REG - 3i Group PLC - Results for the year to 31 March 2023
11/05/2023 07:00
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RNS Number : 0192Z 3i Group PLC 11 May 2023
11 May 2023
3i Group plc announces results for the year
to 31 March 2023
Very strong FY2023 performance in challenging markets
• Total return of £4,585 million or 36% on opening shareholders'
funds (2022: £4,014 million, 44%) and NAV per share of 1,745 pence (31 March
2022: 1,321 pence). This includes a 65 pence per share gain on foreign
exchange translation.
• Our Private Equity business delivered a gross investment return of
£4,966 million or 40% (2022: £4,172 million, 47%). This result was driven
primarily by Action's very strong performance in FY2023, with a good
contribution from a number of our other portfolio companies operating in the
value-for-money and private label, healthcare, industrial technology and
business and technology services. We saw weaker trading in a small proportion
of our portfolio, most notably our discretionary consumer segment.
• Action delivered annual revenue growth of 30% and EBITDA growth of
46% in 2022 and has started 2023 well. Action's LTM run-rate EBITDA to P3
2023, which ended on 2 April 2023, was €1,439 million (3 April 2022:
€1,012 million), representing a 42% increase over the same period last year.
This strong performance supported value growth of £3,708 million for Action
in the year, in addition to cash dividend distributions to 3i of £325
million.
• The Private Equity team invested £381 million in the year,
deploying capital in four new investments and three bolt-on acquisitions. In
addition, our Private Equity portfolio companies completed a further eight
bolt-on acquisitions funded through their own balance sheets. Realisations
from the Private Equity portfolio totalled £857 million in the year and
included the sales of Havea and Christ at uplifts of 50% and 45% respectively
to their opening values, as well as the sales of Q Holding's QSR and Precision
Components businesses, and of its Twinsburg site.
• Our Infrastructure business generated a gross investment return of
£86 million, or 6% (2022: £241 million, 21%). This return was impacted by
the decline in the share price of 3i Infrastructure plc ("3iN"), despite its
strong NAV return in the year, offset in part by good contributions from our
US Infrastructure assets, including notably Smarte Carte.
• The portfolio continues to trade resiliently in the current
environment, with 83% exposure to the value-for-money and private label,
infrastructure and healthcare sectors.
• Across the Group, we received over £1.3 billion of cash primarily
via portfolio company realisations and income in the year. After repaying the
£200 million fixed-rate bond due in March 2023, we ended the year with
liquidity of £1.3 billion, net debt of £363 million and gearing of 2%.
• Total dividend of 53.0 pence per share for FY2023, with a second
FY2023 dividend of 29.75 pence per share to be paid in July 2023 subject to
shareholder approval.
Simon Borrows, 3i's Chief Executive, commented:
"Our portfolio has been carefully assembled and its resilience and consistent
financial performance in recent years reflects the benefits of thematic
investing, disciplined pricing and active asset management. No portfolio
company reflects this approach better than Action, which continues to be 3i's
largest and most resilient portfolio investment. We are now focused on
developing a select number of other companies to fulfil their potential to
also become long-term compounders for the Group. Whilst we expect
macroeconomic conditions to remain challenging in the near term, we have
started FY2024 with good momentum and are confident that we have the right
people, portfolio and processes to continue to compound value from our
portfolio and deliver consistent returns through the cycle."
Financial highlights
Year to/as at Year to/as at
31 March
31 March
2023
2022
Group
Total return £4,585m £4,014m
Operating expenses £(138)m £(128)m
Operating cash profit £364m £340m
Realised proceeds £857m £788m
Gross investment return £5,104m £4,525m
- As a percentage of opening 3i portfolio value 36% 43%
Cash investment £397m £543m
3i portfolio value £18,388m £14,305m
Gross debt £775m £975m
Net debt £(363)m £(746)m
Gearing(1) 2% 6%
Liquidity £1,312m £729m
Net asset value £16,844m £12,754m
Diluted net asset value per ordinary share 1,745p 1,321p
Total dividend per share 53.0p 46.5p
1 Gearing is net debt as a percentage of net assets.
ENDS
For further information, please contact:
Silvia Santoro
Group Investor Relations Director Tel: 020 7975 3258
Kathryn van der Kroft Tel: 020 7975 3021
Communications Director
For further information regarding the announcement of 3i's annual results to
31 March 2023, including a live webcast of the results presentation at
10.00am, please visit 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.
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 2023 and have not yet been delivered to the Registrar of
Companies. The statutory accounts for the year to 31 March 2022 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 2023 will be posted to shareholders
on or soon after Wednesday 24 May 2023
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 Friday 28 July 2023 to holders of ordinary shares on the register
on Friday 23 June 2023. The ex-dividend date will be Thursday 22 June 2023.
Chairman's statement
"We delivered a very strong return in FY2023, as we continue to benefit from
our clear strategy, consistent execution and investment discipline.
While we are not immune from the impacts of the current macroeconomic
uncertainty, the Group's financial strength and quality portfolio put us in a
good position to continue to deliver attractive returns through the economic
cycle."
3i delivered a very strong result in FY2023, despite significant macroeconomic
headwinds, as we continue to benefit from our clear strategy, consistent
execution and investment discipline.
Performance
I am pleased to report that 3i delivered a very strong set of results in the
financial year to 31 March 2023 ("FY2023"), with a total return of £4,585
million (2022: £4,014 million). Net asset value ("NAV") increased to 1,745
pence per share (31 March 2022: 1,321 pence) and our total return on opening
shareholders' funds was 36% (2022: 44%). This result was driven predominantly
by the strong performance of Action, our largest investment, as well as by
good contributions from the majority of our remaining portfolio.
Market environment
FY2023 was dominated by the geopolitical and macroeconomic consequences of
Russia's invasion of Ukraine and the gradual global recovery from the
pandemic. Governments and central banks have had to deal with the consequences
of high inflation and increasing energy prices, which resulted in significant
increases in interest rates globally. The defensive characteristics of many of
our portfolio companies have enabled them to continue to mitigate many of
these macroeconomic headwinds, and in some cases make value accretive
acquisitions. A small pocket of our portfolio exposed to discretionary
consumer spending did, however, see significant underperformance in the year.
Investment activity across the buyout market slowed in 2022 and we continued
to deploy capital selectively in businesses that operate in sectors that we
know well and are supported by long-term growth trends. The Group invested
£397 million in the year in new acquisitions and further investments in our
existing businesses.
Dividend
Our dividend policy is to maintain or grow the dividend year-on-year, subject
to the strength of our balance sheet and the outlook for investment and
realisations. In FY2023, we generated significant cash inflow of over £1.3
billion from our portfolio companies, whilst remaining cautious and
disciplined in our investment activity and supporting portfolio companies,
where necessary. Following the repayment of the £200 million fixed-rate 2023
bond in March 2023, we reduced our fixed debt to £775 million, which
contributed to a reduction in gearing to 2% at 31 March 2023 (31 March 2022:
6%). In line with the Group's policy and in recognition of the Group's
financial performance, the Board recommends a second FY2023 dividend of 29.75
pence (2022: 27.25 pence), subject to shareholder approval, which will take
the total dividend to 53.0 pence (2022: 46.5 pence).
Board and people
As announced in November 2021, Julia Wilson, formerly Group Finance Director,
retired from the Board on 30 June 2022 after the 2022 AGM. James Hatchley
joined the Board as Group Finance Director Designate on 12 May 2022 and became
Group Finance Director upon Julia's retirement. Jasi Halai joined the Board as
Chief Operating Officer on 12 May 2022. Both James and Jasi have settled very
well into their respective roles.
After nine years' service as a non-executive Director, Caroline Banszky will
not be standing for re-election at the 2023 AGM and accordingly will retire
from the Board at the end of that Meeting. I would like to thank her for her
outstanding contribution to the Board's deliberations.
Environmental, Social, and Governance ("ESG")
I am pleased with the progress we have made across all areas of our ESG agenda
and I am encouraged by the level of engagement across our portfolio of
investments. Led by the Chief Executive's ESG Committee, the focus has been
principally on improving our ability to identify and manage climate risk
across the portfolio and take advantage of any transition opportunities that
may arise. We have embedded dedicated resource in our investment teams, to
engage with the portfolio and explore opportunities to improve the
sustainability of our investments. We also continue to prepare the Group to
comply with ESG regulatory reporting requirements.
Outlook
We start FY2024 with a portfolio of assets that we have carefully constructed
around sectors and themes supported by long-term growth trends, with a clear
strategy of delivering sustainable returns through underlying organic growth
and effective implementation of value accretive buy-and-build acquisitions.
Whilst the Group and portfolio are not immune to a further sustained period of
macroeconomic and geopolitical uncertainty, we are confident that our
financial strength and quality portfolio will provide the Group with the
flexibility to navigate these and continue to deliver attractive returns
through all stages of the economic cycle.
David Hutchison
Chairman
10 May 2023
Chief Executive's statement
"Our portfolio has been carefully assembled and its resilience and consistent
financial performance in recent years reflect the benefits of thematic
investing, disciplined pricing and active asset management. We have started
FY2024 with good momentum and are confident that we have the right people,
portfolio and processes to continue to compound value from our portfolio and
deliver consistent returns through the cycle."
Despite adverse global economic conditions, 3i delivered a very strong result
in FY2023, underpinned by another year of excellent growth from Action and
resilient performance across the majority of the rest of our portfolio. In
challenging markets, we maintained our investment and pricing discipline,
deploying capital across new investments and value accretive bolt-on
acquisitions. We also continued to generate significant cash proceeds via
realisations at healthy premiums to opening value and strong portfolio income.
In FY2023, we continued to execute our well-established strategy, making good
progress against our key performance indicators ("KPIs"), and generated a
total return on shareholders' funds of £4,585 million, or 36% (2022: £4,014
million, or 44%), ending the year with a NAV per share of 1,745 pence (31
March 2022: 1,321 pence). The majority of our portfolio companies have been
navigating effectively through the high inflation, elevated interest rates,
supply chain disruption, rising commodity prices and overall weaker consumer
sentiment that have characterised FY2023. Whilst Action's performance was the
most significant contribution to the Group's FY2023 return, we also saw
particularly good or resilient trading from other portfolio companies
operating in the value-for-money and private label, healthcare, industrial
technology, business technology and services and infrastructure sectors. We
are not, however, immune to the prevailing macroeconomic headwinds, and we saw
softer trading in a small number of our portfolio companies. We therefore
recognised a meaningful unrealised value loss in two of our companies with
discretionary consumer end-markets, to reflect weaker trading and the derating
of valuation peers.
Private Equity transaction activity across the market slowed considerably in
2022 compared to 2021, as debt markets became less supportive and pricing
expectations remained difficult to align. We were nevertheless able to
complete four new investments in Private Equity and two in Infrastructure, in
sectors and markets supported by long-term growth trends.
Bolt-on acquisitions across both of our portfolios remain an integral part of
our long-term value creation strategy, enabling growth in the portfolio
without taking on costly leverage. Accordingly, in FY2023, we completed a
total of 11 bolt-on acquisitions for our Private Equity portfolio companies
and three for our North American Infrastructure portfolio.
We also generated significant realised proceeds in FY2023, capitalising on
demand for assets with a proven track record of through-the-cycle growth and
the ability to execute and integrate bolt-on acquisitions. In total, across
the Group, we generated over £1.3 billion of cash in the year from
realisations and portfolio income.
Including the impact from foreign exchange hedging, 71% of the Group's net
assets are denominated in euros or US dollars and we generated a £623 million
gain (2022: £9 million gain) on foreign exchange translation as a result of
sterling weakness. This includes a £122 million gain from our new medium-term
foreign exchange hedging programme that we implemented for the Group in
October and November 2022, and the existing hedging programme for Scandlines.
For further details on the Group's foreign exchange hedging programme see the
Financial review later in this document.
Private Equity performance
In the year to 31 March 2023, our Private Equity portfolio, including Action,
generated a Gross Investment Return ("GIR") of £4,966 million or 40% on
opening value (2022: £4,172 million, or 47%). Action generated a GIR of
£4,344 million, or 61%, on its opening value. The softer performance across
some of our discretionary consumer portfolio companies detracted from the
resilient performance of the remainder of the ex-Action portfolio, with 90% of
our portfolio companies by value growing earnings in the last 12 months
("LTM") to the end of 31 December 2022. In addition, our Private Equity
portfolio is prudently funded, with a long-dated maturity profile and the
interest rate risk substantially hedged.
Action
Action, the fastest growing non-food discounter in Europe and our largest
portfolio company, delivered another year of very impressive performance. For
its financial year ending 1 January 2023, Action generated net sales of
€8,859 million, 30% ahead of 2021 and like- for-like ("LFL") sales growth of
18.1% driven by higher footfall and a higher number of transactions. The
removal of the remaining limited Covid-19 restrictions in the first quarter of
2022 also contributed to this performance. Sales grew across all of Action's
14 product categories, with particularly good sales of daily essential
products.
In the 12 months to 1 January 2023, Action delivered operating EBITDA of
€1,205 million, 46% ahead of 2021 and an all-time high EBITDA margin of
13.6%. Action's buying power, flexibility in its category assortment and
ability to absorb some of the inflationary pressure enabled it to manage both
cost and pricing effectively, whilst maintaining and, in many instances,
increasing its pricing advantage compared to its competitors.
Action's simple, efficient and scalable operating model allows the business to
expand seamlessly across existing and new geographies. The business added 280
new stores in 2022, setting another store opening record. Stores across all
countries are performing well with some of the more recent markets, such as
Poland and the Czech Republic, showing particularly strong growth. Action has
also moved out of the pilot phase in Italy and Spain given these markets
exceeded initial expectations and Action is now fully committed to a full
scale expansion in these two sizable new countries. On 2 March 2023, Action
opened its first store in Slovakia, its 11th country. At the end of Action's
P3 2023 (which ended on 2 April 2023), Action had 2,297 stores across 11
countries, with considerable white space to roll out in both existing and new
geographies.
Action largely mitigated external supply chain challenges in 2022. It did so
by leveraging its heavy investment in network capacity and through improved
planning capabilities and collaboration with logistics partners. This resulted
in increased product availability in stores to meet high customer demand. In
addition, Action continues to develop its mix of suppliers, with an increasing
share of directly sourced products and further geographical diversification.
In 2022, the business also continued to enhance its supply chain
infrastructure, opening a new hub in Le Havre and ramped up capacity in the
distribution centres ("DCs") in Verrières, Bieruń and Bratislava. Action
plans to open two new DCs in 2023, which will increase its existing DC network
capacity of c.2,700 stores by another c.400 stores.
Action's Sustainability Programme is a fundamental pillar of its strategy and
growth trajectory, and the business has made significant progress in its
delivery. In 2022, Action completed a circularity assessment of all 14 product
categories looking at design and use, which has enabled the business to define
circular improvements in the buying process going forward. The business also
increased its use of sustainably sourced cotton to 90% and sustainably sourced
timber to 92% and reduced its Scope 1 and 2 CO(2) emissions by 40% from a 2021
baseline, which is an important step towards achieving its pledge to reduce
the emissions from its own operations by 60% by 2030, from a baseline year of
2021.
Action continues to generate very strong cash flow, with cash conversion of
78% in 2022, as a result of its one-year cash payback for new stores and low
capital intensity. The business paid an interim dividend to shareholders in
December 2022, of which 3i received £159 million, and a second dividend in
March 2023 of which 3i received £166 million. After paying the dividends,
Action had a cash balance of €365 million as at 2 April 2023 and a net debt
to run-rate earnings ratio of 1.8x.
In March 2023, we completed a transaction to provide liquidity for existing
external investors in Action, who are invested via our 3i 2020 Co-investment
Programme ("Programme"). As part of this transaction, we purchased a small
additional stake in Action, investing £30 million through the Programme based
on the December 2022 net asset value, increasing our equity stake from 52.7%
to 52.9%. At the same time, we crystallised a portion of the carried interest
liability relating to Action, which is expected to result in a payment by 3i
of c.£200 million in carried interest to the participants in the relevant
carry plans in May 2023.
The valuation of our 52.9% stake in Action at 31 March 2023 of £11,188
million (2022: £7,165 million) reflects the robust growth in Action's LTM
run-rate EBITDA to €1,439 million (P3 2023), its low leverage and its
current LTM run-rate EBITDA valuation multiple of 18.5x net of the liquidity
discount. We take a long-term, through-the-cycle view on the multiple we use
to value Action and take comfort from the fact that its continued excellent
growth meant that its valuation at 31 March 2022 translated to only 13.0x the
run-rate EBITDA achieved one year later. In addition, its most important
operating KPIs compare very favourably with those of its peer group, which
consists of North American and European value-for-money retailers.
In the first three periods to 2 April 2023, Action performed strongly, with
LFL sales growth of 24.3% and 34 new stores added. Since 31 March 2023, we
successfully allocated and signed an amendment and extension of Action's
senior debt facilities on attractive terms. This included upsizing and
extending the final maturities of a substantial portion of Action's senior
term debt and revolving credit facility ("RCF"). Action's total senior debt
facilities after the closing of the transaction will be €3,625 million
including a €500m undrawn multi-currency RCF.
Healthcare portfolio companies
Our healthcare portfolio continues to demonstrate its resilient and secular
growth characteristics, driving good performance in FY2023. SaniSure followed
up a very strong 2021 with further outperformance in 2022, as a result of
operational efficiencies and elevated demand for its products. Whilst industry
demand has moderated since the start 2023, we remain very confident of
SaniSure's fundamental growth prospects. The business and its growth potential
will continue to be enhanced by its active buy-and-build strategy, including
the recent acquisition of Q Holding's Twinsburg site, which has added to its
capability and diversified its client portfolio.
Cirtec Medical delivered another year of top-line growth, offsetting
short-term supply chain headwinds which have now largely been resolved. The
business continued to add high value, differentiated capabilities and
end-market diversification, with its strategic acquisition of Precision
Components from Q Holding.
We continued to support the development of ten23 Health, our pharmaceutical
products contract development and manufacturing organisation ("CDMO"), with a
further investment of £36 million in the year.
Consumer portfolio companies (excluding Action)
Our value-for-money and private label businesses continued to perform well in
FY2023, but a number of our discretionary consumer businesses have been
disproportionately impacted by weaker consumer sentiment.
Despite significant raw material and energy price inflation in 2022, Royal
Sanders sustained its strong growth through increased volumes with key
customers and outperformance of the four bolt-on acquisitions completed since
our initial investment in 2018. In April 2023, Royal Sanders completed the
acquisition of Lenhart, its fifth since we first invested, further
strengthening its position in the DACH region, and reinforcing its role as a
key consolidator in a highly fragmented market. A combination of effective
operational performance and positive contributions from recent bolt-on
acquisitions has supported Dutch Bakery's good result in 2022.
nexeye delivered good top-line growth and margin performance in its financial
year ending January 2023, driven by a comparatively attractive price point for
its customers. It added 23 stores in the year and accelerated online
appointments across its German business. Trading at the start of 2023 has
recovered, following softer trading in Q3 2022 as consumer uncertainty
impacted overall market demand.
Over the last 12 months, we have seen a significant recovery in bookings for
Audley Travel and arrivia, two of our travel assets. Audley Travel's key
destinations gradually reopened in 2022, leading to a strong recovery in
bookings, driven by pent-up demand and supported by Audley's differentiated
brand proposition. arrivia has seen good performance in its membership
business, as well as a strong pick up in cruise and travel bookings.
Following a solid first quarter of 2022, both Luqom and YDEON experienced a
significant drop in order intake across their online platforms for the
remainder of the calendar year, as a result of weaker consumer confidence and
inflationary concerns. Across this same period, e-commerce peers of both
portfolio companies de-rated materially, reflecting the challenging external
trading conditions. These were key considerations in support of the combined
£357 million unrealised value decrease we recognised across these two
portfolio companies in FY2023. We believe the longer-term growth fundamentals
of each business remain and, through initiatives such as Luqom's further
international expansion and YDEON's addition of lower cost products to its
range, both businesses are positioning themselves for recovery.
BoConcept has to an extent mitigated lower footfall and order intake through
its international diversification, franchise model and effective margin
management.
Business and Technology Services portfolio companies
WilsonHCG delivered strong organic growth in 2022, and in January 2023 it
completed the bolt-on acquisition of Personify, enabling it to accelerate its
growth in the life sciences and healthcare end markets. The business is well
positioned to navigate any prolonged slowdown in the North American hiring
market, whilst new customer wins continue to diversify its customer base. MAIT
traded resiliently in the year, as the IT services market continues to
demonstrate a strong growth outlook. Following the bolt-on acquisition in June
2022 of Nittmann & Pekoll, an Austrian ERP specialist, the business has
now completed five bolt-on acquisitions since we first invested in 2021, all
of which are integrating well.
Evernex continued its buy-and-build activity, with the strategic acquisitions
of XS International and Integra, enabling the business to expand its footprint
in the US, Nordic, and Benelux markets. Short-term trading has been impacted
by a post-pandemic increase in new IT equipment investment, affecting the
renewal of maintenance contracts, although this was largely offset by a number
of new contract wins in the year.
Industrial Technology portfolio companies
AES performed very well financially, strategically and operationally
throughout 2022 and into the first quarter of 2023, driven by strong demand in
its global pump and rotating equipment end market. The business has continued
to invest and scale up, driving further reliability in its offering and
helping to generate new customer wins.
Having traded strongly in the first half of 2022, Tato saw trading soften
through the second half of 2022 with weaker end market demand and supply
challenges for key input chemicals resulting in price inflation and margin
pressure. Tato successfully leveraged its scale and global footprint to
maintain good customer supply, and margin performance has improved since the
turn of the year.
Following three years of significant operational and market disruption, Formel
D has made encouraging steps in its earnings recovery. Whilst trading was soft
through the first half of 2022 driven by prolonged Covid-19 shutdowns in China
and intermittent supply chain issues as a result of Russia's invasion of
Ukraine, the second half of 2022 and start of 2023 have been more encouraging
with an easing of supply chain issues and margin improvement from contract
renegotiations.
Private Equity investment
Unfavourable debt markets and economic uncertainty suppressed buyout market
activity in 2022 compared to a more buoyant market in 2021. Our approach to
new investment has remained consistent and we maintain our selective and
disciplined approach, leveraging our offices and international network to
identify attractive and sensibly priced new investments and value accretive
bolt-on acquisitions for our portfolio companies.
In FY2023 we completed four new Private Equity investments totalling £221
million. Our digitalisation, automation and big data investment theme
underpins three of these new investments: the £94 million investment in
xSuite, an accounts payable invoice automation software provider; the £37
million investment in dé VakantieDiscounter ("VakantieDiscounter"), a
technology-enabled online travel agency in the Benelux focused on affordable
holidays; and the £30 million investment in Digital Barriers, a provider of
unique video compression technology.
Our extensive consumer sector expertise will enable us to support the global
expansion thesis for our £60 million investment in Konges Sløjd, which
offers apparel and other products for babies and children.
Across the Private Equity portfolio, we completed 11 bolt-on acquisitions in
the year. We supported Luqom's acquisition of Brumberg, a B2B lighting brand,
arrivia's acquisition of RedWeek, an online timeshare rental marketplace, and
WilsonHCG's acquisition of Personify, a provider of RPO to specialised end
markets, with total further investment of £63 million. Our portfolio
companies also completed eight self-funded bolt-on investments in the year,
including the acquisitions by SaniSure and Cirtec Medical of two components of
Q Holding's medical business, as well as bolt-on acquisitions by Dutch Bakery,
MAIT, Evernex and AES.
Further details on our Private Equity investment activity can be found in the
Private Equity section.
Private Equity realisations
Despite challenging market conditions, we generated total capital realisation
proceeds of £857 million in the year, demonstrating the appeal of our
portfolio companies, many of which have shown resilience at all stages of the
economic cycle.
Our sale of Havea in October 2022 endorsed our long-standing buy-and-build
approach. During our five-year holding period, the business delivered
double-digit organic growth and completed and integrated five acquisitions
which, combined with a significant strategic transformation, transitioned
Havea from a family-owned business to a European leader in consumer healthcare
and wellbeing. This disposal generated proceeds for 3i of £471 million,
representing a 50% uplift on the value of the investment at 31 March 2022, a
sterling money multiple of 3.1x and an IRR of 24%.
During the year, we received total proceeds of £332 million from three
partial disposals by Q Holding. In Q1 FY2023 we completed the disposal of Q
Holding's QSR division receiving total proceeds of £199 million and in Q4
FY2023 we received £133 million relating primarily to the disposal of Q
Holding's Twinsburg site and Precision Components business. The valuation of Q
Holding at 31 March 2023 of £117 million (31 March 2022: £398 million)
includes our remaining value of Q Holding's device assembly business Catheter
Technologies. This means that over the last two years, through a combination
of realised proceeds and residual value, we have recognised an uplift for Q
Holding of over 100% on the opening value at 31 March 2021, which takes our
money multiple, including proceeds received to date and remaining residual
value, to 2.8x.
In January 2023 we completed the sale of Christ, our last investment in
Eurofund V ("EFV"), for gross proceeds to 3i of £47 million, representing a
45% uplift on the 31 March 2022 opening value. When added to the proceeds
generated by the sale of Amor (another German player in the jewellery space
which we considered as part of the same investment thesis and sold in
2016 crystallising a money multiple of 2.3x), the multiple generated by this
sale is 1.0x. Following the disposal of Christ, EFV reached a final gross
money multiple of 3.0x, a top quartile performance.
Further details on our Private Equity realisation activity can be found in the
Private Equity section.
Infrastructure performance
In the year to 31 March 2023, our Infrastructure portfolio generated a GIR of
£86 million or 6% on opening value (2022: £241 million, or 21%).
3i Infrastructure plc's ("3iN") carefully selected portfolio continues to
benefit from its exposure to identified long-term growth trends. As a result,
3iN generated a total return on opening NAV of 14.7%, which was materially
ahead of its 8-10% return objective, and delivered its dividend target of
11.15 pence, a 6.7% increase on last year. In February 2023, 3iN completed a
£100 million placing of new shares at a price of 330 pence per share. The
funds were used to part pay drawings on 3iN's RCF and partly used to fund its
acquisition of Future Biogas. 3i did not participate in this placing and its
holding in 3iN was therefore diluted from 30% to 29%. At 31 March 2023, our
29% stake (31 March 2022: 30%) in 3iN was valued at £841 million (31 March
2022: £934 million), as a result of a 10% year-on-year decline in its share
price to 313 pence. However, this was partially offset by dividend income from
3iN of £29 million in the year. We see considerable unrealised value in 3iN's
existing portfolio, with the platform investments generating substantial
bolt-on investment opportunities, which can be funded from cash generated by
those companies, together with portfolio company debt facilities. The
additional equity raised by 3iN during the year gives further headroom to take
advantage of this growth potential.
Demand for Infrastructure assets is strong and the team has continued to
deploy capital while retaining its pricing discipline. As 3iN's investment
manager, we oversaw 3iN's completion of its new investments in Global Cloud
Xchange ("GCX") and Future Biogas in the year, as well as the purchase of an
additional stake in TCR, a portion of which was subsequently syndicated to
external investors. The team also completed the sale by 3iN of its European
projects portfolio to the 3i European Operational Projects Fund ("3i EOPF")
for £106 million.
Following robust US domestic travel demand and continued volume recovery from
international travellers, our proprietary capital investment in Smarte Carte
delivered strong performance across all lines of its business. Over the last
12 months, the business has continued to differentiate its offering with
further ancillary services and also completed a refinancing at attractive
terms.
Our North American Infrastructure platform delivered solid performance in
FY2023. Regional Rail closed two bolt-on acquisitions, including three
short-line railroads in the Midwest region of the US and several short-line
railroads in Canada, whilst the existing freight rail platform delivered good
volumes. EC Waste continued to benefit from strong landfill revenues.
As a result of our fund management activities and dividends from the portfolio
we generated strong cash income of £107 million (2022: £91 million) from our
Infrastructure business in the year.
Scandlines performance
Scandlines performed well in the year, generating a GIR of 10% (2022: 26%).
The business delivered a second consecutive year of record growth in freight
volumes in 2022, whilst leisure volumes saw good recovery driven by a strong
summer peak season, offsetting the impact of Covid-19 at the start of 2022.
Following continued good cash generation, we received total dividends of £38
million from Scandlines in FY2023.
Progress on our sustainability agenda
We made significant progress on our sustainability agenda in FY2023. We
embedded dedicated ESG resource in our Private Equity and Infrastructure
investment teams, as well as in our central Group function. This has
accelerated the implementation of a range of sustainability initiatives at the
Group level and across the portfolio, enhanced the quality of our engagement
with portfolio companies on ESG themes, and improved our assessment of
sustainability factors in our investment and value creation processes.
Our work on sustainability is driven by our ESG Committee, whose principal
activities in FY2023 focused on portfolio data collection and management,
climate training, and climate scenario analysis. Importantly, on 5 April 2023
we wrote to the Science Based Targets initiative ("SBTi") to indicate our
commitment to set near-term science-based targets for 3i. We are now working
to formulate our targets, with the intention to submit them to SBTi for
validation in FY2024. Our science-based targets will cover our direct Scope 1
and 2 emissions, as well as our Scope 3 emissions associated with our
portfolio and will be formulated in line with the guidance published by SBTi
for the private equity sector.
Further details on our Task Force on Climate-related Financial Disclosures
("TCFD") and more information on how we assess and manage climate-related
risks and opportunities can be found in the Sustainability section in our
Annual report and accounts 2023.
During the year, we continued to support our nine charity partners which work
across a variety of areas, including helping homeless people, enabling
disabled students to go to university, helping elderly people regain some
independence and battle loneliness, and providing veterans with mental health
support and helping them back into work. We donated £1 million across these
initiatives. In addition, we donated £500,000 to the Turkey Mozaik Foundation
in support of victims of the earthquake in Turkey and Syria.
Conservative balance sheet and management of foreign exchange movements
Our conservative balance sheet strategy is fundamental to our proprietary
capital model enabling us to invest with speed and flexibility without the
need to accelerate any realisations. We also continue to place great weight on
cost discipline and once again covered our cash operating costs with cash
income. Our activity during the year is set out in the financial review
including the details of the medium-term partial foreign exchange hedging
programme we put in place at a time when we had the advantage of sterling
weakness in October and November of 2022.
Active asset management
As investors in private equity and infrastructure companies, we pursue a
highly involved form of asset management. This approach is only practical
given the concentrated nature of the 3i portfolio. We start at the outset of
our purchase with an investment case which we author in conjunction with
company management with the simple goal of growing the business to at least
double its profits over a five to six-year time-scale. As part of this plan,
we define key milestones and KPIs which we track on a monthly basis in order
to ensure the execution of the plan remains on track.
Management are closely aligned to the plan outcome and to 3i through their
participation in equity and equity-linked plans as co-owners of the business.
These long-term equity plans (five years or more) are much more meaningful
than shorter-term annual variable pay, and in successful investments will
deliver significant capital sums to the management teams. The nature of this
incentive ensures real alignment with 3i's long-term approach to compounding
capital.
The management team is supported in the execution of the investment case by a
board primarily made up of experienced 3i executives or others hired by 3i who
bring particular sector or specialist skills to the situation. The board and
3i investment team have regular monthly involvement with the company and are
assisted by other members of the local investment team, being regularly
involved at different levels throughout the organisation of the investee
company. Active and involved governance is one of the key ingredients of our
success.
3i also provides specialist legal, corporate finance, banking, ESG and digital
resource to assist investee management teams in sharing best practice,
particularly in relation to specific projects in funding and M&A as well
as their overall ESG and digital agendas.
We believe this form of active management is key to the high returns we have
achieved across both Private Equity and Infrastructure over the last 10 years.
Management are allowed to drive a long-term rather than annual or quarterly
agenda, and are encouraged to make the necessary investments to meet or exceed
ambitious long-term growth plans. Action is a very good example of this
approach.
The 3i Investment Committee and the senior partners in the Private Equity team
review in detail progress against the investment case every March and
September. It is in these reviews that the Investment Committee challenges the
investment teams on the progress against the investment case and may agree to
changes which could either prolong 3i's ownership by marking the asset as
having potential for our "long-term portfolio" or even shorten the life of the
plan to capitalise on current opportunities in the M&A market.
This highly-intensive approach to asset management was adopted at 3i in 2012,
and has been refined over the last decade. It has been key to our strong
investment performance since that time and together with our long-term,
permanent capital approach gives us real competitive advantage against other
forms of stewardship, be they more hands off-private or shorter-term focused
public ownership models.
The benefits of compounding
3i's portfolio has been carefully assembled and its resilience over recent
years is a reflection of the benefits of thematic investing, disciplined
pricing and active asset management. Sustained returns over a number of years
demonstrate the value of compounding, and no portfolio company better
illustrates this than Action, which has become one of the fastest-growing
retailers in the world, and 3i's largest and most resilient portfolio
investment. Action has achieved 12 years of consistent, significant growth
under 3i's ownership. The bedrock of this performance has been Action's very
low prices and customer- centric approach. The company has performed well
through all phases of the economic cycle and its low price leadership through
this current period of very high shop price inflation has been particularly
strong with high LFL sales across all 14 product categories and all countries.
Action has been welcomed in all 11 countries it now operates in and the
company has recently been voted "favourite retail brand" in France by a large
panel of consumers. France is now Action's largest market with some 730
stores, having opened its first store in that market in 2012. There are very
few retailers that are close comparators to Action and very few of them can
move seamlessly into new geographic markets as Action does.
Action has considerable growth potential across mainland Europe and elsewhere.
It has opened over 2,000 stores across Europe under 3i's ownership and has the
potential to open multiples of this number in the future. This organic
expansion puts Action on track to join a very rare group of retailers where
growth extends over decades, rather than years. Action is already a very
large, well-spread and resilient business and will become even broader and
larger as it grows its presence in new geographic markets. Action's business
model produces high returns on equity and significant cash flows based on high
store sales densities and one-year average historical paybacks on new store
capital expenditure. So Action's store expansion is self-funding, allowing the
group to increase its operating leverage through size and scale and deliver
significant dividends to 3i and other shareholders as it grows.
3i invests permanent rather than time-limited fund capital. This allows us to
capture the significant compounding benefits from Action's growth and
consistent financial performance. We are now focused on developing a select
number of other portfolio companies to fulfil their potential to also become
long-term compounders for the Group. These other portfolio companies are
likely to grow in prominence in our results over the coming years.
Outlook
Whilst we expect macroeconomic conditions to remain challenging in the near
term, we have started FY2024 with good momentum and are confident that we have
the right people, portfolio and processes to continue to deliver consistent
returns for our shareholders through the cycle.
I would like to close by thanking the team at 3i and the teams in our
portfolio companies for another very good performance in far from
straightforward circumstances.
Simon Borrows
Chief Executive
10 May 2023
Private Equity
At a glance
Gross investment return
£4,966m
or 40%
(2022: £4,172m or 47%)
Cash investment
£381m
(2022: £457m)
Realised proceeds
£857m
(2022: £684m)
Portfolio dividend income
£345m
(2022: £331m)
Portfolio growing earnings
90%(1)
(2022: 93%)
Portfolio value
£16,425m
(2022: £12,420m)
1 LTM adjusted earnings to 31 December 2022. Includes 31 portfolio
companies.
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 deliver ambitious growth plans,
realising our investments to generate strong cash-to-cash returns for 3i
shareholders and other investors.
In the year to 31 March 2023, our Private Equity portfolio delivered a GIR of
£4,966 million, or 40%, on the opening portfolio value (2022: £4,172 million
or 47%) and the portfolio value increased to £16,425 million (31 March 2022:
£12,420 million). This result was driven predominantly by Action's very
strong performance in FY2023, as well as by a good contribution from a number
of our other assets operating in the value-for-money and private label,
healthcare, industrial technology, and business and technology services
sectors that have responded well to, and so far largely mitigated, high
inflation, increased energy prices and interest rates and weaker consumer
sentiment. We recognised a material unrealised value decline in two of our
discretionary consumer portfolio companies, as a result of weaker trading and
of the derating of external peers.
In FY2023, we made four new investments and continued to implement our
buy-and-build strategy, completing 11 bolt-on acquisitions, three of which
required additional funding from 3i. We ended the year as net divestors, with
significant proceeds achieved from realisations and portfolio income. Average
leverage across the portfolio remains low at 2.5x, or 4.0x excluding Action
and our Private Equity portfolio is funded with all senior debt structures,
with long-dated maturity profiles. The recent banking disruption has had no
impact on our portfolio to date.
The contribution of Action to the Private Equity performance is detailed in
Note 1 of the financial statements.
Table 1: Gross investment return for the year to 31 March
Investment basis 2023 2022
£m
£m
Realised profits over value on the disposal of investments 169 228
Unrealised profits on the revaluation of investments 3,746 3,545
Dividends 345 331
Interest income from investment portfolio 77 73
Fees receivable 7 6
Foreign exchange on investments 493 (11)
Movement in fair value of derivatives 129 -
Gross investment return 4,966 4,172
Gross investment return as a % of opening portfolio value 40% 47%
Investment activity
Across the US and European markets, private equity investment activity trended
downwards in 2022, having reached near record levels in 2021. The significant
deceleration from the second half of the year was driven by persistent
macroeconomic headwinds and less supportive debt markets with pricing
expectations that were difficult to align. Against this backdrop, we remained
selective and disciplined in deploying our capital, investing £221 million in
four new portfolio companies. All four of these investments were completed in
the first half of FY2023.
We invested £94 million in xSuite, an accounts payable invoice automation
software provider, and £30 million in Digital Barriers, a provider of unique
video compression technology. These investments offer 3i exposure to their
unique technology and high-growth end markets and both are transitioning to a
subscription-based model. We also completed the £37 million investment in
VakantieDiscounter, a highly scalable, technology-driven travel business with
a value-for-money offering that is benefiting from the recovery of the travel
market, as well as the £60 million investment in Konges Sløjd, a premium
baby and child apparel and accessories business with an established
international footprint that has significant scalability potential in a highly
fragmented market.
Our buy-and-build strategy remains an integral part of our approach to value
creation and, in FY2023, our portfolio companies completed 11 bolt-on
acquisitions. We invested £63 million to support three bolt-on acquisitions
for Luqom, arrivia and WilsonHCG, whilst the remaining eight bolt-on
acquisitions completed in the year were funded by the portfolio companies' own
balance sheets. Two of the bolt-on acquisitions involved carving out elements
of Q Holding, an existing portfolio company, with SaniSure acquiring Q
Holding's Twinsburg site and Cirtec Medical acquiring Q Holding's Precision
Components. Further details of selected portfolio bolt-on acquisitions are in
the Private Equity business review of our Annual report and accounts 2023.
In addition, we continued to develop ten23 health with a further investment of
£36 million and used our capital to support two portfolio companies through
challenging trading conditions, with a further investment of £14 million in
YDEON and of £11 million in Formel D.
In March 2023, we completed a transaction to provide liquidity for existing
external investors in Action who are invested via our 3i 2020 Co-investment
Programme. As part of this transaction, we invested £30 million to purchase
an additional small stake in Action from this Programme at the December 2022
net asset value, increasing our equity stake from 52.7% to 52.9%. At the same
time, we crystallised a portion of the outstanding carried interest liability
in relation to Action. For further details on carried interest see the
Financial review later in this document.
In total, in the year to 31 March 2023, our Private Equity team invested £381
million across new, bolt-on and further investments.
Portfolio company Business description Date Proprietary
capital
investment
£m
New investment Digital Barriers Provider of unique video compression technology August and December 2022 30
Konges Sløjd Premium brand offering apparel and accessories for babies and children August 2022 60
VakantieDiscounter Online travel agency in the Benelux focused on affordable holidays August 2022 37
xSuite Accounts payable process automation specialist focused on the SAP ecosystem August 2022 94
Total new investment 221
Portfolio company Name of acquisition Business description of bolt-on investment Date Proprietary
capital
investment
£m
Further investment to finance portfolio bolt-on acquisitions Luqom Brumberg B2B manufacturer and distributor June 2022 34
of luminaries and lighting products
arrivia RedWeek Online timeshare marketplace September 2022 23
WilsonHCG Personify Provider of recruitment processing outsourcing services January 2023 6
Total further investment to finance portfolio bolt-on acquisitions 63
Portfolio company Business description Date Proprietary
capital
investment
£m
Further investment to support portfolio companies YDEON Online retailer of garden buildings, sheds, saunas and related products December 2022 14
Formel D Quality assurance provider for the automotive industry November 2022 11
Total further investment to support portfolio companies 2
5
Portfolio company Type Business description Date Proprietary
capital
investment
£m
Other investment ten23 health Further Pharmaceutical product CDMO Various 36
Action Further General merchandise discount retailer March 2023 30
Luqom Further Online specialist lighting retailer Various 5
Other Further Various Various 1
Total other investment 72
Total FY2023 Private Equity gross investment 381
Portfolio Name of acquisition Business description of bolt-on investment Date
company
Private Equity portfolio bolt-on acquisitions funded by the portfolio company MAIT Nittmann & Pekoll Austrian abas ERP partner June 2022
balance sheets
Evernex XS International Specialist in a suite of IT lifecycle services September 2022
and IT hardware lifecycle support
Evernex Integra Provider of IT maintenance and cloud services September 2022
AES Vibtech Analysis Reliability service provider October 2022
SaniSure Twinsburg Silicone extrusion business December 2022
Cirtec Medical Precision Components Elastomeric solutions provider in the medical January 2023
device outsourcing market
AES DATUM RMS Reliability and vibration monitoring service provider January 2023
Dutch Bakery Trade Factory Supplier of bapao buns February 2023
Realisation activity
During the year we received total proceeds of £332 million from three partial
disposals completed by Q Holding. These included the disposal of Q Holding's
QSR business, completed in May 2022, and the disposals of its Twinsburg site
and Precision Components business, which completed in December 2022 and
January 2023 respectively. Q Holding's remaining business was valued at £117
million at 31 March 2023. Over the last two years, through a combination of
realised proceeds and residual value, we have recognised an uplift of over
100% on the value of our investment in Q Holding at 31 March 2021, taking our
money multiple, including realised proceeds to date and remaining value at 31
March 2023, to 2.8x.
In October 2022 we completed the sale of Havea after a five-year holding
period, during which we partnered with the business to deliver a significant
strategic transformation, completed five bolt-on acquisitions and generated
double-digit organic growth. We received proceeds of £471 million from this
divestment, representing a 50% uplift on the value of the investment at 31
March 2022, a sterling money multiple of 3.1x and an IRR of 24%.
In January 2023, we completed the disposal of Christ, our last investment in
EFV, for realised proceeds of £47 million, at a 45% uplift on our 31 March
2022 opening value. When added to the proceeds generated by the sale of Amor
(another German player in the jewellery space which we considered as part of
the same investment thesis and sold in 2016 crystallising a money multiple of
2.3x), the multiple generated by this sale is 1.0x. Following the disposal of
Christ our final fund multiple for EFV is 3.0x, a top quartile performance.
In total, we generated total Private Equity proceeds of £857 million (2022:
£684 million) and realised profits of £169 million (2022: £228 million).
Table 2: Private Equity realisations in the year to 31 March 2023
Investment Country Calendar 31 Mar 3i realised Profit Uplift on Residual Money IRR
year
2022
proceeds
in the
opening
value
multiple(3)
invested
value(1)
£m
year
value(2
£m
£m
£m ) %
Full realisations
Havea France 2017 304 471 158 50 % - 3.1x 24%
Christ Germany 2014 31 47 14 45 % - 0.4x -%
Total realisations 335 518 172 n/a n/a n/a n/a
Partial realisations(1,3)
Q Holding US 2014 332 332 - - 117 2.8x 15%
Other n/a n/a 9 2 (8) n/a n/a n/a n/a
Deferred consideration
Other n/a n/a - 5 5 n/a n/a n/a n/a
Total Private Equity realisations 676 857 169 n/a n/a n/a n/a
1 For partial realisations, 31 March 2022 value represents value of stake
sold.
2 Profit in the year over opening value.
3 Cash proceeds over cash invested. For partial realisations, valuations of
any remaining investment are included in the multiple. Money multiples are
quoted on a GBP basis.
Action performance and valuation
As detailed in the Chief Executive's statement, Action continues to deliver
excellent growth driven by higher footfall, a higher number of transactions
and further international store openings. In the 12 months to the end of
Action's P3 2023 (which ended on 2 April 2023), Action generated run-rate
EBITDA growth of 42% and strong cash inflow.
At 31 March 2023, Action was valued using its LTM run-rate EBITDA to the end
of P3 2023 of €1,439 million. These included our normal adjustment to
reflect stores opened in the year. Action has consistently outperformed the
peers that we currently reference across its most important KPIs, supporting
our valuation multiple, which remained unchanged at 18.5x net of the liquidity
discount (31 March 2022: 18.5x).
Action ended P3 2023 with cash of €365 million and a net debt to run-rate
earnings ratio of 1.8x after paying two dividend distributions in FY2023, of
which 3i received £325 million.
At 31 March 2023, the valuation of our 52.9% stake in Action was £11,188
million (31 March 2022: 52.7%, £7,165 million) and we recognised unrealised
profits from Action of £3,708 million (March 2022: £2,655 million) as shown
in Table 3.
Performance (excluding Action)
Excluding Action, the private equity portfolio generated £520 million (March
2022: £584 million) of value growth from performance increases driven by good
contributions from a number of assets operating in the value-for-money and
private label, healthcare, industrial technology and business and technology
services sectors, as well as good recovery from our travel assets. This good
performance has more than offset performance decreases of £310 million (March
2022: £101 million), predominantly driven by some of our discretionary
consumer businesses, principally Luqom and YDEON, which have been
disproportionately impacted by weaker consumer sentiment.
Over the last two years SaniSure has delivered significant outperformance due
to strong demand and customers stockpiling in mitigation of external supply
chain concerns. Whilst recent demand has normalised as customers work down
inventory levels, SaniSure remains well positioned to capitalise on expected
continued annual double-digit growth across the bioprocessing market. Cirtec
Medical maintained top-line growth from its key customers in 2022, largely
offsetting short-term operational headwinds that impacted margin performance.
The integration of Precision Components, its recent acquisition, is already
progressing well and the business has a good 2023 outlook, with significant
new contracts coming online.
Royal Sanders generated strong growth in 2022 despite increases across all key
input costs. The business increased volumes with its key customers, including
its value-for-money retailers that have seen robust growth. It also continues
to consolidate a highly fragmented market, completing its fifth bolt-on since
our initial acquisition, with an investment in Lenhart in April 2023,
strengthening its position in the DACH region. Dutch Bakery generated a good
result in 2022 as recent bolt-on acquisitions are integrating well, with the
potential to deliver new customer wins. The underlying business has
effectively managed its own operations during a period of rising input and
energy costs.
nexeye maintained good top-line growth in 2022 despite softer trading in Q3
2022, which was caused by lower store footfall due to consumer uncertainty.
Throughout the year, the business has sustained healthy margin performance
whilst retaining a very attractive value-for-money price point for its
customers compared to its competitors. The business added 23 new stores in the
year and further accelerated its digitalisation agenda with its online
appointment system in Germany. Trading at the start of 2023 has recovered from
softer performance in Q3 2022.
Audley Travel and arrivia are recovering well from the pandemic. Pent-up
demand for travel has driven a significant increase in bookings and departure
revenue in 2022 for Audley Travel, supporting a return to the good cash
generation characteristics that the business demonstrated pre-pandemic. At 31
March 2023, Audley Travel was valued on an earnings basis, having been valued
on a DCF basis since June 2020 (31 March 2022: DCF basis), reflecting this
recovery in performance. arrivia recorded a good recovery in membership
bookings throughout 2022, and saw a strong improvement in the performance of
its cruise product category. Both Audley Travel and arrivia have started 2023
with good bookings momentum.
Luqom and YDEON, which have a discretionary product offering, experienced a
significant decline in order intake in 2022 as a result of declining consumer
confidence across their markets. Luqom somewhat offset weaker performance in
its core markets with growth in more recently launched regions in southern and
eastern Europe. The business is also undertaking a significant programme of
operational and cost efficiencies. YDEON has responded to weaker trading with
a number of sales, cost and cash initiatives including the introduction of
products at a much lower price point for which volumes are easily scalable.
Across both assets we recognised a combined unrealised value loss of £357
million, part of which is attributable to the soft trading performance and
part is based on a multiple reductions (see 'Multiple movements' later on in
this section). BoConcept also saw pressure on store footfall due to the
discretionary nature of its offering, but has to an extent mitigated lower
footfall and order intake through its international diversification, franchise
model and effective margin management.
WilsonHCG secured a significant number of new recruitment customers in 2022
and with new clients coming online in 2023 and the opportunity to accelerate
its growth in the life sciences and healthcare end markets following its
acquisition of Personify, the business is well positioned to navigate the
recent slowdown in the North American hiring market.
Table 3: Unrealised profits on the revaluation of Private Equity investments
(1) in the year to 31 March
2023 2022
£m
£m
Earnings based valuations
Action performance 3,708 2,655
Performance increases (excluding Action) 520 584
Performance decreases (excluding Action) (310) (101)
Multiple movements (167) 241
Other bases
Sum of the parts - 132
Discounted cash flow 4 7
Other movements on unquoted investments 4 2
Quoted portfolio (13) 25
Total 3,746 3,545
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 2023.
Since our initial investment in MAIT in September 2021, we have completed five
bolt-on acquisitions, including one in June 2022. These acquisitions have been
value accretive and have driven good growth in addition to that achieved by
the underlying business. Evernex also completed two further bolt-on
acquisitions in the US and Europe in the year but saw softer trading in the
short-term as a result of lower renewals of third-party maintenance contracts,
driven by a pick-up in investment in new IT equipment post the pandemic.
AES saw a significant increase in demand across its key global end markets in
2022 and continued to maintain intelligent cost control, resulting in strong
earnings growth. The business continues to benefit from long-term investment
improving the reliability and range of its product offering and also continued
to pursue bolt-on acquisitions, completing the acquisitions of DATUM RMS and
Vibtech Analysis in the year. Having traded strongly in the first half of 2022
with sustained demand for its core biocides products, Tato saw trading soften
through the second half of 2022 with weaker end demand for paints and coatings
from the DIY and construction markets and supply challenges for key input
chemicals resulting in price inflation and margin pressure. Tato successfully
leveraged its scale and global footprint to maintain good customer supply and
margin performance has improved since the turn of the year. Both Tato and AES
were cash generative in the year and distributed dividends to 3i of £17
million in total.
Overall, 90% of the portfolio by value grew LTM adjusted earnings in the year
(2022: 93%). Table 4 shows the earnings growth of our top 20 Private Equity
investments.
Table 4: Portfolio earnings growth of the top 20 Private Equity(1) investments
Number of companies 3i value
at 31 March 2023
£m
<0% 5 1,495
0-9% 4 1,341
10-19% 3 350
20-29% 3 596
≥30% 5 12,055
1 Includes top 20 Private Equity companies by value excluding ten23 health.
This represents 96% of the Private Equity portfolio by value (31 March 2022:
96%). Last 12 months' adjusted earnings to 31 December 2022 and Action based
on LTM run-rate earnings to the end of P3 2023.
Leverage
Our Private Equity portfolio is funded with all senior debt structures, with
long-dated maturity profiles and c.40% repayable from 2026 and beyond. Across
our Private Equity portfolio, term debt is well protected against interest
rate rises, with over 70% of total term debt hedged at a weighted average
tenor of more than three years with the interest rate element capped at a
weighted average hedge rate below 2%. The average margin across the portfolio
is under 4%, so the all-in debt cost across over 70% of the portfolio is
capped below 6%. Average leverage across the portfolio was 2.5x (31 March
2022: 3.3x). Excluding Action, leverage across the portfolio was 4.0x (31
March 2022: 4.6x).
Following the successful amendment and extension of Action's senior debt
facilities post 31 March 2023, as detailed in the Chief Executive's statement,
the above long dated debt maturity profile for the Private Equity portfolio
extends to 80% repayable from 2026 and beyond. The amend and extend
transaction does not impact the interest rate hedging position at 31 March
2023.
Table 5 shows the ratio of net debt to adjusted earnings by portfolio value.
Table 5: Ratio of net debt to adjusted earnings(1)
Number of companies 3i value
at 31 March 2023
£m
<1x 1 40
1-2x 4 11,583
2-3x 6 992
3-4x 3 942
4-5x 4 452
5-6x 2 857
>6x 3 290
1 This represents 92% of the Private Equity portfolio by value (31 March
2022: 92%). Quoted holdings, deferred consideration and companies with net
cash are excluded from the calculation. Net debt and adjusted earnings at 31
December 2022 and Action based on LTM run-rate earnings to the end of P3 2023.
Multiple movements
We have continued our established approach of taking a long-term,
through-the-cycle view on the multiples used to value our portfolio companies,
consistent with how we drive value creation in our portfolio. When selecting
multiples to value our portfolio companies we consider a number of factors
including recent performance and outlook, comparable recent transactions and
exit plans, and the performance of quoted comparable companies. FY2023 was
characterised by significant volatility in the capital markets driven by
Russia's invasion of Ukraine, global fiscal and monetary interventions to
mitigate inflation and the more recent disruption in the banking sector. The
consistency of our approach to valuation multiples has enabled us largely to
mitigate the impact of such market volatility and, since the turn of the year,
we have seen a gradual increase in the average multiples of our comparable
sets, increasing the difference to our valuation multiples, which in the vast
majority of cases are lower than the peer group average.
However, we did adjust eight multiples downwards where we experienced
significant declines in selected peers groups and in some cases weaker trading
performance. This included the reduction of multiples for Luqom and YDEON,
accounting for £107 million of the total net £167 million (March 2022:
increase of £241 million) multiple decrease in the year. Towards the end of
our financial year, we saw stronger equity markets and we increased multiples
for three of our portfolio companies which have consistently outperformed over
many periods.
Our approach to valuing Action, our largest investment, is no different to the
remainder of our portfolio in that we take a long-term, through-the-cycle view
on the LTM run-rate EBITDA post-discount multiple of 18.5x used to value
Action at 31 March 2023. We take comfort from the fact that Action's continued
excellent growth meant that its valuation at 31 March 2022 translated to only
13.0x run-rate EBITDA achieved one year later. In addition, its most important
operating KPIs compare very favourably to those of its peer group, consisting
of North American and European value-for-money retailers. Based on the
valuation at 31 March 2023, a 1.0x movement in Action's post discount multiple
would increase or decrease the valuation of 3i's investment by £669
million.
Quoted portfolio
Basic-Fit is the only quoted investment in our Private Equity portfolio. The
business performed well in 2022, recovering strongly following the temporary
Covid-19 related closures in 2021. Memberships increased by 51% in the year
and the business expanded its club base by 185 clubs.
At 31 March 2023, our residual 5.7% shareholding in Basic-Fit was valued at
£121 million reflecting a 10% year-on-year decrease in its share price to
€36.32 (31 March 2022: 5.7% shareholding valued at £129 million based on a
share price of €40.42).
Assets under management
The value of the Private Equity portfolio, including third-party capital,
increased to £22.9 billion (31 March 2022: £16.7 billion), primarily due to
unrealised value movements in the year.
Table 6: Private Equity assets by geography as at 31 March 2023
3i office location Number of companies 3i carrying
value
2023
£m
Netherlands 10 12,520
France 1 305
Germany 7 777
UK 9 1,144
US 9 1,652
Other 3 27
Total 39 16,425
Table 7: Private Equity assets by sector as at 31 March 2023
Sector Number of companies 3i carrying
value
2023
£m
Action (Consumer) 1 11,188
Consumer 13 1,983
Industrial Technology 7 1,168
Business & Technology Services 13 917
Healthcare 5 1,169
Total 39 16,425
Table 8: Private Equity 3i proprietary capital as at 31 March
Vintages 3i proprietary Vintage 3i proprietary Vintage
capital value(3) 2023
money
capital value(3) 2022
money
£m
multiple(4)
£m
multiple(4)
2023
2022
Buyouts 2010-2012(1) 2,968 15.1x 2,462 12.3x
Growth 2010-2012(1) 23 2.1x 18 2.1x
2013-2016(1) 814 2.5x 1,022 2.3x
2016-2019(1) 1,872 1.8x 2,210 1.8x
2019-2022(1) 1,524 1.5x 1,319 1.3x
2022-2025(1) 228 1.0x - n/a
Others(2) 8,996 n/a 5,389 n/a
Total 16,425 12,420
1 Assets included in these vintages are disclosed in the Glossary.
2 Includes value of £8,220 million (31 March 2022: £ 4,703 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
£86m
or 6%
(2022: £241m or 21%)
AUM
£6.4bn
(2022: £5.7bn)
Cash income
£107m
(2022: £91m)
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.
Our Infrastructure portfolio generated a GIR of £86 million or 6% on the
opening portfolio value (2022: £241 million, 21%) primarily driven by
portfolio income and good value growth contribution across our US assets,
offset by a decrease in the share price of our quoted stake in 3iN, despite
its strong NAV return in the year. We completed two new investments and three
further investments in 3iN and three bolt-on acquisitions for our North
American Infrastructure platform. We also completed the disposal of 3iN's
operational projects portfolio to the 3i European Operational Projects Fund
("3i EOPF").
Table 9: Gross investment return for the year to 31 March
Investment basis 2023 2022
£m
£m
Realised profits over value
on the disposal of investments - 10
Unrealised profits on the revaluation of investments 23 178
Dividends 33 31
Interest income from investment portfolio 14 12
Fees payable - (3)
Foreign exchange on investments 16 13
Movement in fair value of derivatives - -
Gross investment return 86 241
Gross investment return as a % of opening portfolio value 6% 21%
Fund management
3iN
3iN's total return on opening NAV of 14.7% for the year to 31 March 2023 was
materially ahead of its total return target of 8% to 10% per annum. 3iN also
delivered its dividend target of 11.15 pence per share, a 6.7% increase on
last year.
Underpinning this strong return was the excellent performance of 3iN's
investment portfolio, which was driven by exposure to long-term growth trends.
We have seen particularly strong trading from assets operating in the
utilities sector exposed to energy transition (such as Infinis and Attero),
the communication sector (such as Tampnet) and the transport and logistics
sector (such as TCR).
As investment manager to 3iN, in FY2023 we received a management and support
services fee of £49 million (2022: £44 million) and a NAV-based performance
fee of £35 million (2022: £26 million). This performance fee comprised a
third of the potential performance fee for each of FY2023, FY2022 and FY2021
after the performance hurdle was met in each year.
The market for infrastructure investments remains competitive, with strong
demand for quality infrastructure assets. Against this backdrop, 3iN was
active in the year whilst remaining disciplined on price, completing a £318
million new investment in Global Cloud Xchange, a global data communications
service provider and a £28 million new investment in Future Biogas, a
producer of biomethane in the UK. 3iN also completed a £338 million further
investment in TCR, acquiring an additional 48% stake from a co-investor, a
£15 million further investment in DNS:NET to support its continued fibre
roll-out programme and a £30 million further investment in Infinis to fund
the development of its solar roll-out programme.
We continue to utilise our relationship with external co-investors to manage
our underlying risk exposure across certain assets, demonstrated in the year
with two syndications. We syndicated 28% of 3iN's stake in TCR for proceeds of
£190 million and a 17% stake in ESVAGT for proceeds of £87 million.
In June 2022, 3iN completed the sale of its European projects portfolio to the
3i EOPF for £106 million.
North American Infrastructure platform
The investments in our North American Infrastructure platform generated good
organic and acquisitive growth in FY2023. Regional Rail expanded its footprint
through two bolt-on acquisitions and one new rail services contract, including
three short-line railroads in the Midwest region of the US and several
short-line railroads in Canada. Its existing freight lines delivered good
volumes offsetting the impact of cost inflation. EC Waste completed the
self-funded bolt-on acquisition of A&A Waste Management, a business that
provides non-hazardous solid waste collections in Puerto Rico. This
acquisition, combined with an increase in landfill volumes, contributed to the
top-line growth of the business in the year.
Other funds
3i EOPF and 3i Managed Infrastructure Acquisitions Fund ("3i MIA") performed
well in the year. 3i EOPF purchased the European projects portfolio from 3iN
for £106 million. Following this acquisition, 3i EOPF has now deployed 86% of
its total commitments.
3i's proprietary capital infrastructure portfolio
The Group's proprietary capital infrastructure portfolio consists of its 29%
quoted stake in 3iN, its investment in Smarte Carte and direct stakes in other
managed funds.
Quoted stake in 3iN
In February 2023, 3iN successfully completed a share placing of £100 million.
The funds were used to part pay drawings on their RCF and partly used to fund
the acquisition of Future Biogas. 3i did not participate in this placing and
its holding in 3iN was therefore diluted from 30% to 29%. At 31 March 2023,
our 29% stake in 3iN (31 March 2022: 30%) was valued at £841 million (31
March 2022: £934 million) as a result of a 10% year-on-year decline in its
share price to 313 pence (31 March 2022: 347 pence), which was caused by
broader market volatility. As a result we recognised an unrealised loss of
£93 million (2022: unrealised gain of £137 million), partially offset by
£29 million of dividend income (2022: £27 million).
North America Infrastructure proprietary capital
Smarte Carte traded strongly in 2022 driven by robust US travel and retail
demand across each of its lines of business, coupled with a steady recovery in
international volumes. The business continues to leverage its existing
footprint to expand into financially attractive ancillary services such as
porter services and bag storage at its airports and other locations and
recently completed a refinancing at attractive terms. At 31 March 2023, Smarte
Carte was valued at £300 million on a DCF basis (31 March 2022: £207
million).
Assets under management
Infrastructure AUM increased to £6.4 billion (2022: £5.7 billion),
principally due to an increase in 3i managed accounts and good performance
across 3i MIA and our US infrastructure portfolio, offset by a decline in the
share price of 3iN.
Table 10: Assets under management as at 31 March 2023
Fund/strategy Close Fund 3i Remaining % AUM Fee
date
size
commitment/
3i commitment
invested(3)
£m
income
share
at 31 March
earned in
2023
2023
£m
3iN(1) Mar-07 n/a £841m n/a n/a 2,882 49
3i Managed Infrastructure Acquisitions LP Jun-17 £698m £35m £5m 87% 1,280 4
3i managed accounts various n/a n/a n/a n/a 744 5
BIIF May-08 £680m n/a n/a 91% 457 4
3i North American Infrastructure platform Mar-22(2) US$495m US$300m US$108m 64% 389 2
3i European Operational Projects Fund Apr-18 €456m €40m €5m 86% 359 2
US Infrastructure Nov-17 n/a n/a n/a n/a 300 -
3i India Infrastructure Fund Mar-08 US$1,195m US$250m n/a 73% - -
Total 6,411 66
1 AUM based on the share price at 31 March 2023.
2 First close completed in March 2022.
3 % invested is the capital deployed into investments against the total Fund
commitment.
Table 11: Unrealised profits/(losses) on the revaluation of Infrastructure
investments in the year to 31 March
2023 2022
£m
£m
Quoted (93) 137
Discounted cash flow ("DCF") 103 36
Fund/other 13 5
Total 23 178
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 2023.
Table 12: Infrastructure portfolio movement for the year to 31 March 2023
Investment Valuation Opening Investment Disposals Unrealised Other Closing
value at
£m
at opening
profit/(loss)
movements(1)
value at
1 April 2022
book value
movement
£m
31 March
£m
£m
£m
2023
£m
3iN Quoted 934 - - (93) - 841
Smarte Carte DCF 207 - - 83 10 300
Regional Rail DCF 48 7 - 13 2 70
EC Waste DCF 86 - - 7 5 98
3i MIA Fund 53 - - 12 - 65
3i EOPF Fund 24 6 - 1 1 32
Other Other - 3 - - - 3
Total 1,352 16 - 23 18 1,409
1 Other movements include foreign exchange.
Scandlines
At a glance
Gross investment return
£52m
or 10%
(2022: £112m or 26%)
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 £52 million, or
10% of opening portfolio value (2022: £112 million, 26%). The business
delivered a second consecutive year of record growth in freight volumes in
2022, reaffirming Scandlines' position as a critical part of the Scandinavian
trade infrastructure. Covid-19 impacted leisure volumes at the start of 2022,
but a strong summer peak season resulted in overall 2022 leisure volumes
marginally ahead of pre-pandemic levels. The business continues to benefit
from the operational efficiencies implemented throughout the pandemic. As a
result of good cash flow generation, the business returned total dividends to
3i of £38 million in FY2023 (2022: £13 million).
Scandlines continues to progress its zero-emission fleet ambition with the
construction of its new electric freight ferry, which is expected to be
operational in 2024. Further details can be found in the Sustainability
section of our Annual report and accounts 2023.
We continue to value Scandlines on a DCF basis and at 31 March 2023 its value
of £554 million (31 March 2022: £533 million) reflects the dividends
received in the year and a degree of caution on the outlook.
Foreign exchange
We hedge the balance sheet value of our investment in Scandlines. In September
2022, we increased the size of this hedging programme from €500 million to
€600 million to cover the higher underlying valuation of our investment.
We recognised a £21 million gain on foreign exchange translation (March 2022:
loss of £4 million) offset by a £7 million fair value loss (March 2022: gain
of £2 million) from derivatives in our hedging programme.
Table 13: Gross investment return for the year to 31 March
Investment basis 2023 2022
£m
£m
Unrealised profit on the revaluation of investments - 101
Dividends 38 13
Foreign exchange on investments 21 (4)
Movement in fair value of derivatives (7) 2
Gross investment return 52 112
Gross investment return as a % of opening portfolio value 10% 26%
Financial review
Very strong financial performance
Highlights - Investment basis
Gross investment return Operating profit before carried interest Total return
£5,104m £4,956m £4,585m
(2022: £4,525m) (2022: £4,417m) (2022: £4,014m)
Total return on opening shareholders' funds Diluted NAV per share at 31 March 2023 Total dividend
36% 1,745p 53.0p
(2022: 44%) (31 March 2022: 1,321p) (31 March 2022: 46.5p)
Table 14: Total return for the year to 31 March
Investment basis 2023 2022
£m
£m
Realised profits over value on the disposal of investments 169 238
Unrealised profits on the revaluation of investments 3,769 3,824
Portfolio income
Dividends 416 375
Interest income from investment portfolio 91 85
Fees receivable 7 3
Foreign exchange on investments 530 (2)
Movement in the fair value of derivatives 122 2
Gross investment return 5,104 4,525
Fees receivable from external funds 70 62
Operating expenses (138) (128)
Interest receivable 4 -
Interest payable (54) (53)
Exchange movements (29) 9
Other (expense)/income (1) 2
Operating profit before carried interest 4,956 4,417
Carried interest
Carried interest and performance fees receivable 41 54
Carried interest and performance fees payable (418) (454)
Operating profit before tax 4,579 4,017
Tax charge (2) (5)
Profit for the year 4,577 4,012
Re-measurements of defined benefit plans 8 2
Total comprehensive income for the year ("Total return") 4,585 4,014
Total return on opening shareholders' funds 36% 44%
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, 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 £857 million (2022: £788 million)
and realised profits of £169 million in the year (2022: £238 million), all
of which were generated from Private Equity.
Unrealised value movements
We recognised an unrealised profit of £3,769 million (2022: £3,824 million).
Action's continued strong performance contributed £3,708 million (2022:
£2,655 million). We also saw good contributions from a number of our other
Private Equity investments including SaniSure, AES, WilsonHCG, Royal Sanders,
Audley Travel, nexeye and Dutch Bakery offsetting negative contributions from
Luqom, YDEON, BoConcept, Formel D and Mepal. Our US infrastructure portfolio
also delivered good value growth in the year offsetting a 10% year-on-year
share price reduction in our quoted holding in 3iN.
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 2023 2022
£m
£m
Private Equity 3,746 3,545
Infrastructure 23 178
Scandlines - 101
Total 3,769 3,824
Portfolio income
Portfolio income increased to £514 million during the year (2022: £463
million), primarily due to strong dividend income of £416 million (2022:
£375 million), particularly from Action. Interest income from portfolio
companies, the majority of which is non-cash, increased to £91 million (2022:
£85 million), whilst fee income increased in the year to £7 million (2022:
£3 million), reflecting the monitoring and negotiation fees receivable
relating to new investments within our Private Equity portfolio.
Fees receivable from external funds
Fees received from external funds increased to £70 million (2022: £62
million). 3i receives a fund management fee from 3iN, which amounted to £49
million in FY2023 (2022: £44 million).
3i also received fee income of £4 million (2022: £6 million) from 3i MIA
through management fees and continued to generate fee income from 3i managed
accounts and other funds. In Private Equity, we recognised a £4 million
(2022: £4 million) administration fee for our management of the 3i 2020
Co-investment Programme related to Action.
Operating expenses
Operating expenses increased to £138 million (2022: £128 million) reflecting
the full-year impact of new hires in both Private Equity and Infrastructure,
increased business activity and inflationary impacts on travel, marketing and
professional fee costs.
Interest payable
The Group recognised interest payable of £54 million (2022: £53 million).
Interest payable predominantly includes interest on the Group's loans and
borrowings and amortisation of capitalised fees.
Operating cash profit
We generated an operating cash profit of £364 million in the year (2022:
£340 million). Cash income increased to £497 million (2022: £450 million),
principally due to an increase in dividend income. We received £325 million
of cash dividends from Action (2022: £284 million). We also received cash
dividends from Scandlines, 3iN, Tato and AES, as well as a good level of cash
fees from our external funds in Infrastructure. Excluding the dividends
received from Action, the operating cash profit was £39 million.
Cash operating expenses increased to £133 million (2022: £110 million),
driven principally by higher fixed and variable compensation costs, as well as
by inflationary impacts on travel and marketing costs, as well as professional
fees.
Table 16: Operating cash profit for the year to 31 March
Investment basis 2023 2022
£m
£m
Cash fees from external funds 67 68
Cash portfolio fees 5 9
Cash portfolio dividends and interest 425 373
Cash income 497 450
Cash operating expenses(1) (133) (110)
Operating cash profit 364 340
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
(excluding Action), we typically accrue net carried interest payable of c.12%
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.
The continued excellent performance of Action in the Buyouts 2010-12 vintage
and good performance in our other vintages led to a £392 million increase in
carried interest payable in FY2023. During the year, £24 million (2022: £13
million) was paid to participants in Private Equity, of which £23 million was
paid to participants in the Private Equity Buyouts 2010-12 carry plan.
In March 2023, we completed a transaction to provide liquidity for existing
external investors in Action who are invested via our 3i 2020 Co-investment
Programme and at the same time a portion of the outstanding carried interest
liability in the Buyouts 2010-12 scheme relating to Action was crystallised,
which is expected to result in a c.£200 million carried interest payment to
participants in the Buyouts 2010-12 scheme in May 2023. This payment continues
a series of carried interest payments to participants in the Buyouts 2010-12
scheme, the first of which occurred in May 2020, following the sale of EFV's
interest in Action in FY2020. The economic result of this transaction is to
increase 3i's investment in Action, net of carry, from 47.7% to 48.9%. 3i's
gross investment in Action also increased to 52.9% (31 March 2022: 52.7%)
following the purchase of a further small (£30 million) equity stake in
Action.
3iN pays a performance fee based on its NAV on an annual basis, subject to a
hurdle rate of return. The continued strong performance of the assets held by
3iN resulted in the recognition of £35 million (2022: £26 million) of
performance fees receivable. £25 million (2022: £22 million) was recognised
as an expense with the remaining fees payable deferred for an expense in
future years. During the year, £27 million was paid to the Infrastructure
team including payments for the 3i MIA performance plan. The cumulative total
potential payable for performance fees including fees generated and deferred
from prior periods amounts to £55 million.
Overall, the effect of the income statement charge, cash payments of £51
million (2022: £23 million), as well as currency translation meant that the
balance sheet carried interest and performance fees payable was £1,351
million (31 March 2022: £963 million).
Table 17: Carried interest and performance fees for the year to 31 March
Investment basis Statement of comprehensive income 2023 2022
£m
£m
Carried interest and performance fees receivable
Private Equity 4 3
Infrastructure 37 51
Total 41 54
Carried interest and performance fees payable
Private Equity (392) (416)
Infrastructure (26) (38)
Total (418) (454)
Net carried interest payable (377) (400)
Table 18: Carried interest and performance fees at 31 March
Investment basis Statement of financial position 2023 2022
£m
£m
Carried interest and performance fees receivable
Private Equity 6 8
Infrastructure 37 51
Total 43 59
Carried interest and performance fees payable
Private Equity (1,325) (926)
Infrastructure (26) (37)
Total (1,351) (963)
Table 19: Carried interest and performance fees paid in the year to 31 March
Investment basis cash flow statement 2023 2022
£m
£m
Carried interest and performance fees cash paid
Private Equity 24 13
Infrastructure 27 10
Total 51 23
Net foreign exchange movements
The Group recorded a total foreign exchange translation gain of £623 million
including the impact of foreign exchange hedging in the year (March 2022: £9
million), as a result of sterling weakening by 4% against the euro and by 6%
against the US dollar.
In October and November 2022, we took advantage of the weakness of sterling
against the euro and US dollar by implementing a medium-term foreign exchange
hedging programme to partially reduce the sensitivity of the Group's net asset
value and impact of mismatched currency cash flows to changes in euro and US
dollar exchange movements. The exposure of the Group's underlying investment
portfolio to euro and US dollar has increased significantly in recent years
through the organic growth of our existing European and US portfolio companies
and due to the majority of our new investments being denominated in euro and
US dollar.
We locked in favourable euro and US dollar rates compared to historical market
averages, with forward foreign exchange contracts of a notional amount of €2
billion and $1.2 billion. In addition, during the year we also increased the
size of our hedging programme for Scandlines, increasing the notional amount
from €500 million to €600 million. Including the impact from foreign
exchange hedging, 71% of the Group's net assets are denominated in euros or US
dollars. Based on the Group's net assets, including the impact from foreign
exchange hedging, a 1% movement in euro and US dollar foreign exchange rates
would impact total return by £106 million and £12 million, as shown in Table
20 below.
Table 20: Net assets(1) and sensitivity by currency at 31 March
FX rate £m % 1%
sensitivity
£m
Sterling n/a 4,797 28 n/a
Euro(2) 1.1377 10,641 64 106
US dollar(2) 1.2361 1,154 7 12
Danish krone 8.4752 222 1 2
Other n/a 30 - n/a
1 The net assets position includes the impact from foreign exchange hedging.
2 The sensitivity impact calculated on the net assets position includes the
impact from foreign exchange hedging.
Pension
The Group's UK defined benefit plan ("the Plan") is fully insured following
previous buy-in policies with Legal & General in May 2020 and February
2019 and Pension Insurance Corporation in March 2017. 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. During the year the Group gave notice to
terminate the Plan. The Trustees have taken steps to commence a buy-out and
wind up of the Plan, the completion of which could take up to 18 months.
During the year the Group recognised an £8 million re-measurement gain (2022:
£3 million) on the German defined benefit plan. The liability of this plan
decreased in the year following an increase in the discount rate.
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 £2 million (2022:
£5 million).
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 2023, the Group had net debt of £363 million (31 March 2022:
£746 million) and gearing of 2% after the receipt of strong cash income of
£497 million and net cash proceeds of £555 million, offsetting dividend
payments of £485 million and repayment of our £200 million fixed-rate 2023
bond in the year.
The Group had liquidity of £1,312 million as at 31 March 2023 (31 March 2022:
£729 million) comprising cash and deposits of £412 million (31 March 2022:
£229 million) and an undrawn RCF of £900 million. During the year, we
increased our available liquidity by introducing a two-year £400 million
tranche to the existing base £500 million RCF. Since 31 March 2023, we
extended the maturity of the £400 million additional tranche to July 2025.
The investment portfolio value increased to £18,388 million at 31 March 2023
(31 March 2022: £14,305 million) mainly driven by unrealised profits of
£3,769 million in the year.
Further information on investments and realisations is included in the Private
Equity, Infrastructure and Scandlines business reviews.
Table 21: Simplified consolidated balance sheet at 31 March
Investment basis Statement of financial position 2023 2022
£m
£m
Investment portfolio 18,388 14,305
Gross debt (775) (975)
Cash and deposits 412 229
Net debt (363) (746)
Carried interest and performance fees receivable 43 59
Carried interest and performance fees payable (1,351) (963)
Other net assets 127 99
Net assets 16,844 12,754
Gearing(1) 2% 6%
1 Gearing is net debt as a percentage of net assets.
Going concern
The Annual report and accounts 2023 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 account 2023.
Dividend
The Board has recommended a second FY2023 dividend of 29.75 pence per share
(2022: 27.25 pence), taking the total dividend for the year to 53.0 pence per
share (2022: 46.5 pence). Subject to shareholder approval, the dividend will
be paid to shareholders in July 2023.
Key accounting judgments and estimates
A key judgement 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 2023, 95% by value of the investment
assets were unquoted (31 March 2022: 93%).
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 2023 and the underlying investment
management agreements.
Investment basis
Consolidated statement of comprehensive income
for the year to 31 March
2023 2022
£m
£m
Realised profits over value on the disposal of investments 169 238
Unrealised profits on the revaluation of investments 3,769 3,824
Portfolio income
Dividends 416 375
Interest income from investment portfolio 91 85
Fees receivable 7 3
Foreign exchange on investments 530 (2)
Movement in the fair value of derivatives 122 2
Gross investment return 5,104 4,525
Fees receivable from external funds 70 62
Operating expenses (138) (128)
Interest receivable 4 -
Interest payable (54) (53)
Exchange movements (29) 9
Other (expense)/income (1) 2
Operating profit before carried interest 4,956 4,417
Carried interest
Carried interest and performance fees receivable 41 54
Carried interest and performance fees payable (418) (454)
Operating profit before tax 4,579 4,017
Tax charge (2) (5)
Profit for the year 4,577 4,012
Other comprehensive income
Re-measurements of defined benefit plans 8 2
Total comprehensive income for the year ("Total return") 4,585 4,014
Consolidated statement of financial position
as at 31 March
2023 2022
£m
£m
Assets
Non-current assets
Investments
Quoted investments 962 1,063
Unquoted investments 17,426 13,242
Investment portfolio 18,388 14,305
Carried interest and performance fees receivable 3 8
Other non-current assets 33 50
Intangible assets 5 6
Retirement benefit surplus 53 53
Property, plant and equipment 3 3
Right of use asset 9 13
Derivative financial instruments 73 7
Deferred income taxes - 1
Total non-current assets 18,567 14,446
Current assets
Carried interest and performance fees receivable 40 51
Other current assets 41 105
Current income taxes 1 1
Derivative financial instruments 48 10
Cash and cash equivalents 412 229
Total current assets 542 396
Total assets 19,109 14,842
Liabilities
Non-current liabilities
Trade and other payables (11) (21)
Carried interest and performance fees payable (1,049) (915)
Loans and borrowings (775) (775)
Derivative financial instruments (3) -
Retirement benefit deficit (20) (26)
Lease liability (5) (9)
Deferred income taxes (1) (1)
Provisions (4) (3)
Total non-current liabilities (1,868) (1,750)
Current liabilities
Trade and other payables (85) (81)
Carried interest and performance fees payable (302) (48)
Loans and borrowings - (200)
Derivative financial instruments (1) -
Lease liability (5) (5)
Current income taxes (4) (4)
Total current liabilities (397) (338)
Total liabilities (2,265) (2,088)
Net assets 16,844 12,754
Equity
Issued capital 719 719
Share premium 790 789
Other reserves 15,443 11,346
Own shares (108) (100)
Total equity 16,844 12,754
Consolidated cash flow statement
for the year to 31 March
2023 2022
£m
£m
Cash flow from operating activities
Purchase of investments (330) (596)
Proceeds from investments 885 758
Net cash flow from derivatives 23 11
Portfolio interest received 19 4
Portfolio dividends received 406 369
Portfolio fees received 5 9
Fees received from external funds 67 68
Carried interest and performance fees received 58 10
Carried interest and performance fees paid (51) (23)
Operating expenses paid (128) (106)
Co-investment loans received/(paid) 3 (5)
Tax received - 1
Interest received 4 -
Net cash flow from operating activities 961 500
Cash flow from financing activities
Issue of shares 1 1
Purchase of own shares (30) (54)
Dividends paid (485) (389)
Repayment of long-term borrowing (200) -
Lease payments (5) (4)
Interest paid (54) (52)
Net cash flow from financing activities (773) (498)
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 187 2
Cash and cash equivalents at the start of year 229 225
Effect of exchange rate fluctuations (4) 2
Cash and cash equivalents at the end of year 412 229
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
Notes Investment IFRS IFRS basis Investment IFRS IFRS basis
basis
adjustments
2023
basis
adjustments
2022
2023
2023
£m
2022
2022
£m
£m
£m
£m
£m
Realised profits over value 1,2 169 (105) 64 238 (149) 89
on the disposal of investments
Unrealised profits on the revaluation 1,2 3,769 (1,872) 1,897 3,824 (2,043) 1,781
of investments
Fair value movements on investment 1 - 2,112 2,112 - 1,974 1,974
entity subsidiaries
Portfolio income
Dividends 1,2 416 (187) 229 375 (169) 206
Interest income from investment portfolio 1,2 91 (62) 29 85 (55) 30
Fees receivable 1,2 7 3 10 3 3 6
Foreign exchange on investments 1,3 530 (327) 203 (2) (7) (9)
Movement in the fair value of derivatives 122 - 122 2 - 2
Gross investment return 5,104 (438) 4,666 4,525 (446) 4,079
Fees receivable from external funds 70 - 70 62 - 62
Operating expenses 4 (138) 1 (137) (128) 1 (127)
Interest receivable 1 4 - 4 - - -
Interest payable (54) - (54) (53) - (53)
Exchange movements 1,3 (29) 23 (6) 9 7 16
Income from investment entity subsidiaries 1 - 30 30 - 32 32
Other (expense)/income (1) - (1) 2 - 2
Operating profit before carried interest 4,956 (384) 4,572 4,417 (406) 4,011
Carried interest
Carried interest and performance 1,4 41 - 41 54 (1) 53
fees receivable
Carried interest and performance 1,4 (418) 380 (38) (454) 408 (46)
fees payable
Operating profit before tax 4,579 (4) 4,575 4,017 1 4,018
Tax charge 1,4 (2) - (2) (5) - (5)
Profit for the year 4,577 (4) 4,573 4,012 1 4,013
Other comprehensive income/(expense)
Exchange differences on translation 1,3 - 4 4 - (1) (1)
of foreign operations
Re-measurements of defined 8 - 8 2 - 2
benefit plans
Other comprehensive income for the year 8 4 12 2 (1) 1
Total comprehensive income 4,585 - 4,585 4,014 - 4,014
for the year ("Total return")
The IFRS basis is audited and the Investment basis is unaudited.
Notes to the Reconciliation of consolidated statement of comprehensive income
above:
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.
Notes to Reconciliation of consolidated statement of financial position
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 statement of financial position
as at 31 March
Notes Investment IFRS IFRS basis Investment IFRS IFRS basis
basis
adjustments 2023
basis
adjustments 2022
2023 2023 £m 2022 2022 £m
£m £m £m £m
Assets
Non-current assets
Investments
Quoted investments 1 962 (121) 841 1,063 (129) 934
Unquoted investments 1 17,426 (8,749) 8,677 13,242 (7,534) 5,708
Investments in investment entity subsidiaries 1,2 - 7,844 7,844 - 6,791 6,791
Investment portfolio 18,388 (1,026) 17,362 14,305 (872) 13,433
Carried interest and performance fees receivable 1 3 - 3 8 1 9
Other non-current assets 1 33 (3) 30 50 (5) 45
Intangible assets 5 - 5 6 - 6
Retirement benefit surplus 53 - 53 53 - 53
Property, plant and equipment 3 - 3 3 - 3
Right of use asset 9 - 9 13 - 13
Derivative financial instruments 73 - 73 7 - 7
Deferred income taxes - - - 1 - 1
Total non-current assets 18,567 (1,029) 17,538 14,446 (876) 13,570
Current assets
Carried interest and performance fees receivable 1 40 - 40 51 - 51
Other current assets 1 41 (11) 30 105 (1) 104
Current income taxes 1 - 1 1 - 1
Derivative financial instruments 48 - 48 10 - 10
Cash and cash equivalents 1 412 (250) 162 229 (17) 212
Total current assets 542 (261) 281 396 (18) 378
Total assets 19,109 (1,290) 17,819 14,842 (894) 13,948
Liabilities
Non-current liabilities
Trade and other payables 1 (11) 7 (4) (21) 7 (14)
Carried interest and performance fees payable 1 (1,049) 1,006 (43) (915) 873 (42)
Loans and borrowings (775) - (775) (775) - (775)
Derivative financial instruments (3) - (3) - - -
Retirement benefit deficit (20) - (20) (26) - (26)
Lease liability (5) - (5) (9) - (9)
Deferred income taxes (1) - (1) (1) - (1)
Provisions (4) - (4) (3) - (3)
Total non-current liabilities (1,868) 1,013 (855) (1,750) 880 (870)
Current liabilities
Trade and other payables 1 (85) 9 (76) (81) 1 (80)
Carried interest and performance fees payable 1 (302) 268 (34) (48) 13 (35)
Loans and borrowings - - - (200) - (200)
Derivative financial instruments (1) - (1) - - -
Lease liability (5) - (5) (5) - (5)
Current income taxes (4) - (4) (4) - (4)
Total current liabilities (397) 277 (120) (338) 14 (324)
Total liabilities (2,265) 1,290 (975) (2,088) 894 (1,194)
Net assets 16,844 - 16,844 12,754 - 12,754
Equity
Issued capital 719 - 719 719 - 719
Share premium 790 - 790 789 - 789
Other reserves 3 15,443 - 15,443 11,346 - 11,346
Own shares (108) - (108) (100) - (100)
Total equity 16,844 - 16,844 12,754 - 12,754
The IFRS basis is audited and the Investment basis is unaudited. Notes: see
page before.
Reconciliation of consolidated cash flow statement
for the year to 31 March
Notes Investment IFRS IFRS basis Investment IFRS IFRS basis
basis
adjustments
2023
basis
adjustments
2022
2023
2023
£m
2022
2022
£m
£m
£m
£m
£m
Cash flow from operating activities
Purchase of investments 1 (330) 284 (46) (596) 272 (324)
Proceeds from investments 1 885 (658) 227 758 (464) 294
Amounts paid to investment entity subsidiaries 1 - (535) (535) - (349) (349)
Amounts received from investment entity subsidiaries 1 - 841 841 - 685 685
Net cash flow from derivatives 23 - 23 11 - 11
Portfolio interest received 1 19 (7) 12 4 (1) 3
Portfolio dividends received 1 406 (183) 223 369 (165) 204
Portfolio fees received 1 5 - 5 9 - 9
Fees received from external funds 67 - 67 68 - 68
Carried interest and performance 1 58 - 58 10 - 10
fees received
Carried interest and performance 1 (51) 22 (29) (23) 9 (14)
fees paid
Operating expenses paid 1 (128) - (128) (106) 1 (105)
Co-investment loans received/(paid) 1 3 2 5 (5) 2 (3)
Tax received 1 - - - 1 - 1
Interest received 1 4 - 4 - - -
Net cash flow from operating activities 961 (234) 727 500 (10) 490
Cash flow from financing activities
Issue of shares 1 - 1 1 - 1
Purchase of own shares (30) - (30) (54) - (54)
Dividends paid (485) - (485) (389) - (389)
Repayment of long-term borrowing (200) - (200) - - -
Lease payments (5) - (5) (4) - (4)
Interest paid (54) - (54) (52) - (52)
Net cash flow from financing activities (773) - (773) (498) - (498)
Cash flow from investing activities
Purchase of property, plant (1) - (1) - - -
and equipment
Net cash flow from investing activities (1) - (1) - - -
Change in cash and cash equivalents 2 187 (234) (47) 2 (10) (8)
Cash and cash equivalents at the 2 229 (17) 212 225 (9) 216
start of year
Effect of exchange rate fluctuations 1 (4) 1 (3) 2 2 4
Cash and cash equivalents 2 412 (250) 162 229 (17) 212
at the end of year
The IFRS basis is audited and the Investment basis is unaudited.
Notes to Reconciliation of consolidated cash flow statement above:
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
2023.
Cash realisations
Purpose Calculation Reconciliation to IFRS
Cash proceeds from our investments support our returns to shareholders, as The cash received from the disposal of investments in the year as shown in the The equivalent balance under IFRS and the reconciliation to the Investment
well as our ability to invest in new opportunities. Investment 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
2023.
Cash investment(1)
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
2023.
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 of the consolidated cash flow statement.
payments as shown on the Investment basis Consolidated cash flow statement.
The calculation is shown in Table 16 of the Financial review.
For further information see the Group KPIs in our Annual report and accounts
2023.
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 in the Group's balance sheet. Net debt (as defined above) as a % of the Group's net assets under the The equivalent balance under IFRS and the reconciliation to the Investment
Investment basis. It cannot be less than zero. basis is shown in the Reconciliation of the consolidated statement of
financial position.
1 Cash investment of £397 million is different to cash investment per the
cash flow of £330 million due to a £57 million syndication in Infrastructure
which was received in FY2023 and a £10 million investment in Private Equity
to be paid in FY2024. The Notes to the accounts section forms an integral part
of these financial statements.
Audited financial statements
Consolidated statement of comprehensive income
for the year to 31 March
Notes 2023 2022
£m
£m
Realised profits over value on the disposal of investments 64 89
Unrealised profits on the revaluation of investments 1,897 1,781
Fair value movements on investment entity subsidiaries 2,112 1,974
Portfolio income
Dividends 229 206
Interest income from investment portfolio 29 30
Fees receivable 10 6
Foreign exchange on investments 203 (9)
Movement in the fair value of derivatives 122 2
Gross investment return 4,666 4,079
Fees receivable from external funds 70 62
Operating expenses (137) (127)
Interest receivable 4 -
Interest payable (54) (53)
Exchange movements (6) 16
Income from investment entity subsidiaries 30 32
Other (expense)/income (1) 2
Operating profit before carried interest 4,572 4,011
Carried interest
Carried interest and performance fees receivable 41 53
Carried interest and performance fees payable (38) (46)
Operating profit before tax 4,575 4,018
Tax charge (2) (5)
Profit for the year 4,573 4,013
Other comprehensive income that may be reclassified to the income statement
Exchange differences on translation of foreign operations 4 (1)
Other comprehensive income that will not be reclassified to the income
statement
Re-measurements of defined benefit plans 8 2
Other comprehensive income for the year 12 1
Total comprehensive income for the year ("Total return") 4,585 4,014
Earnings per share
Basic (pence) 2 475.0 415.4
Diluted (pence) 2 473.8 414.3
The Notes to the accounts section forms an integral part of these financial
statements.
Consolidated statement of financial position
as at 31 March
2023 2022
£m
£m
Assets
Non-current assets
Investments
Quoted investments 841 934
Unquoted investments 8,677 5,708
Investments in investment entity subsidiaries 7,844 6,791
Investment portfolio 17,362 13,433
Carried interest and performance fees receivable 3 9
Other non-current assets 30 45
Intangible assets 5 6
Retirement benefit surplus 53 53
Property, plant and equipment 3 3
Right of use asset 9 13
Derivative financial instruments 73 7
Deferred income taxes - 1
Total non-current assets 17,538 13,570
Current assets
Carried interest and performance fees receivable 40 51
Other current assets 30 104
Current income taxes 1 1
Derivative financial instruments 48 10
Cash and cash equivalents 162 212
Total current assets 281 378
Total assets 17,819 13,948
Liabilities
Non-current liabilities
Trade and other payables (4) (14)
Carried interest and performance fees payable (43) (42)
Loans and borrowings (775) (775)
Derivative financial instruments (3) -
Retirement benefit deficit (20) (26)
Lease liability (5) (9)
Deferred income taxes (1) (1)
Provisions (4) (3)
Total non-current liabilities (855) (870)
Current liabilities
Trade and other payables (76) (80)
Carried interest and performance fees payable (34) (35)
Loans and borrowings - (200)
Derivative financial instruments (1) -
Lease liability (5) (5)
Current income taxes (4) (4)
Total current liabilities (120) (324)
Total liabilities (975) (1,194)
Net assets 16,844 12,754
Equity
Issued capital 719 719
Share premium 790 789
Capital redemption reserve 43 43
Share-based payment reserve 31 33
Translation reserve (2) (6)
Capital reserve 14,044 10,151
Revenue reserve 1,327 1,125
Own shares (108) (100)
Total equity 16,844 12,754
The Notes to the accounts section forms an integral part of these financial
statements.
David Hutchison
Chairman
10 May 2023
Consolidated statement of changes in equity
for the year to 31 March
2023 Share Share Capital Share- Translation Capital Revenue Own Total
capital premium redemption based reserve
reserve(1)
reserve(1) shares
equity
£m £m reserve payment £m
£m £m £m
£m reserve £m
£m
Total equity at the start of the year 719 789 43 33 (6) 10,151 1,125 (100) 12,754
Profit for the year - - - - - 4,064 509 - 4,573
Exchange differences on translation of foreign operations - - - - 4 - - - 4
Re-measurements of defined benefit plans - - - - - 8 - - 8
Total comprehensive income for the year - - - - 4 4,072 509 - 4,585
Share-based payments - - - 19 - - - - 19
Release on exercise/forfeiture of share awards - - - (21) - - 21 - -
Exercise of share awards - - - - - (22) - 22 -
Ordinary dividends - - - - - (157) (328) - (485)
Purchase of own shares - - - - - - - (30) (30)
Issue of ordinary shares - 1 - - - - - - 1
Total equity at the end of the year 719 790 43 31 (2) 14,044 1,327 (108) 16,844
1 Refer to Note 20 in our Annual report and accounts 2023 for the nature of
the capital and revenue reserves.
2022 Share Share Capital Share- Translation Capital Revenue Own Total
capital premium redemption based reserve
reserve(1)
reserve(1)
shares
equity
£m
£m reserve payment £m
£m
£m
£m
£m
£m reserve
£m
Total equity at the start of the year 719 788 43 34 (5) 6,733 916 (64) 9,164
Profit for the year - - - - - 3,547 466 - 4,013
Exchange differences on translation of foreign operations - - - - (1) - - - (1)
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/forfeiture of share awards - - - (19) - - 19 - -
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 end of the year 719 789 43 33 (6) 10,151 1,125 (100) 12,754
1 Refer to Note 20 in our Annual report and accounts 2023 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
Notes 2023 2022
£m
£m
Cash flow from operating activities
Purchase of investments (46) (324)
Proceeds from investments 227 294
Amounts paid to investment entity subsidiaries (535) (349)
Amounts received from investment entity subsidiaries 841 685
Net cash flow from derivatives 23 11
Portfolio interest received 12 3
Portfolio dividends received 223 204
Portfolio fees received 5 9
Fees received from external funds 67 68
Carried interest and performance fees received 58 10
Carried interest and performance fees paid (29) (14)
Operating expenses paid (128) (105)
Co-investment loans received/(paid) 5 (3)
Tax received - 1
Interest received 4 -
Net cash flow from operating activities 727 490
Cash flow from financing activities
Issue of shares 1 1
Purchase of own shares (30) (54)
Dividend paid 3 (485) (389)
Repayment of long-term borrowing (200) -
Lease payments (5) (4)
Interest paid (54) (52)
Net cash flow from financing activities (773) (498)
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 (47) (8)
Cash and cash equivalents at the start of the year 212 216
Effect of exchange rate fluctuations (3) 4
Cash and cash equivalents at the end of the year 162 212
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 2023 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 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 2023. 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.
The Directors' assessment of going concern, which takes into account the
business model (further detail in our Annual report and accounts 2023) and the
Group's liquidity of £1,312 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, on the
Investment basis the Group covers its cash operating costs, £133 million at
31 March 2023, with cash income generated by our Private Equity and
Infrastructure businesses and Scandlines, £497 million at 31 March 2023. The
Group's liquidity comprised of cash and deposits of £412 million (31 March
2022: £229 million) and an undrawn multi-currency facility of £900 million
(31 March 2022: £500 million), which has no financial covenants. During the
year the Group increased its existing RCF base of £500 million with an
additional two-year £400 million tranche which provides the Group with
additional liquidity in the medium term at low cost. Post 31 March 2023 the
Group has successfully extended its £400 million tranche by a further year to
July 2025.
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. 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 for a period of at least 12 months
from the date of issue of these financial statements. The scenarios include
the consideration of the potential impact of a recession triggered by
persistent inflation, high interest rates and weak consumer demand, 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 the liquidity of the
Group. A key judgement applied is the extent of recessionary impacts alongside
the likely recovery profile of portfolio companies.
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 our Annual report and accounts 2023. 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 our Annual report and accounts 2023.
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 2023.
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 2023.
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 in our Annual
report and accounts 2023 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. Derecognition 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. Further 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.
Investment basis Private Of which Infrastructure Scandlines Total(4
Equity
Action
£m
£m ) £m
Year to 31 March 2023
£m
£m
Realised profits over value on the disposal of investments 169 - - - 169
Unrealised profits on the revaluation of investments 3,746 3,708 23 - 3,769
Portfolio income
Dividends 345 328 33 38 416
Interest income from investment portfolio 77 - 14 - 91
Fees receivable 7 1 - - 7
Foreign exchange on investments 493 285 16 21 530
Movement in the fair value of derivatives 129 22 - (7) 122
Gross investment return 4,966 4,344 86 52 5,104
Fees receivable from external funds 4 - 66 - 70
Operating expenses (88) - (48) (2) (138)
Interest receivable 4
Interest payable (54)
Exchange movements (29)
Other income (1)
Operating profit before carried interest 4,956
Carried interest
Carried interest and performance fees receivable 4 - 37 - 41
Carried interest and performance fees payable (392) - (26) - (418)
Operating profit before tax 4,579
Tax charge (2)
Profit for the year 4,577
Other comprehensive income
Re-measurements of defined benefit plans 8
Total return 4,585
Realisations(1) 857 - - - 857
Cash investment(2) (381) (30) (16) - (397)
Net divestment/(investment) 476 (30) (16) - 460
Balance sheet
Opening portfolio value at 1 April 2022 12,420 7,165 1,352 533 14,305
Investment(3) 496 30 16 - 512
Value disposed (688) - - - (688)
Unrealised value movement 3,746 3,708 23 - 3,769
Other movement (including foreign exchange) 451 285 18 21 490
Closing portfolio value at 31 March 2023 16,425 11,188 1,409 554 18,388
1 Realised proceeds may differ from cash proceeds due to timing of cash
receipts. During the year, Private Equity received £1 million and
Infrastructure received £33 million of cash proceeds which were recognised as
realised proceeds in FY2022. Private Equity recognised £6 million of realised
proceeds which are to be received in FY2024.
2 Cash investment per the segmental analysis is different to cash investment per
the cash flow due to a £57 million syndication in Infrastructure which was
recognised in FY2022 and received in FY2023 and a £10 million investment in
Private Equity which was recognised in FY2023 and is to be paid in FY2024.
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.
Interest received, interest paid, exchange movements, other income, tax charge
and re-measurements of defined benefit plans are not managed by segment by the
chief operating decision maker and therefore have not been allocated to a
specific segment.
Investment basis Private Of which Infrastructure Scandlines Total(4)
Equity
Action
£m
£m
£m
£m
£m
Year to 31 March 2022
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.
Interest received, interest paid, exchange movements, other income, tax charge
and re-measurements of defined benefit plans are not managed by segment by the
chief operating decision maker and therefore have not been allocated to a
specific segment.
Investment basis UK Northern North Other Total
£m
Europe
America
£m
£m
Year to 31 March 2023
£m
£m
Realised profits over value on the disposal of investments 1 168 - - 169
Unrealised profits on the revaluation of investments 57 3,388 317 7 3,769
Portfolio income 63 435 16 - 514
Foreign exchange on investments - 418 113 (1) 530
Movement in fair value of derivatives - 22 100 - 122
Gross investment return 121 4,431 546 6 5,104
Realisations 1 524 332 - 857
Cash investment (30) (293) (74) - (397)
Net (investment)/divestment (29) 231 258 - 460
Balance sheet
Closing portfolio value at 31 March 2023 2,050 14,189 2,122 27 18,388
Investment basis UK Northern North Other Total
Year to 31 March 2022
£m
Europe
America
£m
£m
£m
£m
Realised profits over value on the disposal of investments 1 48 185 4 238
Unrealised profits on the revaluation of investments 276 3,053 493 2 3,824
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
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
2023 for further details.
2023 2022
Net assets per share (£)
Basic 17.50 13.24
Diluted 17.45 13.21
Net assets (£m)
Net assets attributable to equity holders of the Company 16,844 12,754
2023 2022
Number of shares in issue
Ordinary shares 973,312,950 973,238,638
Own shares (10,660,078) (10,212,745)
962,652,872 963,025,893
Effect of dilutive potential ordinary shares
Share awards 2,849,520 2,705,623
Diluted shares 965,502,392 965,731,516
The calculation of basic earnings per share is based on the profit
attributable to shareholders and the weighted average number of shares in
issue. The weighted average shares in issue for the year to 31 March 2023 are
962,674,183 (2022: 966,091,793). 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 2023 are 965,273,696 (2022: 968,636,820).
2023 2022
Earnings per share (pence)
Basic 475.0 415.4
Diluted 473.8 414.3
Earnings (£m)
Profit for the year attributable to equity holders of the Company 4,573 4,013
3 Dividends
2023 2023 2022 2022
pence per
£m
pence per
£m
share
share
Declared and paid during the year
Ordinary shares
Second dividend 27.25 262 21.00 203
First dividend 23.25 223 19.25 186
50.50 485 40.25 389
Proposed dividend 29.75 285 27.25 262
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 2023 for details of reserves.
The distributable reserves of the parent company are £4,940 million (31 March
2022: £3,968million) 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 of our Annual report and accounts 2023
20 large investments
The 20 investments listed below account for 94% of the portfolio at 31 March
2023 (31 March 2022: 93%). 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 2023 2022 2023 2022 transactions
Description of business Valuation basis £m £m £m £m in the year
Action* Private Equity 653 623 11,188 7,165 £325 million cash dividend
General merchandise discount retailer
Netherlands
received
2011/2020
£30 million further as part of
Earnings
the 2020
co-investment programme
3i Infrastructure plc* Infrastructure 305 305 841 934 £29 million dividend received
Quoted investment company, investing in Infrastructure
UK
2007
Quoted
Scandlines Scandlines 530 530 554 533 £38 million dividend received
Ferry operator between Denmark and Germany
Denmark/Germany
2018
DCF
Cirtec Medical* Private Equity 172 172 552 513 Acquisition of Precision
Outsourced medical device manufacturing
US
Components from Q Holding
2017
in January 2023
Earnings
Tato Private Equity 2 2 411 407 £12 million dividend recorded
Manufacturer and seller of specialty chemicals
UK
1989
Earnings
nexeye* Private Equity 269 269 393 345
Value-for-money optical retailer
Netherlands
2017
Earnings
SaniSure* Private Equity 76 76 389 277 Acquisition of Twinsburg from
Manufacturer, distributor and integrator of single-use bioprocessing systems
US
Q Holding in December 2022
and components
2019
Earnings
Royal Sanders* Private Equity 136 136 369 297
Private label and contract manufacturing producer of personal care products
Netherlands
2018
Earnings
AES Engineering Private Equity 30 30 351 269 £5 million dividend recorded
Manufacturer of mechanical seals and support systems
UK
1996
Earnings
Evernex* Private Equity 299 285 305 291 Acquisitions of XS
Provider of third-party maintenance services for data centre infrastructure
France
International and Integra in
2019
September 2022
Earnings
Smarte Carte* Infrastructure 189 187 300 207 £10 million distribution
Provider of self-serve vended luggage carts, electronic lockers and concession
US
received
carts
2017
DCF
WP* Private Equity 257 239 274 234
Global manufacturer of innovative plastic packaging solutions
Netherlands
2015
Earnings
Luqom* Private Equity 245 196 271 448 £34 million further investment
Online lighting specialist retailer
Germany
in June 2022 to provide
2017
funding for the acquisition of
Earnings
Brumberg
WilsonHCG* Private Equity 83 77 196 115 £6 million further investment
Global provider of recruitment process outsourcing and other talent solutions
US
in January 2023 to provide
2021
funding for the acquisition of
Earnings
Personify
MPM* Private Equity 153 139 181 162
An international branded, premium and natural pet food company
UK
2020
Earnings
Audley Travel* Private Equity 271 243 162 117
Provider of experiential tailor-made travel
UK
2015
Earnings
BoConcept* Private Equity 110 99 160 184
Urban living designer
Denmark
2016
Earnings
Dynatect* Private Equity 65 65 128 102
Manufacturer of engineered, mission critical protective equipment
US
2014
Earnings
Basic-Fit Private Equity 11 11 121 129
Discount gyms operator
Netherlands
2013
Quoted
Q Holding* Private Equity 162 162 117 398 Received proceeds of £332
Manufacturer of catheter products serving the medical device market
US
million following the disposals
2014
of QSR, Precision
Earnings
Components and Twinsburg
in the year
4,018 3,846 17,263 13,127
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
James Hatchley, Group Finance Director and Executive Director
Jasi Halai, Chief Operating Officer 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
10 May 2023
Registered Office: 16 Palace Street, London SW1E 5JD
Glossary
3i 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.
3i 2016-2019 vintage includes BoConcept, Cirtec Medical, Formel D, nexeye,
arriva, Luqom, Havea, Royal Sanders, Magnitude Software and Schlemmer.
3i 2019-2022 vintage includes Evernex, SaniSure, YDEON, MPM, WilsonHCG, Dutch
Bakery, ten23 health, insightsoftware, MAIT, Mepal and Yanga.
3i 2022-2025 vintage includes xSuite, Digital Barriers, Konges Sløjd,
VakantieDiscounter.
3i Buyouts 2010-2012 vintage includes Action, Amor, Element, Etanco, Hilite,
OneMed and Trescal.
3i Growth 2010-2012 vintage includes Element, Hilite, BVG, Go Outdoors, Loxam,
Touchtunes and WFCI.
Alternative Investment Funds ("AIFs") At 31 March 2023, 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.
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 (see the Governance section of our Annual report and
accounts 2023).
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.
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.
Revolving credit facility ("RCF") The Group has access to a credit line which
allows us to access funds when required to improve our liquidity.
Segmental reporting Operating segments are reported in a manner consistent
with the internal reporting provided to the Chief Executive who is considered
to be the Group's chief operating decision maker. All transactions between
business segments are conducted on an arm's length basis, with intrasegment
revenue and costs being eliminated on consolidation. Income and expenses
directly associated with each segment are included in determining business
segment performance.
Share-based payment reserve is a reserve to recognise those amounts in
retained earnings in respect of share-based payments.
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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