Interim Results
3i Group PLC
09 November 2006
9 November 2006
Interim results for the six months to 30 September 2006
'Good performance driven by strong realised profits'
• Total return of 9.3% (£374 million) for the first six months
• Realised profits of £216 million, up 14% over the same period last year
• Good level of investment at £589 million (£700 million including
co-investment funds)
For the six months to 30 September 2006 2005
Total return £374m £447m
Total return on opening shareholders' funds 9.3% 12.1%
Adjusted total return on opening shareholders' funds* 11.0% -
Realised profits over opening valuation £216m £189m
Unrealised profits on revaluation of investments £141m £223m
Portfolio income £123m £109m
Realisation proceeds £849m £1,041m
Investment (excluding co-investment funds) £589m £706m
Diluted net asset value per ordinary share 792p 677p
Interim dividend per ordinary share 5.8p 5.5p
*Adjusted for the £700 million return of capital approved in July 2006.
Commentary
• Buyouts and Growth Capital have delivered very strong gross portfolio
returns of 19.8% and 14.2% respectively for the period
• Venture Capital delivered a negative gross portfolio return of (8.4)%,
largely as a result of the mark-to-market valuation of its quoted portfolio
• SMI delivered another good performance, generating £118 million of cash
proceeds and a gross portfolio return of 13.7% for the period
Commenting on the results, Baroness Hogg, Chairman of 3i Group plc, said:
'3i has delivered another good performance of 9.3% on opening shareholders'
funds in the half year and is positioned well against the current market
opportunity.'
3i's Chief Executive, Philip Yea, added:
'We are pleased with the results for the first six months and believe that they
confirm our continued progress on delivering our near and long-term agendas.
We see little change in our major markets and expect to report further progress
over the coming period. At this stage the Group is on track to deliver growth in
new investment over the whole year.'
- ends -
For further information regarding the announcement of 3i's interim results to 30
September 2006, including video interviews with Philip Yea and Simon Ball
(available 7.15am), a live webcast of the results presentation (at 10.30am), and
an on-demand webcast and podcast (available from 2.00pm), please see
www.3igroup.com.
For further information, please contact:
Philip Yea, Chief Executive Tel: 020 7975 3386
Simon Ball, Finance Director Tel: 020 7975 3356
Patrick Dunne, Group Communications Director Tel: 020 7975 3283
Issued by:
Philip Gawith Tel: 020 7379 5151
The Maitland Consultancy
Notes to editors
3i is a world leader in private equity and venture capital. We focus on buyouts,
growth capital and venture capital and invest across Europe, the US and Asia.
Our competitive advantage comes from our international network and the strength
and breadth of our relationships in business. These underpin the value that we
deliver to our portfolio and to our shareholders.
Chairman's statement
3i delivered a total return of £374 million for the six months to 30 September
2006. This represents a return of 9.3% on opening shareholders' funds, which
compares with a FTSE All-Share total return of 1.7% for the same period. The
Directors have approved an interim dividend of 5.8p per ordinary share, up from
5.5p last year.
In line with our commitment to balance sheet efficiency, a £700 million return
of capital by way of a bonus issue of listed B shares was proposed to
shareholders, approved in July and executed shortly thereafter. The total return
on opening shareholders' funds, adjusted for this return of capital, would have
been 11.0%.
The performance of our mid-market Buyouts business in the first half was of
particular note. A gross portfolio return of 19.8% on opening portfolio value
was an exceptionally good result, demonstrating the continuing strength of our
business model in this competitive area.
3i's Growth Capital business also enjoyed a good first six months, delivering
returns above our across-the-cycle expectations. Our Venture Capital business,
however, incurred a negative return, largely due to the fall in the share prices
of some of its quoted holdings.
A high level of investment and realisation activity was matched by strategic
development at a Group and business line level. We recently announced the first
closing of our new €5 billion European buyout fund, Eurofund V.
We have also continued to extend 3i's international reach, with teams now
established in Beijing and New York. Our business in Asia continues to build
momentum: our investment in the region in the first six months of this year was
close to the total for the whole of the previous year.
As the only private equity business in the FTSE 100, and indeed one of only a
few companies of any size offering quoted access to private equity returns, we
have watched the listing of other private equity vehicles with interest. These
moves, we believe, will help to raise awareness of the benefits of investing in
private equity.
In September we were delighted to welcome Robert Swannell to the Board as a
non-executive Director, joining our Nominations and Valuations Committees.
Robert is Vice Chairman of Citigroup Europe and a member of Citigroup's Global
Investment Banking Operating Committee. He has extensive experience in
international financial services and a wide experience of business.
As a Board, we place considerable emphasis on corporate responsibility and on
shareholder communications. It is therefore encouraging that 3i is not only a
member of the Dow Jones Sustainability Index for 2006/7 but has been ranked
first in the financial services sector globally.
These results, and the progress we have made at a strategic level, would not
have been possible without the commitment and ability of our leadership team and
staff across the world. I would like to thank them and also the many management
teams and advisers who have helped 3i to achieve success.
To conclude, 3i has delivered another good performance in the first half and is
well placed strategically. Our balance sheet strength, combined with the spread
of the portfolio internationally, by sector and by type of investment activity,
should also enable us to take full advantage of growing markets while
maintaining a diversified risk profile.
Baroness Hogg
Chairman
8 November 2006
Chief Executive's statement
These results for the first six months of the financial year confirm continuing
progress on both our near-term and long-term agendas.
Gross portfolio return, at 11.6%, was in line with the equivalent figure for
last year (12.1%), although the mix between our business lines changed somewhat,
with an exceptional figure of 19.8% for Buyouts compensating for a significant
fall in our Venture Capital return (negative 8.4% compared to positive 8.2% for
the equivalent period last year). The returns for both our Growth Capital and
SMI businesses remained strong. The Interim review which follows gives an
explanation of the underlying factors affecting the Group's performance in the
period.
Although the levels of both realisations and investments were below last year's
equivalents, these figures were still strong in the context of our current
business model, where concentrating on fewer larger investments means that our
investment and divestment cash flows are more variable across accounting
periods.
Total return, at £374 million, was below the £447 million for the equivalent
period last year. Realised profits grew by 14% to £216 million (2005: £189
million). Our net asset value per share grew by 53p in the period, from 739p to
792p, another good result, despite dilution of around 15p as a result of the B
share issue and related share capital consolidation in July.
The most visible indicators of the long-term reshaping of our business passed
new thresholds in the period. The number of portfolio investments, at 942, is
now below 1,000, compared to a little over 2,000 investments three years ago.
Our international portfolio now represents 61% of our total portfolio value,
compared to 42% three years ago.
The strategic development of the Group continues apace and we believe that there
are opportunities to expand our Infrastructure and private equity business yet
further, particularly in the long-hold segment. Consistent with our philosophy
of building capabilities ahead of building assets, we intend to build our
Infrastructure team internationally and to strengthen our Growth Capital
business.
At the appropriate stage, we also believe it would be in shareholders' interests
for our infrastructure assets to be held in a separate vehicle managed or
advised by 3i, and therefore giving rise to annual and performance fees to
supplement the pure investment return from such assets.
To support these objectives, Michael Queen, who currently leads our Growth
Capital and Infrastructure businesses, will increasingly concentrate on
accelerating the broadening of our infrastructure activities. In order to
facilitate this transition and maintain the considerable momentum of our Growth
Capital business in Europe, we have announced that Guy Zarzavatdjian, who
currently heads our French business, will take over responsibility for Growth
Capital in Europe on 1 January 2007, reporting to Michael. It is our intention
that he will succeed Michael as Managing Partner, Growth Capital on 1 April
2008, allowing Michael at that time to become full-time Managing Partner of
Infrastructure.
In view of the growing importance of our Asian opportunity, Chris Rowlands,
Managing Partner, Group Markets, who has led our drive in this region, will
shortly relocate to Singapore in order to build our capabilities as other
country and asset markets are developed.
In signing off my Chief Executive's statement in May, I said that we expected
our level of realisations for the financial year to be below last year's
exceptional levels and that we expected to increase the amount invested. We
currently see little change in outlook and expect to report further progress
over the coming six months. Looking further out, after a period in which
divestments have been attractive in what are exceptional markets, we expect the
overall level of realisations to moderate as value is built in more recent
investments and as our SMI portfolio reduces to a core of less liquid holdings.
At this stage, the Group is on track to deliver growth in new investment over
the whole year. We believe that 3i is well placed against the current market
opportunity.
Philip Yea
Chief Executive
8 November 2006
Interim review
Group overview
The Group achieved a total return of £374 million (2005: £447 million) for the
period, as shown in table 1. This represents a return of 9.3% on opening
shareholders' funds (2005: 12.1%), or 11.0% on an adjusted basis (calculated on
the assumption that the £700 million return of capital was effected at the end
of the previous financial year).
Table 1: Total return
--------------------------------------------------------------------------------
6 months to 6 months to
30 September 30 September
2006 2005
£m £m
-------------------------------------------------------------------------------
Realised profits on disposal of investments 216 189
Unrealised profits on revaluation of investments 141 223
Portfolio income 123 109
-------------------------------------------------------------------------------
Gross portfolio return 480 521
Fund management fees 15 15
Carried interest receivable 35 57
Carried interest payable (48) (26)
Operating expenses (115) (96)
-------------------------------------------------------------------------------
Net portfolio return 367 471
-------------------------------------------------------------------------------
Net interest payable (2) (11)
Movements in the fair value of derivatives 11 (33)
Exchange movements (11) 35
Other (2) -
-------------------------------------------------------------------------------
Profit after tax 363 462
-------------------------------------------------------------------------------
Reserve movements (pension, property and
currency translation) 11 (15)
-------------------------------------------------------------------------------
Total recognised income and expense ('Total return') 374 447
-------------------------------------------------------------------------------
Gross portfolio return on the opening portfolio value, as shown in table 2, was
11.6% (2005: 12.1%). Strong levels of realised profits, combined with a number
of unrealised uplifts relating to valuations on an imminent sales basis at the
period end, were key to achieving this.
Table 2: Return by business line (£m)
6 months to 30 September
--------------------------------------------------------------------------------
Growth Venture
Buyouts Capital Capital SMI Total
2006 2005 2006 2005 2006 2005 2006 2005 2006 2005
--------------------------------------------------------------------------------
Gross portfolio
return 290 199 182 168 (69) 61 77 93 480 521
--------------------------------------------------------------------------------
Return as %
of opening
portfolio 19.8 13.1 14.2 13.0 (8.4) 8.2 13.7 12.3 11.6 12.1
--------------------------------------------------------------------------------
Net portfolio
return 367 471
-------------------------------------------------------------------------------
Return as %
of opening
portfolio 8.9 10.9
--------------------------------------------------------------------------------
Total return 374 447
--------------------------------------------------------------------------------
Total return as % of
opening shareholders'funds 9.3 12.1
--------------------------------------------------------------------------------
Return profiles for each individual business line are covered in detail in table
2. In summary, Buyouts and Growth Capital returns were ahead of expectations for
the six months, whereas those for Venture Capital were below.
The Group's net portfolio return was 8.9% on the opening portfolio value (2005:
10.9%). The difference of 2.7% between gross portfolio return and net portfolio
return is consistent with our expectations of 5% to 6% dilution for a full 12
months.
New investment in the period totalled £589 million (2005: £706 million). As can
be seen from table 3, Buyouts represents 40%, Growth Capital 38% and Venture
Capital 22% of this investment. Consistent with our growth strategy in the
region, investment in Asia was up markedly compared with the same period last
year.
There were 33 new investments in the period and, in addition to £589 million
invested from the Group's balance sheet, a further £111 million was invested on
behalf of co-investment funds (2005: £129 million).
Table 3: Investment by business line and geography (£m)
6 months to 30 September
--------------------------------------------------------------------------------
Growth Venture
Buyouts Capital Capital SMI Total
2006 2005 2006 2005 2006 2005 2006 2005 2006 2005
--------------------------------------------------------------------------------
Asia - - 85 36 - - - - 85 36
Continental
Europe 128 204 116 141 10 12 1 2 255 359
UK 106 154 21 109 34 18 1 2 162 283
US - - - - 76 28 - - 76 28
Rest of
the world 2 - - - 9 - - - 11 -
--------------------------------------------------------------------------------
Total 236 358 222 286 129 58 2 4 589 706
--------------------------------------------------------------------------------
Realisation proceeds, as can be seen from table 4, totalled £849 million (2005:
£1,041 million), and continued to be ahead of our expectations. Realised profits
of £216 million (2005: £189 million) represent an uplift of 34% over opening
value (2005: 22%). Realised profits are stated net of write-offs of £1 million
(2005: £40 million).
Table 4: Realisation proceeds by business line and geography (£m)
6 months to 30 September
--------------------------------------------------------------------------------
Growth Venture
Buyouts Capital Capital SMI Total
2006 2005 2006 2005 2006 2005 2006 2005 2006 2005
--------------------------------------------------------------------------------
Asia - - 37 35 - - - - 37 35
Continental
Europe 171 201 165 169 6 49 26 26 368 445
UK 217 178 115 135 5 56 92 135 429 504
US - - - 42 15 15 - - 15 57
--------------------------------------------------------------------------------
Total 388 379 317 381 26 120 118 161 849 1,041
--------------------------------------------------------------------------------
Note There were no Rest of the world proceeds in either period.
Overall, some 15.3% (2005: 19.7%) of the opening portfolio by value was realised
during the period, continuing the high churn seen in the previous 18 months.
Although sales of quoted investments were low in the period, four portfolio
companies achieved an IPO. At 30 September 2006 quoted investments represented
7% of 3i's total portfolio value (2005: 6%).
The unrealised value movement for the period of £141 million (2005: £223
million) was driven by several factors, as shown in table 5. A continuing strong
market for exits is demonstrated by a contribution of £160 million from uplift
to imminent sale. The fall in the value of quoted investments contributed a
negative £59 million (2005: positive £58 million).
Table 5: Unrealised profits/(losses) on revaluation of investments
-------------------------------------------------------------------------------
6 months to 6 months to
30 September 30 September
2006 2005
£m £m
-------------------------------------------------------------------------------
Earnings multiples(1) 22 66
Earnings(2) 16 27
First-time uplifts(3) 64 23
Provisions(4) (28) (37)
Net up/(down) rounds 8 (3)
Uplift to imminent sale 160 128
Other movements on unquoted investments (42) (39)
Quoted portfolio (59) 58
-------------------------------------------------------------------------------
Total 141 223
-------------------------------------------------------------------------------
1 The weighted average earnings multiple applied to investments valued on an
earnings basis, at both the start and end of the period, increased from
12.2 to 12.3 over the period.
2 The aggregate attributable earnings of investments valued on an earnings
basis at both the start and end of the period increased by 3%.
3 The net valuation impact arising on investments being valued on a basis
other than cost for the first time.
4 Provisions against the carrying value of investments in businesses which
may fail.
Buyouts
At 19.8% (2005: 13.1%) 3i's Buyout business delivered an exceptional gross
portfolio return for the period. This performance was driven by realised profits
of £76 million (2005: £62 million), on proceeds of £388 million (2005: £379
million), and an unrealised value movement of £151 million (2005: £79 million).
Two key investments, Swiss-based aviation engineering business SR Technics and
French transportation company Keolis, were valued on an imminent sale basis,
producing a combined uplift in value of £132 million. First-time uplifts from
cost on investments totalled £27 million.
Total investment during the period was £236 million (2005: £358 million), with
seven new investments in five different countries.
In August the Buyout business announced the first closing of its latest fund,
Eurofund V. At €4.3 billion, this was ahead of its initial target of €3.5
billion. The fund's final close, which is capped at €5 billion, is expected in
November 2006.
The health of the Buyout portfolio remained good, with the loss rate from
Eurofunds III and IV at just 5% of investment cost at 30 September 2006 (31
March 2006: 3%).
Growth Capital
Gross portfolio return from 3i's Growth Capital business line also exceeded
expectations at 14.2% for the period (2005: 13.0%). Realised profits of £90
million (2005: £60 million) on proceeds of £317 million (2005: £381 million)
were a key driver of this return.
Unrealised value growth from investments made in recent years was also
significant. First-time uplifts on several assets were a key driver of this.
Income from this business line was also significant at £36 million
(2005: £22 million).
Asia was the highest growth area for new investment with five of the 13 new
investments in the period being made in that region.
3i's rapidly-developing business in infrastructure is also managed through the
Growth Capital business line. A highly-experienced team is now in place, a
number of significant investments have been made and there is a good level of
work in progress.
Portfolio health improved over the period, with 89% of the portfolio by cost
being classified as healthy at the period end (31 March 2006: 84%), against a
three-year rolling average of 78%.
Venture Capital
The six month gross portfolio return from 3i's Venture Capital business was £
(69) million (2005: £61 million), or (8.4)% (2005: 8.2%) of opening portfolio
value.
This business line has a relatively high proportion of its portfolio value in
quoted assets compared to the Group as a whole (Venture Capital 23%, Group 7% as
at 30 September 2006). Consequently, the fall in quoted technology prices in
general, and more significant reductions in a small number of higher-value
quoted assets in particular, contributed £(68) million to the gross portfolio
return.
3i's two largest quoted venture assets, US-based broadband telephony business
Vonage Holdings Corp ('Vonage') and the UK-based electronics company CSR plc
('CSR') contributed a combined £38.5 million of the value reduction in the
period. Both remain successful investments, with IRRs of 39% (Vonage) and 59%
(CSR) at 30 September 2006 valuations.
A weak IPO market for technology companies also influenced the mergers and
acquisitions market and weakened prices. As a consequence, 3i deferred a number
of exits, which resulted in the low level of Venture realisations for the period
of £26 million (2005: £120 million).
A weaker market for exits, however, meant a better market for investing,
especially in late-stage opportunities in the US and the UK. Investment for the
period of £129 million (2005: £58 million) includes £72 million of late-stage
investment (2005: £16 million).
Consistent with this late-stage focus, the average size of investment also
increased, from £3 million for the year to 31 March 2006 to £7 million for the
six months to 30 September 2006.
Portfolio health improved, with 72% of the portfolio by cost classified as
healthy at 30 September 2006 (31 March 2006: 67%), against a three-year rolling
average of 68%.
SMI
Smaller Minority Investments delivered another good gross portfolio return at
13.7 % (2005: 12.3%). This performance was driven by a small number of
realisations at prices significantly above carrying values. SMI also made good
progress in reducing the total number of assets under management, from 526
investments at the start of the period to 426 at the end.
The portfolio
By value, 61% of the portfolio is now outside the UK (2005: 50%), with Asia
accounting for 5% (2005: 2%). The number of investments in the portfolio fell
from 1,087 (561 excluding SMI) at 31 March 2006 to 942 (516 excluding SMI) at 30
September 2006. As shown in table 6, the closing value of the portfolio, at
£4,174 million, was almost identical to the opening value of £4,139 million.
Table 6: Summary of changes to investment portfolio
-------------------------------------------------------------------------------
6 months to 6 months to
30 September 30 September
2006 2005
£m £m
-------------------------------------------------------------------------------
Opening portfolio 4,139 4,317
Investment 589 706
Realisation proceeds (849) (1,041)
Realised profits on disposal of investments 216 189
Unrealised profits on revaluation of investments 141 223
Other movements (62) (5)
-------------------------------------------------------------------------------
Closing portfolio 4,174 4,389
-------------------------------------------------------------------------------
Cash flows and capital structure
The cash inflow from operations was £235 million (2005: £265 million). Net
borrowings increased over the period to £475 million, from £56 million at 31
March 2006, with the cash inflow from operations being offset by the £700
million return of capital in July. The level of gearing rose from 1% at 31 March
2006 to 13% at the period end.
Net carried interest payable
The charge in respect of amounts payable to executives under carried interest
schemes was £48 million (2005: £26 million). This reflected the strong
performance of recent Buyout and Growth Capital vintages. Carried interest
receivable of £35 million (2005: £57 million) from 3i's managed funds relates
primarily to realised and unrealised profits generated on the Eurofund III and
Eurofund IV buyout funds.
Operating expenses
Operating expenses for the period of £115 million (2005: £96 million) were
maintained at the same level as for the six months to 31 March 2006. Employee
numbers were up from 737 at 31 March 2006 to 757 at the period end.
Pensions
The deficit on the Group's defined benefit plan, calculated under International
Accounting Standard 19 'Employee Benefits', reduced over the period, from £17
million at 31 March to £3 million at 30 September, mainly as a result of an
increase in bond yields. The plan was closed to new members from 1 April 2006
and the next full actuarial valuation is due to take place in summer 2007.
Growth in net asset value per share
The good operational performance in the period, combined with the return of
capital, resulted in growth in diluted net asset value per share of 53p (2005:
63p), from 739p to 792p.
Consolidated income statement
for the six months to 30 September 2006
-------------------------------------------------------------------------------
6 months to 6 months to 12 months to
30 September 30 September 31 March
2006 2005 2006
(unaudited) (unaudited) (audited)
Notes £m £m £m
-------------------------------------------------------------------------------
Realised profits over value on
the disposal of investments 216 189 576
Unrealised profits on the
revaluation of investments 141 223 245
-------------------------------------------------------------------------------
357 412 821
Portfolio income
Dividends 35 39 75
Income from loans and receivables 81 52 133
Fees receivable 7 18 24
-------------------------------------------------------------------------------
Gross portfolio return 1 480 521 1,053
Fund management fees 15 15 24
Carried interest
Carried interest receivable
from managed funds 35 57 79
Carried interest payable to executives (48) (26) (64)
Operating expenses (115) (96) (211)
-------------------------------------------------------------------------------
Net portfolio return 367 471 881
Treasury interest receivable 45 25 55
Interest payable (47) (36) (72)
Movements in the fair value of derivatives 11 (33) (78)
Exchange movements (11) 35 47
Other income - 1 22
-------------------------------------------------------------------------------
Profit before tax 365 463 855
Income taxes (2) (1) (3)
-------------------------------------------------------------------------------
Profit after tax and profit
for the period 363 462 852
-------------------------------------------------------------------------------
Earnings per share
Basic (pence) 2 70.3 79.6 152.0
Diluted (pence) 2 67.8 77.0 147.3
-------------------------------------------------------------------------------
Consolidated statement of recognised income and expense
for the six months to 30 September 2006
-------------------------------------------------------------------------------
6 months to 6 months to 12 months to
30 September 30 September 31 March
2006 2005 2006
(unaudited) (unaudited) (audited)
£m £m £m
-------------------------------------------------------------------------------
Profit for the period 363 462 852
Gain on valuation of property - 1 -
Exchange differences on translation of
foreign operations (3) (9) (5)
Actuarial gains/(losses) 14 (7) (16)
-------------------------------------------------------------------------------
Total recognised income and expense
for the period 374 447 831
-------------------------------------------------------------------------------
Analysed in reserves as
Revenue 69 52 117
Capital 308 404 719
Translation reserve (3) (9) (5)
-------------------------------------------------------------------------------
374 447 831
-------------------------------------------------------------------------------
Consolidated reconciliation of movements in equity
for the six months to 30 September 2006
-------------------------------------------------------------------------------
6 months to 6 months to 12 months to
30 September 30 September 31 March
2006 2005 2006
(unaudited) (unaudited) (audited)
£m £m £m
-------------------------------------------------------------------------------
Opening total equity 4,006 3,699 3,699
Total recognised income and expense
for the period 374 447 831
Share-based payments 5 4 8
Ordinary dividends (52) (56) (86)
Special dividends - (245) (245)
Issue of B shares (700) - -
Issues of shares 10 5 13
Share buy-backs - (151) (222)
Own shares 5 8 8
-------------------------------------------------------------------------------
Closing total equity 3,648 3,711 4,006
-------------------------------------------------------------------------------
Consolidated balance sheet
as at 30 September 2006
-------------------------------------------------------------------------------
30 September 30 September 31 March
2006 2005 2006
(unaudited) (unaudited) (audited)
Notes £m £m £m
-------------------------------------------------------------------------------
Assets
Non-current assets
Investments
Quoted equity investments 279 260 259
Unquoted equity investments 2,507 2,625 2,514
Loans and receivables 1,388 1,504 1,366
-------------------------------------------------------------------------------
Investment portfolio 1 4,174 4,389 4,139
Carried interest receivable 108 65 77
Interests in joint ventures - 39 -
Property, plant and equipment 31 35 31
Investment property - 7 -
-------------------------------------------------------------------------------
Total non-current assets 4,313 4,535 4,247
-------------------------------------------------------------------------------
Current assets
Other current assets 99 199 149
Derivative financial instruments 25 29 19
Deposits 763 501 1,108
Cash and cash equivalents 711 373 847
-------------------------------------------------------------------------------
Total current assets 1,598 1,102 2,123
-------------------------------------------------------------------------------
Total assets 5,911 5,637 6,370
-------------------------------------------------------------------------------
Liabilities
Non-current liabilities
Carried interest payable (106) (68) (83)
Loans and borrowings (1,038) (1,145) (1,243)
Convertible Bonds (359) (353) (365)
B shares (11) - -
Subordinated liabilities (21) (49) (24)
Retirement benefit obligation (3) (30) (17)
Deferred income tax (1) - (1)
Provisions (4) (6) (5)
-------------------------------------------------------------------------------
Total non-current liabilities (1,543) (1,651) (1,738)
-------------------------------------------------------------------------------
Current liabilities
Trade and other payables (138) (130) (160)
Carried interest payable (31) (28) (60)
Loans and borrowings (400) - (231)
Derivative financial instruments (145) (108) (168)
Current income tax (3) (2) (2)
Provisions (3) (7) (5)
-------------------------------------------------------------------------------
Total current liabilities (720) (275) (626)
-------------------------------------------------------------------------------
Total liabilities (2,263) (1,926) (2,364)
-------------------------------------------------------------------------------
Net assets 3,648 3,711 4,006
-------------------------------------------------------------------------------
Equity
Issued capital 294 296 292
Share premium 379 368 376
Capital redemption reserve 22 13 17
Share-based payment reserve 22 13 17
Translation reserve (3) (4) -
Capital reserve 2,718 2,866 3,110
Revenue reserve 280 228 263
Own shares (64) (69) (69)
-------------------------------------------------------------------------------
Total equity 3,648 3,711 4,006
-------------------------------------------------------------------------------
Consolidated cash flow statement
for the six months to 30 September 2006
-------------------------------------------------------------------------------
6 months to 6 months to 12 months to
30 September 30 September 31 March
2006 2005 2006
(unaudited) (unaudited) (audited)
£m £m £m
-------------------------------------------------------------------------------
Cash flow from operating activities
Purchase of investments (559) (724) (1,068)
Proceeds from investments 858 1,025 2,213
Interest received 53 28 67
Dividends received 35 39 76
Fees received from investment and fund
management activities 11 30 46
Carried interest received 5 2 9
Carried interest paid (49) (29) (30)
Operating expenses (118) (105) (216)
Income tax paid (1) (1) (8)
-------------------------------------------------------------------------------
Net cash flow from operations 235 265 1,089
-------------------------------------------------------------------------------
Cash flow from financing activities
Proceeds from issues of share capital 10 5 13
Repurchase of own ordinary shares - (151) (222)
Repurchase of B shares (689) - -
Dividend paid (52) (301) (331)
Interest received 44 26 50
Interest paid (40) (36) (60)
Proceeds from long-term borrowings 1 1 69
Repayment of long-term borrowings (2) (47) (54)
Net cash flow from short-term borrowings 18 (86) 188
Net cash flow from deposits 345 384 (223)
-------------------------------------------------------------------------------
Net cash flow from financing activities (365) (205) (570)
-------------------------------------------------------------------------------
Cash flow from investing activities
Purchases of property, plant and equipment (3) (2) (15)
Sales of property, plant and equipment 1 - 24
Divestment from joint ventures - 2 2
-------------------------------------------------------------------------------
Net cash flow from investing activities (2) - 11
-------------------------------------------------------------------------------
Change in cash and cash equivalents (132) 60 530
-------------------------------------------------------------------------------
Cash and cash equivalents at 1 April 847 314 314
Effect of exchange rate fluctuations (4) (1) 3
-------------------------------------------------------------------------------
Cash and cash equivalents at the end
of the period 711 373 847
-------------------------------------------------------------------------------
Notes to the accounts
1 Segmental analysis
-------------------------------------------------------------------------------
Smaller
Growth Venture Minority
6 months to 30 September 2006 Buyouts Capital Capital Investments Total
(unaudited) £m £m £m £m £m
-------------------------------------------------------------------------------
Gross portfolio return
Realised profits over value on the
disposal of investments 76 90 5 45 216
Unrealised profits on the
revaluation of investments 151 56 (78) 12 141
Portfolio income 63 36 4 20 123
-------------------------------------------------------------------------------
290 182 (69) 77 480
-------------------------------------------------------------------------------
Net (investment)/divestment
Realisation proceeds 388 317 26 118 849
New investment (236) (222) (129) (2) (589)
-------------------------------------------------------------------------------
152 95 (103) 116 260
-------------------------------------------------------------------------------
Balance sheet
-------------------------------------------------------------------------------
Value of investment portfolio 1,534 1,310 826 504 4,174
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Growth Venture Smaller
Growth Venture Minority
6 months to 30 September 2005 Buyouts Capital Capital Investments Total
(unaudited) £m £m £m £m £m
-------------------------------------------------------------------------------
Gross portfolio return
Realised profits over value on the
disposal of investments 62 60 36 31 189
Unrealised profits on the
revaluation of investments 79 86 23 35 223
Portfolio income 58 22 2 27 109
-------------------------------------------------------------------------------
199 168 61 93 521
-------------------------------------------------------------------------------
Net (investment)/divestment
Realisation proceeds 379 381 120 161 1,041
New investment (358) (286) (58) (4) (706)
-------------------------------------------------------------------------------
21 95 62 157 335
-------------------------------------------------------------------------------
Balance sheet
-------------------------------------------------------------------------------
Value of investment portfolio 1,665 1,321 740 663 4,389
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Smaller
Growth Venture Minority
Buyouts Capital Capital Investments Total
12 months to 31 March 2006 (audited) £m £m £m £m £m
-------------------------------------------------------------------------------
Gross portfolio return
Realised profits over value on the
disposal of investments 208 232 72 64 576
Unrealised profits on the
revaluation of investments 124 60 51 10 245
Portfolio income 115 49 5 63 232
-------------------------------------------------------------------------------
447 341 128 137 1,053
-------------------------------------------------------------------------------
Net (investment)/divestment
Realisation proceeds 877 855 207 268 2,207
New investment (451) (497) (156) (6)(1,110)
-------------------------------------------------------------------------------
426 358 51 262 1,097
-------------------------------------------------------------------------------
Balance sheet
-------------------------------------------------------------------------------
Value of investment portfolio 1,465 1,284 826 564 4,139
-------------------------------------------------------------------------------
2 Per share information
The earnings and net assets per share attributable to the equity shareholders
of the Company is based on the following data:
-------------------------------------------------------------------------------
6 months to 6 months to 12 months to
30 September 30 September 31 March
2006 2005 2006
(unaudited) (unaudited) (audited)
-------------------------------------------------------------------------------
Earnings per share (pence)
Basic 70.3 79.6 152.0
Diluted 67.8 77.0 147.3
-------------------------------------------------------------------------------
Earnings (£m)
Profit for the period attributable to
equity holders of the Company 363 462 852
Effect of dilutive potential ordinary
shares 7 5 14
-------------------------------------------------------------------------------
370 467 866
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
6 months to 6 months to 12 months to
30 September 30 September 31 March
2006 2005 2006
(unaudited) (unaudited) (audited)
Number Number Number
-------------------------------------------------------------------------------
Number of shares
Weighted average
number of shares in issue 516,335,648 580,583,146 560,684,598
Effect of dilutive potential
ordinary shares
Share options 4,917,861 1,697,906 2,744,369
Convertible Bonds 24,750,000 24,750,000 24,750,000
-------------------------------------------------------------------------------
Diluted shares 546,003,509 607,031,052 588,178,967
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
30 September 30 September 31 March
2006 2005 2006
(unaudited) (unaudited) (audited)
-------------------------------------------------------------------------------
Net assets per share (pence)
Basic 798 679 743
Diluted 792 677 739
-------------------------------------------------------------------------------
Net assets (£m)
Net assets attributable to
equity holders of the Company 3,648 3,711 4,006
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
30 September 30 September 31 March
2006 2005 2006
(unaudited) (unaudited) (audited)
Number Number Number
-------------------------------------------------------------------------------
Ordinary shares 467,344,551 557,787,039 550,556,502
Own shares (10,035,981) (11,423,094) (11,080,758)
-------------------------------------------------------------------------------
Number of shares in issue 457,308,570 546,363,945 539,475,744
Effect of dilutive potential
ordinary shares
Share options 3,320,915 1,952,013 2,916,552
-------------------------------------------------------------------------------
Diluted shares 460,629,485 548,315,958 542,392,296
-------------------------------------------------------------------------------
Accounting policies
Basis of preparation These financial statements are the unaudited interim
consolidated financial statements (the 'Interim 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 2006 (the 'interim period'). The Interim
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 2006 ('Report and Accounts 2006'), as they provide an update of previously
reported information.
The Interim Financial Statements were authorised for issue by the Directors on
8 November 2006.
The Interim Financial Statements have been prepared in accordance with the
accounting policies set out in the Report and Accounts 2006 as the new and
revised International Financial Reporting Standards and interpretations
effective 1 April 2006 have had no impact on the accounting policies of the
Group. The presentation of the Interim Financial Statements is consistent with
the Report and Accounts 2006. Where necessary, comparative information has been
reclassified or expanded from the previously reported Interim Financial
Statements to take into account any presentational changes made in the Report
and Accounts 2006.
The Interim Financial Statements do not constitute statutory accounts. The
statutory accounts for the year to 31 March 2006, prepared under IFRS, have been
filed with the Registrar of Companies on which the auditors issued a report,
which was unqualified and did not contain a statement under section 237(2) or
section 237(3) of the Companies Act 1985.
The preparation of the Interim 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 our 'valuation methodology' for investments in
the Report and Accounts 2006.
The Group operates in business lines where significant seasonal or cyclical
variations in activity are not experienced during the financial year.
Independent review report to 3i Group plc
Introduction We have been instructed by 3i Group plc to review the financial
information for the six months to 30 September 2006 which comprises the
Consolidated income statement, Consolidated balance sheet, Consolidated cash
flow statement, Consolidated reconciliation of movements in equity, Consolidated
statement of recognised income and expense and the related notes 1 to 14. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the Company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' 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 interim report, including the financial
information contained therein, is the responsibility of, and has been approved
by, the Directors. The Directors are responsible for preparing the interim
report in accordance with the Listing Rules of the Financial Services Authority
which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual accounts except where any changes, and the reasons for them,
are disclosed.
Review work performed We conducted our review in accordance with guidance
contained in Bulletin 1999/4 'Review of interim financial information' issued by
the Auditing Practices Board for use in the United Kingdom. A review consists
principally of making enquiries of Group management and applying analytical
procedures to the financial information and underlying financial data, and based
thereon, assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with International Standards on Auditing (UK and Ireland) and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.
Review conclusion On the basis of our review we are not aware of any material
modifications that should be made to the financial information as presented for
the six months to 30 September 2006.
Ernst & Young LLP
London,
8 November 2006
Note 1
The Interim report 2006 will be posted to shareholders on 20 November 2006 and
thereafter copies will be available from the Company Secretary, 3i Group plc, 16
Palace Street, London SW1E 5JD.
Note 2
The interim dividend will be payable on 3 January 2007 to holders of ordinary
shares on the register on 1 December 2006. The ex-dividend date will be 29
November 2006.
Ten largest investments
-------------------------------------------------------------------------------
First Residual Directors'
Business Invested Cost(1) valuation(1)
Investment line Geography in £m £m
-------------------------------------------------------------------------------
SR Technics Holding Buyouts Switzerland 2002
Technical solutions
provider for commercial
aircraft fleets
Equity shares 7 117
Loans 31 30
-------------------------------------------------------------------------------
38 147
-------------------------------------------------------------------------------
Financiere Keos SA Buyouts France 2004
(Keolis)
Transport operator
Equity shares 9 111
-------------------------------------------------------------------------------
9 111
-------------------------------------------------------------------------------
Parking International
Holdings Limited (NCP) Buyouts UK 2005
Transport management
and parking services
Equity shares 1 1
Loans 107 107
-------------------------------------------------------------------------------
108 108
-------------------------------------------------------------------------------
Sistemas Tecnicos de
Encofrados S.A. (STEN) Growth Spain 2006
Sale and rental of
formwork and scaffolding
equipment
Equity shares 81 81
-------------------------------------------------------------------------------
81 81
-------------------------------------------------------------------------------
Infrastructure Investors(2) Growth UK 2005
Secondary PFI
and infrastructure
investment fund
Equity shares - 8
Loans 58 58
-------------------------------------------------------------------------------
58 66
-------------------------------------------------------------------------------
H-Careholding AB Buyouts Sweden 2005
Elderly, primary and
specialist care
Equity shares 11 11
Loans 56 55
-------------------------------------------------------------------------------
67 66
-------------------------------------------------------------------------------
Giochi Preziosi spa Buyouts Italy 2005
Retailer and wholesaler
of toys
Equity shares 63 62
-------------------------------------------------------------------------------
63 62
-------------------------------------------------------------------------------
Boxer TV-Access AB Growth Sweden 2005
Digital TV distributor
Equity shares 56 57
-------------------------------------------------------------------------------
56 57
-------------------------------------------------------------------------------
FM-Holding AB Buyouts Sweden 2004
(Coor Service Management)
Facilities management
services
Equity shares 1 30
Loans 28 26
-------------------------------------------------------------------------------
29 56
-------------------------------------------------------------------------------
Senoble Holding SAS Growth France 2004
Manufacturer of dairy
products and chilled
desserts
Equity shares 9 36
Loans 18 19
-------------------------------------------------------------------------------
27 55
-------------------------------------------------------------------------------
Notes
1 The investment information is in respect of the Group's holding and
excludes any co-investment by 3i managed funds.
2 The investment by 3i is into three Infrastructure Investors' entities. 3i
is a limited partner in the fund and is invested in the general partner of
the fund and the management company. As well as the loan shown, the
investment has a cost of £3,177 for partnership capital.
This information is provided by RNS
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