REG - 3i Group PLC - Half Yearly Report <Origin Href="QuoteRef">III.L</Origin> - Part 1

3iAnnouncement

13/11/2014 08:21

RNS Number : 9002W
3i Group PLC
13 November 2014
13 November 2014
3i Group plc announces Half-yearly results
to 30 September 2014
Key highlights
 Robust performance underpinned by good flow of realisations and strong balance sheet
 Solid Private Equity portfolio performance; value weighted last twelve months earnings growth of 17%
 Continued strong realisation and refinancing proceeds of 324 million; further proceeds of 218 million received from realisations since the period end
 Debt Management successfully raised two CLOs in the period and secured further commitments to the US Senior Loan Fund; first close of European Middle Market Loan Fund at 250 million post period end
 Operating expenses of 63 million and interest costs of 26 million both 7% lower than the first half last year
 Further improvement in Fund Management profitability to 13 million (30 September 2013: 8 million)
 Total return of 234 million after accounting for a foreign exchange translation loss of 73 million
 Good progression in NAV per share to 358 pence at 30 September 2014, after 13.3 pence final dividend paid in July 2014 (31 March 2014: 348 pence)
 Interim dividend of 6.0 pence per share; of which 2.7 pence is base and 3.3 pence is additional
 Expecting to pay a minimum dividend of 15 pence per share in respect of the full year; of which 8.1p is base dividend, in line with policy
Simon Borrows,3i's Chief Executive, commented:

"The Group performed well in the first half and again demonstrated strong progress against our strategic plan.
There is good earnings momentum in our larger investments and we have a number of realisation and refinancing projects in process.
We continue to seek new investment opportunities, but we recognise the increasing political uncertainty and stagnating growth in Europe and are mindful of the risks of over-paying for new investments in this environment.
We will continue to manage our portfolio energetically, capitalise on realisation opportunities and be selective in making new investments."
Financial data 
Sixmonthsto/as
Six months to/as
Year to/as at
at 30 September
at 30 September
31 March
2014
2013
2014
Group
Total return
234m
175m
478m

Total return on opening shareholders' funds
7.1%
6.0%
16.3%
Dividend per ordinary share




Base dividend
2.7p
2.7p
8.1p

Additional dividend
3.3p
4.0p
11.9p
Operating expenses
63m
68m
136m

As a percentage of assets under management1
1.0%
1.1%
1.0%
Operating cash profit
16m
6m
5m
Proprietary Capital
Realisation proceeds
324m
528m
677m

Uplift over opening book value
35m/12%
129m/32%
202m/43%

Money multiple
1.8x
1.6x
1.8x
Gross investment return2
297m
240m
665m

As a percentage of opening 3i portfolio value
8.3%
7.3%
20.2%
Operating profit3
262m
179m
539m
Cash investment
199m
92m
337m
Net interest payable
25m
27m
51m
3i portfolio value
3,672m
3,058m
3,565m
Gross debt
831m
873m
857m
Net debt/(cash)
161m
(28)m
160m
Gearing
5%
n/a
5%
Liquidity
1,020m
1,401m
1,197m
Net asset value
3,426m
3,062m
3,308m
Diluted net asset value per ordinary share 
358p
322p
348p
Fund Management
Total assets under management
12,923m
11,751m
12,911m

Third-party capital
9,566m
8,585m
9,508m

Proportion of third-party capital
74%
73%
74%
Total fee income 
63m
63m
127m

Third-party fee income
41m
38m
76m
Operating profit3
13m
8m
19m
Underlying Fund Management profit3,4
16m
15m
33m

Underlying Fund Management margin
26%
24%
26%
1
Annualised actual operating expenses, excluding restructuring costs of nil in the six months to 30 September 2014, 4 million in the six months to 30 September 2013 and 9 million in the year to 31 March 2014, as a percentage of weighted average assets under management.
2
Gross investment return includes nil of portfolio fees allocated to Fund Management (September 2013: 2 million, March 2014: 3 million).
3
Operating profit for the Proprietary Capital and Fund Management activities excludes carried interest payable/receivable, which is not allocated between these activities.
4
Excluding Fund Management restructuring costs of nil and amortisation costs of 3 million (September 2013: 4 million, 3 million, March 2014 8 million, 6 million).
- ends - 
For further information, please contact:
Silvia Santoro, Investor Relations Director 
Tel: 020 7975 3258
Kathryn van der Kroft, Communications Director
Tel: 020 7975 3021
Guy Lamming / Dorothy Burwell, Finsbury
Tel: 020 7251 3801
For further information regarding the announcement of 3i's Half-yearly results to 30 September 2014, including a live videocast of the results presentation at 10.00am (registration from 9.00am), please visit www.3i.com
A pdf of the 3i Group plc Half-yearly report 2014 will be available on our website.
Notes to editors
3i is a leading international investment manager focused on mid-market private equity, infrastructure and debt management across Europe, Asia and North America. 
This Half-yearly report has been prepared solely to provide information to shareholders. It should not be relied on by any other party or for any other purpose.
This Half-yearly report may contain statements about the future, including certain statements about the future outlook for 3i Group plc and its subsidiaries ("3i"). These are not guarantees of future performance and will not be updated. Although we believe our expectations are based on reasonable assumptions, any statements about the future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.
Total return for the six months to 30 September 2014
Sixmonthsto
Six months to
12 months to
30September
30 September
31 March
2014
2013
2014

m
m
m
Realised profits over value on disposal of investments
35
129
202
Unrealised profits on revaluation of investments
307
137
475
Portfolio income




Dividends
21
18
44

Income from loans and receivables
30
25
50

Fees receivable
2
6
7
Foreign exchange on investments
(98)
(75)
(113)
Gross Investment Return
297
240
665
Fees receivable from external funds
41
36
73
Operating expenses
(63)
(68)
(136)
Interest receivable 
1
1
3
Interest payable
(26)
(28)
(54)
Movement in the fair value of derivatives
(1)
10
10
Exchange movements
25
(4)
(3)
Other income
1
-
-
Operating profit before carry
275
187
558
Carried interest

Carried interest receivable from external funds
19
3
3

Carried interest and performance fees payable
(45)
(25)
(85)
Acquisition related earn out charges
(5)
(4)
(6)
Operating profit
244
161
470
Income taxes
(3)
(2)
(3)
Re-measurements of defined benefit plans
(7)
16
11
Total comprehensive income ("Total return")
234
175
478
Total return on opening shareholders' funds
7.1%
6.0%
16.3%
Overview
Performance highlights
Our performance for the six months to 30 September 2014
Continued realisations momentum
Delivered realisation proceeds of 324 million
and realised profits of 35 million through careful exit planning, in supportive markets. A further 218 million proceeds received since the period end.

324m
realisation proceeds
Strong portfolio performance
Value growth and income totalling 360 million, underpinned by last 12 months value weighted earnings growth in Private Equity of 17%.

360m
value growth and income
Cost discipline maintained
Actual operating costs of 63 million are 7% lower than prior year, and now include the costs of the new PPP
team who joined in November 2013.

1.0%
annualised costs as a percentage of AUM
Further improvement in Fund Management profitability and margin 
Profit of 13 million and margin of 21% ahead of
8 million and 13% in the first half last year.

13m
Profit in Fund Management
Continue to strengthen the balance sheet
Successfully refinanced 2016 revolving credit facility, extending maturity to 2019 and reducing interest costs by 1.5 million per annum.

350m
Refinanced debt facilities
Basis: The numbers and commentary in the Overview and Interim strategic report reflects the Investment basis rather than IFRS. Detail on the differences and a reconciliation are included in the "Reconciliation of Investment basis to IFRS".
Strategic goal and the 3i Value Build
3i's strategic goal is to be a leading international investment manager of proprietary and third-party capital delivering top quartile cash investment returns over the longer term in:
 mid-market Private Equity;
 Infrastructure; and
 Debt Management.
Each of these businesses has different drivers and return characteristics. Together, they provide an attractive balance of income and capital returns. 
We believe that the combination of our asset management skills across these complementary platforms, together with our strong balance sheet and access to permanent capital, represents a differentiated and attractive value proposition.
Grow investment portfolio earnings
Increase the underlying value of our investment portfolio
Realise investments at good uplifts to book value and strong cash-on-cash multiples
Demonstrate the value of our existing investment portfolio and enhance our P/NAV rating
Generate a sustainable operating profit from our Fund Management activities
Generate additional value beyond the value of our Proprietary Capital investments
Utilise our strong balance sheet
Invest in further value-creating growth opportunities across our business lines
Increase shareholder distributions through our enhanced distribution policy
Greater capital efficiency;
focus on shareholder value
Chairman's statement
"It was another period of good performance for 3i, benefiting from our restructuring against an unstable economic and political landscape."
Sir Adrian Montague
Chairman
12 November 2014
I am pleased to report another period of good financial performance in the first six months of FY2015. Investors continue to benefit from the restructuring of the Group and our enhanced distribution policy. Unfortunately the macro-economic and geo-political landscape shows no sign of stabilising in the near term, and so we remain careful and patient in our approach to investment and growth. 
Dividend
Our distribution policy is designed to give shareholders a direct share in the success of the Group's realisation activities by returning to shareholders a proportion of gross cash realisations. Given the outlook for new investment, we expect to remain net divestors in the medium term and therefore have declared an interim dividend at the top end of the range indicated by our policy. 
The Board has declared a total interim dividend of 6.0 pence per share (2013: 6.7 pence per share), comprising
2.7 pence, being a third of our annual base dividend, and 3.3 pence in relation to approximately 20% of gross realisation proceeds generated to date above the annual base dividend. 
The pipeline for realisations is good and, subject to market factors, we currently expect to generate sufficient proceeds to support a total dividend for the year of at least 15 pence per share. 
Board changes
Richard Meddings stepped down from the Board at the AGM in July 2014, having served as a non-executive Director since 2008 and as Audit and Compliance Committee Chairman and Senior Independent Director since 2010. His wise and invaluable counsel provided great support during a period of considerable change for 3i.
At the AGM I was delighted to announce the appointment of Caroline Banszky to the Board. Caroline is The Managing Director of The Law Debenture Corporation p.l.c. and brings a wealth of financial, banking, investment and operating experience. Caroline will succeed Richard as Audit and Compliance Committee Chair, after a period of familiarisation with the business. 
Jonathan Asquith was appointed Senior Independent Director. He has also agreed to take on the chairmanship of the Audit and Compliance Committee on an interim basis pending Caroline Banszky's appointment to that role. 
Outlook
The macro-economic and geo-political landscape has deteriorated in the last six months. The overall environment is uncertain and volatile, with the Eurozone moving back towards recession and deflation and escalating conflict across the world. This has led to increased volatility in currencies and other financial markets.
In this environment we are taking a cautious approach to costs, gearing and investment and retaining a strong focus on cash returns for shareholders and our fund investors, supported by a resilient investment portfolio.
Interim strategic report
Chief Executive's statement 
"The Group performed well in the first half and again demonstrated strong progress against our strategic plan. There is good earnings momentum in our larger investments and we have a number of realisation and refinancing projects in process. We continue to seek new investment opportunities, but we recognise the increasing political uncertainty and stagnating growth in Europe and are mindful of the risks of over-paying for new investments in this environment. We will continue to manage our portfolio energetically, capitalise on realisation opportunities and be selective in making new investments."
Simon Borrows
Chief Executive
12 November 2014
Introduction
The Group performed well in the first half of FY2015 and again demonstrated strong progress against our strategic plan.
We continued to see good earnings growth in our Private Equity portfolio and further improvements in the operating metrics of the Group. Market conditions were favourable for realisations in the period, but less so for making new investments. Our determined focus on consistency and discipline in our investment processes and asset management will continue to serve us well against an uncertain economic and political backdrop. 
3i generated a total return of 7.1% in the first six months of the year. NAV increased from 348 pence per share at 31 March 2014 to 358 pence per share, after paying the 13.3 pence per share final dividend from last year in July 2014.
Taking account of realisations to date, we are confirming today that we will pay an interim dividend of 6.0 pence per share in January 2015, comprising a base dividend of 2.7 pence and an additional dividend of 3.3 pence. The pipeline for realisations for the remainder of the year is promising and, subject to market conditions outside of our control, it should support a total dividend for the year, including the 6 pence declared today, of at least 15 pence per share (including the 8.1 pence base dividend). 
Business review
The positive momentum in the Private Equity business continues. Our portfolio companies continue to perform well with earnings growth of over 20% in the majority of our largest assets, and 17% on a value weighted average basis. We have taken advantage of positive markets for realisations, refinancings and IPOs, generating 316 million of proceeds in the first half, with a further 218 million received since the period end. The portfolio generated a gross investment return of 282 million, or 10% on the opening portfolio, after negative currency translation impacts.
A core element of the strategic review in June 2012 was the implementation of the asset management initiatives. Discipline in our investment and asset management processes is key to navigating an economic and political backdrop, which shows little sign of stabilising to support sustainable growth. Our larger investments such as Action, Mayborn and Element continue to trade well. The monthly portfolio dashboard monitoring put in place over two years ago gives the Private Equity team and Investment Committee early warning signs and therefore an ability to take effective action on a timely basis if performance in any investment falls behind plan. This portfolio monitoring has underpinned resilience in portfolio performance and valuations.
Detailed preparation and careful management of exit processes has enabled us to take opportunities in positive realisation and refinancing markets, generating 316 million of total proceeds from Private Equity for 3i in the period and a further 218 million since 30 September 2014. The realisations in the period generated profits of 34 million at an uplift over opening value of 12% and a money multiple of 1.8x on original cost. Including third-party funds, total proceeds were 427 million. The uplift over value of 12% may appear lower than in past periods but reflects the fact that some of the disposals completed early in the period, with the value substantially reflected in the NAV at 31 March 2014, and a proportionally higher level of refinancing activity. The largest category of companies sold were older and smaller investments or those in non-core geographies which were unlikely to achieve future returns in line with our thresholds. We have not sold any of our longer term hold assets. At 30 September 2014, we had 72 investments in our Private Equity portfolio, down from 81 at 31 March 2014, another important step to our target of a maximum of 40 Private Equity portfolio companies. 
A consequence of the good performance is that, as noted in the last Annual report, we are accruing a higher level of carry payable. Encouragingly, the associated improvement in the performance of the Growth Capital Fund means that, on an accounting basis, we are now accruing for carry receivable on that fund for the first time. We recognised 6 million in the period and the fund multiple is now 1.5x. Eurofund V, our largest and most recent buyout focused fund, also continues to benefit from the strong portfolio performance and recovered to 1.3x at 30 September 2014 with the 2010-2012 vintage investments at 2.4x. However, we are not yet at the point where carry receivable would be recognised.
We have kept to our investment criteria, and avoided paying prices which could undermine our 2x return target.
We made one significant new investment in the first half: $106 million invested in Dynatect, a US headquartered manufacturer of protective equipment, where we will support international expansion, particularly into Europe. Our experience of executing similar plans in previous investments such as Mold-Masters, Hilite and Norma was key in securing Dynatect. We also took the opportunity to acquire a small interest in Eurofund V from a third-party investor. The investment of 34 million increased our proportion in the fund from 56% to 57%. Since the period end we have announced two more investments in regions and sectors where we have an established track record: Q Holdings, a US based international manufacturer of specialist moulded rubber and silicone products; and Christ, a leading German jewellery and watch retailer.
In Infrastructure, the European portfolio continues to perform well. The attraction of infrastructure assets as investors hunt for yield has been reflected in recent transactions. As a result of both operational performance and market activity giving new value benchmarks, the 3i Infrastructure plc ("3iN") portfolio increased by 7% in value in the six months to 30 September 2014. Our investment in 3iN was valued at 140 pence per share at 30 September 2014 and we received a dividend of 10 million from 3iN during the period.
Notwithstanding competition for assets, we have a growing pipeline of new opportunities in both the core infrastructure and primary PPP sectors. The new leadership team has brought a renewed focus and energy to the division and we will look to further grow assets under management by building on our primary PPP capability in particular. In that context, we advised 3iN on the purchase of a number of new primary PPP opportunities, such as the A12 motorway project in The Netherlands and Ayrshire College in the UK. 
The Debt Management team had another busy six months. We launched two new CLOs, one in the US and one in Europe, adding 764 million in AUM, and secured $39 million in third-party investment to the strongly performing
US Senior Loan Fund. Since the period end, we have priced further CLOs in each of Europe and the US, secured a further $50 million investment in the US Senior Loan Fund and announced a 250 million first close of a European Middle Market Loan fund.
We generated 18 million of fund management fee income in the period, up 13% on the same period last year. At 30 September 2014, the business managed 6.7 billion of assets through 32 funds, 20 in Europe and 12 in the US.
The investments held by 3i in the Debt Management funds generated good cash income of 11 million in the six months, an annualised yield of 15% on the opening book. 
Market activity remained buoyant, as the cash yield generated by CLO and other debt funds remains attractive to investors. The US market is on track to achieve record CLO formation in 2014, exceeding the levels recorded in 2006. The European market has also seen strong growth since re-opening in 2013, with 12 billion of CLO issuance recorded so far in 2014 compared with 8 billion in the whole of 2013. Regulatory changes now in place in Europe, and being introduced to the US, relating to the need for managers of CLOs to invest their own capital in the structures, are resulting in market concentration. Larger managers with access to proprietary capital, such as 3i, are advantaged and are now raising the majority of new European CLOs. In the long term, these positive market conditions will be beneficial and support increased AUM and growth in fee income. However, in the shorter term, the high levels of CLO equity supply have depressed mark-to-market valuations. This, together with other factors including the effect of the income distributions from older funds, led to a reduction in the value of the CLO equity of 8 million.
At the Group level, operating cash profit of 16 million and further improvement in the profitability and margin of our Fund Management platform reflect the continued focus on tight cost discipline, and good income generation across our three businesses. Operating expenses reduced by 7% against the same period last year to 63 million, and are now 1.0% of AUM on an annualised basis. This includes the addition of the primary PPP team in Infrastructure in November 2013, and an increase in costs as a result of changes to the regulatory environment in which 3i operates. These changes are being handled carefully and we were authorised as a manager under the Alternative Investment Fund Manager Directive by the FCA in the period.
We have also taken the opportunity to simplify and strengthen the balance sheet further. Gross debt reduced marginally when we repaid our B shares in June. We also refinanced our revolving credit facilities, reducing the size from 500 million to 350 million while extending maturity to at least 2019, reducing ongoing financing costs as a result.
The strength of sterling relative to the euro in particular means we suffered a translation loss of 73 million during the period. Structural concerns about European growth mean that this translation volatility is likely to persist through the course of this financial year.
FY2014 Private Equity investment update
During FY2014, the Group invested 265 million of proprietary capital in three new Private Equity investments, GIF, JMJ and Basic-Fit, and one significant further investment to increase our stake in Scandlines. 
All four investments are performing in line with, or ahead of, the investment case, with:
 Average earnings growth of 23% compared to the prior year
 Average entry multiple of 8x EBITDA
 September valuation at 1.19x entry cost on a local currency basis
An update on the three new investments is provided below.
GIF

JMJ Associates

Basic-Fit
German headquartered international transmission testing specialist
Global management
consultancy
Discount fitness operator
in Europe
79m
Proprietary Capital invested
85m
September 2014 value
25%
adjusted EBITDA growth expected for the current financial year
40%
increase in share of sales to China to 14%
$72m
Proprietary Capital invested
$73m
September 2014 value
7%
organic revenue growth
new clients won in oil, aerospace and manufacturing sectors
97m
Proprietary Capital invested
129m
September 2014 value
42
new clubs since investment

>200,000
new members since investment
>50%
EBITDA growth expected in 2014
Achievements since investment
 Strengthened management team: CEO and CFO
 Reduced organisational complexity and reviewed cash intensive non-core engineering project portfolio
 Invested in operations in China
to double local capacity in
2015
Achievements since investment
 Strengthened management,
new CFO and CIO appointed
 Strategy review completed, resulting in international sector focus
 Strong cash conversion
Achievements since investment
 42 new clubs added through openings and acquisitions.
Total of 241 clubs at September 2014 
 Became market leader in Belgium, in addition to
The Netherlands
 Introduced Basic-Fit format in France and Spain
 EBITDA growth of >50% expected for 2014
Medium-term strategy
 Reposition business as a
testing and inspection player
for transmissions
 Focus service offering on value-added engineering
 International expansion
(China, North America)
Medium-term strategy
 Growth in upstream oil and gas and manufacturing sectors
 Growth in key blue chip client accounts
 Continued development of global footprint 
Medium-term strategy
 Continue the roll-out in domestic markets 
 Continue to implement international expansion
 Assess further add-on acquisition opportunities
Strategic objectives and progress
In our Annual report for the year to 31 March 2014, we set out four priorities for the current year:
 Focus on consistency and discipline of investment processes and asset management;
 Selective new investment;
 Maintain cost discipline; and
 Continue to improve capital allocation, focusing on enhanced shareholder distributions.
The consistency and discipline of our asset management process during the six months is demonstrated by the strong value growth of 307 million and realisations of 324 million, underpinned by the last 12 month value weighted earnings growth of 17% in our Private Equity portfolio. 
The benefit of our disciplined asset management and investment processes will also come through in the performance of our most recent Private Equity investments. The FY2014 investment update, included in this report, highlights the progress we have made so far.
Eliminating the leakage from costs that the Group has suffered in the past and reducing interest expense was essential for 3i to become a more robust business. We have completed the fundamental restructuring the Group needed and we remain focused on maintaining cost discipline. Despite adding the PPP investment team and capability to the Infrastructure business in November 2013 and further cost to service the increasing regulatory requirements that the Group is subject to, total operating costs were only 1.0% of AUM at 30 September, down from 1.6% at 31 March 2012.
Finally, we continue to demonstrate good discipline in capital allocation. Our distribution policy ensures that shareholders benefit directly from our realisation activity as we have committed to distribute 15-20% of gross cash realisations. Whilst we are investing at the lower end of our capacity, we expect to be distributing at the 20% end of the range. We have made good progress on realisations to date and have generated 542 million proceeds so far this year. This means that our base dividend of 8.1 pence is already well covered, and allows for an additional distribution of 3.3 pence at the interim. Together with the one-third interim distribution of 2.7 pence we are therefore announcing a total interim dividend of 6.0 pence, which will be paid in January 2015. The pipeline for realisations for the remainder of the year is promising, and, subject to market factors outside of our control, should support a total dividend for the year of at least 15 pence per share, including the 8.1 pence base dividend.
Outlook
The first half of FY2015 saw 3i continue to deliver against its strategic plan and against all of the elements of the "3i Value Build".
Our portfolio of investments is performing well, with some excellent growth in our larger and more recent Private Equity investments. We also see growth opportunities in both Infrastructure and Debt Management where, alongside our teams, 3i's Proprietary Capital can be a differentiator.
Critical to our success are our people. After two years of significant reductions, we are now carefully investing in our people. We are taking opportunities to develop our existing teams and have been adding talent in the Group with investment professional hires in Private Equity and Infrastructure and investor relations professionals in Debt Management. We have also launched a 3i Graduate Recruitment scheme and I am delighted by the early interest from some excellent candidates.
We recognise the increasing political uncertainty and stagnating growth in Europe and are mindful of the risks of over-paying for new investments in this environment. We will continue to manage our portfolio energetically, capitalise on realisation opportunities and be selective in making new investments.
We are operating in difficult markets, which will no doubt hinder growth in general, but 3i is continuing to make excellent progress in delivering against its Strategic Priorities.
Key Performance Indicators
Gross investment return
("GIR")
NAV and dividends
Total shareholder return
("TSR")
% of opening portfolio value
NAV per share (pence)
% 
Financial year/Half year
Financial year/Half year
Financial year/Half year

FY2013

FY2014

HY2014

HY2015
March
2013
Sep
2013
March
2014
Sep
2014


FY2013

FY2014

HY2014

HY2015
19
20
7
8
311
322
348
358
TSR
54.0
30.3
17.0
(0.4)

Share price
50.2
26.5
15.3
(3.7)

Dividend
3.8
3.8
1.7
3.3
Rationale and definition
 GIR is how we measure the performance of our portfolio of proprietary investments

 GIR includes profit and loss on realisations, increases and decreases in the value of the investments we hold at the end of the period, any income received from the investments such as interest or dividends, and foreign exchange movements

 GIR, measured as a percentage, is calculated over the opening portfolio value

Comments
 Strong Private Equity portfolio performance underpinned by robust earnings growth

 Good flow of realisations, delivering realised profits over opening value of 35m, representing an uplift of 12%. Lower uplift than the prior year reflects a number of disposals made earlier in the period

 Good contribution from Infrastructure value growth and income
 Debt Management made a small loss as a reduction in valuation of CLO equity and negative foreign exchange movements offset good income distributions 
 Sterling strength continues to impact portfolio valuations of
non-sterling investments
Rationale and definition
 NAV is a measure of the fair value of our proprietary investments and the net costs of operating the business

 Dividends provide our shareholders with an annual yield as well as a direct participation in 3i's realisation activity in the period

Comments
 Good progression in NAV per share to 358p, up 3% over the period, after taking into account dividends paid in the period of 13p

 Sterling materially strengthened against the euro, Swedish krona and Brazilian real in the period, resulting in a translation loss, reducing NAV by 8p

 Good flow of realisations and strong balance sheet supports interim dividend of 6.0p per share, of which 2.7p is the base dividend and 3.3p is additional 
Rationale and definition
 TSR measures the absolute return to our shareholders through the change in share price and dividends paid during the period

 Annualised three-year TSR is a key performance metric used as part of Executive Directors' remuneration

Comments
 TSR was relatively flat in the 6 months to 30 September 2014, reflecting the decrease in the share price from 398p at close 31 March 2014 to 383p at close 30 September 2014 and the final dividend from FY2014 of 13.3p paid in July 2014

 During the period from the June 2012 strategic review announcement to 30 September 2014, 3i generated an annualised TSR of 41%
Assets under management
("AUM")
Underlying Fund Management
Profit (m) and Margin (%)
Operating cash profit/loss
m

m 
Financial year/Half year
Financial year/Half year
Financial year/Half year

Mar 13
Sep 13
Mar 14
Sep 14

FY2013
FY2014
HY2014
HY2015
FY2013
FY2014
HY2014
HY2015
AUM
12,870
11,751
12,911
12,923
Profit
17m
33m
15m
16m
(8)m
5m
6m
16m
Proprietary
Capital

3,694

3,166

3,403

3,357

Margin 

13%

26%

24%

26%

Third-party
Capital

9,176

8,585

9,508

9,566


Rationale and definition
 We invest in companies using capital from our shareholders (Proprietary Capital) and third-party investors. The total amount of capital we have to invest or are managing on behalf of our shareholders and third-party investors is called assets under management ("AUM")

 AUM is an important measure since it forms the basis on which management fee income is generated

Comments
 Total AUM has remained flat at 12.9bn at 30 September 2014

 Third-party AUM has continued to grow absolutely, to 9.6bn, and as a proportion of total AUM, to 74%
 Debt Management has been successful in continuing to raise CLOs (one in the US and one in Europe), raised a further $39m into the US Senior Loan Fund and, post period end, priced two further CLOs, secured a further $50m into the US Senior Loan Fund and closed a 250m European Middle Market Loan fund

 Proprietary Capital AUM remained flat at 3.4bn
Rationale and definition
 3i's Fund Management business comprises the teams that manage investments on behalf of our shareholders (Proprietary Capital) and third-party investors. The business incurs costs such as salary and rent, and receives fees from third-party investors. A "synthetic fee" from the Group is included for managing its Proprietary Capital

 Underlying Fund Management profit is calculated as fee income (defined as third-party fees, synthetic fees on Proprietary Capital and portfolio fees) minus operating expenses related to Fund Management activities, excluding restructuring and amortisation costs

Comments
 Profit of 13m and margin of 21% ahead of 8m and 13% last year

 On an underlying basis profit was 16m with a margin of 26% (September 2013: 15m, 24%) and was closer to actual profits as restructuring costs reduced

Rationale and definition
 We set a strategic objective of covering the annual cost of running our business (operating expenses) with the annual cash income received from our investments (portfolio dividend and interest income) and fees paid by third-party investors. We exclude the costs of restructuring the business, so that we can measure the profitability on a sustainable basis. We call this measure operating cash profit

Comments
 Exceeded objective of generating cash income sufficient to cover operating expenses, prior to restructuring costs in FY2014

 This has continued during the first 6 months of FY2015, with operating cash profit of 16m
 Portfolio income increased significantly, partly through portfolio activity in Private Equity
Business review
Group overview
"The half-year results reflect the ongoing implementation of our strategic priorities and the improved stability and financial profile of the Group."
Julia Wilson
Finance Director
12 November 2014
3i Group is an international investment manager with three complementary business lines. All our business lines invest using a combination of proprietary capital from the Group's own balance sheet and third-party funds. This Business review provides detail on our performance for the six months to 30 September 2014 ("the period") as well as our financial position as at that date.
The Group generated a total return of 234 million, or a profit on opening shareholders' funds of 7.1% (September 2013: 175 million or 6.0%). Our Proprietary Capital business provided strong value growth from our Private Equity portfolio, a continued good flow of realisations at strong money multiples and robust portfolio income. Our Fund Management business increased both its absolute profit and margin, particularly due to continued cost discipline but also as a result of assets under management growth in our Debt Management business. However, the relative strength of sterling has continued to impact the Group's results, with an unrealised translation loss from foreign exchange of 73 million. 
The Group generated a gross investment return of 297 million (September 2013: 240 million) or 8.3% on opening portfolio value. Split by business line, Private Equity generated a gain of 282 million, Infrastructure a gain of 22 million and Debt Management generated a loss of 7 million, representing returns of 10%, 5% and (5)% respectively.
The Group's investment performance was subject to lower dilution from operating expenses and interest costs as a result of the significant reduction in these items since June 2012. Operating expenses of 63 million and interest costs of 26 million are both 7% lower than the first half last year.
As well as good total return, we continue to focus on creating sustainable operating cash profits. After securing the first annual operating cash profit for many years in the last financial year, the first six months saw a continued strong performance. In the first six months we recorded an operating cash profit of 16 million (September 2013: 6 million). Cash income was higher as a result of portfolio activity, which may not recur to the same extent in the second half. 
In addition, the underlying profit we record in our Fund Management business has also grown in the period to 16 million with a margin of 26%. (September 2013: 15 million, 24%).
The focus on improving operational cash flows and profit from the Fund Management business means the Group is now operating from a more financially robust platform. During the period we refinanced the 2016 revolving credit facilities, reducing the total size of the facility from 500 million to 350 million, extending the maturity to 2019 and reducing interest costs by 1.5 million per annum.
Performance
Table 1: Summary financial data
Sixmonthsto/as
Six months to/as
Year to/as at
at 30 September
at 30 September
31 March
2014
2013
2014
Group
Total return
234m
175m
478m

Total return on opening shareholders' funds
7.1%
6.0%
16.3%
Dividend per ordinary share

Base dividend
2.7p
2.7p
8.1p

Additional dividend
3.3p
4.0p
11.9p
Total shareholder return1
(0.4)%
17.0%
30.3%
Operating expenses
63m
68m
136m

As a percentage of assets under management2
1.0%
1.1%
1.0%
Operating cash profit
16m
6m
5m
Proprietary Capital
Realisation proceeds
324m
528m
677m

Uplift over opening book value
35m/12%
129m/32%
202m/43%

Money multiple
1.8x
1.6x
1.8x
Gross investment return3
297m
240m
665m

As a percentage of opening 3i portfolio value
8.3%
7.3%
20.2%
Operating profit4
262m
179m
539m
Cash investment
199m
92m
337m
Net interest payable
25m
27m
51m
Portfolio value
3,672m
3,058m
3,565m
Gross debt
831m
873m
857m
Net debt/(cash)
161m
(28)m
160m
Gearing
5%
n/a
5%
Liquidity
1,020m
1,401m
1,197m
Net asset value
3,426m
3,062m
3,308m
Diluted net asset value per ordinary share 
358p
322p
348p
Fund Management
Total assets under management
12,923m
11,751m
12,911m

Third-party capital
9,566m
8,585m
9,508m

Proportion of third-party capital
74%
73%
74%
Total fee income 
63m
63m
127m

Third-party fee income
41m
38m
76m
Operating profit4
13m
8m
19m
Underlying Fund Management profit4,5
16m
15m
33m

Underlying Fund Management margin
26%
24%
26%
1
Total shareholder return is calculated as the share price movement between the close of business on the last trading day of the prior year and close of business on the last trading day of the period end plus shareholder distributions.
2
Annualised actual operating expenses, excluding restructuring costs of nil in the six months to 30 September 2014, 4 million in the six months to 30 September 2013 and 9 million in the year to 31 March 2014, as a percentage of weighted average assets under management.
3
Gross investment return includes nil of portfolio fees allocated to Fund Management (September 2013: 2 million, March 2014: 3 million).
4
Operating profit for the Proprietary Capital and Fund Management activities excludes carried interest payable/receivable, which is not allocated between these activities.
5
Excluding Fund Management restructuring costs of nil and amortisation costs of 3 million (September 2013: 4 million, 3 million, March 2014 8 million, 6 million).
The Group's Proprietary Capital portfolio performed well in the period with a gross investment return of 297 million, or 8% of opening portfolio, and an operating profit before carry of 262 million (September 2013: 240 million, 7%, 179 million). A good flow of realisations, delivering cash proceeds of 324 million and realised profits of 35 million (September 2013: 528 million and 129 million), and strong value growth of 307 million (September 2013: 137 million), were the largest contributors. The Private Equity portfolio performed strongly with value weighted last 12 month earnings growth of 17%. Portfolio income improved at 53 million (September 2013: 47 million) and benefited from an increased contribution from Debt Management and a number of income receipts on exit of Private Equity investments. This was offset by net interest payable of 25 million, (September 2013: 27 million). The Proprietary Capital business also incurred operating expenses of 13 million (September 2013: 13 million) and a synthetic fee for investment management, due to the Fund Management business, of 22 million (September 2013: 25 million). 
The continued strength of sterling led to a net 73 million charge in the period (September 2013: 79 million charge). A charge of 98 million relates to the portfolio and is included in the gross investment return above, this is offset by 25 million relating to the translation of the Group's other net assets (September 2013: 75 million and 4 million loss).
Investment activity was higher than in the first half of last year with 199 million cash invested (September 2013:
92 million). This included 104 million invested in Private Equity, primarily funding a new investment into US headquartered A&A Manufacturing (since rebranded as Dynatect), and 95 million invested into new Debt Management funds and warehouses to support future fundraising. Since the period end we have announced investments into Q Holdings, a US manufacturer, and Christ, a German jewellery business, committing 196 million of proprietary capital in total and 72 million from Eurofund V in Christ. Although higher, investment levels remain below the Group's capacity as sourcing new investment opportunities at attractive prices remains challenging.
The Group's revolving credit facilities which were due to expire in 2016 were refinanced during the period. The facilities were reduced in size from 500 million to 350 million, the maturity extended to 2019 and interest costs reduced. As at 30 September 2014, gross debt was 831 million (March 2014: 857 million). Net divestment activity, offset by the payment of the final FY2014 dividend in the period, meant that net debt was stable at 161 million at
30 September 2014 (March 2014: 160 million) and gearing was 5% (March 2014: 5%).
The Group's Fund Management income is driven by total assets under management ("AUM") which were
12.9 billion at 30 September 2014 (March 2014: 12.9 billion). In the period we closed two new CLOs. In Europe,
we launched Harvest IX in July 2014, raising 525 million, and in the US, we raised $618 million with the launch of Jamestown IV in June 2014. Our Debt Management business had further success in securing $39 million in further third-party investment into the US focused Senior Loan Fund. This offset reductions in AUM as the older Debt Management CLOs mature and as a result of net divestment in Private Equity. The proportion of third-party assets under management remained stable compared to March 2014 at 74%. After the period end, the Debt Management business priced two further CLOs, secured a further $50 million commitment to the US Senior Loan Fund and announced the first close of a European Middle Market Loan fund at 250 million. 
The Fund Management business earns fees on third-party capital, and recognises synthetic fee income on the proprietary capital that it manages. Fund Management income was stable in the period at 63 million (September 2013: 63 million), with additional fees generated by our PPP infrastructure team being offset by a reduction in fees from Private Equity. Within this, third-party fee income grew to 41 million (September 2013: 38 million).
For the Fund Management business to be profitable on a sustainable basis, tight cost control remains critical.
Total Fund Management operating expenses fell by 9% in the period to 50 million (September 2013: 55 million). This includes 3 million of amortisation costs relating to previous acquisitions (September 2013: 3 million) but no
new restructuring costs (September 2013: 4 million).
Consequently, the Fund Management business improved both its absolute profit and profit margin in the period.
Fund Management operating profit before carry at 13 million represented a margin of 21% (September 2013:
8 million and 13%). On an underlying basis, excluding restructuring and amortisation costs, the profit and margin were 16 million and 26% (September 2013: 15 million, 24%).
The carried interest payable charge of 45 million is a consequence of the growth in value of the portfolio and, for the first time, we have recognised 6 million of carry receivable from our Growth Capital fund. This is as a result of a good recovery in value in that fund, meaning that the hurdle has been met on an accruals basis in the period. The increase in value of the infrastructure portfolio within 3i Infrastructure plc has also led to the recognition in the period of 8 million of performance fees receivable. 
The financial profile of the Group with regard to both consistency and strength of Proprietary Capital performance, operating cash profit, Fund Management profit and balance sheet is robust. Realisation proceeds totalled 324 million in the period with a further 218 million generated after the period end. Prices for attractive investments remain high, indicating investment activity is likely to remain at the lower end of the Group's capacity. The Board have therefore announced an interim dividend of 6.0 pence per share, including a base dividend of 2.7 pence and an additional dividend of 3.3 pence. Realisations achieved to date support a total dividend of 11.4 pence per share and, based on the immediate pipeline, we expect to pay a minimum of 15 pence per share, in total for FY2015, including the base dividend of 8.1 pence.
Assets under management
Total AUM was broadly flat at 12,923 million during the period (March 2014: 12,911 million). Within this, third-party AUM was 9,566 million, or 74% of the total AUM at 30 September 2014 (March 2014: 9,508 million, or 74% of total AUM).
Private Equity AUM is calculated on invested rather than committed capital as all third-party funds are beyond their investment periods. The reduction in total Private Equity AUM to 3,904 million (March 2014: 4,132 million) therefore mainly reflects the net divestment activity seen in the period. 
Infrastructure AUM increased marginally to 2,344 million (March 2014: 2,294 million) mainly as a result of value growth and new investment in 3i Infrastructure plc ("3iN").
Debt Management successfully launched one European CLO and one US CLO in the period, adding 764 million to AUM. A further $39 million was invested by third-parties in the US focused senior loan fund, bringing the total AUM of that fund to $118 million. New warehouse facilities were also established in the period in preparation for new CLO launches in Europe and the US, totalling 462m of AUM at 30 September 2014. These new additions were partially offset by a reduction in AUM in older CLOs, as portfolios mature and distributions are made to investors, as well as a reduction from currency movements in euro and US dollar denominated funds. Total Debt Management AUM grew in the period to 6,675 million (March 2014: 6,485 million). Since the period end we have priced two new CLOs, secured a further $50 million into the US Senior Loan Fund and, on 11 November, we announced a first close for a European Middle Market Loan fund at 250 million which is an important step in diversifying the AUM base. 
The table below summarises the key movements in the period.
Table 2: Reconciliation of movements in assets under management by business line
Private Equity
Infrastructure
Debt Management
Total
m
m
m
m
AUM at 31 March 2014 
4,132
2,294
6,485
12,911

of which proprietary capital
2,788
483
132
3,403

of which third-party capital
1,344
1,811
6,353
9,508
Investment (cost)
150
-
-
150
Divestment/distributions (cost)
(404)
(38)
(738)
(1,180)
3i Infrastructure plc NAV movement
-
88
-
88
New funds raised
-
-
1,099
1,099
Foreign exchange movements and other
26
-
(171)
(145)
AUM at 30 September 2014
3,904
2,344
6,675
12,923

of which proprietary capital
2,631
503
223
3,357

of which third-party capital
1,273
1,841
6,452
9,566
Table 3: Assets under management
Remaining 3i
%
Gross money
Fee income
Original
Original
commitment at
invested at
multiple1 at
received in
Close
fund
3i
September
September
September
the period
date
size
commitment
2014
2014
2014
AUM
m
Private Equity
3i Growth Capital Fund
Mar-10
1,192m
800m
374m
53%
1.5x
561m
1.0
3i Eurofund V
Nov-06
5,000m
2,780m
281m
90%
1.3x
2,600m
5.8
3i Eurofund IV
Jun-04
3,067m
1,941m
95m
95%
2.3x
453m
0.1
3i Eurofund III
Jul-99
1,990m
995m
90m
91%
2.1x
-
-
Other
various
various
various
n/a
n/a
n/a
930m
0.1
Total Private Equity AUM





3,904m

Infrastructure
3i Infrastructure plc
Mar-07
n/a
n/a
n/a
n/a
n/a
1,172m2
7.6
3i India Infrastructure Fund
Mar-08
US$1,195m
US$250m
US$38m
73%
0.6x
US$612m3
2.8
BIIF
May-08
680m
n/a
n/a
88%
n/a
603m
3.0
BEIF II
Jul-06
280m
n/a
n/a
93%
1.1x
101m
0.8
Other
various
various
various
n/a
n/a
n/a
102m
-
Total Infrastructure AUM





2,344m

Debt Management
Realised
Annualised
Fee income 
Par value
equity
equity 
received in
Closing
Reinvestment
Maturity
of fund
money
cash
the period

date
period end
date
at launch4
multiple5
yield6, 7, 8
AUM
m
European CLO funds








Harvest CLO IX
July-14
Aug-18
Aug-26
525m
0.0x
n/a
507m
0.4
Harvest CLO VIII
Mar-14
Apr-18
Apr-26
425m
0.0x
n/a
413m
0.8
Harvest CLO VII
Sep-13
Oct-17
Oct-25
310m
0.0x
6.7%
302m
0.3
Windmill CLO I
Oct-07
Dec-14
Dec-29
500m
0.5x
7.8%
477m
1.0
Axius CLO
Oct-07
Nov-13
Nov-23
350m
0.5x
7.3%
301m
1.1
Coniston CLO
Aug-07
Jun-13
Jul-24
409m
0.9x
12.4%
275m
0.7
Harvest CLO V
Apr-07
May-14
May-24
632m
0.5x
7.4%
593m
1.7
Garda CLO
Feb-07
Apr-13
Apr-22
358m
1.2x
15.9%
221m
0.8
Harvest CLO IV
Jun-06
Jul-13
Jul-21
750m
1.0x
12.1%
493m
1.0
Harvest CLO III
Apr-06
Jun-13
Jun-21
650m
0.9x
11.1%
426m
1.3
Pre 2006 CLOs
n/a
n/a
n/a
1,711m
n/a
n/a
377m
2.3







3,416m

US CLO funds








Jamestown CLO IV
Jun-14
Jul-18
Jul-26
US$618m
0.0x
n/a
US$600m
0.4
COA Summit CLO
Mar-14
Apr-15
Apr-23
US$416m
0.2x
49.8%
US$400m
0.3
Jamestown CLO III
Dec-13
Jan-18
Jan-26
US$516m
0.1x
8.7%
US$501m
0.6
Jamestown CLO II
Feb-13
Jan-17
Jan-25
US$510m
0.3x
18.8%
US$504m
0.7
Jamestown CLO I
Nov-12
Nov-16
Nov-24
US$461m
0.3x
18.8%
US$455m
0.7
Fraser Sullivan CLO VII
Apr-12
Apr-15
Apr-23
US$459m
0.5x
21.2%
US$455m
0.2
COA Caerus CLO
Dec-07
Jan-15
Dec-19
US$240m
1.5x
23.8%
US$241m
-
Fraser Sullivan CLO II
Dec-06
Dec-12
Dec-20
US$500m
1.7x
22.3%
US$267m
0.6
Fraser Sullivan CLO I
Mar-06
Mar-12
Mar-20
US$500m
1.6x
18.7%
US$185m
0.4







2,224m

Other funds








Vintage II 
Nov-11
Sept-13
n/a
US$400m
n/a
1.6x
US$229m
0.6
Palace Street I
Aug-11
n/a
n/a
n/a
0.6x
18.5%
50m
-
Senior Loan Fund
Jul-09
n/a
n/a
n/a
n/a
8.4%
US$118m
0.1
COA Fund9
Nov-07
n/a
n/a
n/a
n/a
(0.1)%
US$56m
0.2
Vintage I
Mar-07
Mar-09
Jan-22
500m
2.6x
5.9x
334m
1.3
Friday Street
Aug-06
Aug-08
Aug-14
300m
0.4x
5.7%
33m
0.2
European Warehouse vehicles
n/a
n/a
n/a
n/a
n/a
n/a
417m
-
US Warehouse
n/a
n/a
n/a
n/a
n/a
n/a
US$224m
-







1,035m

Total Debt Management AUM






6,675m

1
Gross money multiple is the cash returned to the fund plus value as at 30 September 2014, as a multiple of cash invested.
2
Based on latest published NAV (ex-dividend).
3
Adjusted to reflect 3i Infrastructure plc's US$250 million share of the Fund.
4
Includes par value of assets and principal cash amount.
5
Multiple of total equity distributions over par value of equity at launch.
6
Average annualised returns since inception of CLOs calculated as annualised cash distributions over par value of equity. Excludes unrealised equity remaining in CLO.
7
Vintage I & II returns are shown as gross money multiple which is cash returned to the Fund plus value as at 30 September 2014, as a multiple of cash invested. 
8
The annualised returns for the COA fund and Senior Loan Fund are the annualised net returns of the Funds since inception.
9
The COA Fund AUM excludes the market value of investments the fund has made in 3i US Debt Management CLO funds (US$60 million as at 30 September 2014).
Investment and realisations activity
Merger and acquisition ("M&A") volumes during the six months to 30 June 2014 increased marginally in Europe but fell in the smaller to mid-market segments (source: Capital IQ). This led to stable private equity deal flow and, with capital availability remaining high from both principal investors and debt providers (source: KPMG M&A Predictor, August 2014), highly competitive auctions and high prices were a significant feature of market conditions. Since
the summer we have seen a reduction in M&A volumes across the market as confidence has reduced. In this environment, we continue to be more active sellers than buyers of investments, remaining cautious and focused only on new investments where we have a competitive advantage. 
Private Equity invested in one new business in the period: A&A Manufacturing, now renamed Dynatect. Dynatect, headquartered in the US, is a leading manufacturer of speciality protective equipment and is well positioned to grow internationally with support from 3i. We also took an opportunity to purchase a small third-party interest in Eurofund V for 34 million, increasing our share in that fund by c.1%.
We invested in each of the new CLOs launched in the period and provided further support to grow our Debt Management business through ongoing warehouse facilities, used to establish portfolios ahead of future CLO launches.
Table 4 provides details of the investments made in the six month period.
Since the period end we have announced two Private Equity investments: 214 million, including third-party funds from Eurofund V, into Christ, a German jewellery retailer, and $160 million into Q Holdings, a US headquartered moulded rubber and silicone components manufacturer. 
Table 4:Cash investment in the six months to 30 September 2014 
Proprietary
Total
Capital




investment
investment
Investment
Type
Business description
Date
m
m
Private Equity 
Dynatect 
New
Manufacturer of engineered, mission critical protective equipment
September 2014
66
65
EFV stake
New
Acquisition of LP stake in Eurofund V 
June 2014
27
27
Other cash investment
Other

n/a
19
12
Total Private Equity investment

112
104
Debt Management 
Jamestown IV 
New
North American senior debt CLO
June 2014
6
6
Harvest IX
New
European senior debt CLO
July 2014
22
22
Other cash investment
Other
Pre-CLO warehouses
n/a
67
67
Total Debt Management Investment

95
95
Total cash investment

207
199
Market conditions created opportunities for realisations, refinancing of portfolio companies and IPOs. Cash proceeds of 324 million (September 2013: 528 million) were received in the six months, at an uplift of 12% over opening portfolio value (September 2013: 32%). The uplift was lower than in previous periods due to a number of larger transactions occurring earlier in the half and, as such, being materially reflected in the 31 March 2014 valuations. 
Private Equity generated the majority of the proceeds. Notable full exits in the six months included the sale of Vedici, which generated proceeds of 83 million and an uplift over opening value of 48%, and the sale of John Hardy, which generated proceeds of 25 million but no uplift over opening value as it was valued on an imminent sales basis at 31 March 2014. There were two large partial exits in the period where we sold c.70% of our equity stake in Phibro following an IPO in April 2014 and retained a residual loan to Foster + Partners, selling the equity in June 2014. Beijing Digital Telecom, the Chinese mobile phone retailer, listed on the Hong Kong stock exchange in July 2014 but our investment remains locked up until July 2015. Finally, refinancings at Element and Amor and a sale and leaseback of a new distribution centre at Action generated proceeds of 52 million in total.
As well as the larger exits noted above, we continued to sell smaller, legacy and non-core geography assets. Consequently, there were 72 investments in the Private Equity portfolio at 30 September 2014 down from 81 at 31 March 2014. Over time we expect to reduce the number of Private Equity investments to no more than 40.
The realisations from the Private Equity portfolio generated an aggregate money multiple of 1.8x (September 2013: 1.6x). Since the period end we have also completed the full exits of Hilite and LHi and sold a further share of our holding in Quintiles, generating a further 218 million of proceeds at a money multiple of 2.5x. The value of these exits was substantially reflected in the Group's NAV at 30 September 2014. 
The Infrastructure business made its first realisation from the Indian Fund, with a partial sale of the holding in Adani Power, a quoted power generation business based in Gujarat, India. 3i received proceeds of 8 million, at an uplift of 1 million over opening value.
Table 5:Realisations in the six months to 30 September 2014



31 March


Uplift on

Money



Calendar
2014
3i realised
Profit/(loss)
opening
Residual
multiple


Country/
year
value
proceeds
in the year1
value1
value
over

Investment
region
invested
m
m
m
%
m
cost2
IRR
Private Equity
Full realisations
Vedici
France
2010
58
83
27
48%
-
2.0x
17%
John Hardy
Hong Kong
2007
25
25
nil
-%
2
1.9x
9%
Derprocon 
Spain 
2000
5
6
1
20%
-
2.0x
7%
Caf y Te
Spain
2006
4
5
1
25%
-
0.5x
(8)%
Other investments
n/a 
n/a
nil
2
2
n/a
-
n/a
n/a
Partial realisations2
Phibro
USA 
2009
68
68
nil
-%
38
1.5x
9%
Foster + Partners
UK 
2007
66
66
nil
-%
40
1.8x
10%
Element
Benelux
2010
23
23
nil
-%
112
2.5x
28%
Amor3
Germany
2010
21
19
(2)
(10)%
51
1.5x
12%
Action
Benelux
2011
9
10
1
11%
573
6.0x
84%
Other investments
n/a 
n/a
5
7
2
n/a
368
n/a
n/a
Deferred consideration
Other investments
n/a 
n/a
nil
2
2
n/a
-
n/a
n/a
Total Private Equity


284
316
34
12%
1,184
1.8x
n/a


Infrastructure
Adani Power
India
2007
7
8
1
14%
9
0.5x
(11)%
Total Infrastructure


7
8
1
14%
9
0.5x
(11)%










Total 


291
324
35
12%
1,193
1.8x
n/a
1
Cash proceeds in the period over opening value realised.
2
3
Cash proceeds over cash invested. For partial realisations and recapitalisations, valuations of any remaining investment are included in the multiple.
Loss on disposal offset by income received.
Portfolio
The value of the Proprietary Capital portfolio at 30 September 2014 was 3,672 million (31 March 2014: 3,565 million). Value growth in the period was offset in part by net divestment activity.
There was no material change to the portfolio composition by business line with Private Equity at 81% (March 2014: 82%), Infrastructure at 14% (March 2014: 14%) and Debt Management at 5% (March 2014: 4%) of the total portfolio.
Private Equity
In line with its strategy, the Group continues to reduce the number of assets held in the Private Equity portfolio to a more manageable level. There were 72 investments in the Private Equity portfolio at 30 September 2014 (31 March 2014: 81). The 10 largest investments accounted for 58% of the portfolio at the period end (31 March 2014: 54%) and the 25 largest for 84% (31 March 2014: 82%).
As shown in Table 6, earnings grew in the majority of the portfolio (78% by value) with good earnings growth in the portfolio's largest assets in particular. The Private Equity portfolio's value weighted last 12 months earnings, the most relevant measure of NAV impact, grew by 17% (March 2014: 19%) year on year. 
Table 6: Portfolio earnings growth weighted by September 2014 carrying values (m)1
Last 12 months' (LTM) earnings growth 3i carrying value at 30 September 2014
m
<(20)%
20
(20) - (11)%
-
(10) - (1)%
371
0 - 9%
166
10 - 19%
209
20 - 30%
899
>30%
105
1
Includes all companies valued on an earnings basis where comparable earnings data is available. This represents 59% of the Private Equity portfolio by value.
The weighted average EBITDA multiple used at 30 September 2014 was 11.0x pre discount (March 2014: 10.6x) and 10.2x post discount (March 2014: 9.9x). These multiples remain below those seen in relevant sector and geographic public markets; for example the FTSE 250 was valued on an average multiple of 12.0x at 30 September 2014.
Leverage in the Private Equity portfolio remained stable at 3.1x net debt to EBITDA weighted by value (31 March 2014: 3.1x). We have taken the opportunity to refinance and restructure debt in a number of portfolio companies including Element, Amor and Mmora. The ratio reduced on average across the rest of the portfolio. Table 7 shows the ratio of net debt to EBITDA weighted by portfolio value.
Table 7: Ratio of net debt to EBITDA - Private Equity portfolio September 2014 carrying values (m)1

m
<1x
566
1 - 2x
185
2 - 3x
937
3 - 4x
322
4 - 5x
692
5 - 6x
47
>6x
18
1
This represents 93% of the Private Equity portfolio, excluding assets valued on a sales basis.
The majority, or 88%, of the Private Equity portfolio by value, is now located in our focus areas of Northern Europe and the US (31 March 2014: 86%) as the exposure to Asia, Brazil and Southern Europe has reduced through realisations and some decline in value.
Infrastructure
3i's investment exposure to infrastructure assets is primarily through its 34% shareholding in 3i Infrastructure plc ("3iN") and through its commitment to the 3i India Infrastructure Fund ("IIF"). 
3iN is a listed company and our investment is therefore exposed not only to the underlying portfolio but also to fluctuations in its share price. 3iN's underlying European portfolio continues to perform well and represents 94% of the underlying portfolio (31 March 2014: 93%). Portfolio valuations of 3iN's rail rolling stock assets increased significantly to reflect both operational improvements and market returns compression in recent bids to finance the procurement of new train fleets. 3iN's share price increased from 134.4 pence to 140.0 pence in the period. Our 34% holding was valued at 421 million at 30 September 2014, or 11% of 3i's total portfolio. Further detail can be found at: www.3i-infrastructure.com.
The Group's commitment to IIF was valued at 62 million at 30 September 2014 (31 March 2014: 75 million). 
Debt Management
The Debt Management portfolio consists of 22 investments, including the capital provided to CLOs managed by the Group, Palace Street I and the Senior Loan Fund and investments into warehouses in order to build portfolios prior to future fund launches. During the period the Group invested a total of 28 million into the equity tranches of Harvest IX and Jamestown IV, alongside a net 67 million investment in the warehouses. At 30 September 2014 the portfolio was valued at 197 million (March 2014: 143 million). 
Financial review
Basis
Since the adoption of IFRS by the Group in the year ended 31 March 2006, there has been discussion about whether investment companies, such as 3i, should be exempt from consolidation for its portfolio investments. The introduction of the IFRS 10 accounting standard resolved this point by establishing an investment entity exception, which is an excellent outcome as consolidation of our portfolio investments would both be impractical and limit the usefulness of our statutory accounts.
However, the detailed application of the standard has reduced the transparency of the Group's underlying operating performance because we are now required to fair value a number of intermediate holding companies that were previously consolidated line by line. This fair value approach, applied at the intermediate holding company level, effectively obscures the performance of our proprietary capital investments and associated transactions occurring in the intermediate holding companies. As a result, in our 2014 Annual Report and Accounts we introduced separate "Investment basis" Statements of comprehensive income, financial position and cash flow to aid users of our report, and we continue to do so in this report. The numbers presented in the Overview and Interim Strategic Report refer to this Investment basis. 
The commentary in this section refers to the Investment basis financial statements because we believe they provide a more understandable view of our performance. We provide more detail on the impact of IFRS10 and a reconciliation of our Investment basis financial statements to the audited IFRS statements which are presented at the end of this section. Total return and net assets are equal under each basis; the Investment basis is simply a "look through" of IFRS 10 to present the underlying performance.
Operating profit includes gross investment return, management fee income generated from managing external funds, the costs of running our business, net interest payable, movements in the fair value of derivatives, other losses and carried interest receivable or payable. Finally, total return comprises operating profit less any tax charge and movement in the actuarial valuation of the historic defined benefit pension scheme.
Each of these aspects of our returns are considered in greater detail in this Financial review, along with the remaining items that contribute to total return. 
Returns
Table 8: Total return for the six months to 30 September 2014
Sixmonthsto
Six months to
12 months to
30September
30 September
31 March
2014
2013
2014

m
m
m
Realised profits over value on disposal of investments
35
129
202
Unrealised profits on revaluation of investments
307
137
475
Portfolio income




Dividends
21
18
44

Income from loans and receivables
30
25
50

Fees receivable
2
6
7
Foreign exchange on investments
(98)
(75)
(113)
Gross Investment Return
297
240
665
Fees receivable from external funds
41
36
73
Operating expenses
(63)
(68)
(136)
Interest receivable 
1
1
3
Interest payable
(26)
(28)
(54)
Movement in the fair value of derivatives
(1)
10
10
Exchange movements
25
(4)
(3)
Other income
1
-
-
Operating profit before carry
275
187
558
Carried interest




Carried interest receivable from external funds
19
3
3

Carried interest and performance fees payable
(45)
(25)
(85)
Acquisition related earn out charges
(5)
(4)
(6)
Operating profit
244
161
470
Income taxes
(3)
(2)
(3)
Re-measurements of defined benefit plans
(7)
16
11
Total comprehensive income ("Total return")
234
175
478
Total return on opening shareholders' funds
7.1%
6.0%
16.3%
Total operating expenses
Operating expenses incurred during the period were 63 million (September 2013: 68 million), and equated to 1.0% (September 2013: 1.1%) as a percentage of weighted average AUM. With the cost reduction initiatives outlined in the June 2012 strategic announcement largely complete, there were no restructuring costs provided for in this period (September 2013: 4 million). Excluding restructuring costs, the operating expenses were 1 million lower than the previous year, but include the additional costs associated with the new PPP Infrastructure team. 
Table 9:Operating expenses for the six months to 30 September
2014
2013

m
m
Operating expenses
63
68
Operating expenses excluding restructuring costs
63
64
Operating expenses/AUM 1 (excluding restructuring costs)
1.0%
1.1%
1
Annualised actual operating expenses measured as a percentage of weighted average AUM. 
Operating cash profit
Table 10:Operating cash profit for the six months to 30 September
2014
2013

m
m
Third-party capital fees 
37
39
Cash portfolio fees1
4
6
Cash portfolio dividends and interest
38
25
Cash income
79
70
Operating expenses2
63
68
Less: Restructuring costs 
-
(4)

63
64
Operating cash profit
16
6
1
Net of broken deal and due diligence costs incurred 
2
Operating expenses on an accruals basis rather than cash, the effect of which is not considered material.
In June 2012, the Group set an objective of generating cash income, from third-party fees and portfolio income, sufficient to cover the operating expenses incurred in the year, prior to restructuring costs. We call this "operating cash profit". 
FY2014 was the first in which the Group achieved an operating cash profit in more than a decade, a significant step in improving the robustness of the Group's operating model. This has continued and during the period the Group generated an operating cash profit of 16 million (September 2013: 6 million). 
A focus on generating cash income from the portfolio has meant the Group was able to increase its cash income despite net divestment activity and a fall in third-party AUM in Private Equity. Cash income increased to 79 million (September 2013: 70 million), with a 11 million increase in portfolio income and a 2 million decrease in third-party fees. 
The benefits of the cost reduction programme continue to be seen with actual costs (excluding restructuring costs but including acquisitions) stabilising at 63 million (September 2013: 64 million). 
Proprietary Capital returns
Our Proprietary Capital business is assessed on operating profit before carry, which comprises gross investment return, operating expenses, a fee paid to the Fund Management business and balance sheet funding expenses such as interest payable. Overall operating profit before carry of 262 million (September 2013: 179 million) was 83 million higher than the prior year and this was underpinned by strong value growth within the portfolio. 
By business line, the gross investment return on the opening portfolio was 10% from Private Equity (September 2013: 9%), 5% from Infrastructure (September 2013: (4)%) and (5)% from Debt Management (September 2013: 1%). Private Equity accounted for 81% of the Proprietary Capital portfolio at 30 September 2014 (March 2014: 82%) and remains the primary driver of performance for the Proprietary Capital segment. 
Realised profits
Realised profits for the period of 35 million (September 2013: 129 million) were lower than the previous year, despite the Group continuing to achieve some strong exits and generating 324 million of realisation proceeds (30 September 2013: 528 million). The uplift was lower than in previous periods due to a number of larger transactions occurring earlier in the half year and, as such, being materially reflected in the 31 March 2014 valuations. We continue to pursue exits through careful planning, and in total fully divested 9 investments in the period.
The majority of the realisations were from the Private Equity portfolio, which contributed 316 million of the 324 million proceeds. Table 5 details the Realisations in the period and sets out the accounting uplift reflected in the total return and the longer-term cash-to-cash results. The Private Equity realisations completed in the period produced a money multiple of 1.8x over their investment life (September 2013: 1.6x).
Table 11:Proprietary Capital operating profit for the six months to 30 September
2014
2013

m
m
Realised profits over value on disposal of investments
35
129
Unrealised profits on revaluation of investments
307
137
Portfolio income

Dividends
21
18

Income from loans and receivables
30
25

Fees receivable
2
4
Foreign exchange on investments
(98)
(75)
Gross investment return 
297
238
Fund Management synthetic fee
(22)
(25)
Operating expenses
(13)
(13)
Interest receivable
1
1
Interest payable
(26)
(28)
Movement in the fair value of derivatives
(1)
10
Exchange movements 
25
(4)
Other income
1
-
Operating profit before carry
262
179
Unrealised value movements
Table 12:Unrealised profits/(losses) on revaluation of investments for the six months to 30 September
2014
2013

m
m
Private Equity
Earnings based valuations



Performance
209
32

Multiple movements
13
78
Other bases

Provisions
-
-

Uplift to imminent sale
34
(13)

Discounted Cash Flow
33
(11)

Other movements on unquoted investments
7
-

Quoted portfolio
12
75
Infrastructure
Quoted portfolio
15
(4)
Discounted Cash Flow
(6)
(20)
Debt Management1
(10)
-
Total
307
137
1
Debt Management includes value movement on equity stakes in CLO vehicles, direct holdings in warehouse vehicles, and the net asset value movement on Palace Street I. Unrealised profits/(losses) in the 6 months to 30 September 2013 have been restated for the change in treatment of Palace Street I under the Investment basis.
Performance 
The performance category measures the impact of earnings and net debt movements for the portfolio companies valued on an earnings basis. In general, when valuing a portfolio investment on an earnings basis, the earnings used in the September valuations are the last 12 months' management accounts data to June, unless the current year forecast indicates a lower maintainable earnings level. Where appropriate, adjustments are made to earnings on a pro forma basis for acquisitions, disposals and non-recurring items. In the case of one company, Action, which is experiencing significant growth due to its store roll-out programme, a run-rate adjustment is made to its earnings to reflect the profitability of opened stores for valuation purposes. 
Improvements in the performance of the portfolio valued on an earnings basis resulted in an increase in value of 209 million (September 2013: 32 million). Value weighted last 12 months earnings, the most relevant measure of NAV impact, increased by 17%, demonstrating that the portfolio's largest assets are delivering strong improvements in performance. Net debt in this portfolio remained flat at 3.1x EBITDA (March 2014: 3.1x). Excluding Action, value weighted last 12 months earnings grew 11%.
The number of investments valued using forecast earnings has increased to seven from four at 31 March 2014.
These represent 12% of the 69% of the Private Equity portfolio valued on an earnings basis at the period end
(March 2014: 3%, 79%).
Multiple movements 
The weighted average EBITDA multiple of the Private Equity portfolio, valued on an earnings basis increased from 10.6x at 31 March 2014 to 11.0x at 30 September 2014 before marketability discount, and from 9.9x to 10.2x after marketability discount. Excluding Action, the largest asset by value and an asset with one of the highest multiples applied to earnings, the weighted average EBITDA multiple of the portfolio increased to 9.9x before marketability discount (March 2014: 9.8x) and 9.1x after marketability discount (March 2014: 9.0x). Stock market multiples generally fell in the period but, as noted in the Annual report, we consider other factors such as exit plans, relative performance and size when setting the multiples we use. We have felt for some time that market multiples were trading ahead of longer term averages and so had not followed markets up when valuing the portfolio. Consequently, we have not had to follow markets down in the period. Movements in multiples used for valuation led to a small increase in value of 13 million in the period to 30 September 2014 (September 2013: 78 million). 
Provisions
A provision is recognised where we anticipate that there is a 50% or greater chance that the Group's investment in 
the portfolio company will fail within the next 12 months. No new provisions or reversals were made during the period.
Imminent sale
Portfolio companies which are well advanced in a negotiated sales process are valued on an imminent sale basis. Two assets, Hilite and LHi, were valued on this basis at 30 September 2014, with a total value of 193 million. Proceeds of 189 million for the completion of both sales were received post the period end and the difference to September 2014 value related to cash income and amounts held in escrow. 
Discounted Cash Flow
The Discounted Cash Flow (DCF) valuation basis is used to value portfolio companies with predictable and stable cash flows. As at 30 September 2014, the largest portfolio company valued on this basis was Scandlines, valued at 218 million, with an unrealised profit in the period of 34 million. The majority of remaining assets valued using the DCF valuation basis were in the India Infrastructure Fund, which generated an unrealised loss of 8 million. 
Other
Where a different valuation basis is more appropriate for a portfolio company, the "other" category is used to determine fair value, for example, the sum of the parts of the business or industry specific methods. The largest asset in this category is ACR, the Private Equity Asian reinsurance business, valued at 111 million at 30 September 2014 (March 2014: 101 million). Unrealised profits of 7 million were recognised in the period to 30 September 2014 (September 2013: nil). 
Quoted portfolio
The quoted portfolio was valued at 641 million at 30 September 2014 and now represents 17% (March 2014: 554 million, 16%) of the Group's total portfolio. The Group's 34% investment in 3i Infrastructure plc is the largest asset in the quoted portfolio at 421 million. 3i Infrastructure plc's share price increased by 4% in the period, resulting in value growth of 17 million. Quintiles is the next largest quoted asset in the portfolio and was valued at 137 million at 30 September 2014. During the period to 30 September 2014 two portfolio companies completed IPO processes, Phibro and Beijing Digital Telecom, and together the Group's remaining holdings in these companies was valued at 68 million at 30 September 2014. 
Debt Management
The Group has investments in a number of the CLOs which the Debt Management team manages, as well as in the Credit Opportunities Fund, Palace Street I and the US Senior Loan Fund. The Group also invests in warehouse facilities to support the creation of portfolios for future fund launches.
Where available, CLOs are valued on the basis of quotes from the arranging brokers, with reference to internal modelling of the future returns of the investment and third-party databases of prices. At 30 September 2014 the value of the equity stakes in CLOs was 83 million (March 2014: 67 million). Warehouses are valued using the mark-to-market prices of the underlying debt assets held in the facilities, and at 30 September 2014 these totalled 82 million (March 2014: 17 million). 
Table 13:Proportion of total portfolio value by valuation basis
30 September
30 September
31 March
2014
2013
2014

%
%
%
Earnings
56
60
65
Imminent sale
5
1
1
Quoted
17
19
16
Discounted Cash Flow
8
6
8
Other
9
9
6
Debt Management
5
5
4
Portfolio income
Table 14:Portfolio income for the six months to 30 September
2014
2013

m
m
Dividends
21
18
Income from loans and receivables
30
25
Net fees receivable
2
4
Portfolio income
53
47

Received as cash1
42
31
Cash income/opening portfolio value
1.2%
0.9%
1
Includes 2 million attributed to Fund Management (September 2013: 2 million).
Income from the portfolio was 53 million in the period (September 2013: 47 million). Dividends of 21 million were received (September 2013: 18 million), including 10 million from 3i Infrastructure plc and 6 million from Debt Management investments. Interest income totalled 30 million (September 2013: 25 million) and included interest of 4 million from Foster + Partners, which was partially sold in the period. 
A further 2 million in net transaction fees was received in the period (September 2013: 4 million), principally relating to fees received for completing new investments and monitoring fees paid by portfolio companies. 
Portfolio income received as cash during the period was 42 million (September 2013: 31 million). This reflected higher income from our Debt Management investments and income received following exits or refinancing of Private Equity investments.
Net foreign exchange movements
The Group recorded a total net foreign exchange loss of 73 million (September 2013: 79 million) during the period, driven by the strengthening of sterling against the euro (6.2%), Swedish krona (7.9%) and Brazilian real (5.2%) resulting in losses of 79 million, 7 million and 2 million respectively. This was partially offset by the weakening of sterling against the US dollar (2.5%) resulting in a gain of 13 million. The net foreign exchange loss also reflects the translation of non-portfolio net assets, including non-sterling cash held at the balance sheet date. 
As at 30 September 2014, a 1% movement in the euro, US dollar and the Indian rupee would give rise to a 16 million, 7 million and 1 million movement in total return respectively.
Proprietary Capital costs
A proportion of the Group's total operating expenses is allocated to Proprietary Capital, being those costs assessed as having been incurred in running a regulated and listed investment trust. These include 100% of costs in relation to the CEO and Group Finance Director and elements of finance, IT, property and compliance. Operating expenses of 13 million were flat compared to last year (September 2013: 13 million) as the substantial cost reductions in the Proprietary Capital business, made as part of the cost reduction programme, were implemented early in FY2013. A more detailed analysis of the Group's total operating expenses is provided earlier in this Financial review.
Synthetic fees are deducted from the operating profit of the Proprietary Capital business to reflect the fees that this business would have to pay if the assets were managed externally at market rates. The fall in synthetic fees to
22 million (September 2013: 25 million) reflects the lower level of Proprietary Capital being managed as a result
of net divestment during the period. 
Net interest payable
Gross interest payable for the year was 26 million (September 2013: 28 million), and reflected the reduction in gross debt of the Group following a repayment of 164 million of drawings under a revolving credit facility in FY2014 and an acceleration of 1.5 million of amortised cost into the period following the early refinancing of the 2016 revolving credit facilities. The refinancing of the Group's revolving credit facilities in the period will reduce future interest costs by 1.5 million per annum. The current gross debt position is detailed further in this Financial review and in Note 6.
Interest receivable was flat at 1 million (September 2013: 1 million).
Derivative movements
The Group historically used foreign exchange and interest rate derivative contracts as part of its hedging programmes. The Group incurred a 1 million loss on the fair value movement of its remaining foreign exchange derivatives during the period (September 2013: 10 million gain). The prior period gain related to a long-term legacy interest rate swap, which was closed out in FY2014. 
Consistent with the strategic focus on cash-to-cash returns, the residual foreign exchange derivatives will be allowed to expire and not be replaced. We will continue to consider foreign exchange risk at the point of investment and divestment and occasionally hedge these transactions with short-term derivatives.
Fund Management returns
Table 15:Fund Management operating profit for the six months to 30 September
2014
2013

m
m
Portfolio fee income
-
2
Fees receivable from external funds
41
36
Synthetic fee on Proprietary Capital
22
25
Operating expenses
(50)
(55)
Operating profit before carry
13
8
Restructuring costs
-
4
Amortisation costs
3
3
Underlying Fund Management profit
16
15
Our Fund Management business comprises the investment teams of our Private Equity, Infrastructure and Debt Management businesses.
It is assessed on operating profit before carry, which comprises fee income from third parties as well as a synthetic fee on proprietary capital, less operating expenses. The Fund Management business generated an operating profit before carry of 13 million for the period (September 2013: 8 million). The increase in profitability was driven by a fall in costs, as total fee income remained stable. As a result operating profit margin increased to 21% from 13% for the same period last year. 
On an underlying basis, excluding restructuring and amortisation costs, operating profit was 16 million (2013: 15 million) at a margin of 26% (September 2013: 24%).
The Group's Fund Management income is driven by total assets under management ("AUM"), which were 12.9 billion at 30 September 2014 (March 2014: 12.9 billion). The launch of two CLOs by Debt Management funds offset a fall in AUM from the net divestment activity in Private Equity. The proportion of third-party assets under management remained stable at 74% during the period and fees from third parties, including portfolio fee income, grew to 41 million from 38 million in the same period last year. 
For the Fund Management business to be profitable, costs have to be managed closely to ensure they remain appropriate and consistent with third-party benchmarks, where available. Although growth in AUM is generally positive, we remain focused on profitable growth which incrementally adds to the profit of the Fund Management business.
Fees receivable from external funds 
Fees earned from external funds of 41 million in the period were higher than the prior year (September 2013: 36 million).
Our Debt Management business continued to generate strong fund fee income of 18 million, increasing 13% over the prior year (September 2013: 16 million). Infrastructure fund fee income, which is generated from advisory and management services to 3i Infrastructure plc and the 3i India Infrastructure Fund, was supplemented by the acquisition of the PPP platform. Total infrastructure fund fee income was 14 million during the period (September 2013: 11 million). 
Fee income from our managed Private Equity funds and third parties was flat at 9 million (September 2013: 9 million). 
Fees receivable from Proprietary Capital
A synthetic fee is added to the operating revenue of the Fund Management business to reflect the fees that would be received on proprietary investments if managed on behalf of third parties at market rates. A fee of 1.5% is charged on Private Equity and Infrastructure Proprietary Capital and 0.5% on Debt Management. The fall in synthetic fees to 22 million (September 2013: 25 million) reflects the lower level of Proprietary Capital being managed as a result of net divestment in Private Equity during the period. 
Fund Management costs
A proportion of the Group's total operating expenses is allocated to the Fund Management activity. This includes all costs in relation to investment management and advisory activity as well as an allocation in relation to direct and indirect support functions, such as finance, IT, human resources, compliance, and property costs. Fund Management operating expenses fell by 9% in the period to 50 million (September 2013: 55 million). A more detailed analysis of the Group's total operating expenses is provided earlier in this Financial review.
Total return
Table 16:Total return for the six months to 30 September
2014
2013

m
m
Proprietary Capital operating profit before carry
262
179
Fund Management operating profit before carry
13
8
Operating profit before carry
275
187
Carried interest receivable from external funds
19
3
Carried interest and performance fees payable
(45)
(25)
Acquisition related earn-out charges
(5)
(4)
Operating profit
244
161
Tax
(3)
(2)
Re-measurement of defined benefit plans
(7)
16
Total comprehensive income ("Total return")
234
175
Total return on opening shareholders' funds
7.1%
6.0%
The Group's total return comprises the operating profit of both the Proprietary Capital and Fund Management businesses, net carried interest, tax and charges relating to defined benefit pension schemes.
Net carried interest and performance fees payable
Net carried interest and performance fees payable in the period increased in line with the improved portfolio performance and realisations, with a net payable of 26 million (September 2013: 22 million net payable).
Carried interest and performance fees are accrued on the realised and unrealised profits generated, taking relevant performance hurdles into consideration, assuming all investments were realised at the prevailing book value. Carry is typically only actually paid or received when the relevant performance hurdles are met by realised cash returns. The accrual is discounted to reflect the expected payment periods.
Carry receivable is generated on third-party capital over the life of the relevant fund when relevant performance criteria are met. 
Our largest Private Equity fund, Eurofund V, which includes investments made in 2007-2012, has not yet met the performance hurdle due to the performance of the 2007-2009 vintages. Although we have seen a strong recovery in that fund's multiple to 1.3x invested capital, with 2010-12 investments valued at 2.4x, the drag from the earlier investments means that we have not recognised carry receivable from this fund to date.
Assets in the Growth Capital Fund included Quintiles and Refresco and, as a result of their strong performance its multiple on invested capital is now 1.5x. As a result we have recognised carry on an accruals basis, for the first time: 6 million was recognised in the period (September 2013: nil).
Good performance and a step up in valuation of the European assets held by 3i Infrastructure plc in the six months have resulted in an accrual of 8 million of performance fees receivable in the period. 
We pay carry to our investment teams on proprietary capital invested and share a proportion of carry receivable from third-party funds. This total carry payable is provided through schemes which were structured historically over two year vintages to maximise flexibility in resource planning.
The improved performance of the portfolio means that the majority of assets by value are now held in carry payable schemes that would have met their performance hurdles, assuming the portfolio was fully realised at its 30 September 2014 valuation. Carry payable typically increases or decreases broadly in line with the gross investment return performance of the portfolio at rates between 10% and 15%. The gross investment return of 297 million resulted in an accrual of 45 million carry payable in the period, or 15% of gross investment return (September 2013: 25 million, 10%). Carry is usually only paid once the hurdles are passed in cash terms and, in the six months, 11 million was actually paid (September 2013: 17 million). 
Pensions
The IAS 19 valuation of the Group's UK defined benefit pension scheme was negatively impacted by a decrease in the discount rate, driven by a fall in AA corporate bond yields, resulting in an increase in the value of the scheme's liabilities. This was partially offset by a decrease in inflation rates and the return on the Plan's assets. Overall this resulted in a re-measurement loss of 7 million (September 2013: 16 million gain) in the period. 
Balance sheet
Portfolio value
Table 17:Portfolio value movement by business line

Opening





Closing
portfolio
portfolio
value
Unrealised
value
1 April
Cash
Non-cash
Value
value
Other
30September
2014
investment
investment1
disposed
movement
movement2
2014
Business lines
m
m
m
m
m
m
m
Private Equity
2,935
104
55
(282)
308
(136)
2,984
Infrastructure
487
-
-
(7)
9
2
491
Debt Management
143
95
-
-
(10)
(31)3
197
Total
3,565
199
55
(289)
307
(165)
3,672
1
Includes capitalised interest and other non-cash investment.
2
Other relates to foreign exchange and the provisioning of capitalised interest.
3
26m relates to capital withdrawn from the Palace Street I portfolio.
Realisations in the period and the negative impact of foreign exchange movements were offset by unrealised value growth of 307 million, resulting in an increase in the total Proprietary Capital portfolio value to 3,672 million at 30 September 2014 (March 2014: 3,565 million).
There were no material changes to the relative portfolio composition by business. 
Cash flow
Investment and realisations
Table 18:Investment activity - Proprietary Capital and Third-party Capital for the six months to 30 September

Proprietary Capital
Proprietary and Third-party Capital

2014
2013
2014
2013

m
m
m
m
Realisations
324
528
463
887
Cash investment
(199)
(92)
(180)
(163)
Net cash divestment
125
436
283
724
Non-cash investment
(55)
(39)
(69)
(66)
Net divestment
70
397
214
658
Realisations in the period generated cash proceeds of 324 million (September 2013: 528 million), offset by cash investment of 199 million (September 2013: 92 million), resulting in net cash inflow of 125 million (September 2013: 436 million). A further 55 million of investment was in non-cash form (September 2013: 39 million) and total investment was therefore 254 million (September 2013: 131 million).
A summary of Proprietary Capital investment and realisations by business line is provided below. Further detail on investment and realisations is included in the investment and realisation activity section.
Table 19: Proprietary Capital investment by business for the six months to 30 September

2014
2013

m
m
Private Equity
159
49

of which non-cash
55
39
Infrastructure
-
-
Debt Management
95
82
Total gross investment
254
131
Table 20: Proprietary Capital realisations by business for the year to 30 September

2014
2013

m
m
Private Equity
316
528
Infrastructure
8
-
Debt Management
-
-
Total gross realisations
324
528
Non-investment cash flows
Cash income from third-party fees and the portfolio of 79 million (September 2013: 70 million) was offset by cash operating outflows of 88 million (September 2013: 93 million) which, in addition to running costs and restructuring costs, includes carry paid and cash pension costs.
Net cash interest of 14 million was paid in the period (September 2013: 13 million).
Gearing and borrowings
Table 21: Gearing and borrowings 

30 September
30 September
31 March

2014
2013
2014

m
m
m
Gross debt
831
873
857
Net debt
161
(28)
160
Gearing
5%
n/a
5%
The Group continued to manage its balance sheet conservatively. Gross debt reduced to 831 million (March 2014: 857 million), following the repayment of the Group's 6 million outstanding B shares in June 2014. During the period we also completed the refinancing of the Group's 2016 revolving credit facilities. The facilities were reduced from 500 million to 350 million, with maturity extended from 2016 to 2019 and running costs reduced.
Net debt remained flat at 161 million at 30 September 2014 (March 2014: 160 million) with net divestment activity offsetting the payment of the final FY2014 dividend in the period. Gearing remained stable at 5% at 30 September 2014 (31 March 2014: 5%). 
Liquidity
Liquidity reduced in the period to 1,020 million (March 2014: 1,197 million). This comprised cash and deposits of 670 million (March 2014: 697 million) and undrawn facilities of 350 million (March 2014: 500 million). The cash balance reduced in the period as dividend and operating cash flows exceeded net divestment activity, while the undrawn facilities reduced following the revolving credit facilities refinancing in September 2014.
Foreign exchange hedging
The Group's net assets are predominately denominated in the local currency of the headquarters of our investment portfolio, offset by gross debt and a small number of legacy currency derivatives. At 30 September 2014, 31% of the Group's net assets were denominated in sterling, 41% in euro, 24% in US dollar and 4% in other currencies. Although we do not implement structured hedging of the NAV we may implement specific short-term hedging on entry or exit cash flows of an investment if appropriate.
Diluted NAV
The diluted NAV per share at 30 September 2014 was 358 pence (March 2014: 348 pence). The increase was driven by the total return in the period of 234 million (September 2013: 175 million), and partially offset by the payment of the final dividend relating to the prior financial year of 126 million or 13.3 pence per share (September 2013: 51 million, 5.4 pence per share).
Risks and uncertainties
The main elements of 3i's approach to risk management, its risk management process and governance structure are set out in the Risk section of the 3i Group Annual report and accounts 2014. 
The principal risks which the Group currently faces, and which the Board believes have the potential to impact materially the Group's financial performance and/or achievement of its strategic objectives, are set out in detail in the Annual report and are broadly unchanged in the period since publication. 
The main areas of inherent risk affecting the Group are as follows: 
Strategic - Risks arising from the analysis, design and implementation of the Group's business model and key decisions on the investment levels and capital allocations.
External - Risks arising from external factors including political, legal, regulatory, economic and competitor changes which affect the Group's operations. 
Investment - Risks in respect of specific asset investment decisions, the subsequent performance of an investment or exposure concentrations across business line portfolios.
Treasury and funding - Risks in relation to changes in market prices and rates, access to capital markets and third-party funds, and the Group's capital structure. 
Operational - Risks arising from inadequate or failed processes, people and systems or from external factors affecting these.
The Group Risk Committee meets quarterly. The risk review process includes the monitoring of dashboards which track the Group's financial performance and progress against its strategic objectives at a Group level and for each of the Group's business lines. This assists the Committee in its assessment of the key risks affecting the achievement of the Group's objectives and the effectiveness of current risk mitigation plans. 
The Committee also has a number of focus areas, which are agreed in advance of each meeting. Topics discussed in the period have included an update on ESG portfolio review; a new IT system implementation; a review of the Infrastructure strategic plan; a review of developments in Asia and Brazil; and a review of portfolio concentration.
This Half-yearly report provides an update on 3i's strategy and business performance, as well as market conditions, which are relevant to the Group's overall risk profile and should be viewed in the context of the Group's risk management framework and principal inherent risk factors.
Investment basis financial statements
Consolidated statement of comprehensive income
for the 6 months to 30 September 2014

6 months
6 months
12 months

to 30
to 30
to 31

September
September
March

2014
2013
2014

m
m
m
Realised profits over value on the disposal of investments
35
129
202
Unrealised profits on the revaluation of investments
307
137
475
Portfolio income




Dividends
21
18
44

Income from loans and receivables
30
25
50

Fees receivable
2
6
7
Foreign exchange on investments
(98)
(75)
(113)
Gross investment return
297
240
665
Fees receivable from external funds
41
36
73
Operating expenses
(63)
(68)
(136)
Interest receivable
1
1
3
Interest payable
(26)
(28)
(54)
Movement in the fair value of derivatives
(1)
10
10
Exchange movements
25
(4)
(3)
Other income
1
-
-
Operating profit before carry
275
187
558
Carried interest




Carried interest and performance fees receivable from external funds
19
3
3

Carried interest and performance fees payable
(45)
(25)
(85)
Acquisition related earn-out charges
(5)
(4)
(6)
Operating profit
244
161
470
Income taxes 
(3)
(2)
(3)
Profit for the period
241
159
467
Other comprehensive income




Re-measurements of defined benefit plans
(7)
16
11
Total comprehensive income for the period ("Total return")
234
175
478
Note: 
30 September 2013 and 2014 Investment basis financial statements have been prepared on a consistent basis to the 31 March 2014 statements as presented in our Annual Report and Accounts 2014. The IFRS financial statements are shown further on in this report.
Investment basis financial statements
Consolidated statement of financial position
as at 30 September 2014

As at 30
As at 30
As at 31

September
September
March

2014
2013
2014

m
m
m
Assets
Non-current assets
Investments

Quoted investments 
641
578
554

Unquoted investments 
3,031
2,480
3,011
Investment portfolio
3,672
3,058
3,565
Carried interest and performance fees receivable
31
20
17
Intangible assets
23
29
26
Retirement benefit surplus
132
138
137
Property, plant and equipment
5
6
5
Derivative financial instruments
-
4
-
Deferred income taxes
4
4
3
Total non-current assets
3,867
3,259
3,753
Current assets
Other current assets
94
87
92
Derivative financial instruments
1
-
2
Deposits
-
20
-
Cash and cash equivalents
670
881
697
Total current assets
765
988
791
Total assets
4,632
4,247
4,544
Liabilities
Non-current liabilities
Carried interest and performance fees payable
(135)
(56)
(106)
Acquisition related earn-out charges payable
(13)
(26)
(18)
Loans and borrowings
(832)
(852)
(849)
B shares
-
(6)
(6)
Retirement benefit deficit
(12)
(13)
(14)
Derivative financial instruments
-
(16)
-
Deferred income taxes
(3)
(2)
(2)
Provisions
(1)
(1)
(5)
Total non-current liabilities
(996)
(972)
(1,000)
Current liabilities
Trade and other payables
(183)
(188)
(198)
Carried interest and performance fees payable
(5)
(11)
(11)
Acquisition related earn-out charges payable
(10)
-
(10)
Derivative financial instruments
-
(3)
(4)
Current income taxes
(4)
(1)
(4)
Deferred income taxes
-
(1)
(1)
Provisions
(8)
(9)
(8)
Total current liabilities
(210)
(213)
(236)
Total liabilities
(1,206)
(1,185)
(1,236)
Net assets
3,426
3,062
3,308
Equity
Issued capital 
718
718
718 
Share premium
783
781
782 
Other reserves
2,005
1,655
1,897 
Own shares
(80)
(92)
(89) 
Total equity
3,426
3,062
3,308 
Note: 
30 September 2013 and 2014 Investment basis financial statements have been prepared on a consistent basis to the 31 March 2014 statements as presented in our Annual Report and Accounts 2014. The IFRS financial statements are shown further on in this report.
Investment basis financial statements
Consolidated cash flow statement
for the 6 months to 30 September 2014

6 months
6 months
12 months

to 30
to 30
to 31

September
September
March

2014
2013
2014

m
m
m
Cash flow from operating activities
Purchase of investments
(199)
(92)
(337)
Proceeds from investments
324
528
677
Cash divestment from traded portfolio
7
11
14
Portfolio interest received
18
9
9
Portfolio dividends received
20
16
44
Portfolio fees received
4
6
4
Fees received from external funds
37
39
75
Carried interest and performance fees received
4
2
5
Carried interest and performance fees paid
(11)
(17)
(25)
Acquisition related earn-out charges paid
(10)
-
-
Operating expenses 
(71)
(78)
(128)
Interest received
1
2
3
Interest paid
(15)
(15)
(57)
Income taxes paid
(3)
(5)
(7)
Net cash flow from operating activities
106
406
277
Cash flow from financing activities
Purchase of B shares
(6)
-
-
Dividend paid
(126)
(51)
(114)
Repayment of short-term borrowings
-
(164)
(164)
Net cash flow from derivatives
2
(23)
(32)
Net cash flow from financing activities
(130)
(238)
(310)
Cash flow from investing activities
Acquisition of management contracts
-
-
2
Net cash flow from deposits
-
70
90
Net cash flow from investing activities
-
70
92
Change in cash and cash equivalents
(24)
238
59
Cash and cash equivalents at the start of year
697
656
656
Effect of exchange rate fluctuations
(3)
(13)
(18)
Cash and cash equivalents at the end of the period
670
881
697
Note: 
30 September 2013 and 2014 Investment basis financial statements have been prepared on a consistent basis to the 31 March 2014 statements as presented in our Annual Report and Accounts 2014. The IFRS financial statements are shown further on in this report.
Reconciliation of Investment basis to IFRS
IFRS 10 has resulted in a significant change to the presentation of the Group's financial statements. However, there continues to be no difference in the total return or net asset position of the Group, between our Investment basis and IFRS financial statements.
The Group makes investments directly in portfolio companies 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").
Since the adoption of IFRS in the year ended 31 March 2006, there has been discussion about whether investment companies, such as 3i, should be exempt from consolidation of its investments (the directly and indirectly held portfolio companies). IFRS 10 has resolved this point with the introduction of an investment entity exception confirming that portfolio companies should be accounted for at fair value, which is an excellent outcome. However, in the detailed application of the standard, which is currently under discussion and review as part of an Exposure Draft issued in June 2014 by the IASB, Investment entity subsidiaries are also accounted for on a fair value basis. This means that the financial effect of the underlying portfolio companies and fee income, operating expenses and carried interest incurred in Investment entity subsidiaries are aggregated into a single value shown as Investments in investment entities. Other items which were previously eliminated on consolidation are now included separately.

We therefore produce an "Investment basis" set of primary financial statements, prepared on a similar basis to the financial statements prior to the application of IFRS 10, fair valuing portfolio companies at the level which we believe provides the most understandable financial information and consolidating associated transactions on a line-by-line basis.
A detailed reconciliation from the Investment basis to IFRS basis of the Statement of comprehensive income, Statement of financial position, and Cash flow statement can be found on the following pages.
Reconciliation of Statement of comprehensive income


Six months to 30 September 2014
Year to 31 March 2014


Investment
IFRS
IFRS
Investment
IFRS
IFRS


basis
adjustments
basis
basis
adjustments
basis

Note
m
m
m
m
m
m
Realised profits over value
on the disposal of investments

2

35

(29)

6

202

(56)

146
Unrealised profits
on the revaluation of investments

2

307

(199)

108

475

(398)

77
Fair value movements
on investment entity subsidiaries

1

-

218

218

-

454

454
Portfolio income

Dividends
2
21
(6)
15
44
(19)
25

Income from loans and receivables
2
30
(14)
16
50
(21)
29

Fees receivable

2
1
3
7
-
7
Foreign exchange on investments
4
(98)
70
(28)
(113)
68
(45)
Gross investment return

297
41
338
665
28
693
Fees receivable from external funds
3
41
(13)
28
73
(23)
50
Operating expenses
3
(63)
7
(56)
(136)
18
(118)
Interest receivable
3
1
-
1
3
(1)
2
Interest payable

(26)
-
(26)
(54)
-
(54)
Movement in the fair value of derivatives

(1)
-
(1)
10
-
10
Exchange movements
4
25
(58)
(33)
(3)
(39)
(42)
Income/(expense) from fair value subsidiaries

1

-

13

13

-

(5)

(5)
Other income

1
-
1
-
-
-
Operating profit before carry

275
(10)
265
558
(22)
536
Carried interest and performance fees








Receivable from external funds
3
19
(5)
14
3
(4)
(1)

Payable
3
(45)
24
(21)
(85)
69
(16)

Acquisition related earn-out charges

(5)
4
(1)
(6)
6
-
Operating profit

244
13
257
470
49
519
Income taxes 
3
(3)
2
(1)
(3)
1
(2)
Profit for the period

241
15
256
467
50
517
Other comprehensive income

Exchange differences
on translation of foreign operations

4

-

(15)

(15)

-

(50)

(50)

Re-measurements of defined benefit plans


(7)

-

(7)

11

-

11
Total comprehensive income for the period ("Total return")

1

234

-

234

478

-

478
Notes:
1
Applying IFRS 10 to the Statement of comprehensive income consolidates the line items of a number of previously consolidated subsidiaries into a single line item "Fair value movements on investment entity subsidiaries". In the "Investment Basis" accounts we have disaggregated these line items to analyse our total return as if these investment entity subsidiaries were fully consolidated, consistent with prior periods. The adjustments simply reclassify the Statement of comprehensive income of the Group, and the total return is equal under the investment basis and the IFRS basis.

2
Realised profits, unrealised profits, and portfolio income shown in the IFRS accounts only relate to portfolio companies that are held directly by 3i Group plc and not those portfolio companies 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 fees receivable from external funds, audit fees, custodian fees, bank charges, other general and administration expenses, carried interest and tax.

4
On the Investment Basis, the impact of the translation of foreign subsidiaries is included within the line items Foreign exchange on investments and Exchange movements rather than as a separate line item as required under IFRS. On an IFRS basis, the revaluation of assets and liabilities held by investment entity subsidiaries is reflected in the fair value movements on investment entity subsidiaries rather than being reflected as exchange movements. 
Reconciliation of Statement of financial position


As at 30 September 2014
As at 31 March 2014


Investment
IFRS
IFRS
Investment
IFRS
IFRS


basis
adjustments
basis
basis
adjustments
basis

Note
m
m
m
m
m
m
Assets 
Non-current assets
Investments

Quoted investments
1
641
(372)
269
554
(296)
258

Unquoted investments
1
3,031
(1,700)
1,331
3,011
(1,732)
1,279
Investments in investment entities
1,3
-
2,004
2,004
-
1,973
1,973
Investment portfolio

3,672
(68)
3,604
3,565
(55)
3,510
Carried interest and performance fees receivable

1

31

(11)

20

17

(9)

8
Intangible assets
1
23
(13)
10
26
(16)
10
Retirement benefit surplus

132
-
132
137
-
137
Property, plant and equipment

5
-
5
5
-
5
Deferred income taxes
1
4
(4)
-
3
(2)
1
Total non-current assets

3,867
(96)
3,771
3,753
(82)
3,671
Current assets
Other current assets
1
94
(21)
73
92
(20)
72
Derivative financial instruments

1
-
1
2
-
2
Cash and cash equivalents
1,2
670
(41)
629
697
(54)
643
Total current assets

765
(62)
703
791
(74)
717
Total assets

4,632
(158)
4,474
4,544
(156)
4,388
Liabilities
Non-current liabilities
Carried interest and performance fees payable
1

(135)

104

(31)

(106)

80

(26)
Acquisition related earn-out charges payable


(13)

10

(3)

(18)

16

(2)
Loans and borrowings

(832)
-
(832)
(849)
-
(849)
B shares

-
-
-
(6)
-
(6)
Retirement benefit deficit

(12)
-
(12)
(14)
-
(14)
Deferred income taxes

(3)
3
-
(2)
2
-
Provisions
1
(1)
-
(1)
(5)
1
(4)
Total non-current liabilities

(996)
117
(879)
(1,000)
99
(901)
Current liabilities
Trade and other payables
1
(183)
28
(155)
(198)
40
(158)
Carried interest and performance fees payable

1

(5)

-

(5)

(11)

5

(6)
Acquisition related earn-out charges payable


(10)

10

-

(10)

10

-
Derivative financial instruments

-
-
-
(4)
-
(4)
Current income taxes
1
(4)
2
(2)
(4)
2
(2)
Deferred income taxes
1
-
-
-
(1)
-
(1)
Provisions
1
(8)
1
(7)
(8)
-
(8)
Total current liabilities

(210)
41
(169)
(236)
57
(179)
Total liabilities

(1,206)
158
(1,048)
(1,236)
156
(1,080)
Net assets

3,426
-
3,426
3,308
-
3,308
Equity
Issued capital 

718
-
718
718
-
718
Share premium

783
-
783
782
-
782
Other reserves
4
2,005
-
2,005
1,897
-
1,897
Own shares

(80)
-
(80)
(89)
-
(89)
Total equity

3,426
-
3,426
3,308
-
3,308
Notes:
1
Applying IFRS 10 to the Statement of financial position aggregates the line items of a number of previously consolidated subsidiaries into the single line item "Investment in investment entities". In the Investment basis we have disaggregated these items to analyse our net assets as if the investment entity subsidiaries were consolidated, consistent with prior periods. The adjustment reclassifies items in the Statement of financial position. There is no change to the net assets, although for reasons explained below, gross assets and gross liabilities are different. 

The disclosure relating to portfolio companies is significantly reduced by the aggregation, as the fair value of all investments held by investment entity subsidiaries is aggregated into the "Investments in investment entities" line. We have disaggregated this fair value and disclosed the underlying portfolio holding in the relevant line item, ie, quoted equity investments, unquoted equity investments or loans and receivables. 

Other items which may be aggregated are carried interest and other payables, and the investment basis presentation again disaggregates these items.
2
Cash balances held in investment entity subsidiaries are also aggregated into the "Investment in investment entities" line. At 30 September 2014, 41 million of cash was held in subsidiaries that are now classified as investment entity subsidiaries and is therefore included in the "Investment in investment entities" line. 
3
Intercompany balances between investment entity subsidiaries and trading subsidiaries also impact the transparency of our results under the IFRS basis. If an investment entity subsidiary has an intercompany balance with a consolidated trading subsidiary of the Group, then the asset or liability of the investment entity subsidiary will be aggregated into its fair value, while the asset or liability of the consolidated trading subsidiary will be disclosed as an asset or liability in the statement of financial position of the Group. Prior to the adoption of IFRS 10, these balances would have been eliminated on consolidation. 
4
Investment basis financial statements are prepared for performance measurement and therefore reserves are not analysed separately under this basis.
Reconciliation of Cash flow statement 


6 months to 30 September 2014
Year to 31 March 2014


Investment
IFRS
IFRS
Investment
IFRS
IFRS


basis
adjustments
basis
basis
adjustments
basis

Note
m
m
m
m
m
m
Cash flow from operating activities
Purchase of investments
1
(199)
117
(82)
(337)
223
(114)
Proceeds from investments
1
324
(217)
107
677
(225)
452
Cash divestment from traded portfolio
1
7
(7)
-
14
(14)
-
Divestment from fair value subsidiaries

1

-

128

128

-

46

46
Portfolio interest received
1
18
(10)
8
9
(3)
6
Portfolio dividends received
1
20
(6)
14
44
(19)
25
Portfolio fees received

4
-
4
4
-
4
Fees received from external funds
1
37
(13)
24
75
(23)
52
Carried interest and performance fees received
1
4
(2)
2
5
(4)
1
Carried interest and performance fees paid

1

(11)

1

(10)

(25)

5

(20)
Acquisition related earn-out charges paid


(10)

10

-

-

-

-
Operating expenses 

(71)
10
(61)
(128)
3
(125)
Interest received

1
-
1
3
-
3
Interest paid

(15)
-
(15)
(57)
-
(57)
Income taxes paid
1
(3)
1
(2)
(7)
4
(3)
Net cash flow from operating activities


106

12

118

277

(7)

270
Cash flow from financing activities







Purchase of B shares

(6)
-
(6)
-
-
-
Dividend paid

(126)
-
(126)
(114)
-
(114)
Repayment of short-term borrowings

-
-
-
(164)
-
(164)
Net cash flow from derivatives

2
-
2
(32)
-
(32)
Net cash flow from financing activities


(130)

-

(130)

(310)

-

(310)
Cash flow from investing activities







Acquisition of management contracts

-
-
-
2
(2)
-
Net cash flow from deposits

-
-
-
90
-
90
Net cash flow from investing activities


-

-

-

92

(2)

90
Change in cash and cash equivalents

2

(24)

12

(12)

59

(9)

50
Cash and cash equivalents at the start of the period

2

697

(54)

643

656

(46)

610
Effect of exchange rate fluctuations
1
(3)
1
(2)
(18)
1
(17)
Cash and cash equivalents at the end of the period

2

670

(41)

629

697

(54)

643
Notes:
1
The cash flow statement is impacted by the application of IFRS 10 as cash flows to and from investment entity subsidiaries are disclosed, rather than the cash flows to and from the underlying portfolio. 
Therefore in our investment basis financial statements, we have disclosed our cash flow statement on a "look through" basis, in order to reflect the underlying sources and uses of cash flows and disclose the underlying investment activity.
2
There is a difference between the change in cash and cash equivalents of the Investment basis financial statements and the IFRS financial statements because there are cash balances held in investment entity subsidiary vehicles. Cash held within investment entity subsidiaries will not be shown in the IFRS statements but will be seen in the Investment basis statements.
IFRS basis financial statements
Consolidated statement of comprehensive income
For the six months to 30 September 2014


Six months to
Six months to
12 months to


30 September
30 September
31 March


2014
2013
2014


(unaudited)
(unaudited)
(audited)



(restated)


Notes
m
m
m
Realised profits over value on the disposal of investments
2
6
94
146
Unrealised profits on the revaluation of investments
3
108
11
77
Fair value movements on investment entity subsidiaries
5
218
147
454


332
252
677
Portfolio income


Dividends

15
10
25

Income from loans and receivables

16
15
29

Fees receivable

3
6
7
Foreign exchange on investments

(28)
(33)
(45)
Gross investment return

338
250
693
Fees receivable from external funds

28
24
50
Operating expenses

(56)
(59)
(118)
Interest receivable

1
1
2
Interest payable

(26)
(28)
(54)
Movement in the fair value of derivatives

(1)
10
10
Exchange movements

(33)
(61)
(42)
Income/(expense) from fair value subsidiaries

13
20
(5)
Other income

1
-
-
Carried interest and performance fees


Receivable from external funds

14
-
(1)

Payable

(21)
7
(16)
Acquisition related earn-out charges

(1)
-
-
Operating profit

257
164
519
Income taxes

(1)
(1)
(2)
Profit for the period

256
163
517
Other comprehensive income to be reclassified to profit or loss in 
subsequent periods:

Exchange differences on translation of foreign operations

(15)
(4)
(50)
Other comprehensive income not to be reclassified to profit or loss in subsequent periods:




Re-measurements of defined benefit plans

(7)
16
11
Other comprehensive income for the period

(22)
12
(39)
Total comprehensive income for the period ("Total return")

234
175
478

Earnings per share

Basic (pence)
7
27.0
17.3
54.8

Diluted (pence)
7
26.8
17.2
54.5
IFRS basis financial statements
Consolidated statement of changes in equity
For the six months to 30 September 2014
For the six months to
30 September 2014
(unaudited)



Share-







Capital
based





Share
Share
redemption
payment
Translation
Capital
Revenue
Own
Total
capital
premium
reserve
reserve
reserve
reserve
Reserve
shares
Equity
m
m
m
m
m
m
m
m
m
Total equity at the start of the period

718

782

43

19

242

1,051

542

(89)

3,308
Income for the period
-
-
-
-
-
197
59
-
256
Exchange differences on translation of foreign operations
-
-
-
-

(15)
-
-
-

(15)
Re-measurements of defined benefit plans
-
-
-
-
-

(7)
-
-

(7)
Total comprehensive incomefor the period

-

-

-

-

(15)

190

59

-

234
Share-based payments
-
-
-
9
-
-
-
-
9
Release on forfeiture of share options 
-
-
-

(4)
-
-

4
-

-
Loss on sale of own shares
-
-
-
-
-
(9) 
-
9
-
Ordinary dividends
-
-
-
-
-
-
(51)
-
(51)
Additional dividends
-
-
-
-
-
(75)
-
-
(75)
Issue of ordinary shares
-
1
-
-
-
-
-
-
1
Total equity at the end of the period

718

783

43

24

227

1,157

554

(80)

3,426
For the six months to
30 September 2013
(unaudited)
(restated)



Share-







Capital
based





Share
Share
redemption
payment
Translation
Capital
Revenue
Own
Total
capital
premium
reserve
reserve
reserve
reserve
Reserve
shares
Equity
m
m
m
m
m
m
m
m
m
Total equity at the start of the period

718

780

43

17

292

701

487

(104)

2,934
Income for the period
-
-
-
-
-
139
24
-
163
Exchange differences on translation of foreign operations
-
-
-
-

(4)
-
-
-

(4)
Re-measurements of defined benefit plans
-
-
-
-
-

16
-
-

16
Total comprehensive incomefor the period

-

-

-

-

(4)

155

24

-

175
Share-based payments
-
-
-
3
-
-
-
-
3
Release on forfeiture of share options 
-
-
-

(4)
-
-

4
-

-
Loss on sale of own shares
-
-
-
-
-
(12)
-
12
-
Ordinary dividends
-
-
-
-
-
-
(51)
-
(51)
Issue of ordinary shares
-
1
-
-
-
-
-
-
1
Total equity at the end of the period

718

781

43

16

288

844

464

(92)

3,062

For the year to
31 March 2014 
(audited)



Share-







Capital
based





Share
Share
redemption
payment
Translation
Capital
Revenue
Own
Total
capital
premium
reserve
reserve
reserve
reserve
Reserve
shares
Equity
m
m
m
m
m
m
m
m
m
Total equity at the start of the year

718

780

43

17

292

701

487

(104)

2,934
Income for the year
-
-
-
-
-
392
125
-
517
Exchange differences on translation of foreign operations
-
-
-
-

(50)
-
-
-

(50)
Re-measurements of defined benefit plans
-
-
-
-
-

11
-
-

11
Total comprehensive income for the year

-

-

-

-

(50)

403

125

-

478
Share-based payments
-
-
-
8
-
-
-
-
8
Release on forfeiture of share options 
-
-
-

(6)
-
-

6
-

-
Loss on sale of own shares
-
-
-
-
-
(15)
-
15
-
Ordinary dividends
-
-
-
-
-
-
(76)
-
(76)
Additional dividends
-
-
-
-
-
(38)
-
-
(38)
Issue of ordinary shares
-
2
-
-
-
-
-
-
2
Total equity at the end of the year

718

782

43

19

242

1,051

542

(89)

3,308
IFRS basis financial statements
Consolidated statement of financial position
as at 30 September 2014

30 September
30 September
31 March

2014
2013
2014

(unaudited)
(unaudited)
(audited)


(restated)

Notes
m
m
m
Assets
Non-current assets
Investments

Quoted investments
4
269
261
258

Unquoted investments
4
1,331
1,222
1,279
Investments in investment entities
5
2,004
1,560
1,973
Investment portfolio

3,604
3,043
3,510
Carried interest and performance fees receivable
20
8
8
Intangible assets

10
10
10
Retirement benefit surplus

132
138
137
Property, plant and equipment

5
6
5
Derivative financial instruments

-
4
-
Deferred income taxes

-
4
1
Total non-current assets
3,771
3,213
3,671
Current assets
Other current assets

73
72
72
Derivative financial instruments

1
-
2
Deposits
-
20
-
Cash and cash equivalents
629
838
643
Total current assets
703
930
717
Total assets
4,474
4,143
4,388
Liabilities
Non-current liabilities
Carried interest and performance fees payable
(31)
(14)
(26)
Acquisition related earn out charges payable

(3)
(2)
(2)
Loans and borrowings
6
(832)
(852)
(849)
B shares

-
(6)
(6)
Retirement benefit deficit

(12)
(13)
(14)
Derivative financial instruments

-
(16)
-
Deferred income taxes

-
(2)
-
Provisions

(1)
(4)
(4)
Total non-current liabilities
(879)
(909)
(901)
Current liabilities
Trade and other payables

(155)
(156)
(158)
Carried interest and performance fees payable
(5)
(5)
(6)
Derivative financial instruments

-
(3)
(4)
Current income taxes

(2)
(2)
(2)
Deferred income taxes

-
(1)
(1)
Provisions

(7)
(5)
(8)
Total current liabilities
(169)
(172)
(179)
Total liabilities
(1,048)
(1,081)
(1,080)
Net assets
3,426
3,062
3,308
Equity
Issued capital 

718
718
718
Share premium

783
781
782
Capital redemption reserve

43
43
43
Share-based payment reserve

24
16
19
Translation reserve

227
288
242
Capital reserve

1,157
844
1,051
Revenue reserve

554
464
542
Own shares

(80)
(92)
(89)
Total equity
3,426
3,062
3,308
IFRS basis financial statements
Consolidated cash flow statement 
for the six months to 30 September 2014


Six months to
Six months to
12 months to

30 September
30 September
31 March

2014
2013
2014

(unaudited)
(unaudited)
(audited)


(restated)


m
m
m
Cash flow from operating activities
Purchase of investments
(82)
(76)
(114)
Proceeds from investments
107
351
452
Cash inflow from fair value subsidiaries
128
178
46
Portfolio interest received
8
5
6
Portfolio dividends received
14
7
25
Portfolio fees received
4
6
4
Fees received from external funds
24
24
52
Carried interest and performance fees received
2
1
1
Carried interest and performance fees paid
(10)
(10)
(20)
Operating expenses 
(61)
(62)
(125)
Interest received
1
2
3
Interest paid
(15)
(15)
(57)
Income taxes paid
(2)
(2)
(3)
Net cash flow from operating activities
118
409
270

Dividend paid
(126)
(51)
(114)
Repayment of short-term borrowings
-
(164)
(164)
Purchase of B shares
(6)
-
-
Net cash flow from derivatives
2
(23)
(32)
Net cash flow from financing activities
(130)
(238)
(310)

Net cash flow from deposits
-
70
90
Net cash flow from investing activities
-
70
90




Change in cash and cash equivalents
(12)
241
50
Cash and cash equivalents at the start of the period
643
610
610
Effect of exchange rate fluctuations
(2)
(13)
(17)
Cash and cash equivalents at the end of the period
629
838
643
Notes to the accounts and accounting policies
Basis of preparation
These financial statements are the unaudited condensed half-yearly consolidated financial statements
(the "Half-yearly Financial Statements") of 3i Group plc, a company incorporated in Great Britain and registered in England and Wales, and its subsidiaries (together referred to as the "Group") for the six-month period ended 30 September 2014.
The Half-yearly Financial Statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting ("IAS 34") and should be read in conjunction with the Consolidated Financial Statements for the year to 31 March 2014 ("Report and Accounts 2014"), as they provide an update of previously reported information.
The Half-yearly Financial Statements were authorised for issue by the Directors on 12 November 2014.
The Half-yearly Financial Statements have been prepared in accordance with the accounting policies set out in the Report and Accounts 2014 except for the adoption of new standards and interpretations effective as of 1 January 2014. These include amendments to IAS 32 Amendment to offsetting financial assets and financial liabilities, IAS 36 Recoverable amount disclosures for non financial assets and IAS 39 Novation of derivatives and continuation of hedge accounting. None of these standards have impacted the Group's financial statements. 
The Half-yearly Financial Statements do not constitute statutory accounts. The statutory accounts for the year to
31 March 2014, prepared under IFRS, have been filed with the Registrar of Companies and the auditors have issued a report, which was unqualified and did not contain a statement under section 498(2) or section 498(3) of the Companies Act 2006.
The preparation of the Half-yearly Financial Statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The most significant techniques for estimation are described in the accounting policies and in "Portfolio valuation - an explanation".
The Half-yearly Financial Statements have been prepared using the going concern basis, and the Directors are not aware of any new events or circumstances which would make this inappropriate.
The Group operates in business lines where significant seasonal or cyclical variations in activity are not experienced during the financial year.
The Group adopted IFRS 10, 11, 12, 13 and IAS 19(R) in the Report and Accounts 2014 which require a restatement for the six month period to 30 September 2013. IFRS 11 has no material effect on the financial statements. IFRS 12 and 13 require additional disclosures which are included in the Report and Accounts 2014 as well as in these financial statements where required. A description of the impact of IAS 19(R) on the financial statements is included in the Report and Accounts 2014. The nature and the impact of IFRS 10 is described below:
IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements
Under IFRS 10 a large number of entities within the Group have been classified as investment entities. As a result they are no longer consolidated and are instead held at fair value. The detailed application of IFRS 10, including the judgements made, is disclosed in the Report and Accounts 2014.
Impact on statement of comprehensive income
As a result of this change in treatment the total return generated by investment entities is no longer presented on a line-by-line basis but combined and shown as a new line in the Statement of comprehensive income - "Fair value movements on investment entity subsidiaries". This has resulted in a restatement of prior year figures where previously consolidated line items are now aggregated into this line. 
The impact of this restatement by line item for the six months to 30 September 2013 is:
Realised profits over value on the disposal of investments ((36) million); Unrealised profits on the revaluation of investments ((126) million); Dividends ((6) million); Income from loans and receivables ((11) million); Fees receivable from external funds ((12) million); Operating expenses (9 million); Carried interest receivable from external funds ((3) million); Carried interest and performance fees payable (36 million); Income taxes (1 million); Exchange movements ((19) million); Fair value movements on investment entity subsidiaries (147 million); and Income/(expense) from fair value subsidiaries (20 million). There is no overall change to total return.
Basic and diluted earnings per share of the Group have been restated as a result of adopting IFRS 10.
Impact on statement of financial position
The closing fair value of the net assets of the investment entities is now combined and stated in a new line "Investment in investment entities". This has resulted in a restatement of prior year figures where previously consolidated line items are now aggregated into this line. 
The impact of this restatement by line item for the six months to 30 September 2013 is:
Quoted investments ((317) million); Unquoted investments ((1,258) million); Carried interest receivable ((12) million); Intangible assets ((19) million); Other current assets ((15) million); Cash and cash equivalents ((43) million); Trade and other payables (46 million); Carried interest and performance fees payable (58 million); Current income taxes ((1) million); Provisions (1 million); and Investment in investment entities (1,560 million).
Cash balances held in investment entity subsidiaries are aggregated into the "Investment in investment entities" line and not consolidated. Intercompany balances between investment entity subsidiaries and consolidated Group entities which would have previously been eliminated on consolidation are no longer eliminated. There is no change to the net assets presented as a result of the adoption of IFRS 10, albeit that gross assets and gross liabilities have changed as a result of the changes to cash and intercompany balances. 
Impact on cash flow statement
The cash flow statement is impacted by the adoption of IFRS 10 because the cash held by investment entity subsidiaries is no longer consolidated. It now forms part of the fair value of the investment entity subsidiary. Additionally, the cash flow statement now includes a new line to disclose the cash movements to and from investment entities, "Cash inflow from fair value subsidiaries". This has resulted in a restatement of prior year figures where previously consolidated line items are now aggregated and disclosed in these lines. 
The impact of this change on cash and cash equivalents at 30 September 2013 is: a decrease of 43 million and the change by line item is: 
Purchase of investments (16 million); Proceeds from investments ((177) million); Portfolio interest received ((4) million); Portfolio dividends received ((9) million); Fees received from external funds ((15) million); Carried interest received ((1) million); Carried interest and performance fees paid (7 million); Operating expenses (16 million); Income taxes paid (3 million); Investment/Divestment into fair value subsidiaries (167 million); and Cash and cash equivalents at the start of the year ((46) million).
1 Segmental analysis
Operating segments are the components of the entity whose results are regularly reviewed by the entity's chief-operating-decision-maker to make decisions about resources to be allocated to the segment and assess its performance. The chief-operating-decision-maker for the Group is considered to be the Chief Executive. The Group considers the businesses' activity on two bases. Firstly, as business divisions determined with reference to market focus, geographic focus, investment funding model and the Group's management hierarchy. Secondly, in line with the strategy of the Group, it considers separate Proprietary Capital and Fund Management businesses focused on investment returns and Fund Management profits respectively.
The performance of the business divisions is primarily assessed based on Gross Investment Return. 
The Proprietary Capital segment is assessed based on Operating profit before carry which comprises Gross Investment Return, direct costs and a synthetic fee paid to the fund manager and funding expenses. 
The Fund Management segment is assessed based on Operating profit before carry which comprises fees receivable from external funds and a synthetic fee paid from the Proprietary Capital segment offset by operating expenses of the investment teams.
In line with IFRS 8, the tables below are presented on the Investment basis which is the basis used by the chief-operating-decision-maker to monitor the performance of the Group. A description of the Investment basis is provided in the Financial review.
Investment basis
Private

Debt


Proprietary
Fund

Six months to 30 September
Equity
Infrastructure
Management
Total

Capital
Management
Total
2014 
m
m
m
m

m
m
m
Realised profits over value on the disposal of investments


34


1


-


35



35


-


35
Unrealised profits/(losses) on the revaluation of investments


308


9


(10)


307



307


-


307
Portfolio income









Dividends
5
10
6
21

21
-
21

Income from loans and receivables

27

-

3

30


30

-

30

Fees receivable/(payable)

3

-

(1)

2


2

-

2
Foreign exchange on investments

(95)

2

(5)

(98)


(98)

-

(98)
Gross Investment Return
282
22
(7)
297

297
-
297
Fees receivable from external funds

9

14

18

41


-

41

41
Synthetic fees
-
-
-
-

(22)
22
-
Operating expenses
(31)
(14)
(18)
(63)

(13)
(50)
(63)
Interest receivable



1

1
-
1
Interest payable



(26)

(26)
-
(26)
Movement in the fair value of derivatives




(1)


(1)

-

(1)
Exchange movements



25

25
-
25
Other income



1

1
-
1
Operating profit before carry




275


262

13

275
Carried interest and performance fees









Receivable from external funds

7

8

4

19




19

Payable
(36)
(7)
(2)
(45)



(45)
Acquisition related
earn-out charges 

-

-

(5)

(5)




(5)
Operating profit



244



244
Income taxes



(3)



(3)
Other comprehensive income









Re-measurements of defined benefit plans




(7)




(7)
Total return



234



234
Net divestment/
(investment)








Realisations 
316
8
-
324

324

324
Cash investment 
(104)
-
(95)
(199)

(199)

(199)

212
8
(95)
125

125

125
Balance sheet








Value of investment portfolio at the end of the period 


2,984


491


197


3,672



3,672



3,672
Investment basis








Six months to 
Private

Debt


Proprietary
Fund

30 September 2013
Equity
Infrastructure
Management
Total

Capital
Management
Total
(restated)
m
m
m
m

m
m
m
Realised profits over value on the disposal of investments


129


-


-


129



129


-


129
Unrealised profits/(losses) on the revaluation of investments


161


(24)


-


137



137


-


137
Portfolio income









Dividends
2
11
5
18

18
-
18

Income from loans and receivables

24

-

1

25


25

-

25

Fees receivable/(payable)

6

-

-

6


4

2

6
Foreign exchange on investments

(65)

(5)

(5)

(75)


(75)

-

(75)
Gross Investment Return
257
(18)
1
240

238
2
240
Fees receivable from external funds

9

11

16

36


-

36

36
Synthetic fees
-
-
-
-

(25)
25
-
Operating expenses1
(42)
(9)
(17)
(68)

(13)
(55)
(68)
Interest receivable



1

1
-
1
Interest payable



(28)

(28)
-
(28)
Movement in the fair value of derivatives



10

10
-
10
Exchange movements



(4)

(4)
-
(4)
Other income



-

-
-
-
Operating profit before carry




187


179

8

187
Carried interest and performance fees









Receivable from external funds

-

-

3

3




3

Payable
(24)
1
(2)
(25)



(25)
Acquisition related earn-out charges 

-

-

(4)

(4)




(4)
Operating profit



161



161
Income taxes



(2)



(2)
Other comprehensive income









Re-measurements of defined benefit plans




16




16
Total return



175



175
Net divestment/
(investment)








Realisations 
528
-
-
528

528

528
Cash investment 
(10)
-
(82)
(92)

(92)

(92)

518
-
(82)
436

436

436
Balance sheet








Value of investment portfolio at the end of the period 

2,424

479

155

3,058


3,058


3,058
1
Includes restructuring costs of 4 million, nil and nil for Private Equity, Infrastructure and Debt Management respectively and nil and 4 million for Proprietary Capital and Fund Management respectively.
Investment basis
Private

Debt


Proprietary
Fund

Year to 31 March 2014
Equity
Infrastructure
Management
Total

Capital
Management
Total

m
m
m
m

m
m
m
Realised profits over value on the disposal of investments


201


1


-


202



202


-


202
Unrealised profits/(losses) on the revaluation of investments


478


(13)


10


475



475


-


475
Portfolio income









Dividends
13
21
10
44

44
-
44

Income from loans and receivables

46

-

4

50


50

-

50

Fees receivable/(payable)

9

-

(2)

7


4

3

7
Foreign exchange on investments

(100)

(7)

(6)

(113)


(113)

-

(113)
Gross Investment Return
647
2
16
665

662
3
665
Fees receivable from external funds

17

24

32

73


-

73

73
Synthetic fees
-
-
-
-

(51)
51
-
Operating expenses1
(79)
(23)
(34)
(136)

(28)
(108)
(136)
Interest receivable



3

3
-
3
Interest payable



(54)

(54)
-
(54)
Movement in the fair value of derivatives




10


10

-

10
Exchange movements



(3)

(3)
-
(3)
Other income



-

-
-
-
Operating profit before carry




558


539

19

558
Carried interest and performance fees









Receivable from external funds

(1)

-

4

3




3

Payable
(82)
-
(3)
(85)



(85)
Acquisition related earn-out charges 

-

-

(6)

(6)




(6)
Operating profit



470



470
Income taxes



(3)



(3)
Other comprehensive income









Re-measurements of defined benefit plans




11




11
Total return



478



478
Net divestment/
(investment)








Realisations 
669
2
6
677

677

677
Cash investment 
(276)
-
(61)
(337)

(337)

(337)

393
2
(55)
340

340

340
Balance sheet








Value of investment portfolio

2,935

487

143

3,565


3,565


3,565
1
Includes restructuring costs of 7 million, 1 million and 1 million for Private Equity, Infrastructure and Debt Management respectively and 1 million and 8 million for Proprietary Capital and Fund Management respectively.
2 Realised profits/(losses) over value on the disposal of investments
Six months to 30 September 2014
Unquoted
Quoted


investments
investments
Total

m
m
m
Realisations
107
-
107
Valuation of disposed investments
(101)
-
(101)

6
-
6
Of which: 



- 
- profit recognised on realisations
7
-
7

- losses recognised on realisations
(1)
-
(1)


6
-
6
Six months to 30 September 2013
Unquoted
Quoted


investments
investments
Total

(restated)
(restated)
(restated)

m
m
m
Realisations
347
4
351
Valuation of disposed investments
(253)
(4)
(257)

94
-
94
Of which: 




- profit recognised on realisations
95
-
95

- losses recognised on realisations
(1)
-
(1)


94
-
94

Year to 31 March 2014
Unquoted
Quoted


investments
investments
Total

m
m
m
Realisations
441
11
452
Valuation of disposed investments
(297)
(9)
(306)

144
2
146
Of which: 
- 
- profit recognised on realisations
148
2
150

- losses recognised on realisations
(4)
-
(4)


144
2
146
3 Unrealised profits/(losses) on the revaluation of investments
Six months to 30 September 2014
Unquoted
Quoted


investments
investments
Total

m
m
m
Movement in the fair value of investments
97
11
108
Of which: 




- unrealised gains
139
11
150

- unrealised losses
(42)
-
(42)


97
11
108
Six months to 30 September 2013
Unquoted
Quoted


investments
investments
Total 

(restated)
(restated)
(restated)

m
m
m
Movement in the fair value of investments 
1
10
11
Of which: 

- unrealised gains
55
10
65

- unrealised losses
(54)
-
(54)


1
10
11
Year to 31 March 2014
Unquoted
Quoted


investments
investments
Total

m
m
m
Movement in the fair value of investments
63
14
77
Of which: 

- unrealised gains
132
14
146

- unrealised losses
(69)
-
(69)


63
14
77
4 Investment portfolio
Accounting policy: 
Investments are recognised and de-recognised on a date where the purchase or sale of an investment is under a contract whose terms require the delivery or settlement of the investment. The Group manages its investments with a view to profiting from the receipt of investment income and capital appreciation from changes in the fair value of equity investments.
Quoted investments are designated at fair value through profit and loss and subsequently carried in the balance sheet at fair value. Fair value is measured using the closing bid price at the reporting date, where the investment is quoted on an active stock market.
Unquoted investments, including both equity and loans are designated at fair value through profit and loss and are subsequently carried in the balance sheet at fair value. Fair value is measured using the International Private Equity and Venture Capital valuation guidelines (IPEV), details of which are available in "Portfolio and other information".
The proportion of the investment portfolio held by the Group's unconsolidated subsidiaries is now presented as part of the fair value of investment entity subsidiaries, along with the fair value of their other assets and liabilities. Details of the breakdown of the fair value of investment entities, including their investment portfolio, is provided in Note 5.

Six months to
Six months to
12 months to

30 September 2014
30 September 2013
31 March 2014


(restated)

Non-current
m
m
m
Opening book value
1,537
1,680
1,680
Additions
129
103
212

- of which loan notes with nil value
(40)
(8)
(60)
Disposals, repayments and write-offs
(101)
(257)
(306)
Fair value movement 
108
11
77
Other movements
(33)
(46)
(66)
Closing book value
1,600
1,483
1,537
Quoted investments
269
261
258
Unquoted investments
1,331
1,222
1,279
Closing book value
1,600
1,483
1,537
The holding period of 3i's investment portfolio is on average greater than one year. For this reason the portfolio is classified as non-current. It is not possible to identify with certainty investments that will be sold within one year.
Additions include 47 million (September 2013: 27 million, March 2014: 98 million) in interest received by way of loan notes, of which 40 million (September 2013: 8 million, March 2014: 60 million) has been written down in the year to nil. Included within the statement of comprehensive income is 16 million (September 2013: 15 million, March 2014: 29 million) of interest income, which reflects the net additions after write downs noted above, 6 million (September 2013: 5 million, March 2014: 6 million) of cash income and the capitalisation of prior year accrued income and non-capitalised accrued income 3 million (September 2013: (9) million, March 2014: (15) million).
Other movements include foreign exchange and conversions from one instrument into another.
Fair value hierarchy
The Group classifies financial instruments measured at fair value in the investment portfolio according to the following hierarchy:
Level
Fair value input description
Financial instruments
Level 1
Quoted prices (unadjusted) from active markets
Quoted equity instruments
Level 2
Inputs other than quoted prices included in Level 1 that are observable either directly (ie as prices) or indirectly
(ie derived from prices)

Level 3
Inputs that are not based on observable market data
Unquoted equity instruments and loan instruments 
The Group's investment portfolio for equity instruments and debt instruments are classified by the fair value hierarchy as follows:

As at 30 September 2014
As at 30 September 2013

2014
2014
2014
2014
2013
2013
2013
2013

Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total





(restated)
(restated)
(restated)
(restated)

m
m
m
m
m
m
m
m
Quoted investments
269
-
-
269
261
-
-
261
Unquoted investments

-

-

1,331

1,331

-

-

1,222

1,222









Total
269
-
1,331
1,600
261
-
1,222
1,483

As at 31 March 2014

2014
2014
2014
2014

Level 1
Level 2
Level 3
Total

m
m
m
m
Quoted investments
258
-
-
258
Unquoted investments

-

-

1,279

1,279





Total
258
-
1,279
1,537
This disclosure only relates to the investment portfolio. The fair value hierarchy also applies to investment in investment entities and derivative financial instruments.
Level 3 fair value reconciliation

Six months to
Six months to
Year to

30 September
30 September
31 March

2014
2013
2014


(restated)


m
m
m
Opening book value 
1,279
1,437
1,437
Additions
129
103
212

- of which loan notes with nil value
(40)
(8)
(60)
Disposals, repayments and write-offs
(101)
(253)
(297)
Fair value movement 
97
1
63
Transfer of equity Level 3 to Level 1
-
(12)
(12)
Other movements
(33)
(46)
(64)
Closing book value 
1,331
1,222
1,279
Unquoted investments valued using Level 3 inputs also had the following impact on the statement of comprehensive income; realised profits over value on disposal of investment of 6 million (September 2013: 94 million, March 2014: 144 million), dividend income of 9 million (September 2013: 4 million, March 2014: 12 million) and foreign exchange losses of 34 million (September 2013: 34 million, March 2014: 46 million). There were no transfers of equity from Level 3 to Level 1 in the six months to September 2014. 
Level 3 inputs are sensitive to assumptions made when ascertaining fair value as described in the Portfolio valuation - an explanation section. There are a number of non-observable inputs and a change in one or more of the underlying assumptions could result in a significant change in fair value. Due to the numerous different factors affecting the assets, the impact for each is not quantified in the Half-year report.
A reasonable alternative assumption to adjustments made would be to apply a standard marketability discount of 5% for all assets rather than the specific approach adopted. This would have a positive impact on the unquoted investment portfolio of 105 million (September 2013: 96 million, March 2014: 111 million) or 8% (September 2013: 8%, March 2014: 9%).
5 Investment in Investment entities
Accounting policy: 
Investments in investment entity subsidiaries are accounted for as financial instruments at fair value through profit or loss. 
These entities are typically Limited Partnerships and other intermediate investment holding structures which hold the Group's interests in investments in portfolio companies (Investment Entity Holding Companies) and were consolidated prior to the adoption of IFRS 10. All cash flows to / from Investment Entities are treated as a reduction / increase in the fair value of the investment entity. 

30 September
30 September
31 March

2014
2013
2014
Non-current
m
m
m
Opening book value
1,973
1,630
1,630
Net cash flow from investment entity
(128)
(178)
(46)
Fair value movement on investment entity subsidiary
218
147
454
Transfer of assets between fair valued and consolidated subsidiaries and other movements
7
20

21
Foreign exchange
(66)
(59)
(86)
Closing book value
2,004
1,560
1,973
Restrictions
3i Group plc, the ultimate parent company, receives dividend income from its subsidiaries. There are no significant restrictions on the ability to transfer funds from these subsidiaries. 
The Group receives income in the form of dividends and interest from its investments in unconsolidated subsidiaries, and there are no significant restrictions on the transfer of funds from these entities to the Group. 
Support
3i Group plc provides ongoing support to its investment entity subsidiaries for the purchase of portfolio investments. During the current year, the Group provided support to its unconsolidated subsidiaries in the form of new loans totalling 101 million. The Group has no contractual commitments or current intentions to provide any other financial or other support to its unconsolidated subsidiaries.
Fair value hierarchy
The underlying assets held by Investment entities include assets valued using Level 3 inputs, therefore we classify all Investment in investment entities as Level 3 financial instruments. The reconciliation above is therefore also the Level 3 fair value reconciliation. Within Investment entities, investments valued using Level 3 inputs had the following impact on the statement of comprehensive income of the unconsolidated Investment entities; realised profits over value on disposal of investment of 29 million (September 2013: 30 million, March 2014: 36 million), dividend income of
2 million (September 2013: nil, March 2014: 6 million) and foreign exchange losses of 68 million (September 2013: 30 million, March 2014: 50 million). On an IFRS basis, these movements are included within Fair value movements on investment entity subsidiaries.
Level 3 inputs are sensitive to assumptions made when ascertaining fair value as described in the Portfolio valuation - an explanation section. There are a number of non-observable inputs and a change in one or more of the underlying assumptions could result in a significant change in fair value. Due to the numerous different factors affecting the assets, the impact for each is not quantified in the Half-year report.
A reasonable alternative assumption to adjustments made would be to apply a standard marketability discount of 5% for all assets rather than the specific approach adopted. This would have a positive impact on the unquoted investment portfolio of 15 million (September 2013: 36 million, March 2014: 19 million) or 1% (September 2013: 3%, March 2014: 1%). 
6 Loans and borrowings
Accounting policy: 
All loans and borrowings are initially recognised at the fair value of the consideration received. After initial recognition, these are subsequently measured at amortised cost using the effective interest method, which is the rate that exactly discounts the estimated future cash flows through the expected life of the liabilities.

30 September
30 September
31 March

2014
2013
2014

m
m
m
Loans and borrowings are repayable as follows:
Within one year
-
-
-
In the second year
-
-
-
In the third year
257
-
274
In the fourth year
-
277
-
In the fifth year
-
-
-
After five years
575
575
575

832
852
849
Principal borrowings include:



30 September
30 September
31 March



2014
2013
2014

Rate
Maturity
m
m
m
Issued under the 2,000 million note issuance programme
Fixed rate

200 million notes (public issue)
6.875%
2023
200
200
200

400 million notes (public issue)
5.750%
2032
375
375
375

350 million notes (public issue)
5.625%
2017
257
277
274




832
852
849
Committed multi-currency facilities

350 million
LIBOR+0.60%
2019
-
-
-

50 million
LIBOR+1.50%
2016
-
-
-

450 million 
LIBOR+1.00%
2016
-
-
-



-
-
-
Total loans and borrowings


832
852
849
During the period, the 450 million syndicated multi-currency facility was replaced with a 350 million syndicated multi-currency facility with a maturity date of September 2019 with the option for the Company to request one year extensions at the first and second year anniversary of the facility, which may be granted at the discretion of each lender individually. The new 350 million facility has no financial covenants. 
The 50 million multi-currency facility has been cancelled during the period.
All of the Group's borrowings are repayable in one instalment on the respective maturity dates. None of the Group's interest-bearing loans and borrowings are secured on the assets of the Group. The fair value of the loans and borrowings is 961 million (September 2013: 912 million, March 2014: 942 million), determined with reference to their published market prices which are included within Level one of the fair value hierarchy.
Gross debt also includes the net asset position relating to derivative financial instruments, which was 1 million at 30 September 2014 (March 2014: 2 million net liability position). 
7 Per share information
The earnings and net assets per share attributable to the equity shareholders of the Company are based on the following data:

6 months
6 months
12 months to

to 30 September
to 30 September
31 March

2014
20131
2014


(restated)

Earnings per share (pence)
Basic
27.0
17.3
54.8
Diluted
26.8
17.2
54.5
Earnings (m)
Profit for the period attributable to equity holders of the Company1
256
163
517

6 months
6 months
12 months to

to 30 September
to 30 September
31 March

2014
2013
2014

Number
Number
Number
Weighted average number of shares in issue
Ordinary shares
972,013,634
971,490,861
971,574,471
Own shares
(25,467,918)
(29,301,068)
(28,285,335)

946,545,716
942,189,793
943,289,136
Effect of dilutive potential ordinary shares

Share options and awards
9,251,617
5,475,763
5,627,447
Diluted shares
955,797,333
947,665,556
948,916,583

30 September
30 September
31 March

2014
2013
2014
Net assets per share (pence)
Basic
361
324
350
Diluted
358
322
348
Net assets (m)
Net assets attributable to equity holders of the Company
3,426
3,062
3,308

30 September
30 September
31 March

2014
2013
2014

Number
Number
Number
Number of shares in issue
Ordinary shares
972,184,291
971,607,373
971,803,122
Own shares
(24,257,337)
(27,681,913)
(26,774,318)

947,926,954
943,925,460
945,028,804
Effect of dilutive potential ordinary shares

Share options and awards
9,904,155
7,224,410
6,502,546
Diluted shares
957,831,109
951,149,870
951,531,350
1
Prior period financial statements were restated to reflect the impact of the retrospective application of IFRS 10 which the Group adopted early at 31 March 2014. This resulted in an increase in the profit after tax for the six months to 30 September 2013 of 22 million. There was no impact on NAV at 30 September 2013 as a result of the retrospective application of IFRS 10 .
8 Dividends

6 months to
6 months to
6 months to
6 months to
12 months
12 months

30 September
30 September
30 September
30 September
to 31 March
to 31 March

2014
2014
2013
2013
2014
2014

pence

pence

pence


per share
m
per share
m
per share
m
Declared and paid during the period
Ordinary shares

Final dividend
13.3
126
5.4
51
5.4
51

Interim dividend
-
-
-
-
6.7
63


13.3
126
5.4
51
12.1
114
Proposed dividend
6.0
57




9 Contingent liabilities

30 September
30 September
31 March

2014
2013
2014

m
m
m
Contingent liabilities relating to guarantees in respect of investee companies
4
5
5
The Company has provided a guarantee to the Trustees of the 3i Group Pension Plan in respect of liabilities of 3i plc to the Plan. 3i plc is the sponsor of the 3i Group Pension Plan. On 4 April 2012 the Company transferred eligible assets (150 million of ordinary shares in 3i Infrastructure plc as defined by the agreement) to a wholly owned subsidiary of the Group. The Company will retain all income and capital rights in relation to the 3i Infrastructure plc shares, as eligible assets, unless the Company becomes insolvent or fails to comply with material obligations in relation to the agreement with the Trustees, all of which are under its control. The fair value of eligible assets at 30 September 2014 was 169 million (September 2013: 160 million, March 2014: 162 million). 
3i has entered into warehouse arrangements in the US and Europe to support the creation of senior secured debt portfolios ahead of future CLO fund launches. Whilst in the warehouse phase, 3i is subject to optional margin calls in the event of market falls. The current capital at risk is restricted to the 97 million committed at 30 September 2014 (September 2013: 62 million, March 2014: 17 million).
At 30 September 2014, there was no material litigation outstanding against the Company or any of its subsidiary undertakings.
10 Related parties and interests in other entities
The Group has various related parties stemming from relationships with limited partnerships managed by the Group, its investment portfolio (including unconsolidated subsidiaries), its advisory arrangements and its key management personnel. In addition the Company has related parties in respect of its subsidiaries. Some of these subsidiaries are held at fair value (unconsolidated subsidiaries) due to the treatment prescribed in IFRS 10, and disclosure relating to these subsidiaries is shown in the Annual report and accounts 2014. 
Related parties
Limited partnerships
The Group manages a number of external funds which invest through limited partnerships. Group companies act as the general partners of these limited partnerships and exert significant influence over them. The following amounts have been included in respect of these limited partnerships:

Six months to
Six months to 30
Year to 31

30 September
September
March

2014
2013
2014


(restated)

Statement of comprehensive income
m
m
m
Carried interest receivable
7
-
(1)
Fees receivable from external funds
17
16
33

As at
As a
As at

30 September
30 September
31 March

2014
2013
2014


(restated)

Statement of financial position
m
m
m
Carried interest receivable
12
8
8
Investments
The Group makes minority investments in the equity of unquoted and quoted investments. This normally allows the Group to participate in the financial and operating policies of that company. It is presumed that it is possible to exert significant influence when the equity holding is greater than 20%. These investments are not equity accounted for (as permitted by IAS 28) but are related parties. The total amounts included for these investments are as follows:

Six months to
Six months to 30
Year to 31

30 September
September
March

2014
2013
2014


(restated)

Statement of comprehensive income
m
m
m
Realised profit over value on the disposal of investments
2
9
12
Unrealised profits on the revaluation of investments
13
31
62
Portfolio income
13
7
12

As at
As a
As at

30 September
30 September
31 March

2014
2013
2014


(restated)

Statement of financial position
m
m
m
Unquoted investments
568
587
572
From time to time transactions occur between related parties within the investment portfolio that the Group influences to facilitate the reorganisation or recapitalisation of an investee company. These transactions are made on an arm's length basis.
Advisory arrangements
The Group acts as an adviser to 3i Infrastructure plc, which is listed on the London Stock Exchange. The following amounts have been included in respect of this advisory relationship:

Six months to
Six months to 30
Year to 31

30 September
September
March

2014
2013
2014


(restated)

Statement of comprehensive income
m
m
m
Unrealised profits on the revaluation of investments
10
2
3
Fees receivable from external funds
5
5
10
Dividends
6
11
12
Carried interest receivable
8
-
-

As at
As a
As at

30 September
30 September
31 March

2014
2013
2014


(restated)

Statement of financial position
m
m
m
Quoted equity investments
252
240
242
Carried interest receivable
8
-
-
Subsidiaries
Transactions between the Company and its fully consolidated subsidiaries, which are related parties of the Company, are eliminated on consolidation. Details of related party transactions between the Company and its subsidiaries are detailed below, and in the Annual report and accounts 2014.
Management, administrative and secretarial arrangements
The Company has appointed 3i Investments plc, a wholly-owned subsidiary of the Company incorporated in England and Wales, as investment manager of the Group. 3i Investments plc received a fee of 6 million (September 2013: 12 million, March 2014: 23 million) for this service.
The Company has appointed 3i plc, a wholly-owned subsidiary of the Company incorporated in England and Wales, to provide the Company with a range of administrative and secretarial services. 3i plc received a fee of 51 million (September 2013: 34 million, March 2014: 98 million) for this service.
Other subsidiaries
The Company borrows funds from, and lends funds to certain subsidiaries and pays and receives interest on the outstanding balances. The interest income that is included in the Company's Statement of comprehensive income is 2 million (September 2013: 1 million, March 2014: 2 million) and the interest expense included is 1 million (September 2013: nil, March 2014: 1 million).
Key management personnel
The Group's key management personnel comprise the members of the Executive Committee and the Board's non-executive Directors. The following amounts have been included in respect of these individuals:

30 September
30 September
31 March

2014
2013
2014


(restated)

Statement of comprehensive income
m
m
m
Salaries, fees, supplements and benefits in kind
3
2
5
Bonuses delivered as cash1
3
2
8
Increase in accrued pension
-
-
-
Carried interest and performance fees payable
8
3
10
Share-based payments
3
1
3
Termination benefits
-
-
-
1.
For further detail, see Directors' remuneration report in the Annual report 2014.

30 September
30 September
31 March

2014
2013
2014


(restated)

Statement of financial position 
m
m
m
Bonuses delivered as cash
2
2
7
Carried interest and performance fees payable within one year
-
1
1
Carried interest and performance fees payable after one year
13
7
6
Carried interest paid in the year to key management personnel was 2 million (September 2013: 2 million). Deferred consideration in relation to the acquisition of Mizuho Investment Management Limited is no longer included in the Statement of financial position as a result of the adoption of IFRS 10 but a total of 9 million was paid by 3i Group plc in the period to acquire 12.3% of the outstanding management held equity. 
Unconsolidated structured entities
The Group has exposure to a number of unconsolidated structured entities as a result of its investment activities. These structured entities fall into four categories, namely CLO's, debt management warehouses, closed end limited partnerships (Private Equity and Infrastructure funds) and investments in certain portfolio investments. The nature, purpose and activities of these entities are detailed below along with the nature of risks associated with these entities and the maximum exposure to loss. 
CLO structured entities
The Group manages CLO vehicles as part of its Debt Management business. These funds predominantly invest in senior secured loans and are financed by investors seeking credit rated, structured, investment returns. 
The Group manages these funds, in return for a management fee. The Group also typically invests into the equity tranche of these funds. The Group's attributable stakes in these entities are held at fair value, fees receivable are recognised on an accruals basis, performance fees are accrued when relevant performance hurdles are met and any distribution to the equity tranches are recognised on a cash basis. 
The risk and maximum exposure to loss arising from the Group's involvement with these entities are summarised below:
30 September 2014
Carrying amount


Assets
Liabilities
Net
Maximum loss exposure
Balance sheet line item of asset or liability
m
m
m
m
Unquoted investments
35
-
35
35
Fee income receivable 
2
-
2
2
Total 
37
-
37
37
At 30 September 2013: Unquoted investments and maximum loss exposure was 33 million and fee income receivable and maximum loss exposure was 1 million. At 31 March 2014: Unquoted investments and maximum loss exposure was 34 million and fee income receivable and maximum loss exposure was 1 million. 
The Group earned dividend income of 6 million (September 2013: 3 million, March 2014: 8 million) and fee income of 4 million (September 2013: 4 million, March 2014: 7 million) during the period from CLO structured entities.
Warehouse structured entities
Ahead of future CLO fund launches, warehouse facilities are usually established to support the creation of debt portfolios. These entities are financed by the Group along with the bank appointed to operate the warehouse facility. The Group makes a commitment to the warehouse, typically taking the first loss position, and is at risk for margin calls if the portfolio underperforms. The Group's attributable stakes in these warehouses are held at fair value. 
The risk and maximum exposure to loss arising from the Group's involvement with these entities are summarised below:
30 September 2014
Carrying amount


Assets
Liabilities
Net
Maximum loss exposure
Balance sheet line item of asset or liability
m
m
m
m
Unquoted investments
82
-
82
97
Total 
82
-
82
97
At 30 September 2013: Unquoted investments and maximum loss exposure was 62 million. At 31 March 2014: Unquoted investments and maximum loss exposure was 17 million. 
The maximum loss exposure may exceed the balance sheet position in some warehouse structured entities as the margin is called on a settled rather than committed basis and therefore trails activity. 
The Group earned income of nil (September 2013: 1 million, March 2014: 2 million) during the period from warehouse structured entities. 
Closed end limited partnerships
The Group manages a number of closed end limited partnerships, in return for a management fee. The purpose of these partnerships is to invest in Private Equity or Infrastructure investments for capital appreciation. Limited Partners, which in some cases may include the Group, finance these entities by committing capital to them and cash is drawn down or distributed for financing investment activity. 
The Group's attributable stakes in these entities are held at fair value, fees receivable are recognised on an accruals basis and carried interest is accrued when relevant performance hurdles are met. 
The risk and maximum exposure to loss arising from the Group's involvement with these entities are summarised below:
30 September 2014
Carrying amount


Assets
Liabilities
Net
Maximum loss exposure
Balance sheet line item of asset or liability
m
m
m
m
Carried interest receivable
12
-
12
12
Total 
12
-
12
12
At 30 September 2013: Carried interest receivable and maximum loss exposure was 8 million. At 31 March 2014: Carried interest receivable and maximum loss exposure was 8 million. 
The Group earned fee income of 17 million (September 2013: 16 million, March 2014: 33 million) and carried interest of 7 million (September 2013: nil, March 2014: (1) million) during the period from closed end limited partnerships. 
Investments that are structured entities
The Group makes investments on behalf of itself and third party funds that it manages, for capital appreciation purposes. In a small number of cases, these investments fall under the classification of a structured entity as they are funds managed by a General Partner under a limited partnership agreement. 
The Group's attributable stakes in these entities are held at fair value. 
The risk and maximum exposure to loss arising from the Group's involvement with these entities are summarised below:
30 September 2014
Carrying amount


Assets
Liabilities
Net
Maximum loss exposure
Balance sheet line item of asset or liability
m
m
m
m
Unquoted investments
4
-
4
4
Total 
4
-
4
4
At 30 September 2013: Unquoted investments and maximum loss exposure was 4 million. At 31 March 2014: Unquoted investments and maximum loss exposure was 4 million. 
The Group recognised a realised profit of nil (September 2013: nil, March 2014: 1 million) during the period from investments that are structured entities. 
Independent review report to 3i Group plc
Introduction 
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2014 which comprises the Consolidated statement of comprehensive income, the Consolidated statement of changes in equity, the Consolidated statement of financial position, the Consolidated cash flow statement, and the related notes 1 to 10. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 
This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
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 Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. 
As disclosed in the Basis of preparation, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union. 
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. 
Scope of Review 
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. 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. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) 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. 
Conclusion 
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 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. 
Ernst & Young LLP
London
12 November 2014
Statement of Directors' responsibilities
The Directors confirm to the best of their knowledge that:
a)
the condensed set of financial statements have been prepared in accordance with IAS 34 as adopted by the European Union; and the half-yearly report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance.
b)
the interim management report includes a fair review of the information required by the FCA's Disclosure and Transparency Rules (4.2.7 R and 4.2.8 R).
The Directors of 3i Group plc and their functions are listed below.
By order of the Board
K J Dunn Secretary
12 November 2014
Board of Directors
Sir Adrian Montague, Chairman
Simon Borrows, Chief Executive and executive Director
Julia Wilson, Finance Director and executive Director
Jonathan Asquith, Non-executive Director
Caroline Banszky, Non-executive Director
Alistair Cox, Non-executive Director
David Hutchison, Non-executive Director
Martine Verluyten, Non-executive Director
Portfolio and other information
Portfolio valuation - an explanation
Policy
The valuation policy is the responsibility of the Board, with additional oversight and annual review from the Valuations Committee. Our policy is to value 3i's investment portfolio at fair value and we achieve this by valuing investments on an appropriate basis, applying a consistent approach across the portfolio. The policy ensures that the portfolio valuation is compliant with the fair value guidelines under IFRS and, in so doing, is also compliant with the guidelines issued by the International Private Equity and Venture Capital valuation board (the "IPEV guidelines"). The policy covers the Group's Private Equity, Infrastructure and Debt Management investment valuations. Valuations of the investment portfolio of the Group and its subsidiaries are performed at each quarter end.
Fair value is the underlying principle and is defined as "the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date" (IPEV guidelines, December 2012). Fair value is therefore an estimate and, as such, determining fair value requires the use of judgement.
Private equity valuation
The quoted assets in our portfolio are valued at their closing bid price at the balance sheet date.
The majority of the portfolio, however, is represented by unquoted investments. To arrive at the fair value of the Group's unquoted Private Equity investments, we first estimate the entire value of the company we have invested in - the enterprise value. We then apportion that enterprise value between 3i, other shareholders and lenders.
Determining enterprise value
This enterprise value is determined using one of a selection of methodologies depending on the nature, facts and circumstances of the investment.
Where possible, we use methodologies which draw heavily on observable market prices, whether listed equity markets or reported merger and acquisition transactions, and trading updates from our portfolio.
As unquoted investments are not traded on an active market, the Group adjusts the estimated enterprise value by a marketability or liquidity discount. The marketability or liquidity discount is applied to the total enterprise value and we apply a higher discount rate for investments where there are material restrictions on our ability to sell at a time of our choosing.
The table below outlines in more detail the range of valuation methodologies available to us, as well as the inputs and adjustments necessary for each.
Apportioning the enterprise value between 3i, other shareholders and lenders
Once we have estimated the enterprise value, the following steps are taken:
1. We subtract the value of any claims, net of free cash balances, that are more senior to the most senior of our investments.
2. The resulting attributable enterprise value is apportioned to the Group's investment, and equal ranking investments by other parties, according to contractual terms and conditions, to arrive at a fair value of the entirety of the investment. The value is then distributed amongst the different loan, equity and other financial instruments accordingly.
3. If the value attributed to a specific shareholder loan investment in a company is less than its par or nominal value, a shortfall is implied, which is recognised in our valuation. In exceptional cases, we may judge that the shortfall is temporary; to recognise the shortfall in such a scenario would lead to unrepresentative volatility and hence we may choose not to recognise the shortfall.
Other factors
In applying this framework, there are additional considerations that are factored into the valuation of some assets.
Impacts from structuring
Structural rights are instruments convertible into equity or cash at specific points in time or linked to specific events. For example, where a majority shareholder chooses to sell, and we have a minority interest, we may have the right to a minimum return on our investment.
Debt instruments, in particular, may have structural rights. In the valuation, it is assumed third parties, such as lenders or holders of convertible instruments, fully exercise any structural rights they might have if they are "in the money", and that the value to the Group may therefore be reduced by such rights held by third parties. The Group's own structural rights are valued on the basis they are exercisable on the reporting date.
Assets classified as "terminal"
If we believe an investment has more than a 50% probability of failing in the 12 months following the valuation date, we value the investment on the basis of its expected recoverable amount in the event of failure. It is important to distinguish between our investment failing and the business failing; the failure of our investment does not always mean that the business has failed, just that our recoverable value has dropped significantly. This would generally result in the equity and loan components of our investment being valued at nil. Value movements in the period relating to investments classified as terminal are classified as provisions in our value movement analysis.
Infrastructure valuation
The primary valuation methodology used for infrastructure investments is the discounted cash flow method ("DCF"). Fair value is estimated by deriving the present value of the investment using reasonable assumptions of expected future cash flows and the terminal value and date, and the appropriate risk-adjusted discount rate that quantifies the risk inherent to the investment. The discount rate is estimated with reference to the market risk-free rate, a risk adjusted premium and information specific to the investment or market sector.
Debt management valuation
The Group's Debt Management business line typically invests in traded debt instruments and the subordinated notes that it is required to hold in the debt funds which it manages. The traded debt instruments and the subordinated notes are valued using a range of data including broker quotes if available, original arranging bank models, 3i internal forecasts and models, trading data where available, and data from third-party valuation providers. Broker quotes and trading data for more liquid holdings are preferred.
Methodology
Description
Inputs
Adjustments
% of
portfolio
valued
on this
basis
Earnings
(Private Equity)
Most commonly used Private Equity valuation methodology
Used for investments which are profitable and for which we can determine a set of listed companies and precedent transactions, where relevant, with similar characteristics
Earnings multiples are applied to the earnings of the company to determine the enterprise value
Earnings
Reported earnings 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
Most common measure is earnings before interest, tax, depreciation and amortisation ("EBITDA")
Earnings used are usually the management accounts for the 12 months to the quarter end preceding the reporting period, unless data from forecasts or the latest audited accounts provides a more reliable picture of maintainable earnings
Earnings multiples
The earnings multiple is derived from comparable listed companies or relevant market transaction multiples
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
We adjust for relative performance in the set of comparables, exit expectations and other company specific factors
A marketability or liquidity discount is applied to the enterprise value, typically between 5% and 15%, using factors such as our alignment with management and other investors and our investment rights in the deal structure
56%
Quoted
(Infrastructure/
Private Equity)
Used for investments in listed companies
Closing bid price at balance sheet date
No adjustments
or discounts applied
17%
Imminent sale
(Infrastructure/
Private Equity)
Used where an asset is in a sales process, a price has been agreed but the transaction has not yet settled
Contracted proceeds for the transaction, or best estimate of the expected proceeds
A discount of typically 2.5% is applied to reflect any uncertain adjustments to expected proceeds
5%
Fund (Infrastructure/ Private Equity/ Debt Management)
Used for investments
in unlisted funds
Net asset value reported by the fund manager
Typically no further discount applied in addition to that applied by the fund manager
0%
Specific industry metrics
(Private Equity)
Used for investments in industries which have well defined metrics as bases for valuation - eg book value for insurance underwriters, or regulated asset bases for utilities
We create a set of comparable listed companies and derive the implied values of the relevant metric
We track and adjust this metric for relative performance, as in the case of earnings multiples 
Comparable companies are selected using the same criteria as described for the earnings methodology
An appropriate discount is applied, depending on the valuation metric used
4%
Discounted
cash flow
(Private Equity/Infrastructure)
Appropriate for businesses with long-term stable cash flows, typically in infrastructure
Long-term cash flows are discounted at a rate which is benchmarked against market data, where possible, or adjusted from the rate at the initial investment based on changes in the risk profile of the investment
Discount already implicit in the discount rate applied to long-term cash flows - no further discounts applied
8%
Broker quotes (Debt Management)
Used to value traded debt instruments
Broker quotes obtained from banks which trade the specific instruments concerned, benchmarked to a range of other data such as DCF, trade data and other quotes
No discount is applied
5%
Other
(Private Equity)
Used where elements of a business are valued on different bases
Values of separate elements prepared on one of the methodologies listed above
Discounts applied to separate elements as above 
5%
For a small proportion of our smaller investments (less than 1% of the portfolio value), the valuation is determined by a more mechanical approach using information from the latest audited accounts. Equity shares are valued at the higher of an earnings or net assets methodology. Fixed income shares and loan investments are measured using amortised cost and any implied impairment, in line with IFRS.
Consistent with IPEV guidelines, all equity investments are held at fair value using the most appropriate methodology and no investments are held at historical cost.
Twenty five large investments
The list below provides information on 25 large investments in respect of the Group's holding, excluding any managed or advised external funds. 


Residual
Residual



Business line
cost
cost
Valuation
Valuation

Geography
March
Sept
March
Sept
Investment
Calendar year first invested in
2014
2014
2014
2014
Description of business
Valuation basis
m
m
m
m
Action
Private Equity




Non-food discount retailer
Benelux





2011





Earnings
57
58
501
573
3i Infrastructure plc
Infrastructure




Quoted investment company, 
UK




investing in infrastructure
2007





Quoted
302
302
404
421
Scandlines
Private Equity




Ferry operator in the 
Germany




Baltic Sea
2007





DCF
108
110
193
218
HILITE
Private Equity




Fluid control component supplier
Germany





2011





Imminent sale
57
58
133
152
Quintiles
Private Equity




Clinical research outsourcing 
US




solutions
2008





Quoted
52
52
122
137
Mayborn
Private Equity




Manufacturer and distributor of 
UK




baby products 
2006





Earnings
113
120
116
122
Element Materials Technology
Private Equity




Testing and inspection
Benelux





2010





Earnings
78
59
124
112
ACR
Private Equity




Pan-Asian non life reinsurance
Singapore





2006





Industry metric
105
105
101
111
Basic-Fit 
Private Equity




Discount fitness operator in Europe
Benelux





2013





Earnings
84
87
82
100
AES Engineering
Private Equity




Manufacturer of mechanical seals 
UK




and support systems
1996





Earnings
30
30
96
99
Ten large investments
56% of total portfolio
986
981
1,872
2,045
Twenty five large investments continued


Residual
Residual



Business line
cost
cost
Valuation
Valuation

Geography
March
Sept
March
Sept
Investment
Calendar year first invested in
2014
2014
2014
2014
Description of business
Valuation basis
m
m
m
m
Eltel Networks 
Private Equity




Infrastructure services for electricity and 
Finland




telecoms networks
2007





Earnings
89
90
70
94
Tato
Private Equity




Manufacture and sale of speciality 
UK




chemicals
1989





Earnings
2
2
85
81
GIF 
Private Equity




German headquartered international 
Germany 




transmission testing specialist 
2013





Earnings
64
67
65
66
Dynatect 
Private Equity




Manufacturer of engineered, mission
US




critical protective equipment 
2014





Other
-
65
-
65
Mmora 
Private Equity




Funeral service provider
Spain





2008





Earnings
141
143
67
60
Refresco
Private Equity




Manufacturer of private label 
Benelux




juices and soft drinks
2010





Earnings
46
46
42
58
Geka
Private Equity




Manufacturer of brushes, applicators and
Germany




packaging systems for the cosmetics industry
2012





Earnings
56
57
55
53
Amor
Private Equity




Distributor and retailer of affordable
Germany




jewellery 
2010





Earnings
50
30
70
51
Agent Provocateur
Private Equity




Women's lingerie and assorted
UK




products
2007





Earnings
49
53
35
50
Etanco
Private Equity




Designer, manufacturer and 
France




distributor of fasteners and fixing systems
2011





Earnings
80
81
44
47
JMJ 
Private Equity




Global management consultancy
US





2013





Earnings
44
44
43
45
OneMed Group
Private Equity




Distributor of consumable medical 
Sweden




products, devices and technology
2011





Earnings
108
112
44
42
LHI Technology 
Private Equity




Medical cable assemblies
China





2008





Imminent sale
16
17
33
42
Foster + Partners1
Private Equity




Architectural services
UK





2007





Other


108
40
Phibro Animal Health Corporation
Private Equity




Animal healthcare 
US





2009





Quoted
89
22
93
38
Twenty five large investments
78% of total portfolio
1,820
1,810
2,726
2,877
1 The residual cost of this investment cannot be disclosed per a confidentiality agreement in place at the time of investment.
Portfolio composition
3i direct portfolio value by business and geography (m)

Six months to
Six months to
Year to

30 September
30 September
31 March

2014
2013
2014
Private Equity

UK
518
528
556

Continental Europe
1,854
1,337
1,788

Asia
247
256
250

The Americas
362
299
337

Rest of World
3
4
4

2,984
2,424
2,935
Infrastructure

UK
429
409
412

Asia
62
70
75

491
479
487
Debt Management1

Continental Europe
146
107
119

The Americas
51
48
24

197
155
143
Total
3,672
3,058
3,565
1.
The Debt Management portfolio is split based on the geographic location of the fund management team, with all funds managed by the team in London disclosed as "Continental Europe". The underlying investments of the vehicles may be across several geographies. 
3i direct portfolio value by valuation method (m)

Six months to
Six months to
Year to

30 September
30 September
31 March

2014
2013
2014
Imminent sale or IPO
193
43
33
Quoted
641
578
554
Earnings
2,069
1,831
2,308
Fund
10
12
11
Industry metric
130
133
124
DCF
291
181
271
Debt Management 
197
155
143
Other
141
125
121
Total
3,672
3,058
3,565
3i direct Private Equity portfolio value by valuation method (m)

Six months to
Six months to
Year to

30 September
30 September
31 March

2014
2013
2014
Imminent sale or IPO
193
43
33
Quoted
212
167
133
Earnings
2,069
1,831
2,308
Fund
10
12
11
Industry metric
130
133
124
DCF
229
114
205
Other
141
124
121
Total
2,984
2,424
2,935
3i direct Private Equity continental European portfolio by value (m)

Six months to
Six months to
Year to

30 September
30 September
31 March

2014
2013
2014
Benelux
862
476
767
France
122
171
179
Germany
582
345
542
Nordic
204
201
197
Spain
84
140
103
Other European
-
4
-
Total
1,854
1,337
1,788
3i direct Private Equity portfolio value by sector (m)

Six months to
Six months to
Year to

30 September
30 September
31 March

2014
2013
2014
Business Services1
704
720
852
Consumer
1,052
665
887
Healthcare
293
384
386
Industrials 
813
536
691
Technology, Media and Telecoms
122
119
119
Total
2,984
2,424
2,935
1
Includes Financial Services.
3i direct Infrastructure portfolio value by valuation method (m)

Six months to
Six months to
Year to

30 September
30 September
31 March

2014
2013
2014
Quoted
430
411
421
DCF
61
67
66
Other
-
1
-
Total
491
479
487
Information for shareholders
Note A
The Half-yearly report 2014 will be available as a pdf on our website at www.3i.com
Note B
The interim dividend is expected to be paid on 7January 2015 to holders of ordinary shares on the register on 12 December 2014. The ex-dividend date will be 11 December 2014.
Annual reports online
If you would prefer to receive shareholder communications electronically in future, including annual reports and notices of meetings, please visit our Registrars' website at www.shareview.co.uk/clients/3isignup and follow the instructions there to register. 
More general information on electronic communications is available on our website at
www.3i.com/investor-relations/shareholder-information
Registrars
For shareholder administration enquiries, including changes of address, please contact:
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Telephone 0871 384 2031
Calls to this number are charged at 8p per minute from a BT landline, other telephony provider costs may vary. Lines are open from 8.30am to 5.30pm, Monday to Friday.
(International callers +44 121 415 7183)
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.

This information is provided by RNS
The company news service from the London Stock Exchange
  END
IR BTBMTMBJBTJI