GBP133
million relating primarily to the disposal of Q Holding's Twinsburg
site and Precision Components business. The valuation of Q Holding
at 31 March 2023 of GBP117 million (31 March 2022: GBP398 million)
includes our remaining value of Q Holding's device assembly
business Catheter Technologies. This means that over the last two
years, through a combination of realised proceeds and residual
value, we have recognised an uplift for Q Holding of over 100% on
the opening value at 31 March 2021, which takes our money multiple,
including proceeds received to date and remaining residual value,
to 2.8x.
In January 2023 we completed the sale of Christ, our last
investment in Eurofund V ("EFV"), for gross proceeds to 3i of GBP47
million, representing a 45% uplift on the 31 March 2022 opening
value. When added to the proceeds generated by the sale of Amor
(another German player in the jewellery space which we considered
as part of the same investment thesis and sold in 2016
crystallising a money multiple of 2.3x), the multiple generated by
this sale is 1.0x. Following the disposal of Christ, EFV reached a
final gross money multiple of 3.0x, a top quartile performance.
Further details on our Private Equity realisation activity can
be found in the Private Equity section.
Infrastructure performance
In the year to 31 March 2023, our Infrastructure portfolio
generated a GIR of GBP86 million or 6% on opening value (2022:
GBP241 million, or 21%).
3i Infrastructure plc's ("3iN") carefully selected portfolio
continues to benefit from its exposure to identified long-term
growth trends. As a result, 3iN generated a total return on opening
NAV of 14.7%, which was materially ahead of its 8-10% return
objective, and delivered its dividend target of 11.15 pence, a 6.7%
increase on last year. In February 2023, 3iN completed a GBP100
million placing of new shares at a price of 330 pence per share.
The funds were used to part pay drawings on 3iN's RCF and partly
used to fund its acquisition of Future Biogas. 3i did not
participate in this placing and its holding in 3iN was therefore
diluted from 30% to 29%. At 31 March 2023, our 29% stake (31 March
2022: 30%) in 3iN was valued at GBP841 million (31 March 2022:
GBP934 million), as a result of a 10% year-on-year decline in its
share price to 313 pence. However, this was partially offset by
dividend income from 3iN of GBP29 million in the year. We see
considerable unrealised value in 3iN's existing portfolio, with the
platform investments generating substantial bolt-on investment
opportunities, which can be funded from cash generated by those
companies, together with portfolio company debt facilities. The
additional equity raised by 3iN during the year gives further
headroom to take advantage of this growth potential.
Demand for Infrastructure assets is strong and the team has
continued to deploy capital while retaining its pricing discipline.
As 3iN's investment manager, we oversaw 3iN's completion of its new
investments in Global Cloud Xchange ("GCX") and Future Biogas in
the year, as well as the purchase of an additional stake in TCR, a
portion of which was subsequently syndicated to external investors.
The team also completed the sale by 3iN of its European projects
portfolio to the 3i European Operational Projects Fund ("3i EOPF")
for GBP106 million.
Following robust US domestic travel demand and continued volume
recovery from international travellers, our proprietary capital
investment in Smarte Carte delivered strong performance across all
lines of its business. Over the last 12 months, the business has
continued to differentiate its offering with further ancillary
services and also completed a refinancing at attractive terms.
Our North American Infrastructure platform delivered solid
performance in FY2023. Regional Rail closed two bolt-on
acquisitions, including three short-line railroads in the Midwest
region of the US and several short-line railroads in Canada, whilst
the existing freight rail platform delivered good volumes. EC Waste
continued to benefit from strong landfill revenues.
As a result of our fund management activities and dividends from
the portfolio we generated strong cash income of GBP107 million
(2022: GBP91 million) from our Infrastructure business in the
year.
Scandlines performance
Scandlines performed well in the year, generating a GIR of 10%
(2022: 26%). The business delivered a second consecutive year of
record growth in freight volumes in 2022, whilst leisure volumes
saw good recovery driven by a strong summer peak season, offsetting
the impact of Covid-19 at the start of 2022. Following continued
good cash generation, we received total dividends of GBP38 million
from Scandlines in FY2023.
Progress on our sustainability agenda
We made significant progress on our sustainability agenda in
FY2023. We embedded dedicated ESG resource in our Private Equity
and Infrastructure investment teams, as well as in our central
Group function. This has accelerated the implementation of a range
of sustainability initiatives at the Group level and across the
portfolio, enhanced the quality of our engagement with portfolio
companies on ESG themes, and improved our assessment of
sustainability factors in our investment and value creation
processes.
Our work on sustainability is driven by our ESG Committee, whose
principal activities in FY2023 focused on portfolio data collection
and management, climate training, and climate scenario analysis.
Importantly, on 5 April 2023 we wrote to the Science Based Targets
initiative ("SBTi") to indicate our commitment to set near-term
science-based targets for 3i. We are now working to formulate our
targets, with the intention to submit them to SBTi for validation
in FY2024. Our science-based targets will cover our direct Scope 1
and 2 emissions, as well as our Scope 3 emissions associated with
our portfolio and will be formulated in line with the guidance
published by SBTi for the private equity sector.
Further details on our Task Force on Climate-related Financial
Disclosures ("TCFD") and more information on how we assess and
manage climate-related risks and opportunities can be found in the
Sustainability section in our Annual report and accounts 2023.
During the year, we continued to support our nine charity
partners which work across a variety of areas, including helping
homeless people, enabling disabled students to go to university,
helping elderly people regain some independence and battle
loneliness, and providing veterans with mental health support and
helping them back into work. We donated GBP1 million across these
initiatives. In addition, we donated GBP500,000 to the Turkey
Mozaik Foundation in support of victims of the earthquake in Turkey
and Syria.
Conservative balance sheet and management of foreign exchange
movements
Our conservative balance sheet strategy is fundamental to our
proprietary capital model enabling us to invest with speed and
flexibility without the need to accelerate any realisations. We
also continue to place great weight on cost discipline and once
again covered our cash operating costs with cash income. Our
activity during the year is set out in the financial review
including the details of the medium-term partial foreign exchange
hedging programme we put in place at a time when we had the
advantage of sterling weakness in October and November of 2022.
Active asset management
As investors in private equity and infrastructure companies, we
pursue a highly involved form of asset management. This approach is
only practical given the concentrated nature of the 3i portfolio.
We start at the outset of our purchase with an investment case
which we author in conjunction with company management with the
simple goal of growing the business to at least double its profits
over a five to six-year time-scale. As part of this plan, we define
key milestones and KPIs which we track on a monthly basis in order
to ensure the execution of the plan remains on track.
Management are closely aligned to the plan outcome and to 3i
through their participation in equity and equity-linked plans as
co-owners of the business. These long-term equity plans (five years
or more) are much more meaningful than shorter-term annual variable
pay, and in successful investments will deliver significant capital
sums to the management teams. The nature of this incentive ensures
real alignment with 3i's long-term approach to compounding
capital.
The management team is supported in the execution of the
investment case by a board primarily made up of experienced 3i
executives or others hired by 3i who bring particular sector or
specialist skills to the situation. The board and 3i investment
team have regular monthly involvement with the company and are
assisted by other members of the local investment team, being
regularly involved at different levels throughout the organisation
of the investee company. Active and involved governance is one of
the key ingredients of our success.
3i also provides specialist legal, corporate finance, banking,
ESG and digital resource to assist investee management teams in
sharing best practice, particularly in relation to specific
projects in funding and M&A as well as their overall ESG and
digital agendas.
We believe this form of active management is key to the high
returns we have achieved across both Private Equity and
Infrastructure over the last 10 years. Management are allowed to
drive a long-term rather than annual or quarterly agenda, and are
encouraged to make the necessary investments to meet or exceed
ambitious long-term growth plans. Action is a very good example of
this approach.
The 3i Investment Committee and the senior partners in the
Private Equity team review in detail progress against the
investment case every March and September. It is in these reviews
that the Investment Committee challenges the investment teams on
the progress against the investment case and may agree to changes
which could either prolong 3i's ownership by marking the asset as
having potential for our "long-term portfolio" or even shorten the
life of the plan to capitalise on current opportunities in the
M&A market.
This highly-intensive approach to asset management was adopted
at 3i in 2012, and has been refined over the last decade. It has
been key to our strong investment performance since that time and
together with our long-term, permanent capital approach gives us
real competitive advantage against other forms of stewardship, be
they more hands off-private or shorter-term focused public
ownership models.
The benefits of compounding
3i's portfolio has been carefully assembled and its resilience
over recent years is a reflection of the benefits of thematic
investing, disciplined pricing and active asset management.
Sustained returns over a number of years demonstrate the value of
compounding, and no portfolio company better illustrates this than
Action, which has become one of the fastest-growing retailers in
the world, and 3i's largest and most resilient portfolio
investment. Action has achieved 12 years of consistent, significant
growth under 3i's ownership. The bedrock of this performance has
been Action's very low prices and customer- centric approach. The
company has performed well through all phases of the economic cycle
and its low price leadership through this current period of very
high shop price inflation has been particularly strong with high
LFL sales across all 14 product categories and all countries.
Action has been welcomed in all 11 countries it now operates in
and the company has recently been voted "favourite retail brand" in
France by a large panel of consumers. France is now Action's
largest market with some 730 stores, having opened its first store
in that market in 2012. There are very few retailers that are close
comparators to Action and very few of them can move seamlessly into
new geographic markets as Action does.
Action has considerable growth potential across mainland Europe
and elsewhere. It has opened over 2,000 stores across Europe under
3i's ownership and has the potential to open multiples of this
number in the future. This organic expansion puts Action on track
to join a very rare group of retailers where growth extends over
decades, rather than years. Action is already a very large,
well-spread and resilient business and will become even broader and
larger as it grows its presence in new geographic markets. Action's
business model produces high returns on equity and significant cash
flows based on high store sales densities and one-year average
historical paybacks on new store capital expenditure. So Action's
store expansion is self-funding, allowing the group to increase its
operating leverage through size and scale and deliver significant
dividends to 3i and other shareholders as it grows.
3i invests permanent rather than time-limited fund capital. This
allows us to capture the significant compounding benefits from
Action's growth and consistent financial performance. We are now
focused on developing a select number of other portfolio companies
to fulfil their potential to also become long-term compounders for
the Group. These other portfolio companies are likely to grow in
prominence in our results over the coming years.
Outlook
Whilst we expect macroeconomic conditions to remain challenging
in the near term, we have started FY2024 with good momentum and are
confident that we have the right people, portfolio and processes to
continue to deliver consistent returns for our shareholders through
the cycle.
I would like to close by thanking the team at 3i and the teams
in our portfolio companies for another very good performance in far
from straightforward circumstances.
Simon Borrows
Chief Executive
10 May 2023
Private Equity
At a glance
Gross investment return
GBP4,966m
or 40%
(2022: GBP4,172m or
47%)
Cash investment
GBP381m
(2022: GBP457m)
Realised proceeds
GBP857m
(2022: GBP684m)
Portfolio dividend
income
GBP345m
(2022: GBP331m)
Portfolio growing earnings
90%(1)
(2022: 93%)
Portfolio value
GBP16,425m
(2022: GBP12,420m)
1 LTM adjusted earnings to 31 December 2022. Includes 31
portfolio companies.
We invest in mid-market businesses headquartered in northern
Europe and North America with potential for international growth.
Once invested, we work closely with our portfolio companies to
deliver ambitious growth plans, realising our investments to
generate strong cash-to-cash returns for 3i shareholders and other
investors.
In the year to 31 March 2023, our Private Equity portfolio
delivered a GIR of GBP4,966 million, or 40%, on the opening
portfolio value (2022: GBP4,172 million or 47%) and the portfolio
value increased to GBP16,425 million (31 March 2022: GBP12,420
million). This result was driven predominantly by Action's very
strong performance in FY2023, as well as by a good contribution
from a number of our other assets operating in the value-for-money
and private label, healthcare, industrial technology, and business
and technology services sectors that have responded well to, and so
far largely mitigated, high inflation, increased energy prices and
interest rates and weaker consumer sentiment. We recognised a
material unrealised value decline in two of our discretionary
consumer portfolio companies, as a result of weaker trading and of
the derating of external peers.
In FY2023, we made four new investments and continued to
implement our buy-and-build strategy, completing 11 bolt-on
acquisitions, three of which required additional funding from 3i.
We ended the year as net divestors, with significant proceeds
achieved from realisations and portfolio income. Average leverage
across the portfolio remains low at 2.5x, or 4.0x excluding Action
and our Private Equity portfolio is funded with all senior debt
structures, with long-dated maturity profiles. The recent banking
disruption has had no impact on our portfolio to date.
The contribution of Action to the Private Equity performance is
detailed in Note 1 of the financial statements.
Table 1: Gross investment return for the year to 31 March
2023 2022
Investment basis GBPm GBPm
----------------------------------------------------------- ----------- -----------
Realised profits over value on the disposal of investments 169 228
Unrealised profits on the revaluation of investments 3,746 3,545
Dividends 345 331
Interest income from investment portfolio 77 73
Fees receivable 7 6
Foreign exchange on investments 493 (11)
Movement in fair value of derivatives 129 -
----------------------------------------------------------- ----------- -----------
Gross investment return 4,966 4,172
----------------------------------------------------------- ----------- -----------
Gross investment return as a % of opening portfolio
value 40% 47%
----------------------------------------------------------- ----------- -----------
Investment activity
Across the US and European markets, private equity investment
activity trended downwards in 2022, having reached near record
levels in 2021. The significant deceleration from the second half
of the year was driven by persistent macroeconomic headwinds and
less supportive debt markets with pricing expectations that were
difficult to align. Against this backdrop, we remained selective
and disciplined in deploying our capital, investing GBP221 million
in four new portfolio companies. All four of these investments were
completed in the first half of FY2023.
We invested GBP94 million in xSuite , an accounts payable
invoice automation software provider, and GBP30 million in Digital
Barriers , a provider of unique video compression technology. These
investments offer 3i exposure to their unique technology and
high-growth end markets and both are transitioning to a
subscription-based model. We also completed the GBP37 million
investment in VakantieDiscounter , a highly scalable,
technology-driven travel business with a value-for-money offering
that is benefiting from the recovery of the travel market, as well
as the GBP60 million investment in Konges Sløjd , a premium baby
and child apparel and accessories business with an established
international footprint that has significant scalability potential
in a highly fragmented market.
Our buy-and-build strategy remains an integral part of our
approach to value creation and, in FY2023, our portfolio companies
completed 11 bolt-on acquisitions. We invested GBP63 million to
support three bolt-on acquisitions for Luqom , arrivia and
WilsonHCG , whilst the remaining eight bolt-on acquisitions
completed in the year were funded by the portfolio companies' own
balance sheets. Two of the bolt-on acquisitions involved carving
out elements of Q Holding , an existing portfolio company, with
SaniSure acquiring Q Holding's Twinsburg site and Cirtec Medical
acquiring Q Holding's Precision Components. Further details of
selected portfolio bolt-on acquisitions are in the Private Equity
business review of our Annual report and accounts 2023.
In addition, we continued to develop ten23 health with a further
investment of GBP36 million and used our capital to support two
portfolio companies through challenging trading conditions, with a
further investment of GBP14 million in YDEON and of GBP11 million
in Formel D.
In March 2023, we completed a transaction to provide liquidity
for existing external investors in Action who are invested via our
3i 2020 Co-investment Programme. As part of this transaction, we
invested GBP30 million to purchase an additional small stake in
Action from this Programme at the December 2022 net asset value,
increasing our equity stake from 52.7% to 52.9%. At the same time,
we crystallised a portion of the outstanding carried interest
liability in relation to Action. For further details on carried
interest see the Financial review later in this document.
In total, in the year to 31 March 2023, our Private Equity team
invested GBP381 million across new, bolt-on and further
investments.
Proprietary
capital
investment
Portfolio company Business description Date GBPm
--------------- --------------------- ------------------------------ ------------ -----------
August and
Provider of unique video December
New investment Digital Barriers compression technology 2022 30
--------------------- ------------------------------ ------------ -----------
Premium brand offering
apparel and accessories
Konges Sløjd for babies and children August 2022 60
--------------------- ------------------------------ ---------------------------- -----------
Online travel agency
in the Benelux focused
VakantieDiscounter on affordable holidays August 2022 37
--------------------- ------------------------------ ---------------------------- -----------
Accounts payable process
automation specialist
xSuite focused on the SAP ecosystem August 2022 94
--------------------- ------------------------------ ---------------------------- -----------
Total new investment 221
------------------------------------------------------------------- ------------- -----------
Proprietary
capital
Portfolio Name of Business description investment
company acquisition of bolt-on investment Date GBPm
------------------- ---------- ------------- ----------------------------- ---------- -----------
Further investment B2B manufacturer and
to finance distributor
portfolio bolt-on of luminaries and lighting
acquisitions Luqom Brumberg products June 2022 34
---------- ------------- ----------------------------- ---------- -----------
September
arrivia RedWeek Online timeshare marketplace 2022 23
---------- ------------- ----------------------------- ------------------------------ -----------
Provider of recruitment
processing outsourcing January
WilsonHCG Personify services 2023 6
---------- ------------- ----------------------------- ------------------------------ -----------
Total further investment to finance portfolio
bolt-on acquisitions 63
-------------------------------------------------------- ------------------------------ -----------
Proprietary
capital
investment
Portfolio company Business description Date GBPm
--------------------- ------------------ ----------------------------- --------- -----------
Further investment Online retailer of garden
to support buildings, sheds, saunas December
portfolio companies YDEON and related products 2022 14
--------------------- ================== ============================= ========= ===========
Quality assurance provider November
Formel D for the automotive industry 2022 11
------------------ ----------------------------- ------------------------------- -----------
Total further investment to support portfolio
companies 25
------------------------------------------------- ------------------------------- -----------
Proprietary
capital
Portfolio investment
company Type Business description Date GBPm
----------------- ---------- -------- ----------------------------- ----------- -----------
ten23 Pharmaceutical product
Other investment health Further CDMO Various 36
---------- -------- ----------------------------- ----------- -----------
General merchandise discount
Action Further retailer March 2023 30
---------- -------- ----------------------------- ----------------------------- -----------
Online specialist lighting
Luqom Further retailer Various 5
---------- -------- ----------------------------- ----------------------------- -----------
Other Further Various Various 1
---------- -------- ----------------------------- ----------------------------- -----------
Total other investment 72
--------------------------------------------------- ----------------------------- -----------
Total FY2023 Private Equity gross investment 381
--------------------------------------------- ---
Portfolio Name of Business description of bolt-on Date
company acquisition investment
------------------ --------- ---------------- ------------------------------------ --------------
Private Equity MAIT Nittmann Austrian abas ERP partner June 2022
portfolio bolt-on & Pekoll
acquisitions
funded by the
portfolio company
balance sheets
------------------ --------- ---------------- ------------------------------------ --------------
Evernex XS International Specialist in a suite of IT September 2022
lifecycle services
and IT hardware lifecycle
support
------------------ --------- ---------------- ------------------------------------ --------------
Evernex Integra Provider of IT maintenance September 2022
and cloud services
--------- ---------------- ------------------------------------ --------------
AES Vibtech Reliability service provider October 2022
Analysis
--------- ---------------- ------------------------------------ --------------
SaniSure Twinsburg Silicone extrusion business December 2022
--------- ---------------- ------------------------------------ --------------
Cirtec Precision Elastomeric solutions provider January 2023
Medical Components in the medical
device outsourcing market
--------- ---------------- ------------------------------------ --------------
AES DATUM RMS Reliability and vibration monitoring January 2023
service provider
--------- ---------------- ------------------------------------ --------------
Dutch Trade Factory Supplier of bapao buns February 2023
Bakery
------------------ --------- ---------------- ------------------------------------ --------------
Realisation activity
During the year we received total proceeds of GBP332 million
from three partial disposals completed by Q Holding . These
included the disposal of Q Holding's QSR business, completed in May
2022, and the disposals of its Twinsburg site and Precision
Components business, which completed in December 2022 and January
2023 respectively. Q Holding's remaining business was valued at
GBP117 million at 31 March 2023. Over the last two years, through a
combination of realised proceeds and residual value, we have
recognised an uplift of over 100% on the value of our investment in
Q Holding at 31 March 2021, taking our money multiple, including
realised proceeds to date and remaining value at 31 March 2023, to
2.8x.
In October 2022 we completed the sale of Havea after a five-year
holding period, during which we partnered with the business to
deliver a significant strategic transformation, completed five
bolt-on acquisitions and generated double-digit organic growth. We
received proceeds of GBP471 million from this divestment,
representing a 50% uplift on the value of the investment at 31
March 2022, a sterling money multiple of 3.1x and an IRR of
24%.
In January 2023, we completed the disposal of Christ , our last
investment in EFV, for realised proceeds of GBP47 million, at a 45%
uplift on our 31 March 2022 opening value. When added to the
proceeds generated by the sale of Amor (another German player in
the jewellery space which we considered as part of the same
investment thesis and sold in 2016 crystallising a money multiple
of 2.3x), the multiple generated by this sale is 1.0x. Following
the disposal of Christ our final fund multiple for EFV is 3.0x, a
top quartile performance.
In total, we generated total Private Equity proceeds of GBP857
million (2022: GBP684 million) and realised profits of GBP169
million (2022: GBP228 million).
Table 2: Private Equity realisations in the year to 31 March
2023
31 Mar Profit Uplift on
Calendar 2022 3i in the opening Residual
year value(1) realised year value(2) % value Money
Investment Country invested GBPm proceeds GBPm GBPm multiple(3) IRR
GBPm
------------------ --------- ---------- --------- --------- ------- ---------- --------- ----------- --------
Full realisations
Havea France 2017 304 471 158 50 % - 3.1x 24%
Christ Germany 2014 31 47 14 45 % - 0.4x -%
------------------ --------- ---------- --------- --------- ------- ---------- --------- ----------- --------
Total realisations 335 518 172 n/a n/a n/a n/a
----------------------------------------- --------- --------- ------- ---------- --------- ----------- --------
Partial
realisations(1,3)
Q Holding US 2014 332 332 - - 117 2.8x 15%
Other n/a n/a 9 2 (8) n/a n/a n/a n/a
Deferred
consideration
Other n/a n/a - 5 5 n/a n/a n/a n/a
------------------ --------- ---------- --------- --------- ------- ---------- --------- ----------- --------
Total Private
Equity realisations 676 857 169 n/a n/a n/a n/a
----------------------------------------- --------- --------- ------- ---------- --------- ----------- --------
1 For partial realisations, 31 March 2022 value represents value
of stake sold.
2 Profit in the year over opening value.
3 Cash proceeds over cash invested. For partial realisations,
valuations of any remaining investment are included in the
multiple. Money multiples are quoted on a GBP basis.
Action performance and valuation
As detailed in the Chief Executive's statement, Action continues
to deliver excellent growth driven by higher footfall, a higher
number of transactions and further international store openings. In
the 12 months to the end of Action's P3 2023 (which ended on 2
April 2023), Action generated run-rate EBITDA growth of 42% and
strong cash inflow.
At 31 March 2023, Action was valued using its LTM run-rate
EBITDA to the end of P3 2023 of EUR1,439 million. These included
our normal adjustment to reflect stores opened in the year. Action
has consistently outperformed the peers that we currently reference
across its most important KPIs, supporting our valuation multiple,
which remained unchanged at 18.5x net of the liquidity discount (31
March 2022: 18.5x).
Action ended P3 2023 with cash of EUR365 million and a net debt
to run-rate earnings ratio of 1.8x after paying two dividend
distributions in FY2023, of which 3i received GBP325 million.
At 31 March 2023, the valuation of our 52.9% stake in Action was
GBP11,188 million (31 March 2022: 52.7%, GBP7,165 million) and we
recognised unrealised profits from Action of GBP3,708 million
(March 2022: GBP2,655 million) as shown in Table 3.
Performance (excluding Action)
Excluding Action, the private equity portfolio generated GBP520
million (March 2022: GBP584 million) of value growth from
performance increases driven by good contributions from a number of
assets operating in the value-for-money and private label,
healthcare, industrial technology and business and technology
services sectors, as well as good recovery from our travel assets.
This good performance has more than offset performance decreases of
GBP310 million (March 2022: GBP101 million), predominantly driven
by some of our discretionary consumer businesses, principally Luqom
and YDEON, which have been disproportionately impacted by weaker
consumer sentiment.
Over the last two years SaniSure has delivered significant
outperformance due to strong demand and customers stockpiling in
mitigation of external supply chain concerns. Whilst recent demand
has normalised as customers work down inventory levels, SaniSure
remains well positioned to capitalise on expected continued annual
double-digit growth across the bioprocessing market. Cirtec Medical
maintained top-line growth from its key customers in 2022, largely
offsetting short-term operational headwinds that impacted margin
performance. The integration of Precision Components, its recent
acquisition, is already progressing well and the business has a
good 2023 outlook, with significant new contracts coming
online.
Royal Sanders generated strong growth in 2022 despite increases
across all key input costs. The business increased volumes with its
key customers, including its value-for-money retailers that have
seen robust growth. It also continues to consolidate a highly
fragmented market, completing its fifth bolt-on since our initial
acquisition, with an investment in Lenhart in April 2023,
strengthening its position in the DACH region. Dutch Bakery
generated a good result in 2022 as recent bolt-on acquisitions are
integrating well, with the potential to deliver new customer wins.
The underlying business has effectively managed its own operations
during a period of rising input and energy costs.
nexeye maintained good top-line growth in 2022 despite softer
trading in Q3 2022, which was caused by lower store footfall due to
consumer uncertainty. Throughout the year, the business has
sustained healthy margin performance whilst retaining a very
attractive value-for-money price point for its customers compared
to its competitors. The business added 23 new stores in the year
and further accelerated its digitalisation agenda with its online
appointment system in Germany. Trading at the start of 2023 has
recovered from softer performance in Q3 2022.
Audley Travel and arrivia are recovering well from the pandemic.
Pent-up demand for travel has driven a significant increase in
bookings and departure revenue in 2022 for Audley Travel,
supporting a return to the good cash generation characteristics
that the business demonstrated pre-pandemic. At 31 March 2023,
Audley Travel was valued on an earnings basis, having been valued
on a DCF basis since June 2020 (31 March 2022: DCF basis),
reflecting this recovery in performance. arrivia recorded a good
recovery in membership bookings throughout 2022, and saw a strong
improvement in the performance of its cruise product category. Both
Audley Travel and arrivia have started 2023 with good bookings
momentum.
Luqom and YDEON, which have a discretionary product offering,
experienced a significant decline in order intake in 2022 as a
result of declining consumer confidence across their markets. Luqom
somewhat offset weaker performance in its core markets with growth
in more recently launched regions in southern and eastern Europe.
The business is also undertaking a significant programme of
operational and cost efficiencies. YDEON has responded to weaker
trading with a number of sales, cost and cash initiatives including
the introduction of products at a much lower price point for which
volumes are easily scalable. Across both assets we recognised a
combined unrealised value loss of GBP357 million, part of which is
attributable to the soft trading performance and part is based on a
multiple reductions (see 'Multiple movements' later on in this
section). BoConcept also saw pressure on store footfall due to the
discretionary nature of its offering, but has to an extent
mitigated lower footfall and order intake through its international
diversification, franchise model and effective margin
management.
WilsonHCG secured a significant number of new recruitment
customers in 2022 and with new clients coming online in 2023 and
the opportunity to accelerate its growth in the life sciences and
healthcare end markets following its acquisition of Personify, the
business is well positioned to navigate the recent slowdown in the
North American hiring market.
Table 3: Unrealised profits on the revaluation of Private Equity
investments (1) in the year to 31 March
2023 2022
GBPm GBPm
------------------------------------------- ----- ------
Earnings based valuations
Action performance 3,708 2,655
Performance increases (excluding Action) 520 584
Performance decreases (excluding Action) (310) (101)
Multiple movements (167) 241
Other bases
Sum of the parts - 132
Discounted cash flow 4 7
Other movements on unquoted investments 4 2
Quoted portfolio (13) 25
------------------------------------------ ----- ------
Total 3,746 3,545
------------------------------------------- ----- ------
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 2023.
Since our initial investment in MAIT in September 2021, we have
completed five bolt-on acquisitions, including one in June 2022.
These acquisitions have been value accretive and have driven good
growth in addition to that achieved by the underlying business.
Evernex also completed two further bolt-on acquisitions in the US
and Europe in the year but saw softer trading in the short-term as
a result of lower renewals of third-party maintenance contracts,
driven by a pick-up in investment in new IT equipment post the
pandemic.
AES saw a significant increase in demand across its key global
end markets in 2022 and continued to maintain intelligent cost
control, resulting in strong earnings growth. The business
continues to benefit from long-term investment improving the
reliability and range of its product offering and also continued to
pursue bolt-on acquisitions, completing the acquisitions of DATUM
RMS and Vibtech Analysis in the year. Having traded strongly in the
first half of 2022 with sustained demand for its core biocides
products, Tato saw trading soften through the second half of 2022
with weaker end demand for paints and coatings from the DIY and
construction markets and supply challenges for key input chemicals
resulting in price inflation and margin pressure. Tato successfully
leveraged its scale and global footprint to maintain good customer
supply and margin performance has improved since the turn of the
year. Both Tato and AES were cash generative in the year and
distributed dividends to 3i of GBP17 million in total.
Overall, 90% of the portfolio by value grew LTM adjusted
earnings in the year (2022: 93%). Table 4 shows the earnings growth
of our top 20 Private Equity investments.
Table 4: Portfolio earnings growth of the top 20 Private
Equity(1) investments
3i value
at 31 March 2023
Number of GBPm
companies
------ ---------- -----------------
<0% 5 1,495
0-9% 4 1,341
10-19% 3 350
20-29% 3 596
>=30% 5 12,055
------ ---------- -----------------
1 Includes top 20 Private Equity companies by value excluding
ten23 health. This represents 96% of the Private Equity portfolio
by value (31 March 2022: 96%). Last 12 months' adjusted earnings to
31 December 2022 and Action based on LTM run-rate earnings to the
end of P3 2023.
Leverage
Our Private Equity portfolio is funded with all senior debt
structures, with long-dated maturity profiles and c.40% repayable
from 2026 and beyond. Across our Private Equity portfolio, term
debt is well protected against interest rate rises, with over 70%
of total term debt hedged at a weighted average tenor of more than
three years with the interest rate element capped at a weighted
average hedge rate below 2%. The average margin across the
portfolio is under 4%, so the all-in debt cost across over 70% of
the portfolio is capped below 6%. Average leverage across the
portfolio was 2.5x (31 March 2022: 3.3x). Excluding Action,
leverage across the portfolio was 4.0x (31 March 2022: 4.6x).
Following the successful amendment and extension of Action's
senior debt facilities post 31 March 2023, as detailed in the Chief
Executive's statement, the above long dated debt maturity profile
for the Private Equity portfolio extends to 80% repayable from 2026
and beyond. The amend and extend transaction does not impact the
interest rate hedging position at 31 March 2023.
Table 5 shows the ratio of net debt to adjusted earnings by
portfolio value.
Table 5: Ratio of net debt to adjusted earnings(1)
3i value
at 31 March 2023
Number of companies GBPm
---- ------------------- -----------------
<1x 1 40
1-2x 4 11,583
2-3x 6 992
3-4x 3 942
4-5x 4 452
5-6x 2 857
>6x 3 290
---- ------------------- -----------------
1 This represents 92% of the Private Equity portfolio by value
(31 March 2022: 92%). Quoted holdings, deferred consideration and
companies with net cash are excluded from the calculation. Net debt
and adjusted earnings at 31 December 2022 and Action based on LTM
run-rate earnings to the end of P3 2023.
Multiple movements
We have continued our established approach of taking a
long-term, through-the-cycle view on the multiples used to value
our portfolio companies, consistent with how we drive value
creation in our portfolio. When selecting multiples to value our
portfolio companies we consider a number of factors including
recent performance and outlook, comparable recent transactions and
exit plans, and the performance of quoted comparable companies.
FY2023 was characterised by significant volatility in the capital
markets driven by Russia's invasion of Ukraine, global fiscal and
monetary interventions to mitigate inflation and the more recent
disruption in the banking sector. The consistency of our approach
to valuation multiples has enabled us largely to mitigate the
impact of such market volatility and, since the turn of the year,
we have seen a gradual increase in the average multiples of our
comparable sets, increasing the difference to our valuation
multiples, which in the vast majority of cases are lower than the
peer group average.
However, we did adjust eight multiples downwards where we
experienced significant declines in selected peers groups and in
some cases weaker trading performance. This included the reduction
of multiples for Luqom and YDEON, accounting for GBP107 million of
the total net GBP167 million (March 2022: increase of GBP241
million) multiple decrease in the year. Towards the end of our
financial year, we saw stronger equity markets and we increased
multiples for three of our portfolio companies which have
consistently outperformed over many periods.
Our approach to valuing Action, our largest investment, is no
different to the remainder of our portfolio in that we take a
long-term, through-the-cycle view on the LTM run-rate EBITDA
post-discount multiple of 18.5x used to value Action at 31 March
2023. We take comfort from the fact that Action's continued
excellent growth meant that its valuation at 31 March 2022
translated to only 13.0x run-rate EBITDA achieved one year later.
In addition, its most important operating KPIs compare very
favourably to those of its peer group, consisting of North American
and European value-for-money retailers. Based on the valuation at
31 March 2023, a 1.0x movement in Action's post discount multiple
would increase or decrease the valuation of 3i's investment by
GBP669 million.
Quoted portfolio
Basic-Fit is the only quoted investment in our Private Equity
portfolio. The business performed well in 2022, recovering strongly
following the temporary Covid-19 related closures in 2021.
Memberships increased by 51% in the year and the business expanded
its club base by 185 clubs.
At 31 March 2023, our residual 5.7% shareholding in Basic-Fit
was valued at GBP121 million reflecting a 10% year-on-year decrease
in its share price to EUR36.32 (31 March 2022: 5.7% shareholding
valued at GBP129 million based on a share price of EUR40.42).
Assets under management
The value of the Private Equity portfolio, including third-party
capital, increased to GBP22.9 billion (31 March 2022: GBP16.7
billion), primarily due to unrealised value movements in the
year.
Table 6: Private Equity assets by geography as at 31 March
2023
3i carrying
value
Number of 2023
3i office location companies GBPm
------------------- ---------- -----------
Netherlands 10 12,520
France 1 305
Germany 7 777
UK 9 1,144
US 9 1,652
Other 3 27
------------------- ---------- -----------
Total 39 16,425
------------------- ---------- -----------
Table 7: Private Equity assets by sector as at 31 March 2023
3i carrying
value
Number of 2023
Sector companies GBPm
------------------------------- ---------- -----------
Action (Consumer) 1 11,188
Consumer 13 1,983
Industrial Technology 7 1,168
Business & Technology Services 13 917
Healthcare 5 1,169
------------------------------- ---------- -----------
Total 39 16,425
------------------------------- ---------- -----------
Table 8: Private Equity 3i proprietary capital as at 31
March
Vintage Vintage
3i proprietary money 3i proprietary money
capital value(3) capital value(3)
2023 multiple(4) 2022 multiple(4)
Vintages GBPm 2023 GBPm 2022
--------------------- ------------------ ------------- ------------------ -------------
Buyouts 2010-2012(1) 2,968 15.1x 2,462 12.3x
Growth 2010-2012(1) 23 2.1x 18 2.1x
2013-2016(1) 814 2.5x 1,022 2.3x
2016-2019(1) 1,872 1.8x 2,210 1.8x
2019-2022(1) 1,524 1.5x 1,319 1.3x
2022-2025(1) 228 1.0x - n/a
Others(2) 8,996 n/a 5,389 n/a
--------------------- ------------------ ------------- ------------------ -------------
Total 16,425 12,420
--------------------- ------------------ ------------- ------------------ -------------
1 Assets included in these vintages are disclosed in the
Glossary.
2 Includes value of GBP8,220 million (31 March 2022: GBP 4,703
million) held in Action through the 2020 Co-investment vehicles and
3i.
3 3i proprietary capital is the unrealised value for the
remaining investments in each vintage.
4 Vintage money multiple (GBP) includes realised value and
unrealised value as at the reporting date.
Infrastructure
At a glance
Gross investment return
GBP86m
or 6%
(2022: GBP241m or 21%)
AUM
GBP6.4bn
(2022: GBP5.7bn )
Cash income
GBP107m
(2022: GBP91m)
We manage a range of funds investing principally in mid-market
economic infrastructure and operational projects in Europe and
North America. Infrastructure is a defensive asset class that
provides a good source of income and fund management fees for the
Group, enhancing returns on our proprietary capital. The team has
been active in its deployment of capital across the portfolio and
in new investments.
Our Infrastructure portfolio generated a GIR of GBP86 million or
6% on the opening portfolio value (2022: GBP241 million, 21%)
primarily driven by portfolio income and good value growth
contribution across our US assets, offset by a decrease in the
share price of our quoted stake in 3iN, despite its strong NAV
return in the year. We completed two new investments and three
further investments in 3iN and three bolt-on acquisitions for our
North American Infrastructure platform. We also completed the
disposal of 3iN's operational projects portfolio to the 3i European
Operational Projects Fund ("3i EOPF").
Table 9: Gross investment return for the year to 31 March
2023 2022
Investment basis GBPm GBPm
----------------------------------------------------- -------- -----------
Realised profits over value
on the disposal of investments - 10
Unrealised profits on the revaluation of investments 23 178
Dividends 33 31
Interest income from investment portfolio 14 12
Fees payable - (3)
Foreign exchange on investments 16 13
Movement in fair value of derivatives - -
----------------------------------------------------- -------- -----------
Gross investment return 86 241
----------------------------------------------------- -------- -----------
Gross investment return as a % of opening portfolio
value 6% 21%
----------------------------------------------------- -------- -----------
Fund management
3iN
3iN's total return on opening NAV of 14.7% for the year to 31
March 2023 was materially ahead of its total return target of 8% to
10% per annum. 3iN also delivered its dividend target of 11.15
pence per share, a 6.7% increase on last year.
Underpinning this strong return was the excellent performance of
3iN's investment portfolio, which was driven by exposure to
long-term growth trends. We have seen particularly strong trading
from assets operating in the utilities sector exposed to energy
transition (such as Infinis and Attero), the communication sector
(such as Tampnet) and the transport and logistics sector (such as
TCR).
As investment manager to 3iN, in FY2023 we received a management
and support services fee of GBP49 million (2022: GBP44 million) and
a NAV-based performance fee of GBP35 million (2022: GBP26 million).
This performance fee comprised a third of the potential performance
fee for each of FY2023, FY2022 and FY2021 after the performance
hurdle was met in each year.
The market for infrastructure investments remains competitive,
with strong demand for quality infrastructure assets. Against this
backdrop, 3iN was active in the year whilst remaining disciplined
on price, completing a GBP318 million new investment in Global
Cloud Xchange, a global data communications service provider and a
GBP28 million new investment in Future Biogas, a producer of
biomethane in the UK. 3iN also completed a GBP338 million further
investment in TCR, acquiring an additional 48% stake from a
co-investor, a GBP15 million further investment in DNS:NET to
support its continued fibre roll-out programme and a GBP30 million
further investment in Infinis to fund the development of its solar
roll-out programme.
We continue to utilise our relationship with external
co-investors to manage our underlying risk exposure across certain
assets, demonstrated in the year with two syndications. We
syndicated 28% of 3iN's stake in TCR for proceeds of GBP190 million
and a 17% stake in ESVAGT for proceeds of GBP87 million.
In June 2022, 3iN completed the sale of its European projects
portfolio to the 3i EOPF for GBP106 million.
North American Infrastructure platform
The investments in our North American Infrastructure platform
generated good organic and acquisitive growth in FY2023. Regional
Rail expanded its footprint through two bolt-on acquisitions and
one new rail services contract, including three short-line
railroads in the Midwest region of the US and several short-line
railroads in Canada. Its existing freight lines delivered good
volumes offsetting the impact of cost inflation. EC Waste completed
the self-funded bolt-on acquisition of A&A Waste Management, a
business that provides non-hazardous solid waste collections in
Puerto Rico. This acquisition, combined with an increase in
landfill volumes, contributed to the top-line growth of the
business in the year.
Other funds
3i EOPF and 3i Managed Infrastructure Acquisitions Fund ("3i
MIA") performed well in the year. 3i EOPF purchased the European
projects portfolio from 3iN for GBP106 million. Following this
acquisition, 3i EOPF has now deployed 86% of its total
commitments.
3i's proprietary capital infrastructure portfolio
The Group's proprietary capital infrastructure portfolio
consists of its 29% quoted stake in 3iN, its investment in Smarte
Carte and direct stakes in other managed funds.
Quoted stake in 3iN
In February 2023, 3iN successfully completed a share placing of
GBP100 million. The funds were used to part pay drawings on their
RCF and partly used to fund the acquisition of Future Biogas. 3i
did not participate in this placing and its holding in 3iN was
therefore diluted from 30% to 29%. At 31 March 2023, our 29% stake
in 3iN (31 March 2022: 30%) was valued at GBP841 million (31 March
2022: GBP934 million) as a result of a 10% year-on-year decline in
its share price to 313 pence (31 March 2022: 347 pence), which was
caused by broader market volatility. As a result we recognised an
unrealised loss of GBP93 million (2022: unrealised gain of GBP137
million), partially offset by GBP29 million of dividend income
(2022: GBP27 million).
North America Infrastructure proprietary capital
Smarte Carte traded strongly in 2022 driven by robust US travel
and retail demand across each of its lines of business, coupled
with a steady recovery in international volumes. The business
continues to leverage its existing footprint to expand into
financially attractive ancillary services such as porter services
and bag storage at its airports and other locations and recently
completed a refinancing at attractive terms. At 31 March 2023,
Smarte Carte was valued at GBP300 million on a DCF basis (31 March
2022: GBP207 million).
Assets under management
Infrastructure AUM increased to GBP6.4 billion (2022: GBP5.7
billion), principally due to an increase in 3i managed accounts and
good performance across 3i MIA and our US infrastructure portfolio,
offset by a decline in the share price of 3iN.
Table 10: Assets under management as at 31 March 2023
Fee
% income
3i invested(3) earned
Close Fund commitment/ at 31 AUM in
Fund/strategy date size share Remaining March GBPm 2023
3i commitment 2023 GBPm
--------------------------------- ---------- --------- ------------ -------------- ------------ ----- -------
3iN(1) Mar-07 n/a GBP841m n/a n/a 2,882 49
3i Managed Infrastructure
Acquisitions LP Jun-17 GBP698m GBP35m GBP5m 87% 1,280 4
3i managed accounts various n/a n/a n/a n/a 744 5
BIIF May-08 GBP680m n/a n/a 91% 457 4
3i North American Infrastructure
platform Mar-22(2) US$495m US$300m US$108m 64% 389 2
3i European Operational
Projects Fund Apr-18 EUR456m EUR40m EUR5m 86% 359 2
US Infrastructure Nov-17 n/a n/a n/a n/a 300 -
3i India Infrastructure
Fund Mar-08 US$1,195m US$250m n/a 73% - -
--------------------------------- ---------- --------- ------------ -------------- ------------ ----- -------
Total 6,411 66
--------------------------------------------- --------- ------------ -------------- ------------ ----- -------
1 AUM based on the share price at 31 March 2023.
2 First close completed in March 2022.
3 % invested is the capital deployed into investments against
the total Fund commitment.
Table 11: Unrealised profits/(losses) on the revaluation of
Infrastructure investments in the year to 31 March
2023 2022
GBPm GBPm
----------------------------- ----- -----
Quoted (93) 137
Discounted cash flow ("DCF") 103 36
Fund/other 13 5
----------------------------- ----- -----
Total 23 178
----------------------------- ----- -----
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 2023.
Table 12: Infrastructure portfolio movement for the year to 31
March 2023
Opening Closing
value Disposals value
at at opening Unrealised at
1 April book profit/(loss) Other 31 March
Valuation 2022 Investment value movement movements(1) 2023
Investment GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ----------- -------- ---------- ----------- -------------- ------------- ---------
3iN Quoted 934 - - (93) - 841
Smarte Carte DCF 207 - - 83 10 300
Regional Rail DCF 48 7 - 13 2 70
EC Waste DCF 86 - - 7 5 98
3i MIA Fund 53 - - 12 - 65
3i EOPF Fund 24 6 - 1 1 32
Other Other - 3 - - - 3
-------------- ----------- -------- ---------- ----------- -------------- ------------- ---------
Total 1,352 16 - 23 18 1,409
--------------------------- -------- ---------- ----------- -------------- ------------- ---------
1 Other movements include foreign exchange.
Scandlines
At a glance
Gross investment return
GBP52m
or 10%
(2022: GBP112m or 26%)
Scandlines is held for its ability to deliver long-term capital
returns whilst generating cash dividends.
Performance
Scandlines performed well in the year, generating a GIR of GBP52
million, or 10% of opening portfolio value (2022: GBP112 million,
26%). The business delivered a second consecutive year of record
growth in freight volumes in 2022, reaffirming Scandlines' position
as a critical part of the Scandinavian trade infrastructure.
Covid-19 impacted leisure volumes at the start of 2022, but a
strong summer peak season resulted in overall 2022 leisure volumes
marginally ahead of pre-pandemic levels. The business continues to
benefit from the operational efficiencies implemented throughout
the pandemic. As a result of good cash flow generation, the
business returned total dividends to 3i of GBP38 million in FY2023
(2022: GBP13 million).
Scandlines continues to progress its zero-emission fleet
ambition with the construction of its new electric freight ferry,
which is expected to be operational in 2024. Further details can be
found in the Sustainability section of our Annual report and
accounts 2023.
We continue to value Scandlines on a DCF basis and at 31 March
2023 its value of GBP554 million (31 March 2022: GBP533 million)
reflects the dividends received in the year and a degree of caution
on the outlook.
Foreign exchange
We hedge the balance sheet value of our investment in
Scandlines. In September 2022, we increased the size of this
hedging programme from EUR500 million to EUR600 million to cover
the higher underlying valuation of our investment.
We recognised a GBP21 million gain on foreign exchange
translation (March 2022: loss of GBP4 million) offset by a GBP7
million fair value loss (March 2022: gain of GBP2 million) from
derivatives in our hedging programme.
Table 13: Gross investment return for the year to 31 March
2023 2022
Investment basis GBPm GBPm
---------------------------------------------------- -------- --------
Unrealised profit on the revaluation of investments - 101
Dividends 38 13
Foreign exchange on investments 21 (4)
Movement in fair value of derivatives (7) 2
---------------------------------------------------- -------- --------
Gross investment return 52 112
---------------------------------------------------- -------- --------
Gross investment return as a % of opening portfolio
value 10% 26%
---------------------------------------------------- -------- --------
Financial review
Very strong financial performance
Highlights - Investment basis
Gross investment return Operating profit before Total return
carried interest
------------------------- ------------------------
GBP5,104m GBP4,956m GBP4,585m
(2022: GBP4,525m) (2022: GBP4,417m) (2022: GBP4,014m)
------------------------- ------------------------
Total return on opening Diluted NAV per share Total dividend
shareholders' funds at 31 March 2023
------------------------- ------------------------
36% 1,745p 53.0p
(2022: 44%) (31 March 2022: 1,321p) (31 March 2022: 46.5p)
------------------------- ------------------------
Table 14: Total return for the year to 31 March
2023 2022
Investment basis GBPm GBPm
------------------------------------------------------------ -------- -------
Realised profits over value on the disposal of investments 169 238
Unrealised profits on the revaluation of investments 3,769 3,824
Portfolio income
Dividends 416 375
Interest income from investment portfolio 91 85
Fees receivable 7 3
Foreign exchange on investments 530 (2)
Movement in the fair value of derivatives 122 2
------------------------------------------------------------ -------- -------
Gross investment return 5,104 4,525
------------------------------------------------------------ -------- -------
Fees receivable from external funds 70 62
Operating expenses (138) (128)
Interest receivable 4 -
Interest payable (54) (53)
Exchange movements (29) 9
Other (expense)/income (1) 2
------------------------------------------------------------ -------- -------
Operating profit before carried interest 4,956 4,417
------------------------------------------------------------ -------- -------
Carried interest
Carried interest and performance fees receivable 41 54
Carried interest and performance fees payable (418) (454)
----------------------------------------------------------- -------- -------
Operating profit before tax 4,579 4,017
------------------------------------------------------------ -------- -------
Tax charge (2) (5)
------------------------------------------------------------ -------- -------
Profit for the year 4,577 4,012
------------------------------------------------------------ -------- -------
Re-measurements of defined benefit plans 8 2
------------------------------------------------------------ -------- -------
Total comprehensive income for the year ("Total return") 4,585 4,014
------------------------------------------------------------ -------- -------
Total return on opening shareholders' funds 36% 44%
------------------------------------------------------------ -------- -------
Investment basis and alternative performance measures ("APMs")
In our Strategic report we report our financial performance using our
Investment basis. We do not consolidate our portfolio companies; as private
equity and infrastructure investments they are not operating subsidiaries.
IFRS 10 sets out an exception to consolidation and requires us to fair
value other companies in the Group (primarily intermediate holding companies
and partnerships), which results in a loss of transparency. As explained
in the Investment basis, Reconciliation of investment basis and IFRS
sections below, the total comprehensive income and net assets are the
same under our audited IFRS financial statements and our Investment basis.
The Investment basis is simply a "look through" of IFRS 10 to present
the underlying performance and we believe it is more transparent to readers
of our Annual report and accounts.
In October 2015, the European Securities and Markets Authority ("ESMA")
published guidelines about the use of APMs. These are financial measures
such as KPIs that are not defined under IFRS. Our Investment basis is
itself an APM, and we use a number of other measures which, on account
of being derived from the Investment basis, are also APMs.
Further information about our use of APMs, including the applicable reconciliations
to the IFRS equivalent where appropriate, is provided at the end of the
Financial review and should be read alongside the Investment basis to
IFRS reconciliation. Our APMs are gross investment return as a percentage
of the opening investment portfolio value, cash realisations, cash investment,
operating cash profit, net cash/(debt) and gearing.
Realised profits
We generated total realised proceeds of GBP857 million (2022:
GBP788 million) and realised profits of GBP169 million in the year
(2022: GBP238 million), all of which were generated from Private
Equity.
Unrealised value movements
We recognised an unrealised profit of GBP3,769 million (2022:
GBP3,824 million). Action's continued strong performance
contributed GBP3,708 million (2022: GBP2,655 million). We also saw
good contributions from a number of our other Private Equity
investments including SaniSure, AES, WilsonHCG, Royal Sanders,
Audley Travel, nexeye and Dutch Bakery offsetting negative
contributions from Luqom, YDEON, BoConcept, Formel D and Mepal. Our
US infrastructure portfolio also delivered good value growth in the
year offsetting a 10% year-on-year share price reduction in our
quoted holding in 3iN.
Further information on the Private Equity, Infrastructure and
Scandlines valuations is included in the business reviews.
Table 15: Unrealised value movements on the revaluation of
investments for the year to 31 March
2023 2022
Investment basis GBPm GBPm
----------------- ----- -----
Private Equity 3,746 3,545
Infrastructure 23 178
Scandlines - 101
----------------- ----- -----
Total 3,769 3,824
----------------- ----- -----
Portfolio income
Portfolio income increased to GBP514 million during the year
(2022: GBP463 million), primarily due to strong dividend income of
GBP416 million (2022: GBP375 million), particularly from Action.
Interest income from portfolio companies, the majority of which is
non-cash, increased to GBP91 million (2022: GBP85 million), whilst
fee income increased in the year to GBP7 million (2022: GBP3
million), reflecting the monitoring and negotiation fees receivable
relating to new investments within our Private Equity
portfolio.
Fees receivable from external funds
Fees received from external funds increased to GBP70 million
(2022: GBP62 million). 3i receives a fund management fee from 3iN,
which amounted to GBP49 million in FY2023 (2022: GBP44
million).
3i also received fee income of GBP4 million (2022: GBP6 million)
from 3i MIA through management fees and continued to generate fee
income from 3i managed accounts and other funds. In Private Equity,
we recognised a GBP4 million (2022: GBP4 million) administration
fee for our management of the 3i 2020 Co-investment Programme
related to Action.
Operating expenses
Operating expenses increased to GBP138 million (2022: GBP128
million) reflecting the full-year impact of new hires in both
Private Equity and Infrastructure, increased business activity and
inflationary impacts on travel, marketing and professional fee
costs.
Interest payable
The Group recognised interest payable of GBP54 million (2022:
GBP53 million). Interest payable predominantly includes interest on
the Group's loans and borrowings and amortisation of capitalised
fees.
Operating cash profit
We generated an operating cash profit of GBP364 million in the
year (2022: GBP340 million). Cash income increased to GBP497
million (2022: GBP450 million), principally due to an increase in
dividend income. We received GBP325 million of cash dividends from
Action (2022: GBP284 million). We also received cash dividends from
Scandlines, 3iN, Tato and AES, as well as a good level of cash fees
from our external funds in Infrastructure. Excluding the dividends
received from Action, the operating cash profit was GBP39
million.
Cash operating expenses increased to GBP133 million (2022:
GBP110 million), driven principally by higher fixed and variable
compensation costs, as well as by inflationary impacts on travel
and marketing costs, as well as professional fees.
Table 16: Operating cash profit for the year to 31 March
2023 2022
Investment basis GBPm GBPm
-------------------------------------- ----- -----
Cash fees from external funds 67 68
Cash portfolio fees 5 9
Cash portfolio dividends and interest 425 373
-------------------------------------- ----- -----
Cash income 497 450
-------------------------------------- ----- -----
Cash operating expenses(1) (133) (110)
-------------------------------------- ----- -----
Operating cash profit 364 340
-------------------------------------- ----- -----
1 Cash operating expenses include operating expenses paid and
lease payments.
Carried interest and performance fees
We receive carried interest and performance fees from
third-party funds and 3iN. We also pay carried interest and
performance fees to participants in plans relating to returns from
investments. These are received and/or paid subject to meeting
certain performance conditions. In Private Equity (excluding
Action), we typically accrue net carried interest payable of c.12%
of GIR, based on the assumption that all investments are realised
at their balance sheet value. Carried interest is paid to
participants when cash proceeds have actually been received
following a realisation, refinancing event or other cash
distribution and performance hurdles are passed in cash terms. Due
to the length of time between investment and realisation, the
schemes are usually active for a number of years and their
participants include both current and previous employees of 3i.
The continued excellent performance of Action in the Buyouts
2010-12 vintage and good performance in our other vintages led to a
GBP392 million increase in carried interest payable in FY2023.
During the year, GBP24 million (2022: GBP13 million) was paid to
participants in Private Equity, of which GBP23 million was paid to
participants in the Private Equity Buyouts 2010-12 carry plan.
In March 2023, we completed a transaction to provide liquidity
for existing external investors in Action who are invested via our
3i 2020 Co-investment Programme and at the same time a portion of
the outstanding carried interest liability in the Buyouts 2010-12
scheme relating to Action was crystallised, which is expected to
result in a c.GBP200 million carried interest payment to
participants in the Buyouts 2010-12 scheme in May 2023. This
payment continues a series of carried interest payments to
participants in the Buyouts 2010-12 scheme, the first of which
occurred in May 2020, following the sale of EFV's interest in
Action in FY2020. The economic result of this transaction is to
increase 3i's investment in Action, net of carry, from 47.7% to
48.9%. 3i's gross investment in Action also increased to 52.9% (31
March 2022: 52.7%) following the purchase of a further small (GBP30
million) equity stake in Action.
3iN pays a performance fee based on its NAV on an annual basis,
subject to a hurdle rate of return. The continued strong
performance of the assets held by 3iN resulted in the recognition
of GBP35 million (2022: GBP26 million) of performance fees
receivable. GBP25 million (2022: GBP22 million) was recognised as
an expense with the remaining fees payable deferred for an expense
in future years. During the year, GBP27 million was paid to the
Infrastructure team including payments for the 3i MIA performance
plan. The cumulative total potential payable for performance fees
including fees generated and deferred from prior periods amounts to
GBP55 million.
Overall, the effect of the income statement charge, cash
payments of GBP51 million (2022: GBP23 million), as well as
currency translation meant that the balance sheet carried interest
and performance fees payable was GBP1,351 million (31 March 2022:
GBP963 million).
Table 17: Carried interest and performance fees for the year to
31 March
2023 2022
Investment basis Statement of comprehensive income GBPm GBPm
--------------------------------------------------- ----- -----
Carried interest and performance fees receivable
Private Equity 4 3
Infrastructure 37 51
--------------------------------------------------- ----- -----
Total 41 54
--------------------------------------------------- ----- -----
Carried interest and performance fees payable
Private Equity (392) (416)
Infrastructure (26) (38)
--------------------------------------------------- ----- -----
Total (418) (454)
--------------------------------------------------- ----- -----
Net carried interest payable (377) (400)
--------------------------------------------------- ----- -----
Table 18: Carried interest and performance fees at 31 March
2023 2022
Investment basis Statement of financial position GBPm GBPm
------------------------------------------------- ------- -----
Carried interest and performance fees receivable
Private Equity 6 8
Infrastructure 37 51
------------------------------------------------- ------- -----
Total 43 59
------------------------------------------------- ------- -----
Carried interest and performance fees payable
Private Equity (1,325) (926)
Infrastructure (26) (37)
------------------------------------------------- ------- -----
Total (1,351) (963)
------------------------------------------------- ------- -----
Table 19: Carried interest and performance fees paid in the year
to 31 March
2023 2022
Investment basis cash flow statement GBPm GBPm
Carried interest and performance fees cash paid
Private Equity 24 13
Infrastructure 27 10
------------------------------------------------ ----- -----
Total 51 23
------------------------------------------------ ----- -----
Net foreign exchange movements
The Group recorded a total foreign exchange translation gain of
GBP623 million including the impact of foreign exchange hedging in
the year (March 2022: GBP9 million), as a result of sterling
weakening by 4% against the euro and by 6% against the US
dollar.
In October and November 2022, we took advantage of the weakness
of sterling against the euro and US dollar by implementing a
medium-term foreign exchange hedging programme to partially reduce
the sensitivity of the Group's net asset value and impact of
mismatched currency cash flows to changes in euro and US dollar
exchange movements. The exposure of the Group's underlying
investment portfolio to euro and US dollar has increased
significantly in recent years through the organic growth of our
existing European and US portfolio companies and due to the
majority of our new investments being denominated in euro and US
dollar.
We locked in favourable euro and US dollar rates compared to
historical market averages, with forward foreign exchange contracts
of a notional amount of EUR2 billion and $1.2 billion. In addition,
during the year we also increased the size of our hedging programme
for Scandlines, increasing the notional amount from EUR500 million
to EUR600 million. Including the impact from foreign exchange
hedging, 71% of the Group's net assets are denominated in euros or
US dollars. Based on the Group's net assets, including the impact
from foreign exchange hedging, a 1% movement in euro and US dollar
foreign exchange rates would impact total return by GBP106 million
and GBP12 million, as shown in Table 20 below.
Table 20: Net assets(1) and sensitivity by currency at 31
March
1%
sensitivity
FX rate GBPm % GBPm
------------- ------- ------ ------- ------------
Sterling n/a 4,797 28 n/a
Euro(2) 1.1377 10,641 64 106
US dollar(2) 1.2361 1,154 7 12
Danish krone 8.4752 222 1 2
Other n/a 30 - n/a
------------- ------- ------ ------- ------------
1 The net assets position includes the impact from foreign
exchange hedging.
2 The sensitivity impact calculated on the net assets position
includes the impact from foreign exchange hedging.
Pension
The Group's UK defined benefit plan ("the Plan") is fully
insured following previous buy-in policies with Legal & General
in May 2020 and February 2019 and Pension Insurance Corporation in
March 2017. These polices provide long-term security for the Plan
members and 3i is no longer exposed to any material longevity,
interest or inflation risk in the Plan or any ongoing requirement
to fund the Plan. During the year the Group gave notice to
terminate the Plan. The Trustees have taken steps to commence a
buy-out and wind up of the Plan, the completion of which could take
up to 18 months.
During the year the Group recognised an GBP8 million
re-measurement gain (2022: GBP3 million) on the German defined
benefit plan. The liability of this plan decreased in the year
following an increase in the discount rate.
Tax
The Group's parent company continues to operate in the UK as an
approved investment trust company. An approved investment trust is
a UK investment company which is required to meet certain
conditions set out in the UK tax rules to obtain and maintain its
tax status. This approval allows certain investment profits of the
Company, broadly its capital profits, to be exempt from tax in the
UK. The Group's tax charge for the year was GBP2 million (2022:
GBP5 million).
The Group's overall UK tax position for the financial year is
dependent on the finalisation of tax returns of the various
corporate and partnership entities in the UK group.
Balance sheet and liquidity
At 31 March 2023, the Group had net debt of GBP363 million (31
March 2022: GBP746 million) and gearing of 2% after the receipt of
strong cash income of GBP497 million and net cash proceeds of
GBP555 million, offsetting dividend payments of GBP485 million and
repayment of our GBP200 million fixed-rate 2023 bond in the
year.
The Group had liquidity of GBP1,312 million as at 31 March 2023
(31 March 2022: GBP729 million) comprising cash and deposits of
GBP412 million (31 March 2022: GBP229 million) and an undrawn RCF
of GBP900 million. During the year, we increased our available
liquidity by introducing a two-year GBP400 million tranche to the
existing base GBP500 million RCF. Since 31 March 2023, we extended
the maturity of the GBP400 million additional tranche to July
2025.
The investment portfolio value increased to GBP18,388 million at
31 March 2023 (31 March 2022: GBP14,305 million) mainly driven by
unrealised profits of GBP3,769 million in the year.
Further information on investments and realisations is included
in the Private Equity, Infrastructure and Scandlines business
reviews.
Table 21: Simplified consolidated balance sheet at 31 March
2023 2022
Investment basis Statement of financial position GBPm GBPm
------------------------------------------------- ------- ------
Investment portfolio 18,388 14,305
Gross debt (775) (975)
Cash and deposits 412 229
------------------------------------------------- ------- ------
Net debt (363) (746)
------------------------------------------------- ------- ------
Carried interest and performance fees receivable 43 59
Carried interest and performance fees payable (1,351) (963)
Other net assets 127 99
------------------------------------------------- ------- ------
Net assets 16,844 12,754
------------------------------------------------- ------- ------
Gearing(1) 2% 6%
------------------------------------------------- ------- ------
1 Gearing is net debt as a percentage of net assets.
Going concern
The Annual report and accounts 2023 are prepared on a going
concern basis. The Directors made an assessment of going concern,
taking into account the Group's current performance and the
outlook, and performed additional analysis to support the going
concern assessment. Further details on going concern can be found
in the Resilience statement in our Annual report and account
2023.
Dividend
The Board has recommended a second FY2023 dividend of 29.75
pence per share (2022: 27.25 pence), taking the total dividend for
the year to 53.0 pence per share (2022: 46.5 pence). Subject to
shareholder approval, the dividend will be paid to shareholders in
July 2023.
Key accounting judgments and estimates
A key judgement is the assessment required to determine the degree
of control or influence the Group exercises and the form of any control
to ensure that the financial treatment of investment entities is accurate.
The introduction of IFRS 10 resulted in a number of intermediate holding
companies being presented at fair value, which has led to reduced
transparency of the underlying investment performance. As a result,
the Group continues to present a non-GAAP Investment basis set of
financial statements to ensure that the commentary in the Strategic
report remains fair, balanced and understandable. The reconciliation
of the Investment basis to IFRS is shown further on in this document.
In preparing these accounts, the key accounting estimates are the
carrying value of our investment assets, which is stated at fair value,
and the calculation of carried interest payable.
Given the importance of the valuation of investments, the Board has
a separate Valuations Committee to review the valuation policy, process
and application to individual investments. However, asset valuations
for unquoted investments are inherently subjective, as they are made
on the basis of assumptions which may not prove to be accurate. At
31 March 2023, 95% by value of the investment assets were unquoted
(31 March 2022: 93%).
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 2023 and the
underlying investment
management agreements.
Investment basis
Consolidated statement of comprehensive income
for the year to 31 March
2023 2022
GBPm GBPm
------------------------------------------------------------ ----- -----
Realised profits over value on the disposal of investments 169 238
Unrealised profits on the revaluation of investments 3,769 3,824
Portfolio income
Dividends 416 375
Interest income from investment portfolio 91 85
Fees receivable 7 3
Foreign exchange on investments 530 (2)
Movement in the fair value of derivatives 122 2
------------------------------------------------------------ ----- -----
Gross investment return 5,104 4,525
------------------------------------------------------------ ----- -----
Fees receivable from external funds 70 62
Operating expenses (138) (128)
Interest receivable 4 -
Interest payable (54) (53)
Exchange movements (29) 9
Other (expense)/income (1) 2
------------------------------------------------------------ ----- -----
Operating profit before carried interest 4,956 4,417
------------------------------------------------------------ ----- -----
Carried interest
Carried interest and performance fees receivable 41 54
Carried interest and performance fees payable (418) (454)
----------------------------------------------------------- ----- -----
Operating profit before tax 4,579 4,017
------------------------------------------------------------ ----- -----
Tax charge (2) (5)
------------------------------------------------------------ ----- -----
Profit for the year 4,577 4,012
------------------------------------------------------------ ----- -----
Other comprehensive income
Re-measurements of defined benefit plans 8 2
----------------------------------------------------------- ----- -----
Total comprehensive income for the year ("Total
return") 4,585 4,014
------------------------------------------------------------ ----- -----
Consolidated statement of financial position
as at 31 March
2023 2022
GBPm GBPm
------------------------------------------------- ------- -------
Assets
Non-current assets
Investments
Quoted investments 962 1,063
Unquoted investments 17,426 13,242
------------------------------------------------- ------- -------
Investment portfolio 18,388 14,305
------------------------------------------------- ------- -------
Carried interest and performance fees receivable 3 8
Other non-current assets 33 50
Intangible assets 5 6
Retirement benefit surplus 53 53
Property, plant and equipment 3 3
Right of use asset 9 13
Derivative financial instruments 73 7
Deferred income taxes - 1
------------------------------------------------- ------- -------
Total non-current assets 18,567 14,446
------------------------------------------------- ------- -------
Current assets
Carried interest and performance fees receivable 40 51
Other current assets 41 105
Current income taxes 1 1
Derivative financial instruments 48 10
Cash and cash equivalents 412 229
------------------------------------------------- ------- -------
Total current assets 542 396
------------------------------------------------- ------- -------
Total assets 19,109 14,842
------------------------------------------------- ------- -------
Liabilities
Non-current liabilities
Trade and other payables (11) (21)
Carried interest and performance fees payable (1,049) (915)
Loans and borrowings (775) (775)
Derivative financial instruments (3) -
Retirement benefit deficit (20) (26)
Lease liability (5) (9)
Deferred income taxes (1) (1)
Provisions (4) (3)
------------------------------------------------- ------- -------
Total non-current liabilities (1,868) (1,750)
------------------------------------------------- ------- -------
Current liabilities
Trade and other payables (85) (81)
Carried interest and performance fees payable (302) (48)
Loans and borrowings - (200)
Derivative financial instruments (1) -
Lease liability (5) (5)
Current income taxes (4) (4)
------------------------------------------------- ------- -------
Total current liabilities (397) (338)
------------------------------------------------- ------- -------
Total liabilities (2,265) (2,088)
------------------------------------------------- ------- -------
Net assets 16,844 12,754
------------------------------------------------- ------- -------
Equity
Issued capital 719 719
Share premium 790 789
Other reserves 15,443 11,346
Own shares (108) (100)
------------------------------------------------- ------- -------
Total equity 16,844 12,754
------------------------------------------------- ------- -------
Consolidated cash flow statement
for the year to 31 March
2023 2022
GBPm GBPm
----------------------------------------------- ----- -----
Cash flow from operating activities
Purchase of investments (330) (596)
Proceeds from investments 885 758
Net cash flow from derivatives 23 11
Portfolio interest received 19 4
Portfolio dividends received 406 369
Portfolio fees received 5 9
Fees received from external funds 67 68
Carried interest and performance fees received 58 10
Carried interest and performance fees paid (51) (23)
Operating expenses paid (128) (106)
Co-investment loans received/(paid) 3 (5)
Tax received - 1
Interest received 4 -
----------------------------------------------- ----- -----
Net cash flow from operating activities 961 500
----------------------------------------------- ----- -----
Cash flow from financing activities
Issue of shares 1 1
Purchase of own shares (30) (54)
Dividends paid (485) (389)
Repayment of long-term borrowing (200) -
Lease payments (5) (4)
Interest paid (54) (52)
----------------------------------------------- ----- -----
Net cash flow from financing activities (773) (498)
----------------------------------------------- ----- -----
Cash flow from investing activities
Purchase of property, plant and equipment (1) -
----------------------------------------------- ----- -----
Net cash flow from investing activities (1) -
----------------------------------------------- ----- -----
Change in cash and cash equivalents 187 2
----------------------------------------------- ----- -----
Cash and cash equivalents at the start of year 229 225
Effect of exchange rate fluctuations (4) 2
----------------------------------------------- ----- -----
Cash and cash equivalents at the end of year 412 229
----------------------------------------------- ----- -----
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 nancial 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, nancial position and cash ow 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 nancial position and Consolidated cash ow
statement is shown on the following pages.
Reconciliation of Investment basis and IFRS
Reconciliation of consolidated statement of comprehensive
income
for the year to 31 March
Investment IFRS Investment IFRS
basis adjustments IFRS basis adjustments IFRS
2023 2023 basis 2022 2022 basis
Notes GBPm GBPm 2023 GBPm GBPm 2022
GBPm GBPm
====================================== ====== ========== ============ ====== ========== ============ ======
Realised profits over value
on the disposal of investments 1,2 169 (105) 64 238 (149) 89
Unrealised profits on the
revaluation
of investments 1,2 3,769 (1,872) 1,897 3,824 (2,043) 1,781
Fair value movements on
investment
entity subsidiaries 1 - 2,112 2,112 - 1,974 1,974
Portfolio income
Dividends 1,2 416 (187) 229 375 (169) 206
Interest income from
investment portfolio 1,2 91 (62) 29 85 (55) 30
Fees receivable 1,2 7 3 10 3 3 6
Foreign exchange on investments 1,3 530 (327) 203 (2) (7) (9)
Movement in the fair value
of derivatives 122 - 122 2 - 2
-------------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Gross investment return 5,104 (438) 4,666 4,525 (446) 4,079
-------------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Fees receivable from external
funds 70 - 70 62 - 62
Operating expenses 4 (138) 1 (137) (128) 1 (127)
Interest receivable 1 4 - 4 - - -
Interest payable (54) - (54) (53) - (53)
Exchange movements 1,3 (29) 23 (6) 9 7 16
Income from investment
entity subsidiaries 1 - 30 30 - 32 32
Other (expense)/income (1) - (1) 2 - 2
-------------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Operating profit before
carried interest 4,956 (384) 4,572 4,417 (406) 4,011
-------------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Carried interest
Carried interest
and performance
fees receivable 1,4 41 - 41 54 (1) 53
Carried interest and
performance
fees payable 1,4 (418) 380 (38) (454) 408 (46)
------------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Operating profit before
tax 4,579 (4) 4,575 4,017 1 4,018
-------------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Tax charge 1,4 (2) - (2) (5) - (5)
-------------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Profit for the year 4,577 (4) 4,573 4,012 1 4,013
-------------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Other comprehensive income/(expense)
Exchange differences
on translation
of foreign operations 1,3 - 4 4 - (1) (1)
Re-measurements of defined
benefit plans 8 - 8 2 - 2
------------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Other comprehensive income
for the year 8 4 12 2 (1) 1
-------------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Total comprehensive income
for the year ("Total return") 4,585 - 4,585 4,014 - 4,014
-------------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
The IFRS basis is audited and the Investment basis is
unaudited.
Notes to the Reconciliation of consolidated statement of
comprehensive income above:
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.
Notes to Reconciliation of consolidated statement of financial
position
1 Applying IFRS 10 to the Consolidated statement of financial position
aggregates the line items into the single line item "Investments in
investment entity subsidiaries". In the Investment basis we have disaggregated
these items to analyse our net assets as if the Investment entity
subsidiaries were consolidated. The adjustment reclassifies items
in the Consolidated statement of financial position. There is no change
to the net assets, although for reasons explained below, gross assets
and gross liabilities are different. The disclosure relating to portfolio
companies is significantly reduced by the aggregation, as the fair
value of all investments held by Investment entity subsidiaries is
aggregated into the "Investments in investment entity subsidiaries"
line. We have disaggregated this fair value and disclosed the underlying
portfolio holding in the relevant line item, ie, quoted investments
or unquoted investments. Other items which may be aggregated include
carried interest, other assets 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 statement of financial
position
as at 31 March
Investment IFRS Investment IFRS
basis adjustments IFRS basis adjustments IFRS
2023 2023 basis 2022 2022 basis
Notes GBPm GBPm 2023 GBPm GBPm 2022
GBPm GBPm
================================= ====== ========== ============ ====== ========== ============ =======
Assets
Non-current assets
Investments
Quoted investments 1 962 (121) 841 1,063 (129) 934
Unquoted investments 1 17,426 (8,749) 8,677 13,242 (7,534) 5,708
Investments in investment
entity subsidiaries 1,2 - 7,844 7,844 - 6,791 6,791
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Investment portfolio 18,388 (1,026) 17,362 14,305 (872) 13,433
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Carried interest and performance
fees receivable 1 3 - 3 8 1 9
Other non-current assets 1 33 (3) 30 50 (5) 45
Intangible assets 5 - 5 6 - 6
Retirement benefit surplus 53 - 53 53 - 53
Property, plant and equipment 3 - 3 3 - 3
Right of use asset 9 - 9 13 - 13
Derivative financial instruments 73 - 73 7 - 7
Deferred income taxes - - - 1 - 1
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Total non-current assets 18,567 (1,029) 17,538 14,446 (876) 13,570
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Current assets
Carried interest and performance
fees receivable 1 40 - 40 51 - 51
Other current assets 1 41 (11) 30 105 (1) 104
Current income taxes 1 - 1 1 - 1
Derivative financial instruments 48 - 48 10 - 10
Cash and cash equivalents 1 412 (250) 162 229 (17) 212
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Total current assets 542 (261) 281 396 (18) 378
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Total assets 19,109 (1,290) 17,819 14,842 (894) 13,948
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Liabilities
Non-current liabilities
Trade and other payables 1 (11) 7 (4) (21) 7 (14)
Carried interest and performance
fees payable 1 (1,049) 1,006 (43) (915) 873 (42)
Loans and borrowings (775) - (775) (775) - (775)
Derivative financial instruments (3) - (3) - - -
Retirement benefit deficit (20) - (20) (26) - (26)
Lease liability (5) - (5) (9) - (9)
Deferred income taxes (1) - (1) (1) - (1)
Provisions (4) - (4) (3) - (3)
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Total non-current liabilities (1,868) 1,013 (855) (1,750) 880 (870)
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Current liabilities
Trade and other payables 1 (85) 9 (76) (81) 1 (80)
Carried interest and performance
fees payable 1 (302) 268 (34) (48) 13 (35)
Loans and borrowings - - - (200) - (200)
Derivative financial instruments (1) - (1) - - -
Lease liability (5) - (5) (5) - (5)
Current income taxes (4) - (4) (4) - (4)
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Total current liabilities (397) 277 (120) (338) 14 (324)
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Total liabilities (2,265) 1,290 (975) (2,088) 894 (1,194)
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Net assets 16,844 - 16,844 12,754 - 12,754
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Equity
Issued capital 719 - 719 719 - 719
Share premium 790 - 790 789 - 789
Other reserves 3 15,443 - 15,443 11,346 - 11,346
Own shares (108) - (108) (100) - (100)
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
Total equity 16,844 - 16,844 12,754 - 12,754
--------------------------------- ------ ---------- ------------ ------ ---------- ------------ -------
The IFRS basis is audited and the Investment basis is unaudited.
Notes: see page before.
Reconciliation of consolidated cash flow statement
for the year to 31 March
Investment IFRS Investment IFRS
basis adjustments IFRS basis adjustments IFRS
2023 2023 basis 2022 2022 basis
Notes GBPm GBPm 2023 GBPm GBPm 2022
GBPm GBPm
================================ ====== ========== ============ ====== ========== ============ ======
Cash flow from operating
activities
Purchase of investments 1 (330) 284 (46) (596) 272 (324)
Proceeds from investments 1 885 (658) 227 758 (464) 294
Amounts paid to investment
entity subsidiaries 1 - (535) (535) - (349) (349)
Amounts received from
investment entity subsidiaries 1 - 841 841 - 685 685
Net cash flow from derivatives 23 - 23 11 - 11
Portfolio interest received 1 19 (7) 12 4 (1) 3
Portfolio dividends
received 1 406 (183) 223 369 (165) 204
Portfolio fees received 1 5 - 5 9 - 9
Fees received from external
funds 67 - 67 68 - 68
Carried interest and
performance
fees received 1 58 - 58 10 - 10
Carried interest and
performance
fees paid 1 (51) 22 (29) (23) 9 (14)
Operating expenses paid 1 (128) - (128) (106) 1 (105)
Co-investment loans
received/(paid) 1 3 2 5 (5) 2 (3)
Tax received 1 - - - 1 - 1
Interest received 1 4 - 4 - - -
-------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Net cash flow from
operating activities 961 (234) 727 500 (10) 490
-------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Cash flow from financing
activities
Issue of shares 1 - 1 1 - 1
Purchase of own shares (30) - (30) (54) - (54)
Dividends paid (485) - (485) (389) - (389)
Repayment of long-term
borrowing (200) - (200) - - -
Lease payments (5) - (5) (4) - (4)
Interest paid (54) - (54) (52) - (52)
-------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Net cash flow from
financing activities (773) - (773) (498) - (498)
-------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Cash flow from investing
activities
Purchase of property,
plant
and equipment (1) - (1) - - -
-------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Net cash flow from
investing activities (1) - (1) - - -
-------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Change in cash and
cash equivalents 2 187 (234) (47) 2 (10) (8)
-------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Cash and cash equivalents
at the
start of year 2 229 (17) 212 225 (9) 216
Effect of exchange rate
fluctuations 1 (4) 1 (3) 2 2 4
-------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
Cash and cash equivalents
at the end of year 2 412 (250) 162 229 (17) 212
-------------------------------- ------ ---------- ------------ ------ ---------- ------------ ------
The IFRS basis is audited and the Investment basis is
unaudited.
Notes to Reconciliation of consolidated cash flow statement
above:
1 The Consolidated cash flow statement is impacted by the application
of IFRS 10 as cash flows to and from Investment entity subsidiaries
are disclosed, rather than the cash flows to and from the underlying
portfolio. Therefore in our Investment basis financial statements,
we have disclosed our cash flow statement on a "look through" basis,
in order to reflect the underlying sources and uses of cash flows
and disclose the underlying investment activity.
2 There is a difference between the change in cash and cash equivalents
of the Investment basis financial statements and the IFRS financial
statements because there are cash balances held in Investment entity
subsidiaries. Cash held within Investment entity subsidiaries will
not be shown in the IFRS statements but will be seen in the Investment
basis statements.
Alternative Performance Measures ("APMs")
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed APMs.
The APMs that we use may not be directly comparable with those used
by other companies. Our Investment basis is itself an APM. The
explanation of and rationale for the Investment basis and its
reconciliation to IFRS is provided above. The table below defines
our additional APMs.
Gross investment return as a percentage of opening portfolio value
Purpose Calculation Reconciliation to IFRS
A measure of the It is calculated as The equivalent balances under IFRS and the reconciliation
performance of our the gross investment to the Investment basis are shown
proprietary investment return, as shown in the in the Reconciliation of the consolidated statement of
portfolio. Investment basis Consolidated comprehensive income and the Reconciliation
statement of comprehensive of the consolidated statement of financial position
income, as a % of the respectively.
opening portfolio value.
For further information see the Group KPIs in our Annual
report and accounts 2023.
Cash realisations
Purpose Calculation Reconciliation to IFRS
Cash proceeds from The cash received from The equivalent balance under
our investments the disposal of investments IFRS and the reconciliation to
support our returns in the year as shown the Investment basis is shown
to shareholders, in the Investment basis in the Reconciliation of the
as well as our ability Consolidated cash flow consolidated cash flow statement.
to invest in new statement.
opportunities.
For further information see the
Group KPIs in our Annual report
and accounts 2023.
======================= ================================ ===========================================================
Cash investment(1)
Purpose Calculation Reconciliation to IFRS
Identifying new The cash paid to acquire The equivalent balance under
opportunities in investments in the year IFRS and the reconciliation to
which to invest as shown on the Investment the Investment basis is shown
proprietary capital basis Consolidated cash in the Reconciliation of the
is the primary driver flow statement. consolidated cash flow statement.
of the Group's ability
to deliver attractive
returns.
For further information see the
Group KPIs in our Annual report
and accounts 2023.
======================= ================================ ===========================================================
Operating cash
profit
Purpose Calculation Reconciliation to IFRS
By covering the The cash income from The equivalent balance under
cash cost of running the portfolio (interest, IFRS and the reconciliation to
the business with dividends and fees) together the Investment basis is shown
cash income, we with fees received from in the Reconciliation of the
reduce the potential external funds less cash consolidated cash flow statement.
dilution of capital operating expenses and
returns. leases payments as shown For further information see the
on the Investment basis Group KPIs in our Annual report
Consolidated cash flow and accounts 2023.
statement. The calculation
is shown in Table 16
of the Financial review.
----------------------- -------------------------------- -----------------------------------------------------------
Net (debt)/cash
Purpose Calculation Reconciliation to IFRS
A measure of the Cash and cash equivalents The equivalent balance under
available cash to plus deposits less loans IFRS and the reconciliation to
invest in the business and borrowings as shown the Investment basis is shown
and an indicator on the Investment basis in the Reconciliation of the
of the financial Consolidated statement consolidated statement of financial
risk in the Group's of financial position. position.
balance sheet.
----------------------- -------------------------------- -----------------------------------------------------------
Gearing
Purpose Calculation Reconciliation to IFRS
A measure of the Net debt (as defined The equivalent balance under
financial risk in above) as a % of the IFRS and the reconciliation to
the Group's balance Group's net assets under the Investment basis is shown
sheet. the Investment basis. in the Reconciliation of the
It cannot be less than consolidated statement of financial
zero. position .
----------------------- -------------------------------- -----------------------------------------------------------
1 Cash investment of GBP397 million is different to cash
investment per the cash flow of GBP330 million due to a GBP57
million syndication in Infrastructure which was received in FY2023
and a GBP10 million investment in Private Equity to be paid in
FY2024. The Notes to the accounts section forms an integral part of
these financial statements.
Audited financial statements
Consolidated statement of comprehensive income
for the year to 31 March
2023 2022
Notes GBPm GBPm
----------------------------------------------------------- ------ ----- -----
Realised profits over value on the disposal of
investments 64 89
Unrealised profits on the revaluation of investments 1,897 1,781
Fair value movements on investment entity subsidiaries 2,112 1,974
Portfolio income
Dividends 229 206
Interest income from investment portfolio 29 30
Fees receivable 10 6
Foreign exchange on investments 203 (9)
Movement in the fair value of derivatives 122 2
----------------------------------------------------------- ------ ----- -----
Gross investment return 4,666 4,079
----------------------------------------------------------- ------ ----- -----
Fees receivable from external funds 70 62
Operating expenses (137) (127)
Interest receivable 4 -
Interest payable (54) (53)
Exchange movements (6) 16
Income from investment entity subsidiaries 30 32
Other (expense)/income (1) 2
----------------------------------------------------------- ------ ----- -----
Operating profit before carried interest 4,572 4,011
----------------------------------------------------------- ------ ----- -----
Carried interest
Carried interest and performance fees receivable 41 53
Carried interest and performance fees payable (38) (46)
---------------------------------------------------------- ------ ----- -----
Operating profit before tax 4,575 4,018
----------------------------------------------------------- ------ ----- -----
Tax charge (2) (5)
----------------------------------------------------------- ------ ----- -----
Profit for the year 4,573 4,013
----------------------------------------------------------- ------ ----- -----
Other comprehensive income that may be reclassified
to the income statement
Exchange differences on translation of foreign
operations 4 (1)
Other comprehensive income that will not be reclassified
to the income statement
Re-measurements of defined benefit plans 8 2
--------------------------------------------------------- ------ ----- -----
Other comprehensive income for the year 12 1
----------------------------------------------------------- ------ ----- -----
Total comprehensive income for the year ("Total
return") 4,585 4,014
----------------------------------------------------------- ------ ----- -----
Earnings per share
Basic (pence) 2 475.0 415.4
Diluted (pence) 2 473.8 414.3
--------------------------------------------------------- ------ ----- -----
The Notes to the accounts section forms an integral part of
these financial statements.
Consolidated statement of financial position
as at 31 March
2023 2022
GBPm GBPm
-------------------------------------------------- ------ -------
Assets
Non-current assets
Investments
Quoted investments 841 934
Unquoted investments 8,677 5,708
Investments in investment entity subsidiaries 7,844 6,791
-------------------------------------------------- ------ -------
Investment portfolio 17,362 13,433
-------------------------------------------------- ------ -------
Carried interest and performance fees receivable 3 9
Other non-current assets 30 45
Intangible assets 5 6
Retirement benefit surplus 53 53
Property, plant and equipment 3 3
Right of use asset 9 13
Derivative financial instruments 73 7
Deferred income taxes - 1
-------------------------------------------------- ------ -------
Total non-current assets 17,538 13,570
-------------------------------------------------- ------ -------
Current assets
Carried interest and performance fees receivable 40 51
Other current assets 30 104
Current income taxes 1 1
Derivative financial instruments 48 10
Cash and cash equivalents 162 212
-------------------------------------------------- ------ -------
Total current assets 281 378
-------------------------------------------------- ------ -------
Total assets 17,819 13,948
-------------------------------------------------- ------ -------
Liabilities
Non-current liabilities
Trade and other payables (4) (14)
Carried interest and performance fees payable (43) (42)
Loans and borrowings (775) (775)
Derivative financial instruments (3) -
Retirement benefit deficit (20) (26)
Lease liability (5) (9)
Deferred income taxes (1) (1)
Provisions (4) (3)
-------------------------------------------------- ------ -------
Total non-current liabilities (855) (870)
-------------------------------------------------- ------ -------
Current liabilities
Trade and other payables (76) (80)
Carried interest and performance fees payable (34) (35)
Loans and borrowings - (200)
Derivative financial instruments (1) -
Lease liability (5) (5)
Current income taxes (4) (4)
-------------------------------------------------- ------ -------
Total current liabilities (120) (324)
-------------------------------------------------- ------ -------
Total liabilities (975) (1,194)
-------------------------------------------------- ------ -------
Net assets 16,844 12,754
-------------------------------------------------- ------ -------
Equity
Issued capital 719 719
Share premium 790 789
Capital redemption reserve 43 43
Share-based payment reserve 31 33
Translation reserve (2) (6)
Capital reserve 14,044 10,151
Revenue reserve 1,327 1,125
Own shares (108) (100)
-------------------------------------------------- ------ -------
Total equity 16,844 12,754
-------------------------------------------------- ------ -------
The Notes to the accounts section forms an integral part of
these financial statements.
David Hutchison
Chairman
10 May 2023
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(1) reserve(1) shares equity
2023 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- -------- ---------- -------- ----------- ---------- ----------- ------- -------
Total equity at the
start
of the year 719 789 43 33 (6) 10,151 1,125 (100) 12,754
Profit for the year - - - - - 4,064 509 - 4,573
Exchange differences
on
translation of
foreign
operations - - - - 4 - - - 4
Re-measurements of - - - - - 8 - - 8
defined
benefit plans
-------------------- -------- -------- ---------- -------- ----------- ---------- ----------- ------- -------
Total comprehensive
income
for the year - - - - 4 4,072 509 - 4,585
-------------------- -------- -------- ---------- -------- ----------- ---------- ----------- ------- -------
Share-based payments - - - 19 - - - - 19
Release on
exercise/forfeiture
of share awards - - - (21) - - 21 - -
Exercise of share
awards - - - - - (22) - 22 -
Ordinary dividends - - - - - (157) (328) - (485)
Purchase of own
shares - - - - - - - (30) (30)
Issue of ordinary - 1 - - - - - - 1
shares
-------------------- -------- -------- ---------- -------- ----------- ---------- ----------- ------- -------
Total equity at the
end
of the year 719 790 43 31 (2) 14,044 1,327 (108) 16,844
-------------------- -------- -------- ---------- -------- ----------- ---------- ----------- ------- -------
1 Refer to Note 20 in our Annual report and accounts 2023 for
the nature of the capital and revenue reserves.
Share-
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve(1) reserve(1) shares equity
2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- -------- ---------- -------- ----------- ---------- ----------- ------- -------
Total equity at the
start
of the year 719 788 43 34 (5) 6,733 916 (64) 9,164
Profit for the year - - - - - 3,547 466 - 4,013
Exchange differences
on
translation of
foreign
operations - - - - (1) - - - (1)
Re-measurements of
defined
benefit plans - - - - - 2 - - 2
-------------------- -------- -------- ---------- -------- ----------- ---------- ----------- ------- -------
Total comprehensive
income
for the year - - - - (1) 3,549 466 - 4,014
-------------------- -------- -------- ---------- -------- ----------- ---------- ----------- ------- -------
Share-based payments - - - 18 - - - - 18
Release on
exercise/forfeiture
of share awards - - - (19) - - 19 - -
Exercise of share
awards - - - - - (18) - 18 -
Ordinary dividends - - - - - (113) (276) - (389)
Purchase of own
shares - - - - - - - (54) (54)
Issue of ordinary
shares - 1 - - - - - - 1
-------------------- -------- -------- ---------- -------- ----------- ---------- ----------- ------- -------
Total equity at the
end
of the year 719 789 43 33 (6) 10,151 1,125 (100) 12,754
-------------------- -------- -------- ---------- -------- ----------- ---------- ----------- ------- -------
1 Refer to Note 20 in our Annual report and accounts 2023 for
the nature of the capital and revenue reserves.
The Notes to the accounts section forms an integral part of
these financial statements.
Consolidated cash flow statement
for the year to 31 March
2023 2022
Notes GBPm GBPm
----------------------------------------------------- ------ ----- -----
Cash flow from operating activities
Purchase of investments (46) (324)
Proceeds from investments 227 294
Amounts paid to investment entity subsidiaries (535) (349)
Amounts received from investment entity subsidiaries 841 685
Net cash flow from derivatives 23 11
Portfolio interest received 12 3
Portfolio dividends received 223 204
Portfolio fees received 5 9
Fees received from external funds 67 68
Carried interest and performance fees received 58 10
Carried interest and performance fees paid (29) (14)
Operating expenses paid (128) (105)
Co-investment loans received/(paid) 5 (3)
Tax received - 1
Interest received 4 -
----------------------------------------------------- ------ ----- -----
Net cash flow from operating activities 727 490
----------------------------------------------------- ------ ----- -----
Cash flow from financing activities
Issue of shares 1 1
Purchase of own shares (30) (54)
Dividend paid 3 (485) (389)
Repayment of long-term borrowing (200) -
Lease payments (5) (4)
Interest paid (54) (52)
----------------------------------------------------- ------ ----- -----
Net cash flow from financing activities (773) (498)
----------------------------------------------------- ------ ----- -----
Cash flow from investing activities
Purchases of property, plant and equipment (1) -
----------------------------------------------------- ------ ----- -----
Net cash flow from investing activities (1) -
----------------------------------------------------- ------ ----- -----
Change in cash and cash equivalents (47) (8)
----------------------------------------------------- ------ ----- -----
Cash and cash equivalents at the start of the
year 212 216
Effect of exchange rate fluctuations (3) 4
----------------------------------------------------- ------ ----- -----
Cash and cash equivalents at the end of the year 162 212
----------------------------------------------------- ------ ----- -----
The Notes to the accounts section forms an integral part of
these financial statements.
Significant accounting policies
Reporting entity
3i Group plc (the "Company") is a public limited company
incorporated and domiciled in England and Wales. The consolidated
financial statements ("the Group accounts") for the year to 31
March 2023 comprise of 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 UK-adopted international
accounting standards. The financial statements are presented to the
nearest million sterling (GBPm), the functional currency of the
Company.
The Group did not implement the requirements of any new
standards in issue for the year ended 31 March 2023. No other
standards or interpretations have been issued that are expected to
have a material impact on the Group's financial statements.
The principal accounting policies applied in the preparation of
the Group accounts are disclosed below, but where possible, they
have been shown as part of the Note to which they specifically
relate in order to assist the reader's understanding. These
policies have been consistently applied and apply to all years
presented, except for in relation to the adoption of new accounting
standards.
Going concern
These financial statements have been prepared on a going concern
basis as disclosed in the Directors' report. The Directors have
made an assessment of going concern for a period of at least 12
months from the date of approval of the accounts, taking into
account the Group's current performance, financial position and the
principal and emerging risks facing the business.
The Directors' assessment of going concern, which takes into
account the business model (further detail in our Annual report and
accounts 2023) and the Group's liquidity of GBP1,312 million,
indicates that the Group and parent company will have sufficient
funds to continue as a going concern, for at least the next 12
months from the date of approval of the accounts. As detailed
within the Financial review earlier in this document, on the
Investment basis the Group covers its cash operating costs, GBP133
million at 31 March 2023, with cash income generated by our Private
Equity and Infrastructure businesses and Scandlines, GBP497 million
at 31 March 2023. The Group's liquidity comprised of cash and
deposits of GBP412 million (31 March 2022: GBP229 million) and an
undrawn multi-currency facility of GBP900 million (31 March 2022:
GBP500 million), which has no financial covenants. During the year
the Group increased its existing RCF base of GBP500 million with an
additional two-year GBP400 million tranche which provides the Group
with additional liquidity in the medium term at low cost. Post 31
March 2023 the Group
has successfully extended its GBP400 million tranche by a
further year to July 2025.
The Group manages liquidity with the aim of ensuring it is
adequate and sufficient, by regular monitoring of investments,
realisations, operating expenses and portfolio cash income and
there have been no post balance sheet changes that would be
materially detrimental to liquidity. The Directors are of the
opinion that the Group's cash flow forecast is sufficient to
support the Group given the current market, economic conditions and
outlook.
In addition, the Directors have modelled a number of severe, yet
plausible, individual and combined stress scenarios for a period of
at least 12 months from the date of issue of these financial
statements. The scenarios include the consideration of the
potential impact of a recession triggered by persistent inflation,
high interest rates and weak consumer demand, as well as the impact
of a significant downturn event specifically on the Group's largest
asset. These scenarios include a range of estimated impacts,
primarily based on providing additional support to portfolio
companies. The scenarios are most sensitive to a delay in
realisations which contribute to the liquidity of the Group. A key
judgement applied is the extent of recessionary impacts alongside
the likely recovery profile of portfolio companies.
The results of each of the stress test scenarios indicate that
the Group is able to meet its obligations as they fall due for a
period of at least 12 months from the date of approval of these
financial statements including, where appropriate, making use of
controllable management actions. In all these scenarios the
Directors expect the Group to be able to recover without a
permanent long-term impact on its solvency or capital requirements.
Mitigating actions within management control include for example,
drawing on the existing RCF or temporarily reducing new investment
levels.
Having performed the assessment on going concern, the Directors
considered it appropriate to prepare the financial statements of
the Company and Group on a going concern basis, and have concluded
that the Group has sufficient financial resources, is well placed
to manage business risks in the current economic environment, and
can continue operations for a period of at least 12 months from the
date of issue of these financial statements.
B Basis of consolidation
In accordance with IFRS 10 the Company meets the criteria as an
investment entity and therefore is required to recognise
subsidiaries that also qualify as investment entities at fair value
through profit or loss. It does not consolidate the investment
entities it controls. Subsidiaries that provide investment related
services, such as advisory, management or employment services, are
not accounted for at fair value through profit and loss and
continue to be consolidated unless those subsidiaries qualify as
investment entities, in which case they are recognised at fair
value. Subsidiaries are entities controlled by the Group. Control,
as defined by IFRS 10, is achieved when the Group has all of the
following:
-- power over the relevant activities of the investee;
-- exposure, or rights, to variable returns from its involvement
with the investee; and
-- the ability to affect those returns through its power over
the investee.
The Group is required to determine the degree of control or
influence the Group exercises and the form of any control to ensure
that the financial treatment is accurate.
Subsidiaries are fully consolidated from the date on which the
Group effectively obtains control. All intragroup balances and
transactions with subsidiaries are eliminated upon consolidation.
Subsidiaries are de-consolidated from the date that control
ceases.
The Group comprises several different types of subsidiaries. For
a new subsidiary, the Group assesses whether it qualifies as an
investment entity under IFRS 10, based on the function the entity
performs within the Group. For existing subsidiaries, the Group
annually reassesses the function performed by each type of
subsidiary to determine if the treatment under IFRS 10 exception
from consolidation is still appropriate. The types of subsidiaries
and their treatment under IFRS 10 are as follows:
General Partners ("GPs") - Consolidated
General Partners provide investment management services and do
not hold any direct investments in portfolio assets. These entities
are not investment entities.
Investment managers/advisers - Consolidated
These entities provide investment related services through the
provision of investment management or advice. They do not hold any
direct investments in portfolio assets. These entities are not
investment entities.
Holding companies of investment managers/advisers -
Consolidated
These entities provide investment related services through their
subsidiaries. Typically they do not hold any direct investment in
portfolio assets and these entities are not investment
entities.
Limited Partnerships and other intermediate investment holding
structures - Fair valued
The Group makes investments in portfolio assets through its
ultimate parent company as well as through other limited
partnerships and corporate subsidiaries which the Group has created
to align the interests of the investment teams with the performance
of the assets through the use of various carried interest schemes.
The purpose of these limited partnerships and corporate holding
vehicles, many of which also provide investment related services,
is to invest for investment income and capital appreciation. These
partnerships and corporate subsidiaries meet the definition of an
investment entity and are accounted for at fair value through
profit and loss.
Portfolio investments - Fair valued
Under IFRS 10, the test for accounting subsidiaries takes wider
factors of control as well as actual equity ownership into account.
In accordance with the investment entity exception, these entities
have been held at fair value with movements in fair value being
recognised in profit or loss.
Associates - Fair valued
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating
policies. Investments that are held as part of the Group's
investment portfolio are carried in the Consolidated statement of
financial position at fair value even though the Group may have
significant influence over those companies.
Further detail on our application of IFRS 10 can be found in the
Reconciliation of Investment basis to IFRS section.
C Critical accounting judgements and estimates
The reported results of the Group are sensitive to the
accounting policies, assumptions and estimates that underpin the
preparation of its financial statements. UK company law and IFRS
require the Directors, in preparing the Group's financial
statements, to select suitable accounting policies, apply them
consistently and make judgements and estimates that are reasonable
and prudent. The Group's estimates and assumptions are based on
historical experience and expectation of future events and are
reviewed periodically. The actual outcome may be materially
different from that anticipated.
(a) Critical judgements
In the course of preparing the financial statements, one
judgement has been made in the process of applying the Group's
accounting policies, other than those involving estimations, that
has had a significant effect on the amounts recognised in the
financial statements as follows:
I. Assessment as an investment entity
The Board has concluded that the Company continues to meet the
definition of an investment entity, as its strategic objective of
investing in portfolio investments and providing investment
management services to investors for the purpose of generating
returns in the form of investment income and capital appreciation
remains unchanged.
(b) Critical estimates
In addition to these significant judgements the Directors have
made two estimates, which they deem to have a significant risk of
resulting in a material adjustment to the amounts recognised in the
financial statements within the next financial year. The details of
these estimates are as follows:
I. Fair valuation of the investment portfolio
The investment portfolio, a material group of assets of the
Group, is held at fair value. Details of valuation methodologies
used and the associated sensitivities are disclosed in Note 13 Fair
values of assets and liabilities in our Annual report and accounts
2023. 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 2023.
II. Carried interest payable
Carried interest payable is calculated based on the underlying
agreements, and assuming all portfolio investments are sold at
their fair values at the balance sheet date. The actual amounts of
carried interest paid will depend on the cash realisations of these
portfolio investments and valuations may change significantly in
the next financial year. The fair valuation of the investment
portfolio is itself a critical estimate, as detailed above. The
sensitivity of carried interest payable to movements in the
investment portfolio is disclosed in Note 15 in our Annual report
and accounts 2023.
D Other accounting policies
(a) Gross investment return
Gross investment return is equivalent to "revenue" for the
purposes of IAS 1. It represents the overall increase in net assets
from the investment portfolio net of deal-related costs and
includes foreign exchange movements in respect of the investment
portfolio. The substantial majority is investment income and
outside the scope of IFRS 15. It is analysed into the following
components with the relevant standard shown where appropriate:
i. Realised profits or losses over value on the disposal of
investments are the difference between the fair value of the
consideration received in accordance with IFRS 13 less any directly
attributable costs, on the sale of equity and the repayment of
interest income from the investment portfolio, and its carrying
value at the start of the accounting period, converted into
sterling using the exchange rates in force at the date of
disposal.
ii. Unrealised profits or losses on the revaluation of
investments are the movement in the fair value of investments in
accordance with IFRS 13 between the start and end of the accounting
period converted into sterling using the exchange rates in force at
the date of fair value assessment.
iii. Fair value movements on investment entity subsidiaries are
the movements in the fair value of Group subsidiaries which are
classified as investment entities under IFRS 10. The Group makes
investments in portfolio assets through these entities which are
usually limited partnerships or corporate subsidiaries.
iv. Portfolio income is that portion of income that is directly
related to the return from individual investments. It is recognised
to the extent that it is probable that there will be economic
benefit and the income can be reliably measured. The following
specific recognition criteria must be met before the income is
recognised:
-- Dividends from equity investments are recognised in profit or
loss when the shareholders' rights to receive payment have been
established;
-- Interest income from the 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; and
-- The accounting policy for fee income is included in Note 4 in
our Annual report and accounts 2023.
v. Foreign exchange on investments arises on investments made in
currencies that are different from the functional currency of the
Company, being sterling. Investments are translated at the exchange
rate ruling at the date of the transaction in accordance with IAS
21. At each subsequent reporting date, investments are translated
to sterling at the exchange rate ruling at that date.
vi. Movement in the fair value of derivatives relates to the
change in fair value of forward foreign exchange contracts which
have been used to minimise foreign currency risk in the investment
portfolio. See Note 18 in our Annual report and accounts 2023 for
more details.
(b) Foreign currency translation
For the Company and those subsidiaries and associates 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 profit or loss.
The statements of financial position of subsidiaries, 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 profit or loss in the period in which the
subsidiary or associate is disposed of.
(c) Treasury assets and liabilities
Short-term treasury assets, and short and long-term treasury
liabilities are used in order to manage cash flows.
Cash and cash equivalents comprise cash at bank and amounts held
in money market funds which are readily convertible into cash and
there is an insignificant risk of changes in value. Financial
assets and liabilities are recognised in the balance sheet when the
relevant Group entity becomes a party to the contractual provisions
of the instrument. Derecognition 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 returns
generated by these divisions and the allocation of resources, is
given in the Strategic report. For the geographical segmental
split, revenue information is based on the locations of the assets
held. To aid the readers' understanding we have split out Action,
Private Equity's largest asset, into a separate column. Action is
not regarded as a reported segment as the chief operating decision
maker reviews performance, makes decisions and allocates resources
to the Private Equity segment, which includes Action.
The segmental information that follows is presented on the basis
used by the Chief Executive to monitor the performance of the
Group. The reported segments are Private Equity, Infrastructure and
Scandlines.
The segmental analysis is prepared on the Investment basis. The
Investment basis is an APM and we believe it provides a more
understandable view of performance. Further information on the
Investment basis and a reconciliation between the Investment basis
and IFRS can be found in the Reconciliation of Investment basis and
IFRS section earlier in this document.
Investment basis Private Of which
Equity Action Infrastructure Scandlines Total(4)
Year to 31 March 2023 GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ------- -------- --------------- ----------- ---------
Realised profits over value on
the disposal of investments 169 - - - 169
Unrealised profits on the revaluation
of investments 3,746 3,708 23 - 3,769
Portfolio income
Dividends 345 328 33 38 416
Interest income from investment
portfolio 77 - 14 - 91
Fees receivable 7 1 - - 7
Foreign exchange on investments 493 285 16 21 530
Movement in the fair value of derivatives 129 22 - (7) 122
------------------------------------------ ------- -------- --------------- ----------- ---------
Gross investment return 4,966 4,344 86 52 5,104
------------------------------------------ ------- -------- --------------- ----------- ---------
Fees receivable from external funds 4 - 66 - 70
Operating expenses (88) - (48) (2) (138)
Interest receivable 4
Interest payable (54)
Exchange movements (29)
Other income (1)
------------------------------------------ ------- -------- --------------- ----------- ---------
Operating profit before carried
interest 4,956
------------------------------------------ ------- -------- --------------- ----------- ---------
Carried interest
Carried interest and performance
fees receivable 4 - 37 - 41
Carried interest and performance
fees payable (392) - (26) - (418)
------------------------------------------ ------- -------- --------------- ----------- ---------
Operating profit before tax 4,579
------------------------------------------ ------- -------- --------------- ----------- ---------
Tax charge (2)
------------------------------------------ ------- -------- --------------- ----------- ---------
Profit for the year 4,577
------------------------------------------ ------- -------- --------------- ----------- ---------
Other comprehensive income
Re-measurements of defined benefit 8
plans
------------------------------------------ ------- -------- --------------- ----------- ---------
Total return 4,585
------------------------------------------ ------- -------- --------------- ----------- ---------
Realisations(1) 857 - - - 857
Cash investment(2) (381) (30) (16) - (397)
------------------------------------------ ------- -------- --------------- ----------- ---------
Net divestment/(investment) 476 (30) (16) - 460
------------------------------------------ ------- -------- --------------- ----------- ---------
Balance sheet
Opening portfolio value at 1 April
2022 12,420 7,165 1,352 533 14,305
Investment(3) 496 30 16 - 512
Value disposed (688) - - - (688)
Unrealised value movement 3,746 3,708 23 - 3,769
Other movement (including foreign
exchange) 451 285 18 21 490
------------------------------------------ ------- -------- --------------- ----------- ---------
Closing portfolio value at 31
March 2023 16,425 11,188 1,409 554 18,388
------------------------------------------ ------- -------- --------------- ----------- ---------
1 Realised proceeds may differ from cash proceeds due to timing of
cash receipts. During the year, Private Equity received GBP1 million
and Infrastructure received GBP33 million of cash proceeds which
were recognised as realised proceeds in FY2022. Private Equity recognised
GBP6 million of realised proceeds which are to be received in FY2024.
2 Cash investment per the segmental analysis is different to cash investment
per the cash flow due to a GBP57 million syndication in Infrastructure
which was recognised in FY2022 and received in FY2023 and a GBP10
million investment in Private Equity which was recognised in FY2023
and is to be paid in FY2024.
3 Includes capitalised interest and other non-cash investment.
4 The total is the sum of Private Equity, Infrastructure and Scandlines,
"Of which Action" is part of Private Equity.
Interest received, interest paid, exchange movements, other
income, tax charge and re-measurements of defined benefit plans are
not managed by segment by the chief operating decision maker and
therefore have not been allocated to a specific segment.
Investment basis Private Of which
Year to 31 March 2022 Equity Action Infrastructure Scandlines Total(4)
GBPm GBPm GBPm GBPm GBPm
------------------------------------------- ------- -------- --------------- ----------- ---------
Realised profits over value on
the disposal of investments 228 - 10 - 238
Unrealised profits on the revaluation
of investments 3,545 2,655 178 101 3,824
Portfolio income
Dividends 331 288 31 13 375
Interest income from investment
portfolio 73 - 12 - 85
Fees receivable 6 1 (3) - 3
Foreign exchange on investments (11) (56) 13 (4) (2)
Movement in the fair value of derivatives - - - 2 2
------------------------------------------- ------- -------- --------------- ----------- ---------
Gross investment return 4,172 2,888 241 112 4,525
------------------------------------------- ------- -------- --------------- ----------- ---------
Fees receivable from external funds 4 - 58 - 62
Operating expenses (83) - (43) (2) (128)
Interest receivable -
Interest payable (53)
Exchange movements 9
Other income 2
------------------------------------------- ------- -------- --------------- ----------- ---------
Operating profit before carried
interest 4,417
------------------------------------------- ------- -------- --------------- ----------- ---------
Carried interest
Carried interest and performance
fees receivable 3 - 51 - 54
Carried interest and performance
fees payable (416) - (38) - (454)
------------------------------------------- ------- -------- --------------- ----------- ---------
Operating profit before tax 4,017
------------------------------------------- ------- -------- --------------- ----------- ---------
Tax charge (5)
------------------------------------------- ------- -------- --------------- ----------- ---------
Profit for the year 4,012
------------------------------------------- ------- -------- --------------- ----------- ---------
Other comprehensive income
Re-measurements of defined benefit
plans 2
------------------------------------------- ------- -------- --------------- ----------- ---------
Total return 4,014
------------------------------------------- ------- -------- --------------- ----------- ---------
Realisations(1) 684 - 104 - 788
Cash investment(2) (457) - (85) (1) (543)
------------------------------------------- ------- -------- --------------- ----------- ---------
Net divestment/(investment) 227 - 19 (1) 245
------------------------------------------- ------- -------- --------------- ----------- ---------
Balance sheet
Opening portfolio value at 1 April
2021 8,814 4,566 1,159 435 10,408
Investment(3) 568 - 85 1 654
Value disposed (456) - (94) - (550)
Unrealised value movement 3,545 2,655 178 101 3,824
Other movement (including foreign
exchange) (51) (56) 24 (4) (31)
------------------------------------------- ------- -------- --------------- ----------- ---------
Closing portfolio value at 31
March 2022 12,420 7,165 1,352 533 14,305
------------------------------------------- ------- -------- --------------- ----------- ---------
1 Realised proceeds may differ from cash proceeds due to timing of
cash receipts. During the year, Private Equity received GBP3 million
of cash proceeds which were recognised as realised proceeds in FY2021.
Infrastructure recognised GBP32 million of realised proceeds which
are to be received in FY2023 and Private Equity recognised GBP1 million
of realised proceeds which are to be received in FY2023.
2 Cash investment per the segmental analysis is different to cash investment
per the cash flow due to a GBP53 million syndication in Infrastructure
which was recognised in FY2022 and to be received in FY2023.
3 Includes capitalised interest and other non-cash investment.
4 The total is the sum of Private Equity, Infrastructure and Scandlines,
"Of which Action" is part of Private Equity.
Interest received, interest paid, exchange movements, other
income, tax charge and re-measurements of defined benefit plans 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
UK Europe America Other Total
Year to 31 March 2023 GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----- -------- -------- ------ ------
Realised profits over value on
the disposal of investments 1 168 - - 169
Unrealised profits on the revaluation
of investments 57 3,388 317 7 3,769
Portfolio income 63 435 16 - 514
Foreign exchange on investments - 418 113 (1) 530
Movement in fair value of derivatives - 22 100 - 122
-------------------------------------- ----- -------- -------- ------ ------
Gross investment return 121 4,431 546 6 5,104
-------------------------------------- ----- -------- -------- ------ ------
Realisations 1 524 332 - 857
Cash investment (30) (293) (74) - (397)
-------------------------------------- ----- -------- -------- ------ ------
Net (investment)/divestment (29) 231 258 - 460
-------------------------------------- ----- -------- -------- ------ ------
Balance sheet
Closing portfolio value at 31
March 2023 2,050 14,189 2,122 27 18,388
-------------------------------------- ----- -------- -------- ------ ------
Investment basis Northern North
UK Europe America Other Total
Year to 31 March 2022 GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----- -------- -------- ------ ------
Realised profits over value on
the disposal of investments 1 48 185 4 238
Unrealised profits on the revaluation
of investments 276 3,053 493 2 3,824
Portfolio income 60 390 13 - 463
Foreign exchange on investments - (78) 76 - (2)
Movement in fair value of derivatives - 2 - - 2
-------------------------------------- ----- -------- -------- ------ ------
Gross investment return 337 3,415 767 6 4,525
-------------------------------------- ----- -------- -------- ------ ------
Realisations 10 328 442 8 788
Cash investment (25) (374) (144) - (543)
-------------------------------------- ----- -------- -------- ------ ------
Net (investment)/divestment (15) (46) 298 8 245
-------------------------------------- ----- -------- -------- ------ ------
Balance sheet
Closing portfolio value at 31
March 2022 1,948 10,388 1,947 22 14,305
-------------------------------------- ----- -------- -------- ------ ------
2 Per share information
The calculation of basic net assets per share is based on the
net assets and the number of shares in issue at the year end. When
calculating the diluted net assets per share, the number of shares
in issue is adjusted for the effect of all dilutive share awards.
Dilutive share awards are equity awards with performance conditions
attached see Note 27 in our Annual report and accounts 2023 for
further details.
2023 2022
--------------------------------------------------------- ------------ ------------
Net assets per share (GBP)
Basic 17.50 13.24
Diluted 17.45 13.21
Net assets (GBPm)
Net assets attributable to equity holders of the Company 16,844 12,754
--------------------------------------------------------- ------------ ------------
2023 2022
--------------------------------------------------------- ------------ ------------
Number of shares in issue
Ordinary shares 973,312,950 973,238,638
Own shares (10,660,078) (10,212,745)
--------------------------------------------------------- ------------ ------------
962,652,872 963,025,893
--------------------------------------------------------- ------------ ------------
Effect of dilutive potential ordinary shares
Share awards 2,849,520 2,705,623
--------------------------------------------------------- ------------ ------------
Diluted shares 965,502,392 965,731,516
--------------------------------------------------------- ------------ ------------
The calculation of basic earnings per share is based on the
profit attributable to shareholders and the weighted average number
of shares in issue. The weighted average shares in issue for the
year to 31 March 2023 are 962,674,183 (2022: 966,091,793). When
calculating the diluted earnings per share, the weighted average
number of shares in issue is adjusted for the effect of all
dilutive share awards. The diluted weighted average shares in issue
for the year to 31 March 2023 are 965,273,696 (2022:
968,636,820).
2023 2022
------------------------------------------------------ ----- -----
Earnings per share (pence)
Basic 475.0 415.4
Diluted 473.8 414.3
Earnings (GBPm)
Profit for the year attributable to equity holders of
the Company 4,573 4,013
------------------------------------------------------ ----- -----
3 Dividends
2023 2022
pence 2023 pence 2022
per GBPm per GBPm
share share
---------------------------------- ------ ----- ------ -----
Declared and paid during the year
Ordinary shares
Second dividend 27.25 262 21.00 203
First dividend 23.25 223 19.25 186
---------------------------------- ------ ----- ------ -----
50.50 485 40.25 389
---------------------------------- ------ ----- ------ -----
Proposed dividend 29.75 285 27.25 262
---------------------------------- ------ ----- ------ -----
The Group introduced a simplified dividend policy in May 2018.
In accordance with this policy, subject to maintaining a
conservative balance sheet approach, the Group aims to maintain or
grow the dividend each year. The first dividend has been set at 50%
of the prior year's total dividend.
The dividend can be paid out of either the capital reserve or
the revenue reserve subject to the investment trust rules, see Note
20 in our Annual report and accounts 2023 for details of
reserves.
The distributable reserves of the parent company are GBP4,940
million (31 March 2022: GBP3,968million) and the Board reviews the
distributable reserves bi-annually, including consideration of any
material changes since the most recent audited accounts, ahead of
proposing any dividend. The Board also reviews the proposed
dividends in the context of the requirements of being an approved
investment trust. Shareholders are given the opportunity to approve
the total dividend for the year at the Company's Annual General
Meeting. Details of the Group's continuing viability and going
concern can be found in the Risk management section of our Annual
report and accounts 2023
20 large investments
The 20 investments listed below account for 94% of the portfolio
at 31 March 2023 (31 March 2022: 93%). All investments have been
assessed to establish whether they classify as accounting
subsidiaries under IFRS and/or subsidiaries under the UK Companies
Act. This assessment forms the basis of our disclosure of
accounting subsidiaries in the financial statements.
The UK Companies Act defines a subsidiary based on voting
rights, with a greater than 50% majority of voting rights resulting
in an entity being classified as a subsidiary. IFRS 10 applies a
wider test and, if a Group is exposed, or has rights to variable
returns from its involvement with the investee and has the ability
to affect these returns through its power over the investee then it
has control, and hence the investee is deemed an accounting
subsidiary. Controlled subsidiaries under IFRS are noted below.
None of these investments are UK Companies Act subsidiaries.
In accordance with Part 5 of The Alternative Investment Fund
Managers Regulations 2013 ("the Regulations"), 3i Investments plc,
as AIFM, requires all controlled portfolio companies to make
available to employees an annual report which meets the disclosure
requirements of the Regulations. These are available either on the
portfolio company's website or through filing with the relevant
local authorities.
Residual Residual
Business cost(1) cost(1) Valuation Valuation
line
Geography March March March March Relevant
First invested
Investment in 2023 2022 2023 2022 transactions
Description of business Valuation GBPm GBPm GBPm GBPm in the year
basis
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
GBP325 million
cash dividend
received
GBP30 million
further as part
Private Equity of
Action* Netherlands the 2020
General merchandise 2011/2020 co-investment
discount retailer Earnings 653 623 11,188 7,165 programme
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
3i Infrastructure
plc* Infrastructure
Quoted investment UK
company, investing 2007 GBP29 million dividend
in Infrastructure Quoted 305 305 841 934 received
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
Scandlines
Scandlines Denmark/Germany
Ferry operator between 2018 GBP38 million dividend
Denmark and Germany DCF 530 530 554 533 received
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
Acquisition of
Private Equity Precision
Cirtec Medical* US Components from
Outsourced medical 2017 Q Holding
device manufacturing Earnings 172 172 552 513 in January 2023
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
Tato Private Equity
Manufacturer and UK
seller of specialty 1989 GBP12 million dividend
chemicals Earnings 2 2 411 407 recorded
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
Private Equity
nexeye* Netherlands
Value-for-money optical 2017
retailer Earnings 269 269 393 345
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
SaniSure*
Manufacturer, distributor Private Equity Acquisition of
and integrator of US Twinsburg from
single-use bioprocessing 2019 Q Holding in December
systems and components Earnings 76 76 389 277 2022
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
Royal Sanders*
Private label and Private Equity
contract manufacturing Netherlands
producer of personal 2018
care products Earnings 136 136 369 297
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
AES Engineering Private Equity
Manufacturer of mechanical UK
seals and support 1996 GBP5 million dividend
systems Earnings 30 30 351 269 recorded
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
Evernex* Acquisitions of
Provider of third-party Private Equity XS
maintenance services France International
for data centre 2019 and Integra in
infrastructure Earnings 299 285 305 291 September 2022
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
Smarte Carte*
Provider of self-serve Infrastructure
vended luggage carts, US
electronic lockers 2017 GBP10 million distribution
and concession carts DCF 189 187 300 207 received
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
WP* Private Equity
Global manufacturer Netherlands
of innovative plastic 2015
packaging solutions Earnings 257 239 274 234
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
GBP34 million further
investment
in June 2022 to
Private Equity provide
Luqom* Germany funding for the
Online lighting specialist 2017 acquisition of
retailer Earnings 245 196 271 448 Brumberg
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
GBP6 million further
investment
WilsonHCG* in January 2023
Global provider of Private Equity to provide
recruitment process US funding for the
outsourcing and other 2021 acquisition of
talent solutions Earnings 83 77 196 115 Personify
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
MPM* Private Equity
An international UK
branded, premium and 2020
natural pet food company Earnings 153 139 181 162
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
Private Equity
Audley Travel* UK
Provider of experiential 2015
tailor-made travel Earnings 271 243 162 117
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
Private Equity
Denmark
BoConcept* 2016
Urban living designer Earnings 110 99 160 184
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
Dynatect* Private Equity
Manufacturer of engineered, US
mission critical protective 2014
equipment Earnings 65 65 128 102
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
Private Equity
Netherlands
Basic-Fit 2013
Discount gyms operator Quoted 11 11 121 129
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
Received proceeds
of GBP332
million following
the disposals
Q Holding* Private Equity of QSR, Precision
Manufacturer of catheter US Components and
products serving the 2014 Twinsburg
medical device market Earnings 162 162 117 398 in the year
----------------------------- ----------------- -------- -------- --------- --------- --------------------------
4,018 3,846 17,263 13,127
----------------------------------------------- -------- -------- --------- --------- --------------------------
Controlled in accordance with IFRS.
1 Residual cost includes cash investment and interest net of
cost disposed.
List of Directors and their functions
The Directors of the Company and their functions are listed
below:
David Hutchison, Chairman
Simon Borrows, Chief Executive and Executive Director
James Hatchley, Group Finance Director and Executive
Director
Jasi Halai, Chief Operating Officer and Executive Director
Caroline Banszky, Independent non-executive Director
Stephen Daintith, Independent non-executive Director
Lesley Knox, Senior Independent non-executive Director
Coline McConville, Independent non-executive Director
Peter McKellar, Independent non-executive Director
Alexandra Schaapveld, Independent non-executive Director
By order of the Board
K J Dunn
Company Secretary
10 May 2023
Registered Office: 16 Palace Street, London SW1E 5JD
Glossary
3i 2013-2016 vintage includes Aspen Pumps, Audley Travel,
Basic-Fit, Dynatect, Kinolt, ATESTEO, JMJ, Q Holding, WP,
Scandlines further (completed in December 2013), Christ, Geka,
Óticas Carol and Blue Interactive.
3i 2016-2019 vintage includes BoConcept, Cirtec Medical, Formel
D, nexeye, arriva, Luqom, Havea, Royal Sanders, Magnitude Software
and Schlemmer.
3i 2019-2022 vintage i ncludes Evernex, SaniSure, YDEON, MPM,
WilsonHCG, Dutch Bakery, ten23 health, insightsoftware, MAIT, Mepal
and Yanga.
3i 2022-2025 vintage includes xSuite, Digital Barriers, Konges
Sløjd, VakantieDiscounter .
3i Buyouts 2010-2012 vintage includes Action, Amor, Element,
Etanco, Hilite, OneMed and Trescal.
3i Growth 2010-2012 vintage includes Element, Hilite, BVG, Go
Outdoors, Loxam, Touchtunes and WFCI.
Alternative Investment Funds ("AIFs") At 31 March 2023, 3i
Investments plc as AIFM, managed seven AIFs. These were 3i Group
plc, 3i Growth Capital B LP, 3i Growth Capital C LP, 3i
Europartners Va LP, 3i Europartners Vb LP, 3i Managed
Infrastructure Acquisitions LP and 3i Infrastructure plc. 3i
Investments (Luxembourg) SA as AIFM, managed one AIF, 3i European
Operational Projects SCSp.
Alternative Investment Fund Manager ("AIFM") is the regulated
manager of AIFs. Within 3i, these are 3i Investments plc and
3i Investments (Luxembourg) SA.
APAC The Asia Pacific region.
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.
B2B Business-to-business.
Board The Board of Directors of the Company .
CAGR is the compound annual growth rate.
Capital redemption reserve is established in respect of the
redemption of the Company's ordinary shares.
Capital reserve recognises all profits and losses that are
capital in nature or have been allocated to capital. Following
changes to the Companies Act, the Company amended its Articles of
Association at the 2012 Annual General Meeting to allow these
profits to be distributable by way of a dividend.
Carried interest payable is accrued on the realised and
unrealised profits generated taking relevant performance hurdles
into consideration, assuming all investments were realised at the
prevailing book value. Carried interest is only actually paid when
the relevant performance hurdles are met and the accrual is
discounted to reflect expected payment periods.
Carried interest receivable The Group earns a share of profits
from funds which it manages on behalf of third parties. These
profits are earned when the funds meet certain performance
conditions and are paid by the fund once these conditions have been
met on a cash basis. The carried interest receivable may be subject
to clawback provisions if the performance of the fund deteriorates
following carried interest being paid.
Company 3i Group plc .
DACH The region covering Austria, Germany and Switzerland.
Discounting The reduction in present value at a given date of a
future cash transaction at an assumed rate, using a discount factor
reflecting the time value of money.
EBITDA is defined as earnings before interest, taxation,
depreciation and amortisation and is used as the typical measure of
portfolio company performance.
EBITDA multiple Calculated as the enterprise value over EBITDA,
it is used to determine the value of a company .
EMEA The region covering Europe, the Middle East and Africa.
Executive Committee The Executive Committee is responsible for
the day-to-day running of the Group (see the Governance section of
our Annual report and accounts 2023).
Fair value movements on investment entity subsidiaries The
movement in the carrying value of Group subsidiaries, classified as
investment entities under IFRS 10, between the start and end of the
accounting period converted into sterling using the exchange rates
at the date of the movement.
Fair value through profit or loss ("FVTPL") is an IFRS
measurement basis permitted for assets and liabilities which meet
certain criteria. Gains and losses on assets and liabilities
measured as FVTPL are recognised directly in the Statement of
comprehensive income.
Fee income (or Fees receivable ) is earned for providing
services to 3i's portfolio companies and predominantly falls into
one of two categories. Negotiation and other transaction fees are
earned for providing transaction related services. Monitoring and
other ongoing service fees are earned for providing a range of
services over a period of time.
Fees receivable from external funds are earned for providing
management and advisory services to a variety of fund partnerships
and other entities. Fees are typically calculated as a percentage
of the cost or value of the assets managed during the year and are
paid quarterly, based on the assets under management to date.
Foreign exchange on investments arises on investments made in
currencies that are different from the functional currency of the
Company. 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") i ncludes profit and loss on
realisations, increases and decreases in the value of the
investments we hold at the end of a period, any income received
from the investments such as interest, dividends and fee income,
movements in the fair value of derivatives and foreign exchange
movements. GIR is measured as a percentage of the opening portfolio
value.
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.
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 useful 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.
IRR Internal Rate of Return.
Key Performance Indicator ("KPI") is a measure by reference to
which the development, performance or position of the Group can be
measured effectively.
Like-for-like compare financial results in one period with those
for the previous period.
Liquidity includes cash and cash equivalents (as per the
Investment basis Consolidated cash flow statement) and undrawn
RCF.
Money multiple is calculated as the cumulative distributions
plus any residual value divided by paid-in capital.
Net asset value ("NAV") is a measure of the fair value of our
proprietary investments and the net costs of operating the
business.
Operating cash profit is the difference between our cash income
(consisting of portfolio interest received, portfolio dividends
received, portfolio fees received and fees received from external
funds as per the Investment basis Consolidated cash flow statement)
and our operating expenses and lease payments (as per the
Investment basis Consolidated cash flow statement).
Operating profit includes gross investment return, management
fee income generated from managing external funds, the costs of
running our business, net interest payable, exchange movements,
other income, carried interest and tax.
Organic growth is the growth a company achieves by increasing
output and enhancing sales inte rnally.
Performance fee receivable The Group earns a performance fee
from the investment management services it provides to 3i
Infrastructure plc ("3iN") when 3iN's total return for the year
exceeds a specified threshold. This fee is calculated on an annual
basis and paid in cash early in the next financial year.
Portfolio effect is the level of risk based on the diversity of
the investment portfolio.
Portfolio income is that which is directly related to the return
from individual investments. It is comprised of dividend income,
income from loans and receivables and fee income.
Proprietary Capital is 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 is 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 and losses that are
revenue in nature or have been allocated to revenue.
Revolving credit facility ("RCF") The Group has access to a
credit line which allows us to access funds when required to
improve our liquidity.
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 payment
s.
SORP means the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital
Trusts.
Syndication is the sale of part of our investment in a portfolio
company to a third party, usually within 12 months of our initial
investment and for the purposes of facilitating investment by a
co-investor or portfolio company management in line with our
original investment plan. A syndication is treated as a negative
investment rather than a realisation .
Total return comprises operating profit less tax charge less
movement in actuarial valuation of the historic defined benefit
pension scheme.
Total shareholder return ("TSR") is the measure of the overall
return to shareholders and includes the movement in the share price
and any dividends paid, assuming that all dividends are reinvested
on their ex -- dividend date.
Translation reserve comprises all exchange differences arising
from the translation of the financial statements of international
operations.
Unrealised profits or losses on the revaluation of investments
is 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.
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