REG - 3i Group PLC - Half Yearly Report <Origin Href="QuoteRef">III.L</Origin> - Part 2
13/11/2014 08:21
- Part 2: For the preceding part double click ID:nRSM9002Wa
impact portfolio valuations of
non-sterling investments
Assets under management Underlying Fund Management Operating cash profit/loss
("AUM") Profit (£m) and Margin (%)
£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 3,694 3,166 3,403 3,357 Margin 13% 26% 24% 26%
Capital
Third-party 9,176 8,585 9,508 9,566
Capital
Rationale and definition§ We invest 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 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
in companies using capital from our
§ 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 this measure operating cash profit
shareholders (Proprietary Capital)
Comments§ Profit of £13m and margin of 21% ahead of £8m and 13% last year
Comments§ Exceeded objective of generating cash income sufficient to cover operating expenses, prior to restructuring costs in FY2014
and third-party investors. The total
§ 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
§ 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
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 E250m European Middle
Market Loan fund
§ Proprietary Capital AUM remained
flat at £3.4bn
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
Six months to/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 return 1 (0.4)% 17.0% 30.3%
Operating expenses £63m £68m £136m
As a percentage of assets under management 2 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%
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