REG - 3i Group PLC - Results for the year to 31 March 2017 <Origin Href="QuoteRef">III.L</Origin> - Part 2
18/05/2017 07:06
- Part 2: For the preceding part double click ID:nRSR4818Fa
121 108
Operating expenses1 from continuing operations (116) (117)
Operating cash profit/(loss): continuing operations 5 (9)
Operating cash profit: discontinued operations 28 46
Operating cash profit 33 37
1 Operating expenses are now calculated on a cash basis and the 2016 comparative has been re-presented.
2 Comparatives have been re-presented to reflect the classification of the Group's Debt Management business, sold to Investcorp, as discontinued operations.
Excluding the Debt Management business sold to Investcorp, 3i made an operating cash profit of £5 million in the year
(2016: £9 million loss). Cash income increased to £121 million (2016: £108 million) principally due to the increase in the
third-party capital fees in Infrastructure to £37 million (2016: £29 million).
The Debt Management business was a significant contributor to the Group's operating cash profit. Including the contribution
of the Debt Management business, the Group made an operating cash profit of £33 million in the year (2016: £37 million).
Net interest payable
Gross interest payable was £49 million (2016: £47 million), of which £15 million related to interest charges on the E331
million bond which was repaid in March 2017. The undrawn revolving credit facility was extended by one year to September
2021 at no additional cost, following an agreement with all but one of the participating banks. The total amount of the
facility is £329 million (31 March 2016: £350 million).
Interest receivable on cash balances was £2 million (2016: £4 million).
Carried interest and performance fees
We receive carried interest from third-party funds and pay a portion to participants in our carry plans. We also pay
carried interest to participants on our proprietary capital invested. The accounting recognition of carried interest is
driven by the valuation of the underlying investment portfolio and is accounted for by assuming that all investments are
realised at the balance sheet value.
Our carried interest plans pay cash to participants when the underlying investments are realised, for example through a
disposal or a refinancing event, but only when a performance hurdle has been met. Due to the length of time between
investment and realisation, the schemes are usually active for a number of years and their participants are both current
and previous employees of 3i.
We generated a very strong gross investment return of £1,624 million in Private Equity (2016: £1,011 million) and this
material valuation uplift has resulted in significant increases in our carried interest balances in FY2017. The consequence
of this year's valuation increase is that our largest Private Equity fund, EFV, went through its performance hurdle and
consequently we recognised significant carried interest receivable. A share of this receivable is accrued as carried
interest payable to the associated plan participants. The strong run of realisations from investments made between 2010 and
2012 that have completed over the last few years meant that we went through the cash hurdle on the Group's associated
proprietary capital plan (the so-called Buyouts 2010-12 carried interest scheme) and began paying carried interest to its
participants for the first time this year.
Table 11: Carried interest and performance fees (continuing operations) for the year to 31 March
2017 2016
Statement of comprehensive income £m £m
Carried interest and performance fees receivable
Private Equity 275 58
Infrastructure 4 20
Total 279 78
Carried interest and performance fees payable
Private Equity (431) (171)
Infrastructure (3) (15)
Total (434) (186)
Net carried interest payable (155) (108)
We typically accrue carried interest payable on 3i's investment portfolio at between 10% and 15% of gross investment
return. The majority of assets by value are now held in schemes that would have met their performance hurdles, assuming
that the portfolio was realised at the 31 March 2017 valuation.
We accrued carried interest payable of £431 million (2016: £171 million) for Private Equity, of which £202 million relates
to the carry plan participant's share of carried interest receivable from EFV (2016: £48 million). Carried interest payable
accrued on 3i's investment portfolio was £229 million (2016: £123 million). £159 million (31 March 2016: £71 million) of
this £229 million balance relates to the carry payable on the Buyouts 2010-12 plan, which includes Action.
Carried interest is only paid to participants when the hurdles are passed in cash terms and then only when the cash
proceeds are actually received following a realisation or refinancing event. During the year, £127 million of cash was paid
out to the participants in the Private Equity plans (2016: £9 million). Of this £98 million related to the carry payable on
the Buyouts 2010-12 scheme which went through its cash hurdle in the year.
3iN pays a performance fee based on 3iN's NAV on an annual basis, subject to a hurdle rate of return and a high watermark.
The continued good performance of the assets held by 3iN resulted in the recognition of £4 million (2016: £20 million) of
performance fees receivable. Carried interest of £3 million was accrued as payable to the Infrastructure team.
Overall, the effect of the income statement charge, the cash movement, as well as the currency translation meant that the
balance sheet carried interest and performance fees payable increased to £685 million (31 March 2016: £404 million) and the
receivable increased to £366 million (31 March 2016: £122 million).
Table 12:Carried interest and performance fees for the year to 31 March 2017
2017 2016
Statement of financial position £m £m
Carried interest and performance fees receivable
Private Equity 359 92
Infrastructure 4 20
Other 3 10
Total 366 122
Carried interest and performance fees payable
Private Equity (650) (356)
Infrastructure (35) (43)
Other - (5)
Total (685) (404)
Net foreign exchange movements
At 31 March 2017, 71% of the Group's net assets were denominated in euros or US dollars. Following the result of the UK's
referendum on its membership of the EU and the subsequent weakening of sterling against the euro and the US dollar, the
Group recorded a total net foreign exchange gain of £297 million (2016: £143 million) in the year.
The Group is a long-term investor and does not hedge its foreign currency denominated portfolio. Where possible, flows from
currency realisations are matched with currency investments. Short-term derivative contracts are used occasionally and
typically to hedge investments and realisations between signing and completion.
The net foreign exchange gain also reflects the translation of non-portfolio net assets, including non-sterling cash held
at the balance sheet date.
Table 13: Net assets and sensitivity by currency at 31 March 2017
1% sensitivity
FX rate £m % £m
Sterling n/a 1,420 24% n/a
Euro 1.1701 3,373 58% 34
US dollar 1.2516 751 13% 8
Danish krona 8.7015 147 3% 1
Other n/a 145 2% n/a
Pension
On an IAS 19 basis the pension scheme remains in a surplus. There was a re-measurement loss on the Group's pension scheme
of £22 million during the year (2016: £6 million loss). The liability of the Group's UK defined benefit pension scheme
increased in the year following a decrease in the discount rate. This was partially offset by an increase in the underlying
asset valuations.
During the year, the Trustees of the 3i Group Pension Plan implemented a buy-in transaction, which is a bulk annuity
purchase that partially reduces member longevity risk while improving the investment returns of the pension scheme. The
transaction is expected to improve the actuarial funding position of the plan, which in turn influences the future cash
contributions by 3i. The transaction resulted in an accounting charge in accordance with IAS 19 of £14 million.
The triennial valuation of the scheme's funding position at 30 June 2016 is underway and will be completed no later than 30
September 2017.
Tax
The Group's parent company has operated in the UK as an approved investment trust company since its listing on the London
Stock Exchange in 1994. An approved investment trust is a UK investment company which is required to meet certain
conditions set out in the UK tax rules to obtain and maintain its tax status. This approval allows certain investment
profits of the Company, broadly its capital profits, to be exempt from tax in the UK. Approved investment trust companies
are particularly suited for investment vehicles as their tax status allows them to ensure that their shareholders do not
suffer double taxation of their investment returns. The Group recognised a tax credit in the period of £3 million (2016:
nil).
Sale of Debt Management
On 3 March 2017, we completed the sale of our Debt Management business to Investcorp for total proceeds of £270 million.
The sale comprised the entire Debt Management fund management business, which had teams based in London and New York, and
the CLO investments required by the buyer for regulatory and contractual purposes. We retained the CLO investments in
excess of those requirements. During the period between signing and completion we continued to support CLO warehouses in
the US and Europe, and the outstanding balances of £33 million were repaid in full on completion. In addition, we retained
our investments in the Global Income Fund and the Senior Loan Fund.
Table 14: Debt Management investments as at 31 March
Net
2017 movement1 2016
Valuation £m £m £m
CLO equity sold - (119) 119
CLO warehouses repaid 1 (16) 17
CLO equity retained 50 16 34
Global Income Fund 79 27 52
Senior Loan Fund 8 1 7
Total 138 (91) 229
1 Net movement is inclusive of investments, currency translation and mark to market adjustments.
The transaction was signed on 25 October 2016, and the economic benefit of the fund management business and relevant CLO
equity interest transferred with effect from 1 October 2016. The total return from discontinued operations of £91 million
(2016: £27 million) includes the economics of the business up to 30 September 2016, compensation for the period to closing
and the profit on disposal.
The £270 million of proceeds was split between £232 million for the sale of the subsidiaries, proceeds of £22 million from
the sale of directly held investments in CLO equity and warehouses and £16 million for the settlement of an inter-company
loan.
Balance sheet
Net cash and liquidity
Table 15: Net cash as at 31 March
2017 2016
£m £m
Cash and cash equivalents 954 962
Deposits 40 40
Loans and borrowings (575) (837)
Net cash 419 165
Net cash is calculated as cash and cash equivalents and deposits less total loans and borrowings. As at 31 March 2017, net
cash was £419 million (2016: £165 million). The increase reflects the significant level of realisations which, including
the proceeds of the sale of Debt Management, were £1,275 million (2016: £796 million). The balance will reduce by c.£272
million (c.E320 million) when the signed investments in Hans Anders and Lampenwelt complete (expected by the end of June
2017). Subject to shareholder approval, the final dividend of £178 million will also be paid in July 2017.
Liquidity
Liquidity remained strong at £1,323 million (31 March 2016: £1,352 million) after the repayment of our E331 million bond in
March 2017. Liquidity comprised cash and deposits of £994 million (31 March 2016: £1,002 million) and undrawn facilities of
£329 million (31 March 2016: £350 million).
Gross debt and gearing
Table 16: Gross debt and gearing as at 31 March
2017 2016
£m £m
£331 million notes at 5.625% (2017) - 262
£200 million notes at 6.875% (2023) 200 200
£375 million notes at 5.750% (2032) 375 375
Loans and borrowings 575 837
Gearing nil nil
On 17 March 2017, the E310 million outstanding balance of the E331 million bond was repaid out of cash resources. This
reduced the total gross debt outstanding to £575 million as at 31 March 2017 (31 March 2016: £837 million). As a result,
the annual interest cost on the remaining bonds will reduce to £35 million per annum in FY2018 (2017: £49 million).
Gearing
Gearing is defined as net debt as a percentage of the Group's net assets. As the Group was in a net cash position at 31
March 2017 and 2016 under both the Investment basis and IFRS, gearing was nil.
Key accounting judgements and estimates In preparing these accounts, the key accounting judgement relates to the carrying value of our investment assets which are stated at fair value. Given the importance of this area the Board has a separate Valuations Committee to review the valuation policy, process and application to individual investments. However, asset valuations for unquoted investments are inherently subjective, as they are made on the basis of assumptions which may not prove to be accurate. At 31
March 2017, 84% by value of the investment assets were unquoted (31 March 2016: 85%). The valuation of the Proprietary Capital portfolio is a primary input into the carried interest payable and receivable balances, which are determined by reference to the valuation at 31 March 2017 and the underlying investment management agreements. Accounting for investment entities An assessment is required to determine the degree of control or influence the Group exercises and the form of any control to ensure that
the financial treatment of investment entities is accurate. The introduction of IFRS 10 resulted in a number of intermediate holding companies being presented at fair value, which has led to reduced transparency of the underlying investment performance. As a result, the Group continues to present a non-GAAP Investment basis set of financial statements to ensure that the commentary in the Strategic report remains fair, balanced and understandable. The reconciliation of the Investment basis to IFRS is shown
below.
Investment basis
Consolidated statement of comprehensive income
Total Total
2017 20161
£m £m
Realised profits over value on the disposal of investments 38 72
Unrealised profits on the revaluation of investments 1,342 690
Portfolio income
Dividends 50 49
Interest income from investment portfolio 50 59
Fees receivable 6 7
Foreign exchange gain on investments 269 174
Gross investment return 1,755 1,051
Fees receivable from external funds 46 41
Operating expenses (117) (107)
Interest receivable 2 4
Interest payable (49) (47)
Foreign exchange gain/(loss) 28 (31)
Other income 10 -
Operating profit before carried interest 1,675 911
Carried interest
Carried interest and performance fees receivable 279 78
Carried interest and performance fees payable (434) (186)
Operating profit from continuing operations 1,520 803
Income taxes 3 -
Profit for the year from continuing operations 1,523 803
Profit for the year from discontinued operations, net of tax 91 27
Profit for the year 1,614 830
Other comprehensive income
Re-measurements of defined benefit plans (22) (6)
Total comprehensive income for the year ("Total return") 1,592 824
1 Comparatives for the year ended 31 March 2016 have been re-presented to reflect the classification of the Group's Debt Management business sold to Investcorp as discontinued operations. See Note 8.
Investment basis
Consolidated statement of financial position
Total Total
2017 2016
£m £m
Assets
Non-current assets
Investments
Quoted investments 893 658
Unquoted investments 4,782 3,839
Investment portfolio 5,675 4,497
Carried interest and performance fees receivable 359 94
Other non-current assets 106 37
Intangible assets - 12
Retirement benefit surplus 121 132
Property, plant and equipment 5 5
Deferred income taxes - 3
Total non-current assets 6,266 4,780
Current assets
Carried interest and performance fees receivable 7 28
Other current assets 10 53
Current income tax receivable 2 -
Deposits 40 40
Cash and cash equivalents 954 962
Total current assets 1,013 1,083
Total assets 7,279 5,863
Liabilities
Non-current liabilities
Trade and other payables (29) (27)
Carried interest and performance fees payable (644) (290)
Loans and borrowings (575) (575)
Retirement benefit deficit (22) (20)
Deferred income taxes (1) (2)
Provisions (2) (1)
Total non-current liabilities (1,273) (915)
Current liabilities
Trade and other payables (125) (107)
Carried interest and performance fees payable (41) (114)
Acquisition related earn-out charges payable - (1)
Loans and borrowings - (262)
Current income taxes - (2)
Provisions (4) (7)
Total current liabilities (170) (493)
Total liabilities (1,443) (1,408)
Net assets 5,836 4,455
Equity
Issued capital 719 719
Share premium 785 784
Other reserves 4,370 3,006
Own shares (38) (54)
Total equity 5,836 4,455
Investment basis
Consolidated cash flow statement
Total Total
2017 2016
£m £m
Cash flow from operating activities
Purchase of investments (692) (449)
Proceeds from investments 1,063 771
Net cash flow from derivatives - (14)
Portfolio interest received 16 15
Portfolio dividends received 66 71
Portfolio fees received 11 7
Fees received from external funds 71 78
Carried interest and performance fees received 39 52
Carried interest and performance fees paid (131) (15)
Carried interest held in non-current assets (56) -
Acquisition related earn-out charges paid (1) (30)
Operating expenses (131) (134)
Income taxes paid (2) -
Other cash income 2 -
Net cash flow from operating activities 255 352
Cash flow from financing activities
Issue of shares 1 -
Dividends paid (230) (190)
Interest received 2 4
Interest paid (51) (51)
Repayment of short-term borrowings (264) -
Repurchase of short-term borrowings (17) -
Co-investment loans 1 -
Net cash flow from financing activities (558) (237)
Cash flow from investing activities
Purchase of property, plant and equipment (1) (1)
Proceeds from sale of Debt Management business 232 -
Cash held in sold subsidiaries (4) -
Net cash flow from deposits - (40)
Net cash flow from investing activities 227 (41)
Change in cash and cash equivalents (76) 74
Cash and cash equivalents at the start of year 962 864
Effect of exchange rate fluctuations 68 24
Cash and cash equivalents at the end of year 954 962
Background to Investment basis financial statements
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 intermediate holding companies
that were previously consolidated line by line. This fair value approach, applied at the intermediate holding company
level, effectively obscures the performance of our proprietary capital investments and associated transactions occurring in
the intermediate holding companies. 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 in our report and aid understanding we introduced separate non-GAAP "Investment basis" Statements
of comprehensive income, financial position and cash flow in our 2014 Annual report and accounts. The Investment basis is
an APM and the Strategic report is 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.
Reconciliation of 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 the following pages.
Reconciliation of Investment basis and IFRS
Reconciliation of consolidated statement of comprehensive income
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2017 2017 2017 20165 20165 20165
Notes £m £m £m £m £m £m
Realised profits/(losses) over value 1,2 38 (63) (25) 72 (61) 11
on the disposal of investments
Unrealised profits on the 1,2 1,342 (1,080) 262 690 (576) 114
revaluation of investments
Fair value movements on 1 - 1,041 1,041 - 591 591
investment entity subsidiaries
Portfolio income
Dividends 1,2 50 (12) 38 49 (13) 36
Interest income from investment portfolio 1,2 50 (40) 10 59 (37) 22
Fees receivable 1,2 6 3 9 7 2 9
Foreign exchange on investments 1,3 269 (205) 64 174 (145) 29
Gross investment return 1,755 (356) 1,399 1,051 (239) 812
Fees receivable from 1,4 46 - 46 41 - 41
external funds
Operating expenses 1,4 (117) 1 (116) (107) 2 (105)
Interest receivable 2 - 2 4 - 4
Interest payable (49) - (49) (47) - (47)
Exchange movements 1,3 28 14 42 (31) 95 64
Other income 10 - 10 - - -
Income/(expense) from investment entity subsidiaries 1 - 18 18 - (10) (10)
Operating profit before carried interest 1,675 (323) 1,352 911 (152) 759
Carried interest
Carried interest and performance 1,4 279 1 280 78 (5) 73
fees receivable
Carried interest and performance 1,4 (434) 326 (108) (186) 148 (38)
fees payable
Operating profit from continuing operations 1,520 4 1,524 803 (9) 794
Income taxes 1,4 3 - 3 - (2) (2)
Profit for the year from continuing operations 1,523 4 1,527 803 (11) 792
Profit for the year from discontinued operations 91 7 98 27 (2) 25
Profit for the year 1,614 11 1,625 830 (13) 817
Other comprehensive income
Exchange differences on 1,3 - (4) (4) - 11 11
translation of foreign operations
Re-measurements of defined (22) - (22) (6) - (6)
benefit plans
Other comprehensive (expense)/income for the year from continuing operations (22) (4) (26) (6) 11 5
Other comprehensive (expense)/income for the year from discontinued operations - (7) (7) - 2 2
Total comprehensive income for 1,592 - 1,592 824 - 824
the year ("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 years. 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 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 entities".
4 Other items also aggregated into the "Fair value movements on investment entity subsidiaries" line include fees receivable from external funds, audit fees, administration expenses, carried interest and tax.
5 Comparatives for the year ended 31 March 2016 have been re-presented to reflect the classification of the Group's Debt Management business sold to Investcorp as discontinued operations. See Note 8 to the IFRS financial statements.
6 The IFRS basis is audited and the Investment basis is unaudited.
Reconciliation of consolidated statement of financial position
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2017 2017 2017 2016 2016 2016
Notes £m £m £m £m £m £m
Assets
Non-current assets
Investments
Quoted investments 1 893 (503) 390 658 (361) 297
Unquoted investments 1 4,782 (3,466) 1,316 3,839 (2,596) 1,243
Investments in investment 1,2 - 3,483 3,483 - 2,680 2,680
entity subsidiaries
Investment portfolio 5,675 (486) 5,189 4,497 (277) 4,220
Carried interest and performance 1 359 (5) 354 94 (5) 89
fees receivable
Other non-current assets 106 (56) 50 37 - 37
Intangible assets - - - 12 - 12
Retirement benefit surplus 121 - 121 132 - 132
Property, plant and equipment 5 - 5 5 - 5
Deferred income taxes - - - 3 - 3
Total non-current assets 6,266 (547) 5,719 4,780 (282) 4,498
Current assets
Carried interest and performance 7 2 9 28 - 28
fees receivable
Other current assets 1 10 2 12 53 (22) 31
Current income tax receivable 2 - 2 - - -
Deposits 40 - 40 40 - 40
Cash and cash equivalents 1,2 954 (23) 931 962 (5) 957
Total current assets 1,013 (19) 994 1,083 (27) 1,056
Total assets 7,279 (566) 6,713 5,863 (309) 5,554
Liabilities
Non-current liabilities
Trade and other payables (29) 5 (24) (27) - (27)
Carried interest and performance fees payable 1 (644) 520 (124) (290) 205 (85)
Loans and borrowings (575) - (575) (575) - (575)
Retirement benefit deficit (22) - (22) (20) - (20)
Deferred income taxes 1 (1) 1 - (2) 2 -
Provisions (2) - (2) (1) - (1)
Total non-current liabilities (1,273) 526 (747) (915) 207 (708)
Current liabilities
Trade and other payables 1 (125) 22 (103) (107) 8 (99)
Carried interest and performance fees payable 1 (41) 18 (23) (114) 94 (20)
Acquisition related earn-out charges - - - (1) - (1)
payable
Loans and borrowings - - - (262) - (262)
Current income taxes - - - (2) - (2)
Provisions (4) - (4) (7) - (7)
Total current liabilities (170) 40 (130) (493) 102 (391)
Total liabilities (1,443) 566 (877) (1,408) 309 (1,099)
Net assets 5,836 - 5,836 4,455 - 4,455
Equity
Issued capital 719 - 719 719 - 719
Share premium 785 - 785 784 - 784
Other reserves 3 4,370 - 4,370 3,006 - 3,006
Own shares (38) - (38) (54) - (54)
Total equity 5,836 - 5,836 4,455 - 4,455
Notes:
1 Applying IFRS 10 to the Consolidated statement of financial position aggregates the line items into the single line item "Investment in investment entities". In the Investment basis we have disaggregated these items to analyse our net assets as if the
Investment entity subsidiaries were consolidated. 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 entities" line. We have
disaggregated this fair value and disclosed the underlying portfolio holding in the relevant line item, ie, quoted equity investments or unquoted equity investments. Other items which may be aggregated are carried interest 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 for the Group.
3 Investment basis financial statements are prepared for performance measurement and therefore reserves are not analysed separately under this basis.
4 The IFRS basis is audited and the Investment basis is unaudited.
Reconciliation of consolidated cash flow statement
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2017 2017 2017 2016 2016 2016
Notes £m £m £m £m £m £m
Cash flow from operating activities
Purchase of investments 1 (692) 358 (334) (449) 362 (87)
Proceeds from investments 1 1,063 (753) 310 771 (535) 236
Cash inflow from investment 1 - 246 246 - 206 206
entity subsidiaries
Net cash flow from derivatives - - - (14) - (14)
Portfolio interest received 1 16 (9) 7 15 (10) 5
Portfolio dividends received 1 66 (12) 54 71 (13) 58
Portfolio fees received 11 (2) 9 7 - 7
Fees received from external funds 1 71 - 71 78 - 78
Carried interest and performance 39 - 39 52 - 52
fees received
Carried interest and performance 1 (131) 104 (27) (15) 2 (13)
fees paid
Carried interest held in (56) 56 - - - -
non-current assets
Acquisition related earn-out charges paid (1) - (1) (30) - (30)
Operating expenses 1 (131) - (131) (134) - (134)
Income taxes paid (2) - (2) - - -
Other cash income 2 - 2 - - -
Net cash flow from operating 255 (12) 243 352 12 364
activities
Cash flow from financing
activities
Issue of shares 1 - 1 - - -
Dividends paid (230) - (230) (190) - (190)
Interest received 2 - 2 4 - 4
Interest paid (51) - (51) (51) - (51)
Repayment of short-term borrowings (264) - (264) - - -
Repurchase of short-term borrowings (17) - (17) - - -
Co-investment loans 1 1 2 - - -
Net cash flow from financing (558) 1 (557) (237) - (237)
activities
Cash flow from investing
activities
Purchase of property, plant and equipment 1 (1) - (1) (1) - (1)
Proceeds from sale of Debt Management business 232 - 232 - - -
Cash held in sold subsidiaries (4) - (4) - - -
Net cash flow from deposits - - - (40) - (40)
Net cash flow from investing 227 - 227 (41) - (41)
activities
Change in cash and cash 2 (76) (11) (87) 74 12 86
equivalents
Cash and cash equivalents at the 2 962 (5) 957 864 (3) 861
start of year
Effect of exchange rate 1 68 (7) 61 24 (14) 10
fluctuations
Cash and cash equivalents at 2 954 (23) 931 962 (5) 957
the end of year
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 cash flow statement on a "look through" basis, in order to reflect the underlying sources and uses of cash flows and disclose the underlying investment activity.
2 There is a difference between the change in cash and cash equivalents of the Investment basis financial statements and the IFRS financial statements because there are cash balances held in Investment entity subsidiary vehicles. Cash held within Investment entity subsidiaries will not be shown in the IFRS statements but will be seen in the Investment basis statements.
3 The IFRS basis is audited and the Investment basis is unaudited.
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 above.
The table below defines our additional APMs.
APM Purpose Calculation Reconciliation to IFRS
Gross investment return as a percentage of opening portfolio value A measure of the performance of our proprietary investment portfolio. It is calculated as the gross investment return, as shown in the Investment basis Consolidated statement of comprehensive The equivalent balances under IFRS and the reconciliation to the Investment basis are shown in the Reconciliation of the consolidated statement of comprehensive income and the Reconciliation of the consolidated statement of financial
For further information see the Group KPIs in our Annual report. income, as a % of the opening portfolio value. position respectively.
Cash realisations Cash proceeds from our investments support our returns to shareholders, as well as our ability to invest in new opportunities. The cash received from the disposal of investments in the year as shown in the Investment basis Consolidated cash flow The equivalent balance under IFRS and the reconciliation to the Investment basis is shown in the Reconciliation of the consolidated cash flow statement.
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