REG - 3i Group PLC - Half-year Report
09/11/2023 07:00
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RNS Number : 8614S 3i Group PLC 09 November 2023
9 November 2023
3i Group plc announces results for the six months
to 30 September 2023
Good performance against a challenging macroeconomic and geopolitical backdrop
•Total return of £1,669 million or 10% on opening shareholders' funds
(September 2022: £1,765 million, 14%). NAV per share of 1,886 pence (31
March 2023: 1,745 pence), including an 11 pence per share loss (September
2022: 74 pence per share gain) on foreign exchange translation, and after the
payment of the 29.75 pence per share second FY2023 dividend in July 2023.
•Our Private Equity business delivered a gross investment return of £1,826
million or 11% (September 2022: £1,970 million, 16%). Action continues to
perform very well and a number of our portfolio companies operating in the
value-for-money, private label and healthcare sectors are delivering good
organic growth. We continue to see weaker performance in our portfolio
companies exposed to discretionary consumer spending and more cyclical
end-markets. 89% of our Private Equity portfolio companies by value grew
earnings in the 12 months to 30 June 2023.
•Action's net sales in the nine months ending on 1 October 2023 ("P9") grew
to €7.9 billion (nine months ended P9 2022: €6.1 billion) and
like-for-like ("LFL") sales growth was very strong at 19.2%, driven primarily
by higher customer footfall. Last 12 months' ("LTM") operating EBITDA to the
end of P9 was €1,530 million (LTM P9 2022: €1,036 million), representing a
48% increase over the same period last year. Trading momentum has remained
strong at Action, with LFL sales growth in P10 (2 October to 29 October 2023)
of 13.4% (P10 2022: 12.0%). In the ten months ending 29 October 2023, net
sales and operating EBITDA were 30% and 43% ahead of last year, and LFL sales
growth over the same period was 18.5%.
•In October 2023, Action successfully completed its debut US dollar term
loan issuance in the US leveraged loan market, raising $1.5 billion. The loan
has been fully hedged back to the euro, with 70% of the debt fixed at an
all-in cost of 6.3%. Action also completed a capital restructuring with a
pro-rata redemption of shares. 3i used €524 million of the €877 million
gross proceeds received to acquire further shares in Action, increasing our
gross equity stake in Action from 52.9% to 54.8%. Action's cash balance was
€1,030 million as at 3 November 2023.
•Our Infrastructure business generated a gross investment return of £31
million, or 2% (September 2022: £35 million, 3%). The return was impacted by
a 2.7% decline in 3i Infrastructure plc's ("3iN") share price, despite the
6.3% total return on 3iN's opening NAV it achieved in the first half. 3iN
agreed to sell its stake in Attero in the period for proceeds of c.€215
million, at a c.31% uplift on the valuation at 31 March 2023. We completed one
new investment in our North American Infrastructure platform.
•We further strengthened our liquidity profile through the successful issue
of a six year €500 million euro bond in June 2023. Our gearing at 30
September 2023 remained low at 6%. The first dividend of 26.50 pence per share
for FY2024, set at 50% of the total dividend for FY2023, will be paid in
January 2024.
Simon Borrows, 3i's Chief Executive, commented:
"Against a tough macroeconomic environment, we delivered another good result
in the period for 3i. Action continues to perform very well. Its LFL sales
growth, continued new store expansion and significant free cash flow from
operations have once again underlined what an exceptional business it is. The
strong performance of a number of our other investments in the
value-for-money, private label and healthcare sectors underpins our confidence
that a number of these investments will also become longer-term compounders
over time.
We remain cautious about the investment and realisation market given the
macroeconomic environment in general, the breadth of geopolitical risk and our
belief that the full implications of the global recalibration of interest
rates are still yet to work fully through the system. We will continue to look
for opportunities to deploy capital into this uncertainty, but we will not
change our patient and disciplined approach. We have a strong balance sheet
and are under no pressure to sell companies if the price or terms do not
properly reflect the prospects of the business."
Summary financial highlights under the Investment basis
3i prepares its statutory financial statements in accordance with UK adopted
international accounting standards. However, we also report a non-GAAP
"Investment basis" which we believe aids users of our report to assess the
Group's underlying operating performance. The Investment basis (which is
unaudited) is an alternative performance measure ("APM") and is described
later in this document. Total return and net assets are the same under the
Investment basis and IFRS and we provide a reconciliation of our Investment
basis financial statements to the IFRS statements later in this document. The
first page of this document until the end of the Financial review is prepared
on an Investment basis.
Six months to/as Six months to/as 12 months to/as
at 30 September at 30 September at 31 March
Investment basis 2023 2022 2023
Total return1 £1,669m £1,765m £4,585m
% return on opening shareholders' funds 10% 14% 36%
Dividend per ordinary share 26.50p 23.25p 53.00p
Gross investment return2 £1,867m £2,016m £5,104m
As a percentage of opening 3i portfolio value 10% 14% 36%
Cash investment2 £84m £298m £397m
Realisation proceeds £19m £193m £857m
3i portfolio value £20,255m £16,417m £18,388m
Gross debt £1,208m £1,129m £775m
Net debt2 £1,153m £1,074m £363m
Gearing2 6% 8% 2%
Liquidity £955m £801m £1,312m
Diluted net asset value per ordinary share ("NAV per share") 1,886p 1,477p 1,745p
1 Total return is defined as Total comprehensive income for the year, under
both the Investment basis and the IFRS basis.
2 Financial measure defined as APM. Further information can be found later in
this document.
Disclaimer
These half-year results have been prepared solely to provide information to
shareholders. They should not be relied on by any other party or for any other
purpose. These half-year results may contain statements about the future,
including certain statements about the future outlook for 3i Group plc and its
subsidiaries ("3i" or "the Group"). 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.
Enquiries:
Silvia Santoro, Group Investor Relations Director 020 7975 3258
Kathryn van der Kroft, Communications Director 020 7975 3021
A PDF copy of this release can be downloaded from
www.3i.com/investor-relations (http://www.3i.com/investor-relations)
For further information, including a live webcast of the results presentation
at 10.00am on 9 November 2023, please visit www.3i.com/investor-relations
(http://www.3i.com/investor-relations)
3i Group Half-year report 2023
Chief Executive's review
The Group delivered a good result in the first half of its financial year,
generating a total return of £1,669 million, or 10% on opening shareholders'
funds (September 2022: £1,765 million, 14%). NAV per share at 30 September
2023 was 1,886 pence (31 March 2023: 1,745 pence), including an 11 pence per
share loss (September 2022: 74 pence per share gain) on foreign exchange
translation, and after the payment of the 29.75 pence per share second FY2023
dividend in July 2023.
The macroeconomic, geopolitical and market backdrop remains challenging. This
has led to a drop in consumer demand and to a general reduction in transaction
activity. Our longer-term approach, based on permanent capital and active
asset management of our portfolio companies, puts us in a good position to
navigate these market conditions, as does our continuing discipline and
patience in capital deployment and realisations.
Action is again performing very strongly this year. We continue to see a real
divergence in performance across our remaining Private Equity portfolio, with
portfolio companies operating in the value-for-money, private label and
healthcare sectors delivering good organic growth, offsetting weaker
performance in our portfolio companies exposed to discretionary consumer
spending and more cyclical end-markets.
Private Equity
The Private Equity portfolio delivered a gross investment return ("GIR") of
£1,826 million, or 11% on opening value in the period, including a £127
million loss on foreign exchange translation, after the impact of foreign
exchange hedging. Action generated a GIR of £1,700 million, or 15%, over its
opening value. In the 12 months to the end of 30 June 2023, 89% of our
portfolio companies by value grew earnings, with particularly good performance
from a number of our portfolio companies that have strong market positions as
well as high-performing business models. However, we are not immune to the
persistent macroeconomic headwinds that have so far defined 2023, and this is
reflected in the softer performance that has continued across our
discretionary consumer businesses, as well as across a number of portfolio
companies that are moving through a more challenging phase of their respective
end-market cycles.
Action performance
Action continues to trade very strongly. In the nine months ending on 1
October 2023 ("P9"), Action generated net sales of €7,912 million (nine
months ended P9 2022: €6,062 million) and operating EBITDA of
€1,065 million (nine months ended P9 2022: €740 million), 31% and 44%
ahead of the same period last year. Over the same period, like-for-like
("LFL") sales growth was 19.2%, driven primarily by higher customer footfall.
The EBITDA margin of 13.5% reflects sales leverage and good cost control.
Action added 153 stores in the first nine months of the year (nine months
ended P9 2022: 150 stores), including 11 stores in Slovakia, its eleventh
country and a new expansion market. The store roll-out across its more recent
expansion markets, Italy and Spain, continues at a fast pace with encouraging
trading results. Action remains on track to add c.300 stores in 2023. The
business opened two further distribution centres in the period, in France and
Poland, growing its distribution centre network to 13 across Europe.
At 30 September 2023, Action was valued using the last 12 months ("LTM")
run-rate earnings to 1 October 2023 of €1,634 million. This includes our
normal run-rate adjustment to reflect stores opened in the year. Our valuation
multiple remains unchanged at 18.5x net of the liquidity discount, resulting
in a valuation of £12,862 million (31 March 2023: £11,188 million) for 3i's
52.9% equity stake at 30 September 2023.
In October 2023, Action successfully completed its debut US dollar term loan
issuance in the US leveraged loan market. The issue was significantly
oversubscribed, enabling it to be upsized in syndication by $500 million to
$1.5
billion and to be priced very attractively. The loan has been fully hedged
back to euro, with 70% of the debt fixed at an all-in cost of 6.3%. This was
an outstanding outcome for a debut issue by a European company in the US
private debt markets and reflects significant enthusiasm amongst US investors
for Action's impressive track record and growth prospects. As part of the
transaction, S&P and Moody's upgraded Action's credit rating to BB Stable
/ Ba2 Stable. Action's total senior debt now stands at c.€4.5 billion. In
October 2023, Action also completed a capital restructuring with a pro-rata
redemption of shares. 3i used €524 million of the €877 million gross
proceeds from the share redemption to acquire further shares in Action,
increasing our gross equity stake from 52.9% to 54.8%.
Action's strong performance has continued through October 2023, with net sales
increasing to €8,848 million and operating EBITDA to €1,212 million in the
ten months to 29 October 2023 ("P10"). Action again delivered strong LFL sales
growth at 13.4% for the month and added 32 stores to bring the year's total to
P10 to 2,448 stores. After completing the debt issue and capital
restructuring, Action's cash as at 3 November 2023 was €1,030 million,
meaning Action's current net debt to P9 2023 LTM run-rate earnings ratio is
c.2.1x.
Private Equity portfolio performance in the period
Royal Sanders continues to deliver strong organic growth from its key
customers and is consistently outgrowing the overall market. It is an
established buy-and-build platform, and its most recent self-funded
acquisition of Lenhart, which completed in April 2023, further strengthened
its position in the DACH market. In the period, we invested £38 million to
support Dutch Bakery's combination with coolback, a German bakery group
specialised in bake-off bread, creating the European Bakery Group ("EBG").
Panelto, an Irish bakery group specialised in bake-off artisan breads, joined
EBG later in the period and established a UK and Ireland platform for the
combined group. The newly established platform is performing ahead of our
original investment case with significant scope for further consolidation in
what remains a highly fragmented market.
AES continues to harness its unique position in the mechanical seal sector and
delivered another period of strong financial, strategic and operational
performance. Recent capital investment, including its new headquarters factory
in Rotherham, will ensure that it remains at the forefront of precision
engineering and reliability services on a sustainable basis.
Commercial momentum remains strong at Cirtec Medical with several new
contracts ramping up in the year to date, and additional programmes set to
launch in 2024. The integration of key work streams from the acquisition of
Precision Components from Q Holding is largely complete, with competencies
from each business being leveraged across the Cirtec Medical group. The
remaining business of Q Holding, Q Medical Devices, performed well in the
period, driven by increased sales to key customers across its vascular unit
and new product launches. ten23 health, our biologics focused contract
development and manufacturing organisation ("CDMO") located in Basel and
Visp, Switzerland, has made good progress in 2023, significantly expanding its
commercial pipeline since the start of the year and growing its manufacturing
operations in Visp and its service offering at its Basel site. Following two
consecutive years of outperformance, SaniSure has seen sales orders weaken in
2023 as a result of inventory destocking across the wider bioprocessing
industry. The financial impact has been somewhat mitigated by a strong order
book coming into 2023 and operational efficiencies implemented by management,
ensuring that the business is well positioned as industry demand recovers. The
company continues to launch new programmes and expand its sales and marketing
footprint in new geographies.
MAIT's earnings continued to grow steadily, driven by a combination of organic
top-line growth and value accretive bolt-on acquisitions, including the June
2023 acquisition of etagis, a provider of production planning software for ERP
systems, MAIT's sixth acquisition since our initial investment. MPM generated
good growth across its core regions in the period, as it continues to expand
its operations in the US, which is now its largest market.
Following a sustained period of significant growth from the outset of the
pandemic to well into 2022, Tato has faced challenging trading headwinds in
2023. Subdued DIY and construction end-markets, pressure on input costs driven
by inflation and heightened pricing competition as a result of market
consolidation, have resulted in reduced volumes and margins in Tato's core
business. Importantly, there are some initial signs of trading conditions
moderating in Tato's favour and, as one of the three leading global biocide
businesses, Tato is well positioned for market recovery. Constraints on
consumer discretionary spending have continued to impact performance in a
small number of our portfolio companies. Luqom's trading remains impacted by
lower consumer demand and by discounting in the market due to overstocking,
whilst YDEON continues to experience muted demand across its core geographies.
Over the course of 2023, WilsonHCG has faced a weaker white-collar recruiting
market environment, with existing clients reducing recruiter spend and
potential new clients exhibiting longer sales cycles, given market
uncertainty. Management have taken steps to manage the short-term softness
whilst ensuring that the business can respond quickly and scale once positive
recruitment sentiment returns. Formel D's recovery remains challenging, which
has been reflected in its performance in the period.
Infrastructure
The Infrastructure portfolio delivered a GIR of £31 million, or 2% on opening
value in the period. 3i Infrastructure plc ("3iN") generated a total return on
its opening NAV of 6.3% in the six months to 30 September 2023, resulting in a
NAV of 351.4 pence per share. Its underlying portfolio continues to perform
ahead of the expectations set at the beginning of this financial year, with
particularly strong performance from Tampnet and TCR offsetting softer
performance in DNS:NET. Despite the continued robust returns generated by its
underlying portfolio, 3iN's share price decreased to 304 pence at 30 September
2023 (31 March 2023: 313 pence), reflecting wider market sentiment and weaker
demand for the shares of listed infrastructure investment companies. 3iN
agreed to sell its stake in Attero in the period for proceeds of c.€215
million, a c.31% uplift on the valuation at 31 March 2023. This transaction is
expected to complete by the end of 2023.
We continued to develop our North American Infrastructure platform with a new
investment in AmWaste, a provider of non-hazardous solid waste disposal
services in the south eastern region of the US. Regional Rail continues to
scale its platform via bolt-on acquisitions, acquiring rail assets from the
Clinton Terminal Railroad in North Carolina. Our proprietary capital
investment in Smarte Carte continues to outperform expectations through
positive contract economics, sustained US domestic travel and improved
international traffic.
Scandlines
Scandlines performed steadily in the period. Leisure traffic volumes were
ahead of last year after a strong summer. This offset the impact of a weaker
freight market, as a result of the more challenging macroeconomic backdrop.
Cash generation remains strong and we received a dividend of £10 million from
Scandlines in the period.
Sustainability
We are making good progress on our sustainability agenda. In particular, our
ESG Committee continues to meet frequently to oversee a number of
climate-focused initiatives. We are formulating our near-term science-based
targets to reduce our greenhouse gas ("GHG") emissions and enhancing our
portfolio data collection capabilities, including the collection of portfolio
GHG emissions data. We are also refining our assessment of climate-related
risks and opportunities in our investment and portfolio management processes
through further climate scenario analysis. We will report in alignment with
the TCFD framework by the 2024 deadline set by the FCA for asset managers such
as 3i.
Balance sheet, liquidity, foreign exchange and dividend
During the period, we further strengthened our liquidity profile through the
successful issue of a six year €500 million euro bond at a coupon of 4.875%.
We ended the period with cash of £55 million (31 March 2023: £412 million)
following the payment of the second FY2023 dividend and crystallisation of a
portion of carried interest payable related to Action, including the
completion of the previously announced £200 million payment and a further
£258 million payment that completed in August 2023.
Total liquidity at 30 September 2023 was £955 million (31 March 2023:
£1,312 million), including an undrawn RCF of £900 million. Net debt was
£1,153 million, with gearing of 6% (31 March 2023: £363 million, 2%).
As we move into the second half of our financial year we remain cautious on
realisations but expect to receive good cash inflows from refinancing proceeds
and dividends. Following Action's US debt issue in October 2023, we received
gross proceeds of €877 million of which we retained €353 million.
We recorded a total foreign exchange translation loss of £107 million
(September 2022: £711 million gain) in the period, including a gain on
foreign exchange hedging.
In line with our dividend policy, we will pay a first FY2024 dividend of 26.50
pence per share, which is half of our FY2023 total dividend. This first FY2024
dividend will be paid to shareholders on 12 January 2024.
Valuation
We continue to take 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 and governed by our robust valuation process, with
independent challenge from our auditors and the Board's Valuations Committee.
In our Private Equity portfolio, we have reflected instances of weaker trading
performance and declines in the relevant valuation peer groups by reducing
four valuation multiples in the period. These reductions are in addition to
the eight reductions made in FY2023. We increased two valuation multiples in
the period, reflecting the progress of each business against its investment
case, including recent bolt-on activity. Our non-Action portfolio was valued
at a weighted average of 12.9x EBITDA at 30 September 2023 (31 March 2023:
13.1x). The average valuation level is well supported by the investment cases
which underpin our portfolio and by our aim to generate at least a 2.0x return
on their invested cost.
We take the same long-term, through-the-cycle view on Action's multiple and
its current LTM run-rate EBITDA post-discount multiple of 18.5x remains
supported by its continued superior performance against its North American and
European value-for-money retail peers. Action's excellent growth meant its
valuation at 30 September 2022 of 18.5x LTM run-rate EBITDA translated to
12.8x the run-rate EBITDA achieved one year later.
Outlook
Against a tough macroeconomic environment, we delivered another good result in
the period for 3i. Action continues to perform very well. Its LFL sales
growth, continued new store expansion and significant free cash flow from
operations have once again underlined what an exceptional business it is. The
strong performance of a number of our other investments in the
value-for-money, private label and healthcare sectors underpins our confidence
that a number of these investments will also become longer-term compounders
over time.
We remain cautious about the investment and realisation market given the
macroeconomic environment in general, the breadth of geopolitical risk and our
belief that the full implications of the global recalibration of interest
rates are still yet to work fully through the system. We will continue to look
for opportunities to deploy capital into this uncertainty, but we will not
change our patient and disciplined approach. We have a strong balance sheet
and are under no pressure to sell companies if the price or terms do not
properly reflect the prospects of the business.
Simon Borrows
Chief Executive
8 November 2023
Business and Financial review
Private Equity
Our Private Equity portfolio generated a GIR of £1,826 million (September
2022: £1,970 million), or 11% of the opening portfolio value (September 2022:
16%), including a loss on foreign exchange on investments, after the impact of
foreign exchange hedging, of £127 million (September 2022: £685 million
gain).
Table 1: Gross investment return for the six months to 30 September
2023 2022
Investment basis £m £m
Realised profits/(losses) over value on the disposal of investments 1 (4)
Unrealised profits on the revaluation of investments 1,907 1,244
Interest income from investment portfolio 40 39
Fees receivable 5 6
Foreign exchange on investments (146) 685
Movement in fair value of derivatives 19 -
Gross investment return 1,826 1,970
Gross investment return as a % of opening portfolio value 11% 16%
Investment activity
Table 2: Private Equity cash investment in the six months to 30 September 2023
Portfolio company Type Business description/ bolt-on description Date £m
European Bakery Group Further (bolt-on) coolback: German bakery group specialised in bake-off bread July 2023 38
ten23 health Further Biologics focused CDMO Various 12
Total Private Equity cash investment 50
Table 3: Private Equity portfolio bolt-on acquisitions funded by the portfolio
company
in the six months to 30 September 2023
Portfolio company Name of acquisition Business description of bolt-on investment Date
Royal Sanders Lenhart Manufacturer of private label products for the personal care industry April 2023
MAIT etagis Provider of production planning software for ERP systems June 2023
AES Triseal Engineering company specialising in design, manufacture and application of June 2023
mechanical seals and associated rotating equipment
European Bakery Group Panelto Manufacturer of bake-off artisan breads August 2023
In the period, Dutch Bakery combined with coolback, a German bakery group
specialised in bake-off bread, to create the EBG, a pan-European bakery
platform. We supported this acquisition with a £38 million investment in July
2023. In August 2023, EBG combined with Panelto, a manufacturer of bake-off
artisan breads, establishing a UK and Ireland platform within the group. This
acquisition was self-funded. We continued to develop ten23 health with a
further investment of £12 million in the period.
Within the portfolio we also completed self-funded bolt-on acquisitions for
Royal Sanders with the acquisition of Lenhart, a manufacturer of private label
products for the personal care industry, as well as for MAIT with the
completion of its software acquisition in etagis, a provider of ERP solutions,
software development and consulting services. AES completed the acquisition of
Triseal, a company specialising in mechanical seals and rotating equipment.
Portfolio performance
Table 4: Unrealised profits/(losses) on the revaluation of Private Equity
investments1
in the six months to 30 September
2023 2022
Investment basis £m £m
Earnings based valuations
Action performance 1,810 1,156
Performance increases (excluding Action) 353 347
Performance decreases (excluding Action) (219) (205)
Multiple movements (23) (180)
Other bases
Discounted cash flow (5) 4
Quoted portfolio (31) (31)
Other movements in unquoted investments 22 (1)
Imminent sale - 154
Total 1,907 1,244
1 More information on our valuation methodology, including definitions and
rationale, is included in our Annual report and accounts 2023 on page 229.
Action performance and valuation
As detailed in the Chief Executive's review, Action continues to perform very
well. In the 12 months to the end of its P9 2023 (which ended 1 October 2023),
Action generated run-rate EBITDA growth of 44% and very strong cash flow.
At 30 September 2023, Action was valued using its LTM run-rate earnings to the
end of P9 2023 of €1,634 million. The LTM run-rate earnings used included
our normal adjustment to reflect stores opened in the year. We continue to
value Action at a multiple of 18.5x net of the liquidity discount (31 March
2023: 18.5x), supported by Action's superior performance against its peer
group.
Action ended P9 2023 with cash of €941 million and a net debt to LTM
run-rate earnings ratio of 1.3x. Further details on Action's capital
restructuring in October 2023 are provided in the Chief Executive's review.
At 30 September 2023, the valuation of our 52.9% stake in Action was £12,862
million (31 March 2023: £11,188 million) and we recognised unrealised profits
from Action of £1,810 million (September 2022: £1,156 million), as shown in
Table 4.
Table 5: Action financial metrics as at P9
Last nine months to P9 2023 Last nine months to P9 2022
(1 October 2023) (2 October 2022)
Financial metrics €m €m
Net sales 7,912 6,062
LFL sales growth 19.2% 15.8%
Operating EBITDA 1,065 740
Operating EBITDA margin 13.5% 12.2%
Net new stores added 153 150
Last 12 months to P9 2023 Last 12 months to P9 2022
(1 October 2023) (2 October 2022)
€m €m
Net sales 10,710 8,121
Operating EBITDA 1,530 1,036
Operating EBITDA margin 14.3% 12.8%
Run-rate EBITDA 1,634 1,135
Performance (excluding Action)
Excluding Action, the private equity portfolio generated £353 million
(September 2022: £347 million) of performance-driven unrealised value growth,
which more than offset performance-driven unrealised value losses of £219
million (September 2022: £205 million).
As a best-in-class operator in private label and contract manufacturing of
personal care products, Royal Sanders continues to benefit from operating in a
non-cyclical defensive industry with increased volumes from its key customers
delivering growth ahead of the overall market. Its recent bolt-on
acquisitions, including the acquisition of Lenhart in April 2023, continue to
perform ahead of our expectations, confirming Royal Sanders as a key
consolidator in its market. The newly formed EBG (as detailed under Investment
activity above) is performing ahead of our expectations, as Dutch Bakery's
trading momentum continues, and coolback and Panelto are both showing good
volume growth and integrating well within the overall group. AES delivered
another period of outperformance, following a stronger than expected increase
in sales volumes. AES's commitment to scaling and investment in the latest
manufacturing technology and reliability services positions the business well
for continued growth in its market. It completed the bolt-on acquisition of
Triseal in the period.
Following steady performance in the first half of 2023, Cirtec Medical is
positioned for a strong end to the year. The integration of Precision
Components, which it acquired from our portfolio company Q Holding, is largely
complete, enabling Cirtec Medical to penetrate new markets, and recent trading
shows a good increase in orders from existing and new customers. The remaining
business of Q Holding, Q Medical Devices, has seen higher demand from its
vascular unit customers and has benefited from operational initiatives across
its sites which have resulted in better productivity and improved margins.
Since the start of 2023, ten23 health has seen a meaningful scale up of its
manufacturing output across its sites in Basel and Visp, Switzerland. This
scaling of output has helped support the business secure a strong order
pipeline in 2023 from new and existing customers. We will continue to support
the business as it builds on this momentum and expands its service capability
and manufacturing output. An industry-wide destocking of single-use
consumables has resulted in a softer order book for SaniSure in 2023.
SaniSure has somewhat mitigated these near-term headwinds with a strong order
book coming into 2023 and with the implementation of process improvements and
efficiencies. The medium to long-term outlook for the industry remains very
positive and SaniSure is very well positioned to excel upon the market
recovery.
MAIT has seen good momentum in its performance through a combination of
organic sales growth and strategic M&A, completing the bolt-on
acquisition of etagis in the period. MPM delivered sales growth across all of
its key geographies in the period. Its now largest market, the US, has seen
accelerated growth, with particularly encouraging sales and profitability from
its online offering.
A small number of our portfolio companies continue to face challenging trading
conditions and weak end-markets. Tato's underperformance in 2023 is being
driven primarily by weak DIY and construction end-markets, inflationary cost
pressures and heightened pricing competition from the consolidation of its
competitors. Encouragingly, recent trading is showing some signs of
improvement. Luqom and YDEON continue to face a challenging discretionary
consumer market driven by muted customer demand and the discounting in the
market of excess stock. WilsonHCG has been impacted by a weaker hiring
environment across its core business functions, and Formel D's recovery has
slowed as its end-markets remain challenging.
Overall, 89%1 of our Private Equity portfolio companies by value grew their
earnings in the 12 months to 30 June 2023.
1 Based on LTM adjusted earnings to June 2023. Includes 31 companies.
Table 6: Portfolio earnings growth of the top 20 Private Equity investments2
3i carrying value
Number of companies at 30 September 2023
at 30 September 2023 £m
<0% 8 1,858
0-9% 2 894
10-19% 3 559
20-29% 3 1,027
≥30% 4 13,353
2 Includes top 20 Private Equity companies by value excluding ten23 health.
This represents 97% of the Private Equity portfolio by value (31 March 2023:
96%). LTM adjusted earnings to 30 June 2023 and Action based on LTM run-rate
earnings to P9 2023. P9 2023 runs to 1 October 2023.
Leverage
Our Private Equity portfolio is funded with all senior debt structures, with
long-dated maturity profiles and, as at 30 September 2023, 80% is repayable
from 2026 and beyond. Across our Private Equity portfolio, term debt is well
protected against interest rate rises with over two thirds of total term debt
hedged at a weighted average tenor of more than three years. The average
all-in debt cost across two thirds of the portfolio is 6%. Average leverage
was 2.1x at 30 September 2023 (31 March 2023: 2.5x). Excluding Action,
leverage across the portfolio was 3.8x (31 March 2023: 4.0x). Table 7 shows
the ratio of net debt to adjusted earnings by portfolio value at 30 September
2023.
Table 7: Ratio of net debt to adjusted earnings1
3i carrying value
Number of companies at 30 September 2023
at 30 September 2023 £m
<1x 1 94
1-2x 4 12,971
2-3x 4 998
3-4x 6 1,599
4-5x 1 88
5-6x 5 1,239
>6x 2 24
1 This represents 93% of the Private Equity portfolio by value (31 March 2023:
92%). Quoted holdings and companies with net cash are excluded from the
calculation. Net debt and adjusted earnings as at 30 June 2023. Action based
on net debt at P9 2023 and LTM run-rate earnings to P9 2023.
Multiple movements
When selecting multiples to value our portfolio companies we take a long-term,
through-the-cycle approach and consider a number of factors including recent
performance, outlook and bolt-on activity, comparable recent transactions and
exit plans, and the performance of quoted comparable companies. At each
reporting date our valuation multiples are considered as part of a robust
valuation process, which includes independent challenge throughout, including
from our external auditors, culminating in the quarterly Valuation Committee
of the Board. In the period, capital markets remained relatively volatile due
to rising inflation and interest rates and geopolitical uncertainty. Taking
into consideration our valuation approach and market developments, we adjusted
four of our valuation multiples down and two up, resulting in a net
multiple-driven unrealised value loss of £23 million in the period (September
2022: £180 million unrealised value loss).
Action's valuation multiple at 30 September 2023 remained unchanged at 18.5x
net of the liquidity discount. Based on the valuation at that date, a 1.0x
movement in Action's post-discount multiple would increase or decrease the
valuation of 3i's investment by £749 million.
Quoted portfolio
Basic-Fit is the only quoted investment in our Private Equity portfolio. We
recognised an unrealised value loss of £31 million from Basic-Fit in the
period (September 2022: unrealised value loss of £31 million) as its share
price decreased to €26.86 at 30 September 2023 (31 March 2023: €36.32). At
30 September 2023, our residual 5.7% shareholding was valued at £88 million
(31 March 2023: £121 million).
Assets under management
The value of the Private Equity portfolio, including third-party capital,
increased to £25.7 billion (31 March 2023: £22.9 billion) principally due to
unrealised value movements in the period.
Table 8: Private Equity 3i proprietary capital
3i proprietary capital value3 Vintage 3i proprietary capital value3 Vintage
money
30 September 2023 money multiple4 31 March 2023 multiple4
Vintages1 £m 30 September 2023 £m 31 March 2023
Buyouts 2010-2012 2,216 15.6x 2,968 15.1x
Growth 2010-2012 24 2.1x 23 2.1x
2013-2016 824 2.5x 814 2.5x
2016-2019 1,954 1.8x 1,872 1.8x
2019-2022 1,653 1.5x 1,524 1.5x
2022-2025 219 1.0x 228 1.0x
Others2 11,385 n/a 8,996 n/a
Total 18,275 16,425
1 Assets included in these vintages are disclosed in the Glossary at the end
of this document.
2 Includes Action value of £10,646 million (31 March 2023: £8,220 million)
for 3i's direct share and including the stake held through the 2020
Co-investment vehicles. Overall, including the Buyouts 2010-12 vintage, 3i's
share of Action value is £12,862 million (31 March 2023: £11,188 million).
3 3i carrying value is the unrealised value for the remaining investments in
each vintage.
4 Vintage money multiple (GBP) includes realised and unrealised value as at
the reporting date.
Table 9: Private Equity assets by geography
3i carrying value
at 30 September 2023
3i office location Number of companies £m
Netherlands 10 14,391
France 1 315
Germany 7 704
UK 9 1,133
US 9 1,703
Other 3 29
Total 39 18,275
Table 10: Private Equity assets by sector
3i carrying value
at 30 September 2023
Sector Number of companies £m
Action (Consumer) 1 12,862
Consumer 13 2,141
Industrial Technology 7 1,135
Healthcare 5 1,249
Services 10 724
Software 3 164
Total 39 18,275
Infrastructure
Our Infrastructure portfolio generated a GIR of £31 million in the period, or
2% on the opening portfolio value (September 2022: £35 million, 3%),
including a gain on foreign exchange on investments of £8 million (September
2022: £58 million).
Table 11: Gross investment return for the six months to 30 September
2023 2022
Investment basis £m £m
Realised losses over value on the disposal of investments (3) -
Unrealised profits/(losses) on the revaluation of investments 2 (47)
Dividends 18 16
Interest income from investment portfolio 6 8
Foreign exchange on investments 8 58
Gross investment return 31 35
Gross investment return as a % of opening portfolio value 2% 3%
Fund management
3iN
In the six months to 30 September 2023, 3iN generated a total return on
opening NAV of 6.3% (September 2022: 9.3%) and is on track to meet its
dividend target for the year to 31 March 2024 of 11.90 pence per share, up
6.7% year-on-year.
3iN's underlying portfolio continues to deliver strong earnings growth and
reinvestment opportunities. There was particularly strong performance from
Tampnet, TCR and Valorem, offsetting softer performance from DNS:NET which is
experiencing a more challenging fibre sector outlook in Germany, resulting in
a delayed rollout of its network around Berlin. In the period, 3iN announced
the sale of its c.25% stake in Attero for expected net proceeds of c.€215
million, a c.31% uplift from its valuation of €164 million at 31 March 2023.
As investment manager, 3i received a management fee from 3iN of £25 million
in the period (September 2022: £23 million).
North American Infrastructure platform
We continue to develop our North American Infrastructure platform. In the
period, we completed a new investment in AmWaste, a provider of non-hazardous
solid waste disposal services in the south eastern region of the US and a
further bolt-on acquisition for Regional Rail, with the acquisition of rail
assets from Clinton Terminal Railroad, which further expanded its presence in
North Carolina. Freight load traffic across Regional Rail's existing railroads
outperformed our March 2023 expectations. EC Waste saw good performance from
its residential collection contracts, landfill operations and through contract
wins for debris clean ups, offsetting higher expenses. Regional Rail and EC
Waste were valued on a DCF basis at 30 September 2023.
During the period, our North American Infrastructure platform received further
external commitments. This resulted in a pro-rata rebalancing of existing
platform holdings which resulted in proceeds to 3i of £18 million.
Other funds
3i EOPF and the 3i Managed Infrastructure Acquisitions LP both performed in
line with expectations in the period.
Assets under management
Infrastructure AUM was £6.6 billion at 30 September 2023 (31 March 2023:
£6.4 billion) and we generated fee income of £34 million from our fund
management activities in the period (September 2022: £30 million).
Table 12: Assets under management as at 30 September 2023
Fee
% income
3i Remaining invested2 earned
Close Fund commitment/ 3i at September AUM in the period
Fund/strategy date size share commitment 2023 £m £m
3iN1 Mar-07 n/a £818m n/a n/a 2,804 25
3i Managed Infrastructure Acquisitions LP Jun-17 £698m £35m £5m 87% 1,317 2
3i managed accounts various n/a n/a n/a n/a 850 3
3i North American Infrastructure platform Mar-223 US$495m US$300m US$85m 72% 518 1
BIIF May-08 £680m n/a n/a 91% 452 2
3i European Operational Projects Fund Apr-18 €456m €40m €5m 86% 362 1
Other n/a n/a n/a n/a n/a 316 -
Total 6,619 34
1 AUM based on the share price at 30 September 2023.
2 % invested is the capital deployed into investments against the total Fund
commitment.
3 First close completed in March 2022.
3i's proprietary capital infrastructure portfolio
The Group's proprietary capital infrastructure portfolio consists of its 29%
stake in 3iN, its investment in Smarte Carte and direct stakes in other
managed funds.
Quoted stake in 3iN
At 30 September 2023, our 29% stake in 3iN was valued at £818 million (31
March 2023: £841 million) as a result of a 2.7% decrease in 3iN's share price
to 304 pence in the period (31 March 2023: 313 pence). We recognised an
unrealised loss of £23 million (September 2022: unrealised loss of £117
million), offset by £15 million of dividend income (September 2022: £14
million).
North America Infrastructure proprietary capital
Smarte Carte performed well in the period. Strong US domestic leisure travel
demand and further improvements in international travel volumes drove better
than expected performance across all lines of business. At 30 September 2023,
the business was valued on a DCF basis.
Table 13: Unrealised profits/(losses) on the revaluation of Infrastructure
investments1
in the six months to 30 September
2023 2022
£m £m
Quoted (23) (117)
DCF 22 63
Fund/other 3 7
Total 2 (47)
1 More information on our valuation methodology, including definitions and
rationale, is included in our Annual report and accounts 2023 on page 229.
Scandlines
Scandlines generated a GIR of £10 million (September 2022: £11 million) or
2% of opening portfolio value in the period (September 2022: 2%).
Table 14: Gross investment return for the six months to 30 September
2023 2022
Investment basis £m £m
Dividends 10 12
Foreign exchange on investments (7) 21
Movement in fair value of derivatives 7 (22)
Gross investment return 10 11
Gross investment return as a % of opening portfolio value 2% 2%
Performance
Scandlines performed steadily in the period, with leisure volumes ahead of a
strong prior year and of pre-pandemic levels. After back-to-back record years,
freight volumes have been impacted by a more challenging macroeconomic
backdrop. Cash generation in the business remains good and we received a
dividend of £10 million in the period. At 30 September 2023, Scandlines was
valued at £547 million (31 March 2023: £554 million) on a DCF basis.
Foreign exchange
We hedge the balance sheet value of our investment in Scandlines for foreign
exchange translation risk. We recognised a loss of £7 million on foreign
exchange translation (September 2022: £21 million gain) offset by a fair
value gain of £7 million (September 2022: £22 million loss) from derivatives
in our hedging programme.
Overview of financial performance
We generated a total return of £1,669 million, or a profit on opening
shareholders' funds of 10%, in the six months to 30 September 2023 (September
2022: £1,765 million, or 14%). The diluted NAV per share at 30 September
2023 increased to 1,886 pence (31 March 2023: 1,745 pence) including the 11
pence per share loss on foreign exchange translation in the period (September
2022: 74 pence per share gain), and after the payment of the second FY2023
dividend of £286 million, or 29.75 pence per share in July 2023 (September
2022: £262 million, 27.25 pence per share).
Table 15: Gross investment return for the six months to 30 September
2023 2022
Investment basis £m £m
Private Equity 1,826 1,970
Infrastructure 31 35
Scandlines 10 11
Gross investment return 1,867 2,016
Gross investment return as a % of opening portfolio value 10% 14%
The GIR was £1,867 million in the period (September 2022: £2,016 million),
driven by the very strong performance of Action and good contributions from a
number of our portfolio companies operating in the value-for-money, private
label and healthcare sectors, offset by weaker performance in our portfolio
companies exposed to discretionary consumer spending and more cyclical
end-markets. The GIR also includes a £119 million foreign exchange loss on
translation of our investments, including the impact of foreign exchange
hedging in the period (September 2022: £742 million gain). Further
information on the Private Equity, Infrastructure and Scandlines valuations is
included in the business reviews.
Table 16: Operating cash profit /(loss) for the six months to 30 September
2023 2022
Investment basis £m £m
Cash fees from external funds 38 33
Cash portfolio fees 6 1
Cash portfolio dividends and interest 44 33
Cash income 88 67
Cash operating expenses1 (82) (84)
Operating cash profit/(loss) 6 (17)
1 Cash operating expenses include operating expenses paid and lease payments.
We generated an operating cash profit of £6 million in the period (September
2022: £17 million loss). Cash income increased to £88 million (September
2022: £67 million) principally due to an increase in dividend income and
interest received compared to the same period last year. Cash operating
expenses incurred during the period remained broadly in line with the prior
period at £82 million (September 2022: £84 million).
Net foreign exchange movements
The Group recorded a total foreign exchange translation loss of £107 million,
including the impact of foreign exchange hedging in the period, (September
2022: £711 million gain) as a result of sterling strengthening by 1% against
the euro, which was partially offset by sterling weakening by 1% against the
US dollar.
At 30 September 2023, the notional value of the Group's forward foreign
exchange contracts was €2.6 billion and $1.2 billion. The €2.6 billion
includes the €600 million notional value of the forward foreign exchange
contracts related to the Scandlines hedging programme.
Table 17 sets out the sensitivity of net assets to foreign exchange movements
at 30 September 2023 and sensitivity after the hedging programme
Table 17: Net assets and sensitivity by currency at 30 September 2023
Net 1%
assets sensitivity
FX rate £m % £m
Sterling n/a 4,634 25% n/a
Euro1 1.1529 12,104 67% 121
US dollar1 1.2206 1,258 7% 12
Danish krone 8.5973 218 1% 2
Other n/a 31 -% n/a
Total 18,245
1 The sensitivity impact calculated on the net assets position includes the
impact from foreign exchange hedging.
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. 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.
In total, we accrued carried interest payable of £147 million (September
2022: £157 million) for Private Equity in the period. This was driven by the
continued strong performance of the 2010-12 vintage, which holds Action, as
well as by the return generated by other Private Equity carry vintages.
In Infrastructure, following the agreed sale of Attero by 3iN, we recognised
£21 million of performance fees receivable, of which £16 million was
recognised as carried interest payable.
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.
In the period, we completed the previously announced £200 million carried
interest payment to participants in the Buyouts 2010-12 carry scheme and, in
August 2023, we crystallised a further portion of the carried interest
liability related to Action, resulting in a further payment of £258 million
to participants in the same scheme. In total, carried interest and performance
fee cash paid in the period was £510 million (September 2022: £39 million).
The total performance fee cash received in the period was £37 million
(September 2022: £51 million).
Overall, the effect of the income statement charge, the cash payments, as well
as the currency translation meant that the balance sheet carried interest and
performance fees payable decreased to £985 million at 30 September 2023
(31 March 2023: £1,351 million).
Following Action's capital restructuring in October 2023, as detailed in the
Chief Executive's review, 3i's gross investment in Action increased from 52.9%
to 54.8% and 3i's investment in Action, net of carry, increased from 50% to
52%. In Private Equity, in relation to Action, we will accrue net carried
interest payable of c.5% of Action GIR.
Table 18: Carried interest and performance fees for the six months to 30
September
2023 2022
Investment basis Statement of comprehensive income £m £m
Carried interest and performance fees receivable
Private Equity - 2
Infrastructure 21 -
Total 21 2
Carried interest and performance fees payable
Private Equity (147) (157)
Infrastructure (29) (5)
Total (176) (162)
Net carried interest payable (155) (160)
Table 19: Carried interest and performance fees
30 September 31 March
2023 2023
Investment basis Statement of financial position £m £m
Carried interest and performance fees receivable
Private Equity 5 6
Infrastructure 21 37
Total 26 43
Carried interest and performance fees payable
Private Equity (962) (1,325)
Infrastructure (23) (26)
Total (985) (1,351)
Balance sheet and liquidity
During the period, we successfully issued a six year €500 million euro bond
at a coupon of 4.875%, further strengthening our liquidity profile. At 30
September 2023, the Group had net debt of £1,153 million (31 March 2023:
£363 million) and gearing of 6% (31 March 2023: 2%) following the payment
of carried interest and performance fees payable of £510 million and the
second FY2023 dividend of £286 million.
The Group had liquidity of £955 million at 30 September 2023 (31 March 2023:
£1,312 million) comprising cash and deposits of £55 million (31 March 2023:
£412 million) and an undrawn RCF of £900 million (31 March 2023: £900
million). Following Action's US debt issue in October 2023, we have received
gross proceeds of €877 million of which we have retained €353 million.
The investment portfolio value increased to £20,255 million at 30 September
2023 (31 March 2023: £18,388 million) mainly driven by unrealised profits of
£1,909 million in the period.
Table 20: Simplified consolidated balance sheet
30 September 31 March
2023 2023
Investment basis Statement of financial position £m £m
Investment portfolio 20,255 18,388
Gross debt (1,208) (775)
Cash and deposits 55 412
Net debt (1,153) (363)
Carried interest and performance fees receivable 26 43
Carried interest and performance fees payable (985) (1,351)
Other net assets 102 127
Net assets 18,245 16,844
Gearing1 6% 2%
1 Gearing is net debt as a percentage of net assets.
Going concern
The Half-year consolidated financial statements are prepared on a going
concern basis following the assessment by the Directors, taking into account
the Group's current performance and outlook.
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 later in this document. The table below
defines our additional APMs and should be read in conjunction with our Annual
report and accounts 2023.
Gross investment return as a percentage of opening portfolio value
Purpose Calculation Reconciliation to IFRS
A measure of the performance of our investment portfolio. For further It is calculated as the gross investment return, as shown in the Investment The equivalent balances under IFRS and the reconciliation to the Investment
information, see the Group KPIs in our Annual report and accounts 2023. basis Consolidated statement of comprehensive income, as a % of the opening basis are shown in the Reconciliation of consolidated statement of
portfolio value. comprehensive income and the Reconciliation of consolidated statement of
financial position respectively.
Cash realisation
Purpose Calculation Reconciliation to IFRS
Cash proceeds from our investments support our returns to shareholders, as The cash received from the disposal of investments in the period as shown in The equivalent balance under IFRS and the reconciliation to the Investment
well as our ability to invest in new opportunities. For further information, the Investment basis Consolidated cash flow statement. basis is shown in the Reconciliation of consolidated cash flow statement.
see the Group KPIs in our Annual report and accounts 2023.
Cash investment
Purpose Calculation Reconciliation to IFRS
Identifying new opportunities in which to invest proprietary capital is the The cash paid to acquire investments and recognising syndications in the The equivalent balance under IFRS and the reconciliation to the Investment
primary driver of the Group's ability to deliver attractive returns. For period as shown on the Investment basis Consolidated cash flow statement. basis is shown in the Reconciliation of consolidated cash flow statement.
further information, see the Group KPIs in our Annual report and accounts
2023.
Operating cash profit/(loss)
Purpose Calculation Reconciliation to IFRS
By covering the cash cost of running the business with cash income, we reduce The cash income from the portfolio (interest, dividends and fees) together The equivalent balance under IFRS and the reconciliation to the Investment
the potential dilution of capital returns. For further information, see the with fees received from external funds less cash operating expenses and leases basis is shown in the Reconciliation of consolidated cash flow statement.
Group KPIs in our Annual report and accounts 2023. payments as shown on the Investment basis Consolidated cash flow statement.
The calculation is shown in Table 16 of the Overview of financial performance.
Net cash/(net debt)
Purpose Calculation Reconciliation to IFRS
A measure of the available cash to invest in the business and an indicator of Cash and cash equivalents plus deposits less loans and borrowings as shown on The equivalent balance under IFRS and the reconciliation to the Investment
the financial risk in the Group's balance sheet. the Investment basis Consolidated statement of financial position. basis is shown in the Reconciliation of consolidated statement of financial
position.
Gearing
Purpose Calculation Reconciliation to IFRS
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 The equivalent balance under IFRS and the reconciliation to the Investment
Investment basis. It cannot be less than zero. basis is shown in the Reconciliation of 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
2023, which can be accessed on the Group's website at www.3i.com
(http://www.3i.com) .
Notwithstanding the continued global economic uncertainties and increased
geopolitical tensions in the period, the principal risks to the achievement of
the Group's strategic objectives are unchanged from those reported on pages 87
to 91 of the Annual report and accounts 2023 and remain broadly stable in
terms of impact and likelihood. The Group's principal risks continue to be
closely monitored and may be subject to change.
Principal risks
External - Risks arising from external factors including political, legal,
regulatory, economic and competitor changes, which affect the Group's
investment portfolio and operations.
Most of the external risk factors are continuations of themes outlined at the
time of the Annual report and accounts 2023. These include the increased cost
of living, higher interest rates and lower forecast economic growth. These
combined headwinds have the potential to affect trading performance, liquidity
and valuations in varying degrees across 3i's investment portfolio. As
outlined below, 3i has a well-funded balance sheet and carefully constructed
portfolio of international companies operating in a range of different
sectors, which has performed well overall in a challenging environment.
The Group and our portfolios have no material direct exposure to the Middle
East, although we continue to closely monitor the impact of the ongoing
situation in the region.
Investment - Risks in respect of specific asset investment decisions, the
subsequent performance of an investment or exposure concentrations across
business line portfolios.
The portfolio continues to perform resiliently in the current market and
economic conditions; notably those operating in the value-for-money, private
label and healthcare sectors. However, some of our portfolio companies are
more exposed to the impact of cost pressures and lower consumer discretionary
spend and more cyclical end-markets, and are being closely monitored. In
addition, an extended period of higher interest rates could impact debt
markets and, in turn, potentially affect investment activity levels or
refinancing plans.
Operational - Risks arising from inadequate or failed processes, people and
systems or from external factors affecting these.
The Group's day-to-day operations are largely unchanged in the period. This
includes the continued resilience and security of the Group's IT systems and
maintenance of robust processes and internal controls. Staff turnover rates
have been stable.
Capital management - Risks in relation to the management of capital resources
including liquidity risk, currency exposures and leverage risk.
3i's approach to capital management remains conservative, with a well-funded
balance sheet. The Group issued a six year €500 million bond at a coupon of
4.875% in June 2023 providing additional liquidity and euro hedging. The
investment and divestment pipeline and balance of investment and realisation
flows are subject to regular reviews.
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 2023.
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 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.
To maintain transparency and aid understanding of our results, we include a
separate non-GAAP "Investment basis" consolidated statement of comprehensive
income, financial position and cash flow. The Investment basis is an APM and
the Chief Executive's review and the Business and financial review are
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 2023 on page 73.
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 later in this
document.
Reconciliation of consolidated statement of comprehensive income
Six months to 30 September 2023 Six months to 30 September 2022
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Notes £m £m £m £m £m £m
Realised profits/(losses) over value on the disposal of investments 1,2 (2) 3 1 (4) 2 (2)
Unrealised profits on the revaluation of investments 1,2 1,909 (715) 1,194 1,197 (657) 540
Fair value movements on investment entity subsidiaries 1 - 524 524 - 962 962
Portfolio income
Dividends 1,2 28 (11) 17 28 (12) 16
Interest income from investment portfolio 1,2 46 (32) 14 47 (32) 15
Fees receivable 1,2 5 1 6 6 - 6
Foreign exchange on investments 1,4 (145) 74 (71) 764 (502) 262
Movement in the fair value of derivatives 26 - 26 (22) - (22)
Gross investment return 1,867 (156) 1,711 2,016 (239) 1,777
Fees receivable from external funds 36 - 36 33 - 33
Operating expenses 1,3 (68) - (68) (67) 1 (66)
Interest receivable 1 6 (2) 4 1 - 1
Interest payable 1 (28) - (28) (27) - (27)
Exchange movements 1,4 12 8 20 (31) 51 20
Income from investment entity subsidiaries 1 - 11 11 - 28 28
Other income - - - 1 - 1
Operating profit before carried interest 1,825 (139) 1,686 1,926 (159) 1,767
Carried interest
Carried interest and performance fees receivable 1,3 21 - 21 2 - 2
Carried interest and performance fees payable 1,3 (176) 142 (34) (162) 153 (9)
Operating profit before tax 1,670 3 1,673 1,766 (6) 1,760
Tax charge 1,3 (1) - (1) (1) - (1)
Profit for the period 1,669 3 1,672 1,765 (6) 1,759
Other comprehensive income that may be reclassified to
the income statement
Exchange differences on translation of foreign operations 1,4 - (3) (3) - 6 6
Other comprehensive expense that will not be reclassified
to the income statement
Re-measurements of defined benefit plans - - - - - -
Other comprehensive (expense)/income for the period - (3) (3) - 6 6
Total comprehensive income for the period 1,669 - 1,669 1,765 - 1,765
("Total return")
Notes:
1 Applying IFRS 10 to the Consolidated statement of comprehensive income
consolidates the line items of a number of previously consolidated
subsidiaries into a single line item "Fair value movements on investment
entity subsidiaries". In the Investment basis accounts we have disaggregated
these line items to analyse our total return as if these investment entity
subsidiaries were fully consolidated, consistent with prior 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 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 also aggregated into the "Fair value movements on investment
entity subsidiaries" line include operating expenses, carried interest and
performance fees receivable, carried interest and performance fees payable and
tax. Operating expenses, carried interest and performance fees receivable and
tax do not impact fair value movements on investment entity subsidiaries for
the six months to 30 September 2023.
4 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 entity subsidiaries".
Reconciliation of consolidated statement of financial position
As at 30 September 2023 As at 31 March 2023
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (audited)
Notes £m £m £m £m £m £m
Assets
Non-current assets
Investments
Quoted investments 1 906 (88) 818 962 (121) 841
Unquoted investments 1 19,349 (8,588) 10,761 17,426 (8,749) 8,677
Investments in investment entity subsidiaries 1,2 - 7,735 7,735 - 7,844 7,844
Investment portfolio 20,255 (941) 19,314 18,388 (1,026) 17,362
Carried interest and performance 1 2 1 3 3 - 3
fees receivable
Other non-current assets 1 43 (8) 35 33 (3) 30
Intangible assets 4 - 4 5 - 5
Retirement benefit surplus 54 - 54 53 - 53
Property, plant and equipment 3 - 3 3 - 3
Right of use asset 20 - 20 9 - 9
Derivative financial instruments 60 - 60 73 - 73
Total non-current assets 20,441 (948) 19,493 18,567 (1,029) 17,538
Current assets
Carried interest and performance 1 24 - 24 40 - 40
fees receivable
Other current assets 1 53 (6) 47 41 (11) 30
Current income taxes 1 - 1 1 - 1
Derivative financial instruments 42 - 42 48 - 48
Cash and cash equivalents 1 55 (14) 41 412 (250) 162
Total current assets 175 (20) 155 542 (261) 281
Total assets 20,616 (968) 19,648 19,109 (1,290) 17,819
Liabilities
Non-current liabilities
Trade and other payables 1 (54) 50 (4) (11) 7 (4)
Carried interest and performance 1 (825) 779 (46) (1,049) 1,006 (43)
fees payable
Loans and borrowings (1,208) - (1,208) (775) - (775)
Retirement benefit deficit (20) - (20) (20) - (20)
Lease liability (12) - (12) (5) - (5)
Derivative financial instruments (3) - (3) (3) - (3)
Deferred income taxes (1) - (1) (1) - (1)
Provisions (4) - (4) (4) - (4)
Total non-current liabilities (2,127) 829 (1,298) (1,868) 1,013 (855)
Current liabilities
Trade and other payables 1 (71) 1 (70) (85) 9 (76)
Carried interest and performance fees payable 1 (160) 138 (22) (302) 268 (34)
Lease liability (9) - (9) (5) - (5)
Derivative financial instruments - - - (1) - (1)
Current income taxes (4) - (4) (4) - (4)
Total current liabilities (244) 139 (105) (397) 277 (120)
Total liabilities (2,371) 968 (1,403) (2,265) 1,290 (975)
Net assets 18,245 - 18,245 16,844 - 16,844
Equity
Issued capital 719 - 719 719 - 719
Share premium 791 - 791 790 - 790
Other reserves 3 16,827 - 16,827 15,443 - 15,443
Own shares (92) - (92) (108) - (108)
Total equity 18,245 - 18,245 16,844 - 16,844
Notes:
1 Applying IFRS 10 to the Consolidated statement of financial position
aggregates the line items of investment entity subsidiaries 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 of the Group.
3 Investment basis financial statements are prepared for performance
measurement and therefore reserves are not analysed separately under this
basis.
Reconciliation of consolidated cash flow statement
Six months to 30 September 2023 Six months to 30 September 2022
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Notes £m £m £m £m £m £m
Cash flow from operating activities
Purchase of investments 1 (99) 83 (16) (241) 209 (32)
Proceeds from investments 1 1 - 1 228 (194) 34
Amounts paid to investment entity subsidiaries 1 - (430) (430) - (233) (233)
Amounts received from investment entity subsidiaries 1 - 157 157 - 220 220
Net cash flow from derivatives 45 - 45 4 - 4
Portfolio interest received 1 6 (1) 5 2 (2) -
Portfolio dividends received 1 38 (11) 27 31 (12) 19
Portfolio fees received 1 6 - 6 1 - 1
Fees received from external funds 38 - 38 33 - 33
Carried interest and performance fees received 1 37 - 37 51 - 51
Carried interest and performance fees paid 1 (510) 481 (29) (39) 11 (28)
Operating expenses paid (80) - (80) (81) - (81)
Co-investment loans received 1 1 2 3 - 1 1
Other cash income 1 43 (43) - - - -
Interest received 1 6 (2) 4 1 - 1
Net cash flow from operating activities (468) 236 (232) (10) - (10)
Cash flow from financing activities
Issue of shares 1 - 1 1 - 1
Purchase of own shares - - - (30) - (30)
Dividends paid (286) - (286) (262) - (262)
Proceeds from long-term borrowing 422 - 422 - - -
Lease payments (2) - (2) (3) - (3)
Interest paid (21) - (21) (20) - (20)
Drawdown of revolving credit facility - - - 145 - 145
Net cash flow from financing activities 114 - 114 (169) - (169)
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 (355) 236 (119) (179) - (179)
Cash and cash equivalents at the start of period 2 412 (250) 162 229 (17) 212
Effect of exchange rate fluctuations 1 (2) - (2) 5 - 5
Cash and cash equivalents at the end of period 2 55 (14) 41 55 (17) 38
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
2023 2022
(unaudited) (unaudited)
Notes £m £m
Realised profits/(losses) over value on the disposal of investments 2 1 (2)
Unrealised profits on the revaluation of investments 3 1,194 540
Fair value movements on investment entity subsidiaries 8 524 962
Portfolio income
Dividends 17 16
Interest income from investment portfolio 14 15
Fees receivable 4 6 6
Foreign exchange on investments (71) 262
Movement in the fair value of derivatives 26 (22)
Gross investment return 1,711 1,777
Fees receivable from external funds 4 36 33
Operating expenses (68) (66)
Interest received 4 1
Interest paid (28) (27)
Exchange movements 20 20
Income from investment entity subsidiaries 11 28
Other income - 1
Operating profit before carried interest 1,686 1,767
Carried interest
Carried interest and performance fees receivable 4 21 2
Carried interest and performance fees payable (34) (9)
Operating profit before tax 1,673 1,760
Tax charge (1) (1)
Profit for the period 1,672 1,759
Other comprehensive income that may be reclassified to the income statement
Exchange differences on translation of foreign operations (3) 6
Other comprehensive expense that will not be reclassified to the income
statement
Re-measurements of defined benefit plans - -
Other comprehensive income for the period (3) 6
Total comprehensive income for the period ("Total return") 1,669 1,765
Earnings per share
Basic (pence) 5 173.5 182.7
Diluted (pence) 5 173.0 182.5
The Notes to the accounts section forms an integral part of these financial
statements.
Condensed consolidated statement of financial position
30 September 31 March
2023 2023
(unaudited) (audited)
Notes £m £m
Assets
Non-current assets
Investments
7 818 841
Quoted investments
Unquoted investments 7 10,761 8,677
Investments in investment entity subsidiaries 8 7,735 7,844
Investment portfolio 19,314 17,362
Carried interest and performance fees receivable 3 3
Other non-current assets 35 30
Intangible assets 4 5
Retirement benefit surplus 54 53
Property, plant and equipment 3 3
Right of use asset 20 9
Derivative financial instruments 60 73
Total non-current assets 19,493 17,538
Current assets
Carried interest and performance fees receivable 24 40
Other current assets 47 30
Current income taxes 1 1
Derivative financial instruments 42 48
Cash and cash equivalents 41 162
Total current assets 155 281
Total assets 19,648 17,819
Liabilities
Non-current liabilities
Trade and other payables (4) (4)
Carried interest and performance fees payable (46) (43)
Loans and borrowings (1,208) (775)
Retirement benefit deficit (20) (20)
Lease liability (12) (5)
Derivative financial instruments (3) (3)
Deferred income taxes (1) (1)
Provisions (4) (4)
Total non-current liabilities (1,298) (855)
Current liabilities
Trade and other payables (70) (76)
Carried interest and performance fees payable (22) (34)
Lease liability (9) (5)
Derivative financial instruments - (1)
Current income taxes (4) (4)
Total current liabilities (105) (120)
Total liabilities (1,403) (975)
Net assets 18,245 16,844
Equity
Issued capital 719 719
Share premium 791 790
Capital redemption reserve 43 43
Share-based payment reserve 32 31
Translation reserve (5) (2)
Capital reserve 15,420 14,044
Revenue reserve 1,337 1,327
Own shares (92) (108)
Total equity 18,245 16,844
The Notes to the accounts section forms an integral part of these financial
statements.
Condensed consolidated statement of changes in equity
For the six months Share-
to 30 September 2023
(unaudited)
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve1 reserve1 shares equity
£m £m £m £m £m £m £m £m £m
Total equity at the start of 719 790 43 31 (2) 14,044 1,327 (108) 16,844
the period
Profit for the period - - - - - 1,582 90 - 1,672
Exchange differences on translation of foreign operations - - - - (3) - - - (3)
Re-measurements of defined benefit plans - - - - - - - - -
Total comprehensive income for the period - - - - (3) 1,582 90 - 1,669
Share-based payments - - - 17 - - - - 17
Release on exercise/forfeiture of share awards - - - (16) - - 16 - -
Exercise of share awards - - - - - (16) - 16 -
Ordinary dividends - - - - - (190) (96) - (286)
Purchase of own shares - - - - - - - - -
Issue of ordinary shares - 1 - - - - - - 1
Total equity at the end of the period 719 791 43 32 (5) 15,420 1,337 (92) 18,245
1 Refer to the Glossary at the end of this document for the nature of the
capital and revenue reserves.
For the six months Share-
to 30 September 2022
(unaudited)
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve1 reserve1 shares equity
£m £m £m £m £m £m £m £m £m
Total equity at the start of 719 789 43 33 (6) 10,151 1,125 (100) 12,754
the period
Profit for the period - - - - - 1,686 73 - 1,759
Exchange differences on translation of foreign operations - - - - 6 - - - 6
Re-measurements of defined benefit plans - - - - - - - - -
Total comprehensive income for the period - - - - 6 1,686 73 - 1,765
Share-based payments - - - 12 - - - - 12
Release on exercise/forfeiture of share awards - - - (18) - - 18 - -
Exercise of share awards - - - - - (22) - 22 -
Ordinary dividends - - - - - (158) (104) - (262)
Purchase of own shares - - - - - - - (30) (30)
Issue of ordinary shares - 1 - - - - - - 1
Total equity at the end of the period 719 790 43 27 - 11,657 1,112 (108) 14,240
1 Refer to the Glossary at the end of this document for the nature of the
capital and revenue reserves.
The Notes to the accounts section forms an integral part of these financial
statements.
Condensed consolidated cash flow statement
Six months to Six months to
30 September 30 September
2023 2022
(unaudited) (unaudited)
Notes £m £m
Cash flow from operating activities
Purchase of investments (16) (32)
Proceeds from investments 1 34
Amounts paid to investment entity subsidiaries (430) (233)
Amounts received from investment entity subsidiaries 157 220
Net cash flow from derivatives 45 4
Portfolio interest received 5 -
Portfolio dividends received 27 19
Portfolio fees received 6 1
Fees received from external funds 38 33
Carried interest and performance fees received 37 51
Carried interest and performance fees paid (29) (28)
Operating expenses paid (80) (81)
Co-investment loans received 3 1
Interest received 4 1
Net cash flow from operating activities (232) (10)
Cash flow from financing activities
Issue of shares 1 1
Purchase of own shares - (30)
Dividend paid 6 (286) (262)
Proceeds from long-term borrowing 422 -
Lease payments (2) (3)
Interest paid (21) (20)
Drawdown of revolving credit facility - 145
Net cash flow from financing activities 114 (169)
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 (119) (179)
Cash and cash equivalents at the start of the period 162 212
Effect of exchange rate fluctuations (2) 5
Cash and cash equivalents at the end of the period 41 38
The Notes to the accounts section forms an integral part of these financial
statements.
Notes to the condensed consolidated financial statements
Basis of preparation and accounting policies
Compliance with International Financial Reporting Standards ("IFRS")
The Half-year condensed consolidated financial statements of 3i Group plc have
been prepared in accordance with the Disclosure Guidance and Transparency
Rules of the Financial Conduct Authority and IAS 34 Interim Financial
Reporting as adopted for use in the UK. The Half-year condensed consolidated
financial statements should be read in conjunction with the Annual report and
accounts 2023 which have been prepared and approved by the Directors in
accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with UK-adopted
international accounting standards. The Annual report and accounts for the
year ended 31 March 2024 will be prepared in accordance with UK-adopted
international accounting standards.
The following standards, amendments and interpretations have been adopted by
the Group for the first time during the period. These new standards have not
had a material impact on the Group.
Effective for annual periods beginning on or after
IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting Policies 1 January 2023
IFRS 17 Insurance Contracts 1 January 2023
The Half-year condensed consolidated financial statements are presented to the
nearest million sterling (£m), the functional currency of the Company. The
accounting policies applied by 3i Group plc for the Half-year condensed
consolidated financial statements are consistent with those described on pages
167 to 207 of the Annual report and accounts 2023. There was no change in the
current period to the critical accounting estimates and judgements applied in
2023, which are stated on page 167 of the Annual report and accounts 2023.
The financial information for the year ended 31 March 2023 and for the six
months ended 30 September 2023 contained within this Half-year report does not
constitute statutory accounts as defined in section 434 of the Companies Act
2006. The statutory accounts for the year to 31 March 2023, prepared under
IFRS in conformity with the requirements of the Companies Act 2006, have been
reported on by KPMG LLP and delivered to the Registrar of Companies. The
report of the Auditor on these statutory accounts was unqualified and did not
contain a statement under section 498(2) or section 498(3) of the Companies
Act 2006.
Going concern
These condensed consolidated financial statements are prepared on a going
concern basis. 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. As detailed in the Chief
Executive's review and Business and Financial review, the Group delivered a
good result in the first half against a challenging macroeconomic and
geopolitical backdrop. We continue to see strong performance from our
portfolio companies operating in the value-for-money, private label and
healthcare sectors offsetting weaker performance in our portfolio companies
exposed to discretionary consumer spend and more cyclical end-markets.
To support the going concern assessment the Directors considered an analysis
of the Group's liquidity, solvency and regulatory capital position. The Group
manages and monitors liquidity regularly, ensuring it is adequate and
sufficient and is underpinned by its monitoring of investments, realisations,
operating expenses and receipt of portfolio cash income. At 30 September 2023,
the Group has liquidity of £955 million (31 March 2023: £1,312 million).
Liquidity comprised of cash and deposits of £55 million (31 March 2023:
£412 million) and an undrawn facility of £900 million (31 March 2023:
£900 million), which has no financial covenants. During the period, we
further strengthened our liquidity profile through the successful issue of a
six year €500 million euro bond at a coupon of 4.875%.
As a proprietary investor, the Group has a long-term, responsible investment
approach, and is not subject to significant external pressure to realise
investments before optimum value can be achieved. The Board has the ability to
take certain actions to help support the Group in adverse circumstances.
Mitigating actions within management control during extended periods of low
liquidity 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 condensed consolidated financial statements of the
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 macroeconomic and geopolitical environment and can continue operations
for a period of at least 12 months from the date of issue of these financial
statements.
1 Segmental analysis
The tables below are presented on the Investment basis which is the basis used
by the chief operating decision maker, the Chief Executive, to monitor the
performance of the Group. A description of the Investment basis and a
reconciliation of the Investment basis to the IFRS financial statements is
provided earlier in this document. Further detail on the Group's segmental
analysis can be found on pages 171 to 173 of the Annual report and accounts
2023. The remaining Notes are prepared on an IFRS basis.
Investment basis Private Of which is
Equity Action Infrastructure Scandlines Total4
Six months to 30 September 2023 £m £m £m £m £m
Realised profits/(losses) over value on the disposal of investments 1 - (3) - (2)
Unrealised profits on the revaluation of investments 1,907 1,810 2 - 1,909
Portfolio income
Dividends - - 18 10 28
Interest income from investment portfolio 40 - 6 - 46
Fees receivable 5 4 - - 5
Foreign exchange on investments (146) (136) 8 (7) (145)
Movement in the fair value of derivatives 19 22 - 7 26
Gross investment return 1,826 1,700 31 10 1,867
Fees receivable from external funds 2 - 34 - 36
Operating expenses (43) - (24) (1) (68)
Interest received 6
Interest paid (28)
Exchange movements 12
Operating profit before carried interest 1,825
Carried interest
Carried interest and performance fees receivable - - 21 - 21
Carried interest and performance fees payable (147) (127) (29) - (176)
Operating profit before tax 1,670
Tax charge (1)
Profit for the period 1,669
Other comprehensive income
Re-measurements of defined benefit plans -
Total return 1,669
Realisations1 1 - 18 - 19
Cash investment2 (50) - (33) (1) (84)
Net investment (49) - (15) (1) (65)
Balance sheet
Opening portfolio value at 1 April 2023 16,425 11,188 1,409 554 18,388
Investment3 92 - 33 1 126
Value disposed - - (21) - (21)
Unrealised value movement 1,907 1,810 2 - 1,909
Other movement (including foreign exchange) (149) (136) 10 (8) (147)
Closing portfolio value at 30 September 2023 18,275 12,862 1,433 547 20,255
1 Realised proceeds may differ from cash proceeds due to timing of receipts.
During the period, Infrastructure recognised realised proceeds of £18
million, which are to be received after the period end.
2 Cash investment per the segmental analysis is different to cash investment
per the cash flow due to a £10 million investment in Private Equity which was
recognised in FY2023 and paid in the period and a £5 million syndication in
Infrastructure which was recognised in the period and to be received after the
period end.
3 Includes capitalised interest and non-cash investment.
4 The total is the sum of Private Equity, Infrastructure and Scandlines. "Of
which is 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 is
Equity Action Infrastructure Scandlines Total4
Six months to 30 September 2022 £m £m £m £m £m
Realised losses over value on the disposal of investments (4) - - - (4)
Unrealised profits/(losses) on the revaluation of investments 1,244 1,156 (47) - 1,197
Portfolio income
Dividends - - 16 12 28
Interest income from investment portfolio 39 - 8 - 47
Fees receivable 6 - - - 6
Foreign exchange on investments 685 291 58 21 764
Movement in the fair value of derivatives - - - (22) (22)
Gross investment return 1,970 1,447 35 11 2,016
Fees receivable from external funds 3 - 30 - 33
Operating expenses (43) - (23) (1) (67)
Interest received 1
Interest paid (27)
Exchange movements (31)
Other income 1
Operating profit before carried interest 1,926
Carried interest
Carried interest and performance fees receivable 2 - - - 2
Carried interest and performance fees payable (157) (111) (5) - (162)
Operating profit before tax 1,766
Tax charge (1)
Profit for the period 1,765
Other comprehensive income
Re-measurements of defined benefit plans -
Total return 1,765
Realisation1 193 - - - 193
Cash investment2 (292) - (6) - (298)
Net investment (99) - (6) - (105)
Balance sheet
Opening portfolio value at 1 April 2022 12,420 7,165 1,352 533 14,305
Investment3 326 - 6 - 332
Value disposed (197) - - - (197)
Unrealised value movement 1,244 1,156 (47) - 1,197
Other movement (including foreign exchange) 690 291 69 21 780
Closing portfolio value at 30 September 2022 14,483 8,612 1,380 554 16,417
1 Realised proceeds may differ from cash proceeds due to timing of receipts.
During the period Private Equity received £2 million of cash proceeds which
were recognised as realised proceeds in FY2022 and Infrastructure received
£33 million of cash proceeds which were recognised as realised proceeds in
FY2022.
2 Cash investment per the segmental analysis is different to cash investment
per the cash flow due to a £57 million syndication in Infrastructure which
was recognised in FY2022.
3 Includes capitalised interest and other non-cash investment.
4 The total is the sum of Private Equity, Infrastructure and Scandlines. "Of
which is Action" is part of Private Equity.
Interest received, interest paid, exchange movements, 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.
2 Realised profits over value on the disposal of investments
Unquoted
investments Total
Six months to 30 September 2023 £m £m
Realisations 1 1
Valuation of disposed investments - -
1 1
Of which:
- profit recognised on realisations 1 1
- losses recognised on realisations - -
1 1
Unquoted
investments Total
Six months to 30 September 2022 £m £m
Realisations 1 1
Valuation of disposed investments (3) (3)
(2) (2)
Of which:
- profit recognised on realisations 1 1
- losses recognised on realisations (3) (3)
(2) (2)
3 Unrealised profits on the revaluation of investments
Unquoted Quoted
investments investments Total
Six months to 30 September 2023 £m £m £m
1,217 (23) 1,194
Movement in the fair value of investments
Of which:
- unrealised gains 1,355 - 1,355
- unrealised losses (138) (23) (161)
1,217 (23) 1,194
Unquoted Quoted
investments investments Total
Six months to 30 September 2022 £m £m £m
Movement in the fair value of investments 657 (117) 540
Of which:
- unrealised gains 780 - 780
- unrealised losses (123) (117) (240)
657 (117) 540
4 Revenue
Items from the Consolidated statement of comprehensive income which fall
within the scope of IFRS 15 are included in the table below:
Private
Equity Infrastructure Total
Six months to 30 September 2023 £m £m £m
Total revenue by geography1
UK 1 30 31
Northern Europe 7 24 31
North America - 1 1
Other - - -
Total 8 55 63
Revenue by type
Fees receivable2 from portfolio 6 - 6
Fees receivable from external funds 2 34 36
Carried interest and performance fees receivable2 - 21 21
Total 8 55 63
Private
Equity Infrastructure Total
Six months to 30 September 2022 £m £m £m
Total revenue by geography1
UK 4 27 31
Northern Europe 5 2 7
North America 2 1 3
Other - - -
Total 11 30 41
Revenue by type
Fees receivable2 from portfolio 6 - 6
Fees receivable from external funds 3 30 33
Carried interest and performance fees receivable2 2 - 2
Total 11 30 41
1 For fees receivable from external funds and carried interest and performance
fees receivable the geography is based on the domicile of the fund.
2 Fees receivable and carried interest receivable above are different to the
Investment basis figures included in Note 1. This is due to the fact that Note
1 is disclosed on the Investment basis and the table above is shown on the
IFRS basis. For an explanation of the Investment basis and a reconciliation
between Investment basis and IFRS basis earlier in this document.
5 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 period 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.
30 September 31 March
2023 2023
Net assets per share (£)
Basic 18.92 17.50
Diluted 18.86 17.45
Net assets (£m)
Net assets attributable to equity holders of the Company 18,245 16,844
30 September 31 March
2023 2023
Number of shares in issue
Ordinary shares 973,344,328 973,312,950
Own shares (8,996,451) (10,660,078)
964,347,877 962,652,872
Effect of dilutive potential ordinary shares
Share awards 3,104,739 2,849,520
Diluted shares 967,452,616 965,502,392
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 period to 30 September
2023 are 963,658,775 (30 September 2022: 962,660,451). 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 period to 30 September 2023 are 966,205,837
(30 September 2022: 964,057,452).
Six months Six months
to 30 September to 30 September
2023 2022
Earnings per share (pence)
Basic 173.5 182.7
Diluted 173.0 182.5
Earnings (£m)
Profit for the period attributable to equity holders of the Company 1,672 1,759
6 Dividends
Six months to Six months to Six months to Six months to
30 September 30 September 30 September 30 September
2023 2023 2022 2022
pence pence
per share £m per share £m
Declared and paid during the period
Second dividend 29.75 286 27.25 262
29.75 286 27.25 262
Proposed first dividend 26.50 255 23.25 224
The dividend can be paid out of either the capital reserve or the revenue
reserve subject to the investment trust rules.
The distributable reserves of the parent company as at 30 September 2023 were
£5,488 million (31 March 2023: £4,940 million) 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 on pages 78 to 91 of the Annual
report and accounts 2023.
7 Investment portfolio
This section should be read in conjunction with Note 11 on page 179 of the
Annual report and accounts 2023, which provides more detail about initial
recognition and subsequent measurement of investments at fair value.
Six months to Year to
30 September 2023 31 March 2023
Non-current £m £m
Opening book value 9,518 6,642
Additions 937 908
- of which loan notes with nil value (2) (6)
Disposals, repayments and write-offs - (129)
Fair value movement1 1,194 1,897
Other movements and net cash movements2 (68) 206
Closing book value 11,579 9,518
Quoted investments 818 841
Unquoted investments 10,761 8,677
Closing book value 11,579 9,518
1 All fair value movements relate to assets held at the end of the period and
are recognised in unrealised profits on the revaluation of investments.
2 Other movements includes the impact of foreign exchange and accrued
interest.
3i's investment portfolio is made up of longer-term investments, with average
holding periods greater than one year, and thus is classified as non-current.
The table below reconciles between purchase of investments in the cash flow
statement and additions as disclosed in the table above.
Six months to Year to
30 September 2023 31 March 2023
£m £m
Purchase of investments 16 46
Transfer of portfolio investments from investment entity subsidiaries1 916 781
Syndication - 57
Investment (paid)/payable (2) 2
Investment 930 886
Capitalised interest received by way of loan notes 7 22
Additions 937 908
1 Includes the transfer of £916 million (31 March 2023: £781 million) from
the Buyouts 2010-12 partnerships which are classified as investment entity
subsidiaries, relating to Action.
Included within profit or loss is £14 million (30 September 2022: £15
million) of interest income. Interest income included £3 million
(30 September 2022: £2 million) of accrued income capitalised during the
period, £5 million of cash income (30 September 2022: nil) and £6 million
(30 September 2022: £13 million) of accrued income remaining uncapitalised
at the period end.
Quoted investments are classified as Level 1 and unquoted investments are
classified as Level 3 in the fair value hierarchy; see Note 9 for details.
8 Investments in investment entity subsidiaries
This section should be read in conjunction with Note 12 on page 180 of the
Annual report and accounts 2023, which provides more detail about accounting
policies adopted, entities which are typically investment in investment
entities and the determination of fair value.
Level 3 fair value reconciliation - investments in investment entity
subsidiaries
Six months to Year to
30 September 2023 31 March 2023
Non-current £m £m
Opening fair value 7,844 6,791
Amounts paid to investment entity subsidiaries 430 535
Amounts received from investment entity subsidiaries (157) (841)
Fair value movement on investment entity subsidiaries 524 2,112
Transfer of portfolio investments from investment entity subsidiaries1 (916) (781)
Transfer of assets to investment entity subsidiaries 10 28
Closing fair value 7,735 7,844
1 Includes the transfer of £916 million (31 March 2023: £781 million) from
the Buyouts 2010-12 partnerships which are classified as investment entity
subsidiaries, relating to Action.
Transfer of portfolio investments from investment entity subsidiaries includes
the transfer of investment portfolio between investment entity subsidiaries
and the Company at fair value. The consideration for these transfers can
either be cash or intra-group receivables.
Restrictions
3i Group plc, the ultimate parent company, receives dividend income from its
subsidiaries. There are no restrictions on the ability to transfer funds from
these subsidiaries to the Group at 30 September 2023 (31 March 2023: £225
million).
Support
3i Group plc continues to provide, where necessary, ongoing support to its
investment entity subsidiaries for the purchase of portfolio investments.
9 Fair values of assets and liabilities
This section should be read in conjunction with Note 13 on pages 181 to 184 of
the Annual report and accounts 2023, which provides more detail about
accounting policies adopted, the definitions of the three levels of fair value
hierarchy, valuation methods used in calculating fair value and the valuation
framework which governs oversight of valuations. There have been no changes in
the accounting policies adopted or the valuation methodologies used.
Valuation
The Group classifies financial instruments measured at fair value according to
the following hierarchy:
Level Fair value input description Financial instruments
Level 1 Quoted prices (unadjusted) from active markets Quoted equity instruments
Level 2 Inputs other than quoted prices included in Level 1 that are observable either Derivative financial instruments
directly (ie as prices) or indirectly (ie derived from prices)
Level 3 Inputs that are not based on observable market data Unquoted investments
The table below shows the classification of financial instruments held at fair
value into the valuation hierarchy at 30 September 2023:
30 September 2023 31 March 2023
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
Assets
Quoted investments 818 - - 818 841 - - 841
Unquoted investments - - 10,761 10,761 - - 8,677 8,677
Investments in investment entity subsidiaries - - 7,735 7,735 - - 7,844 7,844
Other financial assets - 102 23 125 - 121 21 142
Liabilities
Other financial liabilities - (3) - (3) - (4) - (4)
Total 818 99 18,519 19,436 841 117 16,542 17,500
We determine that in the ordinary course of business, the net asset value of
an investment entity subsidiary is considered to be the most appropriate to
determine fair value. The underlying portfolio is valued under the same
methodology as directly held investments, with any other assets or liabilities
within investment entity subsidiaries fair valued in accordance with the
Group's accounting policies. Note 8 details the Directors' considerations
about the fair value of the underlying investment entity subsidiaries.
The fair values of the Group's financial assets and liabilities not held at
fair value, are not materially different from their carrying values, with the
exception of loans and borrowings. The fair value of loans and borrowings is
£1,076 million (31 March 2023: £686 million), determined with reference to
their published market prices. The carrying value of the loans and borrowings
is £1,208 million (31 March 2023: £775 million) and accrued interest payable
(included within trade and other payables) is £18 million (31 March 2023:
£12 million).
Level 3 fair value reconciliation - unquoted investments
Six months to Year to
30 September 31 March
2023 2023
£m £m
Opening fair value 8,677 5,708
Additions 937 908
- of which loan notes with nil value (2) (6)
Disposals, repayments and write-offs - (129)
Fair value movement1 1,217 1,990
Other movements and net cash movements2 (68) 206
Closing fair value 10,761 8,677
1 All fair value movements relate to assets held at the end of the period and
are recognised in unrealised profits on the revaluation of investments.
2 Other movements includes the impact of foreign exchange and accrued
interest.
Unquoted investments valued using Level 3 inputs also had the following impact
on profit or loss: realised profits over value on disposal of investment of
£1 million (30 September 2022: £2 million loss), dividend income of £2
million (30 September 2022: £2 million) and foreign exchange losses of £71
million (30 September 2022: £262 million gain).
Assets move between Level 1 and Level 3 when an unquoted equity investment
lists on a quoted market exchange. There were no transfers in or out of Level
3 during the period. In the six months to 30 September 2023, one asset
changed basis from Other to a DCF. One asset was acquired in the period and
valued on an Other basis, in line with its fair value. Action remains
unchanged on an earnings-based valuation. The changes in valuation methodology
in the period reflect our view of the most appropriate method to determine the
fair value of these assets at 30 September 2023. Further information can be
found in the Private Equity and Infrastructure sections of the Business and
Financial review earlier in this document.
The following table summarises the various valuation methodologies used by the
Group to fair value Level 3 instruments, the inputs and the sensitivities
applied and the impact of those sensitivities to the unobservable inputs.
Overall the portfolio continues to deliver good performance, despite a
challenging macroeconomic and geopolitical back drop. Action continues to
perform very strongly and we have seen good contributions from a number of our
portfolio companies operating in the value-for-money, private label and
healthcare sectors, offset by weaker performance in our portfolio companies
exposed to discretionary consumer spending and more cyclical end-markets. When
selecting multiples to value our portfolio companies we continue to take a
long-term, through-the-cycle approach. All numbers in the table below are on
an investment basis.
Level 3 unquoted investments
Fair value
Fair value at impact of
30 September Sensitivity on key sensitivities
Methodology Description Inputs 2023 £m unobservable input £m +5%/-5%
Earnings Most commonly used Private Equity valuation methodology. Used for investments Earnings multiples are applied to the earnings of the company to determine the 17,959 For the assets valued on an earnings basis, we have applied a 5% sensitivity 1,023
which are typically profitable and for which we can determine a set of listed enterprise value (31 March 2023: 16,109) to the earnings multiple (31 March 2023: 928)
(Private Equity) companies and precedent transactions, where relevant, with similar
characteristics
Action is our largest asset, and we have included a 5% sensitivity on Action's (1,017)
earnings multiple of 19.5x (equivalent to 18.5x net) (31 March 2023: (930))
Earnings multiples
693
When selecting earnings multiple, we consider: (31 March
2023: 618)
1.Comparable listed companies' current performance and through-the-cycle
averages (693)
2. Relevant market transaction multiples (31 March 2023: (619))
3. Company performance, organic growth and value-accretive add-ons, if any
4. Exit expectations and other company specific factors
For point 1 and 2 of the above we select companies in the same industry and,
where possible, with a similar business model and profile in terms of size,
products, services and customers, growth rates and geographic focus
The pre-discount multiple ranges from 7.5x - 20.0x (31 March 2023: 6.4x -
20.0x)
Other inputs:
Earnings
Reported earnings are adjusted for non-recurring items, such as restructuring
expenses, for significant corporate actions and, in exceptional cases,
run-rate adjustments to arrive at maintainable earnings
The most common measure is earnings before interest, tax, depreciation and
amortisation ("EBITDA")
Earnings are usually obtained from portfolio company management accounts to
the preceding quarter end, with reference also to forecast earnings and the
maintainable view of earnings
Action, our largest asset, is valued using run-rate earnings
Discounted cash flow Appropriate for businesses with long-term stable cash flows, typically in Long-term cash flows are discounted at a rate which is benchmarked against 1,053 For the assets valued on a DCF basis, we have applied a 5% sensitivity to the (35)
Infrastructure or alternatively businesses where DCF is more appropriate in market data, where possible, or adjusted from the rate at the initial
discount rate (31 March 2023: (37))
(Private Equity/ Infrastructure/ Scandlines) the short term investment based on changes in the risk profile of the investment (31 March 2023: 1,024)
36
(31 March 2023: 39)
The range of discount rates used in our DCF valuations is 10.5% to 48.0% (31
March 2023: 10.5% to 16.9%)
NAV (Infrastructure) Used for investments in unlisted funds Net asset value reported by the fund manager. The valuation of the underlying 100 A 5% increase on closing NAV 5
portfolio is consistent with IFRS
(31 March 2023: 5)
(31 March 2023: 97)
Other (Private Equity/Infrastructure) Used where elements of a business are valued on different bases Valued on separate elements based on one of the methodologies listed above or 237 A 5% increase in the closing value 12
other applicable inputs
(31 March 2023: 10)
(31 March 2023: 196)
10 Related parties
All related party transactions that took place in the six months ending
30 September 2023 are consistent in nature with the disclosures in Note 29 on
pages 200 to 203 of the Annual report and accounts 2023. Related party
transactions which took place in the period and materially affected
performance or the financial position of the Group, together with any material
changes in related party transactions as described in the Annual report and
accounts 2023 that could materially affect the performance or the financial
position of the Group are detailed below.
Investments
The Group makes investments in the equity of unquoted and quoted investments
where it does not have control, but may be able to participate in the
financial and operating policies of that company. IFRS presumes that it is
possible to exert significant influence when the equity holding is greater
than 20%. The Group has taken the investment entity exception as permitted by
IFRS 10 and has not equity accounted for these investments, in accordance with
IAS 28, but they are related parties. The total amounts included for
investments where the Group has significant influence, but not control, are as
follows:
Six months to Six months to
30 September 30 September
2023 2022
Consolidated statement of comprehensive income £m £m
Realised profits over value on the disposal of investments 1 -
Unrealised (losses)/profits on the revaluation of investments (36) 60
30 September 31 March
2023 2023
Consolidated statement of financial position £m £m
Unquoted investments 738 775
Management arrangements
The Group acted as Investment Manager to 3i Infrastructure plc ("3iN"), which
is listed on the London Stock Exchange, for the period to 30 September 2023.
The following amounts have been recognised in respect of the management
relationship:
Consolidated statement of comprehensive income Six months to Six months to
30 September 30 September
2023 2022
£m £m
Unrealised losses on the revaluation of investments (23) (117)
Dividends 15 14
Fees receivable from external funds 25 23
Consolidated statement of financial position 30 September 31 March
2023 2023
£m £m
Quoted equity investments 818 841
Performance fees receivable - 35
Statement of Directors' responsibilities
The Directors, who are required to prepare the financial statements on a going
concern basis unless it is not appropriate, are satisfied that the Group has
the resources to continue in business for the foreseeable future. In making
this assessment, the Directors have considered information relating to present
and future conditions, including future projections of profitability and cash
flows.
The Directors confirm that to the best of their knowledge:
(1) the condensed set of financial statements has been prepared in accordance
with IAS 34 "Interim Financial Reporting" as adopted for use in the UK; and
(2) the Half-year report includes a fair review of the information required
by:
1 DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year ending 31 March 2024 and their impact on the condensed
set of financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
2 DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being (i)
related party transactions that have taken place in the first six months of
the financial year ending 31 March 2024 which have materially affected the
financial position or performance of 3i Group during that period; and (ii) any
changes in the related party transactions described in the Annual report and
accounts 2023 that could materially affect the financial position or
performance of 3i Group during the first six months of the financial year
ending 31 March 2024.
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
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
8 November 2023
Registered Office:
16 Palace Street
London SW1E 5JD
Independent review report to 3i Group plc
Conclusion
We have been engaged by 3i Group plc (the "Company") to review the condensed
set of financial statements in the half-yearly financial report for the six
months ended 30 September 2023, which comprises: the Condensed consolidated
statement of comprehensive income, the Condensed consolidated statement of
financial position, the Condensed consolidated statement of changes in equity,
the Condensed consolidated cash flow statement and the related explanatory
notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2023 is not prepared,
in all material respects, in accordance with IAS 34 Interim Financial
Reporting as adopted for use in the UK and the Disclosure Guidance and
Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the
UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the UK.
A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other information
contained in the half-yearly financial report and consider whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in 'Basis of preparation and accounting policies', the annual
financial statements of the Group are prepared in accordance with UK adopted
international accounting standards.
The directors are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in accordance with IAS
34 as adopted for use in the UK.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Jonathan Mills
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
Canary Wharf
London
E14 5GL
8 November 2023
Portfolio and other information
20 large investments
The investments listed below are the top 20 largest investments by value.
These assets account for 94% of the portfolio value at 30 September 2023 (31
March 2023: 94%).
Residual Residual
Business line cost1 cost1 Valuation Valuation
Geography September March September March Relevant
Investment First invested in 2023 2023 2023 2023 transactions
Description of business Valuation basis £m £m £m £m in the period
Action* Private Equity 653 653 12,862 11,188
General merchandise discount retailer Netherlands
2011
Earnings
3i Infrastructure plc* Infrastructure 305 305 818 841 £15 million cash
Quoted investment company, investing in infrastructure UK dividend
2007 received
Quoted
Cirtec Medical* Private Equity 172 172 579 552
Outsourced medical device manufacturing US
2017
Earnings
Scandlines Scandlines 530 530 547 554 £10 million cash
Ferry operator between Denmark and Germany Denmark/Germany dividend
2018 received
DCF
Royal Sanders* Private Equity 136 136 486 369 Acquisition of
Private label and contract manufacturing producer of personal care products Netherlands Lenhart in April
2018 2023
Earnings
AES Engineering Private Equity 30 30 396 351 Acquisition of
Manufacturer of mechanical seals and provision of reliability services UK Triseal
1996 in June 2023
Earnings
nexeye* Private Equity 269 269 390 393
Value-for-money optical retailer Netherlands
2017
Earnings
SaniSure* Private Equity 76 76 375 389
Manufacturer, distributor and integrator of single use bioprocessing systems US
and components
2019
Earnings
Tato Private Equity 2 2 330 411
Manufacturer and seller of specialty chemicals UK
1989
Earnings
Smarte Carte* Infrastructure 189 189 316 300
Provider of self-serve vended luggage carts, electronic lockers and concession US
carts
2017
DCF
Evernex* Private Equity 308 299 315 305
Provider of third-party maintenance services for data centre infrastructure France
2019
Earnings
WP* Private Equity 267 257 273 274
Global manufacturer of innovative plastic packaging solutions Netherlands
2015
Earnings
Luqom* Private Equity 254 245 225 271
Online lighting specialist retailer Germany
2017
Earnings
European Bakery Group* Private Equity 85 46 207 73 EBG formed
Industrial bakery group specialised in home bake-off bread and snack products Netherlands following the
2021 acquisition of
Earnings coolback in July
2023 (3i further
investment of
£38 million) and
Panelto in
August
2023
MPM* Private Equity 161 153 198 181
An international branded, premium and natural pet food company UK
2020
Earnings
Audley Travel* Private Equity 271 271 173 162
Provider of experiential tailor-made travel UK
2015
Earnings
WilsonHCG* Private Equity 83 83 156 196
Global provider of recruitment process outsourcing and other talent solutions US
2021
Earnings
BoConcept* Private Equity 115 110 155 160
Urban living designer Denmark
2016
Earnings
ten23 health* Private Equity 116 104 149 111 £12 million
Biologics focused CDMO Switzerland further
2021 investment
Other
Q Holding* Private Equity 162 162 145 117
Manufacturer of catheter products serving the medical device market US
2014
Earnings
4,184 4,092 19,095 17,198
* Controlled in accordance with IFRS.
1 Residual cost includes cash investment and interest net of cost disposed.
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,
arrivia, Luqom, Havea, Royal Sanders, Magnitude Software and Schlemmer.
3i 2019-2022 vintage includes Evernex, SaniSure, YDEON, MPM, WilsonHCG,
European Bakery Group, 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 30 September 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") includes profit and loss on realisations,
increases and decreases in the value of the investments we hold at the end of
a period, any income received from the investments such as interest, dividends
and fee income, 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 ("LFL") 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 internally.
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 payments.
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.
Information for shareholders
Note
The first FY2024 dividend is expected to be paid on 12 January 2024 to holders
of ordinary shares on the register on 1 December 2023. The ex-dividend date
will be 30 November 2023.
3i Group plc
Registered office:
16 Palace Street,
London SW1E 5JD, UK
Registered in England No. 1142830
An investment company as defined by section 833 of the Companies Act 2006.
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