REG - 3i Group PLC - Results for the six months to 30 September 2022
10/11/2022 07:00
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RNS Number : 9089F 3i Group PLC 10 November 2022
10 November 2022
3i Group plc announces results for the
six months to 30 September 2022
Resilient performance in a challenging market
· Total return of £1,765 million or 14% on opening shareholders' funds
(September 2021: £2,199 million, 24%) and NAV per share of 1,477 pence (31
March 2022: 1,321 pence), including a 74 pence gain on foreign exchange
translation.
· Our Private Equity business delivered a gross investment return of
£1,970 million or 16% (September 2021: £2,373 million, 27%). Action
continues to perform very strongly and we continue to see strong earnings
growth and momentum in a number of our portfolio companies in the
value-for-money consumer, healthcare, specialty industrial and business and
technology service sectors. However, a limited number of investments have seen
a deterioration in performance as a result of cost pressures and reduced
demand. 91% of our Private Equity portfolio companies by value grew earnings
in the 12 months to 30 June 2022. Valuation multiples were reduced for eight
portfolio companies.
· Action's sales in the nine months ending on 2 October 2022 ("P9")
grew to €6.1 billion (P9 2021: €4.8 billion) and like-for-like sales
growth was very strong at 15.7%, with footfall significantly ahead of last
year. Last 12 months' EBITDA to the end of P9 was €1,036 million (P9 2021:
€765 million), representing a 35% increase over the same period last year.
Action is seeing strong sales growth across all countries and categories;
margins continue to be well managed, with tight operational cost control
mitigating increased operating costs.
· In competitive markets the Private Equity team deployed £292 million
in four new investments, two portfolio bolt-on acquisitions and other further
investments. In addition, our portfolio companies completed three self-funded
bolt-on acquisitions. Realisations for the current financial year are off to a
good start, with £193 million of proceeds received in the period and a
further £476 million received in early October 2022 following the completion
of the realisation of Havea, which achieved a 50% uplift on 31 March 2022
value.
· Our Infrastructure business generated a gross investment return of
£35 million, or 3% (September 2021: £60 million, 5%). We continued to see
strong performance across our Infrastructure portfolios, with assets
benefiting from defensive characteristics and positive correlation to
inflation and power prices, however the return was impacted by a 12.4% decline
in 3i Infrastructure plc's share price, despite the 9.3% total return on its
opening NAV it achieved in the first half.
· First dividend of 23.25 pence per share for FY2023, set at 50% of the
total dividend for FY2022, to be paid in January 2023.
Simon Borrows, 3i's Chief Executive, commented:
"This was a good half for 3i against a tough macroeconomic and market
backdrop. We have carefully constructed our Private Equity and Infrastructure
portfolios over many years with the aim of generating good returns for our
shareholders across the market cycle. Over the past few years, there have been
significant levels of investment in the private equity industry, at elevated
prices and often with significant leverage. In contrast to many private equity
investors, we were highly selective in the new investments made in 2020 and
2021, which together account for only 5% by value of our current investment
portfolio.
Action continues to exceed expectations as it expands across Europe and
attracts significant new customer flow through very low prices and the
flexibility of its category format.
We are anticipating difficult macroeconomic conditions in 2023 which will
continue to present significant challenges to the consumer and corporate
sector alike and the Group's conservative capital structure gives us
considerable flexibility to respond to opportunities and developments as they
arise. Our near-term decisions will remain guided by patience and discipline
as we continue to deliver the significant growth potential of our existing
portfolio."
Summary financial highlights under the Investment basis
3i prepares its statutory financial statements in accordance with
International Financial Reporting Standards as adopted by the European Union
("IFRS"). However, we also report a non-GAAP "Investment basis" which we
believe aids users of our report to assess the Group's underlying operating
performance. The Investment basis (which is unaudited) is an alternative
performance measure ("APM") and is described on page 20. Total return and net
assets are the same under the Investment basis and IFRS and we provide a
reconciliation of our Investment basis financial statements to the IFRS
statements from page 21. Pages 1 to 17 are prepared on an Investment basis.
Six months to/as Six months to/as 12 months to/as
at 30 September at 30 September at 31 March
Investment basis 2022 2021 2022
Total return(1) £1,765m £2,199m £4,014m
% return on opening shareholders' funds 14% 24% 44%
Dividend per ordinary share 23.25p 19.25p 46.5p
Gross investment return(2) £2,016m £2,463m £4,525m
As a percentage of opening 3i portfolio value 14% 24% 43%
Cash investment(2) £298m £59m £543m
Realisation proceeds £193m £124m £788m
3i portfolio value £16,417m £12,784m £14,305m
Gross debt £1,129m £975m £975m
Net debt (2) £1,074m £931m £746m
Gearing(2) 8% 8% 6%
Liquidity £801m £544m £729m
Diluted net asset value per ordinary share ("NAV per share") 1,477p 1,153p 1,321p
1 Total return is defined as Total comprehensive income for the year, under both
the Investment basis and the IFRS basis.
2 Financial measure defined as APM. Further information on page 18.
Disclaimer
These half-year results have been prepared solely to provide information to
shareholders. They should not be relied on by any other party or for any other
purpose. These half-year results may contain statements about the future,
including certain statements about the future outlook for 3i Group plc and its
subsidiaries ("3i" or "the Group"). These are not guarantees of future
performance and will not be updated. Although we believe our expectations are
based on reasonable assumptions, any statements about the future outlook may
be influenced by factors that could cause actual outcomes and results to be
materially different.
Enquiries:
Silvia Santoro, Group Investor Relations Director 020 7975 3258
Kathryn van der Kroft, Communications Director 020 7975 3021
A PDF copy of this release can be downloaded from
www.3i.com/investor-relations (http://www.3i.com/investor-relations)
For further information, including a live webcast of the results presentation
at 10.00am on 10 November 2022, please visit www.3i.com/investor-relations
(http://www.3i.com/investor-relations)
3i Group Half-year report 2022
Chief Executive's review
Against a tough macroeconomic backdrop, the Group delivered a good result in
the first half of its financial year, generating a total return of £1,765
million, or 14% on opening shareholders' funds (September 2021: £2,199
million, or 24%). The NAV per share at 30 September 2022 was 1,477 pence (31
March 2022: 1,321 pence), including a 74 pence gain on foreign exchange
translation, and after payment of the 27.25 pence second FY2022 dividend in
July 2022. Our Private Equity and Infrastructure portfolios continue to
perform well and demonstrate their trading resilience. We have remained active
and disciplined investors in more volatile markets, deploying capital in four
new investments for Private Equity and one new investment for Infrastructure.
We also completed or signed realisations totalling £669 million at good
premiums to their carrying values, underlining the quality of our portfolio.
Private Equity
The Private Equity portfolio delivered a gross investment return ("GIR") of
£1,970 million or 16% on opening value in the period, including a £685
million gain on foreign exchange translation. Despite a challenging
macroeconomic environment, 91%(1) of our portfolio companies by value grew
earnings in the last 12 months ("LTM") to the end of 30 June 2022. Our
portfolio is well constructed from a thematic, geographic and sector
perspective and continues to demonstrate resilience in the current
environment. A number of our portfolio companies in the value-for-money
consumer, healthcare, specialty industrial and business and technology service
sectors have generated strong earnings growth and have good momentum as we
head into the second half of our financial year. Our portfolio company
management teams have reacted quickly and decisively taking the necessary
actions to partially mitigate the impact of inflationary pressures and weaker
consumer sentiment across the portfolio. A small number of our portfolio
companies have been disproportionately affected by the current macroeconomic
environment and we continue to actively manage these companies through this
challenging period.
Our Private Equity portfolio is funded with all senior debt structures, with
long-dated maturity profiles and with over 80% of the total repayable from
2025 and beyond. Average leverage across our Private Equity portfolio was 2.7x
at 30 September 2022 (31 March 2022: 3.3x) or 4.1x excluding Action (31 March
2022: 4.6x). As part of our active portfolio management, we monitor and manage
our portfolio companies' interest rate related risk. Across our Private Equity
portfolio term debt is well protected against interest rate rises with over
two-thirds of total term debt hedged at a weighted average tenor of more than
3 years with the interest rate element capped at a weighted average hedge rate
below 2%. The average margin across the portfolio is under 4%, so the all in
debt cost across the portfolio is capped below 6%.
Action performance
Action continues to trade very strongly, reaffirming the attractiveness of its
low-price format to a wide range of increasingly price-conscious customers. In
the nine months ending on 2 October 2022 ("P9"), sales grew to €6.1 billion
(P9 2021: €4.8 billion) and like-for-like sales growth was 15.7%, with
footfall significantly ahead of last year. Action delivered LTM EBITDA of
€1,036 million to the end of P9 2022 (P9 2021: €765 million), a 35%
increase over the same period in the prior year. Action is seeing strong sales
growth across all countries and categories and margins continue to be well
managed, with tight operational cost control mitigating increased operating
costs. Strong trading continued through to 30 October 2022 ("P10"), with sales
increasing to €6.8 billion and LTM EBITDA of €1,057 million.
The business has opened 182 new stores in the year to the end of P10 2022 and
is on track to open more stores than it opened in 2021. Store roll-outs across
Poland and the Czech Republic are proceeding well and its new markets of Italy
and Spain are showing strong early trading, underpinning the case for further
sizeable store expansion in these countries. Action strengthened its
distribution infrastructure in the half by opening a new hub in Le Havre,
France and has plans to open three new distribution centres ("DCs") in 2023.
The business remains highly cash generative, with a cash balance of
approximately €800 million at P10 2022 and net debt to run-rate EBITDA of
under 2.0x.
1.LTM adjusted earnings to June 2022. Includes 31 companies.
Other portfolio performance
SaniSure continues to outperform our expectations, benefiting from sustained
demand for its products in the bioprocessing market. The business continues to
grow its top line and increase capacity in its manufacturing operations, which
will allow it to further accelerate its growth both organically and through
selected bolt-on acquisitions. nexeye's value-for-money omnichannel
proposition remains very attractive to its customers and the business
continues to expand its store network. The business added 13 stores in the
first six months of its financial year, taking the total number of stores to
723, with significant expansion potential remaining across its markets. Since
our initial investment in early 2021, we have seen WilsonHCG continue to prove
its value proposition in an attractive recruitment process outsourcing market,
helping its customers stay ahead of shifting labour market trends globally and
drive better results for reoccurring hiring needs. Tato traded well through
the first six months of 2022, with good overall demand for its products, and
has maintained good levels of supply. Whilst there are signs of more
challenging market conditions into the second half of 2022, Tato's global
footprint and specialty chemicals focus provide mitigation against potential
headwinds. AES has delivered a strong performance as a result of its leading
position in the global seal market. WP recorded a solid performance in the
period as the business benefits from exposure to non-discretionary products
and its broad geographical diversification.
We have seen a good increase in demand across our travel-related assets.
Audley Travel has demonstrated an encouraging recovery profile, particularly
in the US. arrivia's membership bookings have been ahead of 2019 levels,
however cruise travel recovery has been slower than expected, particularly
outside of the US. In September 2022, the business completed the bolt-on
acquisition of RedWeek, an online timeshare marketplace that connects
travellers to lodging options offered by timeshare owners.
Consumer discretionary spending is increasingly constrained due to high
inflation, cost of living pressures and weakening consumer sentiment. Like
many of its eCommerce peers, Luqom is experiencing muted demand as consumers
react to the current challenging backdrop and demand normalises from the peak
seen during the pandemic. During the period, the business made significant
progress on strategic and operating initiatives designed to mitigate the
current challenges and further improved its more resilient
Business-to-Business ("B2B") proposition through the acquisition of Brumberg.
Following a solid start to 2022, YDEON (previously known as GartenHaus) has
experienced a decline in order intake as a result of weaker discretionary
consumer spending. The price of YDEON's main raw material, wood, has
normalised at a lower level in recent months which will help to maintain
margins in the near term.
Investment and realisation activity in the period
The volume of buyout transactions across the market has slowed considerably
compared to 2021 and we continue to maintain discipline when assessing new and
bolt-on investments. We completed four new Private Equity investments
totalling £217 million: the £100 million investment in xSuite, an accounts
payable process automation specialist focused on the SAP ecosystem; the £60
million investment in Konges Sløjd, a premium brand offering apparel and
accessories for babies and children; the £37 million investment in
VakantieDiscounter, a technology-enabled online travel agency in the Benelux
focused on affordable holidays; and the £20 million investment in Digital
Barriers, a provider of unique video compression technology. We also completed
five bolt-on acquisitions for our portfolio companies including two (Luqom's
acquisition of Brumberg and arrivia's acquisition of RedWeek) that required
further funding from 3i and three which were self-funded by the portfolio
companies.
In the period, we completed or signed realisations totalling £669 million. We
completed the sale of Q Holding's QSR division, which we announced in April
2022, for proceeds of £190 million and retained a significant stake in its
medical business, QMD. In June 2022, we agreed the sale of Havea. We delivered
a significant strategic transformation in Havea during our holding period
resulting in double-digit organic growth and the completion of five bolt-on
acquisitions. We received proceeds of £476 million from the sale of Havea in
October 2022, representing a 50% uplift on its 31 March 2022 value, resulting
in a sterling money multiple of 3.1x and an IRR of 24%.
Infrastructure
In the six months to 30 September 2022, our Infrastructure business delivered
a GIR of £35 million or 3% on opening value, predominantly driven by a gain
on foreign exchange on investments of £58 million and good dividend income
offsetting a 12.4% decrease in the 3i Infrastructure plc ("3iN") share price
to 304 pence at 30 September 2022 (31 March 2022: 347 pence).
3iN generated a total return on its opening NAV of 9.3% in the six months to
30 September 2022 as its underlying portfolio continues to perform
significantly ahead of the expectations set at the beginning of this financial
year. During the period, 3iN completed its new investment in Global Cloud
Xchange ("GCX") and agreed the acquisition of an additional stake in its
existing portfolio company, TCR. 3iN also completed the sale of its European
projects portfolio to the 3i European Operational Projects Fund ("3i EOPF")
for £106 million.
Smarte Carte exceeded expectations in the period, as the business is
benefiting from strong US domestic leisure travel volumes increasing demand
for its airport service offering, as well as from valuable contract
improvements. The two assets in our North American Infrastructure platform are
performing well: Regional Rail has seen good performance across the majority
of its freight lines, largely offsetting inflationary pressures in fuel and
labour expenses; whilst EC Waste is seeing strength in the high margin
landfill segment.
Scandlines
Scandlines delivered a solid performance in the period. Freight volumes
remained strong, ahead of 2021 record levels, and leisure volumes traded ahead
of pre-pandemic levels during the peak summer months of July and August 2022.
The recovery in performance following the Covid-19 Omicron variant resulted in
a £12 million dividend to 3i in the period. Scandlines has good liquidity and
is well equipped to manage potential headwinds as a result of the uncertain
macroeconomic outlook.
Sustainability
We continue to advance our sustainability agenda, with a near-term focus on
the climate topic. We have continued to make good progress in the collection
of greenhouse gas ("GHG") emissions data from the portfolio with the objective
of setting a portfolio baseline, and are further improving our assessment of
climate-related risks and opportunities in our investment and portfolio
management processes and equipping the teams with the necessary skills. We
intend to report in alignment with the TCFD framework by the 2024 deadline set
by the FCA for asset managers such as 3i and will report on progress in that
direction in our next annual report.
Balance sheet, liquidity, foreign exchange and dividend
We increased our available liquidity in the period by introducing an
additional two-year £400 million tranche to the existing base £500 million
RCF; which matures in March 2027. The £400 million additional tranche
provides the Group with additional financial flexibility at low cost.
At 30 September 2022 we had total liquidity of £801 million (31 March 2022:
£729 million). Gross debt was £1,129 million, comprising £975 million of
fixed debt and a £154 million RCF drawdown. Net debt was £1,074 million and
gearing was 8% (31 March 2022: £746 million net debt, gearing 6%), before the
receipt of the Havea proceeds (£476 million) in early October 2022.
Post the period end, and in light of significant volatility in foreign
exchange markets, we implemented a medium-term foreign exchange hedging
programme to partially reduce the sensitivity of the Group's future returns to
euro and US dollar exchange movements. The exposure of the Group's underlying
investment portfolio to euro and US dollar has increased significantly in
recent years through the organic growth of our existing European and US
portfolio companies and due to the majority of our new investments being
denominated in euro and US dollar. At 30 September 2022, 88% of the Group's
net assets were denominated in euros or US dollars. As at 4 November 2022, the
notional amount of the forward foreign exchange contracts held by the Group
associated with this hedging programme was €2.0 billion and $1.2 billion. We
do not currently expect to extend this hedging programme materially beyond
these amounts. In addition, we have increased the size of our hedging
programme for Scandlines, increasing the notional amount from €500 million
to €600 million in September 2022. Following implementation of the hedging
programme, a 1% movement in the euro and US dollar would now result in a net
total return movement for 3i of £83 million and £13 million (30 September
2022 excluding hedging programme: £101 million and £24 million)
respectively.
In line with our dividend policy, we will pay a first FY2023 dividend of 23.25
pence, which is half of our FY2022 total dividend. This first FY2023 dividend
will be paid to shareholders on 11 January 2023.
Valuation
While the valuation of private assets has become a much debated subject over
the last 12 months, we have not changed our well-established approach to the
valuation of our Private Equity portfolio. Over many years, our valuation
approach has used "through the cycle" multiples, cross referenced where
appropriate with relevant transaction multiples. In practice, we have seen the
stock market increase in recent years to valuation levels we didn't view as
sustainable or as representative of fair value based on our cross-cycle marks.
Whilst we are not immune from this year's market correction and economic
headwinds, our cross-cycle valuation approach has limited the impact of the
recent market volatility across our portfolio, however we have reduced
valuation multiples for eight portfolio companies. Where there are limited
relevant public comparables for our portfolio companies, we look at a range of
alternatives that have similar growth and financial profiles. Our non-Action
portfolio companies, comprising businesses that target a doubling of
profitability over a five-year hold period, are held at a weighted average
multiple post liquidity discount of around 13x EBITDA. This compares
favourably with most other Private Equity portfolios and has consistently
delivered strong returns and healthy premiums on exit, as has recently been
demonstrated through the sales of Q Holding's QSR division and Havea.
Our largest investment, Action, has very few close comparators of a similar
growth and financial profile. Action has outstanding organic growth potential
and is one of those rare retail businesses that has demonstrated an ability to
expand across international borders. In addition, Action has consistently
outperformed the peers we currently reference across its most important
operating key performance indicators ("KPIs"). We use an 18.5x (post liquidity
discount) LTM run-rate EBITDA multiple to value Action and take comfort from
the fact that its excellent annual growth over the last 30 years, including
the last 11 years under our ownership, means this 18.5x historic multiple
translates to a much more modest prospective multiple. Action's excellent
growth meant its valuation at 30 September 2021 of 18.5x LTM run-rate EBITDA
translated to 13.8x the run-rate EBITDA achieved one year later.
Outlook
This was a good half for 3i against a tough macroeconomic and market backdrop.
We have carefully constructed our Private Equity and Infrastructure portfolios
over many years with the aim of generating good returns for our shareholders
across the market cycle. Over the past few years, there have been significant
levels of investment in the private equity industry, at elevated pricing and
often with significant leverage. In contrast to many private equity investors,
we were highly selective in the new investments made in 2020 and 2021, which
together account for only 5% by value of our current investment portfolio.
Action continues to exceed expectations as it attracts significant new
customer flow through very low prices and the flexibility of its category
format. Our wider portfolio is trading resiliently in the current environment,
while our investment teams continue to devote significant time to the assets
which have seen a deterioration in performance as a result of cost pressures
and reduced demand. We will continue to invest capital carefully, as well as
execute realisations selectively in the current volatile markets.
We are anticipating difficult macroeconomic conditions in 2023 which will
continue to present significant challenges to the consumer and corporate
sector alike and the Group's conservative capital structure gives us
considerable flexibility to respond to opportunities and developments as they
arise. Our near-term decisions will remain guided by patience and discipline
as we continue to deliver the significant growth potential of our existing
portfolio.
Simon Borrows
Chief Executive
9 November 2022
Business and Financial review
Private Equity
Our Private Equity business performed well in the first half, generating a GIR
of £1,970 million (September 2021: £2,373 million), or 16% of the opening
portfolio value (September 2021: 27%), including a gain on foreign exchange on
investments of £685 million (September 2021: £97 million).
Table 1: Gross investment return for the six months to 30 September
2022 2021
Investment basis £m £m
Realised (losses)/profits over value on the disposal of investments (4) 12
Unrealised profits on the revaluation of investments 1,244 2,219
Dividends - 10
Interest income from investment portfolio 39 33
Fees receivable 6 2
Foreign exchange on investments 685 97
Gross investment return 1,970 2,373
Gross investment return as a % of opening portfolio value 16% 27%
Investment
Table 2: Private Equity cash investment in the six months to 30 September 2022
Investment Type Business description/ bolt on description Date £m
xSuite New Accounts payable process automation specialist focused on the SAP ecosystem August 2022 100
Konges Sløjd New Premium brand offering apparel and accessories for babies and children August 2022 60
VakantieDiscounter New Online travel agency in the Benelux focused on affordable holidays August 2022 37
Digital Barriers New Provider of unique video compression technology August 2022 20
Total new cash investment 217
ten23 health Further Biologics drug product CDMO July 2022 13
Other Further Various Various 5
Total further cash investment 18
Luqom Further Brumberg: B2B manufacturer and distributor of luminaries and lighting products June 2022 34
arrivia Further RedWeek: Online timeshare marketplace September 2022 23
Total further cash investment for bolt-on investment 57
Total Private Equity Cash investment 292
Table 3: Private Equity portfolio bolt-on acquisitions - funded by the
portfolio company
in the six months to 30 September 2022
Asset Name of acquisition Business description of bolt-on investments Date
MAIT Nittmann & Pekoll Austrian abas ERP partner June 2022
Evernex XS International Specialist in a suite of IT lifecycle services and IT hardware lifecycle September 2022
support
Evernex Integra Provider of IT maintenance and cloud services September 2022
During the period, our Private Equity business invested £292 million
(September 2021: £58 million), comprising £235 million of new and further
investment and £57 million of bolt-on investments.
Our new investments in xSuite, VakantieDiscounter and Digital Barriers
continue to build on our thematic approach of digitalisation and technological
disruption. Our investment in Konges Sløjd already has a well-established
international footprint and has several organic opportunities to accelerate
its growth across Europe, Asia and North America. A description of the new
investments is provided in Table 2 and in the Chief Executive's review.
We continued our focus on buy-and-build acquisitions for a number of our
portfolio companies. Luqom completed the acquisition of Brumberg, a well-known
B2B lighting brand in Germany, whilst arrivia acquired RedWeek, a leading
timeshare rental marketplace. We supported these acquisitions with further
investments of £34 million and £23 million respectively. Our portfolio
companies also completed a number of self-funded bolt-on investments. MAIT
completed its acquisition of Nittmann & Pekoll, the fifth since our
investment, and Evernex completed its acquisitions of XS International and
Integra, enabling the business to expand its footprint in the US, Nordic and
Benelux markets.
We also invested a further £13 million in ten23 health to support the growth
of the platform.
Realisations
We recognised total realised proceeds of £193 million in the period
(September 2021: £118 million), of which £190 million was received following
the completion of the sale of Q Holding's QSR division.
Table 4: Private Equity realisations in the six months to 30 September 2022
31 March Uplift on
Calendar 2022 3i realised Profit/(loss) opening Residual
year value(1) proceeds in the year(2) Value(3) value
Investment Country invested £m £m £m % £m
Partial realisations
Q Holding US 2014 189 190 1 1% 272
Other n/a n/a 8 2 (6) n/a n/a
Deferred consideration
OneMed Sweden 2011 - 1 1 n/a -
Total Private Equity realisations 197 193 (4) - 272
1 For partial realisations and refinancings, 31 March 2022 value represents
value of stake sold or refinanced.
2 Cash proceeds realised in the period less opening value.
3 Profit in the year over opening value.
In June 2022, we agreed the sale of Havea at a 50% uplift to the value at 31
March 2022, for proceeds of £476 million. These proceeds were received in
October 2022, realising a sterling money multiple of 3.1x and a sterling IRR
of 24%.
Portfolio performance
Table 5: Unrealised profits/(losses) on the revaluation of Private Equity
investments(1) in the six months to 30 September
2022 2021
£m £m
Action
Performance 1,156 1,491
Earnings based valuations (excluding Action)
Performance 142 354
Multiple movements (180) 162
Other bases
Discounted cash flow ("DCF") 4 1
Other movements in unquoted investments (1) -
Imminent sale 154 166
Quoted portfolio (31) 45
Total 1,244 2,219
1 More information on our valuation methodology, including definitions and
rationale, is included in our Annual report and accounts 2022 on pages 212 to
213.
Action valuation and performance
In the 12 months to the end of Action's P9 2022 (which ended 2 October 2022),
the business continued to perform ahead of expectations, with strong sales,
earnings growth and cash generation driving the unrealised value growth of
£1,156 million (September 2021: £1,491 million), as shown in Table 5. As the
largest Private Equity investment by value, it represented 59% of the Private
Equity portfolio at 30 September 2022 (31 March 2022: 58%). Further
information on Action's performance in the period is provided in the Chief
Executive's review.
At 30 September 2022, Action was valued using its LTM run-rate earnings to the
end of P9 2022 of €1,135 million. The LTM run-rate earnings used included
our normal adjustment to reflect stores opened in the year. At 30 September
2022, Action was valued on a multiple of 18.5x net of the liquidity discount
(31 March 2022: 18.5x). This resulted in a valuation of our 52.7% stake in
Action of £8,612 million (31 March 2022: £7,165 million). As part of our
valuation process, we check our multiple based mark against the results of a
DCF analysis. The assumptions required to correlate our 30 September 2022
valuation mark through this DCF analysis are not demanding.
Performance (excluding Action)
Excluding Action, the performance of investments valued on an earnings basis
resulted in unrealised profits of £142 million (September 2021: £354
million), primarily driven by strong earnings growth and cash generation from
some of our portfolio companies operating in the value-for-money consumer,
healthcare, specialty industrials and business and technology service sectors.
This more than offset softer performance from companies in the discretionary
retail sector, which are experiencing challenging consumer headwinds.
SaniSure's strong first half performance was driven by robust industry demand
resulting in accelerated top line growth, which it was able to deliver via
investments in capacity and improvements in operational processes that
materially increased output. The company has had modest exposure to Covid-19
end-demand, which demand across the industry has moderated, and looking
forward SaniSure's core customer demand and commercial pipeline remain strong.
nexeye continues to perform well. The business has maintained an attractive
price point for customers helping to maintain order intake, whilst remaining
stringent on cost control, leading to good margins. Eyes + More, part of the
nexeye Group, has seen a gradual recovery in its German market and contributed
12 of the 13 new stores opened by nexeye in its financial year. WilsonHCG has
capitalised on the expansion of outsourcing in recruitment, evidenced by
expanding the scope of work with its existing customers and new customer wins.
WilsonHCG's onboarding of new customers, the reoccurring nature of its
relationships, and diversification across industries will help offset
potential headwinds in labour markets. Tato traded well in the period with
good overall demand for its products and is well positioned to mitigate more
challenging market conditions. AES continues to perform well financially and
operationally, whilst WP recorded a solid performance in the period as the
business benefits from exposure to non-discretionary products and its broad
geographical diversification.
With the re-opening of key travel destinations, Audley Travel benefited from
increased departure revenue and an increase in bookings in the period. Detail
on Audley Travel's valuation can be found under the DCF heading below.
arrivia's acquisition of RedWeek increases its exposure to the resilient
timeshare rentals end market where arrivia has strong customer relationships.
The business has seen an increase in memberships in the period, however its
recovery in cruise has been slower than expected.
Luqom has seen a normalisation in demand from the peak levels achieved during
the pandemic, as well as muted customer sentiment as a result of ongoing
pressures on disposable incomes. The business has made significant operational
and strategic improvements across sourcing, operations and pricing and its
acquisition of Brumberg increases its exposure to the more resilient
business-to-business segment. YDEON (formerly known as GartenHaus) has faced
similar headwinds to Luqom, with significant pressure on its order book. As a
result YDEON is initiating a broad set of measures to improve sales, reduce
the cost base and develop further international expansion opportunities. Mepal
has also seen softening demand from smaller offline retail customers and in
non-core markets.
Overall, 91%(1) of our portfolio companies by value in our Private Equity
portfolio grew their earnings in the 12 months to 30 June 2022.
Table 6: Portfolio earnings growth of the top 20 Private Equity investments(1)
3i carrying value
Number of companies at 30 September 2022
at 30 September 2022 £m
<0% 5 1,076
0 - 9% 4 1,170
10 - 19% 3 1,136
20 - 29% 2 279
≥30% 6 9,733
1 Includes top 20 Private Equity companies by value excluding Havea, which was
valued on imminent sale basis and Audley Travel, which was valued on a DCF
basis. This represents 92% of the Private Equity portfolio by value (31 March
2022: 96%). LTM adjusted earnings to 30 June 2022 and Action based on LTM
run-rate earnings to P9 2022. P9 2022 runs to 2 October 2022.
Our Private Equity portfolio is funded with all senior debt structures, with
long-dated maturity profiles with over 80% repayable from 2025 and beyond.
Across our Private Equity portfolio term debt is well protected against
interest rate rises with over two-thirds of total term debt hedged at a
weighted average tenor of more than 3 years with the interest rate element
capped at a weighted average hedge rate below 2%. The average margin across
the portfolio is under 4%, so the all in debt cost across two thirds of the
portfolio is capped below 6%. Average leverage was 2.7x at 30 September 2022
(31 March 2022: 3.3x). Excluding Action, leverage across the portfolio was
4.1x (31 March 2022: 4.6x). Table 7 shows the ratio of net debt to adjusted
earnings by portfolio value at 30 September 2022.
1.LTM adjusted earnings to June 2022. Includes 31 companies.
Table 7: Ratio of net debt to adjusted earnings(1)
3i carrying value
Number of companies at 30 September 2022
at 30 September 2022 £m
1 - 2x 3 8,984
2 - 3x 5 890
3 - 4x 6 1,449
4 - 5x 5 743
5 - 6x 1 314
>6x 3 234
1 This represents 87% of the Private Equity portfolio by value (31 March 2022:
92%). Quoted holdings, assets valued on an imminent sale basis, and companies
with net cash are excluded from the calculation. Net debt and adjusted
earnings as at 30 June 2022. Action based on net debt at P9 2022 and LTM
run-rate earnings to P9 2022.
Multiple movements
We continue our approach of taking a long-term through the cycle view on the
multiples used to value our portfolio companies, consistent with our approach
to value creation. When selecting multiples to value our portfolio companies
we consider a number of factors including recent performance and outlook,
comparable recent transactions and exit plans, and the performance of quoted
comparable companies. Since the start of this calendar year, capital markets
have been volatile, particularly since Russia's invasion of Ukraine, with
significant inflation and central bank interventions resulting in expectations
for lower growth or even contraction across major markets. As a consequence,
we have seen a derating of quoted comparable company multiples across the
majority of the portfolio, especially those with discretionary spending
exposure. The consistency of our long-term, through the cycle approach to the
setting of valuation multiples has enabled us largely to mitigate the impact
of recent market volatility. Whilst our portfolio companies often outperform
their quoted peers, we do take into account the derating of comparable
companies when determining the level of our multiples. As a result, we
adjusted eight of the valuation multiples for our portfolio companies,
recognising a decrease in value due to multiple movements of £180 million
(September 2021: £162 million value growth increase).
Action continues to trade strongly across all important KPI's and its relative
performance continues to compare favourably to any of its quoted comparable
peer group. As a result, we made no change to the multiple used to value
Action at 30 September 2022. Based on the valuation at 30 September 2022, a
1.0x movement in Action's post-discount multiple would increase or decrease
the valuation of 3i's investment by £526 million.
DCF
Audley Travel remains valued on a DCF basis. Audley Travel's performance has
improved significantly since the lifting of Covid-19 related travel
restrictions. We expect the travel market to continue to recover into 2023.
Imminent sale
At 30 September 2022, Havea was valued on an imminent sale basis after we
agreed a sale of the business at a 50% uplift to the 31 March 2022 value. The
uplift reflects Havea's strong organic growth, investments made in the
business during our ownership, and the strategic value of the business. We
received proceeds of £476 million in October 2022 from this divestment.
Quoted portfolio
Basic-Fit is the only quoted investment in our Private Equity portfolio. We
recognised an unrealised value loss of £31 million from Basic-Fit in the
period (September 2021: unrealised value gain of £45 million) as its share
price decreased to €30.98 at 30 September 2022 (31 March 2022: €40.42). At
30 September 2022, our residual 5.7% shareholding was valued at £103 million
(31 March 2022: £129 million).
Assets under management
The value of the Private Equity portfolio, including third-party capital,
increased to £19.6 billion (31 March 2022: £16.7 billion) principally due to
unrealised value movements in the period.
Table 8: Private Equity 3i vintage carrying value and money multiple
3i carrying value(3) Vintage 3i carrying value(3) Vintage
30 September 2022 money multiple(4) 31 March 2022 money multiple(4)
Vintages(1) £m 30 September 2022 £m 31 March 2022
Buyouts 2010-2012 2,959 13.3x 2,462 12.3x
Growth 2010-2012 26 2.2x 18 2.1x
2013-2016 934 2.4x 1,022 2.3x
2016-2019 2,445 1.9x 2,210 1.8x
2019-2022 1,497 1.5x 1,319 1.3x
2022-2025 223 1.0x - -
Other(2) 6,399 n/a 5,389 n/a
Total 14,483 12,420
1 Assets included in these vintages are disclosed in the Glossary on pages 47
and 49.
2 Includes value of £5,653 million (31 March 2022: £4,703 million) held in
Action through the 2020 Co-investment vehicles and 3i.
3 3i carrying value is the unrealised value for the remaining investments in
each vintage.
4 Vintage money multiple (GBP) includes realised value and unrealised value as
at the reporting date.
Table 9: Private Equity assets by geography
3i carrying value
at 30 September 2022
3i office location Number of companies £m
Netherlands 10 9,872
France 2 792
Germany 8 850
UK 9 1,056
US 9 1,882
Other 3 31
Total 41 14,483
Table 10: Private Equity assets by sector
3i carrying value
at 30 September 2022
Sector Number of companies £m
Action (Consumer) 1 8,612
Consumer 14 1,965
Industrial Technology 7 1,128
Business & Technology Services 13 895
Healthcare 6 1,883
Total 41 14,483
Infrastructure
Our Infrastructure portfolio generated a GIR of £35 million in the period, or
3% on the opening portfolio value (September 2021: £60 million, 5%),
including a gain on foreign exchange on investments of £58 million (September
2021: £7 million).
Table 11: Gross investment return for the six months to 30 September
2022 2021
Investment basis £m £m
Realised profits - 3
Unrealised (losses)/profits on the revaluation of investments (47) 30
Dividends 16 15
Interest income from investment portfolio 8 5
Foreign exchange on investments 58 7
Gross investment return 35 60
Gross investment return as a % of opening portfolio value 3% 5%
Fund management
3iN
3iN's portfolio continues to perform strongly, demonstrating a positive
correlation between inflation, power prices and total portfolio value and is
significantly ahead of the expectations set at the beginning of this financial
year. In the six months to 30 September 2022, 3iN generated a total return on
opening NAV of 9.3% (September 2021: 10.6%) and is on track to meet its
dividend target for the year to 31 March 2023 of 11.15 pence per share, up
6.7% year-on-year.
In the period, 3iN completed its $377 million investment to acquire a 100%
stake in GCX and agreed to acquire an additional stake in TCR for €394
million, in a transaction that closed in October 2022. 3iN also completed the
sale of its European projects portfolio to the 3i European Operational
Projects Fund ("3i EOPF") for £106 million.
As 3iN's investment manager, 3i received a management fee of £23 million in
the period (September 2021: £16 million).
North American Infrastructure platform
Both assets within our North American Infrastructure platform are performing
well. Regional Rail benefited from strong freight volumes from food and
agriculture customers, largely offsetting increased fuel and wage expenses. In
the period, Regional Rail agreed to acquire a portfolio of rail assets located
across central Canada, further diversifying its geographical footprint. EC
Waste saw good performance from its landfill segment with an increase in
special waste volumes. Both assets were valued on a DCF basis at 30 September
2022.
Other funds
Following the acquisition of the European projects portfolio from 3iN, 3i EOPF
has now deployed 85% of its total commitments. Both 3i EOPF and the 3i Managed
Infrastructure Acquisitions LP performed in line with expectations in the
period.
Assets under management
Infrastructure AUM was £5.9 billion at 30 September 2022 (31 March 2022:
£5.7 billion) and we generated fee income of £30 million from our fund
management activities in the period (September 2021: £23 million).
Table 12: Assets under management as at 30 September 2022
Fee
income
% invested(2) at earned in
Close 3i commitment/ Remaining 3i September AUM the period
Fund/strategy date Fund size share commitment 2022 £m £m
3iN(1) Mar 07 n/a £817m n/a n/a 2,706 23
3i Managed Infrastructure Acquisitions LP Jun 17 £698m £35m £5m 87% 1,160 2
3i European Operational Projects Fund Apr 18 €456m €40m €5m 85% 353 1
BIIF May 08 £680m n/a n/a 91% 479 2
3i India Infrastructure Fund Mar 08 US$1,195m US$250m n/a 73% - -
3i managed accounts various n/a n/a n/a n/a 518 1
3i North American Infrastructure platform Mar-22(3) US$495m US$300m US$116m 58% 377 1
US Infrastructure Nov-17 n/a n/a n/a n/a 304 -
Total 5,897 30
1 AUM based on the share price at 30 September 2022.
2 % invested is the capital deployed into investments against the total Fund
commitment.
3 First close completed in March 2022.
3i's Infrastructure investment portfolio
Quoted stake in 3iN
3iN's share price decreased by 12.4% in the period, closing at 304 pence on 30
September 2022 (31 March 2022: 347 pence), resulting in the recognition of a
£117 million unrealised value loss (September 2021: £20 million unrealised
value gain) on our 3iN investment. We partially offset this unrealised value
loss with £14 million of dividend income in the period (September 2021: £13
million). At 30 September 2022, our investment in 3iN was valued at £817
million (31 March 2022: £934 million).
Smarte Carte
Smarte Carte has outperformed compared to expectations, due to the strong
recovery in the domestic US travel market and resulting demand for its airport
service offering. As at 30 September 2022, Smarte Carte was valued on a DCF
basis in line with our policy for infrastructure assets.
Table 13: Unrealised (losses)/profits on the revaluation of Infrastructure
investments(1) in the six months to 30 September
2022 2021
£m £m
Quoted (117) 20
DCF 63 8
Fund/other 7 2
Total (47) 30
1 More information on our valuation methodology, including definitions and
rationale, is included in our Annual report and accounts 2022 on pages 212 to
213.
Scandlines
Scandlines generated a GIR of £11 million (September 2021: £30 million) or
2% of opening portfolio value in the period (September 2021: 7%).
Table 14: Gross investment return for the six months to 30 September
2022 2021
Investment basis £m £m
Unrealised profit on the revaluation of investments - 30
Dividends 12 -
Foreign exchange on investments 21 4
Movement in the fair value of derivatives (22) (4)
Gross investment return 11 30
Gross investment return as a % of opening portfolio value 2% 7%
Performance
Scandlines delivered a solid performance in the period. Freight volumes
remained strong, ahead of 2021 record levels, and leisure volumes were ahead
of pre-pandemic levels during the peak summer months of July and August 2022.
The business remains cash generative and we received a dividend of £12
million in the period. At 30 September 2022, Scandlines was valued at £554
million (31 March 2022: £533 million) on a DCF basis and this valuation
reflects the proven resilience the business continues to demonstrate and its
ability to manage through potential short-term pressure on freight and leisure
volumes as a result of current macroeconomic headwinds.
Foreign exchange
We hedge the balance sheet value of our investment in Scandlines for foreign
exchange translation risks. In September 2022, we increased the size of this
hedging programme from €500 million to €600 million to cover the higher
underlying valuation of our investment.
We recognised a £21 million gain on foreign exchange translation (September
2021: £4 million) offset by a £22 million fair value loss (September 2021:
£4 million) from derivatives in our hedging programme.
Overview of financial performance
We generated a total return of £1,765 million, or a profit on opening
shareholders' funds of 14%, in the six months to 30 September 2022 (September
2021: £2,199 million, or 24%). The diluted NAV per share at 30 September 2022
increased to 1,477 pence (31 March 2022: 1,321 pence) including the 74 pence
gain on foreign exchange translation in the period, and after the payment of
the second FY2022 dividend of £262 million, or 27.25 pence per share in July
2022 (September 2021: £203 million, 21.0 pence per share).
Table 15: Gross investment return for the six months to 30 September
2022 2021
Investment basis £m £m
Private Equity 1,970 2,373
Infrastructure 35 60
Scandlines 11 30
Gross investment return 2,016 2,463
Gross investment return as a % of opening portfolio value 14% 24%
Total comprehensive income ("Total return") 1,765 2,199
Total return on opening shareholders' funds 14% 24%
GIR was £2,016 million in the period (September 2021: £2,463 million) driven
by the strong performance of Action and some of our portfolio companies
operating in the value-for-money consumer, healthcare, specialty industrial
and business and technology service sectors. The GIR also includes a £742
million net foreign exchange gain on translation of our investments (September
2021: £104 million gain). Further information on the Private Equity,
Infrastructure and Scandlines valuations is included in the business reviews.
Operating cash loss
Table 16: Operating cash loss for the six months to 30 September
2022 2021
£m £m
Cash fees from external funds 33 24
Cash portfolio fees 1 3
Cash portfolio dividends and interest 33 26
Cash income 67 53
Cash operating expenses(1) (84) (72)
Operating cash loss (17) (19)
1 Cash operating expenses include operating expenses paid and lease payments.
We generated an operating cash loss of £17 million in the period (September
2021: £19 million). Cash income increased to £67 million (September 2021:
£53 million) principally due to an increase in dividend income and
third-party fee income compared to the same period last year. Cash operating
expenses incurred during the period increased to £84 million (September 2021:
£72 million) driven principally by higher compensation costs. We expect to
report an operating cash profit at 31 March 2023, due to a good pipeline of
cash income.
Net foreign exchange movements
At 30 September 2022, 88% of the Group's net assets were denominated in euros
or US dollars (31 March 2022: 86%). The Group recorded a total foreign
exchange translation gain of £711 million net of derivatives during the
period (September 2021: £98 million) as a result of the weakening of sterling
against the euro and US dollar.
Post the period end, and in light of significant volatility in foreign
exchange markets, we implemented a medium-term foreign exchange hedging
programme to partially reduce the sensitivity of the Group's future returns to
euro and US dollar exchange movements. The exposure of the Group's underlying
investment portfolio to euro and US dollar has increased significantly in
recent years through the organic growth of our existing European and US
portfolio companies and due to the majority of our new investments being
denominated in euro and US dollar. As at 4 November 2022, the notional amount
of the forward foreign exchange contracts held by the Group associated with
this hedging programme was €2.0 billion and $1.2 billion. We do not
currently expect to extend this hedging programme materially beyond these
amounts. The total notional amount of the forward foreign exchange contracts
held by the Group, including the Scandlines hedging programming, is €2.6
billion and $1.2 billion.
Table 17 sets out the sensitivity of net assets to foreign exchange movements
at 30 September 2022 and post 30 September 2022 including the hedging
programme.
Table 17: Net assets and sensitivity by currency at 30 September 2022
Net 1% 1%
assets sensitivity sensitivity(2) (after
hedging programme
implemented post
30 September 2022)
FX rate £m % £m £m
Sterling n/a 1,500 10% n/a n/a
Euro(1) 1.1387 10,104 71% 101 83
US dollar 1.1162 2,365 17% 24 13
Danish krone 8.4681 238 2% 2 2
Other n/a 33 - n/a n/a
Total 14,240
1 Sensitivity impact is net of derivatives at 30 September 2022.
2 Sensitivity based on net assets at 30 September 2022 including the impact of
the hedging programme implemented post 30 September 2022. Euro and US dollar
sensitivity is net of derivatives.
Carried interest and performance fees
We pay carried interest to participants in plans relating to our proprietary
capital invested. We also receive performance fees from third-party funds and
pay a portion of those performance fees to participants in our carry plans.
Carried interest at 30 September 2022 was calculated assuming that remaining
assets in the portfolio were realised
at their fair value at that date.
Table 18: Carried interest and performance fees for the six months to 30
September
Investment basis Statement of comprehensive income 2022 2021
£m £m
Carried interest and performance fees receivable
Private Equity 2 2
Total 2 2
Carried interest and performance fees payable
Private Equity (157) (194)
Infrastructure (5) (6)
Total (162) (200)
Net carried interest payable (160) (198)
Table 19: Carried interest and performance fees
Investment basis Statement of financial position 30 September 31 March
2022 2022
£m £m
Carried interest and performance fees receivable
Private Equity 10 8
Infrastructure - 51
Total 10 59
Carried interest and performance fees payable
Private Equity (1,106) (926)
Infrastructure (8) (37)
Total (1,114) (963)
In Private Equity, we typically accrue net carried interest payable at between
10% and 13% of GIR. We accrued carried interest payable of £157 million
(September 2021: £194 million) for Private Equity in the period. This was
driven by the continued strong performance of the 2010-12 vintage, which
includes Action, as well as by the return generated by other Private Equity
carry vintages.
Carried interest is paid to participants when cash proceeds have actually been
received following a realisation, refinancing event or other cash distribution
and performance hurdles are passed in cash terms. Due to the time between
investment and realisation, the schemes are usually active for a number of
years. Their participants are both current and previous employees of 3i. Total
carried interest and performance fee cash paid in the period was £39 million
(30 September 2021: £13 million), and total performance fee cash received in
the period was £51 million (30 September 2021: £8 million).
Overall, the effect of the income statement charge, the cash payments, as well
as the currency translation meant that the balance sheet carried interest and
performance fees payable increased to £1,114 million at 30 September 2022 (31
March 2022: £963 million).
Balance sheet
Table 20: Simplified consolidated balance sheet
30 September 31 March
2022 2022
Investment basis £m £m
Investment portfolio 16,417 14,305
Gross debt (1,129) (975)
Cash and deposits 55 229
Net debt (1,074) (746)
Carried interest and performance fees receivable 10 59
Carried interest and performance fees payable (1,114) (963)
Other net assets 1 99
Net assets 14,240 12,754
Gearing(1) 8% 6%
1 Gearing is net debt as a percentage of net assets.
The investment portfolio value increased to £16,417 million at 30 September
2022 (31 March 2022: £14,305 million) driven by unrealised profit of £1,197
million and gains on foreign exchange translation.
At 30 September 2022, the Group had net debt of £1,074 million (31 March
2022: £746 million) after the payment of the second FY2022 dividend of £262
million.
Going concern and liquidity
The Half-year consolidated financial statements are prepared on a going
concern basis following the assessment by the Directors, taking into account
the Group's current performance and outlook.
Liquidity increased to £801 million at 30 September 2022 (31 March 2022:
£729 million) and comprised cash and deposits of £55 million (31 March 2022:
£229 million) and a facility of £746 million (31 March 2022: £500 million).
Net debt was £1,074 million (31 March 2022: £746 million) and gearing was 8%
(31 March 2022: 6%).
In July 2022, we increased our available liquidity by introducing an
additional two-year £400 million tranche to the existing base £500 million
RCF which matures in March 2027. At 30 September 2022, £154 million was
drawn. The RCF drawdown was repaid in October 2022.
Alternative Performance Measures ("APMs") .
We assess our performance using a variety of measures that are not
specifically defined under IFRS and are therefore termed APMs. The APMs that
we use may not be directly comparable with those used by other companies. Our
Investment basis is itself an APM.
The explanation of and rationale for the Investment basis and its
reconciliation to IFRS is provided from page 20. The table below defines our
additional APMs and should be read in conjunction with our Annual report and
accounts 2022.
APM Purpose Calculation Reconciliation to IFRS
Gross investment return as a percentage of opening portfolio value A measure of the performance of our investment portfolio. For further It is calculated as the gross investment return, as shown in the Investment The equivalent balances under IFRS and the reconciliation to the Investment
information, see the Group KPIs in our Annual report and accounts 2022. basis Consolidated statement of comprehensive income, as a % of the opening basis are shown in the Reconciliation of consolidated statement of
portfolio value. comprehensive income and the Reconciliation of consolidated statement of
financial position respectively.
Cash realisations Cash proceeds from our investments support our returns to shareholders, as The cash received from the disposal of investments in the period as shown in The equivalent balance under IFRS and the reconciliation to the Investment
well as our ability to invest in new opportunities. For further information, the Investment basis Consolidated cash flow statement. basis is shown in the Reconciliation of consolidated cash flow statement.
see the Group KPIs in our Annual report and accounts 2022.
Cash investment Identifying new opportunities in which to invest proprietary capital is the The cash paid to acquire investments and recognising syndications in the The equivalent balance under IFRS and the reconciliation to the Investment
primary driver of the Group's ability to deliver attractive returns. For period as shown on the Investment basis Consolidated cash flow statement. basis is shown in the Reconciliation of consolidated cash flow statement.
further information, see the Group KPIs in our Annual report and accounts
2022.
Operating cash By covering the cash cost of running the business with cash income, we reduce The cash income from the portfolio (interest, dividends and fees) together The equivalent balance under IFRS and the reconciliation to the Investment
profit/(loss) the potential dilution of capital returns. For further information, see the with fees received from external funds less cash operating expenses and leases basis is shown in the Reconciliation of consolidated cash flow statement.
Group KPIs in our Annual report and accounts 2022. payments as shown on the Investment basis Consolidated cash flow statement.
The calculation is shown in Table 16 of the Overview of financial performance.
Net cash/(net debt) A measure of the available cash to invest in the business and an indicator of Cash and cash equivalents plus deposits less loans and borrowings as shown on The equivalent balance under IFRS and the reconciliation to the Investment
the financial risk in the Group's balance sheet. the Investment basis Consolidated statement of financial position. basis is shown in the Reconciliation of consolidated statement of financial
position.
Gearing A measure of the financial risk in the Group's balance sheet. Net debt (as defined above) as a % of the Group's net assets under the The equivalent balance under IFRS and the reconciliation to the Investment
Investment basis. It cannot be less than zero. basis is shown in the Reconciliation of consolidated statement of financial
position.
Principal risks and uncertainties
3i's risk appetite statement, approach to risk management and governance
structure are set out in the Risk section of the Annual report and accounts
2022, which can be accessed on the Group's website at www.3i.com
(http://www.3i.com) .
Notwithstanding increased market volatility, global economic uncertainty and
current geopolitical tensions, the principal risks to the achievement of the
Group's strategic objectives are unchanged from those reported on pages 67 to
71 of the Annual report and accounts 2022 and remain broadly stable in terms
of impact and likelihood. Given the challenging external operating environment
and uncertain outlook, the Group's principal risks continue to be closely
monitored and may be subject to change.
Principal risks
External - Risks arising from external factors including political, legal,
regulatory, economic and competitor changes, which affect the Group's
investment portfolio and operations.
As noted above, there is considerable uncertainty in the outlook for the
global economy, impacted by a range of factors including increased cost of
living, higher interest rates and lower forecast economic growth. These
economic headwinds have the potential to affect trading performance, liquidity
and valuations in varying degrees across 3i's investment portfolio. As
outlined below, 3i has a well-funded balance sheet and a diverse portfolio of
international companies operating in a range of different sectors, which has
continued to perform well overall.
Investment - Risks in respect of specific asset investment decisions, the
subsequent performance of an investment or exposure concentrations across
business line portfolios.
The portfolio continues to perform well in the current economic conditions.
However, some portfolio companies are potentially more exposed to the adverse
effects of, for example, higher energy prices and the impact of higher living
costs on consumer discretionary spend. This is being closely monitored. The
current economic and market uncertainties add complexity to transactions; for
example, pricing and the setting of investment case assumptions. In addition,
changes to the availability and pricing of debt could potentially impact
investment activity or refinancing plans.
Operational - Risks arising from inadequate or failed processes, people and
systems or from external factors affecting these.
The Group's day-to-day operations have been stable in the period. This
includes the continued resilience and security of the Group's IT systems and
maintenance of robust processes and internal controls. Staff turnover rates
have been stable notwithstanding a competitive recruitment market.
Capital management - Risks in relation to the management of capital resources
including liquidity risk, currency exposures and leverage risk
3i's approach to capital management remains conservative, with a well-funded
balance sheet and low company debt. The company increased available liquidity
in July 2022 by way of an additional two-year £400 million tranche to the
existing base £500 million RCF which matures in March 2027. This provides the
Company with additional financial flexibility at low cost. The investment and
divestment pipeline and balance of investment and realisation flows are
subject to regular reviews.
Post the period end, the Group implemented a medium-term foreign exchange
hedging programme to partially reduce the sensitivity of the Group's future
returns to euro and US dollar exchange movements as part of its overall
capital management approach.
The Half-year report provides an update on 3i's strategy and business
performance, as well as on market conditions, which is relevant to the Group's
overall risk profile and should be viewed in the context of the Group's risk
management framework and principal risks as disclosed in the Annual report and
accounts 2022.
Reconciliation of the Investment basis to IFRS
Background to Investment basis numbers used in the Half-year report
The Group makes investments in portfolio companies directly, held by 3i Group
plc, and indirectly, held through intermediate holding company and partnership
structures ("investment entity subsidiaries"). It also has other operational
subsidiaries, which provide services and other activities such as employment,
regulatory activities, management and advice ("trading subsidiaries"). The
application of IFRS 10 requires us to fair value a number of investment entity
subsidiaries that were previously consolidated line by line. This fair value
approach, applied at the investment entity subsidiary level, effectively
obscures the performance of our proprietary capital investments and associated
transactions occurring in the investment entity subsidiaries.
The financial effect of the underlying portfolio companies and fee income,
operating expenses and carried interest transactions occurring in investment
entity subsidiaries are aggregated into a single value. Other items which were
previously eliminated on consolidation are now included separately.
To maintain transparency and aid understanding of our results, we include a
separate non-GAAP "Investment basis" consolidated statement of comprehensive
income, financial position and cash flow. The Investment basis is an APM and
the Chief Executive's review and the Business and financial review are
prepared using the Investment basis, as we believe it provides a more
understandable view of our performance. Total return and net assets are equal
under the Investment basis and IFRS; the Investment basis is simply a "look
through" of IFRS 10 to present the underlying performance.
A more detailed explanation of the effect of IFRS 10 is provided in the Annual
report and accounts 2022 on page 53.
Reconciliation between Investment basis and IFRS
A detailed reconciliation from the Investment basis to IFRS basis of the
Consolidated statement of comprehensive income, Consolidated statement of
financial position and Consolidated cash flow statement is shown on pages 21
to 24.
Reconciliation of consolidated statement of comprehensive income
Six months to 30 September 2022 Six months to 30 September 2021
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Notes £m £m £m £m £m £m
Realised (losses)/profits over value 1,2 (4) 2 (2) 15 (4) 11
on the disposal of investments
Unrealised profits 1,2 1,197 (657) 540 2,279 (1,205) 1,074
on the revaluation of investments
Fair value movements 1 - 962 962 - 1,094 1,094
on investment entity subsidiaries
Portfolio income
Dividends 1,2 28 (12) 16 25 (3) 22
Interest income from investment portfolio 1,2 47 (32) 15 38 (25) 13
Fees receivable 1,2 6 - 6 2 1 3
Foreign exchange on investments 1,4 764 (502) 262 108 (66) 42
Movement in the fair value of derivatives (22) - (22) (4) - (4)
Gross investment return 2,016 (239) 1,777 2,463 (208) 2,255
Fees receivable from external funds 33 - 33 25 - 25
Operating expenses 1,3 (67) 1 (66) (56) - (56)
Interest received 1 1 - 1 - - -
Interest paid 1 (27) - (27) (27) - (27)
Exchange movements 1,4 (31) 51 20 (6) 5 (1)
Income from investment entity subsidiaries 1 - 28 28 - 11 11
Other income 1 - 1 - - -
Operating profit before carried interest 1,926 (159) 1,767 2,399 (192) 2,207
Carried interest
Carried interest and performance 1,3 2 - 2 2 - 2
fees receivable
Carried interest and performance 1,3 (162) 153 (9) (200) 190 (10)
fees payable
Operating profit before tax 1,766 (6) 1,760 2,201 (2) 2,199
Tax charge 1,3 (1) - (1) (2) - (2)
Profit for the period 1,765 (6) 1,759 2,199 (2) 2,197
Other comprehensive income that may be reclassified to the income statement
Exchange differences on translation of foreign operations 1,4 - 6 6 - 2 2
Other comprehensive expense that will not be reclassified to the income
statement
Re-measurement of defined - - - - - -
benefit plans
Other comprehensive income for the period - 6 6 - 2 2
Total comprehensive income for 1,765 - 1,765 2,199 - 2,199
the period ("Total return")
Notes:
1 Applying IFRS 10 to the Consolidated statement of comprehensive income
consolidates the line items of a number of previously consolidated
subsidiaries into a single line item "Fair value movements on investment
entity subsidiaries". In the Investment basis accounts we have disaggregated
these line items to analyse our total return as if these investment entity
subsidiaries were fully consolidated, consistent with prior periods. The
adjustments simply reclassify the Consolidated statement of comprehensive
income of the Group, and the total return is equal under the Investment basis
and the IFRS basis.
2 Realised profits, unrealised profits and portfolio income shown in the IFRS
accounts only relate to portfolio companies that are held directly by 3i Group
plc and not those portfolio companies held through investment entity
subsidiaries. Realised profits, unrealised profits and portfolio income in
relation to portfolio companies held through investment entity subsidiaries
are aggregated into the single "Fair value movement on investment entity
subsidiaries" line. This is the most significant reduction of information in
our IFRS accounts.
3 Other items also aggregated into the "Fair value movements on investment
entity subsidiaries" line include operating expenses, carried interest and
performance fees receivable, carried interest and performance fees payable and
tax. Operating expenses, carried interest and performance fees receivable and
tax do not impact fair value movements on investment entity subsidiaries for
the six months to 30 September 2022.
4 Foreign exchange movements have been reclassified under the Investment basis
as foreign currency asset and liability movements. Movements within the
investment entity subsidiaries are included within "Fair value movements on
investment entity subsidiaries".
Reconciliation of consolidated statement of financial position
As at 30 September 2022 As at 31 March 2022
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (audited)
Notes £m £m £m £m £m £m
Assets
Non-current assets
Investments
Quoted investments 1 920 (103) 817 1,063 (129) 934
Unquoted investments 1 15,497 (8,763) 6,734 13,242 (7,534) 5,708
Investments in investment entity subsidiaries 1,2 - 7,817 7,817 - 6,791 6,791
Investment portfolio 16,417 (1,049) 15,368 14,305 (872) 13,433
Carried interest and performance 1 9 1 10 8 1 9
fees receivable
Other non-current assets 1 50 (4) 46 50 (5) 45
Intangible assets 6 - 6 6 - 6
Retirement benefit surplus 53 - 53 53 - 53
Property, plant and equipment 3 - 3 3 - 3
Right of use asset 11 - 11 13 - 13
Derivative financial instruments 1 - 1 7 - 7
Deferred income taxes 1 - 1 1 - 1
Total non-current assets 16,551 (1,052) 15,499 14,446 (876) 13,570
Current assets
Carried interest and performance 1 1 - 1 51 - 51
fees receivable
Other current assets 1 21 (3) 18 105 (1) 104
Current income taxes 1 - 1 1 - 1
Derivative financial instruments 4 - 4 10 - 10
Cash and cash equivalents 1 55 (17) 38 229 (17) 212
Total current assets 82 (20) 62 396 (18) 378
Total assets 16,633 (1,072) 15,561 14,842 (894) 13,948
Liabilities
Non-current liabilities
Trade and other payables 1 (21) 7 (14) (21) 7 (14)
Carried interest and performance 1 (1,110) 1,062 (48) (915) 873 (42)
fees payable
Loans and borrowings (775) - (775) (775) - (775)
Retirement benefit deficit (27) - (27) (26) - (26)
Lease liability (7) - (7) (9) - (9)
Derivative financial instruments (12) - (12) - - -
Deferred income taxes (1) - (1) (1) - (1)
Provisions (3) - (3) (3) - (3)
Total non-current liabilities (1,956) 1,069 (887) (1,750) 880 (870)
Current liabilities
Trade and other payables 1 (69) 3 (66) (81) 1 (80)
Carried interest and performance fees payable 1 (4) - (4) (48) 13 (35)
Loans and borrowings (354) - (354) (200) - (200)
Lease liability (5) - (5) (5) - (5)
Derivative financial instruments (1) - (1) - - -
Current income taxes (4) - (4) (4) - (4)
Total current liabilities (437) 3 (434) (338) 14 (324)
Total liabilities (2,393) 1,072 (1,321) (2,088) 894 (1,194)
Net assets 14,240 - 14,240 12,754 - 12,754
Equity
Issued capital 719 - 719 719 - 719
Share premium 790 - 790 789 - 789
Other reserves 3 12,839 - 12,839 11,346 - 11,346
Own shares (108) - (108) (100) - (100)
Total equity 14,240 - 14,240 12,754 - 12,754
Notes:
1 Applying IFRS 10 to the Consolidated statement of financial position
aggregates the line items of investment entity subsidiaries into the single
line item "Investments in investment entity subsidiaries". In the Investment
basis, we have disaggregated these items to analyse our net assets as if the
investment entity subsidiaries were consolidated. The adjustment reclassifies
items in the Consolidated statement of financial position. There is no change
to the net assets, although for reasons explained below, gross assets and
gross liabilities are different. The disclosure relating to portfolio
companies is significantly reduced by the aggregation, as the fair value of
all investments held by investment entity subsidiaries is aggregated into the
"Investments in investment entity subsidiaries" line. We have disaggregated
this fair value and disclosed the underlying portfolio holding in the relevant
line item, ie quoted investments or unquoted investments. Other items which
may be aggregated include carried interest, other assets and other payables,
and the Investment basis presentation again disaggregates these items.
2 Intercompany balances between investment entity subsidiaries and trading
subsidiaries also impact the transparency of our results under the IFRS basis.
If an investment entity subsidiary has an intercompany balance with a
consolidated trading subsidiary of the Group, then the asset or liability of
the investment entity subsidiary will be aggregated into its fair value, while
the asset or liability of the consolidated trading subsidiary will be
disclosed as an asset or liability in the Consolidated statement of financial
position of the Group.
3 Investment basis financial statements are prepared for performance measurement
and therefore reserves are not analysed separately under this basis.
Reconciliation of consolidated cash flow statement
Six months to 30 September 2022 Six months to 30 September 2021
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Notes £m £m £m £m £m £m
Cash flow from operating activities
Purchase of investments 1 (241) 209 (32) (59) 35 (24)
Proceeds from investments 1 228 (194) 34 123 (61) 62
Amounts paid to investment entity subsidiaries 1 - (233) (233) - (50) (50)
Amounts received from investment entity subsidiaries 1 - 220 220 - 78 78
Net cash flow from derivatives 4 - 4 6 - 6
Portfolio interest received 1 2 (2) - - - -
Portfolio dividends received 1 31 (12) 19 26 (3) 23
Portfolio fees received 1 1 - 1 3 - 3
Fees received from external funds 33 - 33 24 - 24
Carried interest and performance fees received 1 51 - 51 8 - 8
Carried interest and performance fees paid 1 (39) 11 (28) (13) - (13)
Operating expenses paid (81) - (81) (70) - (70)
Co-investment loans received/(paid) 1 - 1 1 (4) - (4)
Tax paid - - - (1) - (1)
Interest received 1 1 - 1 - - -
Net cash flow from operating activities (10) - (10) 43 (1) 42
Cash flow from financing activities
Issue of shares 1 - 1 - - -
Purchase of own shares (30) - (30) - - -
Dividend paid (262) - (262) (203) - (203)
Lease payments (3) - (3) (2) - (2)
Interest paid (20) - (20) (19) - (19)
Drawdown of revolving credit facility 145 - 145 - - -
Net cash flow from financing activities (169) - (169) (224) - (224)
Change in cash and cash equivalents 2 (179) - (179) (181) (1) (182)
Cash and cash equivalents at the start of the period 2 229 (17) 212 225 (9) 216
Effect of exchange rate fluctuations 1 5 - 5 - 3 3
Cash and cash equivalents at the end of the period 2 55 (17) 38 44 (7) 37
Notes:
1 The Consolidated cash flow statement is impacted by the application of IFRS 10
as cash flows to and from investment entity subsidiaries are disclosed, rather
than the cash flows to and from the underlying portfolio. Therefore, in our
Investment basis financial statements, we have disclosed our consolidated cash
flow statement on a "look through" basis, in order to reflect the underlying
sources and uses of cash flows and disclose the underlying investment
activity.
2 There is a difference between the change in cash and cash equivalents of the
Investment basis financial statements and the IFRS financial statements
because there are cash balances held in investment entity subsidiaries. Cash
held within investment entity subsidiaries will not be shown in the IFRS
statements but will be seen in the Investment basis statements.
IFRS Financial statements
Condensed consolidated statement of comprehensive income
Six months to Six months to
30 September 30 September
2022 2021
(unaudited) (unaudited)
Notes £m £m
Realised (losses)/profits over value on the disposal of investments 2 (2) 11
Unrealised profits on the revaluation of investments 3 540 1,074
Fair value movements on investment entity subsidiaries 8 962 1,094
Portfolio income
Dividends 16 22
Interest income from investment portfolio 15 13
Fees receivable 4 6 3
Foreign exchange on investments 262 42
Movement in the fair value of derivatives (22) (4)
Gross investment return 1,777 2,255
Fees receivable from external funds 4 33 25
Operating expenses (66) (56)
Interest received 1 -
Interest paid (27) (27)
Exchange movements 20 (1)
Income from investment entity subsidiaries 28 11
Other income 1 -
Operating profit before carried interest 1,767 2,207
Carried interest
Carried interest and performance fees receivable 4 2 2
Carried interest and performance fees payable (9) (10)
Operating profit before tax 1,760 2,199
Tax charge (1) (2)
Profit for the period 1,759 2,197
Other comprehensive income that may be reclassified to the income statement
Exchange differences on translation of foreign operations 6 2
Other comprehensive expense that will not be reclassified to the income
statement
Re-measurements of defined benefit plans - -
Other comprehensive income for the period 6 2
Total comprehensive income for the period ("Total return") 1,765 2,199
Earnings per share
Basic (pence) 5 182.7 227.4
Diluted (pence) 5 182.5 226.9
The Notes to the accounts section forms an integral part of these financial
statements.
Condensed consolidated statement of financial position
30 September 31 March
2022 2022
(unaudited) (audited)
Notes £m £m
Assets
Non-current assets
Investments
Quoted investments 7 817 934
Unquoted investments 7 6,734 5,708
Investments in investment entity subsidiaries 8 7,817 6,791
Investment portfolio 15,368 13,433
Carried interest and performance fees receivable 10 9
Other non-current assets 46 45
Intangible assets 6 6
Retirement benefit surplus 53 53
Property, plant and equipment 3 3
Right of use asset 11 13
Derivative financial instruments 1 7
Deferred income taxes 1 1
Total non-current assets 15,499 13,570
Current assets
Carried interest and performance fees receivable 1 51
Other current assets 18 104
Current income taxes 1 1
Derivative financial instruments 4 10
Cash and cash equivalents 38 212
Total current assets 62 378
Total assets 15,561 13,948
Liabilities
Non-current liabilities
Trade and other payables (14) (14)
Carried interest and performance fees payable (48) (42)
Loans and borrowings (775) (775)
Retirement benefit deficit (27) (26)
Lease liability (7) (9)
Derivative financial instruments (12) -
Deferred income taxes (1) (1)
Provisions (3) (3)
Total non-current liabilities (887) (870)
Current liabilities
Trade and other payables (66) (80)
Carried interest and performance fees payable (4) (35)
Loans and borrowings (354) (200)
Lease liability (5) (5)
Derivative financial instruments (1) -
Current income taxes (4) (4)
Total current liabilities (434) (324)
Total liabilities (1,321) (1,194)
Net assets 14,240 12,754
Equity
Issued capital 719 719
Share premium 790 789
Capital redemption reserve 43 43
Share-based payment reserve 27 33
Translation reserve - (6)
Capital reserve 11,657 10,151
Revenue reserve 1,112 1,125
Own shares (108) (100)
Total equity 14,240 12,754
The Notes to the accounts section forms an integral part of these financial
statements.
Condensed consolidated statement of changes in equity
For the six months to Share-
30 September 2022
(unaudited)
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve(1) reserve(1) shares equity
£m £m £m £m £m £m £m £m £m
Total equity at the start of 719 789 43 33 (6) 10,151 1,125 (100) 12,754
the period
Profit for the period - - - - - 1,686 73 - 1,759
Exchange differences on translation of foreign operations - - - - 6 - - - 6
Re-measurements of defined benefit plans - - - - - - - - -
Total comprehensive income for the period - - - - 6 1,686 73 - 1,765
Share-based payments - - - 12 - - - - 12
Release on exercise/forfeiture of share awards - - - (18) - - 18 - -
Exercise of share awards - - - - - (22) - 22 -
Ordinary dividends - - - - - (158) (104) - (262)
Purchase of own shares - - - - - - - (30) (30)
Issue of ordinary shares - 1 - - - - - - 1
Total equity at the end of the period 719 790 43 27 - 11,657 1,112 (108) 14,240
1 Refer to the Glossary on pages 47 to 49 for the nature of the capital and
revenue reserves.
For the six months to Share-
30 September 2021
(unaudited)
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve(1) reserve(1) shares equity
£m £m £m £m £m £m £m £m £m
Total equity at the start of 719 788 43 34 (5) 6,733 916 (64) 9,164
the period
Profit for the period - - - - - 2,129 68 - 2,197
Exchange differences on translation of foreign operations - - - - 2 - - - 2
Re-measurements of defined benefit plans - - - - - - - - -
Total comprehensive income for the period - - - - 2 2,129 68 - 2,199
Share-based payments - - - 12 - - - - 12
Release on exercise/forfeiture of share awards - - - (19) - - 19 - -
Exercise of share awards - - - - - (18) - 18 -
Ordinary dividends - - - - - (203) - - (203)
Issue of ordinary shares - 1 - - - - - - 1
Total equity at the end of 719 789 43 27 (3) 8,641 1,003 (46) 11,173
the period
1 Refer to the Glossary on pages 47 to 49 for the nature of the capital and
revenue reserves.
The Notes to the accounts section forms an integral part of these financial
statements.
Condensed consolidated cash flow statement
Six months to Six months to
30 September 30 September
2022 2021
(unaudited) (unaudited)
Notes £m £m
Cash flow from operating activities
Purchase of investments (32) (24)
Proceeds from investments 34 62
Amounts paid to investment entity subsidiaries (233) (50)
Amounts received from investment entity subsidiaries 220 78
Net cash flow from derivatives 4 6
Portfolio dividends received 19 23
Portfolio fees received 1 3
Fees received from external funds 33 24
Carried interest and performance fees received 51 8
Carried interest and performance fees paid (28) (13)
Operating expenses paid (81) (70)
Co-investment loans received/(paid) 1 (4)
Tax paid - (1)
Interest received 1 -
Net cash flow from operating activities (10) 42
Cash flow from financing activities
Issue of shares 1 -
Purchase of own shares (30) -
Dividend paid 6 (262) (203)
Lease payments (3) (2)
Interest paid (20) (19)
Drawdown of revolving credit facility 145 -
Net cash flow from financing activities (169) (224)
Change in cash and cash equivalents (179) (182)
Cash and cash equivalents at the start of the period 212 216
Effect of exchange rate fluctuations 5 3
Cash and cash equivalents at the end of the period 38 37
The Notes to the accounts section forms an integral part of these financial
statements.
Notes to the condensed consolidated financial statements
Basis of preparation and accounting policies
Compliance with International Financial Reporting Standards ("IFRS")
The Half-year condensed consolidated financial statements of 3i Group plc have
been prepared in accordance with the Disclosure Guidance and Transparency
Rules of the Financial Conduct Authority and IAS 34 Interim Financial
Reporting as adopted for use in the UK. The Half-year condensed consolidated
financial statements should be read in conjunction with the Annual report and
accounts 2022 which have been prepared and approved by the Directors in
accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with UK-adopted
international accounting standards. The Annual report and accounts for the
year ended 31 March 2023 will be prepared in accordance with UK-adopted
international accounting standards.
The Half-year condensed consolidated financial statements are presented to the
nearest million sterling (£m), the functional currency of the Company. The
accounting policies applied by 3i Group plc for the Half-year condensed
consolidated financial statements are consistent with those described on pages
155 to 192 of the Annual report and accounts 2022. There was no change in the
current period to the critical accounting estimates and judgements applied in
2022, which are stated on page 157 of the Annual report and accounts 2022.
The financial information for the year ended 31 March 2022 and for the six
months ended 30 September 2022 contained within this Half-year report does not
constitute statutory accounts as defined in section 434 of the Companies Act
2006. The statutory accounts for the year to 31 March 2022, prepared under
IFRS in conformity with the requirements of the Companies Act 2006, have been
reported on by KPMG LLP and delivered to the Registrar of Companies. The
report of the Auditor on these statutory accounts was unqualified and did not
contain a statement under section 498(2) or section 498(3) of the Companies
Act 2006.
Going concern
These condensed consolidated financial statements are prepared on a going
concern basis. The Directors have made an assessment of going concern for a
period of at least 12 months from the date of approval of the accounts, taking
into account the Group's current performance, financial position and the
principal and emerging risks facing the business. As detailed in the Chief
Executive's review and Business and Financial review, the Group delivered a
good result in the first half despite a tough macroeconomic backdrop as our
portfolios continue to perform well and demonstrate their trading resilience.
To support the going concern assessment the Directors considered:
· an analysis of the Group's liquidity, solvency and regulatory
capital position. The Group manages and monitors liquidity regularly, ensuring
it is adequate and sufficient and is underpinned by its monitoring of
investments, realisations, operating expenses and receipt of portfolio cash
income. At 30 September 2022, the Group has liquidity of £801 million (31
March 2022: £729 million). Liquidity comprised of cash and deposits of £55
million (31 March 2022: £229 million) and an undrawn facility of £746
million (31 March 2022: £500 million), which has no financial covenants. In
July 2022, we increased our available liquidity by introducing an additional
two-year £400 million tranche to the existing base £500 million RCF which
matures in March 2027, to further support the Group's long-term liquidity. In
October 2022, we received proceeds of £476 million from the realisation of
Havea and utilised some of these proceeds to repay the Group's £154 million
draw of the RCF. Within the next 12 months, the Group's £200 million fixed
rate bond is due for repayment and the Group is expected to have adequate
liquidity to meet the liability as it falls due; and
· the stress test scenarios on the Group's portfolio. The Directors
have modelled a number of severe, yet plausible individual and combined stress
test scenarios based on the position of the Group as at 30 September 2022. The
scenarios include the consideration of the potential impact of a recession
induced by persistent inflation and supply chain disruption, as well as the
impact of a significant downturn event relating specifically to the Group's
largest asset. These scenarios include a range of estimated impacts, primarily
based on providing additional support to portfolio companies. The scenarios
are most sensitive to a delay in realisations which contribute to liquidity of
the Group. A key judgement applied is the extent of recessionary impacts
alongside the likely recovery profile of portfolio companies. The severe
scenarios include assumptions modelling a combined scenario of a recessionary
environment modelled alongside the impact of a significant downturn event on
the Group's largest asset.
The results of each of the stress test scenarios indicate that the Group is
able to meet its obligations as they fall due for a period of at least 12
months from the date of approval of these financial statements by, in certain
cases, making use of controllable management actions. In all these scenarios,
the Directors expect the Group to be able to recover without a permanent
long-term impact on its solvency or capital requirements. Mitigating actions
within management control include, for example, drawing on the existing RCF or
temporarily reducing new investment levels.
Having performed the assessment on going concern, the Directors considered it
appropriate to prepare the condensed consolidated financial statements of the
Group on a going concern basis and have concluded that the Group has
sufficient financial resources, is well placed to manage business risks in the
current economic environment and can continue operations for a period of at
least 12 months from the date of issue of these financial statements.
1 Segmental analysis
The tables below are presented on the Investment basis which is the basis used
by the chief operating decision maker, the Chief Executive, to monitor the
performance of the Group. A description of the Investment basis and a
reconciliation of the Investment basis to the IFRS financial statements is
provided on pages 20 to 24. Further detail on the Group's segmental analysis
can be found on pages 159 to 161 of the Annual report and accounts 2022. The
remaining Notes are prepared on an IFRS basis.
Investment basis
Private Of which is
Equity Action Infrastructure Scandlines Total(4)
Six months to 30 September 2022 £m £m £m £m £m
Realised losses over value on the disposal (4) - - - (4)
of investments
Unrealised profits/(losses) on the revaluation 1,244 1,156 (47) - 1,197
of investments
Portfolio income
Dividends - - 16 12 28
Interest income from investment portfolio 39 - 8 - 47
Fees receivable 6 - - - 6
Foreign exchange on investments 685 291 58 21 764
Movement in the fair value of derivatives - - - (22) (22)
Gross investment return 1,970 1,447 35 11 2,016
Fees receivable from external funds 3 - 30 - 33
Operating expenses (43) - (23) (1) (67)
Interest received 1
Interest paid (27)
Exchange movements (31)
Other income 1
Operating profit before carried interest 1,926
Carried interest
Carried interest and performance fees receivable 2 - - - 2
Carried interest and performance fees payable (157) - (5) - (162)
Operating profit before tax 1,766
Tax charge (1)
Profit for the period 1,765
Other comprehensive income
Re-measurements of defined benefit plans -
Total return 1,765
Realisations(1) 193 - - - 193
Cash investment(2) (292) - (6) - (298)
Net divestment (99) - (6) - (105)
Balance sheet
Opening portfolio value at 1 April 2022 12,420 7,165 1,352 533 14,305
Investment(3) 326 - 6 - 332
Value disposed (197) - - - (197)
Unrealised value movement 1,244 1,156 (47) - 1,197
Other movement (including foreign exchange) 690 291 69 21 780
Closing portfolio value at 30 September 2022 14,483 8,612 1,380 554 16,417
1 Realised proceeds may differ from cash proceeds due to timing of receipts.
During the period Private Equity received £2 million of cash proceeds which
were recognised as realised proceeds in FY2022 and Infrastructure received
£33 million of cash proceeds which were recognised as realised proceeds in
FY2022.
2 Cash investment per the segmental analysis is different to cash investment per
the cash flow due to a £57 million syndication in Infrastructure which was
recognised in FY2022.
3 Includes capitalised interest and other non-cash investment.
4 The total is the sum of Private Equity, Infrastructure and Scandlines. "Of
which is Action" is part of Private Equity.
Interest received, interest paid, exchange movements, other income, tax charge
and re-measurements of defined benefit plans are not managed by segment by the
chief operating decision maker and therefore have not been allocated to
specific segment.
Investment basis
Private Of which is
Equity Action Infrastructure Scandlines Total(3)
Six months to 30 September 2021 £m £m £m £m £m
Realised profits over value on the disposal 12 - 3 - 15
of investments
Unrealised profits on the revaluation 2,219 1,491 30 30 2,279
of investments
Portfolio income
Dividends 10 - 15 - 25
Interest income from investment portfolio 33 - 5 - 38
Fees receivable 2 - - - 2
Foreign exchange on investments 97 43 7 4 108
Movement in the fair value of derivatives - - - (4) (4)
Gross investment return 2,373 1,534 60 30 2,463
Fees receivable from external funds 2 - 23 - 25
Operating expenses (35) - (20) (1) (56)
Interest received -
Interest paid (27)
Exchange movements (6)
Operating profit before carried interest 2,399
Carried interest
Carried interest and performance fees receivable 2 - - - 2
Carried interest and performance fees payable (194) - (6) - (200)
Operating profit before tax 2,201
Tax charge (2)
Profit for the period 2,199
Other comprehensive income
Re-measurements of defined benefit plans -
Total return 2,199
Realisations(1) 118 - 6 - 124
Cash investment (58) - (1) - (59)
Net investment 60 - 5 - 65
Balance sheet
Opening portfolio value at 1 April 2021 8,814 4,566 1,159 435 10,408
Investment(2) 97 - 1 - 98
Value disposed (106) - (3) - (109)
Unrealised value movement 2,219 1,491 30 30 2,279
Other movement (including foreign exchange) 91 43 13 4 108
Closing portfolio value at 30 September 2021 11,115 6,100 1,200 469 12,784
1 Realised proceeds may differ from cash proceeds due to timing of receipts.
During the period Private Equity received £3 million of cash proceeds which
were recognised as realised proceeds in FY2021. During the period
Infrastructure recognised £4 million of realised proceeds which are to be
received in the second half of FY2022.
2 Includes capitalised interest and other non-cash investment.
3 The total is the sum of Private Equity, Infrastructure and Scandlines. "Of
which is Action" is part of Private Equity.
Interest received, interest paid, exchange movements, tax charge and
re-measurements of defined benefit plans are not managed by segment by the
chief operating decision maker and therefore have not been allocated to
specific segment.
2 Realised profits over value on the disposal of investments
Six months to 30 September 2022 Unquoted
investments Total
£m £m
Realisations 1 1
Valuation of disposed investments (3) (3)
(2) (2)
Of which:
- profit recognised on realisations 1 1
- losses recognised on realisations (3) (3)
(2) (2)
Six months to 30 September 2021 Unquoted
investments Total
£m £m
Realisations 58 58
Valuation of disposed investments (47) (47)
11 11
Of which:
- profit recognised on realisations 11 11
- losses recognised on realisations - -
11 11
3 Unrealised profits on the revaluation of investments
Six months to 30 September 2022 Unquoted Quoted
investments investments Total
£m £m £m
Movement in the fair value of investments 657 (117) 540
Of which:
- unrealised gains 780 - 780
- unrealised losses (123) (117) (240)
657 (117) 540
Six months to 30 September 2021 Unquoted Quoted
investments investments Total
£m £m £m
Movement in the fair value of investments 1,054 20 1,074
Of which:
- unrealised gains 1,065 20 1,085
- unrealised losses (11) - (11)
1,054 20 1,074
4 Revenue
Items from the Consolidated statement of comprehensive income which fall
within the scope of IFRS 15 are included in the table below:
Private
Equity Infrastructure Total
Six months to 30 September 2022 £m £m £m
Total revenue by geography(1)
UK 4 27 31
Northern Europe 5 2 7
North America 2 1 3
Other - - -
Total 11 30 41
Revenue by type
Fees receivable(2) from portfolio 6 - 6
Fees receivable from external funds 3 30 33
Carried interest and performance fees receivable(2) 2 - 2
Total 11 30 41
Private
Equity Infrastructure Total
Six months to 30 September 2021 £m £m £m
Total revenue by geography(1)
UK 2 21 23
Northern Europe 2 1 3
North America 3 1 4
Other - - -
Total 7 23 30
Revenue by type
Fees receivable(2) from portfolio 3 - 3
Fees receivable from external funds 2 23 25
Carried interest and performance fees receivable(2) 2 - 2
Total 7 23 30
1 For fees receivable from external funds and carried interest and performance
fees receivable the geography is based on the domicile of
the fund.
2 Fees receivable and carried interest receivable above are different to the
Investment basis figures included in Note 1. This is due to the fact that Note
1 is disclosed on the Investment basis and the table above is shown on the
IFRS basis. For an explanation of the Investment basis and a reconciliation
between Investment basis and IFRS basis see pages 20 to 24.
5 Per share information
The calculation of basic net assets per share is based on the net assets and
the number of shares in issue at the period end. When calculating the diluted
net assets per share, the number of shares in issue is adjusted for the effect
of all dilutive share awards.
30 September 31 March
2022 2022
Net assets per share (£)
Basic 14.79 13.24
Diluted 14.77 13.21
Net assets (£m)
Net assets attributable to equity holders of the Company 14,240 12,754
30 September 31 March
2022 2022
Number of shares in issue
Ordinary shares 973,282,405 973,238,638
Own shares (10,497,272) (10,212,745)
962,785,133 963,025,893
Effect of dilutive potential ordinary shares
Share awards 1,607,098 2,705,623
Diluted shares 964,392,231 965,731,516
The calculation of basic earnings per share is based on the profit
attributable to shareholders and the weighted average number of shares in
issue. The weighted average shares in issue for the period to 30 September
2022 are 962,660,451 (30 September 2021: 966,063,483). When calculating the
diluted earnings per share, the weighted average number of shares in issue is
adjusted for the effect of all dilutive share awards. The diluted weighted
average shares in issue for the period to 30 September 2022 are 964,057,452
(30 September 2021: 968,079,404).
6 months 6 months
to 30 September to 30 September
2022 2021
Earnings per share (pence)
Basic 182.7 227.4
Diluted 182.5 226.9
Earnings (£m)
Profit for the period attributable to equity holders of the Company 1,759 2,197
6 Dividends
6 months to 6 months to 6 months to 6 months to
30 September 30 September 30 September 30 September
2022 2022 2021 2021
pence pence
per share £m per share £m
Declared and paid during the period
Second dividend 27.25 262 21.0 203
27.25 262 21.0 203
Proposed first dividend 23.25 224 19.25 186
The dividend can be paid out of either the capital reserve or the revenue
reserve subject to the investment trust rules.
The distributable reserves of the parent company as at 31 March 2022 were
£3,968 million (31 March 2021: £3,811 million) and the Board reviews the
distributable reserves bi-annually, including consideration of any material
changes since the most recent audited accounts, ahead of proposing any
dividend. The Board also reviews the proposed dividends in the context of the
requirements of being an approved investment trust. Shareholders are given the
opportunity to approve the total dividend for the year at the Company's Annual
General Meeting. Details of the Group's continuing viability and going concern
can be found in the Risk management section on pages 58 to 71 of the Annual
report and accounts 2022.
7 Investment portfolio
This section should be read in conjunction with Note 11 on page 167 of the
Annual report and accounts 2022, which provides more detail about initial
recognition and subsequent measurement of investments at fair value.
6 months to Year to
30 September 2022 31 March 2022
Non-current £m £m
Opening book value 6,642 5,010
Additions 94 138
- of which loan notes with nil value - (4)
Disposals, repayments and write-offs (3) (282)
Fair value movement(1) 540 1,781
Other movements and net cash movements(2) 278 (1)
Closing book value 7,551 6,642
Quoted investments 817 934
Unquoted investments 6,734 5,708
Closing book value 7,551 6,642
1 All fair value movements relate to assets held at the end of the period and
are recognised in unrealised profits on the revaluation of investments.
2 Other movements includes the impact of foreign exchange and accrued interest.
3i's investment portfolio is made up of longer-term investments, with average
holding periods greater than one year, and thus is classified as non-current.
The table below reconciles between purchase of investments in the cash flow
statement and additions as disclosed in the table above.
6 months to Year to
30 September 2022 31 March 2022
£m £m
Purchase of investments 32 324
Transfer of portfolio investments to investment entity subsidiaries - (157)
Syndication(1) 57 (53)
Investment 89 114
Capitalised interest received by way of loan notes 5 24
Additions 94 138
1 In the year to 31 March 2022 we recorded a £53 million syndication in
Infrastructure which is treated as negative investment against our additions
and recognised as a receivable as at 31 March 2022. In the period to 30
September 2022, we received the £57 million cash syndication.
Included within profit or loss is £15 million (30 September 2021: £13
million) of interest income. Interest income included £2 million (30
September 2021: £3 million) of accrued income capitalised during the period
and £13 million (30 September 2021: £10 million) of accrued income remaining
uncapitalised at the period end.
Quoted investments are classified as Level 1 in the fair value hierarchy and
unquoted investments are classified as Level 3 in the fair value hierarchy;
see Note 9 for details.
8 Investments in investment entity subsidiaries
This section should be read in conjunction with Note 12 on page 168 of the
Annual report and accounts 2022, which provides more detail about accounting
policies adopted, entities which are typically investment in investment
entities and the determination of fair value.
Level 3 fair value reconciliation - investments in investment entity
subsidiaries
6 months to Year to
30 September 2022 31 March 2022
Non-current £m £m
Opening fair value 6,791 4,905
Amounts paid to investment entity subsidiaries 233 349
Amounts received from investment entity subsidiaries (220) (685)
Fair value movement on investment entity subsidiaries 962 1,974
Transfer of portfolio investments to investment entity subsidiaries - 205
Transfer of assets to investment entity subsidiaries 51 43
Closing fair value 7,817 6,791
Transfer of portfolio investments from investment entity subsidiaries includes
the transfer of investment portfolio between investment entity subsidiaries
and the Company at fair value. The consideration for these transfers can
either be cash or intra-group receivables.
Restrictions
3i Group plc, the ultimate parent company, receives dividend income from its
subsidiaries. There are no restrictions on the ability to transfer funds from
these subsidiaries to the Group at 30 September 2022.
Support
3i Group plc continues to provide, where necessary, ongoing support to its
investment entity subsidiaries for the purchase of portfolio investments.
9 Fair values of assets and liabilities
This section should be read in conjunction with Note 13 on pages 169 to 171 of
the Annual report and accounts 2022, which provides more detail about
accounting policies adopted, the definitions of the three levels of fair value
hierarchy, valuation methods used in calculating fair value and the valuation
framework which governs oversight of valuations. There have been no changes in
the accounting policies adopted or the valuation methodologies used.
Valuation
The Group classifies financial instruments measured at fair value according to
the following hierarchy:
Level Fair value input description Financial instruments
Level 1 Quoted prices (unadjusted) from active markets Quoted equity instruments
Level 2 Inputs other than quoted prices included in Level 1 that are observable either Derivative financial instruments
directly (ie as prices) or indirectly (ie derived from prices)
Level 3 Inputs that are not based on observable market data Unquoted investments
The table below shows the classification of financial instruments held at fair
value into the valuation hierarchy at 30 September 2022:
30 September 2022 31 March 2022
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
Assets
Quoted investments 817 - - 817 934 - - 934
Unquoted investments - - 6,734 6,734 - - 5,708 5,708
Investments in investment entity subsidiaries - - 7,817 7,817 - - 6,791 6,791
Other financial assets - 5 36 41 - 17 37 54
Liabilities
Other financial liabilities - (13) - (13) - - - -
Total 817 (8) 14,587 15,396 934 17 12,536 13,487
We determine that in the ordinary course of business, the net asset value of
an investment entity subsidiary is considered to be the most appropriate to
determine fair value. The underlying portfolio is valued under the same
methodology as directly held investments, with any other assets or liabilities
within investment entity subsidiaries fair valued in accordance with the
Group's accounting policies. Note 8 details the Directors' considerations
about the fair value of the investment entity subsidiaries.
The fair values of the Group's financial assets and liabilities not held at
fair value, are not materially different from their carrying values, with the
exception of loans and borrowings. The fair value of loans and borrowings is
£970 million (31 March 2022: £1,069 million), determined with reference to
their published market prices. The carrying value of the loans and borrowings
is £1,129 million (31 March 2022: £975 million) and accrued interest payable
(included within trade and other payables) is £20 million (31 March 2022:
£13 million).
Level 3 fair value reconciliation - unquoted investments
Six months to Year to
30 September 31 March
2022 2022
£m £m
Opening fair value 5,708 4,213
Additions 94 138
- of which loan notes with nil value - (4)
Disposals, repayments and write-offs (3) (282)
Fair value movement(1) 657 1,644
Other movements and net cash movements(2) 278 (1)
Closing fair value 6,734 5,708
1 All fair value movements relate to assets held at the end of the period and
are recognised in unrealised profits on the revaluation of investments.
2 Other movements includes the impact of foreign exchange and accrued interest.
Unquoted investments valued using Level 3 inputs also had the following impact
on profit or loss: realised losses over value on disposal of investment of £2
million (30 September 2021: £11 million gain), dividend income of £2 million
(30 September 2021: £9 million) and foreign exchange gains of £262 million
(30 September 2021: £42 million).
Assets move between Level 1 and Level 3 when an unquoted equity investment
lists on a quoted market exchange. There were no transfers in or out of Level
3 during the period. In the six months to 30 September 2022, eight assets
changed valuation basis within level 3. Two assets moved from other basis to
an earnings-based valuation, one asset moved from a DCF to an earnings-based
valuation, four assets were acquired in the period valued on an Other basis,
in line with their fair value, and one asset moved from an earnings-based
valuation to an imminent sale basis. Action remains unchanged on an
earnings-based valuation. The changes in valuation methodology in the period
reflect our view of the most appropriate method to determine the fair value of
the eight assets at 30 September 2022. Further information can be found in the
Private Equity and Infrastructure sections of the Business and Financial
review starting on page 7.
The following table summarises the various valuation methodologies used by the
Group to fair value Level 3 instruments, the inputs and the sensitivities
applied and the impact of those sensitivities to the unobservable inputs. The
significant majority of our portfolio has demonstrated its trading resilience
against a challenging macroeconomic backdrop. We continue our approach of
taking a long-term through the cycle view on the multiples used to value our
portfolio companies. The recent market volatility and the derating of quoted
comparable company multiples across the majority of our portfolio, especially
those with discretionary spend exposure has been an important consideration in
our fair value at 30 September 2022. We have maintained a 5% sensitivity which
is appropriate given the good performance of our companies. For the small
number of companies in our portfolio that have been disproportionately
impacted by the current challenging macroeconomic environment, our fair value
at the 30 September 2022 reflects the impact this has had on performance and
multiple. All numbers in the table below are on an investment basis.
Level 3 unquoted investments
Methodology Description Inputs Fair value at 30 September 2022 (£m) Sensitivity on key unobservable input Fair value impact of sensitivities (£m) +5%/-5%
Earnings (Private Equity) Most commonly used Private Equity valuation methodology Earnings multiples are applied to the earnings of the company to determine the 13,409 For the assets valued on an earnings basis, we have applied a 5% sensitivity 781
enterprise value (31 March 2022: 11,586) to the earnings multiple (31 March 2022: 695)
Used for investments which are typically profitable and for which we can
determine a set of listed companies and precedent transactions, where
relevant, with similar characteristics
Earnings multiples
(791)
(31 March 2022: (697)
When selecting earnings multiple, we consider:
1. Comparable listed companies' current performance and through the cycle
averages
Action is our largest asset, and we have included a 5% sensitivity on Action's
2. Relevant market transaction multiples earnings multiple of 19.5x (equivalent to 18.5x net) 486
(31 March 2022: 417)
3. Exit expectations and other company specific factors
(486)
(31 March 2022: (417))
For point 1 and 2 of the above we select companies in the same industry and,
where possible, with a similar business model and profile in terms of size,
products, services and customers, growth rates and geographic focus
The pre-discount multiple ranges from 6.8x - 20.0x (31 March 2022: 8.0x -
20.0x)
Other inputs:
Earnings
Reported earnings are adjusted for non-recurring items, such as restructuring
expenses, for significant corporate actions and, in exceptional cases,
run-rate adjustments to arrive at maintainable earnings
The most common measure is earnings before interest, tax, depreciation and
amortisation ("EBITDA")
Earnings are usually obtained from portfolio company management accounts to
the preceding quarter end, with reference also to forecast earnings and the
maintainable view of earnings
Action, our largest asset, we value using run-rate earnings
Discounted cash flow (Private Equity/ Infrastructure/ Scandlines) Appropriate for businesses with long-term stable cash flows, typically in Long-term cash flows are discounted at a rate which is benchmarked against 1,146 For the assets valued on a DCF basis, we have applied a 5% sensitivity to the (43)
Infrastructure or alternatively businesses where DCF is more appropriate in market data, where possible, or adjusted from the rate at the initial (31 March 2022: 1,023) discount rate
the short term investment based on changes in the risk profile of the investment (31 March 2022: (41))
The range of discount rates used in our DCF valuations is 10% to 15%.
46
(31 March 2022: 37)
Imminent sale (Private Equity) Used for assets where a sale has been agreed Based on expected proceeds net of fees 478 n/a n/a
(31 March 2022: nil)
NAV (Private Equity/Infrastructure) Used for investments in unlisted funds Net asset value reported by the fund manager. The valuation of the underlying 95 A 5% increase on closing NAV 5
portfolio is consistent with IFRS (31 March 2022: 77) (31 March 2022: 4)
Other (Private Equity/Infrastructure) Used where elements of a business are valued on different bases Values of separate elements prepared on one of the methodologies listed above 369 A 5% increase in the closing value 18
(31 March 2022: 556) (31 March 2022: 28)
10 Related parties
All related party transactions that took place in the six months ending 30
September 2022 are consistent in nature with the disclosures in Note 29 on
pages 186 to 188 of the Annual report and accounts 2022. Related party
transactions which took place in the period and materially affected
performance or the financial position of the Group, together with any material
changes in related party transactions as described in the Annual report and
accounts 2022 that could materially affect the performance or the financial
position of the Group are detailed below.
Investments
The Group makes investments in the equity of unquoted and quoted investments
where it does not have control, but may be able to participate in the
financial and operating policies of that company. IFRS presumes that it is
possible to exert significant influence when the equity holding is greater
than 20%. The Group has taken the investment entity exception as permitted by
IFRS 10 and has not equity accounted for these investments, in accordance with
IAS 28, but they are related parties. The total amounts included for
investments where the Group has significant influence, but not control, are as
follows:
Consolidated statement of comprehensive income Six months to Six months to
30 September 30 September
2022 2021
£m £m
Realised profits over value on the disposal of investments - 1
Unrealised profits on the revaluation of investments 60 87
Portfolio income - 6
Consolidated statement of financial position 30 September 31 March
2022 2022
£m £m
Unquoted investments 745 674
Management arrangements
The Group acted as Investment Manager to 3i Infrastructure plc ("3iN"), which
is listed on the London Stock Exchange, for the period to 30 September 2022.
The following amounts have been recognised in respect of the management
relationship:
Consolidated statement of comprehensive income Six months to Six months to
30 September 30 September
2022 2021
£m £m
Unrealised (losses)/profits on the revaluation of investments (117) 20
Dividends 14 13
Fees receivable from external funds 23 16
Consolidated statement of financial position 30 September 31 March
2022 2022
£m £m
Quoted equity investments 817 934
Performance fees receivable - 26
Statement of Directors' responsibilities
The Directors, who are required to prepare the financial statements on a going
concern basis unless it is not appropriate, are satisfied that the Group has
the resources to continue in business for the foreseeable future. In making
this assessment, the Directors have considered information relating to present
and future conditions, including future projections of profitability and cash
flows.
The Directors confirm that to the best of their knowledge:
a) the condensed set of financial statements has been prepared in accordance
with IAS 34 "Interim Financial Reporting" as adopted for use in the UK; and
b) the Half-year report includes a fair review of the information required
by:
i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year ending 31 March 2023 and their impact on the condensed
set of financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being (i)
related party transactions that have taken place in the first six months of
the financial year ending 31 March 2023 which have materially affected the
financial position or performance of 3i Group during that period; and (ii) any
changes in the related party transactions described in the Annual report and
accounts 2022 that could materially affect the financial position or
performance of 3i Group during the first six months of the financial year
ending 31 March 2023.
The Directors of 3i Group plc and their functions are listed below.
The report is authorised for issue by order of the Board.
K J Dunn, Secretary
9 November 2022
List of Directors and their functions
The Directors of the Company and their functions are listed below:
David Hutchinson, Chairman and Chairman of the Nominations Committee
Simon Borrows, Chief Executive and Executive Director
James Hatchley, Group Finance Director and Executive Director
Jasi Halai, Chief Operating Officer and Executive Director
Caroline Banszky, non-executive Director and Chairman of the Audit and
Compliance Committee
Stephen Daintith, non-executive Director
Lesley Knox, non-executive Director
Coline McConville, non-executive Director and Chairman of the Remuneration
Committee
Peter McKellar, non-executive Director and Chairman of the Valuations
Committee
Alexandra Schaapveld, non-executive Director
Independent review report to 3i Group plc
Conclusion
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 2022, which comprises: the Condensed consolidated statement of
comprehensive income, the Condensed consolidated statement of financial
position, the Condensed consolidated statement of changes in equity, the
Condensed consolidated cash flow statement and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2022 is not prepared,
in all material respects, in accordance with IAS 34 Interim Financial
Reporting as adopted for use in the UK and the Disclosure Guidance and
Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the
UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the UK.
A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other information
contained in the half-yearly financial report and consider whether it contains
any apparent misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Company to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Company will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in 'Basis of preparation and accounting policies', the annual
financial statements of the group are prepared in accordance with UK adopted
international accounting standards.
The directors are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in accordance with IAS
34 as adopted for use in the UK.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Jonathan Mills
For and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
9 November 2022
Portfolio and other information
20 large investments
The 20 investments listed below account for 93% of the portfolio value at 30
September 2022 (31 March 2022: 93%).
Residual Residual
Business line cost(1) cost(1) Valuation Valuation
Geography September March September March Relevant
Investment First invested in 2022 2022 2022 2022 transactions
Description of business Valuation basis £m £m £m £m in the period
Action* Private Equity 623 623 8,612 7,165
General merchandise Netherlands
discount retailer 2011/2020
Earnings
3i Infrastructure plc* Infrastructure 305 305 817 934 £14 million cash
Quoted investment UK dividend
company, investing 2007 received
in infrastructure Quoted
Cirtec Medical* Private Equity 172 172 613 513
Outsourced medical US
device manufacturing 2017
Earnings
Scandlines Scandlines 530 530 554 533 £12 million cash
Ferry operator between Denmark/Germany dividend received
Denmark and Germany 2018
DCF
Havea* Private Equity 201 196 478 304 Sale agreed in June 2022.
Manufacturer of natural France Proceeds of £476 million
healthcare and cosmetics 2017 received in October
products Imminent sale 2022
Tato Private Equity 2 2 437 407
Manufacturer and seller of UK
specialty chemicals 1989
Earnings
SaniSure* Private Equity 76 76 422 277
Manufacturer, distributor and US
integrator of single-use 2019
bioprocessing systems and Earnings
components
nexeye* Private Equity 269 269 401 345
Value-for-money optical retailer Netherlands
2017
Earnings
Luqom* Private Equity 239 196 341 448 Acquisition of
Online lighting specialist Germany Brumberg for
retailer 2017 £34 million in
Earnings June 2022
Royal Sanders* Private Equity 136 136 322 297
Private label and contract Netherlands
manufacturing producer of 2018
personal care products Earnings
Evernex* Private Equity 292 285 314 291 Acquisition of
Provider of third-party France XS International
maintenance services for 2019 and Integra in
data centre infrastructure Earnings September 2022
Smarte Carte* Infrastructure 197 187 304 207
Provider of self-serve US
vended luggage carts, 2017
electronic lockers and DCF
concession carts
AES Engineering Private Equity 30 30 298 269
Manufacturer of mechanical UK
seals and support systems 1996
Earnings
Q Holding* Private Equity 162 162 272 398 Sale of QSR
Manufacturer of precision US division in May
engineered elastomeric 2014 2022 for
components Earnings £190 million
WP* Private Equity 248 239 251 234
Global manufacturer of Netherlands
innovative plastic packaging 2015
systems Earnings
WilsonHCG* Private Equity 77 77 183 115
Global provider of US
recruitment process 2021
outsourcing and other talent Earnings
solutions
BoConcept* Private Equity 105 99 177 184
Urban living designer Denmark
2016
Earnings
MPM* Private Equity 145 139 175 162
An international branded, UK
premium and natural 2020
pet food company Earnings
Dynatect* Private Equity 65 65 141 102
Manufacturer of engineered, US
mission critical components 2014
that protect equipment Earnings
Audley Travel* Private Equity 243 243 121 117
Provider of experiential UK
tailor-made travel 2015
DCF
4,117 4,031 15,233 13,302
* Controlled in accordance with IFRS.
1 Residual cost includes cash investment and interest net of cost disposed.
Glossary
2013-2016 vintage includes Aspen Pumps, Audley Travel, Basic-Fit, Dynatect,
Kinolt, ATESTEO, JMJ, Q Holding, WP, Scandlines further (completed in December
2013), Christ, Geka, Óticas Carol and Blue Interactive.
2016-2019 vintage includes BoConcept, Cirtec Medical, Formel D, nexeye,
arrivia, Luqom, Magnitude Software, Havea, Royal Sanders and Schlemmer.
2019-2022 vintage includes Evernex, SaniSure, YDEON, MPM, WilsonHCG, Dutch
Bakery, ten23 health, insightsoftware, MAIT, Mepal and Yanga.
2022-2025 vintage xSuite, Konges Sløjd, VakantieDiscounter and Digital
Barriers.
Approved Investment Trust Company This is a particular UK tax status
maintained by 3i Group plc, the parent company of 3i Group. An approved
Investment Trust company is a UK company which meets certain conditions set
out in the UK tax rules which include a requirement for the company to
undertake portfolio investment activity that aims to spread investment risk
and for the company's shares to be listed on an approved exchange. The
"approved" status for an investment trust must be agreed by the UK tax
authorities and its benefit is that certain profits of the company,
principally its capital profits, are not taxable in the UK.
Assets under management ("AUM") A measure of the total assets that 3i has to
invest or manages on behalf of shareholders and third-party investors for
which it receives a fee. AUM is measured at fair value. In the absence of a
third-party fund in Private Equity, it is not a measure of fee generating
capability.
Board The board of Directors of the Company.
Buyouts 2010-2012 vintage includes Action, Amor, Element, Etanco, Hilite,
OneMed and Trescal.
Capital redemption reserve is established in respect of the redemption of the
Company's ordinary shares.
Capital reserve recognises all profits that are capital in nature or have been
allocated to capital. Following changes to the Companies Act, the Company
amended its Articles of Association at the 2012 Annual General Meeting to
allow these profits to be distributable by way of a dividend.
Carried interest payable is accrued on the realised and unrealised profits
generated taking relevant performance hurdles into consideration, assuming all
investments were realised at the prevailing book value. Carried interest is
only actually paid when the relevant performance hurdles are met and the
accrual is discounted to reflect expected payment periods.
Carried interest receivable The Group earns a share of profits from funds
which it manages on behalf of third parties. These profits are earned when the
funds meet certain performance conditions and are paid by the fund once these
conditions have been met on a cash basis. The carried interest receivable may
be subject to clawback provisions if the performance of the fund deteriorates
following carried interest being paid.
Company 3i Group plc.
Discounting The reduction in present value at a given date of a future cash
transaction at an assumed rate, using a discount factor reflecting the time
value of money.
EBITDA is defined as earnings before interest, taxation, depreciation and
amortisation and is used as the typical measure of portfolio company
performance.
EBITDA multiple Calculated as the enterprise value over EBITDA, it is used to
determine the value of a company.
Fair value movements on investment entity subsidiaries is the movement in the
carrying value of Group subsidiaries, classified as investment entities under
IFRS 10, between the start and end of the accounting period converted into
sterling using the exchange rates at the date of the movement.
Fair value through profit or loss ("FVTPL") is an IFRS measurement basis
permitted for assets and liabilities which meet certain criteria. Gains and
losses on assets and liabilities measured as FVTPL are recognised directly in
the Statement of comprehensive income.
Fee income (or Fees receivable) is earned for providing services to 3i's
portfolio companies and predominantly falls into one of two categories.
Negotiation and other transaction fees are earned for providing transaction
related services. Monitoring and other ongoing service fees are earned for
providing a range of services over a period of time.
Fees receivable from external funds Fees receivable from external funds are
earned for providing management and advisory services to a variety of fund
partnerships and other entities. Fees are typically calculated as a percentage
of the cost or value of the assets managed during the year and are paid
quarterly, based on the assets under management to date.
Foreign exchange on investments arises on investments made in currencies that
are different from the functional currency of the Group entity. Investments
are translated at the exchange rate ruling at the date of the transaction. At
each subsequent reporting date investments are translated to sterling at the
exchange rate ruling at that date.
Gross investment return ("GIR") includes profit and loss on realisations,
increases and decreases in the value of the investments we hold at the end of
a period, any income received from the investments such as interest, dividends
and fee income, movements in the fair value of derivatives and foreign
exchange movements. GIR is measured as a percentage of the opening portfolio
value.
Growth 2010-2012 vintage includes Element, Hilite, BVG, Go Outdoors, Loxam,
Touchtunes and WFCI.
Interest income from investment portfolio is recognised as it accrues. When
the fair value of an investment is assessed to be below the principal value of
a loan, the Group recognises a provision against any interest accrued from the
date of the assessment going forward until the investment is assessed to have
recovered in value.
International Financial Reporting Standards ("IFRS") are accounting standards
issued by the International Accounting Standards Board ("IASB"). The Group's
consolidated financial statements are required to be prepared in accordance
with IFRS.
Investment basis Accounts prepared assuming that IFRS 10 had not been
introduced. Under this basis, we fair value portfolio companies at the level
we believe provides the most comprehensive financial information.
IRR Internal Rate of Return.
Key Performance Indicator ("KPI") is a measure by reference to which the
development, performance or position of the Group can be measured effectively.
Like-for-like compare financial results in one period with those for the
previous period.
Liquidity includes cash and cash equivalents (as per the Investment basis
Consolidated cash flow statement) and RCF.
Money multiple is calculated as the cumulative distributions plus any residual
value divided by paid-in capital.
Net asset value ("NAV") is a measure of the fair value of our proprietary
investments and the net costs of operating the business.
Operating cash profit/loss is the difference between our cash income
(consisting of portfolio interest received, portfolio dividends received,
portfolio fees received and fees received from external funds as per the
Investment basis Consolidated cash flow statement) and our operating expenses
and lease payments (as per the Investment basis Consolidated cash flow
statement).
Operating profit includes gross investment return, management fee income
generated from managing external funds, the costs of running our business, net
interest payable, other losses and carried interest.
Organic growth is the growth a company achieves by increasing output and
enhancing sales internally.
Performance fee receivable The Group earns a performance fee from the
investment management services it provides to 3i Infrastructure plc ("3iN")
when 3iN's total return for the year exceeds a specified threshold. This fee
is calculated on an annual basis and paid in cash early in the next financial
year.
Portfolio income is that which is directly related to the return from
individual investments. It is comprised of dividend income, income from loans
and receivables and fee income.
Proprietary Capital is shareholders' capital which is available to invest to
generate profits.
Realised profits or losses over value on the disposal of investments is the
difference between the fair value of the consideration received, less any
directly attributable costs, on the sale of equity and the repayment of loans
and receivables and its carrying value at the start of the accounting period,
converted into sterling using the exchange rates at the date of disposal.
Revenue reserve recognises all profits that are revenue in nature or have been
allocated to revenue.
Revolving credit facility ("RCF") The Group has access to a credit line which
allows us to access funds when required to improve our liquidity.
Segmental reporting Operating segments are reported in a manner consistent
with the internal reporting provided to the Chief Executive who is considered
to be the Group's chief operating decision maker. All transactions between
business segments are conducted on an arm's length basis, with intrasegment
revenue and costs being eliminated on consolidation. Income and expenses
directly associated with each segment are included in determining business
segment performance.
Share-based payment reserve is a reserve to recognise those amounts in
retained earnings in respect of share-based payments.
Syndication is the sale of part of our investment in a portfolio company to a
third party, usually within 12 months of our initial investment and for the
purposes of facilitating investment by a co-investor or portfolio company
management in line with our original investment plan. A syndication is treated
as a negative investment rather than a realisation.
Total return comprises of operating profit less tax charge less movement in
actuarial valuation of the historic defined benefit pension scheme.
Total shareholder return ("TSR") is the measure of the overall return to
shareholders and includes the movement in the share price and any dividends
paid, assuming that all dividends are reinvested on their ex‑dividend date.
Translation reserve comprises all exchange differences arising from the
translation of the financial statements of international operations.
Unrealised profits or losses on the revaluation of investments is the movement
in the carrying value of investments between the start and end of the
accounting period converted into sterling using the exchange rates at the date
of the movement.
Information for shareholders
Note
The first FY2023 dividend is expected to be paid on 11 January 2023 to holders
of ordinary shares on the register on 2 December 2022. The ex-dividend date
will be 1 December 2022.
3i Group plc
Registered office:
16 Palace Street,
London SW1E 5JD, UK
Registered in England No. 1142830
An investment company as defined by section 833 of the Companies Act 2006.
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