REG - 3i Group PLC - Half Yearly Report <Origin Href="QuoteRef">III.L</Origin> - Part 4
13/11/2014 08:21
- Part 4: For the preceding part double click ID:nRSM9002Wc
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 2 35 (29) 6 202 (56) 146
on the disposal of investments
Unrealised profits 2 307 (199) 108 475 (398) 77
on the revaluation of investments
Fair value movements 1 - 218 218 - 454 454
on investment entity subsidiaries
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 4 - (15) (15) - (50) (50)
on translation of foreign operations
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) 5Recent news on 3i
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