REG - 3i Group PLC - Half-year Report <Origin Href="QuoteRef">III.L</Origin> - Part 2
10/11/2016 07:07
- Part 2: For the preceding part double click ID:nRSJ8052Oa
partially offset by an increase in the underlying asset valuations.
On an IAS 19 basis the pension scheme remains in a surplus. The next triennial valuation of the scheme's funding position
at 30 June 2016 is underway and will be completed no later than September 2017.
Tax
The Group's parent company is an approved investment trust company for UK tax purposes. Approved investment trust companies
are used as investment fund vehicles. The tax exemption for capital profits from which they benefit ensures that investors
do not suffer double taxation of their investment returns. The majority of the Group's returns are capital returns for tax
purposes (realised profits and fair value movements) and are substantially non-taxable. As a result, the Group's tax charge
in the period was £2 million (September 2015: £1 million tax credit).
Operating cash profit
Table 13:Operating cash profit(continuing operations) for the six months to 30 September
2016 2015
£m £m
Third-party capital fees 23 19
Cash portfolio fees 2 5
Cash portfolio dividends and interest 25 23
Cash income from continuing operations 50 47
Operating expenses1 from continuing operations (54) (50)
Operating cash loss: continuing operations (4) (3)
Operating cash profit: discontinued operations 38 20
Operating cash profit 34 17
1 Operating expenses are calculated on an accruals basis rather than on a cash basis.
3i made an operating cash loss from continuing operations of £4 million in the period (September 2015: £3 million loss).
Cash income increased to £50 million (September 2015: £47 million) principally due to the increase in the third party
capital fees in Infrastructure to £18 million (September 2015: £14 million). Cash fee income from our managed Private
Equity funds and third parties declined to £2 million (September 2015: £5 million). Operating expenses incurred during the
period increased to £54 million (September 2015: £50 million) principally due to additional share based payment expense.
Investment in the front office capability in Private Equity and Infrastructure remains a priority and we remain very
focused on costs.
Including Debt Management, the Group made an operating cash profit of £34 million in the period (September 2015: £17
million).
Balance sheet
Table 14: Simplified Group balance sheetand gearing
30 September 2016 31 March 2016
£m £m
Investment portfolio value 5,073 4,497
Gross debt (844) (837)
Cash and deposits 1,031 1,002
Net cash 187 165
Carried interest and performance fees receivable 296 122
Carried interest and performance fees payable (657) (404)
Net direct assets and liabilities held for sale 347 -
Other net assets 74 75
Net assets 5,320 4,455
Gearing1 nil nil
1 Gearing is net debt as a percentage of net assets.
The Group's balance sheet is strong with net cash of £187 million at 30 September 2016 (31 March 2016: £165 million). The
investment portfolio value increased to £5,073 million at 30 September 2016 (31 March 2016: £4,497 million) as unrealised
value growth of £719 million, foreign exchange gains of £273 million and cash investment of £422 million offset the book
value of realisations in the period. Further information on investment and realisations is included in the business line
sections.
Liquidity
Liquidity also remained strong at £1,360 million (31 March 2016: £1,352 million) and comprised cash and deposits of £1,031
million (31 March 2016: £1,002 million) and undrawn facilities of £329 million (31 March 2016: £350 million). Our E312
million bond, due in March 2017, will be repaid out of cash resources.
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 2016 which can be accessed on the Group's website at www.3i.com
In delivering the Group's strategy we face a number of risks. These are monitored on an ongoing basis and managed by:
· adhering to our clearly defined and established business model;
· following an integrated risk management approach; and
· maintaining our clearly defined risk appetite and monitoring our key risk indicators.
Although the business environment in the six months to 30 September 2016 has been challenging, given the political and
economic uncertainty and volatile market conditions, there has been no significant change to our risk management approach
or risk appetite. The decision to sell the Debt Management business, announced on 25 October 2016, will allow the Group to
focus on proprietary capital investment in its established Private Equity and Infrastructure business lines.
The principal risks to the achievement of the Group's strategic objectives for the remaining six months of its financial
year are unchanged and summarised below. This is not a comprehensive list of all potential risks and uncertainties faced by
the Group, but rather a summary of the risks which it currently believes may have a significant impact on its performance
and future prospects.
External - Risks arising from external factors including political, legal, regulatory, economic and competitor changes
which affect the Group's operations. There has been a significant amount of uncertainty in the global economy over the last
year and more recently following the UK's referendum on its membership of the EU. Although we cannot be immune to wider
market conditions, our well-funded balance sheet and portfolio of international companies position us well as the wider
implications of the referendum result 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 infrastructure.
The Group Risk Committee meets four times a year. The risk review process includes the monitoring of dashboards which track
the Group's financial performance and progress against its strategic objectives at a Group level and for each of the
Group's business lines. This assists the Committee in its assessment of the key risks affecting the achievement of the
Group's objectives and the effectiveness of current risk mitigation plans.
The Committee also has a number of focus areas, which are agreed in advance of each meeting. Topics discussed in the period
included a discussion of the result of the UK's referendum on its membership of the EU and impact on the Group and its
portfolio companies as well as a review of environmental and social governance on the investment portfolio.
This Half-yearly report provides an update on 3i's strategy and business performance, as well as market conditions, which
are relevant to the Group's overall risk profile and should be viewed in the context of the Group's risk management
framework and principal inherent risk factors as disclosed in the Annual report and accounts 2016.
Reconciliation of the Investment basis to IFRS
Background to Investment basis numbers used in the Interim Management report
The Group makes investments in portfolio companies directly, held by 3i Group plc, and indirectly, held through
intermediate holding company and partnership structures ("investment entity subsidiaries"). It also has other operational
subsidiaries which provide services and other activities such as employment, regulatory activities, management and advice
("trading subsidiaries"). The application of IFRS 10 requires us to fair value a number of investment entity subsidiaries
that were previously consolidated line by line. This fair value approach, applied at the investment entity subsidiary
level, effectively obscures the performance of our proprietary capital investments and associated transactions occurring in
the investment entity subsidiaries. The financial effect of the underlying portfolio companies and fee income, operating
expenses and carried interest transactions occurring in investment entity subsidiaries are aggregated into a single value.
Other items which were previously eliminated on consolidation are now included separately.
As a result we include a separate non-GAAP "Investment basis" Statement of comprehensive income, financial position and
cash flow to aid understanding of our results. The Interim Management report is also prepared using the Investment basis as
we believe it provides a more understandable view of our performance. Total return and net assets are equal under the
Investment basis and IFRS; the Investment basis is simply a "look through" of IFRS 10 to present the underlying
performance.
Reconciliation between Investment basis and IFRS
A detailed reconciliation from the Investment basis to IFRS basis of the Statement of comprehensive income, Statement of
financial position and Cash flow statement is shown later in this document.
Reconciliation of consolidated statement of comprehensive income
Six months to 30 September 2016 Six months to 30 September 2015
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 51 (44) 7 29 (17) 12
on the disposal of investments
Unrealised profits 1,2 719 (639) 80 185 (166) 19
on the revaluation of investments
Fair value movements 1 - 670 670 - 207 207
on investment entity subsidiaries
Portfolio income
Dividends 1,2 16 (6) 10 22 (4) 18
Income from loans and receivables 1,2 19 (17) 2 26 (15) 11
Fees receivable 1,2 1 3 4 6 - 6
Foreign exchange on investments 1,4 273 (220) 53 1 (8) (7)
Gross investment return 1,079 (253) 826 269 (3) 266
Fees receivable from external funds 1,3 23 - 23 20 - 20
Operating expenses 1,3 (54) 1 (53) (50) - (50)
Interest received 1 - 1 2 - 2
Interest paid (25) - (25) (24) - (24)
Exchange movements 1,4 10 25 35 (10) 6 (4)
Expense from investment entity subsidiaries 1 - - - - (31) (31)
Other income 8 - 8 - - -
Operating profit before carried interest 1,042 (227) 815 207 (28) 179
Carried interest
Carried interest and performance 1,3 203 2 205 (8) (7) (15)
fees receivable
Carried interest and performance 1,3 (302) 228 (74) (36) 22 (14)
fees payable
Operating profit from continuing operations 943 3 946 163 (13) 150
Income taxes 1,3 (2) - (2) 1 (1) -
Profit for the period from continuing operations 941 3 944 164 (14) 150
Profit for the period from discontinued operations 84 (5) 79 5 - 5
Profit for the period 1,025 (2) 1,023 169 (14) 155
Other comprehensive income/(expense) that may be reclassified to the income statement:
Exchange differences 1,4 - (3) (3) - 14 14
on translation of foreign operations
Other comprehensive income/(expense) that will not be reclassified to the income statement:
Re-measurement of defined (19) - (19) (1) - (1)
benefit plans
Other comprehensive income/(expense) for the period from continuing operations (19) (3) (22) (1) 14 13
Other comprehensive income for the period from discontinued operations - 5 5 - - -
Total comprehensive income for the period ("Total return") 1,006 - 1,006 168 - 168
Notes:
1 Applying IFRS 10 to the Statement of comprehensive income consolidates the line items of a number of previously consolidated subsidiaries into a single line item 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 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 2015 have been re-presented to reflect the classification of the Group's Debt Management business as discontinued operations. See Note 11 to the IFRS financial statements.
Reconciliation of consolidated statement of financial position
As at 30 September 2016 As at 31 March 2016
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 1 938 (537) 401 658 (361) 297
Unquoted investments 1 4,135 (3,088) 1,047 3,839 (2,596) 1,243
Investments in investment entity subsidiaries 1,3 - 3,180 3,180 - 2,680 2,680
Investment portfolio 5,073 (445) 4,628 4,497 (277) 4,220
Carried interest and performance 1 276 (1) 275 94 (5) 89
fees receivable
Other non-current assets 46 - 46 37 - 37
Intangible assets - - - 12 - 12
Retirement benefit surplus 122 - 122 132 - 132
Property, plant and equipment 4 - 4 5 - 5
Deferred income taxes - - - 3 - 3
Total non-current assets 5,521 (446) 5,075 4,780 (282) 4,498
Current assets
Carried interest and performance 1 20 (2) 18 28 - 28
fees receivable
Other current assets 1 62 (2) 60 53 (22) 31
Deposits 40 - 40 40 - 40
Cash and cash equivalents 1,2 991 (71) 920 962 (5) 957
Total current assets 1,113 (75) 1,038 1,083 (27) 1,056
Assets held for sale 366 - 366 - - -
Total assets 7,000 (521) 6,479 5,863 (309) 5,554
Liabilities
Non-current liabilities
Trade and other payables 1 (24) 6 (18) (27) - (27)
Carried interest and performance 1 (538) 419 (119) (290) 205 (85)
fees payable
Loans and borrowings (575) - (575) (575) - (575)
Retirement benefit deficit (22) - (22) (20) - (20)
Deferred income taxes 1 (1) 1 - (2) 2 -
Provisions (2) - (2) (1) - (1)
Total non-current liabilities (1,162) 426 (736) (915) 207 (708)
Current liabilities
Trade and other payables 1 (104) 17 (87) (107) 8 (99)
Carried interest and performance 1 (119) 78 (41) (114) 94 (20)
fees payable
Acquisition related earn-out charges payable - - - (1) - (1)
Loans and borrowings (269) - (269) (262) - (262)
Current income taxes (3) - (3) (2) - (2)
Provisions (4) - (4) (7) - (7)
Total current liabilities (499) 95 (404) (493) 102 (391)
Liabilities directly associated with the assets held for sale (19) - (19) - - -
Total liabilities (1,680) 521 (1,159) (1,408) 309 (1,099)
Net assets 5,320 - 5,320 4,455 - 4,455
Equity
Issued capital 719 - 719 719 - 719
Share premium 785 - 785 784 - 784
Other reserves 4 3,855 - 3,855 3,006 - 3,006
Own shares (39) - (39) (54) - (54)
Total equity 5,320 - 5,320 4,455 - 4,455
Notes:
1 Applying IFRS 10 to the 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 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, i.e. 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 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
6 months to 30 September 2016 6 months to 30 September 2015
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 (515) 229 (286) (294) 206 (88)
Proceeds from investments 1 693 (485) 208 359 (180) 179
Net cash flow from/(to) investment entity subsidiaries 1 - 151 151 - (24) (24)
Portfolio interest received 1 12 (8) 4 3 - 3
Portfolio dividends received 1 40 (6) 34 36 (4) 32
Portfolio fees received 2 - 2 4 - 4
Fees received from external funds 46 - 46 37 - 37
Carried interest and performance 29 - 29 49 - 49
fees received
Carried interest and performance 1 (64) 52 (12) (18) 1 (17)
fees paid
Acquisition related earn-out charges (1) - (1) (11) - (11)
Operating expenses paid 1 (70) - (70) (76) - (76)
Income taxes paid (1) - (1) 1 - 1
Net cash flow from operating activities 171 (67) 104 90 (1) 89
Cash flow from financing activities
Issue of shares 1 - 1 - - -
Repurchase of short-term borrowings (15) - (15) - - -
Dividend paid (154) - (154) (133) - (133)
Interest received 1 - 1 2 - 2
Interest paid (11) - (11) (11) - (11)
Net cash flow from financing activities (178) - (178) (142) - (142)
Cash flow from investing activities
Purchases of property, plant and equipment - - - (1) - (1)
Net cash flow to deposits - - - (140) - (140)
Net cash flow from investing activities - - - (141) - (141)
Change in cash and cash equivalents 2 (7) (67) (74) (193) (1) (194)
Cash and cash equivalents at the start of the period 1 962 (5) 957 864 (3) 861
Effect of exchange rate fluctuations 1 50 1 51 (4) (1) (5)
Cash held within assets held for sale (14) - (14) - - -
Cash and cash equivalents at the end of the period 2 991 (71) 920 667 (5) 662
Notes:
1 The Cash flow statement is impacted by the application of IFRS 10 as cash flows to and from investment entity subsidiaries are disclosed, rather than the cash flows to and from the underlying portfolio.
Therefore in our Investment basis financial statements, we have disclosed our Cash flow statement on a "look through" basis, in order to reflect the underlying sources and uses of cash flows and disclose the underlying investment activity.
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
2016 20151
(unaudited) (unaudited)
Notes £m £m
Realised profits over value on the disposal of investments 2 7 12
Unrealised profits on the revaluation of investments 3 80 19
Fair value movements on investment entity subsidiaries 7 670 207
757 238
Portfolio income
Dividends 10 18
Income from loans and receivables 2 11
Fees receivable 4 6
Foreign exchange on investments 53 (7)
Gross investment return 826 266
Fees receivable from external funds 23 20
Operating expenses (53) (50)
Interest received 1 2
Interest paid (25) (24)
Exchange movements 35 (4)
Expense from investment entity subsidiaries - (31)
Other income 8 -
Carried interest
Carried interest and performance fees receivable 205 (15)
Carried interest and performance fees payable (74) (14)
Operating profit before tax from continuing operations 946 150
Income taxes (2) -
Profit for the period from continuing operations 944 150
Profit for the period from discontinued operations 11 79 5
Profit for the period 1,023 155
Other comprehensive income/(expense) that may be reclassified to the
income statement:
Exchange differences on translation of foreign operations (3) 14
Other comprehensive income/(expense) that will not be reclassified to the
income statement:
Re-measurement of defined benefit plans (19) (1)
Other comprehensive (expense)/income for the period from (22) 13
continuing operations
Other comprehensive income for the period from discontinued operations 11 5 -
Total comprehensive income for the period ("Total return") 1,006 168
Earnings per share from continuing operations
Basic (pence) 4 98.5 15.8
Diluted (pence) 4 98.0 15.7
Earnings per share
Basic (pence) 4 106.7 16.3
Diluted (pence) 4 106.2 16.2
1 Comparatives for the six months ended 30 September 2015 have been re-presented to reflect the classification of the Group's Debt Management business as discontinued operations. See Note 11.
Condensed consolidated statement of financial position
30 September 31 March
2016 2016
(unaudited) (audited)
Notes £m £m
Assets
Non-current assets
Investments
Quoted investments 6 401 297
Unquoted investments 6 1,047 1,243
Investments in investment entity subsidiaries 7 3,180 2,680
Investment portfolio 4,628 4,220
Carried interest and performance fees receivable 275 89
Other non-current assets 46 37
Intangible assets - 12
Retirement benefit surplus 122 132
Property, plant and equipment 4 5
Deferred income taxes - 3
Total non-current assets 5,075 4,498
Current assets
Carried interest and performance fees receivable 18 28
Other current assets 60 31
Deposits 40 40
Cash and cash equivalents 920 957
Total current assets 1,038 1,056
Assets held for sale 11 366 -
Total assets 6,479 5,554
Liabilities
Non-current liabilities
Trade and other payables (18) (27)
Carried interest and performance fees payable (119) (85)
Loans and borrowings (575) (575)
Retirement benefit deficit (22) (20)
Provisions (2) (1)
Total non-current liabilities (736) (708)
Current liabilities
Trade and other payables (87) (99)
Carried interest and performance fees payable (41) (20)
Acquisition related earn-out charges payable - (1)
Loans and borrowings (269) (262)
Current income taxes (3) (2)
Provisions (4) (7)
Total current liabilities (404) (391)
Liabilities directly associated with the assets held for sale 11 (19) -
Total liabilities (1,159) (1,099)
Net assets 5,320 4,455
Equity
Issued capital 719 719
Share premium 785 784
Capital redemption reserve 43 43
Share-based payment reserve 26 32
Translation reserve 231 229
Capital reserve 2,881 2,080
Revenue reserve 674 622
Own shares (39) (54)
Total equity 5,320 4,455
Condensed consolidated statement of changes in equity
For the six months to Share-
30 September 2016
(unaudited)
- More to follow, for following part double click ID:nRSJ8052OcRecent news on 3i
See all newsREG - 3i Group PLC - Block listing Interim Review
AnnouncementREG - 3i Group PLC - Director/PDMR Shareholding
AnnouncementREG - 3i Group PLC - Director/PDMR Shareholding
AnnouncementREG - 3i Group PLC - Total Voting Rights
AnnouncementREG - 3i Group PLC - Director/PDMR Shareholding
Announcement