REG - 3i Group PLC - Results for the year to 31 March 2017 <Origin Href="QuoteRef">III.L</Origin> - Part 5
18/05/2017 07:06
- Part 5: For the preceding part double click ID:nRSR4818Fd
£m £m £m £m
Realised profit over value on the disposal of investments - 2 - 2
Unrealised profits on the revaluation of investments 38 20 38 20
Fees receivable from external funds 21 12 - -
Performance fees receivable 4 20 - -
Dividends 14 12 14 12
Group Group Company Company
2017 2016 2017 2016
Statement of financial position £m £m £m £m
Quoted equity investments 390 277 390 277
Performance fees receivable 4 20 - -
8 Discontinued operations
On 3 March 2017, the Group completed the disposal of its Debt Management business to Investcorp and received cash proceeds
of £270 million. Included within the cash proceeds was £33 million which related to the repayment of loans provided to Debt
Management to fund two CLO warehouses. At 31 March 2017, the Group retained residual stakes in a number of CLO funds which
were not required by Investcorp for risk retention or other contractual requirements together with its holdings in the
Global Income Fund and the Senior Loan Fund. These investments are treated as continuing operations and there were no
assets held for sale on 31 March 2017. Since the publication of the Half-yearly report 2016 and following completion of the
transaction on 3 March 2017, it is now expected that some of the investments not sold to Investcorp will be retained beyond
the 12 month period prescribed by IFRS 5. Accordingly they are no longer classified as assets held for sale and have been
included in continuing operations in these financial statements. As these investments are held at fair value through profit
or loss, the reclassification out of held for sale had no impact on the carrying value of these investments.
The disposal group fulfilled the requirement of IFRS 5 to be classified as "discontinued operations" in the Consolidated
statement of comprehensive income, the results of which are set out below.
Consolidated statement of comprehensive income
Group Group
2017 2016
£m £m
Realised profits over value on the disposal of investments - -
Unrealised profits/(losses) on the revaluation of investments 3 (22)
Fair value movements on investment entity subsidiaries - -
3 (22)
Portfolio income
Dividends 16 22
Interest income from investment portfolio 3 4
Fees receivable/(payable) - (1)
Foreign exchange on investments 16 12
Gross investment return from discontinued operations 38 15
Fees receivable from external funds 25 38
Operating expenses (13) (27)
Exchange movements (2) 1
Other income 2 -
Carried interest
Carried interest and performance fees receivable 1 5
Carried interest and performance fees payable - (2)
Acquisition related earn-out charges - (5)
Operating profit before tax from discontinued operations 51 25
Profit on disposal of Debt Management business before tax 48 -
Income taxes
Income taxes on disposal of Debt Management business (1) -
Other income taxes - -
Profit for the year from discontinued operations, net of tax 98 25
Other comprehensive income for the year from discontinued operations (7) 2
Total comprehensive income for the year from discontinued operations 91 27
Cash flows
Group2017 Group2016
£m £m
Purchase of investments (51) (46)
Proceeds from the sale of investments1 25 2
Cash income, net carried interest, operating expenses and other 33 18
Net cash flow from operating activities 7 (26)
Sale of subsidiaries1 232 -
Cash held in sold subsidiaries (4) -
Net cash flow from investing activities 228 -
Total net cash flows from discontinued operations 235 (26)
1 Total proceeds from the sale of the Debt Management business were £270 million, consisting of sale of subsidiaries (£232m), proceeds from the sale of investments (£22 million of the £25 million total above) and settlement of an inter-company loan (£16 million).
Earnings per share (pence)
Group Group
2017 2016
Basic, profit for the year from discontinued operations 10.2 2.6
Diluted, profit for the year from discontinued operations 10.1 2.6
Portfolio and other information
20 Large investments
The 20 investments listed below account for 89% of the portfolio at 31 March 2017 (31 March 2016: 70%). This table does not
include two investments that have been excluded for commercial reasons. For each of our investments we have assessed
whether they classify as accounting subsidiaries under IFRS and/or subsidiaries under the UK Companies Act. This assessment
forms the basis of our disclosure of accounting subsidiaries in the financial statements.
The UK Companies Act defines a subsidiary based on voting rights, with a greater than 50% majority of voting rights
resulting in an entity being classified as a subsidiary. IFRS 10 applies a wider test and, if a Group is exposed, or has
rights to variable returns from its involvement with the investee and has the ability to affect these returns through its
power over the investee then it has control, and hence the investee is deemed an accounting subsidiary. Controlled
subsidiaries under IFRS are noted below. None of these investments are UK Companies Act subsidiaries.
In accordance with Part 5 of The Alternative Investment Fund Managers Regulations 2013 ("the Regulations"), 3i Investments
plc, as AIFM, requires all controlled portfolio companies to make available to employees an annual report which meets the
disclosure requirements of the Regulations. These are available either on the portfolio company's website or through filing
with the relevant local authorities.
Action* Private Equity 1 1 902 1,708 Refinancing returned
Non-food discount retailer Benelux £187m of proceeds
2011
Earnings
3i Infrastructure plc* Infrastructure 270 399 464 655 Invested £131m in 3iN's
Quoted investment company, UK capital raise
investing in infrastructure 2007
Quoted
Scandlines* Private Equity 114 114 369 538
Ferry operator between Denmark/
Denmark and Germany Germany
2007/2013
DCF
Q Holding* Private Equity 100 162 120 222 Further investment to
Manufacturer of engineered US support Q Holding's
precision elastomeric 2014 investment in Degania
components Earnings
Weener Plastic* Private Equity 151 161 173 200
Supplier of plastic packaging Germany
solutions 2015
Earnings
Audley Travel* Private Equity 161 177 158 185
Provider of experiential UK
tailor made travel 2015Earnings
Basic-Fit Private Equity 99 11 208 184 Listed on Amsterdam
Discount gyms operator Benelux Stock Exchange in June
2013 2016 and returned £82m
Quoted of proceeds
ATESTEO* Private Equity 83 39 130 160 Refinancing returned
International transmission Germany £48m of proceeds
testing specialist 2013
Earnings
Schlemmer* Private Equity - 162 - 154 New investment
Provider of cable management Germany
solutions for the automotive 2016
industry Earnings
BoConcept* Private Equity - 140 - 146 New investment
Urban living brand Denmark
2016
Earnings
Ponroy Santé* Private Equity - 123 - 122 New investment
Manufacturer of natural France
healthcare and cosmetics 2017
products Earnings
AES Engineering Private Equity 30 30 92 113
Manufacturer of mechanical UK
seals and support systems 1996
Earnings
Tato Private Equity 2 2 80 112
Manufacturer and seller of UK
speciality chemicals 1989
Earnings
Christ* Private Equity 99 101 117 98
Distributor and retailer of Germany
jewellery 2014
Earnings
Euro-Diesel* Private Equity 52 57 59 95
Manufacturer of uninterruptible Benelux
power supply systems 2015
Earnings
Aspen Pumps* Private Equity 70 78 64 88
Manufacturer of pumps and UK
accessories for the air 2015
conditioning, heating and Earnings
refrigeration industry
Global Income Fund Other 48 66 52 79 Further investment of
Debt Management open UK £24m
ended fund with exposure to 2015
North America and western Fund
European issuers
MKM Private Equity 23 24 53 68 Sale announced with
Building materials supplier UK proceeds of £70m
2006
Imminent sale
OneMed Group* Private Equity 124 130 60 59
Distributor of consumable Sweden
medical products, 2011
devices and technology Earnings
Dynatect* Private Equity 65 65 63 56
Manufacturer of engineered, US
mission critical protective 2014
equipment Earnings
1,492 2,042 3,164 5,042
devices and technology
Earnings
Dynatect*
Private Equity
65
65
63
56
Manufacturer of engineered,
US
mission critical protective
2014
equipment
Earnings
1,492
2,042
3,164
5,042
* Controlled in accordance with IFRS.
1 Residual cost includes capitalised interest.
Glossary
Alternative Investment Funds ("AIFs") At 31 March 2017, 3i Investments plc as AIFM, managed five AIFs.
Alternative Investment Fund Manager ("AIFM") is the regulated manager of AIFs. Within 3i, this is 3i Investments plc.
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. The measurement changed in the year
from residual value to fair value to reflect the scale of 3i's business and, in the absence of a third-party fund in
Private Equity, it is not a measure of fee generating capability.
Base Erosion and Profit Shifting ("BEPS")Project is an OECD initiative that was launched in 2013, at the request of the G20
countries, to develop specific, detailed proposals, rules and instruments required to equip governments and tax authorities
to address the BEPS challenge and the proposals were delivered to and approved by the G20 leaders in November 2015.
Countries are now in the process of considering and implementing changes to their domestic tax laws and international tax
treaties to give effect to the recommendations made by the BEPS project team.
Board The Board of Directors of the Company.
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 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
or received when the relevant performance hurdles are met and the accrual is discounted to reflect expected payment
periods.
Carried interest receivable is generated on third-party capital over the life of the relevant fund when relevant
performance criteria are met.
Collateralised Loan Obligation ("CLO") A form of securitisation where payments from multiple loans are pooled together and
passed on to different classes of owners in various tranches.
Common Reporting Standard ("CRS") imposes obligations on financial groups and entities to identify and report details,
relating to the foreign investors investing in such groups and entities, to the local tax authority who then exchange the
information with the other relevant tax authorities.
Company 3i Group plc.
Country by Country reporting ("CbC Reporting") refers to a requirement for large multinational groups, operating in
different countries, to file an annual report detailing certain information about the activities of the entities in the
Group, on a country by country basis, covering the countries in which the Group entities operate. This new requirement
applies to the Group for its accounting periods beginning after 1 April 2016.
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.
Disposal Group is comprised of the assets and liabilities associated with the Group's Debt Management business sold to
Investcorp in March 2017.
Dividend income from equity investments and CLO capital is recognised in the Statement of comprehensive income when the
shareholders' rights to receive payment have been established.
EBITDA is defined as earnings before interest, taxation, depreciation and amortisation and is used as the typical measure
of portfolio company performance.
EBITDAmultiple Calculated as the enterprise value over EBITDA, it is used to determine the value of a company.
ExecutiveCommittee The Executive Committee is responsible for the day-to-day running of the Group and comprises: the Chief
Executive, Group Finance Director, the Managing Partners of the Private Equity and Infrastructure businesses and the
Group's General Counsel.
Fair value movements on investment entity subsidiaries 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 is earned directly from investee companies when an investment is first made and through the life of the
investment. Fees that are earned on a financing arrangement are considered to relate to a financial asset measured at fair
value through profit or loss and are recognised when that investment is made. Fees that are earned on the basis of
providing an ongoing service to the investee company are recognised as that service is provided.
Fees receivable from external funds are fees received by the Group, from third parties, for the management of Private
Equity and Infrastructure funds.
Foreign Account Tax Compliance Act ("FATCA") is US tax legislation aimed at preventing offshore tax avoidance by US
persons. The rules impose obligations on non-US financial groups and entities to identify and report details relating to US
investors who have invested in those groups and entities.
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 and foreign exchange movements. GIR is measured as a percentage of the opening portfolio value.
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.
The commentary in the Strategic report refers to this basis as we believe it provides a more understandable view of our
performance.
Key Performance Indicators ("KPI") is a measure by reference to which the development, performance or position of the Group
can be measured effectively.
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 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 Cash flow
statement) and our operating expenses (as per the Investment basis Cash flow statement).
Operatingprofit includes gross investment return, management fee income generated from managing external funds, the costs
of running our business, net interest payable, movements in the fair value of derivatives, other losses and carried
interest.
Portfolioincome is that which is directly related to the return from individual investments. It is recognised to the extent
that it is probable that there will be economic benefit and the income can be reliably measured. It is comprised of
dividend income, interest income from investment portfolio and fee income.
ProprietaryCapital Shareholders' capital which is available to invest to generate profits.
Public Private Partnership ("PPP") is a government service or private business venture which is funded and operated through
a partnership of government and one or more private sector companies.
Realised profits or losses over value on the disposal of investments The difference between the fair value of the
consideration received, less any directly attributable costs, on the sale of equity and the repayment of interest income
from investment portfolio 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.
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 intra-segment 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.
Total return comprises 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 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.
Value weighted earnings growth The growth in the last 12-month earnings, when comparing to the preceding 12 months.
List of Directors and their functions
The Directors of the Company and their functions are listed below:
Simon Thompson, Chairman and Chairman of the Nominations Committee
Simon Borrows, Chief Executive and Executive Director
Julia Wilson, Group Finance Director and Executive Director
Jonathan Asquith, non-executive Director, Deputy Chairman and Chairman of the Remuneration Committee
Caroline Banszky, non-executive Director and Chairman of the Audit and Compliance Committee
Stephen Daintith, non-executive Director
Peter Grosch, non-executive Director
David Hutchison, non-executive Director and Chairman of the Valuations Committee
Martine Verluyten, non-executive Director
By order of the Board
K J Dunn
Company Secretary
17 May 2017
Registered Office: 16 Palace Street, London SW1E 5JD
This information is provided by RNS
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