REG - 3i Group PLC - Results for the year to 31 March 2022
12/05/2022 07:00
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RNS Number : 1878L 3i Group PLC 12 May 2022
12 May 2022
3i Group plc announces results for the year
to 31 March 2022
3i delivered an excellent result in FY2022
· Total return of £4,014 million or 44% on opening shareholders' funds
(March 2021: £1,726 million, 22%) and NAV per share of 1,321 pence (31 March
2021: 947 pence).
· Our Private Equity business delivered a gross investment return of
£4,172 million or 47% (March 2021: £1,936 million, 30%). This excellent
result was driven by strong earnings growth and realisation profits with
valuation multiple increases contributing just 6% of Private Equity GIR in the
year.
· Action delivered annual revenue growth of 23% and EBITDA growth of 36%
in 2021 and has started 2022 well. Action's LTM EBITDA to P3 2022, which ended
on 3 April 2022, was €932 million (31 March 2021: €602 million) showing
the strength in recovery of the group's trading since the severe Covid-19
restrictions in the first three months of 2021.This strong performance
underpinned value growth of £2,655 million in the year, in addition to £284
million of dividends received.
· In competitive markets the Private Equity team deployed £529 million
including six new investments and two transformational bolt-on acquisitions.
In addition our portfolio companies completed a further 13 self-funded bolt-on
acquisitions.
· Across the Group, we received over £1.2 billion of cash primarily via
portfolio company realisations, refinancings and dividends in the year.
· Our Infrastructure business generated a gross investment return of
£241 million, or 21% (March 2021: £178 million, 16%). This return was driven
by the increase in share price of 3i Infrastructure plc ("3iN") and dividend
income.
· Scandlines generated a gross investment return of £112 million, or
26% (March 2021: £25 million, 6%). Freight volumes have been consistently
strong, finishing ahead of 2019 levels, whilst leisure volumes showed some
signs of recovery but remained below 2019 levels due to varying degrees of
travel restrictions throughout 2021.
· Total dividend of 46.5 pence per share for FY2022, with a second
FY2022 dividend of 27.25 pence per share to be paid in July 2022 subject to
shareholder approval.
Simon Borrows, 3i's Chief Executive, commented:
"We have entered our new financial year acutely aware of the political and
macro-economic challenges the world is facing, but we do this from a position
of strength. Our teams are experienced and well-embedded in their local
markets across northern Europe and North America. Our processes are carefully
designed and disciplined which allows us to react fast to sudden or sharp
changes in markets or the broader environment and our portfolio is well
constructed from a thematic, geographic and sector perspective and has
demonstrated clear resilience over the last few years. We asset manage in the
knowledge that we have assembled today's portfolio with real price discipline
and we have not over-bought recent highly-priced vintages. In Action we have a
formidable retail company that will continue to grow and thrive in today's
challenging environment. We also have a number of healthcare and consumer
assets which have the potential to deliver significant longer-term compounding
returns for the Group."
Financial highlights
Year to/as at Year to/as at
31 March 31 March
2022 2021
Group
Total return £4,014m £1,726m
Operating expenses £(128)m £(112)m
Operating cash profit £340m £23m
Realised proceeds £788m £218m
Gross investment return £4,525m £2,139m
- As a percentage of opening 3i portfolio value 43% 26%
Cash investment £543m £510m
3i portfolio value £14,305m £10,408m
Gross debt £975m £975m
Net debt £(746)m £(750)m
Gearing(1) 6% 8%
Liquidity £729m £725m
Net asset value £12,754m £9,164m
Diluted net asset value per ordinary share 1,321p 947p
Total dividend per share 46.5p 38.5p
1 Gearing is net debt as a percentage of net assets.
ENDS
For further information, please contact:
Silvia Santoro Tel: 020 7975 3258
Group Investor Relations Director
Kathryn van der Kroft Tel: 020 7975 3021
Communications Director
For further information regarding the announcement of 3i's annual results to
31 March 2022, including a live webcast of the results presentation at
10.00am, please visit www.3i.com (http://www.3i.com) .
Notes to editors
3i is a leading international investment manager focused on mid-market Private
Equity and Infrastructure. Our core investment markets are northern Europe and
North America. For further information, please visit: www.3i.com
(http://www.3i.com) .
Notes to the announcement of the results
Note 1
All of the financial data in this announcement is taken from the Investment
basis financial statements. The statutory accounts are prepared under IFRS for
the year to 31 March 2022 and have not yet been delivered to the Registrar of
Companies. The statutory accounts for the year to 31 March 2021 have been
delivered to the Registrar of Companies. The auditor's reports on the
statutory accounts for these years are unqualified and do not contain any
matters to which the auditor drew attention by way of emphasis or any
statements under section 498(2) or (3) of the Companies Act 2006. This
announcement does not constitute statutory accounts.
Note 2
Copies of the Annual report and accounts 2022 will be posted to shareholders
on or soon after 25 May 2022.
Note 3
This announcement may contain statements about the future including certain
statements about the future outlook for 3i Group plc and its subsidiaries
("3i"). 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.
Note 4
Subject to shareholder approval, the proposed second dividend is expected to
be paid on 22 July 2022 to holders of ordinary shares on the register on 17
June 2022. The ex-dividend date will be 16 June 2022.
Chairman's statement
“The Group has a clear, consistent strategy that continues to be well
executed, generating attractive and sustainable returns for shareholders.”
3i delivered an excellent result in FY2022, driven by organic growth and the
effective implementation of buy-and-build strategies in our portfolio.
Overview
I am pleased to report that 3i delivered an excellent result in the financial
year to 31 March 2022 ("FY2022"), my first year end as Chairman of the Group.
The Group has a clear, consistent strategy that continues to be well executed,
generating attractive and sustainable returns for shareholders.
Performance
The Group's total return for the year was £4,014 million (2021: £1,726
million). Net asset value ("NAV") increased to 1,321 pence per share (31 March
2021: 947 pence) and our total return on opening shareholders' funds was 44%
(2021: 22%). This year's result highlights the resilience that the Group and
our portfolios have demonstrated throughout the pandemic and our ability to
generate growth organically and through value accretive acquisitions for our
portfolio companies.
Market environment
The strength of the Group's FY2022 result has been achieved against a
challenging macro-economic and uncertain geopolitical backdrop. The start of
our financial year coincided with the initial phase of the global deployment
of Covid-19 vaccines. Despite the emergence of new variants towards the end of
2021, the effectiveness of the vaccination programme and wider public health
response resulted in reduced restrictions across many of the regions in which
our portfolio companies operate. The resulting pick-up in economic activity
gave rise to supply chain disruption and inflationary pressures. These
pressures have been exacerbated since Russia's invasion of Ukraine with
further increases in commodity prices, including energy and fuel. The Group
has no direct exposure to Russia or Ukraine and across our portfolios the
exposure is limited.
Dividend
Our dividend policy is to maintain or grow the dividend year on year, subject
to balance sheet strength and the outlook for investment and realisation
levels. In the year, we had a good level of investment activity across new,
bolt-on and further investments, and also generated a significant cash inflow
of over £1.2 billion from our portfolio companies. We also provided liquidity
to two of our portfolio companies to support their recovery from the pandemic
and have capacity to support other portfolio companies if required.
In line with the Group's policy and in recognition of the Group's financial
performance, the Board recommends a second FY2022 dividend of 27.25 pence
(2021: 21.0 pence), subject to shareholder approval, which will take the total
dividend to 46.5 pence (2021: 38.5 pence).
Board and people
I would like to take this opportunity to thank Simon Thompson, my predecessor,
for his stewardship of the Group over the last six years, particularly through
the early stages of Covid-19 and for facilitating a smooth transition process.
As announced on 11 November 2021, Julia Wilson, Group Finance Director, will
retire from her role and the Board after the AGM in June 2022 and will be
succeeded by James Hatchley, who will also retain his current Group Strategy
responsibilities. We have also promoted Jasi Halai, currently Group Financial
Controller, to Chief Operating Officer. I would like to thank Julia for her
outstanding contribution to the Group and the Board over her 16-year tenure
and welcome James and Jasi to the Board. I am also delighted to welcome to the
Board Peter McKellar, who succeeds me as Chairman of the Valuation Committee
and Lesley Knox, who has been appointed as our Senior Independent Director.
Environmental, Social, and Governance ("ESG")
In 2021, ESG and in particular the impact of climate change, was of
significant prominence for governments and businesses. We have recognised for
some time its importance for our shareholders and investors and wider society
and I am encouraged by the Group's progress during the year in implementing
its sustainability agenda under the oversight of our newly formed ESG
Committee.
Outlook
We have started FY2023 with strong momentum across the Group and our
portfolio. The mitigation measures and growth strategies we have implemented
since the start of the pandemic mean that we are well placed to adapt to the
next phase of its evolution. The current geopolitical instability and the
wider implications for the macro-economic environment remain a key focus for
the Group and our portfolio companies, and while we are not immune, our
portfolio is demonstrating its resilience and ability to generate growth.
The strength of our performance in FY2022 results from our strategy of
investing in assets backed by long-term structural growth trends, supporting
returns for our shareholders through the cycle.
David Hutchison
Chairman
11 May 2022
Chief Executive's statement
"Since our restructuring in June 2012, we have focused on investing our
proprietary capital to deliver sustainable growth and long-term compounding of
value from our portfolio companies. This strategy has been executed well by
our international investment teams and through the tight central control of
the Group's Investment Committee. Price discipline, active asset management
and careful cost control have been the hallmarks of the 3i approach since
2012".
3i delivered an excellent result in FY2022, driven by a resilient portfolio,
carefully constructed and positioned in sectors benefiting from long-term
structural growth. Our Private Equity and Infrastructure investment teams
deployed capital selectively and innovatively across several new, further and
bolt-on investments and we capitalised on favourable market conditions to
return significant cash to the Group. Against a backdrop of geopolitical
tensions and macro-economic uncertainty, we enter the next financial year with
a diversified portfolio that has good momentum and is well positioned to
generate attractive, sustainable returns for our shareholders.
We continued to deliver against our long-term strategy and objectives in
FY2022, generating a total return on shareholders' funds of £4,014 million,
or 44% (2021: £1,726 million, or 22%), ending the year with a NAV per share
of 1,321 pence (31 March 2021: 947 pence). The Group and its portfolio have
navigated the various challenges of the last few years very effectively and
the strength of the 3i team and processes, together with the quality of the
current investment portfolio, have ensured sustained growth and dividends for
shareholders. Throughout the pandemic, rigorous monitoring and active
management of our portfolio enabled us to respond quickly to developments in
the wider environment and to implement mitigating actions. This is important
also in the context of Russia's invasion of Ukraine. The Group has no direct
exposure to Russia or Ukraine, and the exposure across the portfolio is
limited but, where it exists, we are actively working on options to deal with
the situation in the short term.
A combination of pent-up demand and record levels of uninvested capital
continue to drive competition and aggressive pricing for private market
assets. We have maintained price discipline and remained flexible, selective
and innovative in deploying our capital. During the year, we completed six new
investments in Private Equity and three in Infrastructure. Bolt-on
acquisitions enable our portfolio companies to increase their scale,
customers, capabilities and access new markets and have been fundamental to
our value creation strategy across both of our portfolios.
In FY2022 we completed a total of 15 bolt-on acquisitions, including two
transformational acquisitions for our Private Equity portfolio companies and a
number of further investments within our Infrastructure portfolio. Our
permanent capital is a distinct advantage in allowing us flexibility in our
investment holding periods. We are under no pressure to accelerate exits
before assets have reached their full potential. We will, of course,
capitalise on favourable exit and refinancing market conditions when they
arise. Across the Group, we received over £1.2 billion of cash primarily via
portfolio company realisations, refinancings and dividends in the year.
Private Equity performance
Our Private Equity portfolio consists of companies across northern Europe and
North America with international operations across four sectors: Business
& Technology Services; Consumer; Healthcare; and Industrial Technology. In
the year to 31 March 2022, it generated a Gross Investment Return ("GIR") of
47% (2021: 30%), predominately driven by performance, with 93% of our
portfolio companies by value growing their adjusted earnings in the 12 months
to December 2021. We remained consistent on our long-term view on multiples,
with multiple increases contributing just 6% to Private Equity GIR.
Action
Our largest Private Equity portfolio company, Action, is a leading non-food
discount retailer operating in ten countries across Europe. Action delivered a
very strong result for its financial year ending 2 January 2022, generating
sales growth of 23% and operating EBITDA of €828 million, 36% ahead of the
previous year. This performance was achieved notwithstanding Covid-19
restrictions and store closures that affected Action in six out of 12 months
in 2021, as well as widespread global supply chain disruptions and
inflationary pressures.
2021 was a record year in terms of store openings for Action, as the business
added 267 stores. Action's simple and repeatable format, selling good quality
but inexpensive products across 14 different categories, remains highly
successful in both its established and newer markets. Action is seeing strong
trading from seven pilot stores in Italy, opened in 2021, and four pilot
stores in Spain, opened in early 2022. The group now has over 2,000 stores
across 10 countries and plenty of expansion potential in existing and adjacent
countries.
An effective end-to-end supply chain is critical to Action's growth strategy
and, in 2021, Action strengthened its distribution infrastructure with the
addition of two new distribution centres ("DCs"), in Bratislava, Slovakia and
in Bieruń, Poland, and opened a new hub in Wroclaw, Poland. Action's DC
network has the capacity to serve c.2,400 stores, providing important spare
capacity to support further growth, whilst the addition of hubs, used to
coordinate the inbound freight, ensures efficient supply to the DCs.
Enhancements in Action's IT infrastructure and the ability to directly source
products have enabled better quality sourcing, more supply chain control and
improved the availability of products in stores. The flexibility of Action's
product range and its significant buying power have allowed the business to
effectively manage price inflation, whilst carefully maintaining price
distance to competitors and ensuring value for money for its customers.
Action has made significant progress in the implementation of its ambitious
sustainability agenda. The company has set a number of important targets
relating to the responsible sourcing of some materials, the transparency of
labour conditions in its supply chain, and importantly aims to have
circularity plans in place for all its categories by the end of 2022. It has
also pledged to reduce the emissions from its own operations by 50% by 2030,
from a baseline year of 2020.
The Board of Action appointed Hajir Hajji to the role of CEO effective from 1
January 2022 and she has presided over a good start to the year. In the three
months to the end of Action's period 3 ("P3") which ended on 3 April 2022,
all stores were open for most of the period and the business generated
like-for-like ("LFL") sales growth of 28% and opened 30 new stores. Action's
last 12 months ("LTM") EBITDA to P3 2022 was €932 million (31 March 2021:
€602 million) showing the strength in recovery of the group's trading since
the severe Covid-19 restrictions in the first three months of 2021. Action has
not been directly impacted by Russia's invasion of Ukraine and has no stores
in that region.
Throughout the pandemic, Action has remained highly cash generative due to its
strong performance, asset-light model and structurally negative working
capital. As a result, Action paid an interim dividend to shareholders of
€325 million in December 2021, and a second dividend of €344 million in
March 2022. After paying the dividends, Action had a cash balance of €394
million as at 31 March 2022 and a net debt to run-rate earnings ratio of 2.5x.
Healthcare portfolio companies
Over the last five years, we have increased our exposure to healthcare assets,
recognising the significant trends in health and wellbeing spend, ageing
populations and the increased importance of the sector following the pandemic.
The healthcare assets that we have acquired often operate in highly fragmented
markets and the significant bolt-on activity in each of our businesses is
providing a foundation for considerable growth. Since our initial platform
investment in 2019 and subsequent buy-and-build activity, SaniSure is now
amongst the largest independent pure-play bioprocessing consumables businesses
in the market and delivered very strong organic growth in 2021. Q Holding's
medical business ("QMD") has seen significant recent commercial momentum with
strong sales in its core products with existing customers, as well as
significant new customer wins in 2021. We continued to enhance Cirtec Medical
with the self-funded acquisition of Cardea Catheter Innovations, further
strengthening Cirtec Medical's interventional segment following the previous
acquisitions of Vascotube and NovelCath. Over our five-year hold in Havea, we
have developed one of the leading European players in consumer healthcare
through the simplification of its brand portfolio, omnichannel development and
by executing a value accretive buy-and-build strategy. In 2021, the business
delivered a good result despite Covid-19 restrictions impacting retail
footfall and completed the self-funded acquisition of ixX Pharma.
Consumer portfolio companies (excluding Action)
Our consumer businesses performed well. BoConcept delivered record order
intake in 2021, with strong performance across most markets, particularly in
Japan, as the business continues to outperform growth in the market and
benefit from increased spending on the home. Operational improvements
implemented since our initial investment and effective pricing strategies have
largely offset the increased supply chain and transportation costs. The
business expanded its international footprint with a further 35 new stores in
2021, taking the total number of brand stores to 326 across 67 countries.
Hans Anders mitigated Covid-19 restrictions in the first and last quarter of
2021 through its omnichannel strategy and increased operational efficiencies.
Following the easing of restrictions in the second and third quarters of 2021,
sales rebounded quickly. Trading in the first quarter of 2022 was robust with
all stores open. High customer demand, driven by a structural shift to online
channels, generated strong performance in the first half of 2021 for Luqom,
whilst market headwinds, specifically supply chain delays and rising inbound
container prices, resulted in pressure on performance in the second half of
2021. The business completed an important transaction with the bolt-on
acquisition of Lampemesteren, one of the online market leaders in Scandinavia
with a particularly strong position in the premium segment of the market.
Over the last two years, Covid-19 has presented an unprecedented challenge to
the travel industry, and in 2021 both Audley Travel and arrivia faced
difficult trading conditions. To support their recovery, we provided
additional liquidity to both businesses. Encouragingly, in the first quarter
of 2022, both saw an improvement in bookings.
Industrial Technology portfolio companies
Our long-term minority investments in AES and Tato continue to perform well
and yield cash dividends for the Group. Tato continued to see sustained demand
for its core biocides products and maintained its supply levels throughout the
pandemic. The Covid-19 driven boost to disinfectant sales normalised through
the second half of 2021 with end markets now driven by conventional consumer
and industrial drivers. AES outperformed our expectations in the year, driven
by increased sales volume and efficient cost control.
WP successfully navigated resin and other material price increases with
effective pricing strategies in 2021. The business, which has an operating
subsidiary in Russia that contributed c.17% of its adjusted 2021 earnings, is
actively working with our team on options to deal with the situation in the
short term. Formel D's performance in 2021 was severely impacted by plant
shutdowns due to the semi-conductor shortage affecting automotive production.
Private Equity investment
We invested £335 million in six new portfolio companies. Three of these were
in the consumer sector, including the £87 million investment in Mepal, the
£46 million investment in Dutch Bakery and the £43 million investment in
Yanga. These are distinctive consumer companies with strong customer
propositions and international growth potential. As part of our thematic
Business & Technology Services investment strategy, we invested £53
million in MAIT, a leading IT services provider that benefits from the
digitalisation of SME customers in the manufacturing industries in the DACH
region, with a proven M&A platform to drive consolidation in a highly
fragmented market.
Our experience and network in the healthcare sector enables us to identify
investment opportunities away from the typical processes that are currently
commanding very high valuation multiples. In May 2021, we adopted an
innovative approach in forming a new platform, ten23 health, to create a
contract development and manufacturing organisation ("CDMO"), which provides
an integrated offering for sterile drug product development and manufacturing
of biologics, challenging molecules and dosage forms. Throughout the remainder
of the financial year, we continued to support the growth initiatives of this
platform and completed the transformational bolt-on acquisition of
Swissfillon, a drug product fill and finish CDMO. To date, we have invested
£69 million in the ten23 health platform. In November 2021, we also completed
a £37 million co-investment in insightsoftware, the company that acquired
Magnitude Software.
Building value through international roll-outs or bolt-on acquisitions is
fundamental to our investment and value creation strategy. In the year, we
completed several self-funded bolt-on acquisitions across various stages of
the investment lifecycle, including three for MAIT and one for Dutch Bakery,
within 12 months of the completion of our original investment. We also
completed acquisitions for more established businesses such as Luqom, Cirtec
Medical, Havea, Evernex, Hans Anders, AES and Royal Sanders. We also funded a
transformational bolt-on acquisition for GartenHaus with the acquisition of
Outdoor Toys, a UK-based online retailer of outdoor garden toys, investing
£45 million of 3i proprietary capital.
Further details on our Private Equity investment activity can be found in the
Private Equity section.
Private Equity realisations
Private assets continued to command favourable exit valuations, with a
particularly strong demand for technology assets. We generated realisation
proceeds of £684 million in the year. Following our investment in Magnitude
Software in May 2019, we supported several new product launches, the
transition from on-premises to cloud software solutions and investments in
sales and marketing which increased Magnitude Software's organic growth rate.
With the business well positioned and a favourable market backdrop, we
completed its sale in November 2021, returning £346 million of proceeds to
3i, representing a 109% uplift on 31 March 2021 value. The sale achieved a
sterling money multiple of 2.5x and IRR of 44%, a very strong return after a
holding period of only two and a half years.
When market conditions and trading performance allow, we may refinance our
assets. Following refinancings in the year, Royal Sanders and BoConcept
returned proceeds to 3i of £84 million and £73 million respectively.
We also capitalised on a recovery in public markets in November 2021 with the
partial sale of our stake in Basic-Fit at €44.25 per share, generating
proceeds of £146 million, meaning our money multiple, including the value of
our remaining stake at 31 March 2022, is 5.4x.
At the start of April 2022, we agreed the sale of Q Holding's QSR division, a
leading developer and manufacturer of electrical connector seals, to Datwyler
for an enterprise value of US$625 million. We expect to receive proceeds of
c.US$255 million in the first half of FY2023. The valuation of Q Holding at 31
March 2022 of £398 million (31 March 2021: £187 million) includes the
expected sale proceeds from QSR and our remaining value of Q Holding's QMD
business, and means our money multiple for the overall business is 2.5x, with
plenty of runway for further value generation in QMD.
Further details on our Private Equity realisation activity can be found in the
Private Equity section.
Infrastructure performance
Our Infrastructure portfolio generated a GIR of £241 million, or 21% on the
opening value (2021: £178 million, 16%). This strong return was driven
principally by the increase in share price of the Group's 30% holding in 3iN,
whose shares closed at 347 pence at 31 March 2022 (31 March 2021: 296 pence).
The Infrastructure business generated strong cash income of £91 million
(2021: £67 million) as a result of good underlying investment activity and
performance.
3iN's investment portfolio outperformed expectations in the year to 31 March
2022. As a result, 3iN generated a total return on opening NAV of 17.2% and
delivered its dividend target of 10.45 pence, a 6.6% increase on last year.
As 3iN's Investment Manager, we have overseen a period of significant
investment activity, whilst maintaining our price discipline in a highly
competitive asset class. During the year, the 3iN team completed the
acquisitions of DNS:NET, an independent telecommunications provider in
Germany, for £190 million and of SRL Traffic Systems, the market leading
traffic management equipment rental company in the UK, for £191 million. The
team also increased 3iN's stake from 50% to 100% in 3iN's existing portfolio
company ESVAGT and agreed to acquire Global Cloud Xchange ("GCX"), a leading
global data communications service provider which owns one of the world's
largest private subsea fibre optic networks. Whilst the investment hold
horizon is typically longer in the infrastructure asset class, we will sell an
investment where this generates attractive returns for shareholders. This year
saw the divestment by 3iN of Oystercatcher's four European terminals,
increasing Oystercatcher's unrealised money multiple to 3.1x.
The underlying 3iN portfolio has no operations in or direct revenues from
Russia or Ukraine and to date the indirect impacts on portfolio companies has
been limited.
In North America, we have now secured commitments from two third-party
blue-chip investors, who have co-invested in Regional Rail and EC Waste and
will make further investments alongside 3i in its North America Infrastructure
platform. As part of these arrangements, 3i committed US$300 million into the
platform and we received £161 million of realised and syndication proceeds
from the co-investment transfers of EC Waste and Regional Rail. We believe
this platform provides the Group with an opportunity to build on its
experience in a market that has significant growth potential.
Scandlines performance
Scandlines performed well in the year generating a GIR of 26% (2021: 6%).
Freight volumes were consistently strong, finishing ahead of 2019 levels.
Leisure volumes showed some signs of recovery but remained below 2019 levels
as travel restrictions remained in place between Sweden, Denmark and Germany
in the first part of the peak trading season of 2021 and, following the
emergence of another Covid-19 variant, at the end of 2021. As a result of good
cash management throughout the pandemic, Scandlines was able to resume its
cash distributions in December 2021, and 3i recognised £13 million of
dividends in the year.
Progress on our sustainability agenda
FY2022 was an important year in progressing our sustainability agenda. In
recognition of the importance of the management of sustainability issues for
the Group and our portfolio, we set up a formal ESG Committee, with membership
drawn from across the business, to advise me, directly and through the Group
Risk and Investment Committees, on all ESG-related matters. Since its creation
this committee has focused in particular on developing strategy, policy and
governance for assessing and managing climate-related risks and opportunities
across the Group and its portfolio, a topic of increasing urgency and
prominence in society and a focus area of governments and regulators and our
stakeholders.
As part of this, the ESG Committee has been working on preparing the Group for
reporting in alignment with the TCFD framework by the 2024 deadline set by the
FCA for asset managers such as 3i, which will require us to expand our current
TCFD reporting to include portfolio emissions metrics. To this end, in January
2022 we started an engagement with EY's sustainability practice to establish a
roadmap to achieve alignment, refine our process for ESG data collection and
perform a first climate scenario analysis to advance our understanding of
climate-related risks and opportunities in our portfolio companies.
We are now working on a number of initiatives that we have already set in
train. These include:
· Investment assessment: we are refining our investment screening process
to include an earlier assessment of climate risks and opportunities, with
third-party input where required.
· Data: we are now completing the process of collecting greenhouse gas
("GHG") emissions data from our portfolio companies and improving our
processes and tools to ensure that this data can be easily analysed. Our
objective is to measure the carbon footprint of our entire portfolio by the
end of FY2023, to facilitate TCFD reporting by 2024. This data will also allow
us to improve our engagement with portfolio companies on this topic and set
appropriate targets.
· Scenario analysis: we are carrying out our first climate scenario
analysis for the entirety of our portfolio, to help us assess the impacts on
portfolio companies of different climate warming scenarios. We will iterate
these analyses periodically to help us better understand and manage the impact
of climate change on our portfolio companies.
· Skills and training: we are organising bespoke training programmes on
climate change physical and transition risks and opportunities, with the
objective of equipping everyone in 3i with the knowledge required to assess
and manage these appropriately.
We will continue to manage climate change with the necessary urgency. For
further information on what we have done to date and what we have planned in
the immediate future, please refer to our TCFD disclosures.
During the Covid-19 pandemic, we have continued to work closely with our
portfolio companies to ensure the safety and wellbeing of their employees and
to manage the range of operational issues they have faced as a result of
public health measures, and we have provided financial support where required.
The £5 million Covid-19 charitable fund we set up in May 2020 to alleviate
the hardships suffered by many as a result of the pandemic has now been fully
deployed across the countries where we and our investment teams operate.
3i portfolio companies' support for the humanitarian crisis in Ukraine
Action: donated €1 million to UNICEF. In addition, Action offered the use of
its Polish warehouses and logistics to provide supplies and supported Polska
Akcja Humanitarna. In the Czech Republic, Action's staff worked closely with
People in Need to provide support.
BoConcept: supported people affected by the conflict by matching their
employees' donations up to €100,000, with the aim of raising €200,000 to
donate to the UN Refugee Agency (UNHCR).
Christ: donated €50,000, split between Aktion Deutschland Hilft e.V.'s
Ukraine Emergency Aid project and the regional organisation Gesellschaft
BochumDonetsk e.V. The latter organisation was chosen because Bochum is where
Christ's logistics department is located and the city is partnered with
Donetsk in Ukraine.
GartenHaus: matched employees' donations to the Csilla von Boeselager Stiftung
Otseuropahilfe e.V., which has been providing emergency aid in Ukraine for 20
years and operates in Lviv, Beregovo and Zaporizhia.
Havea: donated 100,000 Biolane baby hygiene products, including wipes and
washing gel, for distribution to Ukrainian refugees. A second convoy of 40
pallets was donated to organisations hosting refugee families in France.
Scandlines: is offering free transport on its ferries to Ukrainian passport
holders.
ten23 health: supported the Swiss charity HEKS/ EPER (Swiss Church Aid), which
provides humanitarian aid to civilians in Ukraine and those fleeing the
country. The charity also supports Ukrainian refugees in Switzerland.
3i Group's support for the humanitarian crisis in Ukraine
In March 2022, we donated £1 million split equally between UNICEF and the
Médecins Sans Frontières/ Doctors Without Borders ("MSF") Emergency Fund.
UNICEF is working with partners on the ground in Ukraine to reach vulnerable
children and families with essential services - including health, education,
protection, water and sanitation - as well as lifesaving supplies.
MSF provides medical assistance to people affected by conflict, epidemics,
disasters, or exclusion from healthcare.
MSF's Emergency Fund is an annual financial reserve that allows the
organisation to react quickly in emergencies, with an aim of being on the
ground within 48 hours.
Our people
It has been a challenging few years for our team and throughout the pandemic
we have focused on protecting the wellbeing of our employees and contractors.
In September 2021 we implemented a hybrid working model which supports a
strong collaborative culture while providing employees with a degree of
flexibility to manage non-work commitments and improve their quality of life.
I would like to record a big thank you to the 3i team and the teams in our
portfolio companies for working through the last few years so well.
We have seen some changes in key personnel this year. James Hatchley will
succeed Julia Wilson as Group Finance Director at the end of June 2022 and
Jasi Halai, currently Group Financial Controller, will become Chief Operating
Officer. They will join the Board in May 2022.
We promoted Julien Marie, currently HR Director, to Chief Human Resources
Officer. He joined the Executive Committee in April 2022. Phil White will step
down as Managing Partner and Head of Infrastructure and member of the
Executive Committee at the end of June 2022, remaining with the business on a
part-time basis as Vice Chair of Infrastructure and member of the Group's
Investment Committee. Scott Moseley and Bernardo Sottomayor will succeed him
as Managing Partners and Co-Heads of European Infrastructure, and will join 3i
Group's Executive and Investment Committees, effective 1 July 2022.
We have also seen a marked pick-up in hiring approaches from competing
investment firms targeting our investment and professional services teams.
This activity has resulted from asset gathering firms in the private equity
and infrastructure investment sectors seeking to grow at a very rapid pace,
often with a view to becoming a listed company. We have had to respond to
these approaches by ensuring that careers and compensation at 3i remain
attractive and competitive for the talented individuals we have working in the
Group.
Operations and balance sheet
Cost discipline across the Group remains central to our long-term strategy
and, in FY2022, we continued to cover our costs with income, generating an
operating cash profit of £340 million in the year, or £56 million excluding
the £284 million of cash dividends received from Action, which were
recognised as income.
We ended FY2022 with net debt of £746 million and 6% gearing, after returning
£389 million of cash dividends to shareholders in the year. We close our
financial year with liquidity, including our undrawn RCF, of £729 million,
meaning we can move fast when suitable investment opportunities arise.
Our ten-year track record
Since our restructuring in June 2012, we have focused on investing our
proprietary capital to deliver sustainable growth and long-term compounding of
value from our portfolio companies. This approach is underpinned by a robust
investment strategy focused on the identification of long-term growth trends
across our sectors and geographies. This strategy has been executed well by
our international investment teams and through the tight central control of
the Group's Investment Committee. Price discipline, active asset management
and careful cost control have been the hallmarks of the 3i approach since
2012.
Both Julia Wilson and Phil White have been key members of the 3i team and I am
indebted to both for their significant contributions since the restructuring
in 2012. Both have reached the pinnacle of their respective disciplines and I
wish them well in the next phase of their lives. While they will both be much
missed, we have some very capable internal promotees to step into their shoes.
2012 2022
NAV per share 279p 22% average total return on equity 1,321p
Dividend growth 8.1p 19% CAGR 46.5p
Proprietary capital value £3.2bn 4.5x increase £14.3bn
Operating costs as a % of AUM 1.7% 65% reduction 0.6%
Outlook
We have entered our new financial year acutely aware of the political and
macro-economic challenges the world is facing, but we do this from a position
of strength.
· Our teams are experienced and well-embedded in their local markets across
northern Europe and North America.
· Our processes are carefully designed and disciplined which allows us to
react fast to sudden or sharp changes in markets or the broader environment.
· Our portfolio is well constructed from a thematic, geographic and sector
perspective and has demonstrated clear resilience over the last few years. We
asset manage in the knowledge that we have assembled today's portfolio with
real price discipline and we have not over-bought recent highly-priced
vintages.
In Action we have a formidable retail company that will continue to grow and
thrive in today's challenging environment. We also have a number of healthcare
and consumer assets which have the potential to become significant longer-term
compounders for the Group.
Simon Borrows
Chief Executive
11 May 2022
Private Equity
At a glance
Gross investment return
£4,172m
or 47%
(2021: £1,936m or 30%)
Cash investment
£457m
(2021: £508m)
Realised proceeds
£684m
(2021: £114m)
Portfolio growing earnings
93%(1)
(2021: 87%)
Portfolio value
£12,420m
(2021: £8,814m)
Portfolio dividend income
£331m
(2021: £53m)
We invest in mid-market businesses headquartered in northern Europe and North
America with potential for international growth. Once invested, we work
closely with our portfolio companies to achieve their full potential,
realising our investments to deliver strong cash-to-cash returns for 3i
shareholders and other investors.
In the year to 31 March 2022, our Private Equity portfolio delivered a GIR of
£4,172 million or 47% on the opening portfolio value (2021: £1,936 million
or 30%) and the portfolio value increased to £12,420 million (31 March 2021:
£8,814 million). This excellent result demonstrates the portfolio's
resilience to the pandemic and its ability so far to mitigate disruption to
global supply chains and inflationary pressures. 93% of our portfolio by value
grew adjusted earnings to the end of 2021, with particularly robust
performance from Action and our other assets operating in the consumer and
healthcare sectors. Our portfolio companies grew organically and also
completed 15 bolt-on acquisitions, including two transformational
acquisitions. We made six new investments in FY2022 and ended the year as net
divestors. As we enter FY2023, whilst the direct impact of Russia's invasion
of Ukraine on our portfolio is limited, we continue to monitor its impact on
the broader political and economic environment.
The contribution of Action to the Private Equity performance is detailed in
Note 1 of the financial statements.
1 LTM adjusted earnings to 31 December 2021. Includes 28 portfolio companies.
Table 1: Gross investment return for the year to 31 March
Investment basis 2022 2021
£m
£m
Realised profits over value on the disposal of investments 228 29
Unrealised profits on the revaluation of investments 3,545 2,161
Dividends 331 53
Interest income from investment portfolio 73 55
Fees receivable 6 9
Foreign exchange on investments (11) (371)
Gross investment return 4,172 1,936
Gross investment return as a % of opening portfolio value 47% 30%
Investment activity
Acquisition multiples in 2021 across the US and Europe remained high,
reflecting fierce competition in private markets, with the increase in pricing
of healthcare and technology assets even more pronounced. We remained
selective and disciplined, deploying £335 million of our capital in six new
portfolio companies with an average initial investment size of £56 million.
This is lower than our typical average investment size but is part of a
deliberate strategy to avoid the more competitive processes we see for larger
investments. These new assets are all capable of building scale through
bolt-on acquisitions and further internationalisation.
Between May and October 2021 we invested initial capital in ten23 health to
fund its start-up spend, before completing the transformational acquisition of
Swissfillon in October 2021, bringing our total invested capital to £69
million in the year. We invested £53 million in MAIT, an IT services provider
catering to larger SME clients across the DACH region, operating in a market
segment with structural growth potential and momentum from digitalisation. In
October 2021, we invested £46 million in Dutch Bakery to drive the company's
international growth strategy in the fragmented European private label market
for bake-off products, whilst supporting the business in its continued
investment in its home markets. In December 2021, we completed the £87
million investment in Mepal to continue the international expansion of this
successful consumer brand known for its high-quality products for storing,
take-away and serving food and drink whilst building on its current core
markets, most notably the Netherlands, Belgium and Germany, and strong online
performance.
In January 2022, we invested £43 million in Yanga, a sports drink provider
operating in the attractive value-for-money fitness space, to support its
international growth and expansion into North America. In November 2021, we
also completed a £37 million co-investment in insightsoftware, the company
that acquired Magnitude Software.
We continued to execute our buy-and-build strategy more generally with 15
acquisitions completed by our portfolio companies. These create material value
by adding scale, as well as broadening the product range and geographical
reach while generating synergy opportunities for our portfolio companies. Two
of these transactions were transformational in size: ten23 health's
acquisition of Swissfillon, and the acquisition of Outdoor Toys by GartenHaus.
The remaining 13 bolt-on acquisitions listed below were self-funded.
We invested £81 million in Luqom to buy out minority holdings and provide
further investment for the next stage of its growth as well as for M&A. We
provided additional funding of £25 million and £30 million to Audley Travel
and arrivia respectively to support their recoveries from the pandemic. We
also completed a £12 million further investment in Christ as part of the
successful extension of its debt package.
As a result of a refinancing, and within 12 months of our investment in
Sani-Tech West, SaniSure returned £59 million of 3i's proprietary capital.
Similarly, WilsonHCG returned £13 million of investment.
In total, in the year to 31 March 2022, our Private Equity team invested £529
million across new, bolt-on and further investments, or a net £457 million
after the return of funding of £72 million.
Portfolio company Name of acquisition Business description of bolt-on investments Date
Private Equity portfolio bolt-ons - funded by the portfolio company balance Luqom + Lampemesteren Online retailer of premium lighting products in the Nordic region April 2021
sheets
Cirtec Medical + Cardea Catheter Innovations Contract manufacturer specialising in the design and development of catheter July 2021
systems
Havea + ixX Pharma Independent player in the Belgian premium food supplement segment September 2021
Dutch Bakery + Goodlife Foods Deurne Leading production facility specialised in the production of sausage rolls October 2021
Evernex + Emcon-IT US player in the third-party hardware maintenance industry October 2021
AES + JAtech Services Canada-based asset condition monitoring specialist November 2021
Hans Anders + Eyes! NV and Eyes Society BV Belgian franchisee for Eyes+More December 2021
SaniSure + GL Engineering Manufacturer of single-use filling needles for use in the fill & finish December 2021
stage of production
MAIT + Infolutions Swiss-managed services provider with a focus on infrastructure monitoring January 2022
MAIT + Scirotec German provider of PTC PLM solutions January 2022
Royal Sanders + Otto Cosmetic German manufacturer of private label and contract manufacturing products for February 2022
the personal care industry
WilsonHCG + Claro Analytics Talent analytics provider that analyses candidate data to help enterprises February 2022
with workforce planning
MAIT + Cytrus Swiss-based product lifecycle management provider March 2022
Proprietary
Capital
investment
Portfolio company Business description Date £m
New investment Mepal Dutch lifestyle consumer brand known for designing and manufacturing food and December 2021 87
drink storage and serving solutions
ten23 health1 Pharmaceutical product CDMO Various 69
MAIT IT services provider of PLM & ERP software applications and IT September 2021 53
infrastructure solutions for larger SME clients in the DACH region
Dutch Bakery Industrial bakery group specialised in home October 2021 46
bake-off bread and snack products
Yanga Sports drink provider for gym operators January 2022 43
insightsoftware Provider of financial reporting and enterprise performance management software November 2021 37
for the
office of the CFO
Tot 3
al 3
new 5
inv
est
men
t
1 Includes the transformational bolt-on acquisition of Swissfillon.
Proprietary
Capital
Name of investment
Portfolio company acquisition Business description of bolt-on investments Date £m
Further investment GartenHaus + Outdoor Toys UK-based online retailer of outdoor garden toys October 2021 45
to finance portfolio bolt-on acquisitions
Total 4
further 5
investm
ent to
finance
portfol
io bolt
-on
acquisi
tions
Proprietary
Capital
investment
Portfolio company Business description Date £m
Further investment Audley Travel Provider of experiential tailor-made travel October 2021 25
to support portfolio
companies
arrivia Global travel and loyalty company that connects leading brands, travel March 2022 30
suppliers and end consumers
Total further investment to support portfolio companies 55
Proprietary
Capital
investment
Portfolio company Type Business description Date £m
Other investment Luqom Further Online lighting specialist retailer Various 81
Christ Further German retailer of jewellery and watches November 2021 12
Other Further Various Various 1
Total 9
other 4
inves
tment
Total FY2022 Private Equity gross investment 529
Proprietary
Capital
investment
Portfolio company Type Business description Date £m
Return of funding WilsonHCG Return Global provider of recruitment process outsourcing and other talent solutions Various (13)
of funding
SaniSure Return Manufacturer, distributor and integrator of single-use bioprocessing systems July 2021 (59)
of funding and components
Total (
retur 7
n of 2
fundi )
ng
Total FY2022 Private Equity net investment 457
Realisation activity
In the year we completed the sale of Magnitude Software, returning £346
million of realised proceeds to 3i, achieving a sterling money multiple of
2.5x and an IRR of 44% after only a two and a half year hold. We also
capitalised on a recovery in equity markets in November 2021, with the partial
sale of our shares in Basic-Fit for €44.25 per share, generating proceeds of
£146 million. We retain a 5.7% holding in the business.
We continue to refinance our most cash generative assets where appropriate for
the business and when the market allows. We completed refinancing for Royal
Sanders and BoConcept, returning £80 million (as well as £4 million recorded
as income) and £73 million of realised proceeds respectively. BoConcept also
returned a further £17 million earlier in the year following the partial
repayment of a shareholder loan. Finally, we received £22 million of proceeds
from our legacy portfolio.
In aggregate, we generated total Private Equity proceeds of £684 million
(2021: £114 million) and realised profits of £228 million (2021: £29
million).
At the start of April 2022, we agreed the sale of Q Holding's QSR division, a
developer and manufacturer of electrical connector seals, to Datwyler for an
enterprise value of US$625 million. We expect to receive proceeds of c.US$255
million in H1 FY2023.
Table 2: Private Equity realisations in the year to 31 March 2022
31 March Profit Uplift on
Calendar 2021 3i realised in the opening Residual
year value1 proceeds year value2 value Money
Investment Country invested £m £m £m % £m multiple3 IRR
Full realisations
Magnitude Software US 2019 165 346 180 >100% - 2.5x 44%
Other n/a n/a 1 2 1 100% - n/a n/a
Total realisations 166 348 181 - 2.5x 44%
Refinancings1,3
BoConcept Denmark 2016 73 73 - - 184 2.4x 16%
Royal Sanders Netherlands 2018 80 80 - - 297 3.1x 36%
Total refinancings 153 153 - - 481 n/a n/a
Partial realisations1,3
Basic-Fit Netherlands 2013 110 146 37 33% 129 5.4x 40%
BoConcept Denmark 2016 17 17 - - 184 2.4x 16%
Other n/a n/a 10 10 - - n/a n/a n/a
Deferred consideration
Eltel Nordic 2007 - 10 10 n/a - n/a n/a
Total Private Equity realisations 456 684 228 - n/a n/a n/a
1 For partial realisations, 31 March 2021 value represents value of stake sold.
2 Profit in the year over opening value.
3 Cash proceeds over cash invested. For partial realisations and refinancings,
valuations of any remaining investment are included in the multiple. Money
multiples are quoted on a GBP basis.
Portfolio valuation approach
To varying degrees, our portfolio companies had to respond to supply chain
disruption, commodity price increases, other inflationary pressures and
Covid-19 travel restrictions in FY2022. Against this backdrop the majority of
our portfolio companies demonstrated great resilience and adaptability and
continued to meet their investment plans. Therefore, our longer-term
investment view on those portfolio companies has not changed and our valuation
approach has remained consistent. For a small number of assets that remained
challenged due to Covid-19, we sought to gather a broader range of inputs,
considered different methodologies and applied further judgement. We valued
earnings directly attributable to Russian operations at nil as at 31 March
2022.
Our Private Equity portfolio generated an unrealised profit of £3,545 million
(2021: £2,161 million).
Action valuation and performance
In the 12 months to the end of Action's P3 2022 (which ended on 3 April 2022),
Action delivered very strong earnings growth and cash generation and continued
its international store roll-out. This was reflected in the £2,655 million
(March 2021: £1,202 million) unrealised profits shown in Table 3. As the
largest Private Equity investment by value, it represented 58% of the Private
Equity portfolio (31 March 2021: 52%). Further information on Action's
performance in the period is provided in the Chief Executive's statement.
At 31 March 2022, Action was valued using its LTM run-rate earnings to the end
of P3 2022 of €1,012 million. The LTM run-rate earnings included our normal
adjustment to reflect stores opened in the year. At 31 March 2022, Action was
valued on a multiple of 18.5x net of the liquidity discount (31 March 2021:
18.5x). This resulted in a valuation of our 52.7% stake in Action of £7,165
million (31 March 2021: £4,566 million).
Performance (excluding Action)
Excluding Action, the performance of investments valued on an earnings basis
resulted in unrealised profits of £483 million (March 2021: £536 million),
driven by strong earnings growth and cash generation across the portfolio,
with particularly robust performance from our companies operating in the
healthcare and consumer sectors.
Following our initial platform investment in 2019, SaniSure delivered strong
earnings growth in 2021 as the business capitalised on the double-digit growth
of the bioprocessing single-use market, with a robust order book supporting
innovative therapeutic modalities. The business is well positioned for
sustained growth into 2022 and beyond as it strives for operational excellence
and supply chain enhancement. The QMD business of Q Holding benefited from an
increase in elective surgical procedures in 2021 and secured significant new
product wins that will drive strong organic growth in 2022. Further
information on the valuation of its QSR business is detailed under sum of the
parts heading later in this section. Cirtec Medical delivered new wins across
its end markets and capabilities, positioning the business for sustained
growth as procedure volumes recover and customers re-stock their inventories.
The bolt-on acquisition of Cardea Catheter Innovations in the year further
expanded its end market exposure. Despite Covid-19 impacting retail footfall,
the strength of Havea's brands drove good organic growth in 2021, whilst the
business continued its omnichannel development and international expansion
with the bolt-on acquisition of ixX Pharma.
BoConcept generated strong earnings growth and cash flow in 2021, driven by
existing store sales growth across almost all markets and 35 new store
openings. Through effective pricing strategies, utilising its strong
relationship with existing suppliers and by diversifying its supplier base,
the business has largely mitigated the increased raw material and
transportation costs and supply chain constraints seen in its industry. Hans
Anders largely mitigated reduced footfall in the first and last quarter of
2021 through its online appointment booking tool and higher conversion rates.
When Covid-19 restrictions eased in the second and third quarter of 2021,
sales quickly rebounded. As a value-for-money optical retailer, Hans Anders'
price positioning is below that of its major competitors and its tight cost
control has enabled it to manage inflationary pressures. Following a very
strong performance in 2020, Luqom's strong trading momentum continued into the
first half of 2021 as consumer demand for lighting products online remained
robust against a backdrop of ongoing Covid-19 related restrictions. The second
half of 2021 saw headwinds on performance predominately driven by supply chain
disruptions and rising inbound container prices. Luqom completed its second
bolt-on acquisition since our initial investment, with the purchase of
Lampemesteren, an important acquisition from a market share and international
expansion perspective, particularly in the premium segment.
Tato delivered strong performance in 2021 with continued demand for its core
biocide products. Given Tato's biocides speciality focus, scale and strong
global diversification of both production and customers, the business is
managing input price inflation with effective pricing strategies. AES
generated strong earnings growth from increased sales volumes combined with
efficient cost control. The business also strengthened its geographical
footprint in North America following the acquisition of JAtech Services in
November 2021. Both Tato and AES were cash generative in the year and
distributed dividends to 3i of £18 million in total. Dynatect generated
earnings that materially outperformed pre-pandemic levels driven by market
recovery and strong performance on pricing, which offset inflationary
pressures from materials. MPM performed well in both its core markets and in
its international expansion, with particularly strong performance in the US.
WilsonHCG continues to benefit from strong labour markets globally as we
emerge from the pandemic.
Over the last 24 months, the pandemic has presented an unprecedented challenge
to the travel industry. arrivia, our travel-based loyalty services specialist,
has been fairly resilient throughout the pandemic and in 2021 the business saw
a noticeable recovery in bookings for hotels, resorts, air travel and car
rentals, interrupted periodically by various new Covid-19 variants and
restrictions. Leisure cruising, arrivia's primary market, remained challenged
with 2021 bookings returning to just over a third of 2019 levels. Audley
Travel's performance throughout 2021 closely mirrored Covid-19 incidence rates
and Government policy across its US and UK markets. As restrictions have
eased, we have seen an encouraging recovery in bookings. To support both
businesses through this recovery, we invested a further £25 million in Audley
Travel and £30 million in arrivia in the year.
WP recorded a solid performance in 2021, despite inflationary pressures on
various input materials and energy costs and subdued demand in certain
personal care products as a result of Covid-19. It mitigated resin price
increases through effective pricing strategies. The business, which has an
operating subsidiary in Russia that contributed c.17% of its adjusted 2021
earnings, is actively working with our team on options to deal with the
situation in the short term. Those earnings attributable to Russia have been
excluded from the valuation of WP at 31 March 2022. Our valuation of Formel D
at 31 March 2022 reflects the challenges the business continues to face as a
result of semiconductor shortages and automotive market impacts from the
Ukraine crisis. Formel D has a small exposure to Russia mostly via testing
facilities which are currently being discontinued.
Table 3: Unrealised profits on the revaluation of Private Equity
investments(1) in the year to 31 March
2022 2021
£m
£m
Earnings based valuations
Action performance 2,655 1,067
Action multiple - 135
Performance (excluding Action) 483 536
Multiple movements (excluding Action) 241 408
Other bases
Sum of the parts 132 -
Discounted cash flow 7 (101)
Other movements on unquoted investments 2 3
Quoted portfolio 25 113
Total 3,545 2,161
1 Further information on our valuation methodology, including definitions and
rationale, is included in the Portfolio valuation - an explanation section in
our Annual report and accounts 2022.
Overall, 93% of the portfolio by value grew LTM adjusted earnings in the year
(2021: 87%). Table 4 shows the earnings growth of our top 20 assets.
Table 4: Portfolio earnings growth of the top 20 private equity(1) investment
3i value
at 31 March 2022
Number of companies £m
<0% 4 777
0-9% 4 1,453
10-19% 3 1,254
20-29% 1 269
≥30% 8 8,224
1 Includes top 20 Private Equity companies by value. This represents 96% of the
Private Equity portfolio by value (31 March 2021: 98%).
Last 12 months' adjusted earnings to 31 December 2021 and Action based on LTM
run-rate earnings to the end of P3 2022.
Leverage
Leverage across the portfolio decreased to 3.3x earnings (31 March 2021: 3.9x)
or increased to 4.6x excluding Action (31 March 2021: 4.3x).
Table 5 shows the ratio of net debt to adjusted earnings by portfolio value.
Table 5: Ratio of net debt to adjusted earnings(1)
3i value
at 31 March 2022
Number of companies £m
<1x - -
1-2x 1 448
2-3x 4 7,595
3-4x 6 1,094
4-5x 7 1,121
5-6x 3 994
>6x 3 236
1 This represents 92% of the Private Equity portfolio by value (31 March 2021:
88%). Quoted holdings, deferred consideration and companies with net cash are
excluded from the calculation. Net debt and adjusted earnings at 31 December
2021 and Action based on LTM run-rate earnings to the end of P3 2022.
Multiple movements
The increase in value due to multiple movements was £241 million (2021: £543
million). 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 monitor external equity
markets.
Global equity markets saw a strong recovery through 2021 driven by favourable
monetary policy, fiscal stimulus and the global deployment of Covid-19
vaccines. The emergence of Covid-19 variants at the end of 2021 and Russia's
invasion of Ukraine resulted in increased volatility in global equities in the
first three months of 2022. Such unpredictable movements reinforce our
strategy of taking a long-term view on the multiples used to value our
portfolio companies.
We increased the valuation multiples for some of our portfolio companies that
have grown organically or through recent acquisitions and operate in sectors
that have benefited from positive market trends.
There was no change to the multiple used to value Action at 31 March 2022.
Based on the valuation at 31 March 2022, a 1.0x movement in Action's
post-discount multiple would increase or decrease the valuation of 3i's
investment by £451 million.
DCF
Audley Travel is our largest Private Equity asset valued on a DCF basis and
its valuation reflects our expectation on recovery in the UK and US travel
markets. At 31 March 2022, Audley Travel was valued at £117 million (31 March
2021: £85 million).
Quoted portfolio
Basic-Fit is the only quoted investment in our Private Equity portfolio.
Covid-19 restrictions continued to affect Basic-Fit's performance in 2021 due
to temporary club closures and government restrictions. However, the business
saw its membership level recover to its pre-pandemic levels and expanded its
club base by 110 clubs.
At 31 March 2022 our residual 5.7% shareholding was valued at £129 million
(31 March 2021: 12.8% shareholding valued at £214 million).
Sum of the parts
At 31 March 2022, Q Holding was valued on a sum of the parts basis. The sum of
the parts included the valuation of the QSR division, valued on an imminent
sale basis after the agreed sale and the value of its QMD business, valued on
an earnings basis.
Assets under management
The value of the Private Equity portfolio, including third-party capital,
increased to £16.7 billion (31 March 2021: £11.6 billion), primarily due to
unrealised value movements in the year.
Table 6: Private Equity assets by geography as at 31 March 2022
3i carrying
value
2022
3i office location Number of companies £m
Netherlands 8 8,296
France 2 595
Germany 7 939
UK 8 960
US 9 1,608
Other 3 22
Total 37 12,420
Table 7: Private Equity assets by sector as at 31 March 2022
3i carrying
value
2022
Sector Number of companies £m
Action (Consumer) 1 7,165
Consumer 12 2,022
Industrial Technology 7 1,012
Business & Technology Services 11 656
Healthcare 6 1,565
Total 37 12,420
Table 8: Private Equity 3i proprietary capital as at 31 March
3i proprietary Vintage 3i proprietary Vintage
capital value(3) money capital value(3) money
2022 multiple(4) 2021 multiple(4)
Vintages £m 2022 £m 2021
Buyouts 2010-20121 2,462 12.3x 1,569 10.2x
Growth 2010-20121 18 2.1x 16 2.1x
2013-20161 1,022 2.3x 829 2.1x
2016-20191 2,210 1.8x 2,062 1.4x
2019-20221 1,319 1.3x 745 1.1x
Others2 5,389 n/a 3,593 n/a
Total 12,420 8,814
1 Assets included in these vintages are disclosed in the Glossary.
2 Includes value of £4,703 million (31 March 2021: £2,997 million) held in
Action through the 2020 Co-investment vehicles and 3i.
3 3i proprietary capital 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.
Infrastructure
At a glance
Gross investment return
£241m
or 21%
(2021: £178m or 16%)
AUM
£5,717m
(2021: £4,945m)
Cash income
£91m
(2021: £67m)
We manage a range of funds investing principally in mid-market economic
infrastructure and operational projects in Europe and North America.
Infrastructure is a defensive asset class that provides a good source of
income and fund management fees for the Group, enhancing returns on our
proprietary capital. The team has been active in its deployment of capital
across the portfolio and in new investments, and brought third-party investors
into the 3i North America Infrastructure platform in March 2022.
Our Infrastructure portfolio generated a GIR of £241 million or 21% on the
opening portfolio value (2021: £178 million, 16%). This strong return was
driven principally by the appreciation of our quoted stake in 3iN and dividend
income. We grew our North America Infrastructure platform, with a 3i
commitment of US$300 million, seeding our new US infrastructure investment, EC
Waste, alongside our existing investment in Regional Rail. Our 3i European
Operational Projects Fund ("3i EOPF") agreed to acquire a further eight
projects in the year and upon completion will be substantially deployed.
Table 9: Gross investment return for the year to 31 March
Investment basis 2022 2021
£m
£m
Realised profits over value on the disposal of investments 10 6
Unrealised profits on the revaluation of investments 178 168
Dividends 31 29
Interest income from investment portfolio 12 10
Fees (payable)/receivable (3) -
Foreign exchange on investments 13 (39)
Movement in fair value of derivatives - 4
Gross investment return 241 178
Gross investment return as a % of opening portfolio value 21% 16%
Fund management
3iN
3iN's portfolio performed strongly in the year, with the majority of portfolio
companies trading ahead of expectations and generating a good level of
portfolio income. We have seen particularly strong performance from assets
operating in the transport and logistics sector, such as Oystercatcher and
TCR, the Energy sector, such as ESVAGT and Valorem and Social Infrastructure
such as Ionisos.
In the year to 31 March 2022, 3iN generated a total return on opening NAV of
17.2%, materially ahead of its total return target of 8% to 10% per annum over
the medium term and delivered a dividend of 10.45 pence per share, a 6.6%
increase on last year.
Neither 3iN, nor any of its portfolio companies, has any direct exposure to
Russia or Ukraine and whilst we remain cognisant of the indirect implications
through supply chains and the wider macro-economic environment, the impact to
date on portfolio companies has been limited.
As investment manager to 3iN we received a management and support services fee
of £44 million (2021: £25 million) and a NAV-based performance fee of £26
million (2021: £8 million) comprising a third of the potential performance
fee for each of FY2022, FY2021 and FY2020 after the performance hurdle was met
in each year.
Infrastructure assets remain in significant demand resulting in a highly
competitive investment market. Our rigorous process for identifying, screening
and selecting investments means we remain very active in the market whilst
retaining our price discipline.
During the year, 3iN completed investments in DNS:NET and SRL Traffic Systems
and agreed to invest c.US$512 million to acquire 100% of GCX, a global data
communications service provider, with completion expected in the summer of
2022. 3iN also completed a £258 million further investment in ESVAGT doubling
its equity stake to 100%, a £21 million further investment in Valorem to fund
growth and small further investments in Joulz and TCR.
In October 2021, 3iN completed the sale of Oystercatcher's stakes in four
European liquid storage terminals for proceeds of €55 million after debt
repayment and continues to hold a 45% stake in Oiltanking Singapore. In March
2022, 3iN agreed the sale of its European projects portfolio, for c.£103
million, to 3i EOPF.
North America Infrastructure platform
In November 2021, we invested £146 million in EC Waste, a vertically
integrated provider of federally compliant solid waste services in Puerto
Rico. Including bolt-on investments, this represents our seventh US
infrastructure investment. We have now secured commitments from two
third-party blue-chip investors, who have co-invested in EC Waste and Regional
Rail and will make further investments alongside 3i in its North America
Infrastructure platform. As part of these arrangements, 3i committed US$300
million into the platform and we received £161 million of realised and
syndication proceeds from the co-investment transfers of Regional Rail and EC
Waste.
Other funds
3i EOPF and 3i Managed Infrastructure Acquisitions Fund ("3i MIA") performed
well in the year.
During the year, 3i EOPF made a €30 million commitment to invest in NEoT
Green Mobility to fund its pipeline of future projects of which €6.5 million
has been drawn to date. In March 2022, 3i EOPF completed the acquisition of an
80% stake in La Seine Musicale, a multi-functional performance complex located
in the Paris area. It also agreed to acquire 3iN's European projects portfolio
for c.£103 million. On completion of this transaction the fund will be
substantially deployed.
In the year we recognised £7 million of realised proceeds from KMC Roads and
GVK Energy, two investments in the 3i India Infrastructure Fund. This fund has
one remaining investment which is valued at nil.
Assets under management
Infrastructure AUM increased to £5.7 billion (2021: £4.9 billion),
principally due to the increase in 3iN's share price.
Table 10: Assets under management as at 31 March 2022
Fee
% income
3i Remaining Invested(4) at earned in
Close Fund commitment/ 3i 31 March AUM 2022
Fund/strategy date size share commitment 2022 £m £m
3iN(1) Mar-07 n/a £934m n/a n/a 3,093 44
3i Managed Infrastructure Acquisitions LP Jun-17 £698m £35m £5m 86% 1,038 6
3i European Operational Projects Fund(2) Apr-18 €456m €40m €12m 69% 267 2
BIIF May-08 £680m n/a n/a 90% 457 4
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 357 2
3i North America Infrastructure platform Mar-22(3) US$495m US$300m US$125m 58% 298 -
US Infrastructure Nov-17 n/a n/a n/a n/a 207 -
Total 5,717 58
1 AUM based on the share price at 31 March 2022.
2 3i European Operational Projects Fund acquisitions signed but not completed by
31 March 2022 will raise the invested percentage from 69%
to c.84%.
3 First close completed in March 2022.
4 % invested is the capital deployed into investments against the total Fund
commitment.
3i's proprietary capital Infrastructure portfolio
The Group's proprietary capital infrastructure portfolio consists of its 30%
quoted stake in 3iN, its investment in Smarte Carte and direct stakes in other
managed funds.
Quoted stake in 3iN
3iN's share price increased by 17% in the year and closed to 347 pence on 31
March 2022 (31 March 2021: 296 pence). We recognised £137 million of
unrealised profits on our 3iN investment (2021: £132 million) and £27
million of dividend income (2021: £26 million).
North America Infrastructure proprietary capital
Smarte Carte performed well over the year due to strong demand for carts, as
the US domestic travel market rebounded ahead of expectations. International
travel continues to recover, albeit at a slower pace. At 31 March 2022, Smarte
Carte was valued at £207 million on a DCF basis (31 March 2021: £160
million).
Table 11: Unrealised profits on the revaluation of Infrastructure investments
in the year to 31 March
2022 2021
£m
£m
Quoted 137 132
Discounted cash flow ("DCF") 36 26
Fund/other 5 10
Total 178 168
Further information on our valuation methodology, including definitions and
rationale, is included in the portfolio valuation - an explanation section in
our Annual report and accounts 2022.
Table 12: Infrastructure portfolio movement for the year to 31 March 2022
Opening Closing
value at Disposals Unrealised value at
1 April at opening profit Other 31 March
2021 Investment book value movement movements2 2022
Investment Valuation £m £m £m £m £m £m
3iN Quoted 797 - - 137 - 934
Smarte Carte DCF 160 - - 30 17 207
Regional Rail DCF 131 - (91) 3 5 48
EC Waste(1) DCF - 81 - 3 2 86
3i MIA Fund 48 1 - 4 - 53
3i EOPF Fund 20 3 - 1 - 24
India Infrastructure Fund Other 3 - (3) - - -
Total 1,159 85 (94) 178 24 1,352
1 Investment net of the syndication of £65 million.
2 Other movements include foreign exchange.
Scandlines
Gross investment return
£112m
or 26%
(2021: £25m or 6%)
Scandlines is held for its ability to deliver long-term capital returns whilst
generating cash dividends.
Performance
Scandlines performed well in the year, generating a GIR of £112 million or
26% of opening portfolio value (2021: £25 million, 6%). Freight volumes,
which have been consistently strong throughout the pandemic, were above 2019
levels in 2021, representing a record year for the business. In the first six
months of 2021, including the first part of the peak summer season, Covid-19
variants had a significant impact on leisure volumes. Following the
introduction of the EU Covid-19 passport in July 2021, leisure volumes
gradually recovered, returning to 2019 levels in October 2021, before the
emergence of another Covid-19 variant at the end of 2021 impacted leisure
volumes further. Cost saving initiatives implemented in 2020 positioned
Scandlines well for the impact of ongoing restrictions in 2021, contributing
to earnings outperformance in the year. Following the good performance in the
year and strong cash generation, the business resumed its distributions with
3i receiving £13 million of dividends in FY2022.
Sustainability, particularly carbon reduction, remains a key focus for
Scandlines, with an ambitious target to ensure emission free operations on its
Puttgarden-Rødby route by 2030 and for Scandlines by 2040. As part of this
target, the business ordered its first emission-free freight ferry in November
2021. The new ferry will increase its current freight capacity on the
Puttgarden-Rødby route by up to 23% and is expected to be delivered in 2024.
Trading since the start of 2022 has been strong, with freight volumes ahead of
2019 levels and leisure volumes also recovering. The business continues to
navigate the inflationary environment, with fuel prices hedged in the short
term. The business has no direct exposure to Russia or Ukraine.
We continue to value Scandlines on a DCF basis and at 31 March 2022 its value
was £533 million (31 March 2021: £435 million).
Foreign exchange
We hedge the balance sheet value of our investment in Scandlines. We
recognised a £2 million net loss on foreign exchange translation (March 2021:
£3 million net gain) including a £2 million fair value gain (March 2021:
£20 million) from our hedging programme.
Table 13: Gross investment return for the year to 31 March
Investment basis 2022 2021
£m
£m
Unrealised profit on the revaluation of investments 101 22
Dividends 13 -
Foreign exchange on investments (4) (17)
Movement in fair value of derivatives 2 20
Gross investment return 112 25
Gross investment return as a % of opening portfolio value 26% 6%
Financial review
An excellent financial performance
We generated a GIR of £4,525 million in FY2022 (2021: £2,139 million) and
operating profit before carried interest of £4,417 million (2021: £2,031
million).
The total return was £4,014 million, representing a profit on opening
shareholders' funds of 44% (2021: £1,726 million or 22%). The diluted NAV per
share at 31 March 2022 increased by 39% to 1,321 pence (31 March 2021: 947
pence) after paying dividends totalling 40.25 pence per share during the year.
Table 14: Total return for the year to 31 March
Investment basis 2022 2021
£m
£m
Realised profits over value on the disposal of investments 238 35
Unrealised profits on the revaluation of investments 3,824 2,351
Portfolio income
Dividends 375 82
Interest income from investment portfolio 85 65
Fees receivable 3 9
Foreign exchange on investments (2) (427)
Movement in the fair value of derivatives 2 24
Gross investment return 4,525 2,139
Fees receivable from external funds 62 44
Operating expenses (128) (112)
Interest receivable - (1)
Interest payable (53) (47)
Exchange movements 9 7
Other income 2 1
Operating profit before carried interest 4,417 2,031
Carried interest
Carried interest and performance fees receivable 54 5
Carried interest and performance fees payable (454) (184)
Operating profit before tax 4,017 1,852
Tax charge (5) -
Profit for the year 4,012 1,852
Re-measurements of defined benefit plans 2 (126)
Total comprehensive income for the year ("Total return") 4,014 1,726
Total return on opening shareholders' funds 44% 22%
Investment basis and alternative performance measures ("APMs")
In our Strategic report we report our financial performance using our
Investment basis. We do not consolidate our portfolio companies; as private
equity and infrastructure investments they are not operating subsidiaries.
IFRS 10 sets out an exception to consolidation and requires us to fair value
other companies in the Group (primarily intermediate holding companies and
partnerships), which results in a loss of transparency. As explained in the
Investment basis and Reconciliation of investment basis and IFRS sections
below, the total comprehensive income and net assets are the same under our
audited IFRS financial statements and our Investment basis. The Investment
basis is simply a "look through" of IFRS 10 to present the underlying
performance and we believe it is more transparent to readers of our Annual
report and accounts.
In October 2015, the European Securities and Markets Authority ("ESMA")
published guidelines about the use of APMs. These are financial measures such
as KPIs that are not defined under IFRS. Our Investment basis is itself an
APM, and we use a number of other measures which, on account of being derived
from the Investment basis, are also APMs.
Further information about our use of APMs, including the applicable
reconciliations to the IFRS equivalent where appropriate, is provided at the
end of the Financial review and should be read alongside the Investment basis
to IFRS reconciliation. Our APMs are gross investment return as a percentage
of the opening investment portfolio value, cash realisations, cash investment,
operating cash profit, net cash/(debt) and gearing.
Realised profits
We generated total realised proceeds of £788 million (2021: £218 million)
and realised profits of £238 million in the year (2021: £35 million),
including realised proceeds of £684 million and profit of £228 million from
Private Equity (2021: £114 million, £29 million) and realised proceeds of
£104 million and profit of £10 million from Infrastructure (2021: £104
million, £6 million).
Unrealised value movements
We recognised an unrealised profit of £3,824 million (2021: £2,351 million).
Action's continued strong performance contributed £2,655 million (2021:
£1,202 million). We also saw strong performance from our Private Equity
investments in Q Holding, SaniSure and BoConcept. The share prices of our
quoted investments, 3iN and Basic-Fit, closed up 17% and 23% respectively.
Further information on the Private Equity, Infrastructure and Scandlines
valuations is included in the business reviews.
Table 15: Unrealised value movements on the revaluation of investments for the
year to 31 March
Investment basis 2022 2021
£m
£m
Private Equity 3,545 2,161
Infrastructure 178 168
Scandlines 101 22
Total 3,824 2,351
Portfolio income
Portfolio income increased to £463 million during the year (2021: £156
million), primarily due to strong dividend income of £375 million (2021: £82
million), particularly from Action. Interest income from portfolio companies,
the majority of which is non-cash, increased to £85 million (2021: £65
million), whilst fee income decreased in the year to £3 million (2021: £9
million), reflecting the transaction fees payable relating to the North
America Infrastructure platform.
Fees receivable from external funds
Fees received from external funds increased to £62 million (2021: £44
million). 3i receives a fund management fee from 3iN, which amounted to £44
million in FY2022 (2021: £25 million). The increase in the 3iN fee was due to
new investments in DNS:NET and SRL, a further in ESVAGT and growth in the
portfolio during the year.
3i also received fee income of £6 million (2021: £6 million) from MIA
through management fees and continued to generate fee income from other 3i
managed accounts and other funds. In Private Equity, we recognised a £4
million (2021: £4 million) administration fee for our management of the 3i
2020 Co-investment vehicles related to Action.
Operating expenses
Operating expenses were £128 million (2021: £112 million). This increase
reflects both the return to more normal levels of spend on travel, marketing
and office costs, which were significantly depressed in the prior year due to
Covid-19 restrictions, and the effect of planned recruitment, principally in
Private Equity and Infrastructure, to support our investment and asset
management capability. Operating expenses are expected to increase again in
FY2023, reflecting the full year effect of this recruitment, and the effect of
a highly competitive market for talent across our business. However, the focus
on cost discipline is unchanged and we expect costs to remain well below 1% of
assets under management.
Operating cash profit
We generated an operating cash profit of £340 million in the year (2021: £23
million). Cash income increased to £450 million (2021: £131 million),
principally due to the receipt of £284 million cash dividends from Action. We
also received cash dividends from 3iN, Scandlines, Hans Anders and Tato, as
well as a good level of cash fees from our external funds in Infrastructure.
Excluding the dividends received from Action, operating cash profit was £56
million. Cash operating expenses were £110 million (2021: £108 million),
which is lower than the £128 million (2021: £112 million) of operating
expenses recognised in the Consolidated statement of comprehensive income as a
result of share-based payments and other non-cash expenses such as
depreciation and amortisation.
Table 16: Operating cash profit for the year to 31 March
Investment basis 2022 2021
£m
£m
Cash fees from external funds 68 39
Cash portfolio fees 9 7
Cash portfolio dividends and interest 373 85
Cash income 450 131
Cash operating expenses(1) (110) (108)
Operating cash profit 340 23
1 Cash operating expenses include operating expenses paid and lease payments.
Carried interest and performance fees
We receive carried interest and performance fees from third-party funds and
3iN. We also pay carried interest and performance fees to participants in
plans relating to returns from investments. These are received and/or paid
subject to meeting certain performance conditions. In Private Equity, we
typically accrue net carried interest payable between 10% and 13% of GIR,
based on the assumption that all investments are realised at their balance
sheet value. 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
length of time between investment and realisation, the schemes are usually
active for a number of years and their participants include both current and
previous employees of 3i.
We generated a strong GIR of £273 million in the Private Equity 2019-22 plan
(2021: £69 million). As a result, its performance hurdle has been met on an
accruals basis and we are now accruing carried interest payable for this plan
for the first time, including an element of "catch up". The continued strength
of Action's performance in the Buyouts 2010-12 plan led to a £263 million
increase in carried interest payable in FY2022.
3iN pays a performance fee based on its NAV on an annual basis, subject to a
hurdle rate of return and partly deferred, subject to further hurdles. The
continued strong performance of the assets held by 3iN resulted in the
recognition of £26 million (2021: £8 million) of performance fees
receivable. The Infrastructure team receives a share of the fees received from
3iN, with the majority of payments deferred and expensed over a number of
years. £22 million (2021: £11 million) was recognised as an expense during
the year, relating to performance fees from both the current and previous
years. During the year, £10 million was paid to the Infrastructure team. The
total potential payable relating to the FY2022 performance fee was £19
million, which together with the prior periods' performance fee, results in a
cumulative total potential payable but not accrued of £48 million.
3i MIA pays a performance fee based on its NAV, subject to a five year hurdle
rate of return. The first-five year period ended in March 2022, and the strong
performance of the 3i MIA assets resulted in the recognition of £25 million
performance fees receivable. The Infrastructure team receives a share of these
fees resulting in an expense of £16 million performance fees payable during
the year.
Overall, the effect of the income statement charge, cash payments of £23
million (2021: £516 million), as well as currency translation meant that the
balance sheet carried interest and performance fees payable was £963 million
(31 March 2021: £560 million).
Table 17: Carried interest and performance fees for the year to 31 March
Investment basis Statement of comprehensive income 2022 2021
£m
£m
Carried interest and performance fees receivable
Private Equity 3 (3)
Infrastructure 51 8
Total 54 5
Carried interest and performance fees payable
Private Equity (416) (173)
Infrastructure (38) (11)
Total (454) (184)
Net carried interest payable (400) (179)
Table 18: Carried interest and performance fees at 31 March
Investment basis Statement of financial position 2022 2021
£m
£m
Carried interest and performance fees receivable
Private Equity 8 8
Infrastructure 51 8
Total 59 16
Carried interest and performance fees payable
Private Equity (926) (533)
Infrastructure (37) (27)
Total (963) (560)
Net foreign exchange movements
At 31 March 2022, 86% of the Group's net assets were denominated in euros or
US dollars (31 March 2021: 84%). As sterling marginally strengthened against
the euro but weakened against the US dollar, the Group recorded a net £9
million foreign exchange translation gain in the year (2021: £396 million
loss), including the £2 million translation gain (2021: £24 million gain)
from the movement in the fair value of hedging derivatives. The net foreign
exchange position also reflects the translation of non-portfolio net assets,
including non-sterling cash held and net carry payable at the balance sheet
date.
Table 19: Net assets and sensitivity by currency at 31 March
FX rate £m % 1%
sensitivity
£m
Sterling n/a 1,562 12 n/a
Euro¹ 1.1833 8,953 70 89
US dollar 1.3165 2,033 16 20
Danish krone 8.8031 184 2 2
Other n/a 22 - n/a
1 Sensitivity impact is net of derivatives.
The Group's general policy is not to hedge its foreign currency denominated
portfolio. Where possible, flows from currency realisations are matched with
currency investments. Short-term derivative contracts are used occasionally to
manage transaction cash flows. We do hedge the foreign exchange translation
risk associated with our investment in Scandlines, which is considered a
longer-term hold with relatively predictable cash flows. As at 31 March 2022,
the notional amount of the forward foreign exchange contracts held by the
Group was €500 million, all relating to Scandlines.
Pension
In FY2021 the 3i Group Pension Plan's Trustees completed a buy-in transaction
with Legal & General for its UK defined benefit scheme which, alongside
previous buy-in policies entered into with Pension Insurance Corporation and
Legal & General in March 2017 and February 2019 respectively, means that
the plan benefits are now insured. These polices provide long-term security
for the Plan members and 3i is no longer exposed to any material longevity,
interest or inflation risk in the Plan or any ongoing requirement to fund the
Plan.
On an IAS 19 basis, there was a £1 million re-measurement loss on the Group's
UK pension scheme during the year (March 2021: £122 million) and the pension
remains in a surplus of £53 million (31 March 2021: £55 million). The last
triennial funding valuation was based on the Plan's position at 30 June 2019.
Tax
The Group's parent company continues to operate in the UK as an approved
investment trust company. 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. The Group's tax charge for the year was £5 million (2021:
nil). The Group's overall UK tax position for the financial year is dependent
on the finalisation of tax returns of the various corporate and partnership
entities in the UK group.
Balance sheet and liquidity
At 31 March 2022, the Group had net debt of £746 million (31 March 2021:
£750 million) and gearing of 6%, after the receipt of strong cash income of
£450 million and net cash proceeds of £162 million offsetting dividend
payments of £389 million in the year.
The Group had liquidity of £729 million as at 31 March 2022 (31 March 2021:
£725 million) comprising cash and deposits of £229 million (31 March 2021:
£225 million) and an undrawn RCF of £500 million. During the year the RCF
was successfully extended by one year to March 2027 to further support the
Group's long-term liquidity.
The investment portfolio value increased to £14,305 million at 31 March 2022
(31 March 2021: £10,408 million) mainly driven by unrealised profits of
£3,824 million in the year.
Further information on investments and realisations is included in the Private
Equity, Infrastructure and Scandlines business reviews.
Table 20: Simplified consolidated balance sheet at 31 March
Investment basis Statement of financial position 2022 2021
£m
£m
Investment portfolio 14,305 10,408
Gross debt (975) (975)
Cash and deposits 229 225
Net debt (746) (750)
Carried interest and performance fees receivable 59 16
Carried interest and performance fees payable (963) (560)
Other net assets 99 50
Net assets 12,754 9,164
Gearing(1) 6% 8%
1 Gearing is net debt as a percentage of net assets.
Going concern
The Annual report and accounts 2022 are prepared on a going concern basis. The
Directors made an assessment of going concern, taking into account the Group's
current performance and the outlook, and performed additional analysis to
support the going concern assessment. Further details on going concern can be
found in the Resilience statement in our Annual report and accounts 2022.
Dividend
The Board has recommended a second FY2022 dividend of 27.25 pence per share
(2021: 21.0 pence), taking the total dividend for the year to 46.5 pence
(2021: 38.5 pence). Subject to shareholder approval, the dividend will be paid
to shareholders in July 2022.
Key accounting judgments and estimates
A key judgment is the assessment 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 further on in this
document.
In preparing these accounts, the key accounting estimates are the carrying
value of our investment assets, which is stated at fair value, and the
calculation of carried interest payable.
Given the importance of the valuation of investments, 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 2022, 93% by value of the investment
assets were unquoted (31 March 2021: 90%).
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 2022 and the underlying investment
management agreements.
Investment basis
Consolidated statement of comprehensive income
for the year to 31 March
2022 2021
£m
£m
Realised profits over value on the disposal of investments 238 35
Unrealised profits on the revaluation of investments 3,824 2,351
Portfolio income
Dividends 375 82
Interest income from investment portfolio 85 65
Fees receivable 3 9
Foreign exchange on investments (2) (427)
Movement in the fair value of derivatives 2 24
Gross investment return 4,525 2,139
Fees receivable from external funds 62 44
Operating expenses (128) (112)
Interest receivable - (1)
Interest payable (53) (47)
Exchange movements 9 7
Other income 2 1
Operating profit before carried interest 4,417 2,031
Carried interest
Carried interest and performance fees receivable 54 5
Carried interest and performance fees payable (454) (184)
Operating profit before tax 4,017 1,852
Tax charge (5) -
Profit for the year 4,012 1,852
Other comprehensive income/(expense)
Re-measurements of defined benefit plans 2 (126)
Total comprehensive income for the year ("Total return") 4,014 1,726
Consolidated statement of financial position
as at 31 March
2022 2021
£m
£m
Assets
Non-current assets
Investments
Quoted investments 1,063 1,011
Unquoted investments 13,242 9,397
Investment portfolio 14,305 10,408
Carried interest and performance fees receivable 8 8
Other non-current assets 50 54
Intangible assets 6 8
Retirement benefit surplus 53 55
Property, plant and equipment 3 5
Right of use asset 13 16
Derivative financial instruments 7 16
Deferred income taxes 1 1
Total non-current assets 14,446 10,571
Current assets
Carried interest and performance fees receivable 51 8
Other current assets 105 21
Current income taxes 1 2
Derivative financial instruments 10 10
Cash and cash equivalents 229 225
Total current assets 396 266
Total assets 14,842 10,837
Liabilities
Non-current liabilities
Trade and other payables (21) (24)
Carried interest and performance fees payable (915) (543)
Loans and borrowings (775) (975)
Retirement benefit deficit (26) (29)
Lease liability (9) (13)
Deferred income taxes (1) (1)
Provisions (3) (2)
Total non-current liabilities (1,750) (1,587)
Current liabilities
Trade and other payables (81) (64)
Carried interest and performance fees payable (48) (17)
Loans and borrowings (200) -
Lease liability (5) (4)
Current income taxes (4) (1)
Total current liabilities (338) (86)
Total liabilities (2,088) (1,673)
Net assets 12,754 9,164
Equity
Issued capital 719 719
Share premium 789 788
Other reserves 11,346 7,721
Own shares (100) (64)
Total equity 12,754 9,164
Consolidated cash flow statement
for the year to 31 March
2022 2021
£m
£m
Cash flow from operating activities
Purchase of investments (596) (479)
Proceeds from investments 758 319
Net cash flow from derivatives 11 7
Portfolio interest received 4 5
Portfolio dividends received 369 80
Portfolio fees received 9 7
Fees received from external funds 68 39
Carried interest and performance fees received 10 6
Carried interest and performance fees paid (23) (516)
Operating expenses paid (106) (103)
Co-investment loans (paid)/received (5) 15
Tax received/(paid) 1 (1)
Interest received - (1)
Net cash flow from operating activities 500 (622)
Cash flow from financing activities
Issue of shares 1 1
Purchase of own shares (54) -
Dividends paid (389) (338)
Proceeds from long-term borrowing - 395
Lease payments (4) (5)
Interest paid (52) (46)
Net cash flow from financing activities (498) 7
Cash flow from investing activities
Purchase of property, plant and equipment - (1)
Net cash flow from investing activities - (1)
Change in cash and cash equivalents 2 (616)
Cash and cash equivalents at the start of year 225 845
Effect of exchange rate fluctuations 2 (4)
Cash and cash equivalents at the end of year 229 225
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
for the year to 31 March
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2022 2022 2022 2021 2021 2021
Notes £m £m £m £m £m £m
Realised profits over value 1,2 238 (149) 89 35 (26) 9
on the disposal of investments
Unrealised profits on the revaluation 1,2 3,824 (2,043) 1,781 2,351 (1,134) 1,217
of investments
Fair value movements on investment entity subsidiaries 1 - 1,974 1,974 - 792 792
Portfolio income
Dividends 1,2 375 (169) 206 82 (33) 49
Interest income from investment portfolio 1,2 85 (55) 30 65 (43) 22
Fees receivable 1,2 3 3 6 9 4 13
Foreign exchange on investments 1,3 (2) (7) (9) (427) 232 (195)
Movement in the fair value of derivatives 2 - 2 24 - 24
Gross investment return 4,525 (446) 4,079 2,139 (208) 1,931
Fees receivable from external funds 62 - 62 44 - 44
Operating expenses 4 (128) 1 (127) (112) 1 (111)
Interest receivable 1 - - - (1) - (1)
Interest payable (53) - (53) (47) - (47)
Exchange movements 1,3 9 7 16 7 10 17
Income from investment entity subsidiaries 1 - 32 32 - 22 22
Other income 2 - 2 1 - 1
Operating profit before carried interest 4,417 (406) 4,011 2,031 (175) 1,856
Carried interest
Carried interest and performance fees receivable 1,4 54 (1) 53 5 - 5
Carried interest and performance fees payable 1,4 (454) 408 (46) (184) 178 (6)
Operating profit before tax 4,017 1 4,018 1,852 3 1,855
Tax charge 1,4 (5) - (5) - - -
Profit for the year 4,012 1 4,013 1,852 3 1,855
Other comprehensive income/(expense)
Exchange differences on translation of 1,3 - (1) (1) - (3) (3)
foreign operations
Re-measurements of defined benefit plans 2 - 2 (126) - (126)
Other comprehensive income for the year 2 (1) 1 (126) (3) (129)
Total comprehensive income 4,014 - 4,014 1,726 - 1,726
for the year ("Total return")
The IFRS basis is audited and the Investment basis is unaudited.
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.
Reconciliation of consolidated statement of financial position
as at 31 March
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2022 2022 2022 2021 2021 2021
Notes £m £m £m £m £m £m
Assets
Non-current assets
Investments
Quoted investments 1 1,063 (129) 934 1,011 (214) 797
Unquoted investments 1 13,242 (7,534) 5,708 9,397 (5,184) 4,213
Investments in investment entity subsidiaries 1,2 - 6,791 6,791 - 4,905 4,905
Investment portfolio 14,305 (872) 13,433 10,408 (493) 9,915
Carried interest and performance fees receivable 1 8 1 9 8 1 9
Other non-current assets 1 50 (5) 45 54 (2) 52
Intangible assets 6 - 6 8 - 8
Retirement benefit surplus 53 - 53 55 - 55
Property, plant and equipment 3 - 3 5 - 5
Right of use asset 13 - 13 16 - 16
Derivative financial instruments 7 - 7 16 - 16
Deferred income taxes 1 - 1 1 - 1
Total non-current assets 14,446 (876) 13,570 10,571 (494) 10,077
Current assets
Carried interest and performance fees receivable 1 51 - 51 8 - 8
Other current assets 1 105 (1) 104 21 - 21
Current income taxes 1 - 1 2 - 2
Derivative financial instruments 10 - 10 10 - 10
Cash and cash equivalents 1 229 (17) 212 225 (9) 216
Total current assets 396 (18) 378 266 (9) 257
Total assets 14,842 (894) 13,948 10,837 (503) 10,334
Liabilities
Non-current liabilities
Trade and other payables 1 (21) 7 (14) (24) 7 (17)
Carried interest and performance fees payable 1 (915) 873 (42) (543) 494 (49)
Loans and borrowings (775) - (775) (975) - (975)
Retirement benefit deficit (26) - (26) (29) - (29)
Lease liability (9) - (9) (13) - (13)
Deferred income taxes (1) - (1) (1) - (1)
Provisions (3) - (3) (2) - (2)
Total non-current liabilities (1,750) 880 (870) (1,587) 501 (1,086)
Current liabilities
Trade and other payables 1 (81) 1 (80) (64) 2 (62)
Carried interest and performance fees payable 1 (48) 13 (35) (17) - (17)
Loans and borrowings (200) - (200) - - -
Lease liability (5) - (5) (4) - (4)
Current income taxes (4) - (4) (1) - (1)
Total current liabilities (338) 14 (324) (86) 2 (84)
Total liabilities (2,088) 894 (1,194) (1,673) 503 (1,170)
Net assets 12,754 - 12,754 9,164 - 9,164
Equity
Issued capital 719 - 719 719 - 719
Share premium 789 - 789 788 - 788
Other reserves 3 11,346 - 11,346 7,721 - 7,721
Own shares (100) - (100) (64) - (64)
Total equity 12,754 - 12,754 9,164 - 9,164
The IFRS basis is audited and the Investment basis is unaudited.
Notes:
1 Applying IFRS 10 to the Consolidated statement of financial position
aggregates the line items 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 for 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
for the year to 31 March
Investment IFRS IFRS Investment IFRS IFRS
basis adjustments basis basis adjustments basis
2022 2022 2022 2021 2021 2021
Notes £m £m £m £m £m £m
Cash flow from operating activities
Purchase of investments 1 (596) 272 (324) (479) 353 (126)
Proceeds from investments 1 758 (464) 294 319 (135) 184
Amounts paid to investment entity subsidiaries 1 - (349) (349) - (879) (879)
Amounts received from investment entity subsidiaries 1 - 685 685 - 281 281
Net cash flow from derivatives 11 - 11 7 - 7
Portfolio interest received 1 4 (1) 3 5 (5) -
Portfolio dividends received 1 369 (165) 204 80 (32) 48
Portfolio fees received 1 9 - 9 7 - 7
Fees received from external funds 68 - 68 39 - 39
Carried interest and performance 1 10 - 10 6 - 6
fees received
Carried interest and performance fees paid 1 (23) 9 (14) (516) 483 (33)
Operating expenses paid 1 (106) 1 (105) (103) - (103)
Co-investment loans (paid)/received 1 (5) 2 (3) 15 (3) 12
Tax received/(paid) 1 1 - 1 (1) - (1)
Interest received 1 - - - (1) - (1)
Net cash flow from operating activities 500 (10) 490 (622) 63 (559)
Cash flow from financing activities
Issue of shares 1 - 1 1 - 1
Purchase of own shares (54) - (54) - - -
Dividends paid (389) - (389) (338) - (338)
Proceeds from long-term borrowing - - - 395 - 395
Lease payments (4) - (4) (5) - (5)
Interest paid (52) - (52) (46) - (46)
Net cash flow from financing activities (498) - (498) 7 - 7
Cash flow from investing activities
Purchase of property, plant and equipment - - - (1) - (1)
Net cash flow from investing activities - - - (1) - (1)
Change in cash and cash equivalents 2 2 (10) (8) (616) 63 (553)
Cash and cash equivalents at the start of year 2 225 (9) 216 845 (74) 771
Effect of exchange rate fluctuations 1 2 2 4 (4) 2 (2)
Cash and cash equivalents at the 2 229 (17) 212 225 (9) 216
end of year
The IFRS basis is audited and the Investment basis is unaudited.
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 subsidiaries. Cash
held within Investment entity subsidiaries will not be shown in the IFRS
statements but will be seen in the Investment basis statements.
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.
Gross investment return as a percentage of opening portfolio value
Purpose Calculation Reconciliation to IFRS
A measure of the performance of our proprietary investment portfolio. It is calculated as the gross investment return, as shown in the Investment The equivalent balances under IFRS and the reconciliation to the Investment
basis Consolidated statement of comprehensive income, as a % of the opening basis are shown in the Reconciliation of the consolidated statement of
portfolio value. comprehensive income and the Reconciliation of the consolidated statement of
financial position respectively.
For further information see the Group KPIs in our Annual report and accounts
2022.
Cash realisations
Purpose Calculation Reconciliation to IFRS
Cash proceeds from our investments support our returns to shareholders, as The cash received from the disposal The equivalent balance under IFRS and the reconciliation to the Investment
well as our ability to invest in new opportunities.
of investments in the year as shown basis is shown in the Reconciliation
in the Investment basis Consolidated cash flow statement.
of the consolidated cash flow statement.
For further information see the Group KPIs in our Annual report and accounts
2022.
Cash investment
Purpose Calculation Reconciliation to IFRS
Identifying new opportunities in which to invest proprietary capital is the The cash paid to acquire investments in the year as shown on the Investment The equivalent balance under IFRS and the reconciliation to the Investment
primary driver of the Group's ability to deliver attractive returns. basis Consolidated cash flow statement. basis is shown in the Reconciliation
of the consolidated cash flow statement.
For further information see the Group KPIs in our Annual report and accounts
2022.
Operating cash profit
Purpose Calculation Reconciliation to IFRS
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
the potential dilution of capital returns. with fees received from external funds less cash operating expenses and leases basis is shown in the Reconciliation
payments as shown on the Investment basis Consolidated cash flow statement.
of the consolidated cash flow statement.
The calculation is shown in Table 16 of the Financial review.
Net (debt)/cash
Purpose Calculation Reconciliation to IFRS
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 the consolidated statement of
financial position.
Gearing
Purpose Calculation Reconciliation to IFRS
A measure of the financial risk 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
in the Group's balance sheet. Investment basis. It cannot be less than zero. basis is shown in the Reconciliation of the consolidated statement of
financial position.
Audited financial statements
Consolidated statement of comprehensive income
for the year to 31 March
2022 2021
Notes £m £m
Realised profits over value on the disposal of investments 89 9
Unrealised profits on the revaluation of investments 1,781 1,217
Fair value movements on investment entity subsidiaries 1,974 792
Portfolio income
Dividends 206 49
Interest income from investment portfolio 30 22
Fees receivable 6 13
Foreign exchange on investments (9) (195)
Movement in the fair value of derivatives 2 24
Gross investment return 4,079 1,931
Fees receivable from external funds 62 44
Operating expenses (127) (111)
Interest receivable - (1)
Interest payable (53) (47)
Exchange movements 16 17
Income from investment entity subsidiaries 32 22
Other income 2 1
Operating profit before carried interest 4,011 1,856
Carried interest
Carried interest and performance fees receivable 53 5
Carried interest and performance fees payable (46) (6)
Operating profit before tax 4,018 1,855
Tax charge (5) -
Profit for the year 4,013 1,855
Other comprehensive income that may be reclassified to the income statement
Exchange differences on translation of foreign operations (1) (3)
Other comprehensive income/(expense) that will not be reclassified to the
income statement
Re-measurements of defined benefit plans 2 (126)
Other comprehensive income/(expense) for the year 1 (129)
Total comprehensive income for the year ("Total return") 4,014 1,726
Earnings per share
Basic (pence) 2 415.4 192.4
Diluted (pence) 2 414.3 191.9
The Notes to the accounts section forms an integral part of these financial
statements.
Consolidated statement of financial position
as at 31 March
2022 2021
£m £m
Assets
Non-current assets
Investments
Quoted investments 934 797
Unquoted investments 5,708 4,213
Investments in investment entity subsidiaries 6,791 4,905
Investment portfolio 13,433 9,915
Carried interest and performance fees receivable 9 9
Other non-current assets 45 52
Intangible assets 6 8
Retirement benefit surplus 53 55
Property, plant and equipment 3 5
Right of use asset 13 16
Derivative financial instruments 7 16
Deferred income taxes 1 1
Total non-current assets 13,570 10,077
Current assets
Carried interest and performance fees receivable 51 8
Other current assets 104 21
Current income taxes 1 2
Derivative financial instruments 10 10
Cash and cash equivalents 212 216
Total current assets 378 257
Total assets 13,948 10,334
Liabilities
Non-current liabilities
Trade and other payables (14) (17)
Carried interest and performance fees payable (42) (49)
Loans and borrowings (775) (975)
Retirement benefit deficit (26) (29)
Lease liability (9) (13)
Deferred income taxes (1) (1)
Provisions (3) (2)
Total non-current liabilities (870) (1,086)
Current liabilities
Trade and other payables (80) (62)
Carried interest and performance fees payable (35) (17)
Loans and borrowings (200) -
Lease liability (5) (4)
Current income taxes (4) (1)
Total current liabilities (324) (84)
Total liabilities (1,194) (1,170)
Net assets 12,754 9,164
Equity
Issued capital 719 719
Share premium 789 788
Capital redemption reserve 43 43
Share-based payment reserve 33 34
Translation reserve (6) (5)
Capital reserve 10,151 6,733
Revenue reserve 1,125 916
Own shares (100) (64)
Total equity 12,754 9,164
The Notes to the accounts section forms an integral part of these financial
statements.
David Hutchison
Chairman 11 May 2022
Consolidated statement of changes in equity
for the year to 31 March
Share-
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve(1) reserve(1) shares equity
2022 £m £m £m £m £m £m £m £m £m
Total equity at the start 719 788 43 34 (5) 6,733 916 (64) 9,164
of the year
Profit for the year - - - - - 3,547 466 - 4,013
Exchange differences - - - - (1) - - - (1)
on translation of
foreign operations
Re-measurements of defined benefit plans - - - - - 2 - - 2
Total comprehensive
income for the year
- - - - (1) 3,549 466 - 4,014
Share-based payments - - - 18 - - - - 18
Release on exercise/ - - - (19) - - 19 - -
forfeiture of share awards
Exercise of share awards - - - - - (18) - 18 -
Ordinary dividends - - - - - (113) (276) - (389)
Purchase of own shares - - - - - - - (54) (54)
Issue of ordinary shares - 1 - - - - - - 1
Total equity at the 719 789 43 33 (6) 10,151 1,125 (100) 12,754
end of the year
1 Refer to Note 20 in our Annual report and accounts 2022 for the nature of the
capital and revenue reserves.
Share-
Capital based
Share Share redemption payment Translation Capital Revenue Own Total
capital premium reserve reserve reserve reserve(1) reserve(1) shares equity
2021 £m £m £m £m £m £m £m £m £m
Total equity at the start 719 788 43 33 (2) 5,432 822 (78) 7,757
of the year
Profit for the year - - - - - 1,707 148 - 1,855
Exchange differences - - - - (3) - - - (3)
on translation of
foreign operations
Re-measurements of defined benefit plans - - - - - (126) - - (126)
Total comprehensive - - - - (3) 1,581 148 - 1,726
income for the year
Share-based payments - - - 19 - - - - 19
Release on exercise/ - - - (18) - - 18 - -
forfeiture of share awards
Exercise of share awards - - - - - (14) - 14 -
Ordinary dividends - - - - - (266) (72) - (338)
Purchase of own shares - - - - - - - - -
Issue of ordinary shares - - - - - - - - -
Total equity at the 719 788 43 34 (5) 6,733 916 (64) 9,164
end of the year
1 Refer to Note 20 in our Annual report and accounts 2022 for the nature of the
capital and revenue reserves.
The Notes to the accounts section forms an integral part of these financial
statements.
Consolidated cash flow statement
for the year to 31 March
2022 2021
Notes £m £m
Cash flow from operating activities
Purchase of investments (324) (126)
Proceeds from investments 294 184
Amounts paid to investment entity subsidiaries (349) (879)
Amounts received from investment entity subsidiaries 685 281
Net cash flow from derivatives 11 7
Portfolio interest received 3 -
Portfolio dividends received 204 48
Portfolio fees received 9 7
Fees received from external funds 68 39
Carried interest and performance fees received 10 6
Carried interest and performance fees paid (14) (33)
Operating expenses paid (105) (103)
Co-investment loans (paid)/received (3) 12
Tax received/(paid) 1 (1)
Interest received - (1)
Net cash flow from operating activities 490 (559)
Cash flow from financing activities
Issue of shares 1 1
Purchase of own shares (54) -
Dividend paid 3 (389) (338)
Proceeds from long-term borrowing - 395
Lease payments (4) (5)
Interest paid (52) (46)
Net cash flow from financing activities (498) 7
Cash flow from investing activities
Purchases of property, plant and equipment - (1)
Net cash flow from investing activities - (1)
Change in cash and cash equivalents (8) (553)
Cash and cash equivalents at the start of the year 216 771
Effect of exchange rate fluctuations 4 (2)
Cash and cash equivalents at the end of the year 212 216
The Notes to the accounts section forms an integral part of these financial
statements.
Significant accounting policies
Reporting entity
3i Group plc (the "Company") is a public limited company incorporated and
domiciled in England and Wales. The consolidated financial statements ("the
Group accounts") for the year to 31 March 2022 comprise of the financial
statements of the Company and its consolidated subsidiaries (collectively,
"the Group").
The Group accounts have been prepared and approved by the Directors in
accordance with section 395 of the Companies Act 2006 and the Large and
Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008. The
Company has taken advantage of the exemption in section 408 of the Companies
Act 2006 not to present its Company statement of comprehensive income and
related Notes.
A Basis of preparation
The Group and Company accounts 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 financial statements are
presented to the nearest million sterling (£m), the functional currency of
the Company.
The Group did not implement the requirements of any new standards in issue for
the year ended 31 March 2022. No other standards or interpretations have been
issued that are expected to have a material impact on the Group's financial
statements.
The principal accounting policies applied in the preparation of the Group
accounts are disclosed below, but where possible, they have been shown as part
of the Note to which they specifically relate in order to assist the reader's
understanding. These policies have been consistently applied and apply to all
years presented, except for in relation to the adoption of new accounting
standards.
Going concern
These financial statements have been prepared on a going concern basis as
disclosed in the Directors' report. 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 Strategic report of our Annual report and accounts 2022,
the Group generated an excellent result despite varying degrees of Covid-19
restrictions, macro-economic pressures and more recent geopolitical
uncertainties. The Group has no direct exposure to Russia or Ukraine, and the
exposure across the portfolio is limited, therefore this has no impact on the
Going Concern of the Group. As we enter the next financial year, both our
Private Equity and Infrastructure portfolios are well positioned to continue
on their respectively growth trajectories.
The Directors' assessment of going concern, which takes into account this
business model and the Group's liquidity of £729 million, indicates that the
Group and parent company will have sufficient funds to continue as a going
concern, for at least the next 12 months from the date of approval of the
accounts. As detailed within the Financial review, earlier in this document,
the Group covers its cash operating costs, £110 million at 31 March 2022,
with cash income generated by our Private Equity and Infrastructure businesses
and Scandlines, £450 million at 31 March 2022. The Group's liquidity
comprised of cash and deposits of £229 million (31 March 2021: £225 million)
and an undrawn multi-currency facility of £500 million (31 March 2021: £500
million), which has no financial covenants. During the year the Group
successfully extended its multi-currency facility by one year to March 2027 to
further support the Group's long-term liquidity.
The Group manages liquidity with the aim of ensuring it is adequate and
sufficient, by regular monitoring of investments, realisations, operating
expenses and portfolio cash income and there have been no post balance sheet
changes that would be materially detrimental to liquidity. 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. The Directors are of the opinion that the Group's cash flow forecast is
sufficient to support the Group given the current market, economic conditions
and outlook.
In addition, the Directors have modelled a number of severe, yet plausible,
individual and combined stress scenarios over a three-year period to March
2025. The scenarios include the consideration of the potential impact of a
disrupted recovery in the wake of Covid-19 in which persistent inflation and
supply chain disruption leads into a recession, as well as the impact of a
significant downturn event specifically on 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 and the impact of climate change on the underlying portfolio.
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 including,
where appropriate, 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 financial statements of the Company and 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.
B Basis of consolidation
In accordance with IFRS 10 the Company meets the criteria as an investment
entity and therefore is required to recognise subsidiaries that also qualify
as investment entities at fair value through profit or loss. It does not
consolidate the investment entities it controls. Subsidiaries that provide
investment related services, such as advisory, management or employment
services, are not accounted for at fair value through profit and loss and
continue to be consolidated unless those subsidiaries qualify as investment
entities, in which case they are recognised at fair value. Subsidiaries are
entities controlled by the Group. Control, as defined by IFRS 10, is achieved
when the Group has all of the following:
power over the relevant activities of the investee;
exposure, or rights, to variable returns from its involvement with the
investee; and
the ability to affect those returns through its power over the investee.
The Group 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 is accurate.
Subsidiaries are fully consolidated from the date on which the Group
effectively obtains control. All intragroup balances and transactions with
subsidiaries are eliminated upon consolidation. Subsidiaries are
de-consolidated from the date that control ceases.
The Group comprises several different types of subsidiaries. For a new
subsidiary, the Group assesses whether it qualifies as an investment entity
under IFRS 10, based on the function the entity performs within the Group. For
existing subsidiaries, the Group annually reassesses the function performed by
each type of subsidiary to determine if the treatment under IFRS 10 exception
from consolidation is still appropriate. The types of subsidiaries and their
treatment under IFRS 10 are as follows:
General Partners ("GPs") - Consolidated
General Partners provide investment management services and do not hold any
direct investments in portfolio assets. These entities are not investment
entities.
Investment managers/advisers - Consolidated
These entities provide investment related services through the provision of
investment management or advice. They do not hold any direct investments in
portfolio assets. These entities are not investment entities.
Holding companies of investment managers/advisers - Consolidated
These entities provide investment related services through their subsidiaries.
Typically they do not hold any direct investment in portfolio assets and these
entities are not investment entities.
Limited Partnerships and other intermediate investment holding structures -
Fair valued
The Group makes investments in portfolio assets through its ultimate parent
company as well as through other limited partnerships and corporate
subsidiaries which the Group has created to align the interests of the
investment teams with the performance of the assets through the use of various
carried interest schemes. The purpose of these limited partnerships and
corporate holding vehicles, many of which also provide investment related
services, is to invest for investment income and capital appreciation. These
partnerships and corporate subsidiaries meet the definition of an investment
entity and are accounted for at fair value through profit and loss.
Portfolio investments - Fair valued
Under IFRS 10, the test for accounting subsidiaries takes wider factors of
control as well as actual equity ownership into account. In accordance with
the investment entity exception, these entities have been held at fair value
with movements in fair value being recognised in profit or loss.
Associates - Fair valued
Associates are those entities in which the Group has significant influence,
but not control, over the financial and operating policies. Investments that
are held as part of the Group's investment portfolio are carried in the
Consolidated statement of financial position at fair value even though the
Group may have significant influence over those companies.
Further detail on our application of IFRS 10 can be found in the
Reconciliation of Investment basis to IFRS section.
C Critical accounting judgements and estimates
The reported results of the Group are sensitive to the accounting policies,
assumptions and estimates that underpin the preparation of its financial
statements. UK company law and IFRS require the Directors, in preparing the
Group's financial statements, to select suitable accounting policies, apply
them consistently and make judgements and estimates that are reasonable and
prudent. The Group's estimates and assumptions are based on historical
experience and expectation of future events and are reviewed periodically. The
actual outcome may be materially different from that anticipated.
(a) Critical judgements
In the course of preparing the financial statements, one judgement has been
made in the process of applying the Group's accounting policies, other than
those involving estimations, that has had a significant effect on the amounts
recognised in the financial statements as follows:
I. Assessment as an investment entity
The Board has concluded that the Company continues to meet the definition of
an investment entity, as its strategic objective of investing in portfolio
investments and providing investment management services to investors for the
purpose of generating returns in the form of investment income and capital
appreciation remains unchanged.
(b) Critical estimates
In addition to these significant judgements the Directors have made two
estimates, which they deem to have a significant risk of resulting in a
material adjustment to the amounts recognised in the financial statements
within the next financial year. The details of these estimates are as follows:
I. Fair valuation of the investment portfolio
The investment portfolio, a material group of assets of the Group, is held at
fair value. Details of valuation methodologies used and the associated
sensitivities are disclosed in Note 13 Fair values of assets and liabilities
in this document. Further information can be found in Portfolio valuation - an
explanation in our Annual report and accounts 2022. Given the importance of
this area, the Board has a separate Valuations Committee to review the
valuations policies, process and application to individual investments. A
report on the activities of the Valuations Committee (including a review of
the assumptions made) is included in the Valuations Committee report in our
Annual report and accounts 2022.
II. Carried interest payable
Carried interest payable is calculated based on the underlying agreements, and
assuming all portfolio investments are sold at their fair values at the
balance sheet date. The actual amounts of carried interest paid will depend on
the cash realisations of these portfolio investments and valuations may change
significantly in the next financial year. The fair valuation of the investment
portfolio is itself a critical estimate, as detailed above. The sensitivity of
carried interest payable to movements in the investment portfolio is disclosed
in Note 15 in our Annual report and accounts 2022.
D Other accounting policies
(a) Gross investment return
Gross investment return is equivalent to "revenue" for the purposes of IAS 1.
It represents the overall increase in net assets from the investment portfolio
net of deal-related costs and includes foreign exchange movements in respect
of the investment portfolio. The substantial majority is investment income and
outside the scope of IFRS 15. It is analysed into the following components
with the relevant standard shown where appropriate:
i. Realised profits or losses over value on the disposal of investments
are the difference between the fair value of the consideration received in
accordance with IFRS 13 less any directly attributable costs, on the sale of
equity and the repayment of interest income from the investment portfolio, and
its carrying value at the start of the accounting period, converted into
sterling using the exchange rates in force at the date of disposal.
ii. Unrealised profits or losses on the revaluation of investments are the
movement in the fair value of investments in accordance with IFRS 13 between
the start and end of the accounting period converted into sterling using the
exchange rates in force at the date of fair value assessment.
iii. Fair value movements on investment entity subsidiaries are the
movements in the fair value of Group subsidiaries which are classified as
investment entities under IFRS 10. The Group makes investments in portfolio
assets through these entities which are usually limited partnerships or
corporate subsidiaries.
iv. Portfolio income is that portion of income that 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. The following specific recognition criteria must be met before the
income is recognised:
Dividends from equity investments are recognised in profit or loss when the
shareholders' rights to receive payment have been established;
Interest income from the 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; and
The accounting policy for fee income is included in Note 4 in our Annual
report and accounts 2022.
v. Foreign exchange on investments arises on investments made in currencies
that are different from the functional currency of the Company being sterling.
Investments are translated at the exchange rate ruling at the date of the
transaction in accordance with IAS 21. At each subsequent reporting date,
investments are translated to sterling at the exchange rate ruling at that
date.
vi. Movement in the fair value of derivatives relates to the change in fair
value of forward foreign exchange contracts which have been used to minimise
foreign currency risk in the investment portfolio. See Note 18 for more
details.
(b) Foreign currency translation
For the Company and those subsidiaries and associates whose balance sheets are
denominated in sterling, which is the Company's functional and presentational
currency, monetary assets and liabilities and non-monetary assets held at fair
value denominated in foreign currencies are translated into sterling at the
closing rates of exchange at the balance sheet date. Foreign currency
transactions are translated into sterling at the average rates of exchange
over the year and exchange differences arising are taken to profit or loss.
The statements of financial position of subsidiaries, which are not held at
fair value, denominated in foreign currencies are translated into sterling at
the closing rates. The statements of comprehensive income for these
subsidiaries and associates are translated at the average rates and exchange
differences arising are taken to other comprehensive income. Such exchange
differences are reclassified to profit or loss in the period in which the
subsidiary or associate is disposed of.
(c) Treasury assets and liabilities
Short-term treasury assets, and short and long-term treasury liabilities are
used in order to manage cash flows.
Cash and cash equivalents comprise cash at bank and amounts held in money
market funds which are readily convertible into cash and there is an
insignificant risk of changes in value. Financial assets and liabilities are
recognised in the balance sheet when the relevant Group entity becomes a party
to the contractual provisions of the instrument. De-recognition occurs when
rights to cash flows from a financial asset expire, or when a liability is
extinguished.
Notes to the accounts
1 Segmental analysis
Operating segments are the components of the Group whose results are regularly
reviewed by the Group's chief operating decision maker to make decisions about
resources to be allocated to the segment and assess its performance.
The Chief Executive, who is considered to be the chief operating decision
maker, managed the Group on the basis of business divisions determined with
reference to market focus, geographic focus, investment funding model and the
Group's management hierarchy. A description of the activities, including
returns generated by these divisions and the allocation of resources, is given
in the Strategic report. For the geographical segmental split, revenue
information is based on the locations of the assets held. To aid the readers'
understanding we have split out Action, Private Equity's largest asset, into a
separate column. Action is not regarded as a reported segment as the chief
operating decision maker reviews performance, makes decisions and allocates
resources to the Private Equity segment, which includes Action.
The segmental information that follows is presented on the basis used by the
Chief Executive to monitor the performance of the Group. The reported segments
are Private Equity, Infrastructure and Scandlines.
The segmental analysis is prepared on the Investment basis. The Investment
basis is an APM and we believe it provides a more understandable view of
performance. For more information on the Investment basis and a reconciliation
between the Investment basis and IFRS can be found in the Reconciliation of
Investment basis and IFRS section earlier in this document.
1 Segmental analysis continued
Investment basis
Private Of which
Equity Action Infrastructure Scandlines Total(4)
Year to 31 March 2022 £m £m £m £m £m
Realised profits over value on the disposal of investments 228 - 10 - 238
Unrealised profits on the revaluation of investments 3,545 2,655 178 101 3,824
Portfolio income
Dividends 331 288 31 13 375
Interest income from investment portfolio 73 - 12 - 85
Fees receivable 6 1 (3) - 3
Foreign exchange on investments (11) (56) 13 (4) (2)
Movement in the fair value of derivatives - - - 2 2
Gross investment return 4,172 2,888 241 112 4,525
Fees receivable from external funds 4 - 58 - 62
Operating expenses (83) - (43) (2) (128)
Interest receivable -
Interest payable (53)
Exchange movements 9
Other income 2
Operating profit before carried interest 4,417
Carried interest
Carried interest and performance fees receivable 3 - 51 - 54
Carried interest and performance fees payable (416) - (38) - (454)
Operating profit before tax 4,017
Tax charge (5)
Profit for the year 4,012
Other comprehensive income
Re-measurements of defined benefit plans 2
Total return 4,014
Realisations(1) 684 - 104 - 788
Cash investment(2) (457) - (85) (1) (543)
Net divestment/(investment) 227 - 19 (1) 245
Balance sheet
Opening portfolio value at 1 April 2021 8,814 4,566 1,159 435 10,408
Investment(3) 568 - 85 1 654
Value disposed (456) - (94) - (550)
Unrealised value movement 3,545 2,655 178 101 3,824
Other movement (including foreign exchange) (51) (56) 24 (4) (31)
Closing portfolio value at 31 March 2022 12,420 7,165 1,352 533 14,305
1 Realised proceeds may differ from cash proceeds due to timing of cash
receipts. During the year, Private Equity received £3 million of cash
proceeds which were recognised as realised proceeds in FY2021. Infrastructure
recognised £32 million of realised proceeds which are to be received in
FY2023 and Private Equity recognised £1 million of realised proceeds which
are to be received in FY2023.
2 Cash investment per the segmental analysis is different to cash investment per
the cash flow due to a £53 million syndication in Infrastructure which was
recognised in FY2022 and to be received in FY2023.
3 Includes capitalised interest and other non-cash investment.
4 The total is the sum of Private Equity, Infrastructure and Scandlines, "Of
which Action" is part of Private Equity.
A number of items are not managed by segment by the chief operating decision
maker and therefore have not been allocated to a specific segment.
Investment basis
Private Of which
Equity Action Infrastructure Scandlines Total(4)
Year to 31 March 2021 £m £m £m £m £m
Realised profits over value on the disposal of investments 29 - 6 - 35
Unrealised profits on the revaluation of investments 2,161 1,202 168 22 2,351
Portfolio income
Dividends 53 - 29 - 82
Interest income from investment portfolio 55 - 10 - 65
Fees receivable 9 1 - - 9
Foreign exchange on investments (371) (181) (39) (17) (427)
Movement in the fair value of derivatives - - 4 20 24
Gross investment return 1,936 1,022 178 25 2,139
Fees receivable from external funds 4 - 40 - 44
Operating expenses (70) - (40) (2) (112)
Interest receivable (1)
Interest payable (47)
Exchange movements 7
Other income 1
Operating profit before carried interest 2,031
Carried interest
Carried interest and performance fees receivable (3) - 8 - 5
Carried interest and performance fees payable (173) - (11) - (184)
Operating profit before tax 1,852
Tax charge -
Profit for the year 1,852
Other comprehensive expense
Re-measurements of defined benefit plans (126)
Total return 1,726
Realisations(1) 114 - 104 - 218
Cash investment(2) (508) (9) (2) - (510)
Net (investment)/divestment (394) (9) 102 - (292)
Balance sheet
Opening portfolio value at 1 April 2020 6,552 3,536 1,117 429 8,098
Investment(3) 633 9 2 - 635
Value disposed (85) - (98) - (183)
Unrealised value movement 2,161 1,202 168 22 2,351
Other movement (including foreign exchange) (447) (181) (30) (16) (493)
Closing portfolio value at 31 March 2021 8,814 4,566 1,159 435 10,408
1 Realised proceeds may differ from cash proceeds due to timing of cash
receipts. During the year, Private Equity received £105 million of cash
proceeds which were recognised as realised proceeds in FY2020 and recognised
£4 million of realised proceeds in Private Equity which was received in
FY2022.
2 Cash investment per the segmental analysis is different to cash investment per
the cash flow due to £31 million of syndication in Private Equity which was
recognised in FY2020 and received in FY2021.
3 Includes capitalised interest and other non-cash investment.
4 The total is the sum of Private Equity, Infrastructure and Scandlines, "Of
which Action" is part of Private Equity.
A number of items are not managed by segment by the chief operating decision
maker and therefore have not been allocated to a specific segment.
Investment basis Northern North
UK Europe America Other Total
Year to 31 March 2022 £m £m £m £m £m
Realised profits over value on the 1 48 185 4 238
disposal of investments
Unrealised profits on the 276 3,053 493 2 3,824
revaluation of investments
Portfolio income 60 390 13 - 463
Foreign exchange on investments - (78) 76 - (2)
Movement in fair value of derivatives - 2 - - 2
Gross investment return 337 3,415 767 6 4,525
Realisations 10 328 442 8 788
Cash investment (25) (374) (144) - (543)
Net (investment)/divestment (15) (46) 298 8 245
Balance sheet
Closing portfolio value at 31 March 2022 1,948 10,388 1,947 22 14,305
Investment basis Northern North
UK Europe America Other Total
Year to 31 March 2021 £m £m £m £m £m
Realised profits over value on the 2 8 - 25 35
disposal of investments
Unrealised profits/(losses) on the 280 1,773 300 (2) 2,351
revaluation of investments
Portfolio income 47 93 13 3 156
Foreign exchange on investments - (289) (135) (3) (427)
Movement in fair value of derivatives - 20 4 - 24
Gross investment return 329 1,605 182 23 2,139
Realisations 2 88 74 54 218
Cash investment (171) (175) (164) - (510)
Net (investment)/divestment (169) (87) (90) 54 (292)
Balance sheet
Closing portfolio value at 31 March 2021 1,645 7,260 1,481 22 10,408
2 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 year 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. Dilutive share awards are equity awards with
performance conditions attached see Note 27 in our Annual report and accounts
2022 for further details.
2022 2021
Net assets per share (£)
Basic 13.24 9.50
Diluted 13.21 9.47
Net assets (£m)
Net assets attributable to equity holders of the Company 12,754 9,164
2022 2021
Number of shares in issue
Ordinary shares 973,238,638 973,166,947
Own shares (10,212,745) (8,530,634)
963,025,893 964,636,313
Effect of dilutive potential ordinary shares
Share awards 2,705,623 2,656,230
Diluted shares 965,731,516 967,292,543
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 year to 31 March 2022 are
966,091,793 (2021: 964,217,242). 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 year to 31 March 2022 are 968,636,820 (2021: 966,547,522).
2022 2021
Earnings per share (pence)
Basic 415.4 192.4
Diluted 414.3 191.9
Earnings (£m)
Profit for the year attributable to equity holders of the Company 4,013 1,855
3 Dividends
2022 2022 2021 2021
pence per share £m pence per share £m
Declared and paid during the year
Ordinary shares
Second dividend 21.0 203 17.5 169
First dividend 19.25 186 17.5 169
40.25 389 35.0 338
Proposed dividend 27.25 262 21.0 203
The Group introduced a simplified dividend policy in May 2018. In accordance
with this policy, subject to maintaining a conservative balance sheet
approach, the Group aims to maintain or grow the dividend each year. The first
dividend has been set at 50% of the prior year's total dividend.
The dividend can be paid out of either the capital reserve or the revenue
reserve subject to the investment trust rules, see Note 20 in our Annual
report and accounts 2022 for details of reserves.
The distributable reserves of the parent company are £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.
20 large investments
The 20 investments listed below account for 93% of the portfolio at 31 March
2022 (31 March 2021: 95%). All investments have been assessed to establish
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.
Residual Residual
Business line cost(1) cost(1) Valuation Valuation
Geography March March March March Relevant
Investment First invested in 2022 2021 2022 2021 transactions
Description of business Valuation basis £m £m £m £m in the year
Action* Private Equity 623 623 7,165 4,566 £284 million cash
General merchandise discount Netherlands dividend received
retailer 2011/2020
Earnings
3i Infrastructure plc* Infrastructure 305 305 934 797 £27 million
Quoted investment company, UK dividend received
investing in infrastructure 2007
Quoted
Scandlines Scandlines 530 529 533 435 £13 million dividend
Ferry operator between Denmark Denmark/Germany received
and Germany 2018
DCF
Cirtec Medical* Private Equity 172 172 513 444 Acquisition of
Outsourced medical device US Cardea Catheter
manufacturing 2017 Innovations
Earnings in July 2021
Luqom* Private Equity 196 110 448 307 Acquisition of
Online lighting specialist Germany Lampemesteren in
retailer 2017 April 2021 and
Earnings £81 million further
investment in the
year
Tato Private Equity 2 2 407 368 £14 million dividend
Manufacturer and seller of UK received
speciality chemicals 1989
Earnings
Q Holding* Private Equity 162 162 398 187 Sale of QSR
Manufacturer of precision US division agreed
engineered elastomeric 2014 in April 2022
components Sum of the parts
Hans Anders* Private Equity 269 268 345 262 Acquisition of
Value-for-money optical Netherlands Eyes! NV and Eyes
retailer 2017 Society BV in
Earnings December 2021.
£19 million dividend
received
Havea* Private Equity 196 187 304 242 Acquisition of
Manufacturer of natural France ixX Pharma in
healthcare and cosmetics 2017 September 2021
products Earnings
Royal Sanders* Private Equity 136 136 297 364 £84 million
Private label and contract Netherlands distribution received.
manufacturing producer of 2018 Acquisition of Otto
personal care products Earnings Cosmetic in
February 2022
Evernex* Private Equity 285 272 291 281 Acquisition of
Provider of third-party France Emcon-IT in
maintenance 2019 October
services for data centre Earnings 2021
infrastructure
SaniSure* Private Equity 76 135 277 183 Returned £59 million
Manufacturer, distributor and US of investment to 3i
integrator of single-use 2019 in July 2021.
bioprocessing systems and Earnings Acquisition of GL
Engineering in
components December 2021
AES Private Equity 30 30 269 212 Acquisition of
Manufacturer of mechanical seals UK JAtech Services in
and support systems 1996 November
Earnings 2021
WP* Private Equity 239 222 234 259
Supplier of plastic packaging Netherlands
solutions 2015
Earnings
Smarte Carte* Infrastructure 187 176 207 160
Provider of self-serve vended US
luggage carts, electronic 2017
lockers and concession carts DCF
BoConcept* Private Equity 99 165 184 161 £90 million
Urban living designer Denmark distribution received
2016
Earnings
MPM* Private Equity 139 128 162 124
An international branded, UK
premium and natural pet food 2020
company Earnings
GartenHaus* Private Equity 121 72 131 66 Acquisition of
An online retailer of garden Germany Outdoor Toys in
buildings, sheds, saunas and 2020 October 2021 with
Earnings £45 million of further
related products funding from 3i
Basic-Fit Private Equity 11 23 129 214 Proceeds received of
Discount gyms operator Netherlands £146 million
2013
Quoted
Audley Travel* Private Equity 243 197 117 85 Further investment of
Provider of experiential UK £25 million
tailor-made travel 2015
DCF
4,021 3,914 13,345 9,717
* Controlled in accordance with IFRS.
1 Residual cost includes cash investment and interest net of cost disposed.
List of Directors and their functions
The Directors of the Company and their functions are listed below:
David Hutchison, Chairman
Simon Borrows, Chief Executive and Executive Director
Julia Wilson, Group Finance Director and Executive Director
Caroline Banszky, Independent non-executive Director
Stephen Daintith, Independent non-executive Director
Lesley Knox, Senior Independent non-executive Director
Coline McConville, Independent non-executive Director
Peter McKellar, Independent non-executive Director
Alexandra Schaapveld, Independent non-executive Director
By order of the Board
K J Dunn
Company Secretary
11 May 2022
Registered Office: 16 Palace Street, London SW1E 5JD
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, Hans Anders,
arriva, Luqom, Havea, Royal Sanders, Magnitude Software and Schlemmer.
2019-2022 vintage includes Evernex, SaniSure, GartenHaus, MPM, WilsonHCG,
Dutch Bakery, ten23 health, insightsoftware, MAIT, Mepal and Yanga.
Alternative Investment Funds ("AIFs") at 31 March 2022, 3i Investments plc as
AIFM, managed seven AIFs. These were
3i Group plc, 3i Growth Capital B LP, 3i Growth Capital C LP, 3i Europartners
Va LP, 3i Europartners Vb LP, 3i Managed Infrastructure Acquisitions LP and 3i
Infrastructure plc. 3i Investments (Luxembourg) SA as AIFM, managed one AIF,
3i European Operational Projects SCSp.
Alternative Investment Fund Manager ("AIFM") is the regulated manager of AIFs.
Within 3i, these are 3i Investments plc and
3i Investments (Luxembourg) SA.
APAC The Asia Pacific region.
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.
B2B Business-to-business.
Board The Board of Directors of the Company.
Buyouts 2010-2012 vintage includes Action, Amor, Element, Etanco, Hilite,
OneMed and Trescal.
CAGR is the compound annual growth rate.
Capital redemption reserve is established in respect of the redemption of the
Company's ordinary shares.
Capital reserve recognises all profits and losses 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.
DACH The region covering Austria, Germany and Switzerland.
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.
EMEA The region covering Europe, the Middle East and Africa.
Executive Committee 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 (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 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 Company. 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 useful 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.
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 undrawn 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 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, exchange movements, other income, carried interest and tax.
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 effect is the level of risk based on the diversity of the investment
portfolio.
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.
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 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 and losses 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 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.
SORP means the Statement of Recommended Practice: Financial Statements of
Investment Trust Companies and Venture Capital Trusts.
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 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.
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