REG - 3i Group PLC - 3i Group Half-year results to 30 September 2017 <Origin Href="QuoteRef">III.L</Origin> - Part 2
16/11/2017 07:06
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US$ 8 - - - - 8
Other E 1 - (1) - - -
Total 138 23 (24) - (10) 127
1 Other movements include foreign exchange.
Balance sheet
Table 17: Simplified consolidated balance sheet
30 September 2017 31 March 2017
£m £m
Investment portfolio value 6,584 5,675
Gross Debt (575) (575)
Cash 527 994
Net (debt)/cash (48) 419
Carried interest and performance fees receivable 436 366
Carried interest and performance fees payable (766) (685)
Other net assets 114 61
Net assets 6,320 5,836
Gearing1 1% nil
1 Gearing is net debt as a percentage of net assets.
Due to the increased level of investment activity in the first half (£572 million) and to the payment of the FY2017
dividend of £178 million, the Group had net debt of £48 million at 30 September 2017 (31 March 2017: net cash £419
million). The investment portfolio value increased to £6,584 million at 30 September 2017 (31 March 2017: £5,675 million)
as unrealised value growth of £539 million and cash investment offset the book value of realisations in the period. Further
information on investments and realisations is included in the Private Equity and Infrastructure business reviews.
Liquidity
Liquidity reduced to £877 million at 30 September 2017 (31 March 2017: £1,323 million) and comprised cash and deposits of
£527 million (31 March 2017: £994 million) and undrawn facilities of £350 million (31 March 2017: £329 million). Gearing
increased to 1% at 30 September 2017 (31 March 2017: nil).
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 at the beginning of
the "Reconciliation of the Investment basis to IFRS" section. The table below defines our additional APMs and should be
read in conjunction with the Annual report and accounts 2017.
APM Purpose Calculation Reconciliation to IFRS
Gross investment return as a percentage of opening portfolio value A measure of the performance of our proprietary investment portfolio. For further information see the Group KPIs in our Annual report and accounts 2017. It is calculated as the gross investment return, as shown in the Investment basis Consolidated statement of comprehensive The equivalent balances under IFRS and the reconciliation to the Investment basis are shown in the Reconciliation of the consolidated statement of comprehensive income and the Reconciliation of the consolidated statement of financial
income, as a % of the opening portfolio value. position respectively.
Cash realisations Cash proceeds from our investments support our returns to shareholders, as well as our ability to make new investments. For further information see the Group KPIs in our Annual report and accounts 2017. The cash received from the disposal of investments in the period as shown in the Investment basis Consolidated cash flow The equivalent balance under IFRS and the reconciliation to the Investment basis is shown in the Reconciliation of the consolidated cash flow statement.
statement.
Cash investment Making new investments with our proprietary capital is the primary driver of the Group's ability to deliver attractive returns. For further information see the Group KPIs in our Annual report and accounts 2017. The cash paid to acquire investments in the period as shown on the Investment basis Consolidated cash flow statement. The equivalent balance under IFRS and the reconciliation to the Investment basis is shown in the Reconciliation of the consolidated cash flow statement.
Operating cash By covering, as far as possible, the cash cost of running the business with cash income, we reduce the potential dilution of capital returns. For further information see the Group KPIs in our Annual report and accounts 2017. The cash income from the portfolio (interest, dividends and fees) together with fees received from external funds less cash The equivalent balance under IFRS and the reconciliation to the Investment basis is shown in the Reconciliation of the consolidated cash flow statement.
profit/(loss) operating expenses as shown on the Investment basis Consolidated cash flow statement. The calculation is shown in Table 12 of
the Financial review.
Net cash/(net debt) A measure of the financial risk in the Group's balance sheet. Cash and cash equivalents plus deposits less loans and borrowings as shown on the Investment basis Consolidated statement of The equivalent balance under IFRS and the reconciliation to the Investment basis is shown in the Reconciliation of the consolidated statement of financial position.
financial position.
Gearing A measure of the financial risk in the Group's balance sheet. Net debt (as defined above) as a % of the Group's net assets under the Investment basis. It cannot be less than zero. The equivalent balance under IFRS and the reconciliation to the Investment basis is shown in the Reconciliation of the consolidated statement of financial position.
Principal risks and uncertainties
3i's risk appetite statement, approach to risk management and governance structure are set out in the Risk section of the
Annual report and accounts 2017, which can be accessed on the Group's website at www.3i.com.
The principal risks to the achievement of the Group's strategic objectives for the remaining six months of its financial
year are unchanged from those reported on pages 50 to 53 of the Annual report and accounts 2017 and summarised below. This
is not a comprehensive list of all potential risks and uncertainties faced by the Group, but rather a summary of the risks
which it currently believes may have a significant impact on its performance and future prospects.
External - Risks arising from external factors including political, legal, regulatory, economic and competitor changes
which affect the Group's operations. There has been a significant amount of uncertainty in the global economy over the last
year and, more recently, due to the negotiations on the UK's upcoming exit from the EU. Although we cannot be immune to
wider market conditions and political instability, our well-funded balance sheet and portfolio of international companies
position us well as the wider implications of the negotiations unfold. As a result, we do not consider Brexit on its own to
be a principal risk to the Group.
Investment - Risks in respect of specific asset investment decisions, the subsequent performance of an investment or
exposure concentrations across business line portfolios.
Operational - Risks arising from inadequate or failed processes, people and systems or from external factors affecting
these. We continue to review and improve our governance and controls to protect our information and operational
infrastructure.
The Half-year report provides an update on 3i's strategy and business performance, as well as on market conditions, which
is relevant to the Group's overall risk profile and should be viewed in the context of the Group's risk management
framework and principal risks as disclosed in the Annual report and accounts 2017.
Reconciliation of the Investment basis to IFRS
Background to Investment basis numbers used in the Half-year report
The Group makes investments in portfolio companies directly, held by 3i Group plc, and indirectly, held through
intermediate holding company and partnership structures ("investment entity subsidiaries"). It also has other operational
subsidiaries which provide services and other activities such as employment, regulatory activities, management and advice
("trading subsidiaries"). The application of IFRS 10 requires us to fair value a number of investment entity subsidiaries.
This fair value approach, applied at the investment entity subsidiary level, effectively obscures the performance of our
proprietary capital investments and associated transactions occurring in the investment entity subsidiaries. The financial
effect of the underlying portfolio companies and fee income, operating expenses and carried interest transactions occurring
in investment entity subsidiaries are aggregated into a single value.
As a result we include a separate non-GAAP "Investment basis" consolidated statement of comprehensive income, financial
position and cash flow to aid understanding of our results. The Investment basis is an APM and the Chief Executive's
review, Business review and Financial review are also prepared using the Investment basis, as we believe it provides a more
understandable view of our performance. Total return and net assets are equal under the Investment basis and IFRS; the
Investment basis is simply a "look through" of IFRS 10 to present the underlying performance.
A more detailed explanation of the effect of IFRS 10 is provided in the Annual report and accounts 2017 on page 38.
Reconciliation between Investment basis and IFRS
A detailed reconciliation from the Investment basis to IFRS basis of the consolidated statement of comprehensive income,
consolidated statement of financial position and consolidated cash flow statement is shown in the "Reconciliation of the
Investment basis to IFRS" section.
Reconciliation of consolidated statement of comprehensive income
Six months to 30 September 2017 Six months to 30 September 2016
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis5 adjustments5 basis5
(unaudited) (unaudited)
Notes £m £m £m £m £m £m
Realised profits over value 1,2 53 (40) 13 51 (44) 7
on the disposal of investments
Unrealised profits 1,2 539 (363) 176 731 (639) 92
on the revaluation of investments
Fair value movements 1 - 396 396 - 671 671
on investment entity subsidiaries
Portfolio income
Dividends 1,2 22 (6) 16 24 (6) 18
Interest income from investment portfolio 1,2 49 (39) 10 19 (17) 2
Fees receivable 1,2 10 1 11 1 3 4
Foreign exchange on investments 1,4 73 (66) 7 283 (222) 61
Gross investment return 746 (117) 629 1,109 (254) 855
Fees receivable from external funds 1,3 24 - 24 23 - 23
Operating expenses 1,3 (58) - (58) (54) 1 (53)
Interest income 1 - 1 1 - 1
Interest paid (18) - (18) (25) - (25)
Exchange movements 1,4 (21) 37 16 9 26 35
Income from investment entity subsidiaries 1 - 11 11 - - -
Other income 1 - 1 8 - 8
Operating profit before carried interest 675 (69) 606 1,071 (227) 844
Carried interest
Carried interest and performance 1,3 64 - 64 203 2 205
fees receivable
Carried interest and performance 1,3 (81) 67 (14) (302) 228 (74)
fees payable
Operating profit from continuing operations 658 (2) 656 972 3 975
Income taxes 1,3 - 1 1 (2) - (2)
Profit for the period from continuing operations 658 (1) 657 970 3 973
Profit for the period from discontinued operations - - - 55 (5) 50
Profit for the period 658 (1) 657 1,025 (2) 1,023
Other comprehensive income/(expense) that may be reclassified to the income statement:
Exchange differences 1,4 - 1 1 - (3) (3)
on translation of foreign operations
Other comprehensive expense that will not be reclassified to the income statement:
Re-measurement of defined (3) - (3) (19) - (19)
benefit plans
Other comprehensive expense for the period from continuing operations (3) 1 (2) (19) (3) (22)
Other comprehensive income for the period from discontinued operations - - - - 5 5
Total comprehensive income for the period ("Total return") 655 - 655 1,006 - 1,006
Notes:
1 Applying IFRS 10 to the consolidated statement of comprehensive income consolidates the line items of a number of previously consolidated subsidiaries into a single line item called fair value movements on investment entity subsidiaries. In the Investment
basis accounts we have disaggregated these line items to analyse our total return as if these investment entity subsidiaries were fully consolidated, consistent with prior periods. The adjustments simply reclassify the 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 that are 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 Other items aggregated into the fair value movements on investment entity subsidiaries line include fees receivable from external funds, audit fees, custodian fees, bank charges, other general and administration expenses, carried interest and tax.
4 On the Investment basis, the impact of the translation of foreign subsidiaries is included within the line items foreign exchange on investments and exchange movements rather than as a separate line item as required under IFRS. On an IFRS basis, the
revaluation of assets and liabilities held by investment entity subsidiaries is reflected in the fair value movements on investment entity subsidiaries rather than being reflected as exchange movements.
5 Comparatives for the six months ended 30 September 2016 have been re-presented to show the results of the retained Debt Management assets, previously shown as discontinued operations, as continuing operations. See Note 11.
Reconciliation of consolidated statement of financial position
As at 30 September 2017 As at 31 March 2017
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (audited)
Notes £m £m £m £m £m £m
Assets
Non-current assets
Investments
Quoted investments 1 911 (514) 397 893 (503) 390
Unquoted investments 1 5,673 (4,068) 1,605 4,782 (3,466) 1,316
Investments in investment entity subsidiaries 1,3 - 4,156 4,156 - 3,483 3,483
Investment portfolio 6,584 (426) 6,158 5,675 (486) 5,189
Carried interest and performance 1 433 (5) 428 359 (5) 354
fees receivable
Other non-current assets 109 (58) 51 106 (56) 50
Intangible assets 13 - 13 - - -
Retirement benefit surplus 120 - 120 121 - 121
Property, plant and equipment 5 - 5 5 - 5
Total non-current assets 7,264 (489) 6,775 6,266 (547) 5,719
Current assets
Carried interest and performance 1 3 - 3 7 2 9
fees receivable
Other current assets 1 15 3 18 10 2 12
Current income tax receivable 4 - 4 2 - 2
Derivative financial instruments 3 - 3 - - -
Deposits 41 - 41 40 - 40
Cash and cash equivalents 1,2 486 (144) 342 954 (23) 931
Total current assets 552 (141) 411 1,013 (19) 994
Total assets 7,816 (630) 7,186 7,279 (566) 6,713
Liabilities
Non-current liabilities
Trade and other payables 1 (25) - (25) (29) 5 (24)
Carried interest and performance 1 (717) 573 (144) (644) 520 (124)
fees payable
Loans and borrowings (575) - (575) (575) - (575)
Retirement benefit deficit (22) - (22) (22) - (22)
Deferred income taxes 1 - - - (1) 1 -
Provisions (1) - (1) (2) - (2)
Total non-current liabilities (1,340) 573 (767) (1,273) 526 (747)
Current liabilities
Trade and other payables 1 (103) 15 (88) (125) 22 (103)
Carried interest and performance 1 (49) 41 (8) (41) 18 (23)
fees payable
Current income taxes (1) 1 - - - -
Provisions (3) - (3) (4) - (4)
Total current liabilities (156) 57 (99) (170) 40 (130)
Total liabilities (1,496) 630 (866) (1,443) 566 (877)
Net assets 6,320 - 6,320 5,836 - 5,836
Equity
Issued capital 719 - 719 719 - 719
Share premium 786 - 786 785 - 785
Other reserves 4 4,841 - 4,841 4,370 - 4,370
Own shares (26) - (26) (38) - (38)
Total equity 6,320 - 6,320 5,836 - 5,836
Notes:
1 Applying IFRS 10 to the consolidated statement of financial position consolidates the line items of a number of previously consolidated subsidiaries into a single line item called investments in investment entity subsidiaries. In the Investment basis, we
have disaggregated these line items to analyse our net assets as if these investment entity subsidiaries were fully consolidated, consistent with prior periods. 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 are carried interest and other payables, and the Investment basis presentation again disaggregates these items.
2 Cash balances held in investment entity subsidiaries are also aggregated into the investment in investment entity subsidiaries line.
3 Intercompany balances between investment entity subsidiaries and trading subsidiaries also impact the transparency of our results under the IFRS basis. If an investment entity subsidiary has an intercompany balance with a consolidated trading subsidiary of
the Group, then the asset or liability of the investment entity subsidiary will be aggregated into its fair value, while the asset or liability of the consolidated trading subsidiary will be disclosed as an asset or liability in the consolidated statement
of financial position of the Group. Prior to the adoption of IFRS 10, these balances would have been eliminated on consolidation.
4 Investment basis financial statements are prepared for performance measurement and therefore reserves are not analysed separately under this basis.
Reconciliation of consolidated cash flow statement
Six months to 30 September 2017 Six months to 30 September 2016
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited)
Notes £m £m £m £m £m £m
Cash flow from operating activities
Purchase of investments 1 (572) 305 (267) (515) 229 (286)
Proceeds from investments 1 360 (185) 175 693 (485) 208
Net cash flow (to)/from investment entity subsidiaries 1 - (240) (240) - 151 151
Net cash flow from derivatives (13) - (13) - - -
Portfolio interest received 1 1 (1) - 12 (8) 4
Portfolio dividends received 1 22 (6) 16 40 (6) 34
Portfolio fees received 8 - 8 2 - 2
Fees received from external funds 24 - 24 46 - 46
Carried interest and performance 5 - 5 29 - 29
fees received
Carried interest and performance 1 (24) 7 (17) (64) 52 (12)
fees paid
Acquisition related earn-out charges - - - (1) - (1)
Operating expenses paid 1 (71) - (71) (70) - (70)
Co-investment loans 1 - 1 - - -
Income taxes paid 1 (2) 1 (1) (1) - (1)
Net cash flow from operating activities (261) (119) (380) 171 (67) 104
Cash flow from financing activities
Issue of shares 1 - 1 1 - 1
Repurchase of short-term borrowings - - - (15) - (15)
Dividend paid (178) - (178) (154) - (154)
Interest received 1 - 1 1 - 1
Interest paid (11) - (11) (11) - (11)
Net cash flow from financing activities (187) - (187) (178) - (178)
Cash flow from investing activities
Purchases of property, plant and equipment (1) - (1) - - -
Purchases of intangible assets (13) - (13) - - -
Net cash flow from investing activities (14) - (14) - - -
Change in cash and cash equivalents 2 (462) (119) (581) (7) (67) (74)
Cash and cash equivalents at the start of the period 1 954 (23) 931 962 (5) 957
Effect of exchange rate fluctuations 1 (6) (2) (8) 50 1 51
Cash held within assets held for sale - - - (14) - (14)
Cash and cash equivalents at the end of the period 2 486 (144) 342 991 (71) 920
Notes:
1 The consolidated cash flow statement is impacted by the application of IFRS 10 as cash flows to and from investment entity subsidiaries are disclosed, rather than the cash flows to and from the underlying portfolio.
Therefore, in our Investment basis financial statements, we have disclosed our consolidated 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.
IFRS Financial statements
Condensed consolidated statement of comprehensive income
Six months to Six months to
30 September 30 September
2017 20161
(unaudited) (unaudited)
Notes £m £m
Realised profits over value on the disposal of investments 2 13 7
Unrealised profits on the revaluation of investments 3 176 92
Fair value movements on investment entity subsidiaries 7 396 671
585 770
Portfolio income
Dividends 16 18
Interest income from investment portfolio 10 2
Fees receivable 11 4
Foreign exchange on investments 7 61
Gross investment return 629 855
Fees receivable from external funds 24 23
Operating expenses (58) (53)
Interest income 1 1
Interest paid (18) (25)
Exchange movements 16 35
Income from investment entity subsidiaries 11 -
Other income 1 8
Carried interest
Carried interest and performance fees receivable 64 205
Carried interest and performance fees payable (14) (74)
Operating profit before tax from continuing operations 656 975
Income taxes 1 (2)
Profit for the period from continuing operations 657 973
Profit for the period from discontinued operations 11 - 50
Profit for the period 657 1,023
Other comprehensive income/(expense) that may be reclassified to the income statement:
Exchange differences on translation of foreign operations 1 (3)
Other comprehensive expense that will not be reclassified to the income statement:
Re-measurement of defined benefit plans (3) (19)
Other comprehensive expense for the period from continuing operations (2) (22)
Other comprehensive income for the period from discontinued operations 11 - 5
Total comprehensive income for the period ("Total return") 655 1,006
Earnings per share from continuing operations
Basic (pence) 4 68.2 101.5
Diluted (pence) 4 67.9 101.0
Earnings per share
Basic (pence) 4 68.2 106.7
Diluted (pence) 4 67.9 106.2
1 Comparatives for the six months ended 30 September 2016 have been re-presented to show the results of the retained Debt Management assets, previously shown as discontinued operations, as continuing operations. See Note 11.
Condensed consolidated statement of financial position
30 September 31 March
2017 2017
(unaudited) (audited)
Notes £m £m
Assets
Non-current assets
Investments
Quoted investments 6 397 390
Unquoted investments 6 1,605 1,316
Investments in investment entity subsidiaries 7 4,156 3,483
Investment portfolio 6,158 5,189
Carried interest and performance fees receivable 428 354
Other non-current assets 51 50
Intangible assets 13 -
Retirement benefit surplus 120 121
Property, plant and equipment 5 5
Total non-current assets 6,775 5,719
Current assets
Carried interest and performance fees receivable 3 9
Other current assets 18 12
Current income tax receivable 4 2
Derivative financial instruments 3 -
Deposits 41 40
Cash and cash equivalents 342 931
Total current assets
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