REG - 3i Group PLC - Half Yearly Report <Origin Href="QuoteRef">III.L</Origin> - Part 6
13/11/2014 08:21
- Part 6: For the preceding part double click ID:nRSM9002We
£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.
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