Interim Results
3i Group PLC
04 November 2004
04 November 2004
'Strong performance and good momentum'
• Total return of £231 million
• Significant increase in investment activity
• Strong realisation proceeds of £603 million
Interim results for the six months to 30 September 2004
Total return £231m
Return on opening shareholders' funds 7.2%
Revenue profit before tax £84m
Realisation proceeds £603m
Realisation profits on disposal of investments £95m
Unrealised profits on revaluation of investments £118m
Investment (including co-investment funds) £521m
Diluted net asset value per share (post interim dividend) 568p
Interim dividend 5.3p
Highlights
• Total return of £231 million, which represents a 7.2% return on restated
opening shareholders' funds and compares with 5.1% for the FTSE All-Share
and 6.0% for the FTSE 100 total return indices in the same period
• Investment of £521 million (including co-investment funds), which
compares with £273 million for the same period last year
• Realisation proceeds of £603 million, which compares with £503 million
for the same period last year
Baroness Hogg, Chairman of 3i Group plc, said: 'This strong performance and good
momentum confirm that the changes made to the business over the last few years
are bearing fruit.'
3i's Chief Executive, Philip Yea, said: 'Our strategy plays to our competitive
strengths. I am encouraged by the opportunities for growth. My objective is to
build on the significant changes implemented at 3i over the past few years by
ensuring that we use our scale with greater agility.'
- ends -
For further information regarding the announcement of 3i's interim results to 30
September 2004 please see www.3iGroup.com
For further information, please contact:
Philip Yea, Chief Executive Tel: 020 7975 3386
3i Group plc
Michael Queen, Finance Director Tel: 020 7975 3400
3i Group plc
Patrick Dunne, Group Communications Director Tel: 020 7975 3283
3i Group plc
Issued by:
Philip Gawith Tel: 020 7379 5151
The Maitland Consultancy
Notes to editors
3i is a world leader in private equity and venture capital. We focus on
buy-outs, growth capital and venture capital and invest across Europe, in the
United States and in Asia Pacific.
Our competitive advantage comes from our international network and the strength
and breadth of our relationships in business. It underpins the value that we
deliver to our portfolio and to our shareholders.
Chairman's statement
A strong performance and good momentum in both investments and realisations
confirm that the changes made to the business over the last few years are
bearing fruit. The total return of £231 million for the six months to 30
September 2004 represents a 7.2% return on opening shareholders' funds. This
compares with 5.1% for the FTSE All-Share, and 6.0% for the FTSE 100 total
return index, in the same period. The Directors have announced an interim
dividend of 5.3p, representing an increase of 3.9%.
Our teams around the world have been taking advantage of the market access our
network brings to make investments totalling £521 million in the first half of
the financial year. And profits of £95 million on realisation proceeds of £603
million demonstrate the quality of our portfolio - particularly since these
profits come on top of significant increases in the value of investments
recorded at the end of March. A fall in the level of provisions is a further
indicator of the improvement in the health of the portfolio.
The appointment of Philip Yea as our new Chief Executive has been widely
welcomed. Since joining 3i on 7 July, he has reviewed the Group's strategy and
vision. In his Chief Executive's statement, he outlines the organisational
changes he has made to position the business for growth, enhance the linkage
between our geographic markets and the business lines, and ensure that 3i
continues to attract and retain the best talent.
Two new non-executive Directors have joined the Board since the Annual General
Meeting: Sir Robert Smith and Dr Peter Mihatsch. Sir Robert is a highly
experienced public company director who also has substantial experience in
private equity. Peter has great experience of growing successful European
businesses and particular knowledge of German industry. His appointment means
that half of our non-executive Directors are now based outside the UK,
reflecting the increasing international breadth of 3i.
On the executive side of the Board, the major change is that Michael Queen, our
Finance Director, is taking on responsibility for our important Growth Capital
business. To succeed Michael, we have recruited Simon Ball, who will make an
excellent addition to the Board. Meanwhile, Martin Gagen, who has been responsible
for 3i in the US since 1999, stepped down from the Board in August. I would like to
thank Martin for all he has done in developing this business.
Looking forward, our European Enterprise Barometer suggests that the outlook
continues to be positive, but with greater uncertainty than six months ago. We
will remain active investors while continuing to maintain a rigorous approach to
quality and pricing.
Baroness Hogg
Chairman
3 November 2004
Chief Executive's statement
My priority since joining in July has been to meet with as many colleagues as
possible in 3i's principal markets. I have found the business in good shape.
Furthermore, I am encouraged by the opportunities for growth in the markets in
which we operate and the potential to exploit the considerable advantages that
the Group enjoys.
Our strategy plays to our competitive strengths. My objective will be to build
on the significant changes that each business line has implemented over the past
few years. However, it is just as important to lay the foundations for future
growth, by developing further the capabilities that will allow us to invest
successfully and thus achieve appropriate returns for our shareholders.
In our Buyout business, the strength of our network and our sector knowledge are
critical both to the buying decision and creating value post investment. In an
increasingly competitive market, these advantages enable us to secure the most
attractive investments whilst achieving highly profitable realisations. We are
well placed to win deals and drive further value from our investments.
3i's Growth Capital business enjoys the same advantages in a less competitive
sector and is rightly concentrating on further improving its origination and
execution skills. There is significant opportunity to grow the amount of
investment by this business line.
Our Venture Capital business is one of a handful of such businesses which can
operate on a truly international basis. Bringing our resources to serve the
requirements of individual sectors requires new ways of working that our venture
teams are making their priority.
As an investment trust, we report our returns in terms of net asset value.
However, our objective for our business lines is to deliver gross vintage
returns that compare with the best in our industry. Looking forward, these are
likely to be of the order of 20% for Buyouts and Growth Capital and 35% for
Venture. We intend to show increasing evidence of our progress towards these
returns over the next few years, although the investment cycle in our Venture
business requires more time to demonstrate this.
At a time when our end markets are internationalising and a number of our
competitors are addressing succession issues by trying to become more
institutional, 3i is well placed through the scale of our international
resources and connections to remain a leader in our industry. However, it is
critical that we leverage our scale and show greater agility in bringing these
resources to bear in our markets.
For this reason I have appointed Chris Rowlands, formerly Head of Growth
Capital, to the newly created position of Head of Group Markets. In this
position, he will be responsible for managing both our geographical markets and
our other Group resources to ensure that we serve our three business lines in
the most effective manner. Michael Queen, who has extensive experience in growth
capital investing, will succeed Chris as Head of Growth Capital.
Simon Ball will succeed Michael as Finance Director and will join 3i on 7
February 2005. Simon brings wide experience in financial services and change
management through his time at Robert Fleming and Kleinwort Benson.
Our people, both investors and support staff, are critical to our future
success. As one of the few truly international players in an attractive
industry, we can recruit and retain the right talent provided we pay at market
rates and give opportunities for people to grow. Compensation schemes were
revised last year and these give a basis through which investment executives
will share in the success of the investments in which they are most directly
involved. Developing the appropriate resources and capabilities requires a shift
in the focus of how we manage our human resources and so our new Group Human
Resources Director, Denise Collis, will become a member of our Executive
Committee when she joins on 8 November.
We intend to build on the achievements of the past few years and deliver growth
in value for our shareholders.
Philip Yea
Chief Executive
3 November 2004
Interim review
Macroeconomic and market conditions
Overall, the macroeconomic environment for 3i's portfolio companies remained
relatively benign over the six-month period, though conditions within the
different geographies and sectors in which our portfolio companies operate were
variable. Both business sentiment and consumer confidence remained broadly
positive. In currency terms, the euro was relatively unchanged against the US
dollar, while sterling weakened significantly against both the euro and the US
dollar.
Stock markets across Europe lacked direction over the period and the volume of
mergers and acquisitions ('M&A'), a key driver of activity for our Buyout
business, remained relatively subdued, both in Europe and globally.
The private equity and venture capital markets are experiencing increased levels
of activity when compared with those in 2003, although the 2003 levels were
adversely affected by the economic and business uncertainties prevailing during
the first half of the year. Market statistics for the first six months of 2004
show aggregate European investment 12.5% up on the equivalent period in 2003,
with buyouts up 7.5%, growth capital more than doubling (from a particularly low
2003 figure) and early-stage investment up 14.9%.
Market statistics for the venture capital market in the US, a key driver of
venture capital activity worldwide, show that investment in the first six months
of 2004 was up 23.2% on the equivalent period last year; and statistics for the
same period for Asia Pacific show overall private equity investment up 39.6% on
2003.
There has been some improvement in the environment for realisations, although
trade sales and IPO's of private equity-backed businesses remain at relatively
low levels by historical standards. The level of secondary buyouts has remained
high and conditions remain supportive for refinancing businesses.
Total return
3i achieved a total return of £231 million for the period, which equates to 7.2%
on restated opening shareholders' funds. This compares with returns on the FTSE
All-Share, FTSE 100 and FTSE SmallCap (ex investment companies) total return
indices of 5.1%, 6.0% and minus 2.8% respectively.
The main drivers of the total return were a good level of profitable
realisations, strong levels of income and steady growth in the value of the
portfolio.
Each of our three business lines has performed satisfactorily. The Buyout return
of 8.8% was underpinned by good valuation uplifts on a number of
strongly-performing assets, including Westminster Healthcare, which was sold in
October. The Growth Capital business line achieved an 8.3% return, mainly as a
result of strong realisation profits and good levels of income from the
portfolio, including a high level of special dividend receipts arising on the
sale of investments. The Venture Capital business line made a positive total
return of 1.4%, reflecting a good level of realised profits, a number of
valuation increases arising as a result of portfolio companies raising funds
from new investors at increased values, reduced levels of provisions and a
foreign currency translation gain.
Investment
3i invested a total of £422 million (£521 million including investment on behalf
of co-investment funds), which is a substantial increase over the low level of
investment in the equivalent period last year.
Buyouts represented 51% of total investment, Growth Capital 32% and Venture
Capital 17%. Of the amount invested in Venture Capital, 68% was further
investment into existing portfolio companies.
There is an increasing level of investment undertaken overseas, with continental
Europe representing 53%, the US 8% and Asia Pacific 3% of the total invested.
The share of investment represented by continental Europe reflects our focus on
the relatively less mature private equity and venture capital markets there
(compared with those in the UK), and also 3i's ability to access and execute
deals across Europe through our regional presence and ability to resource
transactions on a pan-European basis.
Realisations
3i generated realisation proceeds of £603 million (2003: £503 million) during
the period, reflecting a profit over 31 March values of £95 million (19%),
compared with £134 million (36%) in the equivalent period last year. The uplift
over 31 March values on realisations of equity investments was 28% (2003: 61%).
The reduced uplift figures relative to last year are largely due to the high
level of realisations achieved in the earlier months of this period compared
with last year. These assets were realised for amounts similar to their carrying
value at 31 March 2004 as they were then valued on an imminent sale basis.
Realised profits are stated net of write-offs, which amounted to £13 million
(2003: £25 million). Overall, 12% of the opening portfolio was realised during
the period (2003: 10%).
Although most of our realisation proceeds continue to come from sales of
portfolio businesses to trade and financial purchasers, six portfolio companies
achieved IPO's during the period (two on the Official List of the London Stock
Exchange, two on AIM and one each in Frankfurt and Hong Kong). The IPO's of
Pinewood Shepperton, the film and TV studios business, and E2V Holdings, a
supplier of switching, sensing and imaging components, were notable in providing
3i with a 100% cash realisation on IPO.
Unrealised value movement
The unrealised profit on the revaluation of investments was £118 million (2003:
£222 million).
The weighted average earnings multiple applied to investments valued on an
earnings basis was 12.0 at both 30 September and 31 March. However, for those
investments valued on an earnings basis at both dates, there was a small
increase in earnings multiples, giving rise to a value increase of £18 million.
The aggregate attributable earnings of investments valued on an earnings basis
at both the start and the end of the period increased by approximately 2%,
giving rise to a £22 million value increase. A number of strongly-performing
Mid-market Buyouts and Growth Capital assets contributed significantly to this
increase.
The net valuation impact arising on investments being valued on a basis other
than cost for the first time ('first-time uplifts') was £32 million. The
relatively low figure reflects the reduced level of investment made in late 2002
and the first half of 2003.
Provisions against investments in businesses which may fail totalled £44 million
in the period, representing 1% of the opening portfolio value and a significant
improvement over levels in recent periods.
There was a net £21 million valuation increase as a result of investee companies
raising funds from new investors at increased values (£25 million), valuation
reductions relating to the application of 3i's downround methodology (£4 million)
and restructuring provisions (£nil).
Other movements on unquoted investments include valuation increases totalling
£85 million on investments being revalued on an imminent sale basis, a foreign
currency translation gain of £27 million and a valuation reduction of £38
million applied to the carrying value of loan investments and fixed income
shares.
The quoted investments held at 30 September decreased in aggregate by £1 million
(2003: £44 million increase), broadly reflecting the flat smaller quoted
equities market over the period.
Carried interest and investment performance plans
The charge in the period of £25 million (2003: £12 million) reflects both
profitable realisations and strong value growth on a number of recent
investments.
Income and costs
Total operating income before interest payable was £161 million (2003: £130
million). The increase over the same period last year is due mainly to the
receipt of several large special dividends arising on the sale of investments
and a rise in deal-related fees resulting from the increased level of
investment.
Net interest payable decreased relative to last year, reflecting both the
reduced level of net borrowings and the lower average rate of interest following
the €550 million convertible bond issue in August 2003.
Management expenses of £81 million are higher than in the equivalent period last
year (but in line with the run-rate for the whole of the last financial year)
mainly as a result of staff bonus costs being accrued at a higher level than in
the first half of last year. Staff headcount during the period fell slightly,
from 750 at 31 March to 740 at 30 September.
The portfolio
The number of investments in the portfolio fell from 1,878 at 31 March to 1,738
at 30 September, reflecting the high level of realisations.
As at 30 September, the top 10 investments represented 15% of the total
portfolio by value, and the top 50 represented 38%, highlighting the relatively
low exposure 3i has to individual company risk.
Accounting policies and valuation
Financial Reporting Standard 17 'Retirement Benefits' has been implemented in
full for the first time during the period. Additionally, the recommendations of
Urgent Issues Task Force Abstract 38 'Accounting for ESOP Trusts' have been
implemented and the presentation of comparatives changed accordingly.
Work to comply with the requirements of International Financial Reporting
Standards ('IFRS') in the year to 31 March 2006 is advancing to plan.
Differences have been identified, revised accounting policies are being
finalised and systems changes are in progress. Subject to the endorsement by the
EU of certain specific standards, notably IAS 32 'Financial Instruments:
Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and
Measurement', 3i is confident that it will be able to meet requirements for
financial reporting during the year to 31 March 2006. The first financial
statements prepared on an IFRS basis will be those for the six months to 30
September 2005.
There have been no changes in valuation methodology during the period.
Cash flows and capital structure
Net cash inflow for the period was £64 million. Net borrowings at 30 September
were £901 million, down from £936 million at 31 March. Gearing at 30 September
was 26%, compared with 29% at 31 March.
There were no significant changes in 3i's capital structure during the period.
Since 30 September, 3i has adopted a new hedging policy, which will be
implemented over the next 12 months. The policy is designed to eliminate, as far
as possible, the exposure of assets denominated in foreign currencies to
movements in the exchange rates between sterling and the respective currencies.
Foreign currency borrowings and swaps will be used to effect the hedges.
Outlook
Since the start of October, the pipelines for new investments and exits have
been at reasonably good levels. Economic conditions remain broadly supportive,
despite some uncertainty surrounding the outlook for the global economy, both
the listed equity and M&A markets are showing signs of activity.
We remain positive about the prospects for the second half of the year.
Consolidated statement of total return
for the six months to 30 September 2004
--------------------------------------------------------------------------------------------------
6 months to 30 September 6 months to 30 September 12 months to 31 March
2004 2003 2004
(as restated)* (as restated)*
(unaudited) (unaudited) (audited)
--------------------------------------------------------------------------------------------------
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£m £m £m £m £m £m £m £m £m
--------------------------------------------------------------------------------------------------
Capital profits
Realised profits
on disposal of
investments 95 95 134 134 228 228
Unrealised
profits on
revaluation
of investments 118 118 222 222 336 336
--------------------------------------------------------------------------------------------------
213 213 356 356 564 564
Carried interest
and investment
performance plans (25) (25) (12) (12) (40) (40)
--------------------------------------------------------------------------------------------------
188 188 344 344 524 524
Total operating
income before
interest payable 146 15 161 130 - 130 262 5 267
Interest
payable (27) (15) (42) (27) (23) (50) (51) (42) (93)
--------------------------------------------------------------------------------------------------
119 188 307 103 321 424 211 487 698
Administrative
expenses (36) (45) (81) (30) (40) (70) (72) (91) (163)
Other finance
income/(costs)
on pension plan 1 1 (2) (2) (3) (3)
Actuarial
gains/(losses)
on pension plan 3 3 10 10 (4) (4)
--------------------------------------------------------------------------------------------------
Return before
tax and currency
translation
adjustment 84 146 230 71 291 362 136 392 528
Tax (14) 12 (2) (9) 8 (1) (29) 25 (4)
--------------------------------------------------------------------------------------------------
Return for the
period before
currency
translation
adjustment 70 158 228 62 299 361 107 417 524
Currency
translation
adjustment 1 2 3 12 (6) 6 24 (24) -
--------------------------------------------------------------------------------------------------
Total return 71 160 231 74 293 367 131 393 524
--------------------------------------------------------------------------------------------------
Total return
per share
Basic (pence) 11.7p 26.5p 38.2p 12.3p 48.7p 61.0p 21.8p 65.2p 87.0p
Diluted
(pence) 11.3p 25.6p 36.9p 12.1p 48.1p 60.2p 21.2p 63.8p 85.0p
--------------------------------------------------------------------------------------------------
Movement in shareholders' funds
for the six months to 30 September 2004
6 months to 6 months to 12 months to
30 September 30 September 31 March
2004 2003 2004
(as restated)*(as restated)*
(unaudited) (unaudited) (audited)
£m £m £m
-----------------------------------------------------------------------------------------
Opening balance 3,395 2,936 2,936
Prior year adjustment (165) (147) (147)
-----------------------------------------------------------------------------------------
Opening balance
as restated 3,230 2,789 2,789
-----------------------------------------------------------------------------------------
Revenue return 71 74 131
Capital return 160 293 393
------------------------------------------------------------------------------------------
Total return 231 367 524
Dividends (32) (31) (84)
Proceeds of issues of shares 2 6 12
Own shares 5 (5) (11)
------------------------------------------------------------------------------------------
Movement in the period 206 337 441
------------------------------------------------------------------------------------------
Closing balance 3,436 3,126 3,230
------------------------------------------------------------------------------------------
*As restated to reflect the adoption of FRS 17 - Retirement Benefits and
UITF 38 - Accounting for ESOP Trusts. See Basis of preparation.
Consolidated revenue statement
for the six months to 30 September 2004
-------------------------------------------------------------------------------------------
6 months to 6 months to 12 months to
30 September 30 September 31 March
2004 2003 2004
(as restated)* (as restated)*
(unaudited) (unaudited) (audited)
£m £m £m
--------------------------------------------------------------------------------
Interest receivable on
loan investments 51 43 84
Fixed rate dividends 3 4 8
Other interest receivable
and similar income 21 17 33
Interest payable (27) (27) (51)
--------------------------------------------------------------------------------
Net interest income 48 37 74
Dividend income from
equity shares 53 45 94
Share of net losses of
joint ventures - - (1)
Fees receivable 18 21 43
Other operating income - - 1
--------------------------------------------------------------------------------
Total operating income 119 103 211
Administrative expenses and depreciation (36) (30) (72)
Other finance income/(costs)
on pension plan 1 (2) (3)
--------------------------------------------------------------------------------
Profit on ordinary activities
before tax 84 71 136
Tax on profit on ordinary
activities (14) (9) (29)
--------------------------------------------------------------------------------
Profit for the period 70 62 107
Dividends
Interim (5.3p per share proposed,
2004: 5.1p per share paid) (32) (31) (31)
Final (2004: 8.9p per share paid) (53)
---------------------------------------------------------------------------------
Profit retained for the period 38 31 23
--------------------------------------------------------------------------------
Dividends per share (pence) 5.3p 5.1p 14.0p
--------------------------------------------------------------------------------
Earnings per share
Basic (pence) 11.6p 10.3p 17.8p
Diluted (pence) 11.2p 10.2p 17.3p
--------------------------------------------------------------------------------
*As restated to reflect the adoption of FRS 17 - Retirement Benefits and UITF 38
- Accounting for ESOP Trusts. See Basis of preparation.
Consolidated balance sheet
as at 30 September 2004
----------------------------------------------------------------------------------
30 September 30 September 31 March
2004 2003 2004
(as restated)* (as restated)*
(unaudited) (unaudited) (audited)
Assets £m £m £m £m £m £m
-------------------------------------------------------------------------------------
Treasury bills and
other eligible bills 1 1 1
Loans and advances
to banks 718 800 534
Debt securities held
for treasury purposes 225 218 284
Debt securities and
other fixed income
securities held as
financial fixed asset
investments
Loan investments 1,408 1,229 1,312
Fixed income shares 124 199 150
Equity shares
Listed 227 168 225
Unlisted 2,619 2,410 2,639
------ ------ ------
4,378 4,006 4,326
Interests in joint ventures
Share of gross assets 51 116 80
Share of gross
liabilities (22) (85) (53)
------ ------ ------
29 31 27
Tangible fixed assets 39 43 40
Other assets 160 151 118
-------------------------------------------------------------------------------------
Total assets 5,550 5,250 5,330
-------------------------------------------------------------------------------------
Liabilities
--------------------------------------------------------------------------------------
Deposits by banks 213 290 215
Debt securities in
issue 1,207 1,103 1,128
Convertible bonds 377 384 367
Other liabilities 249 217 262
Subordinated
liabilities 48 49 45
Defined benefit
liabilities 20 81 83
-------------------------------------------------------------------------------------
2,114 2,124 2,100
-------------------------------------------------------------------------------------
Called up share capital 307 306 307
Share premium account 361 354 359
Capital redemption reserve 1 1 1
Capital reserve 2,386 2,126 2,226
Revenue reserve 431 388 392
Own shares (50) (49) (55)
-------------------------------------------------------------------------------------
Equity shareholders' funds 3,436 3,126 3,230
-------------------------------------------------------------------------------------
Total liabilities 5,550 5,250 5,330
-------------------------------------------------------------------------------------
Net asset value per share
Basic (pence) 568p 518p 535p
Diluted (pence) 568p 518p 535p
-------------------------------------------------------------------------------------
*As restated to reflect the adoption of FRS 17 - Retirement Benefits and UITF 38
- Accounting for ESOP Trusts. See Basis of preparation.
Approved by the Board
3 November 2004
Consolidated cash flow statement
for the six months to 30 September 2004
---------------------------------------------------------------------------------
6 months to 6 months to 12 months to
30 September 30 September 31 March
2004 2003 2004
(as restated)* (as restated)*
(unaudited) (unaudited) (audited)
£m £m £m
--------------------------------------------------------------------------------
Operating activities
Interest received and similar income
arising from debt securities and other
fixed income securities held as financial
fixed asset investments 26 29 66
Other interest received and similar income 20 17 35
Dividends received from equity shares 53 45 93
Fees and other net cash receipts - revenue 18 20 41
- capital 15 - 5
Administrative expenses paid - revenue (55) (40) (53)
- capital (45) (40) (91)
Additional pension contributions (60) - (13)
--------------------------------------------------------------------------------
Net cash flow from operating activities (28) 31 83
--------------------------------------------------------------------------------
Returns on investment and servicing of finance
--------------------------------------------------------------------------------
Interest paid on borrowings - revenue (22) (31) (59)
- capital (15) (23) (42)
--------------------------------------------------------------------------------
Net cash flow from returns on
investments and servicing of finance (37) (54) (101)
--------------------------------------------------------------------------------
Taxation paid (1) (2) (2)
--------------------------------------------------------------------------------
Capital expenditure and financial investment
Investment in equity shares, fixed
income shares and loans (426) (194) (756)
Sale, repayment or redemption of
equity shares, fixed income
shares and loan investments 605 501 913
Purchase of tangible fixed assets (2) (1) (2)
Sale of tangible fixed assets - 1 1
--------------------------------------------------------------------------------
Net cash flow from capital expenditure
and financial investment 177 307 156
--------------------------------------------------------------------------------
Acquisitions and disposals
Investment in joint ventures - - (25)
Divestment or repayment of interests
in joint ventures 5 - 25
--------------------------------------------------------------------------------
Net cash flow from acquisitions and disposals 5 - -
---------------------------------------------------------------------------------
Equity dividends paid (54) (52) (83)
--------------------------------------------------------------------------------
Management of liquid resources (146) (162) (15)
--------------------------------------------------------------------------------
Net cash flow before financing (84) 68 38
--------------------------------------------------------------------------------
Financing
Debt due within one year 50 (283) (232)
Debt due after more than one year 8 265 200
Issues of shares 2 6 12
Own shares - (11) (20)
--------------------------------------------------------------------------------
Net cash flow from financing 60 (23) (40)
--------------------------------------------------------------------------------
Change in cash (24) 45 (2)
--------------------------------------------------------------------------------
*As restated to reflect the adoption of FRS 17 - Retirement Benefits and UITF 38
- Accounting for ESOP Trusts. See Basis of preparation.
Notes to the financial statements
for the six months to 30 September 2004
1 Reconciliation of revenue profit before tax to net cash flow from operating activities
----------------------------------------------------------------------------------------
6 months to 6 months to 12 months to
30 September 30 September 31 March
2004 2003 2004
(as restated)* (as restated)*
(unaudited) (unaudited) (audited)
£m £m £m
-------------------------------------------------------------------------------
Revenue profit before tax 84 71 136
Fees receivable and deal-related costs
accounted for in the capital reserve 15 - 5
Administrative expenses allocated
to the capital reserve (45) (40) (91)
------------------------------------------------------------------------------
54 31 50
Interest payable - revenue 27 27 51
-------------------------------------------------------------------------------
81 58 101
Depreciation of equipment and vehicles 2 3 5
Tax on investment income included
within income from overseas
companies - - (1)
Interest received by way of loan notes (16) (15) (28)
Additional pension contributions (60) - (13)
Movement in prepayments and
accrued income (12) (6) 3
Movement in accruals and
deferred income (21) (4) 17
Movement in provisions for
liabilities and charges (2) (5) (2)
Reversal of losses of joint
ventures less distributions received - - 1
-------------------------------------------------------------------------------
Net cash flow from operating
activities (28) 31 83
-------------------------------------------------------------------------------
2 Reconciliation of net cash flows to movements in net debt
-------------------------------------------------------------------------------
6 months to 6 months to 12 months to
30 September 30 September 31 March
2004 2003 2004
(unaudited) (unaudited) (audited)
£m £m £m
--------------------------------------------------------------------------------
Change in cash in the period (24) 45 (2)
Cash flow from management of liquid
resources 146 162 15
Cash flow from debt financing (57) 13 33
Cash flow from subordinated
liabilities (2) 5 (1)
Cash flow from finance leases 1 - -
--------------------------------------------------------------------------------
Change in net debt from cash flows 64 225 45
Foreign exchange movements (28) (17) 27
Non-cash changes - (2) 5
--------------------------------------------------------------------------------
Movement in net debt in the period 36 206 77
Net debt at start of period (938) (1,015) (1,015)
--------------------------------------------------------------------------------
Net debt at end of period (902) (809) (938)
--------------------------------------------------------------------------------
3 Analysis of net debt
--------------------------------------------------------------------------------------------
Other
1 April Exchange non-cash 30 September
2004 Cash flow movement changes 2004
(audited) (unaudited) (unaudited) (unaudited) (unaudited)
£m £m £m £m £m
--------------------------------------------------------------------------------------------
Cash and deposits repayable
on demand 94 (24) 1 - 71
Treasury bills, other loans,
advances and treasury debt
securities 725 146 2 - 873
Deposits and debt securities
repayable within one year (160) (50) (9) (7) (226)
Deposits and debt securities
repayable after one year (1,550) (7) (21) 7 (1,571)
Subordinated liabilities
repayable after one year (45) (2) (1) - (48)
Finance leases (2) 1 - - (1)
--------------------------------------------------------------------------------------------
(938) 64 (28) - (902)
--------------------------------------------------------------------------------------------
*As restated to reflect the adoption of FRS 17 - Retirement Benefits and UITF 38
- Accounting for ESOP Trusts. See Basis of preparation.
Basis of preparation
The accounting policies used in the preparation of the Interim report are the
same as those used in the statutory accounts for the year to 31 March 2004,
except as explained below, and are those expected to be used for the year to 31
March 2005.
Financial Reporting Standard 17 - Retirement Benefits ('FRS 17') The Group has
adopted fully the reporting requirements of FRS 17, having previously complied
with the transitional requirements of the standard. Ongoing service cost,
finance charges or credits and expected returns on assets are shown in the
revenue return. Differences between expected and actual returns and changes in
actuarial assumptions are shown as part of the capital return. The effect of
adopting FRS 17 is to reduce shareholders' funds by £110 million at 31 March
2004.
Urgent Issues Task Force Abstract 38 - Accounting for ESOP Trusts ('UITF 38')
The Group has also adopted UITF 38. This requires shares held by the 3i Group
Employee Trust to be accounted for as a deduction in arriving at shareholders'
funds rather than as an asset. The effect of this is to reduce shareholders'
funds by £55 million at 31 March 2004.
Certain comparatives have been restated to reflect these changes.
The figures for the year to 31 March 2004 (before restatement) have been
extracted from the accounts filed with the Registrar of Companies on which the
auditors issued a report, which was unqualified and did not contain a statement
under section 237(2) or section 237(3) of the Companies Act 1985. The Interim
report does not constitute statutory accounts.
3i's actual future results may differ materially from the plans, goals and
expectations set forth in any of its forward-looking statements. Any
forward-looking statements speak only as of the date they are made. 3i does not
undertake to update forward-looking statements to reflect any changes in its
expectations with regard thereto or any changes in events, conditions or
circumstances on which any such statement is based.
Independent review report to 3i Group plc
Introduction We have been instructed by the Company to review the financial
information for the six months ended 30 September 2004 which comprises
Consolidated statement of total return, Movement in shareholders' funds,
Consolidated revenue statement, Consolidated balance sheet, Consolidated cash
flow statement and the related notes 1 to 3 and the Basis of preparation. We
have read the other information contained in the Interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the Company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company, for our work,
for this report or for the conclusions we have formed.
Directors' responsibilities The Interim report, including the financial
information contained therein, is the responsibility of, and has been approved
by, the Directors. The Directors are responsible for preparing the Interim
report in accordance with the Listing Rules of the Financial Services Authority
which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual accounts except where any changes, and the reasons for them,
are disclosed.
Review work performed We conducted our review in accordance with guidance
contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in
the United Kingdom. A review consists principally of making enquiries of group
management and applying analytical procedures to the financial information and
underlying financial data, and based thereon, assessing whether the accounting
policies and presentation have been consistently applied unless otherwise
disclosed. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit performed in accordance with United Kingdom Auditing
Standards and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion On the basis of our review, we are not aware of any material
modifications that should be made to the financial information as presented for
the six months ended 30 September 2004.
Ernst & Young LLP
London
3 November 2004
Note 1
The Interim report 2004 will be posted to shareholders on 15 November 2004 and
thereafter copies will be available from the Company Secretary, 3i Group plc, 91
Waterloo Road, London SE1 8XP.
Note 2
The interim dividend will be payable on 5 January 2005 to holders of shares on
the register on 3 December 2004. The ex-dividend date will be 1 December 2004.
New investment analysis
Analysis of the equity, fixed income and loan investments made by 3i Group
(including co-investment funds). The analyses below exclude investments in joint
ventures.
-----------------------------------------------------------------------------
6 months to 6 months to 12 months to
30 September 30 September 31 March
Investment by business line (£m) 2004 2003 2004
------------------------------------------------------------------------------
Buyouts 305 141 492
Growth Capital 142 76 313
Venture Capital 74 56 174
------------------------------------------------------------------------------
Total 521 273 979
------------------------------------------------------------------------------
Investment by geography (3i only - excluding co-investment funds) (£m)
------------------------------------------------------------------------------
UK 152 53 309
Continental Europe 222 134 401
US 35 18 61
Asia Pacific 13 6 13
-------------------------------------------------------------------------------
Total 422 211 784
-------------------------------------------------------------------------------
Investment by geography (including co-investment funds) (£m)
-------------------------------------------------------------------------------
UK 201 65 375
Continental Europe 268 182 526
US 35 18 61
Asia Pacific 17 8 17
------------------------------------------------------------------------------
Total 521 273 979
-------------------------------------------------------------------------------
Continental European investment (£m)
-------------------------------------------------------------------------------
Benelux 14 52 73
France 81 12 89
Germany/Austria/Switzerland 89 48 186
Italy 10 18 19
Nordic 46 27 106
Spain 26 20 34
Other European* 2 5 19
-------------------------------------------------------------------------------
Total 268 182 526
-------------------------------------------------------------------------------
* Other European includes investments in countries where 3i did not have an
office at the period end.
------------------------------------------------------------------------------
Investment by FTSE industrial classification (£m)
-------------------------------------------------------------------------------
Resources 89 4 11
Industrials 125 53 219
Consumer goods 69 80 306
Services and utilities 142 66 290
Financials 59 20 33
Information technology 37 50 120
-------------------------------------------------------------------------------
Total 521 273 979
-------------------------------------------------------------------------------
Portfolio analysis
The Group's equity, fixed income and loan investments total £4,378 million at 30
September 2004 (excluding co-investment funds). The analyses below exclude joint
ventures.
--------------------------------------------------------------------------------
At 30 September At 31 March
Portfolio value by business line (£m) 2004 2004
--------------------------------------------------------------------------------
Buyouts 2,291 2,306
Growth Capital 1,493 1,487
Venture Capital 594 533
--------------------------------------------------------------------------------
Total 4,378 4,326
--------------------------------------------------------------------------------
Portfolio value by geography (including co-investment funds) (£m)
--------------------------------------------------------------------------------
UK 2,861 3,024
Continental Europe 2,473 2,299
US 269 241
Asia Pacific 83 86
--------------------------------------------------------------------------------
Total 5,686 5,650
--------------------------------------------------------------------------------
Portfolio value by geography (3i only - excluding co-investment funds) (£m)
--------------------------------------------------------------------------------
UK 2,361 2,506
Continental Europe 1,685 1,511
US 262 234
Asia Pacific 70 75
--------------------------------------------------------------------------------
Total 4,378 4,326
--------------------------------------------------------------------------------
Continental European portfolio value (£m)
--------------------------------------------------------------------------------
Benelux 212 181
France 296 234
Germany/Austria/Switzerland 512 454
Italy 61 53
Nordic 311 332
Spain 252 224
Other European* 41 33
--------------------------------------------------------------------------------
Total 1,685 1,511
--------------------------------------------------------------------------------
* Other European includes investments in countries where 3i did not have an
office at the period end.
-------------------------------------------------------------------------------
Portfolio value by FTSE industrial classification (£m)
--------------------------------------------------------------------------------
Resources 171 155
Industrials 1,051 1,018
Consumer goods 1,093 1,026
Services and utilities 1,172 1,275
Financials 290 238
Information technology 601 614
--------------------------------------------------------------------------------
Total 4,378 4,326
--------------------------------------------------------------------------------
Portfolio value by valuation method (£m)
--------------------------------------------------------------------------------
Imminent sale or IPO 258 174
Listed 227 225
Secondary market 25 29
Earnings 1,222 1,347
Cost 535 509
Further advance 174 149
Net assets 100 103
Other (including other Venture Capital assets
valued below cost) 305 328
Loan investments and fixed income shares 1,532 1,462
--------------------------------------------------------------------------------
Total 4,378 4,326
--------------------------------------------------------------------------------
Portfolio analysis
--------------------------------------------------------------------------------
At 30 September At 31 March
Buyout portfolio value by valuation method (£m) 2004 2004
--------------------------------------------------------------------------------
Imminent sale or IPO 176 103
Listed 102 103
Secondary market 1 1
Earnings 684 834
Cost 87 78
Net assets 18 20
Other 75 61
Loan investments and fixed income shares 1,148 1,106
--------------------------------------------------------------------------------
Total 2,291 2,306
--------------------------------------------------------------------------------
Growth Capital portfolio value by valuation method (£m)
--------------------------------------------------------------------------------
Imminent sale or IPO 56 38
Listed 125 122
Secondary market 24 28
Earnings 537 513
Cost 184 202
Further advance 16 32
Net assets 81 82
Other 148 169
Loan investments and fixed income shares 322 301
--------------------------------------------------------------------------------
Total 1,493 1,487
--------------------------------------------------------------------------------
Venture Capital portfolio value by valuation method (£m)
--------------------------------------------------------------------------------
Imminent sale or IPO 26 33
Earnings 1 -
Cost 264 229
Further advance 158 117
Net assets 1 1
Other Venture Capital assets valued below cost 65 64
Other 17 34
Loan investments and fixed income shares 62 55
--------------------------------------------------------------------------------
Total 594 533
--------------------------------------------------------------------------------
Technology portfolio value by stage (£m)
--------------------------------------------------------------------------------
Venture Capital 594 533
--------------------------------------------------------------------------------
Late stage technology
Quoted 131 136
Buyouts 194 305
Growth Capital 291 317
--------------------------------------------------------------------------------
616 758
-------------------------------------------------------------------------------
Total 1,210 1,291
--------------------------------------------------------------------------------
The Venture Capital portfolio comprises investments in immature businesses which
typically require further funding. The late stage portfolio comprises
investments in more mature, typically self-funding businesses, including
investments made by way of Buyouts and Growth Capital.
--------------------------------------------------------------------------------
Venture Capital portfolio value by sector (£m)
-------------------------------------------------------------------------------
Healthcare 194 169
Communications 143 117
Electronics, semiconductors and advanced technologies 97 73
Software 160 174
--------------------------------------------------------------------------------
Total 594 533
--------------------------------------------------------------------------------
Realisations analysis
Analysis of the Group's realisation proceeds (excluding co-investment funds).
-----------------------------------------------------------------------------
6 months to 6 months to 12 months to
30 September 30 September 31 March
Realisations proceeds 2004 2003 2004
by business line (£m)
-------------------------------------------------------------------------------
Buyouts 388 229 464
Growth Capital 133 197 339
Venture Capital 82 77 120
-------------------------------------------------------------------------------
Total 603 503 923
-------------------------------------------------------------------------------
Realisations proceeds by geography (£m)
--------------------------------------------------------------------------------
UK 445 317 608
Continental Europe 148 119 245
US 9 11 10
Asia Pacific 1 56 60
--------------------------------------------------------------------------------
Total 603 503 923
--------------------------------------------------------------------------------
Realisations proceeds (£m)
--------------------------------------------------------------------------------
IPO 34 - 7
Sale of quoted investments 38 73 118
Trade and other sales 345 298 532
Loan and fixed income share repayments 186 132 266
--------------------------------------------------------------------------------
Total 603 503 923
--------------------------------------------------------------------------------
Realisations proceeds by FTSE industrial classification (£m)
--------------------------------------------------------------------------------
Resources 60 13 14
Industrials 90 73 216
Consumer goods 90 78 167
Services and utilities 282 225 352
Financials 3 68 80
Information technology 78 46 94
--------------------------------------------------------------------------------
Total 603 503 923
--------------------------------------------------------------------------------
Funds under management
--------------------------------------------------------------------------------
At 30 September At 31 March
(£m) 2004 2004
--------------------------------------------------------------------------------
Third party unquoted co-investment funds 1,884 1,875
Quoted investment companies* 646 600
--------------------------------------------------------------------------------
Total 2,530 2,475
--------------------------------------------------------------------------------
* Includes the 3i Group Pension Plan.
Ten largest investments
At 30 September 2004, the Directors' valuation of the ten largest investments
was a total of £677 million. The cost of these investments is £348 million.
-----------------------------------------------------------------------------
Directors'
First Cost Proportion Valuation
invested (Note 1) of equity (Note 1)
Investment in £m shares held £m
------------------------------------------------------------------------------
Westminster Health Care Holdings
Ltd (2)
Care homes operator 2002
Equity shares 1 49.6% 101
Loans 37 37
--------------------------------------------------------------------------------
38 138
--------------------------------------------------------------------------------
SR Technics Holding AG
Technical solutions provider
for commercial 2002
aircraft fleets
Equity shares 7 32.2% 47
Loans 50 50
--------------------------------------------------------------------------------
57 97
--------------------------------------------------------------------------------
Yellow Brick Road BV(3)
Directory services 2004
Equity shares 6 22.7% 35
Loans 16 47
--------------------------------------------------------------------------------
22 82
--------------------------------------------------------------------------------
Betapharm Arzneimittel GmbH
Supplier of generic
prescription drugs 2003
Equity shares 3 66.2% 3
Loans 63 63
--------------------------------------------------------------------------------
66 66
--------------------------------------------------------------------------------
Travelex Holdings Ltd(4)
Foreign currency services 1998
Equity shares - 19.6% 61
--------------------------------------------------------------------------------
- 61
--------------------------------------------------------------------------------
Keos SA
Transport operator 2004
Equity shares 11 41.4% 11
Loans 42 42
--------------------------------------------------------------------------------
53 53
---------------------------------------------------------------------------------
ERM Holdings Ltd(5)
Environmental
consultancy 2001
Equity shares - 38.1% 19
Loans 33 33
--------------------------------------------------------------------------------
33 52
--------------------------------------------------------------------------------
Williams Lea Group Ltd
Outsourced
print services 1965
Equity shares 33 38.1% 45
---------------------------------------------------------------------------------
33 45
--------------------------------------------------------------------------------
Vetco International Ltd(6)
Oilfield equipment
manufacturer 2004
Equity shares - 17.7% -
Loans 44 44
---------------------------------------------------------------------------------
44 44
---------------------------------------------------------------------------------
Tato Holdings Ltd
Manufacture and
sale of specialist chemicals 1989
Equity shares 2 25.2% 39
---------------------------------------------------------------------------------
2 39
--------------------------------------------------------------------------------
Notes
1 The investment information is in respect of 3i's holding and excludes any
co-investment by 3i managed funds.
2 This investment has been sold since the period end.
3 In April 2004, three portfolio companies in the Telephone Directories sector
were merged to form Yellow Brick Road BV. 3i's equity value was converted
into a loan and into new equity shares.
4 The cost of the equity held in Travelex Holdings Ltd is £121,000.
5 The cost of the equity held in ERM Holdings Ltd is £406,000.
6 The cost of the equity held in Vetco International Ltd is £427,000.
This information is provided by RNS
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