Final Results
3i Group PLC
11 May 2006
11 May 2006
3i Group plc announces strong results and £700 million return to shareholders
Preliminary results for year to 31 March 2006
2006 2005*
Total return on opening shareholders' funds 22.5% 15.2%
Net asset value per share (diluted) 739p 614p
Final dividend 9.7p 9.3p
Realised profits on disposal of investments £576m £250m
New investment £1,110m £755m
Realisation proceeds £2,207m £1,302m
*As restated to reflect the adoption of International Financial Reporting
Standards (IFRS)
Highlights
• A total return of £831 million representing a return of 22.5% on opening
shareholders' funds.
• Realisation proceeds on the sale of assets of £2,207 million generating
realised profits of £576 million. Realisations were made at an uplift of 35%
over opening values.
• Investment of £1,110 million (£1,322 million including co-investment
funds).
• Final dividend of 9.7p, making a total ordinary dividend for the year of
15.2p, up 4.1%.
• Announcement of intention to return £700 million to shareholders through
a bonus issue of listed B shares.
Baroness Hogg, Chairman of 3i Group plc, said: 'A strong position in a buoyant
market enabled the Group to deliver a return of £831 million for the year. In
addition good progress has been made towards achieving our vision. Another year
of strong cash flow enables us to make further substantial returns of capital to
shareholders.'
3i's Chief Executive, Philip Yea, said: 'With another very good set of results
behind us, a detailed strategy for the future, and confidence high within the
organisation, we remain determined to accelerate the development of 3i to
deliver further shareholder value.'
Commenting on the outlook, he added: 'Markets remain favourable, and although we
expect our levels of realisations in the new financial year to be below last
year's exceptional levels, we expect to increase our level of investment again
if the present economic conditions continue.'
Return of capital to shareholders
The Board of 3i Group plc also announces the proposed return of £700 million to
shareholders. The proposed cash return is currently expected to be made by way
of a bonus issue of listed B shares accompanied by a share consolidation designed
to maintain comparability of share price and earnings per share.This is currently
expected to take place in July.
Resolutions relating to the return of capital proposals will be put to
shareholders at an Extraordinary General Meeting. A circular convening the EGM
and giving more information and detail on the proposals is expected to be sent
to shareholders in June.
- ends -
For further information, please contact:
Philip Yea, Chief Executive Tel: 020 7975 3386
3i Group plc
Simon Ball, Finance Director Tel: 020 7975 3356
3i Group plc
Patrick Dunne, Communications Director Tel: 020 7975 3283
3i Group plc
Issued by:
Philip Gawith Tel: 020 7379 5151
The Maitland Consultancy
For further information regarding the announcement of 3i's annual results to 31
March 2006, including video interviews with Philip Yea and Simon Ball (available
7.15am) and a live webcast of the results presentation (at 10.00am, available on
demand from 2.00pm), please see www.3igroup.com.
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, in the United
States and in 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 entered the financial year with strong momentum and buoyant market
conditions, which continued throughout the period. Our market position enabled
the Group to take advantage of these factors and to deliver a return of £831
million for the year to 31 March 2006. This was substantially up from £501
million last year and represented a return of 22.5% on opening shareholders'
funds.
Having invested in and developed companies of strategic value to others, 3i was
well placed to sell into receptive markets. Realisations totalled £2.2 billion
and were made at a profit of 35% over opening value.
The Board is recommending a final ordinary dividend of 9.7p, making a total
ordinary dividend for the year of 15.2p, up 4.1% on last year. Meanwhile, the
£500 million return of capital approved by shareholders at our EGM last year has
essentially been completed. The Board intends to return a further £700 million
to shareholders by way of a bonus issue of listed B shares, which is currently
expected to take place in July. Resolutions relating to the return of capital
proposals will be put to shareholders at an Extraordinary General Meeting.
High quality new investment is a key driver of future value. Despite remaining
highly selective, we were able to increase investment by 47% to £1.1 billion,
drawing on our in-depth sector knowledge and local relationships in a range of
different markets. The international proportion of our investment rose in the
year to 63% and our widening international reach is illustrated by the fact that
over half of our assets are now outside the UK.
In Asia we established teams in Shanghai and Mumbai during the year, and made
ground-breaking investments in both China and India. 3i's Growth Capital
business has also recently entered the US Market and, in addition, our
Infrastructure team is now in place and has made a number of investments.
We have been planning for some time to establish an Advisory Board for our
business in Germany. I am delighted to report that Dr Peter Mihatsch, who
has been on the Group Board since 2004, has agreed to become Chairman of this
new Advisory Board. However, as he would then no longer be categorised as an
independent non-executive Director, this means he will be stepping off the
3i Group Board at the end of July. I would like to thank him for the contribution
he has made as well as the still greater one he will be making to 3i in the future.
I would also like to thank Danny Rosenkranz, who is Chairman of the Remuneration
Committee and has been on the Board for six years. Danny has agreed to stand for
re-election for a further year to support Sir Robert Smith, who will be taking
on the chairmanship of the Remuneration Committee in August.
Underpinning this year's performance is a high level of staff engagement. A
survey of our staff during the year, conducted by Ipsos MORI, showed high
commitment, and that 3i's level of staff engagement exceeded that of many other
leading companies.
This commitment also characterises our approach to corporate responsibility. For
a company like 3i, our direct impact on the community and the environment will
be much less significant than that of the companies in which we invest. We
nevertheless are refining measurement of our own impact, while continuing to
review our standards for these issues in portfolio selection and management.
I would like to thank all our staff for their skill, effort and teamwork in
achieving these good results and also pay tribute to the management teams and
the advisers of our portfolio companies.
So, in summary, this has been a good year for 3i shareholders, with the
Group taking advantage of favourable market conditions, delivering a high level
of return on shareholders' funds, growing investment levels and improving the
strategic position of the business. In developing our strategy we will continue
to combine ambition with rigour in pursuit of value for our investors.
Baroness Hogg
Chairman
10 May 2006
Chief Executive's statement
I am pleased to report a very good set of full year financial results and
further progress in implementing the plans we set for the business over the past
18 months. In particular, these results provide tangible evidence of the
continued success of our Buyout business and the benefits of the recent
strategic changes made to the models for our Growth Capital and Venture Capital
business lines.
Financing markets continue to be favourable, with the private equity markets
giving high valuations to good assets. These conditions have provided the
opportunity for us to achieve a record level of realisations and also realised
profits. All of our business lines have been active sellers into these markets.
Yet, at the same time, each of our three core business lines has increased its
level of new investment. The most notable increase was within the Growth Capital
business, reflecting its focus on larger deal sizes when compared to a year ago
and the growing importance of Asia within our strategy.
The rate of growth in private equity markets over the last decade has, for many
people, raised genuine questions as to the sustainability of returns and the
relative advantages of this ownership model as the asset class becomes more
mainstream. We continue to believe that there is more than ample opportunity and
that the key issue for the Group is to leverage its competitive advantage in
those particular markets which provide greatest returns over the mid term.
Our teams in Asia have been strengthened, our teams in the US are being
reinforced and, more indirectly, we have made a number of investments in
selected funds which can bring exposure to specific geographies or asset classes
that we cannot achieve on our own.
We have recently completed a comprehensive strategic review of both our current
and future business areas within the private equity field and, where
appropriate, will continue to use our balance sheet to develop new business
lines, and our knowledge-sharing culture and market access to attract new people
to join us.
As part of this review, we have also looked in detail at the opportunities and
structure of each of our current business lines. We have concluded that we
should increase the mix of late-stage investment within our Venture Capital
business, an area which particularly plays to our international differentiation.
As a result of this change we have amended our cash to cash IRR target for this
business line to 25%, with vintage year volatility of plus or minus 15%. We have
also confirmed the opportunity for both this business and our Growth Capital
business within the US, and are building our local teams accordingly.
I am very pleased with the further steps we have taken on our people agenda.
In a rapidly growing industry where experience is critical and personal
compensation at the most senior levels is performance related and uncapped, it
is critical to ensure that both the financial and non-financial elements of our
people proposition are as competitive as they can be. To supplement the carry
schemes which we have implemented across our business lines, we have also
introduced market aligned co-investment schemes whereby members of our investing
team make personal investments alongside 3i and third party investors' capital.
We have also made further changes to our internal organisation to ensure that we
give our investing teams maximum flexibility to operate as self-standing
partnerships with the same operational flexibility as their competitors, yet
enable them to be both the beneficiaries of and contributors to the network of
knowledge sharing that differentiates 3i from most firms within our field. Our
Business review which follows, contains a number of examples showing this
culture of cross-geography cross-business line co-operation at its very best.
To reflect the ambitious nature of our agenda, we have also created a Group
Partnership, which brings together those senior business leaders who can make
the broadest contribution to the further development and expansion of the firm.
The recent move of our London office to more modern premises has had a
significant impact in terms of communications and produced an enhanced
experience for visitors to 3i, as well as an improved working environment.
We have also reviewed our capital requirements over the coming period and,
notwithstanding the significant level of opportunity we have identified, we
believe it is appropriate to make a further return of cash to shareholders.
Although accounting for the equity option within the Convertible Bond issued in
2003 has, under IFRS, reduced reported profits (and will continue to do so if we
are successful in delivering shareholder value through an increase in the share
price), the flexibility to satisfy the bond redemption in 2008 in either cash or
shares provides a significant equity cushion should realisation markets slow for
any reason.
Markets remain favourable and, although we expect our levels of realisations in
the new financial year to be below last year's exceptional levels, we expect to
increase our level of investment again if the present economic conditions
continue.
With another very good set of results behind us, a detailed strategy for the
future, and confidence high within the organisation, we remain determined to
accelerate the development of 3i to deliver further shareholder value.
Philip Yea
Chief Executive
10 May 2006
Business review
Group strategy
Our strategy is to grow our assets and those the Group manages on behalf of
third parties by using our relationships and knowledge to identify and invest in
opportunities that can deliver high returns. Change provides opportunity, and as
3i operates across Europe, Asia and the US, the rapid rate of change in the
global economy provides a significant number of investment opportunities where
our knowledge and relationships, when combined with active management, can
deliver real financial value.
We are constantly reviewing developments in the private equity markets, the
competitiveness of our existing business lines and the potential to expand our
access to good opportunities. Where appropriate, we use our capital to fund
additional resources, to seed new proprietary business lines and to build
relations with other investment managers who can give us exposure to an
attractive market.
Our people are organised in self-standing teams whose structure is
market-adapted, whose compensation is results-oriented, and which have as their
principal objective the selection of the very best opportunities within our
chosen asset classes. We seek to maximise our performance by the delivery of our
collective knowledge and relationships to each investment opportunity. Our teams
are both the contributors to, and the beneficiaries of, this culture of
knowledge sharing.
Key to our strategy is attracting and developing people who can combine the
requisite investment and professional experience with our cultural fit. Part of
this culture is an active approach to managing development.
Our financial and risk management processes are focused on delivering targeted
returns on asset specific pools of capital, whilst optimising the mix between
returns on proprietary invested capital, income received from fees on
third-party funds and setting appropriate leverage ratios.
Our business
Group
The Group's investment focus is on buyouts, growth capital and venture capital.
At 31 March 2006: Buyouts represented 35% of our portfolio; Growth Capital 31%;
and Venture Capital 20%.
Additionally, we have a portfolio of Smaller Minority Investments, which
accounts for 14% of the portfolio. It is our objective to realise this portfolio
progressively in the near term.
We are a knowledge-based company providing market access, insight for investment
decision making and the ability to add significant value to the companies in
which we invest.
We use our international network to identify and assess a wide range of
investment opportunities, selecting only those that meet our return and quality
criteria. Having made an investment, we then work in active partnership with the
boards of our portfolio companies to create value through to the ultimate
realisation of our investment.
We operate through a network of teams located in Europe, Asia and the US. Europe
is our principal region with some 90% of the investment portfolio by value based
in this market. We continue to increase our presence in new markets. During the
year, teams were formed in Shanghai and Mumbai and, most recently, in New York
to extend our Growth Capital business.
Consistent with our strategy of investing in third-party private equity funds to
gain market access and additional opportunities to add value to our portfolio,
we made investments in Israel and Russia during the year. These accompany
existing investments in funds in China, eastern Europe and Japan.
The benefits of having access to permanent capital from our own balance sheet
also enable us to take a more flexible and longer-term approach to the
structuring of individual investments.
Buyouts
This business line invests in European mid-market buyout transactions with a
value of up to €1billion and targets around 15 investments per year. These
investments typically involve 3i investing with co-investment funds managed by
3i. Investments are in businesses with development potential where we can work
with an incentivised management team to grow value through operational
improvements and by exploiting market opportunities. These businesses are
generally sold by large corporates disposing of non-core activities, private
groups with succession issues or, in the case of a secondary buyout, other
private equity investors.
A key to our success is our international network, which enables us to access
markets as a 'local' participant and to apply to each opportunity the knowledge,
skills and sector experience of our much larger pan-European resource. An
intimate understanding of the economic model that drives the companies that we
invest in is critical, as is the value creation plan that supports each
investment decision.
Competition in the European buyout market is intense and the high level of
historic returns achieved has continued to attract new entrants, including some
non-traditional competitors, such as hedge funds.
Despite the strong competition, we are confident that through a combination of
our scale, local knowledge and sector insight, we can build on our position as
the leading European mid-market buyout house.
We will also actively review the opportunities to expand our Buyout business
beyond Europe, particularly as we build Group-wide experience in Asia.
Growth Capital
Our Growth Capital business targets investments of between €10 million and €150
million, across a broad range of sectors, business sizes and funding needs. We
aim to invest in between 20 and 30 such transactions per year and it is our
strategy to continue to grow the average size of investment.
Growth capital investments typically involve 3i acquiring substantial minority
stakes in privately-owned businesses at key points of change. Growth capital can
be invested to accelerate organic growth, to fund acquisitions or to acquire
shares from existing shareholders to resolve a succession or other ownership
issue. With such minority positions, we seek to ensure a high level of influence
to create value for shareholders.
Success in growth capital is increasingly driven by deep sector knowledge and
the ability to add value to companies expanding internationally, through giving
them access to 3i's network. These factors, combined with 3i's traditional
strength in managing relationships with regional businesses and intermediaries,
give 3i significant competitive advantage.
To date, our Growth Capital business has focused on the European and Asian
markets where we have strong networks and relationships and see good
opportunities to invest. During the year, we extended our reach by entering the
US market.
The competitive environment in the growth capital market is more attractive than
in the buyout market. Additionally, not all private equity funds' mandates
provide the freedom to make minority investments. Our permanent capital
differentiates us from other private equity investors, enabling us to make not
only minority investments, but provide more flexible longer-term funding.
A dedicated infrastructure team has also been created within this business line
with the goal of building a high-quality portfolio in this asset class. Our
investment strategy here is threefold: direct investment in infrastructure
projects; investment in infrastructure funds; and creating portfolios of
infrastructure assets to bring to the market.
Venture Capital
Our Venture Capital business is focused on early and late-stage technology
investing and targets investments in the range of €2 million to €50 million. The
four main sub-sectors are: healthcare, communications, software and ESAT
(Electronics, Semiconductors and Advanced Technologies).
The main geographic focus continues to be Europe and the US, though we have made
venture investments in Asia. As venture businesses typically compete globally,
each investment opportunity is reviewed by reference to the relevant global
sub-sector's competitive landscape.
We work closely with each company we invest in to create a route map to becoming
a scalable, successful business. We are a selective, active investor and we sit
on the boards of the majority of companies in which we invest. We work in
partnership with our investee management teams to add value by utilising 3i's
global network of relationships. Through these relationships, we will often
introduce new partners, customers and suppliers, and because our network is
international, we can help young businesses to bridge the gap to new markets.
Our Venture Capital business has a prominent position in Europe with a strong
track record of investment and divestment. Competition is strong in markets such
as the UK, where many US firms are active. However, we continue to be well
placed here and in other European venture markets. The US market is highly
competitive but our global network, sector focus and international offering
position 3i well alongside local firms.
Our markets
Europe
Europe is our principal geographic market, with the majority of our assets and
investment activity being conducted in this region. Our business strategy is
focused on harnessing our strong regional presence and deep sector experience.
2005 was a record year for the market, with the level of fundraising being twice
that of the previous year and total investment increasing by 39%. A number of
substantial buyout deals in the UK and across continental Europe were a major
contributor to this record level of activity.
European buyout investment increased by 44%, driven by increased M&A and
secondary market activity, the return of trade buyers and improved IPO markets.
Activity levels in the growth capital market in 2005 were similar to 2004,
although this market presents an excellent opportunity as the economy continues
to restructure, sectors consolidate and companies seek to expand
internationally.
The venture market is showing increased levels of investment and capital market
activity.
The year also saw divestments in Europe at record highs as favourable exit
conditions were prevalent. The return of trade buyers, improved IPO markets,
secondary sales and increased M&A activity were all strong sources of exits.
Asia
This region comprises a number of stand-alone markets and each market has very
different characteristics. Asian markets are in the growth phase and forecast
macroeconomic growth rates make this a particularly attractive region for
private equity investment.
At the present time, Asia is predominantly a growth capital market for 3i.
However, we expect to develop Buyout and Venture Capital teams in the longer
term.
Currently, India and China represent the highest potential private equity
markets, although we will seek opportunities to develop our business in Japan,
South Korea, and South East Asia.
In 2005 the Asian private equity industry has seen a very significant increase
in incoming funds compared to 2004, with India leading the way. Investment
increased 29%, with growth capital returning to prominence. Japan accounted for
the largest proportion of capital returned to investors, followed by India and
China. IPOs were the most preferred exit route, making up 50% of divestments,
although trade sales remained the dominant exit route in Japan.
The US
Venture capital has been our focus in the US, where we have invested in both
early and late-stage technology companies. During the year, we recruited a
Growth Capital team to take advantage of the opportunities in this market and
complement our investment teams in Europe and Asia.
The US continues to be the largest and most attractive venture capital market in
the world. The market is characterised by a high level of competitiveness,
access to technology and clusters of innovation, combined with significant
numbers of serial entrepreneurs. Our leading competitors are typically niche
partnerships operating domestically.
US venture capital investing in 2005 rose to its highest level since 2001.
Market activity was based on the strong fundraising environment of 2004 and
2005, which contributed to increased investment levels. Improved exit markets,
particularly for venture-backed companies, was another important contributor.
Group financial review
Total return
3i achieved a total return for the year to 31 March 2006 of £831 million, which
equates to a 22.5% return on restated opening shareholders' funds (2005: 15.2%).
A key feature of this return is the very strong level of realised profits on
disposal of investments where, throughout the year, we have benefited from good
market conditions for sales.
Total return
--------------------------------------------------------------------------------
2006 2005
(as restated)*
£m £m
--------------------------------------------------------------------------------
Realised profits on disposal of investments 576 250
Unrealised profits on revaluation of investments 245 245
Portfolio income 232 232
--------------------------------------------------------------------------------
Gross portfolio return 1,053 727
Net carried interest 15 (64)
Fund management fees 24 30
Operating expenses (211) (177)
--------------------------------------------------------------------------------
Net portfolio return 881 516
Net interest payable (17) (42)
Exchange movements 47 13
Movements in the fair value of derivatives (78) 13
Other 19 (2)
--------------------------------------------------------------------------------
Profit after tax 852 498
--------------------------------------------------------------------------------
Reserve movements (pension, property and currency
translation) (21) 3
--------------------------------------------------------------------------------
Total recognised income and expense ('Total return') 831 501
--------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
As indicated in the table below, we have generated a very good level of gross
portfolio return of £1,053 million (2005: £727 million), representing 24.4% on
opening portfolio value (2005: 16.7%). Each of our core business lines has
generated higher returns, with Venture Capital showing the most improved result
over last year. Buyouts and Growth Capital are operating at the top end of their
long-term target ranges, with returns of 29% and 26% respectively.
Return by business line (£m)
---------------------------------------------------------------------------------------
Growth Venture
Buyouts Capital Capital SMI Total
2006 2005 2006 2005 2006 2005 2006 2005 2006 2005
(as restated)*
---------------------------------------------------------------------------------------
Gross
portfolio
return 447 301 341 285 128 76 137 65 1,053 727
---------------------------------------------------------------------------------------
Return as % of
opening
portfolio 29% 20% 26% 23% 17% 11% 18% 7% 24% 17%
--------------------------------------------------------------------------------------
Net portfolio return 881 516
Return as % of
opening portfolio 20% 12%
---------------------------------------------------------------------------------------
Total return 831 501
---------------------------------------------------------------------------------------
Total return as %
on opening
shareholders'funds 22% 15%
---------------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
The Group's gross portfolio return of 24% compares with 17% in 2005. After costs
and carried interest, the net portfolio return is 20% (2005: 12%). The reduction
of 4% from the gross level is below our anticipated range of 5% to 6%, as net
carried interest benefited from significant carry receivable in the year.
Through gearing the balance sheet to an appropriate level, we would expect to
enhance total return on opening shareholders' funds by some 4% from the net
level. However, given the low level of gearing in our opening balance sheet, the
benefit from leverage was below our long-term expectation.
Investment
3i invested a total of £1,110 million in the year, significantly up on the £755
million invested in 2005. Having entered the year with a very strong pipeline of
new opportunities, some significant individual investments were made in the
first half, including NCP (£96 million) and Giochi Preziosi (£61 million). The
split of investment across our regions reflected our increasingly international
focus, with 63% invested outside the UK. Investment, including co-investment
funds, totalled £1,322 million. Consistent with our strategy, the most notable
increase by business line was within Growth Capital.
Across the Group we invested in 58 new assets in the year (2005: 67). We also
increased our investment in established funds to gain exposure to new or
emerging markets. We invested a total of £111 million (2005: £26 million), 10%
of our total outlay, into these externally managed funds. This included five new
funds into which we committed £242 million (of which £97 million was invested
during the year), the largest of these being the I2 infrastructure fund (£79
million invested).
The average investment size in the other 53 new assets was £15 million (2005: £8
million), in line with our strategy of increasing deal size within the 'mid-cap
market' segment.
Realisations and realised profits
Realisation proceeds for the year were £2,207 million, an increase of 70% over
2005. The favourable market conditions experienced in the first six months
continued throughout the second half, enabling strong realisations across all
business lines. We also made further progress in selling down the SMI portfolio,
realising £268 million from 278 investments. In total, 38% of our opening
portfolio value was realised during the year.
In continental Europe realisations totalled £891 million (2005: £365 million),
reflecting the maturity of the portfolio which we have built up in this region.
Realisations were made at a profit over opening carrying value of £576 million
(2005: £250 million), representing an uplift on sale of 35%, and are stated net
of write-offs of £66 million (2005: £37 million).
During the year, 15 of our portfolio companies achieved IPOs across nine
different markets and £229 million of realisation proceeds were raised through
sales at the time of flotation or subsequently. Sales from other quoted
portfolio companies generated proceeds of £143 million.
Cash proceeds have also been generated through refinancing portfolio businesses
where we have realised £168 million and through secondary buyouts, where we have
sold 10 assets for £404 million.
Unrealised value movement
The unrealised profit on revaluation of investments was £245 million (2005: £245
million). An analysis of the components of this return is given in the following
table.
Unrealised profits/(losses) on revaluation of investments
--------------------------------------------------------------------------------
2006 2005
(as restated)*
£m £m
--------------------------------------------------------------------------------
Earnings multiples (1) 41 40
Earnings 95 20
First-time uplifts (2) 70 149
Provisions (3) (62) (66)
Up rounds 3 36
Uplift to imminent sale 97 101
Other movements on unquoted investments (29) (45)
Quoted portfolio 30 10
--------------------------------------------------------------------------------
Total 245 245
--------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
(1) The weighted average earnings multiple applied to investments valued on an
earnings basis increased from 12.0 to 12.2 over the year.
(2) The net valuation impact arising on investments being valued on a basis
other than cost for the first time.
(3) Provisions against the carrying value of investments in businesses which
may fail.
The aggregate attributable earnings of investments valued on an earnings basis
at both the start and end of the year increased by 5%, giving rise to a value
increase of £95 million (2005: £20 million).
Assets which were revalued on an imminent sale basis generated value uplifts of
£97 million, reflecting the good realisations pipeline at the year end.
Portfolio income
Portfolio income of £232 million (2005: £232 million) includes reduced
depreciatory dividends (arising on the sale of more mature assets), offset by
increased interest income from a number of new higher-yielding investments.
Negotiation fees for new investments have risen with increased investment
levels.
Net carried interest
Carried interest payable for the year was £64 million, which is offset by carry
receivable of £79 million.
Carried interest payable is broadly in line with last year's level, despite the
increase in proceeds, as a number of realisations were from early vintages with
no associated carry schemes, or from carry schemes which have yet to reach the
hurdle at which carry payable is accrued.
Carry receivable of £79 million relates primarily to Eurofund III, 3i's 1999
pan-European fund, whose cumulative performance in the first half passed through
the point at which carried interest receivable within 3i's financial statements
is triggered. The accrual at 31 March 2006 has been calculated on a fair value
basis and includes carry receivable relating to realised and unrealised value
increases arising on assets in more recent vintages, including Eurofund IV.
Costs
Operating expenses totalled £211 million (2005: £177 million). The increase over
last year reflects higher variable remuneration costs arising on the improvement
in total returns and costs associated with implementing new strategic
initiatives. Operating expenses include a charge in respect of share-based
payments, to reflect the fair value of options and other share-related rewards
granted to employees, of £8 million (2005: £6 million).
Net interest payable for the year was £17 million, reflecting the considerable
fall in net borrowings resulting from our net realisation proceeds and an
increase in the proportion of borrowing in non-sterling currencies for which
interest rates were more favourable during the year.
Other movements
Unrealised value movements in the fair value of derivatives of £(78) million
were recognised in the income statement for the first time, having adopted IFRS.
£(75) million of this movement relates to the valuation of the equity derivative
embedded in the €550 million 2008 Convertible Bond. The movement is the product
of a number of factors, the most significant of which was the increase in the
Company's share price of 40% in the year.
Exchange movements of £47 million arose in respect of the US dollar denominated
investment portfolio. As the dollar strengthened relative to sterling, the
currency risk relating to this portfolio is now substantially hedged.
Cash flows
Net cash inflow for the year was £550 million, reducing net borrowings,
including the Convertible Bond, to £56 million at 31 March 2006 (2005: £545
million).
During the year, capital was returned to shareholders through the payment of
£245 million by way of a special dividend of 40.7p per share and a further £222
million of on-market share buy-backs, as approved by shareholders at an
Extraordinary General Meeting following the 2005 Annual General Meeting.
Capital structure
3i's capital structure comprises a combination of shareholders' funds, long-term
borrowing, short-term borrowing and liquid treasury assets and cash. In managing
our capital structure, we seek to balance the current needs of the business with
our ability to support new business growth. Total shareholders' funds at 31
March 2006 were £4,006 million (2005: £3,699 million), the main components being
capital reserves of £3,110 million, revenue reserves of £263 million and share
capital and share premium of £668 million.
Total Group borrowings at 31 March 2006 were £1,474 million, which is repayable
as follows: £231 million, less than one year; £643 million, between one and five
years; and £600 million, greater than five years. At the year end, 3i had
committed and undrawn borrowing facilities of £488 million, and cash and liquid
assets totalling £1,955 million. Additionally, as noted above, in 2003, 3i
issued a €550 million Convertible Bond due in 2008.
Gearing
3i's listed status and permanent capital structure enables the Group to enhance
returns to shareholders through leveraging our equity. The Board's view is that
a gearing ratio of debt to shareholders' funds set between 30% and 40% is
appropriate across the cycle, given the current investment profile.
Despite growing our investment by 47% and returning £467 million of capital to
shareholders, during the year the exceptionally high level of realisations
caused gearing at 31 March 2006 to fall to 1% (2005: 15%).
Taking account of future cashflow projections and the development plans of the
business, the Board has proposed a further return of £700 million by means of a
a bonus issue of listed B shares accompanied by a share consolidation
designed to maintain comparability of share price and earnings per share.This is
currently expected to take place in July 2006.
Growth in diluted net asset value
Diluted net asset value ('NAV') per share was 739p at 31 March 2006, which
compares with 614p at 31 March 2005, an increase of 125p, reflecting the strong
results for the year.
Portfolio
The value of the portfolio at 31 March 2006 was £4,139 million (2005: £4,317
million). The reduction in portfolio value resulted from the high level of
realisations in the year. Other movements include transfers of assets into the
portfolio previously held through joint ventures and the currency movement in
the year.
At 31 March 2006, 6% of the portfolio value was held in investments in quoted
companies (2005: 5%).
The number of investments in the portfolio continues to fall, reflecting the
high number of realisations in the year, our policy to seek investment
opportunities in fewer larger deals and our strategy to reduce portfolio numbers
within SMI. At 31 March 2006, the number of investments stood at 1,087
(excluding SMI: 561), down from 1,502 (excluding SMI: 695) at the beginning of
the year.
Accounting policies
As a result of the Group's adoption of IFRS, certain accounting policies have
been amended. Prior year figures have been restated so as to provide meaningful
comparison with the results for the year to 31 March 2006.
The major changes are as follows:
- derivative financial instruments are now held at fair value and any
movements in value taken to the income statement;
- a charge is made in the income statement in respect of share-based
payments based on the intrinsic value of awards at grant date;
- foreign currency items in the Group's income statement are converted at
the actual exchange rate and not the year end rate;
- dividends declared after the balance sheet date are not recognised as a
liability at the balance sheet date.
There have been no significant changes to 3i's valuation policy in the year.
However, to comply with IFRS, discounts are no longer applied to market prices
and quoted investments are valued at bid price rather than mid price.
Buyouts
Gross portfolio return
The Buyout business generated a gross portfolio return of 29% for the year to 31
March 2006 (2005: 20%), which is at the top end of our target return range
across the economic cycle. The business has now achieved or exceeded its target
in each of the last three financial years through a combination of investment
discipline and a favourable market environment.
Investment and realisations
Investment (excluding third party co-investment funds) for the 12 months to 31
March 2006 was £451 million (2005: £338 million). Investment levels were good,
particularly in the first six months of the year, when the pipeline for new
investment was exceptional. The lower level of investment in the second half
reflects the continued competitive conditions in the European buyout market.
Despite these competitive conditions, the business generated significant deal
flow through its pan-European origination capability.
Realisations (excluding third party co-investment funds) for the same period
were very strong with £877 million of realisation proceeds being generated
(2005: £505 million). This reflected the underlying quality of the assets in the
portfolio and the continued buoyant financial markets.
Portfolio health
The underlying health of our Buyout portfolio has been good since the new
business model was introduced in 2001. The strong performance of the portfolio
is underpinned by the low loss rate that we have seen on our investments in
Eurofunds III and IV, which at the year end stood at 3% of investment cost.
Fund management
The third party co-investment funds that 3i raises are co-invested alongside our
own capital when financing buyouts. In the year to 31 March 2006, 3i earned fee
income of £24 million (2005: £27 million) from the management of private equity
funds. In addition, 3i receives carried interest in respect of the performance
of these funds. During the year, 3i recognised £79 million of carry receivable
which relates primarily to Eurofund III, 3i's 1999 pan-European Buyout fund.
Our Buyout business is currently investing Eurofund IV, the €3.0 billion fund
that was raised in 2003. The fund was 75% committed at 31 March 2006 and,
consistent with industry fund raising practices, 3i intends to raise its
Eurofund V mid-market buyout fund during the financial year ending 31 March
2007.
Growth Capital
Gross portfolio return
The Growth Capital business generated a gross portfolio return of 26% to 31
March 2006 (2005: 23%). This is the third consecutive year that the Growth
Capital business has generated returns at the higher end of its return
objectives.
Investment and realisations
Investment for the 12 months to 31 March 2006 was £497 million (2005: £263
million). The increase in investment was driven by several factors, including a
focus on larger investments and a good contribution from our new infrastructure
team. During the year, 22 new investments were made at an average of £20 million
(2005: £6 million).
Included in the investment total were investments of £108 million made in other
funds including I2, the UK infrastructure fund, and CDH China Growth Capital
Fund II.
Realisation proceeds of £855 million were very strong and significantly higher
than last year (2005: £443 million). This strong performance reflects the
underlying quality of the assets in the Growth Capital portfolio and the
continued buoyant financial markets.
Regionally, the UK accounted for 53% of Growth Capital realisations, continental
Europe accounting for 34% at £293 million was up from £103 million in 2005. Asia
delivered £66 million of Growth Capital realisations (2005: £6 million).
Portfolio health
The underlying health of our Growth Capital portfolio is good. At 31 March 2006,
84% of our investments were classified as healthy, against a three year rolling
average of 74%. This reflects improved investment disciplines combined with
investing in larger and more established businesses in our recent vintages.
Venture Capital
Gross portfolio return
The Venture Capital business generated a gross portfolio return of 17% to 31
March 2006 (2005: 11%). This improvement in performance was driven by a number
of factors, most importantly organisational changes made to integrate the team
into a truly international partnership across Europe and the US and enhanced
portfolio management disciplines.
As returns have improved in our Venture business, so has the amount of
investment in late-stage technology increased. When compared with early-stage
technology, late-stage has lower return characteristics, but considerably less
volatility. In the year to 31 March 2006, 44% of our Venture Capital investment
was in late-stage and we anticipate that this percentage could rise to as much
as 70% in the near term.
We have therefore reviewed the return objectives for our Venture Capital
business in the light of this changing mix, and adjusted both the volatility and
the overall return objectives as a consequence. The new gross portfolio return
objective for the business remains higher than that for Buyouts and Growth
Capital at 25%, and vintage year and cyclical volatilities have been set at 15%
and 7% respectively.
Investment and realisations
Investment for the 12 months to 31 March 2006 was £156 million (2005: £143
million). It is the team's objective to invest between £175 million and £225
million per annum.
Realisation proceeds of £207 million were 33% higher than last year (2005: £156
million). The increase in realisations reflects an increased appetite of
corporate buyers and, to a degree, the public markets for venture capital
companies. Six Venture Capital portfolio companies achieved a flotation during
the year, with the healthcare, drug discovery and software sectors being
particularly active.
Portfolio health
At 31 March 2006, 67% of our Venture investments were classified as healthy,
against a three year rolling average of 65%. These levels are consistent with
the higher risk return profile of venture capital investing.
Risk management
3i has a comprehensive risk management framework which provides a structured and
consistent process for identifying, assessing and responding to risks in
relation to the Group's strategy and business objectives.
As part of this process, risks are considered across the following broad
categories:
External Risks arising from political, legal, regulatory, economic policy and
competitor changes
Strategic Risks arising from the analysis, design and implementation of the
Group's business model, and key decisions on 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 Risks arising from (i) uncertainty in market prices and rates, (ii)
and funding an inability to raise adequate funds to meet investment needs or
meet obligations as they fall due, or (iii) inappropriate capital
structure
Operational Risks arising from inadequate or failed processes, people and
systems or from external factors affecting these
Risk management operates at all levels throughout the Group, across business
lines, geographies and professional functions. It is monitored by a combination
of the Board, the Audit and Compliance Committee, Management Committee and Risk
Committee, supported by the Group Risk Assurance and Audit, and Group Compliance
functions. The Risk Committee meets four times a year to oversee movements in
risk exposures across the Group and recommends appropriate responses. Its
membership includes senior representatives from investment and professional
services functions.
Given their fundamental significance to the Group, investment and treasury and
funding risks are managed by specific processes which are described below.
Investment risk
3i's investment appraisal is undertaken in a rigorous manner. This includes
approval by the relevant business line partnerships, and where appropriate, peer
review by executives from other business lines, and our international network of
industry and sector specialists. Investments over £5 million are presented to an
Investment Committee chaired by one of our Group Partners and comprising some of
our senior investment executives.
Having made our investment decision, a rigorous process is put in place for
managing the relationship with the investee company for the period through to
realisation. This can include board representation by a 3i investment executive and
regular internal asset review processes.
3i invests across a range of economic sectors. The portfolio is subject to
periodic reviews at both the business line and Group levels to ensure that there
is no undue exposure to any one sector. The valuation of 3i's unquoted portfolio
and opportunities for realisation depend to some extent on stock market
conditions and the buoyancy of the wider mergers and acquisitions market.
Treasury and funding risk
3i's funding objective is that each category of investment asset is broadly
matched with liabilities and shareholders' funds according to the risk and
maturity characteristics of the assets, and that funding needs are met ahead of
planned investment.
Credit risk 3i's financial assets are predominantly unsecured investments in
unquoted companies, in which the Board considers the maximum credit risk to be
the carrying value of the asset. The portfolio is well diversified and, for this
reason, credit risk exposure is managed on an asset-specific basis by individual
investment managers.
Liquidity risk During the financial year, 3i generated a cash surplus of £1,089
million (2005: £562 million) from its investing activities and cash resources at
the end of the period amounted to £1,955 million (2005: £1,199 million). In
addition, the Group had available to it undrawn committed facilities of £488
million at 31 March 2006 (2005: £764 million).
Price risk The valuation of unquoted investments depends upon a combination of
market factors and the performance of the underlying asset. 3i does not hedge
the market risk inherent in the portfolio but manages asset performance risk on
an asset specific basis.
Foreign exchange risk 3i reports in sterling and pays dividends from its
sterling profits. The Board seeks to reduce structural currency exposures by
matching assets denominated in foreign currency with borrowings in the same
currency. The Group makes some use of derivative financial instruments to effect
foreign exchange management.
Interest rate risk
3i has a mixture of fixed and floating rate assets. The assets are funded with a
mixture of shareholders' funds and borrowings according to the risk
characteristics of the assets. The Board seeks to minimise interest rate
exposure by matching the type and maturity of the borrowings to those of the
corresponding assets. Some derivative financial instruments are used to achieve
this objective.
Consolidated income statement
for the year to 31 March 2006
--------------------------------------------------------------------------------
2006 2005
(as restated)*
£m £m
--------------------------------------------------------------------------------
Realised profits over value on the disposal of investments 576 250
Unrealised profits on the revaluation of investments 245 245
--------------------------------------------------------------------------------
821 495
Portfolio income
Dividends 75 104
Income from loans and receivables 133 101
Fees receivable 24 27
--------------------------------------------------------------------------------
Gross portfolio return 1,053 727
Carried interest
Carried interest receivable from managed funds 79 2
Carried interest payable to executives (64) (66)
Fund management fees 24 30
Operating expenses (211) (177)
--------------------------------------------------------------------------------
Net portfolio return 881 516
Treasury interest receivable 55 46
Interest payable (72) (88)
Movements in the fair value of derivatives (78) 13
Exchange movements 47 13
Other income 22 1
--------------------------------------------------------------------------------
Profit before tax 855 501
Income taxes (3) (3)
--------------------------------------------------------------------------------
Profit after tax and profit for the year 852 498
--------------------------------------------------------------------------------
Earnings per share
Basic (pence) 152.0 82.6
Diluted (pence) 147.3 81.0
--------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
Statement of recognised income and expense
for the year to 31 March 2006
--------------------------------------------------------------------------------
Group Group Company Company
2006 2005 2006 2005
(as restated)* (as restated)*
£m £m £m £m
--------------------------------------------------------------------------------
Profit for the year 852 498 643 407
Revaluation of property - (1) - (1)
Exchange differences on
translation of
foreign operations (5) 5 - -
Actuarial losses (16) (1) - -
--------------------------------------------------------------------------------
Total recognised income and
expense for the year 831 501 643 406
---------------------------------------------------------------------------------
Analysed in reserves as:
Revenue 117 129 87 93
Capital 719 367 556 313
Translation reserve (5) 5 - -
--------------------------------------------------------------------------------
831 501 643 406
--------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
Reconciliation of movements in equity
for the year to 31 March 2006
--------------------------------------------------------------------------------
Group Group Company Company
2006 2005 2006 2005
(as restated)* (as restated)*
£m £m £m £m
--------------------------------------------------------------------------------
Opening total equity 3,699 3,294 3,626 3,300
Total recognised income and
expense for the year 831 501 643 406
Share-based payments 8 6 - -
Ordinary dividends (86) (85) (86) (85)
Special dividends (245) - (245) -
Issues of shares 13 5 13 5
Share buy-backs (222) - (222) -
Own shares 8 (22) - -
--------------------------------------------------------------------------------
Closing total equity 4,006 3,699 3,729 3,626
--------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
Balance sheet
as at 31 March 2006
--------------------------------------------------------------------------------
Group Group Company Company
2006 2005 2006 2005
(as restated)* (as restated)*
Assets £m £m £m £m
--------------------------------------------------------------------------------
Non-current assets
Investments
Quoted equity investments 259 235 173 203
Unquoted equity
investments 2,514 2,682 1,349 1,899
Loans and receivables 1,366 1,400 735 987
--------------------------------------------------------------------------------
Investment portfolio 4,139 4,317 2,257 3,089
Carried interest receivable 77 9 77 9
Interests in joint ventures - 46 - 14
Interests in Group entities - - 1,483 981
Property, plant and equipment 31 33 9 25
Investment property - 6 - -
--------------------------------------------------------------------------------
Total non-current assets 4,247 4,411 3,826 4,118
--------------------------------------------------------------------------------
Current assets
Other current assets 149 116 193 165
Derivative financial instruments 19 35 19 35
Deposits 1,108 885 1,052 791
Cash and cash equivalents 847 314 776 279
--------------------------------------------------------------------------------
Total current assets 2,123 1,350 2,040 1,270
--------------------------------------------------------------------------------
Total assets 6,370 5,761 5,866 5,388
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Liabilities
Non-current liabilities
Carried interest payable (83) (71) (83) (71)
Loans and borrowings (1,243) (1,196) (968) (879)
Convertible Bonds (365) (352) (365) (352)
Subordinated liabilities (24) (50) - -
Retirement benefit obligation (17) (23) - -
Deferred income tax (1) (1) - -
Provisions (5) (5) - -
------------------------------------------------------------------------------
Total non-current liabilities (1,738) (1,698) (1,416) (1,302)
-------------------------------------------------------------------------------
Current liabilities
Trade and other payables (160) (135) (271) (254)
Carried interest payable (60) (38) (60) (38)
Loans and borrowings (231) (102) (230) (102)
Derivative financial instruments(168) (80) (160) (66)
Current income tax (2) (2) - -
Provisions (5) (7) - -
-----------------------------------------------------------------------------
Total current liabilities (626) (364) (721) (460)
-----------------------------------------------------------------------------
Total liabilities (2,364) (2,062) (2,137) (1,762)
-----------------------------------------------------------------------------
Net assets 4,006 3,699 3,729 3,626
-----------------------------------------------------------------------------
Equity
Issued capital 292 307 292 307
Share premium 376 364 376 364
Capital redemption reserve 17 1 17 1
Share-based payment reserve 17 9 - -
Translation reserve - 5 - -
Capital reserve 3,110 2,613 2,767 2,433
Revenue reserve 263 477 277 521
Own shares (69) (77) - -
------------------------------------------------------------------------------
Total equity 4,006 3,699 3,729 3,626
------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
Cash flow statement
for the year to 31 March 2006
--------------------------------------------------------------------------------
Group Group Company Company
2006 2005 2006 2005
(as restated)* (as restated)*
£m £m £m £m
--------------------------------------------------------------------------------
Cash flow from operating activities
Purchase of investments (1,068) (719) (873) (717)
Proceeds from investments 2,213 1,287 1,949 1,184
Interest received 67 64 42 45
Dividends received 76 103 70 99
Fees received from investment and
fund management activities 46 56 13 1
Carried interest received 9 - 9 -
Carried interest paid (30) (4) - -
Operating expenses (216) (224) (182) (90)
Income tax paid (8) (1) (5) -
--------------------------------------------------------------------------------
Net cash inflow from operations 1,089 562 1,023 522
-------------------------------------------------------------------------------
Cash flow from financing activities
Proceeds from issues of share
capital 13 5 13 5
Purchase of own shares (222) (25) (222) (25)
Dividend paid (331) (85) (331) (85)
Interest received 50 46 46 45
Interest paid (60) (81) (38) (55)
Payment of finance lease
liabilities - (1) - -
Proceeds from long-term borrowings 69 44 92 -
Repayment of long-term borrowings (54) (32) - (1)
Net cash flow from short-term
borrowings 188 (67) 156 (58)
Net cash flow from deposits (223) (269) (261) (285)
--------------------------------------------------------------------------------
Net cash flow from financing
activities (570) (465) (545) (459)
--------------------------------------------------------------------------------
Cash flow from investing activities
Purchase of property, plant
and equipment (15) (4) - -
Sales of property, plant
and equipment 24 1 17 -
Divestment from joint venture 2 14 2 3
--------------------------------------------------------------------------------
Net cash flow from investing
activities 11 11 19 3
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Change in cash and cash
equivalents 530 108 497 66
-------------------------------------------------------------------------------
Opening cash and cash equivalents 314 203 279 213
Effect of exchange rate
fluctuations 3 3 - -
-------------------------------------------------------------------------------
Closing cash and cash equivalents 847 314 776 279
-------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
Significant accounting policies
3i Group plc (the 'Company') is a company incorporated in Great Britain and
registered in England and Wales. The consolidated financial statements of the
Company for the year to 31 March 2006 comprise the Company and its subsidiaries
(together referred to as the 'Group') and the Group's interest in associates and
jointly controlled entities. Separate financial statements of the Company are
also presented. The accounting policies of the Company are the same as the Group
except where separately disclosed.
The financial statements were authorised for issue by the Directors on 10 May
2006.
A Statement of compliance These consolidated and separate financial statements
have been prepared in accordance with International Financial Reporting
Standards, International Accounting Standards and their interpretations issued
or adopted by the International Accounting Standards Board as adopted for use in
the European Union ('IFRS'). These are the Group's first consolidated and
separate financial statements prepared under IFRS and IFRS 1 First-time Adoption
of International Financial Reporting Standards ('IFRS 1') has been applied.
These consolidated and separate financial statements have been prepared in
accordance with and in compliance with the Companies Act 1985 and the Listing
Rules of the Financial Services Authority.
IFRS 1 permits those companies adopting IFRS for the first time to take certain
exemptions from the full requirements of IFRS in the transition period. 3i has
taken the following key decisions:
- The effect of changes in foreign exchange rates: Under IFRS 1, cumulative
translation differences on the consolidation of subsidiaries are being
accumulated from the date of transition to IFRS and not from the original
acquisition date.
- Share-based payment: IFRS 2 Share-based Payment ('IFRS 2') has been adopted
from the transition date and is only being applied to relevant equity
instruments granted after 7 November 2002 and not vested as at 1 January
2005. 3i has elected not to take up the option of full retrospective
application of the standard.
- Financial Instruments: Under IAS 39 Financial Instruments: Recognition and
Measurement ('IAS 39'), all equity investments have been designated at the
date of transition to be assets at fair value through profit or loss except
for subsidiaries held by the Company.
The Group's consolidated financial statements for the year to 31 March 2006 will
contain a reconciliation of total return under UK GAAP to profit under IFRS for
the year to 31 March 2005 and a reconciliation of equity under UK GAAP to equity
under IFRS as at 31 March 2005 and 1 April 2004 (note 38).
New standards and interpretations not applied During the year, the IASB and
IFRIC have issued the following standards and interpretations to be applied to
financial statements with periods commencing on or after the following dates:
International Accounting Standards (IAS/IFRSs) Effective date
--------------------------------------------------------------------------------
IFRS 1 Amendment relating to IFRS 6 1 January 2006
IFRS 4 Insurance Contracts (Amendment to IAS 39 and IFRS 4 - 1 January 2006
Financial Guarantee Contracts)
IFRS 6 Exploration for and Evaluation of Mineral Assets 1 January 2006
IFRS 6 Amendment relating to IFRS 6 1 January 2006
IFRS 7 Financial Instruments: Disclosures 1 January 2007
IAS 1 Amendment - Presentation of Financial Statements: 1 January 2007
Capital Disclosures
IAS 19 Amendment - Actuarial Gains and Losses, Group Plans and 1 January 2006
Disclosures
IAS 39 Fair Value Option 1 January 2006
IAS 39 Amendments to IAS 39 - Transition and Initial 1 January 2006
Recognition of Financial Assets and
Financial Liabilities (Day 1 profits)
IAS 39 Cash Flow Hedge Accounting 1 January 2006
IAS 39 Amendment to IAS 39 and IFRS 4 - Financial Guarantee 1 January 2006
Contracts
IAS 21 Amendments to IAS 21 - The Effects of Changes in Foreign 1 January 2006
Exchange Rates - Net Investment in a Foreign Operation
--------------------------------------------------------------------------------
International Financial Reporting Interpretations Committee (IFRIC)
---------------------------------------------------------------------------------
IFRIC 4 Determining whether an arrangement contains a lease 1 January 2006
IFRIC 5 Rights to Interests Arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds 1 January 2006
IFRIC 6 Liabilities arising from Participating in a Specific
Market - Waste Electrical and Electronic Equipment 1 December 2005
IFRIC 7 Applying the Restatement Approach under IAS 29 - 1 March 2006
Financial Reporting in Hyper Inflationary Economies
IFRIC 8 Scope of IFRS 2 1 May 2006
IFRIC 9 Reassessment of Embedded Derivatives 1 June 2006
---------------------------------------------------------------------------------
The Directors do not anticipate that the adoption of these standards and
interpretations will have a material impact on the financial statements in the
period of initial application. Upon adoption of IFRS 7, the Group will have to
disclose additional information about its financial instruments, their
significance and the nature and extent of risks that they give rise to. There
will be no effect on reported income or net assets.
B Basis of preparation The financial statements are presented in sterling, the
functional currency of the Company, rounded to the nearest million pounds.
The preparation of financial statements in conformity with IFRS 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 below and in our 'valuation methodology' for
investments.
The accounting policies set out below have been applied consistently to all
periods presented in these consolidated financial statements and in preparing an
opening IFRS balance sheet as at 1 April 2004 for the purpose of the transition
to IFRS. The income statement of the Company has been omitted from these
financial statements in accordance with Section 230 of the Companies Act 1985.
The accounting policies have been consistently applied across all Group entities
for the purpose of producing these consolidated financial statements.
C Basis of consolidation
(i) Subsidiaries Subsidiaries are entities controlled by the Group. Control
exists when the Company has the power, directly or indirectly, to govern the
financial and operating policies of an entity so as to obtain benefits from its
activities. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the
date that control ceases.
(ii) Associates Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating policies.
Investments that are held as part of the Group's investment portfolio are
carried in the balance sheet at fair value even though the Group may have
significant influence over those companies. This treatment is permitted by IAS
28 Investment in Associates ('IAS 28'), which requires investments held by
venture capital organisations to be excluded from its scope where those
investments are designated, upon initial recognition, as at fair value through
profit or loss and accounted for in accordance with IAS 39, with changes in fair
value recognised in profit or loss in the period of the change. The Group has no
interests in associates through which it carries on its business.
(iii) Joint ventures Joint ventures are those entities over whose activities the
Group has joint control, established by contractual agreement. Interests in
joint ventures through which the Group carries on its business are classified as
jointly controlled entities and accounted for using the equity method.
Interests in joint ventures that are held as part of the Group's investment
portfolio are carried in the balance sheet at fair value. This treatment is
permitted by IAS 31 Interests in Joint Ventures ('IAS 31'), which requires
venturer's interests held by venture capital organisations to be excluded from
its scope where those investments are designated, upon initial recognition, as
at fair value through profit or loss and accounted for in accordance with IAS
39, with changes in fair value recognised in profit or loss in the period of the
change. The Group has no interests in joint ventures through which it carries on
its business.
(iv) Transactions eliminated on consolidation Intragroup balances and any
unrealised gains and losses or income and expenses arising from intragroup
transactions, are eliminated in preparing the consolidated financial statements.
Unrealised gains arising from transactions with jointly controlled entities are
eliminated to the extent of the Group's interest in the entity. Unrealised
losses are eliminated in the same way as unrealised gains, but only to the
extent that there is no evidence of impairment.
D Exchange differences
(i) Foreign currency transactions Transactions in currencies different from the
functional currency of the Group entity entering into the transaction are
translated at the exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the balance sheet
date are translated to sterling at the exchange rate ruling at that date.
Foreign exchange differences arising on translation are recognised in the income
statement. Non-monetary assets and liabilities that are measured in terms of
historical cost in a foreign currency are translated using the exchange rate at
the date of transaction. Non-monetary assets and liabilities denominated in
foreign currencies that are stated at fair value are translated to sterling
using exchange rates ruling at the dates the fair value was determined.
(ii) Financial statements of non-sterling operations The assets and liabilities
of operations whose functional currency is not sterling, including fair value
adjustments arising on consolidation, are translated to sterling at exchange
rates ruling at the balance sheet date. The revenues and expenses of these
operations are translated to sterling at rates approximating to the exchange
rates ruling at the dates of the transactions. Exchange differences arising on
retranslation are recognised directly in a separate component of equity, the
translation reserve, and are released upon disposal of the non-sterling
operation.
In respect of non-sterling operations, cumulative translation differences on the
consolidation of non-sterling operations are being accumulated from the date of
transition to IFRS, 1 April 2004, and not from the original acquisition date.
E Investment portfolio The Group's return is generated primarily from its
investment portfolio, which forms the main element of its total assets.
(i) Recognition and measurement Investments are recognised and derecognised on a
date where the purchase or sale of an investment is under a contract whose terms
require the delivery or settlement of the investments. The Group manages its
investments with a view to profiting from the receipt of interest and dividends
and changes in fair value of equity investments. Therefore, all quoted
investments and unquoted equity investments are designated as at fair value
through profit or loss and subsequently carried in the balance sheet at fair
value. Other investments including loan investments and fixed income shares are
classified as loans and receivables and subsequently carried in the balance
sheet at amortised cost less impairment. All investments are initially
recognised at the fair value of the consideration given and held at this value
until it is appropriate to measure fair value on a different basis, applying
3i's valuation policies. Acquisition costs are attributed to equity investments
and recognised immediately in profit or loss. Subsidiaries in the separate
financial statements of the Company are accounted for at cost less provision for
impairment.
(ii) Income Gross portfolio return is a key performance indicator and is
equivalent to 'revenue' for the purposes of IAS 1. It represents the overall
increase in net assets from the investment portfolio net of deal-related costs
but excluding exchange movements. Investment income is analysed into the
following components:
a. Realised profits over value on the disposal of investments is the difference
between the fair value of the consideration received less any directly
attributable costs, on the sale of equity and the repayment of loans and
receivables, and its carrying value at the start of the accounting period,
converted into sterling using the exchange rates in force at the date of
disposal.
b. Unrealised profits on the revaluation of investments is the movement in
carrying value of investments between the start and end of the accounting period
converted into sterling using the exchange rates in force at the date of the
movement.
c. Portfolio income is that portion of income that is directly related to the
return from individual investments. It is recognised to the extent that it is
probable that there will be economic benefit and the income can be reliably
measured. The following specific recognition criteria must be met before the
income is recognised:
- Income from loans and receivables is recognised as it accrues by reference
to the principal outstanding and the effective interest rate applicable,
which is the rate that exactly discounts the estimated future cash flows
through the expected life of the financial asset to that asset's carrying
value.
- Dividends from equity investments are recognised in profit or loss when the
shareholders' rights to receive payment have been established except to the
extent that dividends, paid out of pre-acquisition reserves, adjust the
fair value of the equity investment.
- Fee income is earned directly from investee companies when an investment is
first made and through the life of the investment. Fees that are earned on
a financing arrangement are considered to relate to a financial asset
measured at fair value through profit or loss and are recognised when that
investment is made. Fees that are earned on the basis of providing an
ongoing service to the investee company are recognised as that service is
provided.
F Fund management The Group manages private equity funds, which primarily
co-invest alongside the Group.
(i) Fund management fees Fees earned from the ongoing management of funds is
recognised to the extent that it is probable that there will be economic benefit
and the income can be reliably measured.
(ii) Carried interest receivable The Group earns a share of profits ('carried
interest receivable') from funds which it manages on behalf of third parties.
These profits are earned once the funds meet certain performance conditions.
Carried interest receivable is only accrued on those managed funds in which the
fund's performance conditions, measured at the balance sheet date, would be
achieved if the remaining assets in the fund were realised at fair value. Fair
value is determined using the Group's valuation methodology and is measured at
the balance sheet date. An accrual is made equal to the Group's share of profits
in excess of the performance conditions, taking into account the cash already
returned to fund investors and the fair value of assets remaining in the fund.
G Carried interest payable The Group offers investment executives the
opportunity to participate in the returns from successful investments. 'Carried
interest payable' is the term used for amounts payable to executives on
investment-related transactions.
A variety of asset pooling arrangements are in place so that executives may have
an interest in one or more carried interest scheme. Carried interest payable is
only accrued on those schemes in which the scheme's performance conditions,
measured at the balance sheet date, would be achieved if the remaining assets in
the scheme were realised at fair value. An accrual is made equal to the
executive's share of profits in excess of the performance conditions in place in
the carried interest scheme.
H Property, plant and equipment
(i) Land and buildings Land and buildings are carried in the balance sheet at
fair value less depreciation and impairment. Fair value is determined at each
balance sheet date from valuations undertaken by professional valuers using
market-based evidence. Any revaluation surplus is credited directly to the
Capital reserve in equity except to the extent that it reverses a previous
valuation deficit on the same asset charged in the income statement in which
case the surplus is recognised in the income statement to the extent of the
previous deficit. Any revaluation deficit that offsets a previously recognised
surplus in the same asset is directly offset against the surplus in the Capital
reserve. Any excess valuation deficit over and above the previously recognised
surplus is charged in profit or loss.
Depreciation on revalued buildings is charged in the income statement over its
estimated useful life, generally over 50 years. On subsequent sale or retirement
of a revalued property, the attributable surplus in the Capital reserve is
transferred directly to accumulated profits.
(ii) Vehicles and office equipment Fixed assets are depreciated by equal annual
instalments over their estimated useful lives as follows: office equipment five
years; computer equipment three years; computer software three years; motor
vehicles four years.
(iii) Assets held under finance leases Assets held under finance leases are
depreciated over their expected useful life on the same basis as owned assets
or, where shorter, the lease term. Assets are reviewed for impairment when
events or changes in circumstances indicate that the carrying amount may not be
recoverable. The interest element of the rental obligations is charged in the
income statement over the period of the agreement and represents a constant
proportion of the balance of capital repayments outstanding.
I Investment property Investment properties are properties that are held either
to earn rental income or for capital appreciation or for both.
(i) Recognition and measurement Investment properties are recorded at their fair
value at the date of acquisition or upon classification as an Investment
Property following a change of use. They are subsequently held in the balance
sheet at fair value. Fair value is determined at each balance sheet date from
valuations undertaken by professional valuers using market-based evidence. Gains
or losses arising from the changes in fair value are recognised in profit or
loss for the period in which they arise.
(ii) Income and expenditure Rental income from investment property is recognised
in the income statement on a straight-line basis over the term of the lease.
Lease incentives granted are recognised immediately in the income statement.
Expenditure on investment properties is expensed as it accrues.
J Treasury assets and liabilities Short-term treasury assets and short and
long-term treasury liabilities are used in order to manage cash flows and
overall costs of borrowing. Financial assets and liabilities are recognised in
the balance sheet when the relevant Group entity becomes a party to the
contractual provisions of the instrument.
(i) Cash and cash equivalents Cash and cash equivalents in the balance sheet
comprise cash at bank and in hand and short-term deposits with an original
maturity of three months or less. For the purposes of the cash flow statement,
cash and cash equivalents comprise cash and short-term deposits as defined above
and other short-term highly liquid investments that are readily convertible into
cash and are subject to an insignificant risk of changes in value, net of bank
overdrafts.
(ii) Deposits Deposits in the balance sheet comprise longer term deposits with
an original maturity of greater than three months.
(iii) Bank loans, loan notes and borrowings All loans and borrowings are
initially recognised at the fair value of the consideration received net of
issue costs associated with the borrowings. After initial recognition, these are
subsequently measured at amortised cost using the effective interest method,
which is the rate that exactly discounts the estimated future cash flows through
the expected life of the liabilities. Amortised cost is calculated by taking
into account any issue costs and any discount or premium on settlement.
(iv) Convertible bonds Where a convertible bond has an issuer cash settlement
option, the convertible bonds are regarded as compound instruments consisting of
a liability and a derivative instrument (see policy below for derivatives). On
issue of the convertible bonds, the fair value of the derivative component is
determined using a market rate for an equivalent derivative. Subsequent to
initial recognition the conversion option is measured as a derivative financial
instrument. The remainder of the proceeds is allocated to the liability
component and this amount is carried as a long-term liability on the amortised
cost basis until extinguished on conversion or redemption.
Issue costs are apportioned between the liability and derivative component of
the convertible bonds based on their relative carrying amounts at the date of
issue. The portion relating to the derivative instrument is recognised initially
as part of the financial derivative instrument.
The interest expense on the liability component is calculated by applying the
prevailing market interest rate for similar non-convertible debt to the
liability component of the instrument. The difference between this amount and
the interest paid is added to the carrying value of the convertible bonds.
(v) Derivative financial instruments Derivative financial instruments are used
to manage the risks associated with foreign currency fluctuations of the
investment portfolio and changes in interest rates on its borrowings. This is
achieved by the use of foreign currency contracts, currency swaps and interest
rate swaps. All derivative financial instruments are held at fair value.
Derivative financial instruments are recognised initially at fair value on the
contract date and subsequently remeasured to fair value at each reporting date.
The fair value of forward exchange contracts is calculated by reference to
current forward exchange contracts for contracts with similar maturity profiles.
The fair value of currency swaps and interest rate swaps is determined with
reference to future cash flows and current interest and exchange rates. All
changes in the fair value of derivative financial instruments are taken through
profit or loss.
(vi) Subordinated liabilities The Group has some limited recourse funding, which
individually finances investment assets, at various fixed rates of interest and
whose maturity is dependent upon the disposal of the associated assets. This
funding is subordinated to other creditors of the individual Group entity to
which the funds have been advanced and becomes non-repayable as the assets fail.
These liabilities are held in the balance sheet at the amount expected to be
repayable based on the underlying assets. Changes in the amounts repayable as a
result of changes in the underlying assets are treated as other income in the
income statement. Interest payable on subordinated liabilities is charged as it
accrues by reference to the principal outstanding and the effective interest
rate applicable.
K Employee benefits
(i) Retirement benefit costs Payments to defined contribution retirement benefit
plans are charged as they fall due.
For defined benefit retirement plans, the cost of providing benefits is
determined using the projected unit credit method with actuarial valuations
being carried out at each balance sheet date. Current service costs are
recognised in profit or loss. Past service costs are recognised to the extent
that they are vested immediately in profit or loss. Actuarial gains or losses
are recognised in full as they arise as part of the statement of recognised
income and expense.
The retirement benefit obligation recognised in the balance sheet represents the
present value of the defined benefit obligations as reduced by the fair value of
plan assets.
(ii) Share-based payments In accordance with the transitional provisions of IFRS
1, the requirements of IFRS 2 have been applied to all grants of equity
instruments after 7 November 2002, that were unvested at 1 January 2005.
The Group enters into arrangements that are equity-settled share-based payments
with certain employees (including Directors). These are measured at fair value
at the date of grant, which is then recognised in profit or loss on a
straight-line basis over the vesting period, based on the Group's estimate of
shares that will eventually vest. Fair value is measured by use of an
appropriate model. In valuing equity-settled transactions, no account is taken
of any vesting conditions, other than market conditions linked to the price of
the shares of the Company. The charge is adjusted at each balance sheet date to
reflect the actual number of forfeitures, cancellations and leavers during the
period. The movement in cumulative change since the previous balance sheet is
recognised in the income statement, with a corresponding entry in equity.
L Other assets Assets, other than those specifically accounted for under a
separate policy, are stated at their cost less impairment losses. They are
reviewed at each balance sheet date to determine whether there is any indication
of impairment. If any such indication exists, the asset's recoverable amount is
estimated based on expected discounted future cash flows. Any change in the
level of impairment is recognised directly in profit or loss. An impairment loss
is reversed at subsequent balance sheet dates to the extent that the asset's
carrying amount does not exceed its carrying value had no impairment loss been
recognised.
M Other liabilities Liabilities, other than those specifically accounted for
under a separate policy, are stated based on the amounts which are considered to
be payable in respect of goods or services received up to the balance sheet
date.
N Equity instruments Equity instruments issued by the Group are recognised at
the proceeds or fair value received with the excess of the amount received over
nominal value being credited to the share premium account. Direct issue costs
net of tax are deducted from equity. When share capital is repurchased, the
amount of consideration paid, including directly attributable costs, is
recognised as a change in equity. The nominal value of shares repurchased is
transferred to the Capital redemption reserve in equity.
O Provisions Provisions are recognised when the Group has a present obligation
of uncertain timing or amount as a result of past events, and it is probable
that the Group will be required to settle that obligation and a reliable
estimate of that obligation can be made. The provisions are measured at the
Directors' best estimate of the amount to settle the obligation at the balance
sheet date, and are discounted to present value if the effect is material.
Changes in provisions are recognised in the profit or loss for the period.
P Income taxes Income taxes represent the sum of the tax currently payable,
withholding taxes suffered and deferred tax. Tax is charged or credited in the
income statement, except when it relates to items charged or credited directly
to equity, in which case the tax is also dealt with in equity.
The tax currently payable is based on the taxable profit for the year. This may
differ from the profit included in the consolidated income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates and laws that
have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit ('temporary differences'), and is accounted for using the balance sheet
liability method.
Deferred tax liabilities are generally recognised for all taxable temporary
differences. Where there are taxable temporary differences arising on
investments in subsidiaries and associates, and interests in joint ventures,
deferred tax liabilities are recognised except where the Group is able to
control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
Deferred tax assets are generally recognised to the extent that it is probable
that taxable profits will be available against which deductible temporary
differences can be utilised. However, where there are deductible temporary
differences arising from investments in subsidiaries, branches and associates,
and interests in joint ventures, deferred tax assets are recognised only to the
extent that it is probable that both the temporary differences will reverse in
the foreseeable future and taxable profits will be available against which the
temporary differences can be utilised, and that the temporary differences will
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax assets and liabilities are not recognised if the temporary
difference arises from the initial recognition of goodwill and other assets and
liabilities in a transaction that affects neither the tax profit nor the
accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised using tax rates
and laws that have been enacted or substantively enacted by the balance sheet
date.
Notes to the financial statements
-----------------------------------------------------------------------------
Segmental analysis
-----------------------------------------------------------------------------
Smaller
Growth Venture Minority
Buyouts Capital Capital Investments Total
2006 2006 2006 2006 2006
Year to 31 March 2006 £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
-----------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Smaller
Growth Venture Minority
Buyouts Capital Capital Investments Total
2005 2005 2005 2005 2005
as restated)* (as restated)* (as restated)* (as restated)* (as restated)*
Year to 31 March 2005 £m £m £m £m £m
----------------------------------------------------------------------------------------------------
Gross portfolio return
Realised profits over value on
the disposal of investments 103 110 35 2 250
Unrealised profits on the
revaluation of investments 122 109 37 (23) 245
Portfolio income 76 66 4 86 232
----------------------------------------------------------------------------------------------------
301 285 76 65 727
----------------------------------------------------------------------------------------------------
Net (investment)/divestment
Realisation
proceeds 505 443 156 198 1,302
New investment (338) (263) (143) (11) (755)
------------------------------------------------------------------------------------------------------
167 180 13 187 547
------------------------------------------------------------------------------------------------------
Balance sheet
------------------------------------------------------------------------------------------------------
Value of investment portfolio 1,521 1,292 748 756 4,317
------------------------------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
--------------------------------------------------------------------------------
Continental
UK Europe US Asia Total
2006 2006 2006 2006 2006
Year to 31 March 2006 £m £m £m £m £m
--------------------------------------------------------------------------------
Gross portfolio return 392 586 27 48 1,053
--------------------------------------------------------------------------------
Net (investment)/divestment
Realisation proceeds 1,173 891 76 67 2,207
New investment (409) (540) (70) (91) (1,110)
--------------------------------------------------------------------------------
764 351 6 (24) 1,097
--------------------------------------------------------------------------------
Balance sheet
--------------------------------------------------------------------------------
Value of investment portfolio 1,740 1,925 307 167 4,139
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Continental
UK Europe US Asia Total
2005 2005 2005 2005 2005
(as restated)* (as restated)* (as restated)* (as restated)* (as restated)*
Year to 31 March 2005 £m £m £m £m £m
-----------------------------------------------------------------------------------------------------------
Gross portfolio return 502 230 3 (8) 727
-----------------------------------------------------------------------------------------------------------
Net (investment)/divestment
Realisation proceeds 897 365 34 6 1,302
New investment (334) (341) (51) (29) (755)
-----------------------------------------------------------------------------------------------------------
563 24 (17) (23) 547
-----------------------------------------------------------------------------------------------------------
Balance sheet
-----------------------------------------------------------------------------------------------------------
Value of investment portfolio 2,258 1,693 277 89 4,317
-----------------------------------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
Per share information
The earnings and net assets per share attributable to the equity shareholders of
the Company are based on the following data:
--------------------------------------------------------------------------------
2006 2005
(as restated)*
--------------------------------------------------------------------------------
Earnings per share (pence)
Basic 152.0 82.6
Diluted 147.3 81.0
--------------------------------------------------------------------------------
Earnings (£m)
Profit for the year attributable to equity holders of
the Company 852 498
Effect of dilutive potential ordinary shares 14 11
--------------------------------------------------------------------------------
866 509
--------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
-------------------------------------------------------------------------------
2006 2005
Number Number
-------------------------------------------------------------------------------
Number of shares
Weighted average number of shares in issue 560,684,598 603,240,340
Effect of dilutive potential ordinary shares
Share options 2,744,369 119,980
Convertible bonds 24,750,000 24,750,000
-------------------------------------------------------------------------------
Diluted shares 588,178,967 628,110,320
-------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2006 2005
(as restated)*
--------------------------------------------------------------------------------
Net assets per share (pence)
Basic 743 615
Diluted 739 614
--------------------------------------------------------------------------------
Net assets (£m)
--------------------------------------------------------------------------------
Net assets attributable to equity holders of the Company 4,006 3,699
--------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
--------------------------------------------------------------------------------
2006 2005
Number Number
--------------------------------------------------------------------------------
Number of shares in issue 539,475,744 601,912,869
Effect of dilutive potential ordinary shares
Share options 2,916,552 1,007,723
--------------------------------------------------------------------------------
542,392,296 602,920,592
--------------------------------------------------------------------------------
*As restated for the adoption of IFRS.
Notes to the preliminary announcement
Note 1
The preliminary announcement is prepared under International Financial Reporting
Standards ('IFRS') and IFRS 1 First-time Adoption of International Financial
Reporting Standards ('IFRS 1') has been applied.
The statutory accounts for the year to 31 March 2006 have not yet been delivered
to the Registrar of Companies. The statutory accounts for the year to 31 March
2005 have been delivered to the Registrar of Companies. The auditors' reports on
the statutory accounts for these years are unqualified and do not contain any
statements under section 237(2) or (3) of the Companies Act 1985. This
announcement does not constitute statutory accounts.
Note 2
The final dividend will be payable on 21 July 2006 to holders of shares on the
register on 23 June 2006.
Note 3
Copies of the Report and accounts 2006 will be distributed to shareholders on or
soon after 26 May 2006.
Ten largest investments(1)
--------------------------------------------------------------------------------------------------------
Investment Proportion Income
(Business line) (Geography) Residual of equity Directors' in the Net
Business description cost (2) shares valuation (2) year (3) Assets (4) Earnings (4)
(First invested in) £m held £m £m £m £m
--------------------------------------------------------------------------------------------------------
SR Technics Holding
(Buyouts) (Switzerland)
Technical solutions provider
for commercial aircraft fleets
(2002)
Equity shares 7 32.2% 70 -
Loans 30 30 3
--------------------------------------------------------------------------------------------------------
37 100 3 14 (1)
--------------------------------------------------------------------------------------------------------
Oval (2040) Ltd (NCP)
(Buyouts) (UK)
Transport management
and parking services
(2005)
Equity shares 1 39.9% 1 -
Loans 95 95 12
--------------------------------------------------------------------------------------------------------
96 96 12 (23) (9)
--------------------------------------------------------------------------------------------------------
Giochi Preziosi Spa
(Buyouts) (Italy)
Retailer and wholesaler of toys
(2005)
Equity shares 63 37.8% 64 -
---------------------------------------------------------------------------------------------------------
63 64 - 77 13
---------------------------------------------------------------------------------------------------------
Boxer TV-Access AB
(Growth) (Sweden)
Digital TV distributor
(2005)
Equity shares 58 30.0% 60 -
---------------------------------------------------------------------------------------------------------
58 60 - 14 8
---------------------------------------------------------------------------------------------------------
Infrastructure Investors (5)
(Growth) (UK)
Secondary PFI and Infrastructure investment fund
(2005)
Equity shares - 31.2% - -
Loans 59 59 -
---------------------------------------------------------------------------------------------------------
59 59 - 208 23
---------------------------------------------------------------------------------------------------------
Vetco International Ltd (6)
(Buyouts) (UK)
Oilfield equipment manufacturer
(2004)
Equity shares - 17.7% 53 -
---------------------------------------------------------------------------------------------------------
- 53 - (67) (49)
---------------------------------------------------------------------------------------------------------
Tato Holdings Ltd
(SMI) (UK)
Manufacturer and sale of
specialist
chemicals
(1989)
Equity shares 2 25.2% 53 -
---------------------------------------------------------------------------------------------------------
2 53 - 89 13
---------------------------------------------------------------------------------------------------------
Coor Service Management AB
(Buyouts) (Sweden)
Facilities management
(2004)
Equity shares 1 37.5% 26 -
Loans 26 26 2
---------------------------------------------------------------------------------------------------------
27 52 2 2 2
---------------------------------------------------------------------------------------------------------
Senoble Holding SAS
(Growth) (France)
Manufacturer of dairy products
and chilled desserts
(2004)
Equity shares 9 10.0% 27 -
Loans 18 19 1
---------------------------------------------------------------------------------------------------------
27 46 1 88 18
---------------------------------------------------------------------------------------------------------
Notes
1 The valuation of Vonage Holdings Corp., a US Venture Capital investment
made in 2004, has been excluded as the company has commenced an IPO process
in the US. If it had been disclosed, the investment would have been among
the largest five investments shown above.
2 The investment information is in respect of the Group's holding and
excludes any co-investment by 3i managed funds.
3 Income in the year represents dividends received (inclusive of any overseas
withholding tax) and gross interest receivable in the year to 31 March
2006.
4 Net assets and earnings figures are taken from the most recent audited
accounts of the investee business. The figures shown are the total earnings
on ordinary activities after tax and the net assets of each business.
Because of the varying rights attaching to the classes of shares held by
the Group, it could be misleading to attribute a certain proportion of
earnings and net assets to the proportion of equity capital held. Negative
earnings and net assets are shown in brackets.
5 The investment by 3i is into three Infrastructure Investors' entities, a
limited partner in the fund, a general partner in the fund and a management
company as well as the loan shown, has a cost of £3,177 for partnership
capital. The net assets and earnings figures for this investment are for
the LP and are unaudited.
6 The cost of the equity held in Vetco International Ltd is £423,367.
This information is provided by RNS
The company news service from the London Stock Exchange