Half Yearly Report

RNS Number : 9964V
3i Group PLC
11 November 2010
 



11 November 2010

 

Half-year results for the six months to 30 September 2010

"We have transformed the balance sheet, reorganised the business and have moved from organising and planning for growth to starting to deliver it. There is increased momentum throughout the business."

Michael Queen, Chief Executive

 

 

Commentary

·     Increased momentum throughout the business

·     Good portfolio performance
- Gross portfolio return of 8.7% in first half driven by portfolio earnings growth

·     Increased investment of £327 million

·     Significant liquidity of £2.1 billion to support new investment.

·     Three good platforms for growth:
- Private Equity; Infrastructure; and Debt Management

·     Increase in interim dividend to 1.2 pence per share

 

 

 

Six months to/as at

Six months to/as at

 

30 September

30 September

 

2010

2009

Investment activity

 

 

Investment

£327m

£190m

Realisations

£293m

£507m

Net (investment) / divestment

£(34)m

£317m

 

Returns

 

 

Gross portfolio return

£307m

£316m

Gross portfolio return on opening portfolio value

8.7%

7.8%1

Total return

£117m

£81m

Total return on opening shareholders' funds

3.8%

3.2%2

Dividend per ordinary share

1.2p

1.0p

 

Assets under management

 

 

3i

£5,513m

£6,070m

External funds

£3,791m

£3,604m

Total assets under management3

£9,304m

£9,674m


 

 

Balance sheet

 

 

3i portfolio value

£3,679m

£3,780m

Net debt

£352m

£854m

Gearing

11%

31%

Net asset value

£3,161m

£2,746m

Diluted net asset value per ordinary share

£3.30

£2.86

 

1

Opening portfolio value in 2009 was the weighted average of the opening portfolio value, less the opening portfolio value of 3i's share of 3i Quoted Private Equity plc ("3iQPEP"), plus the value of investments transferred from 3iQPEP to 3i Group plc.

2

Opening shareholders' funds in 2009 was the weighted average of opening shareholders' funds and the equity value following the liquidation of 3i QPEP and the nine for seven rights issue.

3

"Assets under management" was re-defined as at 31 March 2010 and 2009 restated. The new definition is detailed in the Business review.

 

 

For further information, please contact:

Patrick Dunne, Group Communications Director
3i Group plc

 

Tel: 020 7975 3283

Kathryn van der Kroft

Press Office

Tel: 020 7975 3021

Suzanne Bartch

Maitland Consultancy

Tel: 020 7379 5151

 

For further information regarding the announcement of 3i's Half-yearly results to 30 September 2010, including a live videocast of the results presentation from 09:45am, please see www.3igroup.com.

 

Notes to editors

3i is an international investor focused on Private Equity, Infrastructure and Debt Management, investing in Europe, Asia and North America. Our competitive advantage comes from our international network and the strength and breadth of our business relationships. These underpin the value that we deliver to our portfolio, shareholders and fund investors. More information is available at: http://www.3i.com.

 

 

This Half-yearly report may contain certain statements about the future outlook for 3i Group plc and its subsidiaries ("3i"). 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.

 

This report has been drawn up and presented for the purposes of complying with English law. Any liability arising out of or in connection with the Half-yearly report for the six months to 30 September 2010 will be determined in accordance with English law. The Half-yearly results for 2010 and 2009 are unaudited.

 

 

Chairman's statement:

 

"A business with a considerable opportunity"

 

This is my first report to you as Chairman, after succeeding Sarah Hogg at the Annual General Meeting in July. My first priority has been to deepen my knowledge of the 3i business and to become better acquainted with the team. Fortunately, my background in mergers and acquisitions and in infrastructure, and my involvement as Chairman of a 3i portfolio company, has meant that I have been able to do this from the position of knowing the Company reasonably well beforehand.

 

The dominant impression I have from my first few months as your Chairman is that 3i is a business with a considerable opportunity in its three areas of focus, Private Equity, Infrastructure and Debt Management. These are highly competitive markets but 3i has a strong brand and offering, excellent market access and the financial strength to build on each of these platforms for growth. I have also found a team with a strong sense of purpose and a high commitment to responsible investing.

 

It has been a busy time for 3i as we have positioned, organised and started to deliver growth following a very challenging period for the Company and its sector. Good progress has been made in increasing investment, in reducing the volatility of returns and in further lowering operating expenses. Our portfolio has delivered strong growth in earnings, which has underpinned a 3.8% return on opening shareholders' equity, despite the lower multiples used for valuation. I would like to pay tribute to the boards and management teams of these businesses for their skill in navigating through what have been tough times in most sectors. Building on the momentum in the period we have declared an interim dividend of 1.2p, an increase of 20% and, subject to shareholder approval, it is intended that the balance of the split between the interim and final dividend be maintained.

 

On taking up her role as chairman of the Financial Reporting Council, Sarah Hogg concluded her time as Chairman of 3i. On behalf of the Board, our shareholders and staff, I would like to thank Sarah for her formidable leadership and for her commitment to ensuring that 3i would emerge from the most testing time in its history in such a strong position. We wish her every success in her new role.

 

In August, it was announced that our Senior Independent Director, Robert Swannell, would be taking up the chairmanship of Marks and Spencer. Robert, who consequently retired from the 3i Board in October, joined the 3i Board in 2006 and served as our Senior Independent Director from April 2009. Robert's wise advice and support has been invaluable and we wish him every success at M&S. Robert has been succeeded as Senior Independent Director by Richard Meddings, who has been a Non-executive Director since 2008 and is the Finance Director of Standard Chartered and has deep international experience.

 

Market conditions and the outlook for our business have improved compared to this time last year. However, a considerable degree of macroeconomic uncertainty remains in many of the regions in which we operate as governments continue to wrestle with the twin challenges of reducing deficits and stimulating growth. It will therefore be important to continue to take a measured approach as we take advantage of opportunities to invest and grow.

 

 

Sir Adrian Montague

Chairman

10 November 2010

 

 

Chief Executive's statement

"Increased momentum throughout the business."

 

Our vision

To be recognised as a leading international investor based on:

- the value we add to our portfolio

- the returns we deliver to our investors

- our responsible approach and style of investing

 

Our values

In all our activities we will:

- be commercial and fair

- respect the needs of shareholders, investors, our people and the companies in which we invest

- maintain our integrity and professionalism

- strive for continual improvement and innovation

 

Our strategy:

To invest

- in growing companies that fit with our values

- with management teams and entrepreneurs, working with them to deliver their full potential

- in our own people, knowledge and networks

 

To grow our business

- in areas consistent with our skills

- by strengthening our international network and building our sector capabilities

- with a conservative financial structure accessing multiple sources of capital

 

To grow our reputation

- as a respected and responsible investor

- by continuing to improve and innovate

 

To maintain a "One 3i" culture

- with a shared set of values across the Group

- with a consistent approach to the way we do business

- with a commitment to excellence in all our activities

 

 

In our Annual report in May, we highlighted the core elements of 3i's strategy, which are set out above. I am pleased to report that we have made progress in each element of our strategy and that our financial performance has further strengthened and there is increased momentum throughout the business.

 

Market environment

The economies in which we operate have shown a markedly different picture over the first half of our financial year. In Europe and the US, domestic demand has remained subdued. However, India, China and South East Asia, the most important markets for 3i in Asia, have shown strong growth. Growing demand from Asia and South America has also had a further positive effect on the export performance of many industrial and manufacturing companies in Europe and the US. As most of our portfolio companies operate on an international basis, many of our European and US-based investments have benefited from this.

 

Against this generally improving background, the private equity market has continued to be challenging. European transaction volumes have increased but remain low relative to pre-financial crisis levels. This is perhaps due to a degree of inertia from both corporates and financial sponsors, reflecting their reluctance to sell companies that have suffered during the downturn. Companies that have been sold, like those from the 3i portfolio, have typically been those that have done relatively well through the downturn and have therefore attracted high prices.

 

Significant capital raised by the private equity industry over the last five years has further increased pricing over what might typically be expected for this stage of the economic cycle. This "overhang" of capital is expected to reduce over the next year; hence our measured and selective approach to investment and our emphasis on increasing momentum on the new investment front.

 

In Infrastructure, fundamental demand for new and replacement infrastructure in the developing and developed world, combined with our growing reputation in this sector, means that we are well positioned to continue to grow this part of our business.

 

Performance

Good earnings growth in most of our portfolio companies, combined with a continued strong performance on realisations, has underpinned our short-term financial performance. Many of the boards of our portfolio companies, as with businesses in general, have been faced with some tough decisions in the face of considerable uncertainty over the last few years. The performance in the first half owes much to the quality of the judgements made by these boards and the actions that they have taken in finding growth in developing markets, in cutting costs at the same time as preserving capabilities and in successfully re-engineering their businesses. On behalf of 3i, I would like to thank them for this.

 

For 3i, high quality new investment is critical to future value growth, both in terms of new portfolio investments and at a strategic level. As we grow our level of investment, we will continue to adopt a measured and highly selective approach. Our focus is on making investments only where we feel that we can make a significant difference to the prospects of the portfolio company. The Trescal and Vedici investments are both good examples of this.

 

Strategic developments

At a strategic level, the acquisition of the debt management business MIM, from Mizuho, was announced in September, providing the catalyst to form a distinct Debt Management business to build on the success of our existing debt management activity.

 

We also decided, during the period, to combine our Buyouts and Growth Capital businesses to form a single Private Equity business. We will, of course, respect our commitments to investors in our Buyouts and Growth Capital funds, including those relating to the management of investments. This move is about improving our ability to originate investment opportunities and to add value to our portfolio by placing greater emphasis on our regional, sector, Active Partnership and Business Leaders Network activities.

 

As a consequence of this reorganisation, Jonathan Russell, formerly the Managing Partner of our Buyouts business, decided that this was the right time for him to close a very successful chapter at 3i. I would like to thank Jonathan for his contribution to 3i over the last 24 years and wish him every success for the future.

 

We have broadened our senior leadership team with the appointment of three new members, Menno Antal, Alan Giddins and Cressida Hogg. Menno is head of our buyout funds and has geographical responsibility for northern Europe. Alan has responsibility for the UK market and Cressida is the leader of our infrastructure business.

 

Following the formation of a single Private Equity business, we now have three platforms for growth: Private Equity, Infrastructure and Debt Management. 3i's financial strength, reputation and operating model provide the basis to create value in each of these areas for our shareholders, the investors in our funds, the management teams and employees of the portfolio companies in which we invest and others who benefit from our involvement.

 

The increase in emphasis of our international network and the various "One 3i" initiatives we have been implementing are intended to reinforce these strengths and to enable us to deliver more value to our portfolio, thereby enhancing our financial performance and reputation as a valued, active and responsible investor.

 

In closing, I would like to thank you, our shareholders, for your continued support. Since I took over as Chief Executive at the beginning of 2009, we have, with your help, transformed the balance sheet, and have now reorganised the business and begun the move from organising and planning for growth to delivering it.

 

 

Michael Queen

Chief Executive

10 November 2010

 

 

Business review

 

The key Group financial performance measures are:

 


Six months to

Six months to

Year to


30 September

30 September

31 March


2010

2009

2010

Total return

3.8%

3.2%

16.2%

Gross portfolio return

8.7%

7.8%

20.9%

Net portfolio return

6.7%

5.7% 

15.5%

Cost efficiency

1.7%

2.0%

4.1%

Operating expenses per AUM

1.0%

1.1%

2.3%

Net debt

£352m

£854m

£258m

Net asset value per share movement(1)

£0.11

£0.07

£0.43

 

(1)

Growth in NAV per share is stated before dividends and other distributions to shareholders and, in respect of the prior year, the rights issue and the 3i QPEP transaction.

 

 

Group overview 

 

The Group has made good progress on investment, on returns and in strategic development in the six months to 30 September 2010. With strong earnings growth in the portfolio more than offsetting a fall in the multiples used to value the portfolio, and a further reduction in costs, the Group delivered an improved total return of £117 million (2009: £81 million), representing a 3.8% return on opening shareholders' funds (2009: 3.2%). Assets under management at 30 September 2010 were £9,304 million (2009: £9,674 million).

 

 

Table 1: Realisations and investments


Six months to

Six months to

Year to


30 September

30 September

31 March


2010

2009

2010


£m

£m

£m

Realisations

293

507

1,385

Investments

(327)

(190)

(386)

Net (investment)/divestment

(34)

317

999

 

 

On 27 September 2010, 3i announced that it had reached agreement with Mizuho Corporate Bank, Ltd. ("MHCB") to acquire Mizuho Investment Management (UK) Limited ("MIM") for consideration of £18.3 million. MIM is one of Europe's leading debt management businesses, with assets under management ("AUM") of £3.7 billion (March 2010). Completion is subject to MIM investor consent and 3i obtaining regulatory approval from the UK FSA, and is expected in January 2011.

 

This acquisition, combined with the development of 3i's own debt management activity, provided the catalyst for the formation of a distinct Debt Management business line. The creation of a combined "Private Equity" business, consisting of 3i's existing Buyouts and Growth Capital business lines, means that 3i now has three platforms for growth: Private Equity, Infrastructure and Debt Management.

 

 

The market

 

The macroeconomic environment across 3i's markets has shown some improvement from a year ago. Statistics from Dealogic's M&A review, published on 1 October 2010, show that the value of global mergers and acquisitions for the first nine months of 2010 was 22% higher than for the same period in 2009. However, there is still a degree of uncertainty about the outlook in many economies and sectors.

 

European private equity activity has reflected this. Preliminary quarterly data from unquote", published in October 2010, stated that transactions totalling €24 billion were completed during the three months to September 2010. This was the highest quarterly value figure recorded since the second quarter of 2008 and more than 80% of the value of all deals completed during the whole of 2009. However, deal volume in the third quarter was the lowest for more than a year and 22% lower than in the second quarter of 2010.

 

According to the same source, the mid-market buyouts segment, which is the one of most relevance to 3i, saw volume and value in the third quarter fall by 15% and 18%. Competition and pricing levels remained high, reflecting the overhang of capital in the market.

 

The European growth capital market followed a similar pattern, with total volume and value of investments for the first nine months of 2010 substantially ahead of that in 2009. The value of third quarter investment, despite 31% lower volume than in the previous quarter, was the highest since the second quarter in 2008 due to a number of large transactions. In Asia and the US, growth capital markets remain competitive and highly fragmented.   

 

The fundraising environment for private equity during the first nine months of 2010 improved compared to 2009, although it still remains challenging.

 

The market environment for infrastructure investment also improved in the first six months of the financial year, and transaction volumes increased. This was due in part to a narrowing of the gap between public market valuations and private market pricing expectations, but also to an improvement in the availability and terms of debt finance, in particular for core infrastructure assets.

 

Factors driving the European and North American infrastructure deal flow include public sector budget constraints, the disposal of non-core infrastructure assets held by financial institutions and corporates, the emergence of a cyclical recovery and the use of infrastructure spending as an economic stimulus tool. In India, the opportunity will continue to be driven by strong economic fundamentals and the growing requirement for significant new infrastructure development.

 

 

Portfolio

 

The value of the portfolio at 30 September 2010 was £3,679 million (31 March 2010: £3,517 million), reflecting positive earnings growth during calendar year 2010, which more than offset lower earnings multiples.

 

Private Equity - Buyouts and Growth Capital

Aggregate earnings across the Buyouts portfolio grew by 8% between March and September and aggregate earnings across the Growth Capital portfolio grew by 7%. Within this, we have seen a strong performance from portfolio companies in the General Industrial sector, whilst some companies operating in service focused industries have seen slower growth.

 

Buyouts portfolio health continued to improve with 71% of the assets by cost classified as healthy at 30 September 2010, compared to 65% at 31 March 2010 and 60% at 30 September 2009. Leverage levels in the Buyouts portfolio have reduced from 4.5x at 31 March 2010 to 4.3x at 30 September 2010. In the Growth Capital portfolio, 70% of assets by cost were classified as healthy at 30 September 2010 compared to 74% at 31 March 2010.

 

We continue to develop the value of our portfolio through a combination of Active Partnership initiatives to target earnings growth and further investments into the existing portfolio to support buy and build strategies.

 

Infrastructure 

3i's Infrastructure investment principally comprises its 33.1% holding in 3i Infrastructure plc and its US$250 million commitment to the 3i India Infrastructure Fund.

 

At 30 September 2010, 3i Infrastructure plc, which is advised by 3i, had investments in 14 assets spanning the social infrastructure, utilities and transportation sectors. 3i Infrastructure plc reported a total return of £31.1 million for the six months to 30 September, representing a return of 3.4% on shareholders' equity through a combination of strong income generation from underlying assets and stable operational performance. Since the period end, 3i Infrastructure plc announced the signing of an investment of up to £176 million in Eversholt Rail Group, one of the three leading rail rolling stock companies in the UK.

 

Of 3i's US$250 million commitment to the US$1.2 billion 3i India Infrastructure Fund, US$121.1 million had been drawn down at 30 September 2010. The Fund comprised three assets at 30 September 2010, each of which has delivered operational progress in the period. Since the period end, the Fund has completed an investment of US$182 million in GVK Energy, an asset in the power generation sector of which 3i Group's share is US$38.1 million.

 

 

Investment and Realisations

 

 

Investment

 

Table 2: Investment by type (£m) for the six months to 30 September 2010 


£m

New investment

58

Acquisition finance

15

Purchase of portfolio debt instruments

110

Restructuring

8

Capitalised interest1

95

Other

41

Total

327

1 Includes PIK notes.

 

 

Table 3: Investment by business line (£m) for the six months to 30 September 2010


£m

Buyouts

306

Growth Capital

21

Infrastructure

-

Non-core activities

-

Total

327

 

 

Table 4: Investment by geography (£m) for the six months to 30 September 2010 


£m

UK

147

Continental Europe

174

Asia

3

North America

3

Rest of World

-

Total

327

 

 

Total investment in the six months to September 2010 was £327 million (2009: £190 million). The increase reflected some improvement in the pipeline for new investment, as well as the Group's continuing focus on supporting the development and growth of portfolio companies. Despite the increase, 3i continued its measured and selective approach in the face of continuing market uncertainty and high pricing.

 

Table 2 illustrates the split of total investment in the six months by nature of investment. The £58 million new investment in the period was in two Buyouts, £35 million in Vedici Groupe, a French acute healthcare provider, and £23 million in Trescal, a European leader in calibration and measurement service solutions. £15 million was invested in existing portfolio companies to support development and growth through acquisition, and £95 million of investment was in the form of capitalised interest. A further £110 million reflected investment in the debt instruments of two portfolio companies, Eltel and Enterprise, which were purchased at a discount. Restructuring investment of only £8 million reflected the general good health of the portfolio. Finally, other investment of £41 million included £21 million investment from within the Debt Warehouse.

 

Table 3 shows investment by business line, the significant majority of which (£306 million of the
£327 million) was in Buyouts and included the new investments in Vedici and Trescal and portfolio debt instrument purchases (£110 million). Growth Capital investment of £21 million was all further investment in the existing portfolio.

 

The high proportion of Buyouts investment in the period is reflected in the geographic split of investment summarised in Table 4, with investment in the UK and Continental Europe at £321 million, representing 98% of the total.

 

In addition to 3i's own balance sheet investment, a further £252 million was invested on behalf of
our managed and advised funds, of which £251 million was for Buyouts funds.

 

 

Realisations

 

 

Table 5: Realisations by business line (£m) for the six months to 30 September 2010


£m

Buyouts

169

Growth Capital

68

Infrastructure

1

Non-core activities

55

Total

293

 

 

Table 6: Realisations by geography (£m) for the six months to 30 September 2010 


£m

UK

194

Continental Europe

97

Asia

1

North America

1

Rest of World

-

Total

293

 

 

Table 7: Realisations by type (£m) for the six months to 30 September 2010 


£m

Trade sales

154

Secondaries

15

Sale of quoted investments

1

Loan repayments

11

Other

112

Total

293

 

 

Proceeds from realisations in the six months to 30 September 2010 at £293 million (2009: £507 million) were lower than last year but at a higher uplift to opening value of 11% (2009: 3%).

 

As can be seen from Table 5, Buyouts generated the largest level of realisations at £169 million, of which £121 million related to the partial realisation of Inspicio. The next largest Buyouts realisation was Panreac Química S.A., which generated £29 million of proceeds. Growth Capital realisations of £68 million included the sales of Kneip and Dirickx Groupe S.A.

 

Non-core realisations of £55 million comprised £10 million from the Venture Portfolio and £45 million from SMI. As a result, the non-core portfolio value represents less than 4% of total portfolio value at 30 September 2010 (31 March 2010: 4.7%).

 

Table 6 shows the geographic split of realisations. Almost all the realisations of £293 million were in the UK and Continental Europe, including the largest three realisations of the year, Inspicio, Panreac Química S.A. and Kneip.

 

 

Returns 

 

 

Table 8:Total return


For the six

For the six

For the


months to

months to

year to


30 September

30 September

31 March


2010

2009

2010


£m

£m

£m

Realised profits over value on disposal of investments

30

13

218

Unrealised profits on revaluation of investments

196

227

458

Portfolio income





Dividends

23

22

59


Income from loans and receivables

57

54

110


Fees receivable/(payable)

1

-

(2)

Gross portfolio return

307

316

843

Fees receivable from external funds

30

28

59

Carried interest receivable from external funds

19

(2)

30

Carried interest and performance fees payable

(31)

(2)

(88)

Operating expenses

(89)

(108)

(221)

Net portfolio return

236

232

623

Net interest payable

(72)

(55)

(112)

Movement in the fair value of derivatives

(8)

8

9

Net foreign exchange movements

(29)

(66)

(35)

Pension/actuarial loss

(7)

(36)

(71)

Other (including taxes)

(3)

(2)

(7)


Total comprehensive income ("Total return")


117


81


407

 

 

The Group generated a total return for the six months to 30 September 2010 of £117 million (2009:
£81 million), which represented a 3.8% return over opening shareholders' funds. The primary contributor to the return was gross portfolio return of £307 million, reflecting value growth of £196 million, portfolio income of £81 million and realised profits of £30 million. Aggregate core portfolio company earnings used for valuations improved by 8% in the six months, although the impact was partially offset by a reduction in earnings multiples, due to the fall in quoted equity multiples during the period. This is in contrast to the six months to 30 September 2009, where portfolio company earnings reduced, although multiples rose strongly, leading to value growth of £227 million.

 

Operating expenses, at £89 million, were £19 million lower than the same period last year, although net interest payable increased to £72 million (2009: £55 million). Finally, total return included an adverse currency movement of £29 million (2009: £66 million) in the period and an IAS 19 pensions charge of £7 million (2009: £36 million).

 

 

Gross portfolio return

 

 

Table 9: Gross Portfolio Return by business line 


Gross portfolio return

Return as % of opening portfolio value

 

for the six months to 30 September

2010

£m

2009

£m

2010

%

2009

%

Buyouts

135

132

8.4

8.9

Growth Capital

112

159

8.4

9.3

Infrastructure

31

57

7.6

15.4

Non-core activities

29

(32)

17.6

(6.9)

Gross portfolio return

307

316

8.7

7.8

 

Gross portfolio return for the six months to 30 September 2010 totalled £307 million (2009: £316 million), an 8.7% return on opening portfolio value. All business lines generated a positive return in the period.

 

The Buyouts gross portfolio return for the period of £135 million (2009: £132 million) represented an 8.4% (2009: 8.9%) return on opening portfolio value. It comprised unrealised value growth of £84 million (2009: £53 million), portfolio income of £41 million (2009: £40 million) and realised profits of £10 million (2009: £39 million). The improvement in value growth reflected the increase in portfolio company earnings. However, the lower gross portfolio return was due to the reduction in realised profits.

 

Growth Capital gross portfolio return for the six months of £112 million (2009: £159 million) represented an 8.4% (2009: 9.3%) return on opening portfolio value and comprised unrealised value growth of £86 million (2009: £132 million), portfolio income of £28 million (2009: £22 million) and a realised loss of £2 million (2009: £5 million profit). Portfolio company earnings used for valuation increased in the six months to September 2010, driving a £164 million value growth increase (2009: £(64) million). However, a reduction in earnings multiples generated a £67 million negative value movement in the six months to September 2010 (2009: £219 million value growth), leading to an overall reduction in value growth year on year from £132 million to £86 million.

 

Infrastructure gross portfolio return for the period of £31 million (2009: £57 million) comprised value growth of £22 million and portfolio income of £9 million. Value growth in the period related to the increase in the share price of 3i Infrastructure plc ("3iN"), which drove an £11 million increase in the period (2009: £47 million), together with an £11 million increase in the value of the 3i India Infrastructure Fund.

 

Non-core gross portfolio return for the period of £29 million (2009: £(32) million) comprised realised profits of £22 million, unrealised value growth of £4 million and portfolio income of £3 million. The increase in returns reflected a £53 million improvement in realised profits from the realised loss of £31 million in the prior year.


 

Realised profits 

Realised profits of £30 million represented an 11% uplift on opening portfolio value (2009: 3%). Table 10 shows that the realised profit comprised £8 million from the core portfolio (at a 3% uplift to opening value) and £22 million from the non-core portfolio (at a 67% uplift to opening value).

 

 

Table 10: Realised profits by business line 


 

 


For the six months to
30 September
2010
£m

For the six months to

30 September

2009

£m

Buyouts

10

39

Growth Capital

(2)

5

Infrastructure

-

-

Core

8

44

Non-core

22

(31)

Total

30

13

% uplift on opening portfolio value

11%

3%

 

 

Unrealised value movements

The unrealised value movement was £196 million for the six months to 30 September 2010 (2009:
£227 million). This reflected the impact of an improvement in portfolio company earnings, partially offset by the reduction in earnings multiples.

 

The first half of the year saw an improvement of 8% in earnings used to value the core portfolio. This improvement in trading built on the 5% increase in valuation earnings in the six months to 31 March 2010 and generated value growth of £273 million.

 

Over the six months to September 2010, earnings multiples used for valuation reduced by 5%, consistent with the movements in comparable sector and geographic market multiples, and leading to a negative value movement of £71 million.


Table 11 shows an analysis of portfolio value by valuation basis at 30 September 2010.

 

 

Table 11: Proportion of portfolio value by valuation basis (%) as at 30 September 2010



 


2010
%

Earnings

68

Imminent sale

6

Net assets

1

Quoted

9

Other

16

 

 

Table 12: Unrealised profits/(losses) on revaluation of investments 


 

 

 


For the six
months to
30 September
2010
£m

For the six
months to
30 September

2009
£m

For the

year to
31 March
2010

£m


Earnings and multiples based valuations





Equity

- Earnings multiples

(71)

464

536


- Earnings

273

(322)

(171)


Loans

- Impairments (earnings basis)

(42)

2

76


Market adjustment

-

(40)

(8)

Other bases





Provisions

(40)

(27)

(24)


Uplift to imminent sale

66

1

(28)


Loans - Impairments (other basis)

(26)

52

16


Other movements on unquoted investments

29

(11)

(16)


Quoted portfolio

7

108

77

Total

196

227

458

 

 

Impact of earnings multiple movements 

Equity markets were highly volatile during the six months to 30 September 2010, however returns on the major European indices remained close to zero at the end of the period. Multiples used in the valuations process reduced by 5% in the period, broadly in line with comparable sector and geographic market multiples.

 

The average EBITDA multiple used to value Buyouts investments on an earnings basis was 8.9x pre-marketability discount (March 2010: 9.1x). In the Growth Capital portfolio, the average EBITDA multiple used to value investments was 9.4x pre discount, a 9% decrease from the 10.3x used at 31 March 2010.

 

Earnings movements 

When valuing a portfolio investment on an earnings basis, the earnings used are the latest management accounts data for the last 12 months, unless the data from the forecast is lower or a lower figure from the latest audited accounts provides a more reliable picture of performance. The mix of earnings used to 30 September 2010 was 6% audited accounts (2009: 22%), 85% management accounts (2009: 39%), and 9% current year forecast accounts (2009: 39%). The reduction in the number of valuations using forecast earnings reflected an improvement in forward-looking earnings, and is consistent with an improvement in portfolio performance.

 

The aggregate 8% recovery in earnings in the six months to 30 September led to value growth of
£273 million. A number of assets, particularly in the General Industrial sector, saw significant increases in earnings.

 

Loan impairments

Where the attributable enterprise value of a portfolio company is less than the carrying value of 3i's shareholder loans, the shortfall recognised is classified as an impairment. Impairments for the six months totalled £(68) million (2009: £54 million reversal), of which £(42) million related to assets valued on an earnings basis.

 

Imminent sale

Imminent sale includes all assets currently in a negotiated sale process. There were seven assets valued on an imminent sales basis at 30 September 2010, with the associated value growth totalling £66 million. The largest value increase related to the sale of MWM GmbH (£44 million), which was signed on 22 October but is not expected to complete until later in the financial year.

 

Provisions

A provision is recognised where we anticipate that there is a 50% or greater chance that a company may fail within the next 12 months. Provisions on four assets totalled £40 million (2009: £27 million) or 1.1% of opening portfolio value, for the six months to 30 September 2010.

 

Other movements on unquoted investments 

The 'other' category includes a number of assets valued using different valuation bases such as Discounted Cash Flow (DCF), sum of parts (where different divisions are valued on a different basis),
or other industry specific methods.

 

Quoted portfolio 

Total quoted equity movement for the six months to 30 September 2010 was £7 million (2009: £108 million). The Group's investment in 3i Infrastructure plc accounts for 97% of the quoted portfolio, and a 3.8p increase in the 3i Infrastructure plc share price led to an £11 million increase in value.

 

Portfolio income 

Portfolio income of £81 million (2009: £76 million) comprised interest receivable on loans of £57 million (2009: £54 million) and dividends of £23 million (2009: £22 million). As a proportion of interest receivable continues to be capitalised, total income received as cash in the period was £29 million.

 

Debt Warehouse 

During the period, the Debt Warehouse generated realised profits of £5 million and portfolio income of
£4 million. The agreement to acquire MIM was announced on 27 September and the acquisition is not expected to complete until January 2011, so has no impact on these results.

 

 

Net portfolio return

 

Fees receivable from external funds 

Fees receivable from external funds of £30 million for the six months to 30 September 2010 (2009: £28 million) comprised £18 million of fees from our managed Buyouts funds, £9 million receivable from advisory and management services to 3i Infrastructure plc and the 3i India Infrastructure Fund, and £3 million from the Growth Capital Fund. The increase in fee income from the prior year reflected the launch of the Growth Capital Fund on 25 March 2010.

 

Net carried interest and performance fees payable

Carried interest payable is intended to align the incentives of 3i's investment staff with the interests of 3i's shareholders, its fund investors and the management teams in 3i's portfolio. Carried interest payable is accrued on the realised and unrealised profits generated, taking relevant performance hurdles into account. Net carried interest in the six months to 30 September 2010 was £12 million payable (2009: £4 million payable), in line with the increase in portfolio value.

 

 

Operating expenses 

 

Table 13: Operating expenses/AUM and cost efficiency for the six months to 30 September



 


 


2010
£m

2009

£m

Operating expenses

89

108

Fees receivable from external funds1

(30)

(29)

Net operating expenses

59

79

Operating expenses/AUM

1.0%

1.1%

Cost efficiency (Net operating expenses/opening portfolio)

1.7%

2.0%

1 Excluding performance fees from 3i Infrastructure plc.

 

 

Operating expenses, at £89 million for the six months, were down 18% from the same period last year (2009: £108 million). Headcount reduced from 537 at 30 September 2009 to 488 at 31 March 2010 and to 469 at 30 September 2010, driving a 15% reduction in employment costs. The disposal of non-core activities and lower restructuring costs also contributed to the year-on-year reduction.

 

As can be seen from Table 13, this reduction and the increase in fees from external funds meant that both cost efficiency and the new operating expenses per AUM performance measure improved to 1.7% and 1.0% respectively.

 

 

Total return 

 

Net interest payable 

Net interest payable for the six months to 30 September 2010 was £72 million (2009: £55 million). Interest payable increased to £79 million (2009: £61 million) and includes accelerated amortisation of £8 million relating to the repurchase and cancellation of the convertible bond. The average level of cash and deposits increased during the period, although the continued low interest rate environment resulted in only a small increase in interest receivable to £7 million (2009: £6 million).

 

Exchange movements 

The Group's policy during the period was to use only core currency borrowings to hedge the portfolio. As a result, debt hedging ratios at 30 September 2010 were 57% of European and Nordic euro and krona denominated portfolios and 36% of the North American and Asian US dollar portfolios. The foreign exchange charge of £29 million in the six months (2009: £66 million) was driven by the strengthening of sterling against both the US dollar and the euro. The Board has recently decided to extend the hedging policy to include the use of derivative contracts of a value up to 30% of the corresponding US dollar and euro portfolio value. Implementation of this extension will be phased throughout the second half of the year.

 

Pensions 

A charge of £7 million in the period relates to the Group's UK-defined benefit pension scheme. A fall in long-term corporate bond yields has reduced the discount factor used to determine the present value of the scheme's liabilities, thereby increasing the deficit under IAS 19. However, this was partially offset by the impacts of both improved bond returns in the period, which led to an increase in the value of the plan's assets, and a reduction in the long-term inflation rate.

 

Discussions with the Pension Trustees have commenced regarding the 2010 triennial funding valuation.

 

 

Portfolio value and assets under management 

 

Assets under management 

 

 

Table 14: Assets under management 

 

 
 
 
 
 
 
 
 
% invested at
 
AUM
AUM
 
 
30 September
Residual
30 September
31 March
 
Business line
2010
cost
2010
2010
 
 
 
 
 
 
Active investing managed funds
3i Eurofund V
Buyouts
62%
n/a
€5,000m
€5,000m
3i India Infrastructure Fund
Infrastructure
42%
n/a
$945m¹
$945m¹
3i Growth Capital Fund
Growth Capital
35%
n/a
€1,192m
€1,192m
Active investing advised funds
3i Infrastructure plc
Infrastructure
n/a
n/a
£937m²
£928m²
Invested managed funds
3i Eurofund III
Buyouts/Growth Capital
91%
€98m
€98m
€96m
3i Eurofund IV
Buyouts
96%
€627m
€627m
€640m
Other invested funds
Various
Various
£324m
£324m
£364m
Other assets
3i-owned (non-fund)
Buyouts
 
£103m
£103m
£93m
 
Growth Capital
 
£1,107m
£1,107m
£1,269m
 
Infrastructure
 
£1m
£1m
£1m
 
Non-core
 
£134m
£134m
£168m
Total AUM
 
 
 
£9,304m
£9,633m

 

1.

Adjusted to reflect 3i Infrastructure plc's $250 million commitment to the Fund.

2.

Based on latest published NAV (ex-dividend).

 

The definition of assets under management (AUM) was updated at 31 March 2010 to align the measurement of AUM with market practice by including the cost of 3i's as well as external commitments, together with portfolio assets at cost. This change is now possible as each business line has made commitments to invest in or alongside the managed funds. The new AUM definition underpins the introduction of a new cost metric, operating expenses/AUM, also in line with market practice.

 

The reduction in assets under management to £9,304 million at 30 September 2010 (31 March 2010: £9,633 million), primarily reflected the impact of the strengthening of sterling against both the euro and the US dollar on the sterling value of non-sterling assets under management, together with the impact of realisations during the period.

 

 

Portfolio assets directly owned by the Group 

 

 

Table 15: Portfolio value movement by business line 


Opening





Closing


portfolio





portfolio


value





value


1 April


Opening value

Value


30 September


2010

Investment

realised

movement

Other

2010


£m

£m

£m

£m

£m

£m

Core business lines








Buyouts

1,614

306

(159)

84

(60)

1,785


Growth Capital

1,331

21

(70)

86

(31)

1,337


Infrastructure

407

-

(1)

22

(4)

424


3,352

327

(230)

192

(95)

3,546

Non-core activities

165

-

(33)

4

(3)

133

Total

3,517

327

(263)

196

(98)

3,679

 

 

The value of assets directly owned by the Group increased from £3,517 million at 31 March 2010 to £3,679 million at 30 September 2010. Investments, realisations and value movements are discussed elsewhere in this report. The other movements relate primarily to foreign exchange and movements in capitalised interest.

 

 

Table 16: 3i direct portfolio value by geography


As at

As at

As at


30 September

30 September

31 March


2010

2009

2010


£m

£m

£m

Continental Europe

1,625

1,462

1,381

UK

1,286

1,504

1,327

Asia

508

468

509

North America

253

339

294

Rest of World

7

7

6

Total

3,679

3,780

3,517

 

 

Table 17: 3i direct portfolio value by sector


As at

As at

As at


30 September

30 September

31 March


2010

2009

2010


£m

£m

£m

Business Services

681

717

694

Consumer

322

312

303

Financial Services

329

352

335

General Industrial

1,225

837

1,020

Healthcare

414

637

427

Media

144

173

177

Oil, Gas and Power

61

98

71

Technology

79

289

83


3,255

3,415

3,110

Infrastructure

424

365

407

Total

3,679

3,780

3,517

 

 

As can be seen from Tables 16 and 17, 3i continues to have a well diversified portfolio by geographic region and sector. The changes to the geographic and sector mix in the period were minimal. The increase in value of the Continental Europe portfolio reflected the investments in Trescal, Vedici and Eltel in the period, and the General Industrial portfolio grew in value reflecting the strong performance of the companies in this sector, with significant value increases in Norma Group, Hyva Investments BV and MWM GmbH.

 

 

Balance sheet 

 

 

Table 18: Group balance sheet 


As at

As at

As at


30 September

30 September

31 March


2010

2009

2010

Shareholders' funds

£3,161m

£2,746m

£3,068m

Gross debt

£2,156m

£2,529m

£2,510m

Net debt

£352m

£854m

£258m

Liquidity

£2,129m

£1,959m

£2,731m

Gearing

11%

31%

8%

Diluted net asset value per share

£3.30

£2.86

£3.21

 

 

Borrowings and gearing

Gross debt reduced in the period from £2,510 million to £2,156 million, reflecting the Group's continuing focus on conservative balance sheet management. Significant movements in debt included the repayment of £195 million of the convertible bond, and of £89 million of commercial paper, together with a £43 million foreign exchange related reduction reflecting the strengthening of sterling against both the US dollar and the euro.

 

The repayments during the six months reduced the amount of long-term debt repayable within one year. The balance at 30 September 2010 of £250 million (31 March 2010: £33 million), now includes the convertible bond, as this matures in May 2011.

 

On 20 September 2010, £486 million of revolving credit facility matured and a £300 million forward start facility, maturing on 31 October 2012, commenced.

 

Net debt increased from £258 million to £352 million as the cash inflow from net divestment and portfolio income was offset by operating expenses in the period. As a consequence, gearing also increased marginally from 8% to 11%. Net debt is subject to a limit of £1 billion.

 

Liquidity and cash 

Liquidity reduced in the six months from £2,731 million to £2,129 million. This reduction reflected the debt repayment in the six months and the operating cash outflows. In addition, the replacement of the £486 million revolving credit facility with the £300 million forward start facility resulted in a reduction in undrawn committed facilities. Liquidity at 30 September 2010 comprised cash and deposits of £1,804 million and undrawn facilities of £325 million.

 

Diluted NAV 

The diluted NAV per ordinary share at 30 September 2010 was £3.30 (31 March 2010: £3.21). This primarily reflected the total return in the period of £117 million (12p) partially offset by the impact of the payment of the year end dividend of £19 million (2p).

 

 

Risks and uncertainties 

 

The main elements of 3i's risk management framework, together with a detailed description of the principal inherent risks and uncertainties faced by the Group, are set out in the Risk section of the 3i Group 2010 Annual report. The following provides a description of the principal risks faced by the Group, which remain unchanged in the period and are expected to remain as principal inherent risks and uncertainties in the second half of the financial year:

 

External - Risks arising from external factors including political, legal, regulatory, economic and competitor changes which affect the Group's operations.

 

Strategic - Risks arising from the analysis, design and implementation of the Group's business model and key decision on the investment levels and capital allocations.

 

Investment - Risks in respect of specific asset investment decisions, the subsequent performance of an investment or exposure concentrations across business line portfolios.

 

Treasury and funding - Risks in relation to changes in market prices and rates; access to capital markets and third-party funds; and the Group's capital structure.

 

Operational - Risks arising from inadequate or failed processes, people and systems or from external factors affecting these.

 

The Group continues to review the effectiveness of its risk management and has undertaken several initiatives to deepen its understanding of risks faced by portfolio companies. This half-yearly report makes reference to the evolution and management of key risks, and related results and outcomes, which should be viewed in the context of the risk management framework and principal inherent risk factors.

 

 

Long-term performance 

 

 

Table 19: Long-term performance - Buyouts

New investments made in

 

 

 

IRR to

 

financial years to 31 March

Total
investment

Return
flow

Value
remaining

30 September

IRR to
31 March

IRR to
30 September

Vintage year

£m

£m

£m

2010

2010

2009

2010

-

-

-

-

-

-

2009

373

1

343

4%

9%

(8)%

2008

808

141

391

(11)%

(18)%

(26)%

2007

690

322

579

22%

25%

22%

2006

512

1,167

33

49%

49%

47%

2005

373

953

87

61%

62%

61%

2004

331

524

162

35%

34%

33%

2003

277

664

28

49%

49%

49%

2002

186

441

-

61%

61%

61%

Analysis excludes investment in Debt Warehouse

 

 

Table 20: Long-term performance - Growth Capital

New investments made in

Total

Return

Value

IRR to

IRR to

IRR to

financial years to 31 March

investment

flow

Remaining

30 September

31 March

30 September

Vintage year

£m

£m

£m

2010

2010

2009

2010

21

-

16

n/a¹

n/a

n/a

2009

208

42

153

(3)%

(7)%

(19)%

2008

1,059

404

551

(3)%

(3)%

(5)%

2007

554

218

334

-%

(2)%

(6)%

2006

445

597

72

22%

24%

23%

2005

179

269

33

25%

25%

26%

2004

297

488

26

26%

25%

25%

2003

231

411

83

26%

24%

25%

2002

498

717

6

12%

12%

12%

 

1.

2010 vintage IRR is undisclosed as the asset in the vintage is less than 12 months old.

 

 

Tables 19 and 20 show that, for the vintage years from 2002 to 2006, there was little change to Buyouts and Growth Capital long-term performance over the six month period to 30 September 2010 and returns remain strong. Buyouts 2007 performance is also strong, but returns for 2008 remain negative, despite a significant improvement in the period reflecting the strong value growth on MWM GmbH and Scandlines GmbH.

 

Growth Capital returns for vintage years 2007 to 2009 remain negative, although they have all shown some improvement in the six months to 30 September 2010, reflecting value growth across the portfolio.

 

 

Consolidated statement of comprehensive income

for the six months to 30 September 2010

 

 

 
 
Six months to
Six months to
12 months to
 
 
30 September
30 September
31 March
 
 
2010
2009
2010
 
 
(unaudited)
(unaudited)
(audited)
 
Notes
£m
£m
£m
Realised profits over value on the disposal of investments
2
30
13
218
Unrealised profits on the revaluation of investments
3
196
227
458
 
 
226
240
676
Portfolio income
 
Dividends
 
23
22
59
 
Income from loans and receivables
 
57
54
110
 
Fees receivable/(payable)
 
1
-
(2)
Gross portfolio return
1
307
316
843
Fees receivable from external funds
1
30
28
59
Carried interest
 
Carried interest receivable from external funds
 
19
(2)
30
 
Carried interest and performance fees payable
 
(31)
(2)
(88)
Operating expenses
 
(89)
(108)
(221)
Net portfolio return
 
236
232
623
Interest receivable
 
7
6
12
Interest payable
 
(79)
(61)
(124)
Movement in the fair value of derivatives
4
(8)
8
9
Exchange movements
 
(101)
(242)
(359)
Other finance expenses
 
(1)
(2)
Profit/(loss) before tax
 
54
(57)
159
Income taxes
 
(2)
(2)
(5)
Profit/(loss) for the period
 
52
(59)
154
Other comprehensive income
Exchange differences on translation of foreign operations
 
72
176
324
Actuarial loss
 
(7)
(36)
(71)
Other comprehensive income for the period
 
65
140
253
Total comprehensive income for the period (“Total return”)
 
117
81
407
Analysed in reserves as:
 
Revenue
 
31
53
97
 
Capital
 
14
(148)
(14)
 
Translation reserve
 
72
176
324
 
 
 
117
81
407
Earnings per share
 
Basic (pence)
8
5.5
(7.1)
17.2
 
Diluted (pence)
8
5.4
(7.1)
17.1

 


The rates and amounts of dividends paid and proposed are shown in note 9.

 

 

Consolidated statement of changes in equity

for the six months to 30 September 2010



Six months to

Six months to

12 months to



30 September

30 September

31 March



2010

2009

2010



(unaudited)

(unaudited)

(audited)


Notes

£m

£m

£m

Total equity at the start of the period

7

3,068

1,862

1,862

Profit/(loss) for the period

7

52

(59)

154

Exchange differences on translation of foreign operations

7

72

176

324

Actuarial loss

7

(7)

(36)

(71)

Total comprehensive income for the period


117

81

407

Share-based payments

7

(1)

(2)

9

Release on exercise/forfeiture of share options

7

(4)

-

-

Own shares

7

-

-

(9)

Ordinary dividends

9

(19)

-

(9)

Issues of ordinary shares

7

-

805

808

Total equity at the end of the period


3,161

2,746

3,068

 

 

Consolidated balance sheet

as at 30 September 2010

 

 
 
30 September
30 September
31 March
 
 
2010
2009
2010
 
 
(unaudited)
(unaudited)
(audited)
 
Notes
£m
£m
£m
Assets
Non-current assets
Investments
 
Quoted equity investments
 
320
519
312
 
Unquoted equity investments
 
1,963
1,822
1,818
 
Loans and receivables
 
1,396
1,439
1,387
Investment portfolio
1
3,679
3,780
3,517
Carried interest receivable
 
78
46
75
Property, plant and equipment
 
16
20
17
Total non-current assets
 
3,773
3,846
3,609
Current assets
 
 
 
 
Other current assets
 
67
63
74
Derivative financial instruments
 
-
2
-
Deposits
 
713
384
728
Cash and cash equivalents
 
1,091
1,289
1,524
Total current assets
 
1,871
1,738
2,326
Total assets
 
5,644
5,584
5,935
 
Liabilities
Non-current liabilities
Carried interest payable
 
(87)
(45)
(61)
Loans and borrowings
5
(1,840)
(1,720)
(1,964)
B shares
 
(6)
(6)
(6)
Convertible bonds
6
-
(395)
(363)
Subordinated liabilities
 
-
(7)
-
Retirement benefit deficit
 
(9)
(14)
(28)
Deferred income taxes
 
(2)
(2)
(2)
Provisions
 
(6)
(4)
(10)
Total non-current liabilities
 
(1,950)
(2,193)
(2,434)
Current liabilities
Trade and other payables
 
(190)
(211)
(176)
Carried interest payable
 
(24)
(21)
(70)
Loans and borrowings
5
(63)
(346)
(125)
Convertible bonds
6
(187)
-
-
Derivative financial instruments
 
(60)
(55)
(52)
Current income taxes
 
(4)
(2)
(3)
Provisions
 
(5)
(10)
(7)
Total current liabilities
 
(533)
(645)
(433)
Total liabilities
 
(2,483)
(2,838)
(2,867)
 
 
 
 
 
Net assets
 
3,161
2,746
3,068
 
Equity
Issued capital
7
717
717
717
Share premium
7
779
777
779
Capital redemption reserve
7
43
42
43
Share-based payment reserve
7
16
18
24
Translation reserve
7
217
(3)
145
Capital reserve
7
973
818
959
Revenue reserve
7
497
447
482
Other reserves
7
5
5
5
Own shares
7
(86)
(75)
(86)
Total equity
 
3,161
2,746
3,068

 

 

Consolidated cash flow statement

for the six months to 30 September 2010

 

 
Six months to
Six months to
12 months to
 
30 September
30 September
31 March
 
2010
2009
2010
 
(unaudited)
(unaudited)
(audited)
 
£m
£m
£m
Cash flow from operating activities
Purchase of investments
(211)
(94)
(190)
Proceeds from investments
293
477
1,315
Portfolio interest received
7
9
16
Portfolio dividends received
22
22
59
Portfolio fees paid
-
(1)
(2)
Fees received from external funds
34
24
56
Carried interest received
15
-
3
Carried interest paid
(49)
(46)
(57)
Operating expenses
(135)
(127)
(251)
Interest received1
7
6
12
Interest paid1
(54)
(56)
(124)
Income taxes paid
(1)
(1)
(3)
Net cash flow from operating activities
(72)
213
834
 
Cash flow from financing activities
Net proceeds from liquidation of 3i QPEP
-
110
110
Proceeds from the nine for seven rights issue
-
732
732
Fees paid for the nine for seven rights issue
-
(33)
(33)
Proceeds from issues of share capital
-
16
18
Purchase of own shares
-
-
(9)
Repurchase of B shares
-
(6)
(6)
Dividend paid
(19)
-
(9)
Proceeds from long-term borrowings
-
-
351
Repayment of long-term borrowings
(26)
(51)
(205)
Repurchase of long-term borrowings
(28)
-
(77)
Repurchase of short-term borrowings
(195)
-
-
Net cash flow from short-term borrowings
(89)
3
(144)
Net cash flow from derivatives
-
(35)
(34)
Net cash flow from financing activities
(357)
736
694
 
Cash flow from investing activities
Purchases of property, plant and equipment
-
-
(1)
Net cash flow from deposits1
15
(327)
(669)
Net cash flow from investing activities
15
(327)
(670)
Change in cash and cash equivalents
(414)
622
858
Cash and cash equivalents at the beginning of the period
1,524
675
675
Effect of exchange rate fluctuations
(19)
(8)
(9)
Cash and cash equivalents at the end of the period
1,091
1,289
1,524

 

1 Interest received, interest paid and net cash flow from deposits have been reclassified from financing activities to enhance disclosure.

 

 

Notes to the accounts

 

1 Segmental analysis

 





Smaller





Growth


Minority

Venture



Buyouts

Capital

Infrastructure

Investments

Portfolio

Total

6 months to 30 September 2010 (unaudited)

£m

£m

£m

£m

£m

£m

Gross portfolio return1

Realised profits/(losses) over value on the
disposal of investments


10


(2)


-


19


3


30

Unrealised profits/(losses) on the
revaluation of investments


84


86


22


11


(7)


196

Portfolio income







Dividends

-

11

9

3

-

23

Income from loans and receivables

40

17

-

-

-

57

Fees receivable/(payable)

1

-

-

-

-

1


135

112

31

33

(4)

307

Fees receivable from external funds

18

3

9

-

-

30

Net (investment)/divestment

Realisations

169

68

1

45

10

293

Investment

(306)

(21)

-

-

-

(327)


(137)

47

1

45

10

(34)

Balance sheet

Value of investment portfolio at the end of the period


1,785


1,337


424


92


41


3,679

 





Smaller





Growth


Minority

Venture



Buyouts

Capital

Infrastructure

Investments

Portfolio

Total

Six months to 30 September 2009 (unaudited)

£m

£m

£m

£m

£m

£m

Gross portfolio return1

Realised profits/(losses) over value on the disposal of investments


39


5


-


7


(38)


13

Unrealised profits /(losses) on the
revaluation of investments


53


132


47


8


(13)


227

Portfolio income







Dividends

-

8

9

5

-

22

Income from loans and receivables

38

16

1

-

(1)

54

Fees receivable/(payable)

2

(2)

-

-

-

-


132

159

57

20

(52)

316

Fees receivable from external funds

20

-

8

-

-

28

Net (investment)/divestment

Realisations

62

275

45

32

93

507

Investment

(111)

(62)

(2)

-

(15)

(190)


(49)

213

43

32

78

317

Balance sheet

Value of investment portfolio at the end of
the period


1,560


1,551


365


137


167


3,780

 

 

1 Segmental analysis continued

 





Smaller





Growth


Minority

Venture



Buyouts

Capital

Infrastructure

Investments

Portfolio

Total

12 months to 31 March 2010 (audited)

£m

£m

£m

£m

£m

£m

Gross portfolio return1

Realised profits/(losses) over value on the
disposal of investments


223


(14)


-


15


(6)


218

Unrealised profits/(losses) on the
revaluation of investments


249


145


84


8


(28)


458

Portfolio income








Dividends

-

36

15

8

-

59


Income from loans and receivables

78

29

1

2

-

110


Fees receivable/(payable)

-

(2)

-

-

-

(2)


550

194

100

33

(34)

843

Fees receivable from external funds

39

-

20

-

-

59

Net (investment)/divestment

Realisations

467

578

46

69

225

1,385

Investment

(243)

(121)

(2)

(1)

(19)

(386)


224

457

44

68

206

999

Balance sheet

Value of investment portfolio at the end of the year


1,614


1,331


407


107


58


3,517

1 The segmental profit or loss reported in accordance with IFRS 8: Operating Segments, is defined as gross portfolio return.

 

 

2 Realised profits over value on the disposal of investments

 




6 months to



6 months to

6 months to

30 September

6 months to


30 September

30 September

2010

30 September


2010

2010

Loans and

2010


Unquoted equity

Quoted equity

receivables

Total


(unaudited)

(unaudited)

(unaudited)1

(unaudited)


£m

£m

£m

£m

Realisations

127

1

165

293

Valuation of disposed investments

(89)

(1)

(161)

(251)

Investments written off

-

-

(12)

(12)


38

-

(8)

30

 




6 months to



6 months to

6 months to

30 September

6 months to


30 September

30 September

2009

30 September


2009

2009

Loans and

2009


Unquoted equity

Quoted equity

receivables

Total


(unaudited)

(unaudited)

(unaudited)

(unaudited)


£m

£m

£m

£m

Realisations

139

175

193

507

Valuation of disposed investments

(147)

(152)

(190)

(489)

Investments written off

(3)

-

(2)

(5)


(11)

23

1

13

 




12 months to



12 months to

12 months to

31 March 2010

12 months to


31 March 2010

31 March 2010

Loans and

31 March 2010


Unquoted equity

Quoted equity

receivables

Total


(audited)

(audited)

(audited)

(audited)


£m

£m

£m

£m

Realisations

701

389

295

1,385

Valuation of disposed investments

(527)

(279)

(283)

(1,089)

Investments written off

(32)

-

(46)

(78)


142

110

(34)

218

 

 

1

Loans and receivables include net proceeds of £16 million (September 2009: £29 million, March 2010: £64 million) and realised profits of £5 million (September 2009: £28 million, March 2010: £55 million) from the variable funding notes relating to the Debt Warehouse.

 

 

 

3 Unrealised profits on the revaluation of investments

 




6 months to



6 months to

6 months to

30 September

6 months to


30 September

30 September

2010

30 September


2010

2010

Loans and

2010


Unquoted equity

Quoted equity

receivables

Total


(unaudited)

(unaudited)

(unaudited)

(unaudited)


£m

£m

£m

£m

Movement in the fair value of equity

288

7

-

295

Provisions, loan impairments and other movements1

(20)

-

(79)

(99)


268

7

(79)

196

 




6 months to



6 months to

6 months to

30 September

6 months to


30 September

30 September

2009

30 September


2009

2009

Loans and

2009


Unquoted equity

Quoted equity

receivables

Total


(unaudited)

(unaudited)

(unaudited)

(unaudited)


£m

£m

£m

£m

Movement in the fair value of equity

119

108

-

227

Provisions, loan impairments and other movements1

(24)

-

24

-


95

108

24

227

 




12 months to



12 months to

12 months to

31 March 2010

12 months to


31 March 2010

31 March 2010

Loans and

31 March 2010


Unquoted equity

Quoted equity

receivables

Total


(audited)

(audited)

(audited)

(audited)


£m

£m

£m

£m

Movement in the fair value of equity

321

77

-

398

Provisions, loan impairments and other movements1

(24)

-

84

60


297

77

84

458

 

1

Included within loan impairments is a £2 million value decrease for variable funding notes relating to the Debt Warehouse (September 2009: £45 million value increase, March 2010: £45 million value increase).

 

Provisions have been recognised only on investments where it is considered there is greater than 50% risk of failure. All other equity movements are included within the movement in the fair value of equity.

 

 

4 Movement in the fair value of derivatives

 


6 months

6 months

12 months to


to 30 September

to 30 September

31 March


2010

2009

2010


(unaudited)

(unaudited)

(audited)


£m

£m

£m

Interest rate swaps

(8)

7

7

Derivative element of convertible bonds

-

1

3

Call options

-

-

(1)


(8)

8

9

 

 

5 Loans and borrowings

 


30 September

30 September

31 March


2010

2009

2010

(unaudited)

(unaudited)

(audited)


£m

£m

£m

Loans and borrowings are repayable as follows:

Within one year

63

346

125

In the second year

395

62

33

In the third year

517

455

726

In the fourth year

50

603

268

In the fifth year

-

-

50

After five years

878

600

887


1,903

2,066

2,089

Principal borrowings include:




30 September

30 September

31 March




2010

2009

2010




(unaudited)

(unaudited)

(audited)


Rate

Maturity

£m

£m

£m

Issued under the £2,000 million note issuance programme

Fixed rate


£200 million notes (public issue)

6.875%

2023

200

200

200


£400 million notes (public issue)

5.750%

2032

375

400

375


€350 million notes (public issue)

5.625%

2017

303

-

312


Other



95

93

99

Variable rate


€500 million notes (public issue)

EURIBOR+0.200%

2012

395

455

436


Other



260

379

268




1,628

1,527

1,690

Committed multi-currency facilities


£100 million

LIBOR+2.75% to +3.00%

2012

66

99

92


£486 million

LIBOR+1.5938%

2012

-

200

165


£300 million

LIBOR+2.75%

2012

159

-

-


£200 million

LIBOR+3.75%

2014

50

-

50




275

299

307

Other







Commercial paper



-

240

92

Total loans and borrowings



1,903

2,066

2,089

The £100 million multi-currency facility rate is subject to LIBOR plus a tiered margin based upon the asset cover ratio of the Group. Due to an improvement in the asset cover ratio for the six months ending 30 September 2010, the rate reduced to LIBOR+2.75% from LIBOR +3.00%. The undrawn commitment fee on the £100 million multi-currency facility is 50% of the margin.

The £486 million multi-currency facility previously maturing in September 2010, was refinanced in July 2009 by way of a £300 million forward start facility which matures in 2012. The undrawn commitment fee on the £300 million forward start facility is 50% of the margin.

The £200 million multi-currency facility has an undrawn commitment fee of 50% of the margin.

All of the Group's borrowings are repayable in one instalment on the respective maturity dates. None of the Group's interest-bearing loans and borrowings are secured on the assets of the Group. The fair value of the loans and borrowings is £1,878 million (30 September 2009: £2,027 million; 31 March 2010: £2,030* million), determined where applicable with reference to their published market price.

*Restated to include the fair value of commercial paper.

 

6 Convertible bonds

 


30 September

30 September

31 March


2010

2009

2010


(unaudited)

(unaudited)

(audited)


£m

£m

£m

Opening balance

363

384

384

Amortisation on £430 million convertible bonds

19

11

21

Repurchase during the period

(195)

-

(42)

Closing balance

187

395

363

On 29 May 2008, a £430 million three year 3.625% convertible bond was raised. The Group share price on issue was £8.86 and the conversion price for bondholders was £11.32. Following the rights issue, the conversion price for bondholders reduced to £7.51.

On issue, part of the proceeds was recognised as a derivative financial instrument and the remaining amount recognised as a loan held at amortised cost with an effective interest rate of 8.5%. The fair value of the loan at 30 September 2010 was £195 million (30 September 2009: £419 million; 31 March 2010: £391 million), determined by its published market price. The derivative element of the £430 million convertible bond is cash settled.

In the six month period to 30 September 2010, the Group had repurchased £195 million of the bond, leaving an outstanding convertible loan balance at face value of £193 million repayable in May 2011. As a result of the convertible bond repurchase, the Group has recognised accelerated amortisation of £8 million in the period.

 

7 Equity





Share-










Capital

based








Share

Share

redemption

payment

Translation

Capital

Revenue

Other

Own

Total


capital

premium

reserve

reserve

reserve

reserve

reserve

reserves

shares

equity


(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

6 months to 30 September 2010

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Opening balance

717

779

43

24

145

959

482

5

(86)

3,068

Profit for the period






21

31



52

Exchange differences on translation of

foreign operations





72





72

Actuarial loss






(7)




(7)

Total comprehensive income for the period

-

-

-

-

72

14

31

-

-

117

Share-based payments




(1)






(1)

Release on exercise/forfeiture of share options




(7)



3



(4)

Ordinary dividends







(19)



(19)

Closing balance

717

779

43

16

217

973

497

5

(86)

3,161






Share-










Capital

based








Share

Share

redemption

payment

Translation

Capital

Revenue

Other

Own

Total


capital

premium

reserve

reserve

reserve

reserve

reserve

reserves

shares

equity


(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

6 months to 30 September 2009

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Opening balance

284

405

42

20

(179)

968

394

5

(77)

1,862

Loss for the period






(112)

53



(59)

Exchange differences on translation of
foreign operations





176





176

Actuarial loss






(36)




(36)

Total comprehensive income for the period

-

-

-

-

176

(148)

53

-

-

81

Share-based payments




(2)






(2)

Release on exercise/forfeiture of share options






(2)



2

-

Issue of ordinary shares

433

372








805

Closing balance

717

777

42

18

(3)

818

447

5

(75)

2,746

On 12 June 2009, 3i Group plc raised £699 million net of £33 million of expenses by way of a rights issue.

 





Share-










Capital

based








Share

Share

redemption

payment

Translation

Capital

Revenue

Other

Own

Total


capital

premium

reserve

reserve

reserve

reserve

reserve

reserves

shares

equity


(audited)

(audited)

(audited)

(audited)

(audited)

(audited)

(audited)

(audited)

(audited)

(audited)

Year to 31 March 2010

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Opening balance

284

405

42

20

(179)

968

394

5

(77)

1,862

Profit for the year






57

97



154

Exchange differences
on translation of
foreign operations





324





324

Actuarial loss






(71)




(71)

Total comprehensive
income for the year

-

-

-

-

324

(14)

97

-

-

407

Share-based payments




9






9

Release on
exercise/forfeiture of
share options




(5)


5




-

Own shares









(9)

(9)

Ordinary dividends







(9)



(9)

Issue of ordinary shares

433

374

1







808

Closing balance

717

779

43

24

145

959

482

5

(86)

3,068

 

 

8 Per share information

The earnings and net assets per share attributable to the equity shareholders of the Company are based on the following data:

 


6 months

6 months

12 months to


to 30 September

to 30 September

31 March


2010

2009

2010


(unaudited)

(unaudited)

(audited)

Earnings per share (pence)

Basic

5.5

(7.1)

17.2

Diluted

5.4

(7.1)

17.1

Earnings (£m)




Profit/(loss) for the period attributable to equity holders of
the Company

 

52


(59)

154

 


6 months

6 months

12 months to


to 30 September

to 30 September

31 March


2010

2009

2010


(unaudited)

(unaudited)

(audited)


Number

Number

Number

Weighted average number of shares in issue

Ordinary shares

970,444,952

850,771,252

910,689,107

Own shares

(19,689,835)

(16,208,452)

(16,310,231)


950,755,117

834,562,800

894,378,876

Effect of dilutive potential ordinary shares


Share options

6,251,029

-

5,026,956

Diluted shares

957,006,146

834,562,800

899,405,832

 


30 September

30 September

31 March


2010

2009

2010


(unaudited)

(unaudited)

(audited)

Net assets per share (£)

Basic

3.32

2.88

3.23

Diluted

3.30

2.86

3.21

Net assets (£m)

Net assets attributable to equity holders of the Company

3,161

2,746

3,068

 


30 September

30 September

31 March


2010

2009

2010


(unaudited)

(unaudited)

(audited)


Number

Number

Number

Number of shares in issue

Ordinary shares

970,538,698

970,206,013

970,381,476

Own shares

(19,631,587)

(15,832,669)

(19,758,485)


950,907,111

954,373,344

950,622,991

Effect of dilutive potential ordinary shares


Share options

7,964,960

6,073,695

6,607,673

Diluted shares

958,872,071

960,447,039

957,230,664

 

 

9 Dividends

 

 
6 months to
 
6 months to
 
12 months
 
 
30 September
6 months to
30 September
6 months to
to 31 March
12 months
 
2010
30 September
2009
30 September
2010
to 31 March
 
(unaudited)
2010
(unaudited)
2009
(audited)
2010
 
pence
(unaudited)
pence
(unaudited)
pence
(audited)
 
per share
£m
per share
£m
per share
£m
Declared and paid during the period
Ordinary shares
 
Final dividend
2.0
19
-
-
-
-
 
Interim dividend
-
-
-
-
1.0
9
 
 
2.0
19
-
-
1.0
9
Proposed dividend
1.2
12
1.0
10
2.0
19
 

 

10 Contingent liabilities

 


30 September

30 September

31 March


2010

2009

2010


(unaudited)

(unaudited)

(audited)


£m

£m

£m

Contingent liabilities relating to guarantees available to third
parties in respect of investee companies


7


2


5

 

At 30 September 2010, there was no material litigation outstanding against the Company or any of its subsidiary undertakings.

 

 

11 Related parties

The Group has various related parties stemming from relationships with limited partnerships managed by the Group, its investment portfolio, its advisory arrangements, and its key management personnel.

 

Limited partnerships

The Group manages a number of external funds which invest through limited partnerships. Group companies act as the general partners of these limited partnerships and exert significant influence over them. The following amounts have been included in respect of these limited partnerships:

 


6  months to

6 months to

12 months to


30 September 2010

30 September 2009

31 March 2010


(unaudited)

(unaudited)

(audited)

Statement of comprehensive income

£m

£m

£m

Carried interest receivable

19

(2)

30

25

25

47

 


30 September 2010

30 September 2009

31 March 2010


(unaudited)

(unaudited)

(audited)

Balance sheet

£m

£m

£m

Carried interest receivable

78

46

75

 

 

11 Related parties

 

Investments

The Group makes minority investments in the equity of unquoted and quoted companies. This normally allows the Group to participate in the financial and operating policies of those companies. It is presumed that it is possible to exert significant influence when the equity holding is greater than 20%. These investments are not equity accounted for (as permitted by IAS 28) but are related parties. The total amounts included for these investments are as follows:

 


6 months to

6 months to

12 months to


30 September 2010

30 September 2009

31 March 2010


(unaudited)

(unaudited)

(audited)

Statement of comprehensive income

£m

£m

£m

Realised profits/(losses) over value on the disposal of
investments

 

18


(26)


58

Unrealised profits on the revaluation of investments

195

63

327

75

63

126

 


30 September 2010

30 September 2009

31 March 2010


(unaudited)

(unaudited)

(audited)

Balance sheet

£m

£m

£m

Quoted equity investments

311

352

302

Unquoted equity investments

1,481

1,147

1,267

Loans and receivables

1,236

1,327

1,264

 

From time to time transactions occur between related parties within the investment portfolio which the Group influences to facilitate the reorganisation or recapitalisation of an investee company. There has been no single transaction in the period with a material effect on the Group's financial statements and all such transactions are fully included in the above disclosure.

 

Advisory arrangements

The Group acts as adviser to 3i Infrastructure plc, which is listed on the London Stock Exchange, and acted as adviser to 3i QPEP prior to its solvent liquidation. The following amounts have been included in respect of these advisory relationships:

 


6 months to

6 months to

12 months to


30 September 2010

30 September 2009

31 March 2010


(unaudited)

(unaudited)

(audited)

Statement of comprehensive income

£m

£m

£m

Unrealised profits on the revaluation of investments

11

49

72

Fees receivable from external funds

5

3

12

Dividends

9

9

15

 


30 September 2010

30 September 2009

31 March 2010


(unaudited)

(unaudited)

(audited)

Balance sheet

£m

£m

£m

Quoted equity investments

310

277

300

 

 

11 Related partiescontinued

 

Key management personnel

The Group's key management personnel comprises the members of the Leadership team, which has replaced the Management Committee, and the Board's non-executive Directors. The following amounts have been included in respect of these individuals:

 


6 months to

6 months to

12 months to


30 September 2010

30 September 2009

31 March 2010


(unaudited)

(unaudited)

(audited)

Statement of comprehensive income

£m

£m

£m

Salaries, fees, supplements and benefits in kind

3

2

4

Bonuses and deferred share bonuses

2

1

8

Increase in accrued pension

-

-

-

Carried interest payable

11

4

11

Share-based payments

-

1

1

Termination benefits

-

-

-

 


30 September 2010

30 September 2009

31 March 2010


(unaudited)

(unaudited)

(audited)

Balance sheet

£m

£m

£m

Bonuses and deferred share bonuses

3

1

7

Carried interest payable within one year

2

2

8

Carried interest payable after one year

14

6

7

 

Carried interest paid in the year to key management personnel was £11 million (2009: £6 million).

 

12 Post balance sheet events

 

In the period from 1 October to 29 October 2010, the Group had purchased a total of £25.8 million of its convertible bonds on the open market for £26.1 million. The Group confirmed via an RNS announcement on 19 October 2010 that the bonds would be cancelled, leaving the Group with an outstanding convertible bond liability of £167.5 million at maturity. The impact of this purchase on the statement of comprehensive income is a £0.1 million gain.

 

 

Accounting policies

 

Basis of preparation

These financial statements are the unaudited condensed half-yearly consolidated financial statements (the "Half-yearly Financial Statements") of 3i Group plc, a company incorporated in Great Britain and registered in England and Wales, and its subsidiaries (together referred to as the "Group") for the six-month period ended 30 September 2010.

 

The Half-yearly Financial Statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting ("IAS 34") and should be read in conjunction with the Consolidated Financial Statements for the year to 31 March 2010 ("Report and Accounts 2010"), as they provide an update of previously reported information.

 

The Half-yearly Financial Statements were authorised for issue by the Directors on 10 November 2010.

 

The Half-yearly Financial Statements have been prepared in accordance with the accounting policies set out in the Report and Accounts 2010. The new and revised International Financial Reporting Standards ("IFRS") and interpretations effective in the period have had no impact on the accounting policies of the Group. The Half-yearly Financial Statements do not constitute statutory accounts. The statutory accounts for the year to 31 March 2010, prepared under IFRS, have been filed with the Registrar of Companies and the auditors have issued a report, which was unqualified and did not contain a statement under section 498(2) or section 498(3) of the Companies Act 2006.

 

The preparation of the Half-yearly Financial Statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The most significant techniques for estimation are described in the accounting policies and in "Portfolio valuation - an explanation" in the Report and Accounts 2010.

 

The Half-yearly Financial Statements have been prepared using the going concern basis, and the Directors are not aware of any new events or circumstances which would make this inappropriate.

 

The Group operates in business lines where significant seasonal or cyclical variations in activity are not experienced during the financial year.

 

 

Statement of Directors' responsibilities

 

The Directors confirm to the best of their knowledge that:

 

a)

the condensed set of financial statements have been prepared in accordance with
IAS 34 as adopted by the European Union; and

b)

the interim management report includes a fair review of the information required
by the FSA's Disclosure and Transparency Rules (4.2.7 R and 4.2.8 R).

 

The Directors of 3i Group plc and their functions are listed below.

 

By order of the Board

 

K J Dunn Secretary

10 November 2010

 

 

 

Board of Directors

Sir Adrian Montague, Chairman

Michael Queen, Chief Executive and executive Director

John Allan, Non-executive Director

Alistair Cox, Non-executive Director

Richard Meddings, Non-executive Director and Senior Independent Director

Willem Mesdag, Non-executive Director

Christine Morin-Postel, Non-executive Director

Julia Wilson, Finance Director and executive Director

 

 

Independent review report to 3i Group plc

 

Introduction

 

We have been engaged by 3i Group plc to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2010 which comprises the consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated balance sheet, consolidated cash flow statement and the related notes 1 to 12. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagement 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

As disclosed in the accounting policies note, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of half-yearly financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

Ernst & Young LLP

London

10 November 2010

 

 

Top ten investments

The list below provides information on ten of our largest investments in respect of the Group's holding, excluding any managed or advised external funds. One investment has been excluded from the ten largest investments due to commercial reasons.

 


Business line

Proportion



Investment

Geography

of equity

Residual


Website

First invested in

shares

cost

Valuation

Description of business

Valuation basis

held

£m

£m

3i Infrastructure plc

Infrastructure

33.1%

270

310

3i-infrastructure.com

UK




Quoted investment company, investing

2007




in infrastructure

Quoted




MWM GmbH

Buyout

41.3%

70

168

mwm.net

Germany




Provider of decentralised power generation systems

2007





Sale




ACR Capital Holdings Pte Limited

Growth

31.1%

105

151

asiacapitalre.com

Singapore




Reinsurance in large risk segments

2006





Industry metric




Enterprise Group Holdings Limited

Buyout

31.7%

193

145

enterprise.plc.uk

UK




UK utilities and public sector maintenance outsourcing

2007





Earnings




NORMA Group Holding GmbH

Buyout

29.2%

33

139

normagroup.com

Germany




Provider of engineered joining technology

2005





Earnings




Foster + Partners1

Growth

40.0%


127

fosterandpartners.com

UK




Architectural services

2007





Earnings




Mémora Servicios Funerarias

Buyout

38.1%

104

107

memora.es

Spain




Funeral service provider

2008





Earnings




3i India Infrastructure Holdings Limited2

Infrastructure

21.2%

59

106

Fund investing in Indian infrastructure

India





2007





Fund




Mayborn Group Plc

Buyout

37.8%

83

102

mayborngroup.com

UK




Manufacturer and distributor of baby products

2006





Earnings




Quintiles Transnational Corporation

Growth

4.9%

70

98

quintiles.com

US




Clinical research outsourcing solutions

2008





Earnings




 

1.

The cost of this investment cannot be disclosed for commercial reasons.

2.

There is no website for 3i India Infrastructure Holdings Limited.

 

 

Forty other large investments

In addition to the ten largest investments shown, detailed below are forty other large investments which are substantially all of the Group's investments valued over £9 million. This does not include 12 investments that have been excluded for commercial reasons.

 


Business line

Proportion



 

Investment

Geography

of equity

Residual


 

Website

First invested in

shares

cost

Valuation

 

Description of business

Valuation basis

held

£m

£m

 

Otnortopco AS (Xellia/Alpharma)

Buyout

46.3%

73

86

 

xellia.com

Norway




 

Developer and supplier of specialist active

2007




 

pharmaceutical ingredients

Earnings




 

Sortifandus,  S.L. (GES - Global Energy Services)

Buyout

42.8%

43

85

 

services-ges.com

Spain




 

Wind power service provider

2006




 


Earnings




 

Ålö Intressenter AB

Growth

35.2%

38

83

 

alo.se

Sweden




 

Manufacturer of front end loaders

2002




 


Earnings




 

Navayuga Group

Growth

10.0%

23

75

 

necltd.com

India




 

Engineering and construction

2006




 


Earnings




 

Eltel Networks Oy

Buyout

38.6%

85

71

 

eltelnetworks.com

Finland




 

Network services

2007




 


Earnings




 

Cornwall Topco Limited (Civica)

Buyout

41.0%

79

69

 

civica.co.uk

UK




 

Public sector IT and services

2008




 


Earnings




 

Labco SAS

Growth

12.3%

65

64

 

labco.eu

France




 

Clinical laboratories

2008




 


Earnings




 

Scandferries Holding GmbH (Scandlines)

Buyout

22.4%

38

63

 

scandlines.de

Germany




 

Ferry operator in the Baltic Sea

2007




 


Other




 

Mold-Masters Luxembourg Holdings S.A.R.L.

Growth

49.3%

75

62

 

moldmasters.com

Canada




 

Plastic processing technology provider

2007




 


Earnings




 

Azelis Holding S.A.

Buyout

32.1%

49

62

 

azelis.com

Luxembourg




 

Distributor of speciality chemicals, polymers and

2007




 

related services

Earnings




 

Tato Holdings Limited1

Non-core

26.0%

2

60

Manufacture and sale of speciality chemicals

UK





1990





Earnings



                     

Phibro Animal Health Corporation

Growth

29.9%

89

54

Pahc.com

US




Animal healthcare

2009





Earnings




Beijing Digital Telecom Co. Limited

Growth

17.4%

11

43

dixintong.com

China




Mobile phone retailer

2006





Earnings




Environmental Scientifics Group (ESG)2

Buyout

38.0%

24

42

esg.co.uk

UK




Global testing and inspection

2007





Earnings




AES Engineering Limited

Growth

40.6%

30

42

aesseal.co.uk

UK




Manufacturer of mechanical seals and

1996




support systems

Earnings




Joyon Southside

Growth

49.9%

27

39

joyon.cn

China




Real estate

2007





DCF




Vedici Groupe

Buyout

21.1%

36

37

Vedici.com

France




Private acute care

2010





Earnings




Radius Systems Limited

Buyout

31.6%

33

33

radius-systems.com

UK




Manufacture of thermoplastic pipe systems for gas

2008




and water distribution

Earnings




Everis Participaciones S.L.

Growth

18.3%

30

32

everis.com

Spain




IT consulting business

2007





Earnings




RBG Limited

Buyout

39.5%

4

32

rbgltd.com

UK




Oil and gas service provider

1996





Earnings




Soya Concept AS

Growth

44.1%

13

28

soyaconcept.com

Denmark




Fashion design company

2007





Earnings




Goromar XXI, S.L. (Esmalglass)

Buyout

21.6%

21

28

 

esmalglass.com

Spain




 

Manufacture of frites, glazes and colours for tiles

2002




 


Earnings




 

KemFine Oy

Buyout

35.0%

22

26

 

Kemfine.com

Finland




 

Manufacturer of fine chemicals

2004




 


Earnings




 

Inspecta Holding Oy

Buyout

39.2%

48

24

 

Inspecta.fi

Finland




 

Supplier of testing and inspection services

2007




 


Earnings




 

Trescal

Buyout

23.5%

23

24

 

trescal.com

France




 

Calibration services

2010




 


Earnings




 

MKM Building Supplies (Holdings) Limited

Growth

30.3%

14

24

 

mkmbs.co.uk

UK




 

Building material supplier

1998




 


Earnings




 

Hyperion Insurance Group Limited

Growth

19.1%

22

23

 

hyperiongrp.com

UK




 

Specialist insurance intermediary

2008




 


Other




 

La Sirena

Buyout

47.3%

36

20

 

lasirena.es

Spain




 

Specialist frozen food retailer

2006




 


Earnings




 

Consultim Finance SAS

Growth

20.0%

12

20

 

cerenicimo.fr

France




 

Wholesaler of rental real estate

2007




 


Earnings




 

Boomerang TV, S.A.

Growth

34.1%

23

20

 

grupoboomerangtv.com

Spain




 

Production of audiovisual contents

2008




 


Earnings




 

Polyconcept Investments B.V.

Growth

13.0%

21

20

 

polyconcept.com

Netherlands




 

Supplier of promotional products

2005




 


Earnings




 

Refresco Group B.V.

Growth

12.7%

21

19

 

refresco.com

Netherlands




 

Manufacturer of private label juices and soft drinks

2010




 


Earnings




 

Pearl (AP) Group Limited (Agent Provocateur)

Buyout

39.0%

44

19

 

agentprovocateur.com

UK




 

Women's lingerie and associated products

2007




 


DCF




 

Lekolar AB

Buyout

34.1%

26

17

 

lekolar.se

Sweden




 

Distributor of pedagogical products and

2007




 

educational materials

Earnings




 

Indiareit Offshore Fund

Growth

20.0%

21

16

 

indiareit.com

India




 

Indian real estate fund

2006




 


Fund




 

DC Druck Chemie GmbH

Buyout

44.3%

26

16

 

druckchemie.com

Germany




 

Business services

2008




 


Earnings




 

Sulake Corporation Oy

Non-core

16.5%

5

11

 

Sulake.com

Finland




 

Social entertainment focused on online social

2003




 

places and games

Other




 

Salmaneco, S.A. (Café y Té)

Growth

46.8%

10

10

 

cafeandte.com

Spain




 

Coffee house operator

2006




 


Earnings




 

Siro Clinpharm Private Limited

Growth

39.3%

11

9

 

siroclinpharm.com

India




 

Clinical trial and data management services

2007




 


Earnings




 

Shearings Group Limited

Buyout

36.6%

1

9

 

shearings.com

UK




 

Tour operator

1997




 


Earnings




 

 

1.

No company website available for this investment.

2.

Formerly Inspicio Sarl.

 

 

 

Note A

The online Half-yearly report 2010 will be available at www.2010reportingcentre.3igroup.com from 3.00pm today.

 

Note B

The interim dividend is expected to be paid on 12 January 2011 to holders of ordinary shares on the register on 10 December 2010. The ex-dividend date will be 8 December 2010.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
IR BMBMTMBIBTLM

Companies

3i Group (III)
UK 100

Latest directors dealings