Information Services Group, Inc. Annual Report 2012

FY2012 Annual Report · Information Services Group, Inc.
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3i Group plc 
Annual report and 
accounts 2012

Further content online

reportingcentre.3igroup.com/2012

Throughout the report we have truncated some web addresses.  
Where this occurs, please use: reportingcentre.3igroup.com/2012 
followed by the path.

Further information 
online

Information about
 private equity
 infrastructure
 debt management

/otherindustry

3i and transparency
A full report on 3i and transparency.

/transparency

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Directors’ report
Pages 2 to 80 comprise the 
Directors’ report and pages  
81 to 90 comprise the Directors’ 
remuneration report, both of which 
are presented in accordance with 
English company law. The liabilities 
of Directors in connection with 
these reports shall be subject 
to the limitations and restrictions 
provided by such law.

Disclaimer
This Annual report and accounts 
may contain certain statements 
about the future outlook for  
3i Group plc and its subsidiaries 
(“3i”). Although we believe our 
expectations are based on 
reasonable assumptions,  
any statements about the future 
outlook may be influenced by 
factors that could cause actual 
outcomes and results to be 
materially different.

3i Group plc  Annual report and accounts 2012

1

Contents

Overview

Financial data 
Chairman’s statement 
Highlights from the year 
Our business 

Strategy, Business 
model and KPIs

Chief Executive’s review 
Business model 
Returns model 
Strategy and performance 
The key Group financial performance measures 

Business review

Risk

Group overview 
Assets under management 
Ten largest investments 
Market environment 
Investment and realisations 
Business lines 
Financial review 

Review of risks 
Risk governance framework 
Oversight and operation 
Risk factors 

Corporate  
responsibility

Corporate responsibility at 3i 
Corporate responsibility and our Business model 
3i’s values 
Responsible Investing 

Governance

Board of Directors and Leadership Team 
Statutory and corporate governance information 
Corporate governance statement 
Directors’ remuneration report 

Financial  
statements

Statement of comprehensive income 
Consolidated statement of changes in equity 
Company statement of changes in equity 
Statement of financial position 
Cash flow statement 
Significant accounting policies  
Notes to the financial statements 
Independent auditor’s report  

Portfolio and other 
information

Portfolio valuation – an explanation  
Portfolio composition 
Fifty large investments 
Information for shareholders 

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2

3i Group plc  Annual report and accounts 2012

Overview

An overview of our business and performance 
for the year to 31 March 2012.

Financial data 
Chairman’s statement 
Highlights from the year 
Our business 

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Transparency
For over 65 years, 3i’s objective has been to take an open  
and straightforward approach to doing business.
3i is fully compliant with the Walker Guidelines on transparency 
and disclosure in private equity. The full report on 3i and 
transparency can be found in the Reporting centre.

For more information, go to:
/transparency

3i Group plc  Annual report and accounts 2012

3

We are an international investor focused 
on private equity, infrastructure and debt 
management, investing in Europe, Asia 
and the Americas.

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Financial data

Returns

Gross portfolio return

Gross portfolio return on opening portfolio value

Net portfolio return

Net portfolio return on opening portfolio value

Total return

Total return on opening shareholders’ funds

Dividend per ordinary share

Operating expenses as a percentage of assets under management1

Assets under management (“AUM”)

3i

External funds

Total assets under management

Balance sheet

3i portfolio value

Gross debt

Net debt

Liquidity

Net asset value

Diluted net asset value per ordinary share

Investment activity

Investment

Realisations

1  Weighted average assets under management.

Year to/as at 
31 March 2012

Year to/as at 
31 March 2011

£(329)m

(8.2)%

£(425)m

(10.6)%

£(656)m

(19.5)%

8.1p

1.5%

£601m

17.1%

£449m

12.8%

£324m

10.6%

3.6p

1.8%

£4,174m

£6,319m

£5,450m

£7,236m

£10,493m

£12,686m

£3,204m

£1,623m

£464m

£1,653m

£2,627m

£2.79

£3,993m

£2,043m

£522m

£1,846m

£3,357m

£3.51

£646m

£771m

£719m

£609m

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4

3i Group plc  Annual report and accounts 2012

Chairman’s statement

“ A clear and concrete set of measures 
to maximise shareholder value.”

In my first statement to you last year, I said that our 
strategy would be to retain our financial strength, 
to continue to take a measured and highly selective 
approach to investment and to keep an absolute 
focus on improving every aspect of our business. 
It has undoubtedly been a challenging year for 
3i but we have stuck firmly to this agenda.

We have retained our financial strength, realised 
more than we have invested and made a number 
of improvements to 3i, especially in our Private 
Equity business line. We have also, following a 
rigorous process that considered a strong field 
of both external and internal candidates, 
announced the appointment of a new Chief 
Executive, Simon Borrows. 

Simon will succeed Michael Queen, who in March 
this year, after almost 25 years at 3i and three as 
Chief Executive, announced his intention to leave 
the Company. Michael has given tremendous 
service to 3i. His leadership through the period of 
the global financial crisis in restoring 3i’s financial 
strength, his founding of our highly successful 
Infrastructure business, his actions to reduce costs 
and the strong management team he has put in 
place are just some of his many achievements. 

Currently Chief Investment Officer, Simon has 
been a member of the Group Board since he joined 
3i in October 2011. Prior to that, he was Chairman 
of Greenhill & Co. International LLP, having 
previously been Co-Chief Executive Officer 
of Greenhill & Co. Inc., a leading independent 
investment bank listed on the New York Stock 
Exchange. Before founding the European 
operations of Greenhill & Co. in 1998, he was the 
Managing Director of Baring Brothers International 
Limited. He is also a non-executive director of 
The British Land Company plc and of Inchcape plc. 

3i Group plc  Annual report and accounts 2012

5

Simon has already made a significant positive 
impact as Chief Investment Officer, bringing a fresh 
focus and discipline to 3i’s investment processes 
and to our approach to asset management. 

His immediate priorities as Chief Executive will be 
to pursue a clear and concrete set of measures 
that he and the Board have agreed to maximise 
shareholder value. These will include determining 
the best shape and investment strategy for the 
business going forward and ensuring that the 
operating costs of the Group are consistent with 
this. A key component of this will be improving 
the focus and discipline around the Group’s 
asset management approach and investment 
capabilities, to the benefit of the Group’s 
shareholders and co-investors. He will continue 
to chair 3i’s Investment Committee.

In our pre-close briefing statement in March, we 
said that we expected a more positive economic 
outlook to result in a stronger overall performance 
from our Private Equity portfolio, although the 
effect of this improvement in sentiment was 
unlikely to have an impact upon our results for 
the financial year to 31 March 2012. It is clear 
that uncertainties over the environment remain, 
especially with respect to the Eurozone. It is early 
days but the performance of our recent Private 
Equity vintages is more encouraging, as can be 
seen from the additional disclosure that we have 
provided on the portfolio this year.

At the time of our half-yearly results in November 
2011, the Board declared an interim dividend of 
2.7p and announced its intention to significantly 
increase the total dividend for the year to 8.1p, 
125% higher than the previous year. The Board 
is therefore recommending a final dividend 
of 5.4p, subject to the approval of shareholders 
at the AGM. In addition, the Board has decided 
to further strengthen its distribution policy 
in order to give shareholders a direct share in 
the success of the Group’s realisation activities 
by adopting a policy of returning a share of 
gross cash realisations.

The Board therefore intends to distribute to 
shareholders, whilst gearing remains less than 
20%, further amounts such that the aggregate 
level of distribution by the Company, including the 
dividend, represents at least 15% and up to 20% of 
gross cash realisations. Incremental distributions 
will be either through special dividends, the use of 
the standing share buy-back authority, or by way 
of other capital distribution methods.

The Board expects to implement this new policy 
progressively in the light of the performance of 
the business, progress in implementing the Chief 
Executive’s strategic mandate and the strength 
of the Group’s cash flow. In the next 12 months 
it regards the reduction of gross debt to £1 billion 
as a priority. In view of the uncertainty generated 
by the difficult conditions in the banking and 
M&A markets in Europe, the projected flow 
of realisations in the current financial year 
is expected to be lower than those in 2011/12.

The Board will inform shareholders on the 
progress that it is making towards this new 
distribution policy, as well as in reducing gross 
debt on a half-yearly basis.

We were pleased to welcome Martine Verluyten 
to the Board during the year. Martine, who is based 
in Brussels, joined the Board as a non-executive 
Director in January 2012. She was formerly the 
Chief Financial Officer of Umicore and brings a 
wide range of international and financial experience. 

In summary, this has been a challenging year for 
3i and the stability of the Eurozone remains central 
to the outlook. Whatever the environment, I and the 
Board believe that we have a clear set of measures 
to maximise shareholder value and returns for the 
co-investors in our funds. 

Sir Adrian Montague
Chairman 
16 May 2012

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For more information, go to:
Governance p65

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6

3i Group plc  Annual report and accounts 2012

Highlights from the year

International growth: 
driving realisation success
The three largest realisations in the year, MWM, Hyva and 
Ålö, grew the proportion of their international sales during 
the time that 3i was invested. They delivered an aggregate  
of 4.2x their original investment, an average IRR of 32% 
and created £412 million of value for 3i and £173 million 
for investors in the relevant private equity funds. 

For more information, go to:
Strategy and performance p16 and p17 
Key Group financial performance measures p17

Private Equity portfolio 
performance: growth in 
challenging times
The 10 highest performing Private Equity portfolio companies 
increased their sales and earnings by an average of 25%  
and 27% respectively in the year to December 2011. Based in 
Europe, Asia and North America, these businesses operate 
across a broad range of sectors. What they all have in 
common is international growth, operational effectiveness 
and a strong focus on delivering excellent products and 
services. The combined value increase in these companies 
in the year was £166 million. 

Action and Hilite: demonstrating 
3i’s market access
Two new investments typify the strength of 3i’s market 
access. 3i’s deep sector and local relationships, combined 
with its track record of growing businesses internationally, 
provided the access to these investments with high 
growth potential.

Action, in which Eurofund V invested €229 million, is a 
€700 million revenue Dutch-based non-food discount  
retailer with 275 stores, aiming to expand its presence  
from the Benelux and Germany to other countries.

Hilite, a business in which Eurofund V invested €190 million, is 
a €370 million revenue automotive components business at 
the cutting edge of fuel efficiency and emissions controls 
technology. Being well positioned to benefit from these global 
trends, international growth will be key to Hilite’s success. 

€235m

invested by 3i

3i Group plc  Annual report and accounts 2012

7

Brazil: access to a rapidly 
growing market for 3i and 
its portfolio
In April 2011, 3i appointed Marcelo Di Lorenzo to lead a team 
of experienced private equity investors, based in São Paulo, 
to build a business in this rapidly growing region. With the 
support of a strong local advisory board, the team also 
provides 3i’s portfolio in other countries with increased 
knowledge of, and access to the Brazilian market. 20%  
of 3i’s existing portfolio has sales or operations in  
Latin America.

In December 2011, 3i announced its first investment in  
Brazil, a $55 million investment in Blue Interactive Group. 
Blue is the largest independent cable TV and broadband 
provider in Brazil and the investment will be used to expand 
Blue’s footprint from the 14 cities it currently operates in.

Building on our success 
in Debt Management
3i first established a debt management capability in 2007 
and, in 2011, following the acquisition of MIM from Mizuho, 
formed a distinct Debt Management business line. 

During the year we launched the Credit Opportunities Fund, 
Palace Street I and closed our second private equity fund 
of funds, Vintage II. This, combined with the improvement 
in performance of the funds acquired, has resulted in a 
business generating fees of £32 million and with assets 
under management of £3,358 million.

Improved investment 
and portfolio management 
processes
The restructuring of our Private Equity business in Europe 
and the appointment of Simon Borrows as Chief Investment 
Officer (“CIO”) reinforced the changes being made to improve 
investment quality. 

Net operating expenses: 
more than halved since 2008
A further £23 million reduction in annual net operating 
expenses brings the total reduction in annual net operating 
expenses to £126 million since 2008. This 58% decrease  
was achieved as the business has been funding growth  
in several key areas, most notably in Infrastructure and  
Debt Management, growing its Private Equity business in 
developing markets, as well as developing its approach to 
responsible investing.

Responsible Investing: 
a key element of the 3i brand
We have invested in new Responsible Investing (“RI”) 
systems and processes, linked these to a series of values 
workshops for our staff and placed even greater emphasis 
on Environmental, Social and Governance (“ESG”) issues 
in our investment and portfolio processes.

LNI: a powerful combination 
of infrastructure expertise 
and Nordic knowledge
3i and 3i Infrastructure plc invested £28 million and 
£195 million respectively in January 2012 in a €1.5 billion 
transaction to form LNI through the acquisition of two 
businesses from Vattenfall AB.

LNI now comprises the second-largest electricity 
distribution network in Finland, as well as a broad-based 
local district heating network. This further diversifies the 
Infrastructure portfolio geographically.

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8

3i Group plc  Annual report and accounts 2012

Our business

3i is an international investor focused on private equity, infrastructure 
and debt management, investing in Europe, Asia and the Americas.

Private Equity
Investing in mid-market companies across Europe, Asia 
and the Americas.

90 portfolio companies

79% of 3i portfolio value in 2012 
50% of total AUM in 2012 

For more on Private Equity, please go to:
Private Equity p30

Infrastructure
Investing primarily in utilities, transportation and social 
infrastructure in Europe and in India.

11 3i portfolio companies

16% of 3i portfolio value in 2012 
17% of total AUM in 2012

For more on Infrastructure, please go to:
Infrastructure p40

Debt Management
Debt Management specialises in the management of  
third-party funds investing in non-investment grade debt 
issued by medium and large European companies. 

1% of 3i portfolio value in 2012 
32% of total AUM in 2012

For more on Debt Management, please go to:
Debt Management p44

Investment funding model

Investments have historically been made 
through a series of Limited Partnership 
funds focused on either majority or minority 
situations. These include the €5 billion 
European buyout fund, Eurofund V, and 
the €1.2 billion Growth Capital Fund.

Following the combination of our Buyouts 
and Growth Capital investment businesses 
in 2010, it is anticipated that new 
fundraising will be regionally focused.

Investment funding model

Investments are currently made 
through 3i Infrastructure plc (“3iN”), 
a listed vehicle in which the Group 
has a 34% shareholding, and the 3i India 
Infrastructure Fund (“India Fund”), 
a $1.2 billion Limited Partner fund to 
which 3i has a $250 million commitment.

Investment funding model

Investments are made through 10 funds, 
of which 7 remain open to new investment.

Across these funds, 3i holds a direct 
interest of 1% of AUM.

Group
An international investor and a listed company, investing 
in private equity, infrastructure and debt management in 
Europe, Asia and the Americas.

Investment funding model

Investments are made using capital from 
our own balance sheet and external funds. 
Total AUM are £10.5 billion.

AUM: 40% 3i balance sheet, 60% external investors  

3i Group plc  Annual report and accounts 2012

9

Assets under management

Risk

Europe and North America
as at 31 March (£m)

Asia and South America
as at 31 March (£m) 

2010

2011

2012

n 3i  n External funds

7,118

2010

6,951

2011

4,718

2012

n assessment of investment opportunities;
n selection of appropriate financial 

structures and negotiation of terms;

n ability to implement value creation plans; 
n ability to negotiate successful exits; and
n the wider macroeconomic environment 
and its impact on portfolio performance.

614

594

578

Assets under management

Risk

Europe
as at 31 March (£m)

India
as at 31 March (£m)

2010

2011

2012

n 3i  n External funds

1,002

2010

1,047

2011

1,144

2012

n assessment of investment opportunities;
n selection of the appropriate financial 
structures and negotiation of terms;
n changes in the political and regulatory 

environment;

n ability to implement value creation plans; 

and, where relevant,

n opportunities to negotiate successful exits.

625

589

590

Assets under management

as at 31 March (£m) 

2010

2011

2012

n 3i  n External funds

83

3,386

3,358

Assets under management

as at 31 March (£m) 

2010

2011

2012

n 3i  n External funds

9,633

12,686

10,493

Risk

n fundamental credit assessment of 
the underlying assets in each fund; 
n management of income and costs 
during the life of each fund; and
n the ability to raise further funds.

Risk

n market and economic conditions;
n  portfolio performance; 
n investment and portfolio management 

capabilities;

n balancing investment and realisations 

requirements; and
n retention of key staff. 

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10

3i Group plc  Annual report and accounts 2012

Strategy, Business 
model and KPIs

A description of our strategy and 
business model, including our model 
for generating returns.

Detail on how we are performing 
against our strategy and on our key 
performance measures.

Chief Executive’s review 
Business model  
Returns model 
Strategy and performance 
The key Group financial performance measures 

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Chief Executive’s review

3i Group plc  Annual report and accounts 2012

11

“ We have used our strengthened balance sheet 
to take advantage of opportunities to create value 
for shareholders for the long term.”

My last review for you as Chief Executive provides 
the opportunity to give you my perspective on 
the transformation of the business over the last 
three years, as well as on the performance and 
development of the business over the last year. 

When I was appointed as CEO in January 2009, 
the Company faced a significant crisis requiring 
extensive management action. The causes of this 
crisis have been well chronicled but, in summary, 
were a combination of over investment in highly 
priced and highly leveraged private equity assets 
bought at the top of the cycle, combined with 
a balance sheet which was insufficiently strong 
for the testing conditions at that time. Less visible 
was the need for major cultural change and a 
significant reduction in operating costs. Extensive 
management action was required.

So three years on, where have we got to, and 
how should this year’s performance be seen in 
the context of the change programme overall?

In terms of financial position, the objectives were 
to restore balance sheet strength, to reduce 
leverage, both in terms of the Group itself and 
the underlying portfolio and to build much stronger 
liquidity. We end the year to 31 March 2012 with net 
debt of £464 million, gross debt of £1.6 billion and 
liquidity of £1.7 billion. The corresponding numbers 
for March 2009 were £1.9 billion, £2.1 billion and 
£734 million. Alongside the reduction in debt at a 
Group level, we have also made good progress in 
reducing the leverage in the Private Equity buyouts 
portfolio in particular, with the average debt to 
EBITDA ratio on a value weighted basis now down 
to 4.2x (2009: 5.3x). 

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12

3i Group plc  Annual report and accounts 2012

Chief Executive’s review

“ Further significant improvements 
in investment quality.”

We have also made good progress in improving 
cost efficiency. Net operating expenses fell a 
further £23 million in the year to 31 March 2012, 
to £91 million, just half of those in the year to 
31 March 2009. This, combined with the growth 
of our Infrastructure and Debt Management 
businesses, which now represent 49% of our 
assets under management, has further 
increased our resilience. 

In terms of cultural change, our Private Equity 
business has been completely restructured with 
a much greater emphasis on performance, on 
values, on responsible investing and on teamwork. 
The appointment of Simon Borrows as Chief 
Investment Officer, combined with the changes 
that we have made throughout the investment and 
portfolio management process, have led to further 
significant improvements in investment quality. 
The investments made since the rights issue in 
2009 grew earnings by 17% on a value weighted 
basis, versus 9% for the portfolio overall.

At a time of considerable restructuring, we have 
also been ambitious and used our strengthened 
balance sheet to take advantage of opportunities 
to create value for shareholders for the long term. 
The launch of our Debt Management business, 
and the recruitment of a strong team in Brazil, 
are both good examples of this.

The year to 31 March 2012 was another challenging 
one for the business, but it was also one in which 
the benefits of this transformation are becoming 
more evident. The combination of successful 
realisations, more encouraging earnings 
performance from the portfolio, and the 
performance of high potential new investments 
such as Action and Hilite, are all evidence of the 
strengthening of our Private Equity business.

Our Infrastructure business continued to develop 
well and to build its portfolio. The investment 
in LNI, the second largest electricity distribution 
network in Finland, is of particular note. Our Debt 
Management business received a further boost 
with the launch of the Credit Opportunities Fund, 
Palace Street I. 

It wasn’t all good news. The strong overall 
performance from more recent Private Equity 
vintages was offset by a continued drag on returns 
from pre-credit crisis investments. Their impact 
on future returns is likely to diminish. The value 
of our largest Asian asset, reinsurance business 
ACR, was also impacted by natural disasters. 

These factors, together with the impact of 
economic uncertainty on both the multiples used 
to value the portfolio, as well as the earnings used 
for valuations, adverse movements on currency 
and pensions, meant that our total return for the 
year was £(656) million. This was a disappointing 
result in the light of the progress that we have 
made and our potential for the future.

3i Group plc  Annual report and accounts 2012

13

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I have been incredibly fortunate to spend a large 
part of my career at 3i, latterly as CEO. I believe 
that 3i is a wonderful company that genuinely 
makes a difference to the companies in which 
we invest – stimulating investment, job creation 
and wealth – all desperately needed in the global 
economy. I am confident that our performance 
over the next few years will show the real benefits 
of the changes that I have been responsible for 
over the last three years. 

However, I took the view at the end of March that 
frustration with our short-term performance was 
likely to become personalised. I didn’t want to risk 
3i’s good name and prospects being tarnished 
by unhelpful agitation so therefore came to the 
conclusion that a change of leadership would be 
the most effective way to create the time and space 
to help the business achieve its full potential.

Since the announcement at the end of March of 
my intention to step down, I have been focused on 
ensuring that the momentum of the business has 
continued to improve. I am delighted that the Board 
has appointed Simon Borrows as Chief Executive, 
who is well placed to lead 3i in the next phase of 
its development.

3i has gone through a very difficult turnaround 
over the last few years and is now emerging with 
much improved prospects for the future, with a 
stronger financial position and a higher quality and 
more focused investment business. I would like to 
thank the Board and 3i’s staff for their tremendous 
support and wish them every success.

Michael Queen
Chief Executive 
16 May 2012

 
 
 
 
 
 
 
 
 
 
 
14

3i Group plc  Annual report and accounts 2012

Business model

This section sets out our business model and the way in which 
we generate returns at a Group and business line level. 
Our business model takes into account the distinctive characteristics of the Private Equity, Infrastructure and Debt Management 
businesses, as well as the different ways in which they draw upon Group resources to deliver returns.

Each business line benefits from the strengths of the Group. Some elements of the business model, such as the ability to 
secure access to capital from multiple sources or the strength of the 3i brand, have equal importance for all business lines. 
Others may differ in emphasis, for example, with respect to Active Partnership. The nature and intensity of the relationship 
that we have with the team of a private equity or infrastructure portfolio company, where we hold significant equity, will differ 
from the relationship we have with the management team in a company where our Debt Management business is holding debt.

The investment process is rigorous and consistently applied within each business line. The decision making process is 
structured through a series of carefully planned steps, from sourcing opportunities and early team reviews, through to  
a final Investment Committee. The performance of each investment is then subject to a formal review process involving  
monthly and quarterly reporting. In addition, we are typically represented on the boards of our Private Equity and  
Infrastructure investments.

Secure access to capital 
from multiple sources
As a listed company with its own 
capital and as a manager of or adviser 
to external funds, 3i has access to 
multiple sources of funds. This provides 
resilience and sustainability and 
depends upon performance, 
transparency and a long-term 
approach to managing relationships.

Invest in our network, 
people and knowledge
Our strong culture of working across 
borders and harnessing the skills and 
knowledge from local, sector and 
business line teams delivers the “best 
team for the job” for each phase of the 
investment lifecycle. Sustaining this 
requires investment in our people, 
systems and communications.

See the best investment opportunities
Access to high quality investment 
opportunities is critical to future value 
growth. Investment over many decades 
in our network, people, knowledge 
and relationships provides us with 
the right relationships and insights 
to deliver this.

Invest in our  
network, people  
and knowledge

Secure access 
to capital from 
multiple sources

See the best  
investment  
opportunities

Core  
Brand

Build great  
companies and  
deliver outstanding  
returns

Create innovative 
financial solutions 
and ensure excellent 
execution

Achieve full  
potential through  
active partnership

Build great companies and 
deliver outstanding returns
Three significant Private Equity 
investments, Hyva, MWM and Ålö,  
are examples of this. Each of these 
businesses delivered strong and 
sustained growth in earnings in 
competitive markets. In Infrastructure, 
examples include Anglian Water 
and Eversholt.

Achieve full potential 
through active partnership
Our rigorous methodology for effecting 
business change is focused on 
operational and functional expertise, 
sector and strategic insight and high 
standards of governance.

Create innovative financial solutions 
and ensure excellent execution
3i has a strong heritage of successfully 
aligning interests and delivering 
innovative financial solutions.  
Our scale, culture, experience and 
training are central to sustaining this. 
The development of our infrastructure 
and debt management capabilities 
are good examples of this.

Returns model

3i Group plc  Annual report and accounts 2012

15

The Returns model, provided in the table below, details the key elements of return under the headings of Gross portfolio 
return, Net portfolio return and Total return. As can be seen in the Business review, we have increased disclosure in this 
year’s accounts to include Net portfolio return by business line. 

The amount and the nature of the contribution that each business line makes to the Group returns depends upon the scale 
of assets under management, as well as the proportion of own balance sheet and external funds deployed. 

Table 1: Proportion of own capital and external funds by business line

at 31 March 2012

Own balance sheet %

External funds %

Total AUM

Private  
Equity

66%

34%

Infrastructure

Debt 
Management

32%

68%

1%

99%

Group

40%

60%

£5,296m

£1,734m

£3,358m

£10,493m

A higher proportion of balance sheet investment in the Private Equity business means that gross portfolio return is the most 
significant element of net portfolio return for this business line. Debt Management and Infrastructure have higher proportions 
of external funds and, consequently, fees and carried interest from funds are more significant elements of the return.

With the appropriate balance of third party and own balance sheet funding, all of our business lines aim to deliver 15% net 
returns across the cycle. An efficient balance sheet structure for the Group, should ensure that there is no further dilution 
of returns.

Private Equity

Infrastructure

Gross portfolio return

Net portfolio return

The performance of the portfolio is derived from:
−   realised profits from the sale of investments;
−   unrealised portfolio value growth; and
−   portfolio income.

Gross portfolio return plus/less:
−  fees from funds;
−   carried interest from funds;
−   carried interest payable to staff; and
−   operating expenses.

The performance is derived from: 
3iN
–   dividends; and
–   unrealised growth in the value of the Group’s 

holding driven by the performance of the assets.

Gross portfolio return plus/less:
–   fees from funds;
–   carried interest and performance fees  

from funds;

–   carried interest and performance fees  

India Fund
–   realised profits from the sale of investments;
–   unrealised portfolio value growth; and
–   portfolio income.

payable to staff; and
–   operating expenses.

Debt Management

Equity stakes in debt funds return:
–   realised profits from the sale of debt 

investments;

–   equity distributions; and
–   unrealised value growth.

Gross portfolio return plus/less:
–   fees from funds;
–   carried interest from funds;
–   long-term incentives, including earn outs  

payable to staff; and
–   operating expenses.

Group total return

Net portfolio return plus/less:
–   funding costs;
–  foreign exchange; and 
–   pensions.

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16

3i Group plc  Annual report and accounts 2012

Strategy and performance

Here are the key elements of our strategy, a summary of how we plan 
to deliver them, the risks involved and our progress.

Strategy
Invest

Grow our 
business

Priorities

Today
Maintain our highly selective approach to  
new investment and continue to invest in 
 the portfolio to support growth, organically  
or by acquisition.

Continue to improve our investment 
and portfolio management processes. 

Continue to build our market profile 
and access to high quality opportunities 
in developing markets.

Today
Private Equity: continue to focus on growing 
existing portfolio value and building on our 
Active Partnership, Business Leaders Network 
and approach to responsible investing.

Infrastructure: increase assets under 
management through growing existing  
portfolio value, making additional high quality 
investments and raising further capital. 

Debt Management: Increase assets under 
management by raising additional funds and 
making further acquisitions.

Tomorrow
As conditions improve, increase the levels 
of investment in our three business lines.

Tomorrow
Use the strength of our balance sheet and 
relationships with investors to develop each 
of our business lines. 

Improve our operational effectiveness as we 
continue to reduce costs and further improve 
our processes.

Build on  
our reputation

Today
Capitalise on the benefits of new Responsible 
Investing processes and systems.

Tomorrow
Maintain our focus on raising our investment 
performance.

Use the insights gained from our brand 
refresh project to strengthen our offering, 
our approach to the market and to enhance 
our competitive advantage.

Build on engagement with the portfolio on  
ESG issues.

Maintain  
“One 3i” culture

Today
Build on momentum created through our 2012 
Values workshops (92% of staff attended).

Tomorrow
Ensure consistency of investment strategy  
and approach across business lines.

Continue to invest in our knowledge portal and 
“best team for the job” approach to resourcing 
investments/projects.

Track general progress through staff and  
key audience research.

Follow up on specific points emerging from 
2012 staff survey.

3i Group plc  Annual report and accounts 2012

17

The key Group financial performance measures
2012

Gross portfolio return 

Net portfolio return 

Cost efficiency1

Operating expenses per AUM2

Total return 

Diluted net asset value per ordinary share

Gross debt

Net debt

(8.2)%

(10.6)%

2.3%

1.5%

(19.5)%

£2.79

2011

17.1%

12.8%

3.2%

1.8%

10.6%

£3.51

£1,623m £2,043m

£464m £522m

Strategy

Invest

Tomorrow

As conditions improve, increase the levels 

of investment in our three business lines.

Priorities

Today

Maintain our highly selective approach to  

new investment and continue to invest in 

 the portfolio to support growth, organically  

or by acquisition.

Continue to improve our investment 

and portfolio management processes. 

Continue to build our market profile 

and access to high quality opportunities 

in developing markets.

and approach to responsible investing.

Infrastructure: increase assets under 

management through growing existing  

portfolio value, making additional high quality 

investments and raising further capital. 

Debt Management: Increase assets under 

management by raising additional funds and 

making further acquisitions.

Grow our 

business

Today

Tomorrow

Private Equity: continue to focus on growing 

existing portfolio value and building on our 

Use the strength of our balance sheet and 

relationships with investors to develop each 

Active Partnership, Business Leaders Network 

of our business lines. 

Improve our operational effectiveness as we 

continue to reduce costs and further improve 

our processes.

Build on  

our reputation

Today

Tomorrow

Capitalise on the benefits of new Responsible 

Maintain our focus on raising our investment 

Investing processes and systems.

performance.

Use the insights gained from our brand 

refresh project to strengthen our offering, 

our approach to the market and to enhance 

our competitive advantage.

Build on engagement with the portfolio on  

ESG issues.

1  Cost efficiency is net operating expenses over opening portfolio value.
2  Weighted average AUM.

Risks

Performance

The major risks to investing well are:

Gross portfolio return by year (%)

Investment activity (£m)

 the macroeconomic environment.  
Although the outlook has generally 
improved in 2012 in most of the countries  
in which 3i operates, it remains fragile 
in some key markets such as in Europe; 

 competitive pressure resulting 
in unattractive pricing for new 
investments; and 

 failing to maintain our investment discipline.

The major risks to growing our  
business are:

 the ability to retain or attract and integrate 

high calibre staff; 

 failure to take advantage of opportunities  

to invest; 

 competitive pressure resulting in 

unattractive pricing; and 

 failure to maintain our disciplined  

approach to asset management and 
strategic development.

year to 31 March

year to 31 March

2008

2009

2010

2011

2012

23.9

Investment

(36.7)

Realisations

Net divestment/ 
(investment)

20.9

17.1

(8.2)

2012

(646)

771

2011

(719)

609

125

(110)

Assets under management (£m)

year to 31 March

2010

2011

2012

Managed 
and advised 
by 3i

3,846

7,236

Total

9,633

12,686

6,319

10,493

3i Direct

5,787

5,450

4,174

The major risks to our reputation  
continue to be:

 not making high quality investment  

and portfolio management decisions, 
supported by robust processes; 

 not implementing our strategy 

effectively; and 

 not participating actively in industry 

and sector regulatory developments. 

Responsible Investing
New Responsible Investing 
processes and systems were 
introduced throughout the year.

As a result, opportunities have 
emerged to manage ESG risks 
better and protect portfolio value.

Brand review
A thorough review of 3i’s positioning, 
values, key messages and visual identity 
was undertaken.

Each of these aspects of our brand was 
refreshed in the year.

Research highlighted that 3i’s values and 
its approach to doing business were key 
differentiators. 

Maintain  

“One 3i” culture

Today

Tomorrow

Build on momentum created through our 2012 

Ensure consistency of investment strategy  

Values workshops (92% of staff attended).

and approach across business lines.

Continue to invest in our knowledge portal and 

Track general progress through staff and  

“best team for the job” approach to resourcing 

key audience research.

investments/projects.

Follow up on specific points emerging from 

2012 staff survey.

The major risks to maintaining a  
“One 3i” culture are:

 not investing sufficiently in staff 
development and training; and

 not adhering to our values.

Staff survey results 2012
Employee engagement

2009

2010

2011

2012

83%

74%

86%

69%

Employee engagement
Highlights
 90% of staff are committed to helping 

3i achieve its objectives; and 

 72% of staff are proud to work for 3i. 

Opportunities for improvement
 to improve morale following 

a significant restructuring; and
 further improve communication 

across geographies.

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18

3i Group plc  Annual report and accounts 2012

Business review

A review of our business at a Group and 
business line level.

Group overview 
Assets under management 
Ten largest investments 
Market environment 
Investment and realisations 
Business lines 
Financial review 

19
20
22
24
27
30
47

Group overview

3i Group plc  Annual report and accounts 2012

19

3i is an international investor focused on private equity, infrastructure  
and debt management, investing in Europe, Asia and the Americas.  
Our strategy is set out on pages 16 and 17.

Introduction
All three business lines invest using a mix of the Group’s own 
balance sheet capital and external capital. Total assets under 
management at 31 March 2012, including 3i’s commitments 
to funds, were £10.5 billion (2011: £12.7 billion), including 
£6.3 billion (2011: £7.2 billion) advised or managed on behalf 
of others. The composition of our assets under management 
is set out on the following pages. Further detail is also 
provided on the composition of the investment portfolios 
within each of the business line reviews on pages 30 to 46. 
Information on our 10 largest and 50 of our largest 
investments is provided on pages 22 and 23, and 136 to  
139 respectively.

A detailed review of our performance at a Group and 
business line level for the year to 31 March 2012 is set out in 
this Business review. In summary, the Group’s total return is 
generated by the realised and unrealised returns we achieve 
from our direct portfolio and the fees and carry that we 
receive from advising or managing external funds, less the 
operating expenses and funding costs of the business.

Risk management and corporate responsibility, for  
which there are reports on pages 53 and 60 respectively,  
are central to our strategy. During the year, a revised set  
of policies and procedures were implemented to further 
develop our approach to responsible investing. An exercise 
was also conducted to refresh the key elements of our 
brand in terms of values, positioning key messages and 
visual identity. 

Employee engagement is our key non-financial performance 
measure. As an international investor employing a relatively 
small number of people in a highly competitive market, 
employee engagement is important to 3i and we undertake 
a detailed survey of our staff each year. 

Achieving the right balance between transparency and 
accessibility of information is an important factor in the 
continued development of our online Reporting centre.

Increased disclosure this year includes information relating 
to net portfolio return by business line and further disclosure 
with respect to the investment portfolio. 

For more information, go to:
Strategy and performance p16 and p17 
The key Group financial performance measures p17

For more information, go to:
/transparency

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20

3i Group plc  Annual report and accounts 2012

Assets under management

The Group defines its assets under management (“AUM”)  
as the total commitments, including the Group’s, to its active 
managed and advised funds, as well as the residual cost of 
investments in funds that are already invested and the cost 
of any other investments owned directly by 3i.

Total AUM of £10,493 million at 31 March 2012 (2011: 
£12,686 million) reflected the reduction in Eurofund V AUM 
as we came to the end of the investment period in November 
2011 and switched to a residual cost basis. The reduction 
also reflects net divestment activity from both the Group’s 

balance sheet and invested funds and a £249 million 
reduction due to the weakening of sterling against euro 
denominated managed and advised funds.

These factors were partly offset by growth in the 
AUM in Infrastructure and the launch in the year of both 
Vintage II ($400 million) and Palace Street I (€50 million) 
by Debt Management.

As can be seen from Charts 1, 2 and 3, 3i has a well 
diversified investor base for the funds it manages or 
advises both by geography and by type of investor.

Table 2: Assets under management

Private Equity

3i Eurofund III

3i Eurofund IV

3i Eurofund V

Close date

July 1999

June 2004

Nov 2006

3i Growth Capital Fund

March 2010

Other

Infrastructure

Various

Original 
fund size

Original 3i 
commitment

Outstanding 3i 
commitment at 
March  
2012

 % invested
at March 
2012

Gross 
money
multiple1
at March
2012

€1,990m

€995m

€3,067m

€1,941m

€5,000m

€2,780m

€1,192m

Various

€800m

Various

€90m

€78m

€486m

€376m

n/a

3i India Infrastructure Fund

March 2008

$1,195m

$250m

$75m

3i Infrastructure plc

March 2007

£1,040m3

£355m4

Other

Various

Various

Various

Debt Management

Harvest I

Harvest II

Harvest III

Harvest IV

Harvest V

Windmill I

Friday Street

Palace Street I

Vintage I

Vintage II

Non-core

Total AUM (in sterling)

April 2004

April 2005

April 2006

June 2006

April 2007

October 2007

August 2006

August 2011

March 2007

November 2011

€514m

€552m

€660m

€752m

€650m

€600m

€300m

€50m

€500m

$400m 

€15m

€5m

€5m

€6m

€10m

€5m

nil

€50m

nil

nil

n/a

n/a

–

–

–

–

–

–

–

€7m

–

–

91%

96%

83%

53%

n/a

70%

n/a

n/a

100%

100%

100%

100%

100%

100%

100%

86%

100%

100%

AUM

€82m

€512m

€3,458m

€1,192m

£838m

$945m2

£1,040m

£104m

2.1x

2.3x

0.8x

0.9x

n/a

1.0x

n/a

n/a

Average 
paid
 yield5

9.4%

€255m

12.7%

€518m

9.6%

€620m

10.5%

€722m

4.1%

5.7%

2.6%

8.8%

€600m

€492m

€131m

€50m

4.3x1

€404m

n/a

$317m

£104m

£10,493m

1  Gross money multiple is cash returned to the Fund plus value, as at 31 March 2012, as a multiple of cash invested. 
2  Adjusted to reflect 3i Infrastructure plc’s $250 million commitment to the Fund. 
3  Based on latest published NAV (ex-dividend). 
4  3i Group’s proportion of latest published NAV. 
5  The average paid yield of the CLO and debt funds is the average annual return for equity note holders since the funds’ inception.

3i Group plc  Annual report and accounts 2012

21

Chart 1: Total AUM by business line 
as at 31 March 2012

Chart 2: External investor base for non-listed funds 

managed and advised by geographic locations 
as at 31 March 2012

1%

32%

Private Equity

Infrastructure

Debt Management

Non-core investments

35%

50%

North America

25%

Middle East

Asia

UK

Rest of Europe

10%

17%

15%

15%

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Chart 3: External investor base for non-listed funds 

managed and advised by type of investor 
as at 31 March 2012

1%

6%

22%

Financial institutions

Funds of funds

24%

Insurance companies

2%
1%

29%

15%

Pension funds

Private individuals

Endowments

Government agencies

Other

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22

3i Group plc  Annual report and accounts 2012

Ten largest investments

3i Infrastructure plc (“3iN”) Infrastructure

A FTSE 250 company advised by 3i 
which was launched and listed on  
the London Stock Exchange in 2007. 
Invests primarily in utilities, 
transportation and social infrastructure 
in Europe.
Portfolio of 14 investments at 31 March 
2012, including six held through the 
$250 million commitment to the 3i India 
Infrastructure Fund. 

3iN invested £204 million and delivered 
a total return of £56 million in the year 
to 31 March 2012.
3iN had a market capitalisation 
of £1,097 million at 31 March 2012.

Date of first investment

March 2007

Proportion of equity

Residual cost

Valuation at 31 March 2012

GPR for 3i year to 31 March 2012

Basis of valuation

34.1%

£302m

£375m

£40m

Quoted

Action Private Equity

A Dutch-based non-food discount 
retailer with 275 stores in the Benelux 
and Germany.
3i invested to provide capital to support 
a buyout and to accelerate the roll-out 
of stores internationally.
Eurofund V

Since investing, Action has 
performed well and the store roll-out 
plan for 2012 has been increased 
from 20 to 50 stores. 

Date of first investment

September 2011

Proportion of equity

Residual cost

Valuation at 31 March 2012

GPR for 3i year to 31 March 2012

Basis of valuation

35.9%

£115m

£143m

£40m

Earnings

ACR Private Equity

Hilite Private Equity

3i supported the start up of this 
Singapore-based, pan-Asian 
reinsurance business with a 
$200 million investment in 2006. 
A series of natural disasters, 
including Thai floods and earthquakes 
in Japan and New Zealand, have 
impacted valuation.
3i own balance sheet

In April 2012, ACR announced that 
the Japanese trading group, Marubeni, 
had agreed to make a substantial 
investment in the business.

Date of first investment

November 2006

Proportion of equity

Residual cost

Valuation at 31 March 2012

GPR for 3i year to 31 March 2012

31.1%

£105m

£118m

£(30)m

Basis of valuation (Other)

Book multiple

A German-based provider of fluid 
control component technology for 
the engineering and manufacturing 
industries. Operations in more than 
15 countries.
3i invested to provide capital to 
support a buyout and to accelerate 
international growth. 
Eurofund V

Since investing, Hilite has performed 
well and, in April 2012, announced 
that it had reached agreement 
with Cummins to sell its emission 
control activity.

Date of first investment

May 2011

Proportion of equity

Residual cost

Valuation at 31 March 2012

GPR for 3i year to 31 March 2012

Basis of valuation

21.9%

£99m

£115m

£28m

Earnings

Mold-Masters Private Equity

A Toronto-based provider of plastics 
processing technology with operations 
in more than 20 countries. 
3i invested to provide capital to support 
a share restructuring and to accelerate 
international growth. 
3i own balance sheet

Since 2008, sales in China and India  
have grown at a compound annual 
growth rate of 24% and production 
capacity in China has trebled.

Date of first investment

August 2007

Proportion of equity

Residual cost

Valuation at 31 March 2012

GPR for 3i year to 31 March 2012

Basis of valuation

49.3%

£75m

£115m

£35m

Earnings

Note: GPR is Gross portfolio return.

3i Group plc  Annual report and accounts 2012

23

Foster + Partners Private Equity

International growth has been strong, 
with Asia accounting for a third of 
revenue in 2011. The reduction in value 
in the year to 31 March 2012 was driven 
by a lower valuation multiple. 

A London-based provider of 
architectural services with offices in 
nine cities. It has completed projects 
in over 60 countries, including iconic 
buildings such as the Gherkin in London 
and Beijing airport.
3i invested to provide capital to support 
a share restructuring and international 
growth. 
3i own balance sheet

Date of first investment

Proportion of equity

Residual cost*

Valuation at 31 March 2012

GPR for 3i year to 31 March 2012

Basis of valuation

May 2007

40.0%

£112m

£(18)m

Earnings

*  Due to a confidentiality agreement in place at the time 
of the investment, the residual cost cannot be disclosed.

Mayborn Private Equity

UK-based manufacturer and distributor  
of baby and child products under the 
Tommee Tippee brand. Operations in 
46 countries.
3i invested to provide capital to support 
a buyout and to accelerate growth 
through international expansion.
Eurofund IV

International expansion has driven 
rapid growth, including a successful 
launch in the US in 2010 through an 
exclusive agreement with Babies R US. 
The addition of Target, as a second US 
retailer, will support continued growth.

Date of first investment

June 2006

Proportion of equity

Residual cost

Valuation at 31 March 2012

GPR for 3i year to 31 March 2012

Basis of valuation

44.7%

£103m

£105m

£11m

Earnings

NORMA Private Equity

German-based provider of joining 
technology for the engineering and 
manufacturing industries. Operations  
in more than 80 countries.
NORMA was created out of the merger 
of two portfolio companies – 
Rasmussen (Eurofund IV) and ABA 
(Eurofund III) in 2006. Since then, 
it has become a global leader in its 
sector through organic growth and 
international acquisitions. 
Eurofund III and IV

NORMA achieved a successful IPO on 
the Frankfurt Stock Exchange in April 
2011, delivering proceeds in the year 
for 3i of £77 million. These proceeds, 
combined with the value of 3i’s 
remaining quoted holding, are a 
multiple of 5.7x cost.

Date of first investment

April 2006

Proportion of equity

Residual cost

Valuation at 31 March 2012

GPR for 3i year to 31 March 2012

Basis of valuation

21.1%

nil

£103m

£(12)m

Quoted

Element Private Equity

Benelux-based specialist in materials 
and product qualification testing, with 
29 laboratories across Europe and the 
United States.
3i invested to enable the buyout of the 
business from Stork and to support 
international growth through a buy 
and build strategy.
Eurofund V

Since investing, Element has 
performed well, successfully 
rebranded and completed the 
acquisitions of DTL and Mar-Test 
in North America. 

Date of first investment

December 2010

Proportion of equity

Residual cost

Valuation at 31 March 2012

GPR for 3i year to 31 March 2012

42.2%

£63m

£90m

£34m

Basis of valuation

Earnings

Scandlines Private Equity

Sea ferry operator carrying c.12 million 
passengers and c.3.6 million vehicles 
a year on nine routes between 13 ports 
in the Baltic Sea.
3i invested to support the growth 
and development of the business 
into a “best-in-class operator”.
Eurofund V

New, more efficient capacity, improved 
marketing and significant efficiency 
improvements have enabled 
Scandlines to make considerable 
progress towards its objective 
of becoming a best-in-class operator. 

Date of first investment

August 2007

Proportion of equity

Residual cost

Valuation at 31 March 2012

GPR for 3i year to 31 March 2012

Basis of valuation

27.3%

£39m

£89m

£1m

DCF

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24

3i Group plc  Annual report and accounts 2012

Market environment

Introduction
This section provides commentary on the broader 
environment in which the Group and its business lines 
operate. It includes a review of macroeconomic conditions, 
mergers and acquisitions (“M&A”) activity as well as the 
levels of investment and fundraising. The regulatory 
environment is covered in the Risk section on page 53.

Conditions varied considerably during the year to 31 March 
2012. Increased optimism and a marked increase in activity, 
supported by wider debt availability early in the year,  
were followed by a sharp slowdown in the summer as  
the euro crisis dominated headlines. Sentiment improved  
in the first quarter of calendar 2012, as the US economy 
showed some signs of recovery although it remains to  
be seen if this will be sustained into a fundamental 
improvement in macroeconomic conditions.

Macroeconomic conditions
3i’s direct operations are in Europe, Asia and the Americas. 
Our investment portfolio comprises companies which also 
have a wide breadth of international diversity. Consequently, 
it is not just the economies of those countries where we have 
operations that are relevant to 3i. An analysis of our portfolio 
composition at a Group and business line level is provided on 
pages 133 to 135.

World economic growth slowed in 2011 with real GDP growth 
of 3.8% (2010: 5.2%) (source: IMF) despite strong growth  
in Asia, Latin America and emerging markets of 6.2% (2010: 
7.3%). China (9.2%) and India (7.4%) remained strong drivers 
of world growth rates although Brazilian growth of 2.9% 
(2010: 7.5%) slowed as a result of higher interest and 

exchange rates. However, growth in Europe, the US and 
Japanese economies was weak at 1.6% in 2011 (2010: 3.2%). 
Within Europe, some countries and, in particular, Germany 
(3.0%) saw good growth. 

Against this backdrop, currency volatility continued to be a 
feature with the euro and US dollar both fluctuating by up  
to 10% within the year. The euro weakened against sterling  
in the year by 4.6%.

The condition of equity markets is important to 3i as they 
influence M&A activity and company valuations. The major 
global stock markets of relevance to 3i ended the year 
broadly flat. However, there was a considerable degree  
of volatility within the year. For example, the FTSE began  
and closed the year to 31 March 2012 at 5,909 and 5,768 
respectively. However, it reached a high of 6,083 in May 2011 
and a low of 4,944 in October 2011.

Mergers and acquisition activity
Conditions in M&A markets influence the environment  
for both investment and realisations. The level of global  
M&A activity followed wider sentiment with a strong 
start to calendar 2011, followed by a sharp slowdown in 
the summer as wider macro concerns came to the fore. 

Global M&A activity in calendar year 2011, at 42,422 
transactions, was up 1% from 2010 (source: Dealogic).  
The year’s total was driven by volume in the first half of 
22,674 transactions with quarterly volume dropping c.25% 
by the fourth quarter to 8,563 transactions. Europe was 
particularly impacted by this slow down, with fourth quarter 
2011 M&A activity down 47% on the same period in 2010, 
the lowest quarterly total since mid 2004.

Chart 4: Global M&A deals 2001 to 2011 $bn

$bn

1,600

1,400

1,200

1,000

800

600

400

200

0

12,000

10,000

8,000

6,000

4,000

2,000

0

1
Q

2
Q

3
Q

4
Q

1
Q

2
Q

3
Q

4
Q

1
Q

2
Q

3
Q

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3
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2
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3
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Q

1
Q

2
Q

3
Q

4
Q

1
Q

2
Q

3
Q

4
Q

2001
n Deal value $bn           Volume
Source: Dealogic, M&A review.

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

3i Group plc  Annual report and accounts 2012

25

This trend continued into the first quarter of 2012, with M&A 
activity down by 26% on the same period in 2011 (source: 
Dealogic). Activity is set to remain low, with Ernst & Young’s 
Capital Confidence Barometer in April 2012 showing that only 
31% of the 1,500 senior executives interviewed would pursue 
an acquisition in the next 12 months, down from 41% in 
October 2011.

Investment and  
fundraising conditions
Private Equity
After a strong start to the year, private equity investment  
in calendar 2011 was flat at $184 billion (2010: $184 billion), 
with activity peaking in the second quarter and then falling  
as macro concerns grew (source: Bain and Company).  
The final quarter of calendar 2011 was the quietest quarter 
for new investments since the first quarter of 2010. 
Unsurprisingly, this was largely driven by a slowdown in 
Europe. In contrast, the Americas experienced broadly stable 
activity levels through 2011 and Asia saw modest growth in 
the final quarter of 2011. 

The mid-market, which 3i targets, did not decline as rapidly 
as that for larger deals.

Notwithstanding the trend in activity levels, valuations  
for new investments increased in 2011 as the operating 
environment and earnings outlook began to stabilise.  
The average headline purchase price multiple in calendar 
2011 was 8.4x EBITDA (earnings before interest, tax, 
depreciation and amortisation), (2010: 8.1x) higher than 
in any year since 2008 (source: Ernst & Young). Increased 
availability of leverage may have been a factor in this 
rise, with average debt multiples of 5.2x EBITDA reported  
on new deals in 2011 (2010: 4.7x). The continuing overhang  
of capital, as shown in Chart 5 on page 26, was another  
possible influence.

Although headline prices remain relatively high, the debt 
element continues to be lower than seen in the 2003–2007 
vintages, with 62% of purchase price being funded by debt. 

Global data from Preqin indicates that the environment for 
fundraising remains challenging. A total of 477 funds achieved 
a final close in 2011, raising $230 billion, some 6.6% lower 
than 2010 and well below the peak of $625 billion in 2008.

Limited Partner investors continue to reduce the number  
of managers they have in their investment programmes  
and look for new ways of investing into the asset class. 
Accordingly, a number of managed account style initiatives 
were set up in the year for large LPs to commit alongside 
more established fund structures. 

There was continued fund raising growth in 2011 in markets 
outside Europe and the US with funds targeting Latin 
America holding up particularly well. Across Asia there was 
a continuation of the trend to country specific rather than 
pan-regional funds with one factor being the rise of funds 
denominated in renminbi.

Infrastructure
Despite market and macro uncertainty, a few sizeable 
infrastructure transactions were completed during the year 
in Europe. These included the sale of electricity networks 
in the UK and in Germany, the public-to-private acquisition 
of Northumbrian Water in the UK, as well as the €1.5 billion 
acquisition of LNI in Finland. This activity was underpinned  
by the continued availability of debt for strong infrastructure 
businesses at relatively attractive terms. 

Investment opportunities in Europe are likely to continue  
to emerge from a number of sources: non-core disposals 
from both corporates and financial institutions; policy 
drivers, such as the drive to increase private investment in 
infrastructure development; and secondary market sales.

In India, macro conditions were challenging during the year 
with high inflation, political uncertainty and a growing fiscal 
deficit impacting the outlook for growth. Investment activity, 
as a result, was lower. However, economic growth and an 
increasingly urbanised population continue to drive demand 
for infrastructure development. 

Debt Management 
Today, there are c.50 European Collateralised Loan 
Obligation (“CLO”) managers with approximately €107 billion 
of assets under management (source: Creditflux). The top  
ten managers by AUM, including 3i, together manage 
c.€63 billion or 59% of CLO assets. 

The European CLO market continues to be impacted by 
macro environment concerns and no new CLOs have been 
launched since the market closed in 2009. Although primary 
activity has improved in Europe, however, most deals 
continue to be re-financings or secondary/tertiary buyouts 
with the net amount of leveraged loans in the market  
still contracting.

A stronger primary market will be necessary in order  
to support new CLO issuance in Europe. In contrast, the 
securitisation market for new CLO issuance has re-opened  
in the US, with some 28 deals launched in 2011 with a value 
of €12.2 billion and a further $10.6 billion launched in the  
first four months of 2012, across 24 deals.

Pricing in the European secondary loan market peaked in 
May 2011 before falling in the second half of the year and 
then rising in the first quarter of 2012. 

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26

3i Group plc  Annual report and accounts 2012

Market environment

Realisation conditions
Following increased momentum in 2010, private equity exit 
activity was stronger in calendar 2011, especially in the first 
half. Sales to strategic buyers remain the key exit route, with 
secondary sales to other financial sponsors remaining low 
compared to the 2003-2007 period.

The IPO market provided a good exit window for private 
equity in the first half of 2011, with 70 companies raising 
$31.4 billion through IPO. The second half activity was much 
lower, some 77% below the first half and at the lowest value 
since 2009. In the growing markets of China, India and South 
America, exit activity was slow. In China, the depth of capital 
markets meant that IPO remained the primary exit route 
while, outside China, strategic sales remain more important.

Outlook
Although, in general, macroeconomic sentiment is more 
positive at the start of this financial year, the IMF and others 
expect the pattern of lower growth that we have seen since 
the credit crisis in 2008 to persist and for a degree of fragility 
to remain. The recent political changes in Europe and 
increased uncertainty on economic policy has increased 
the likelihood of further market volatility. In this environment, 
activity in 3i’s main markets is likely to continue to be 
subdued but be subject to short-term fluctuations. 

Chart 5: Funds raised and invested – Europe 2000 to 30 June 2011 (€bn)

112

72

71

72

80

80

48

40

35

47

37

28

28

29

27

27

24

54

43

24

18

20

17

18

2000

2002
2001
n Funds raised  n Investment
Source: EVCA for 2007-2010, EVCA/Thomson Reuters/PwC for previous years. Europe by location of private equity firm.

2006

2009

2008

2005

2007

2004

2003

2010

2011

3i Group plc  Annual report and accounts 2012

27

Investment and realisations

Table 3:  Investment activity – own balance sheet 

Table 4: Investment type 

and external funds

for the year to 31 March 

New/first investment

Acquisition finance

Restructurings

Capitalised interest1

Purchase of portfolio 
debt instruments

Other

Total

1  Includes PIK notes.

Table 5: Investment by business line 

for the year to 31 March 

Private Equity

Infrastructure

Debt Management

Total

Table 6: Investment by geography 

for the year to 31 March 

UK

Continental Europe

North America

Asia

Total

year to 
31 March

Realisations

Investment

Net 
divestment/
(investment)

3i own balance sheet

External funds

2012  
£m

771

(646)

2011  
£m

609

(719)

2012  
£m

470

(574)

2011  
£m

166

(736)

125

(110)

(104)

(570)

Realisations for the year to 31 March 2012 at £771 million 
(2011: £609 million), resulted in the Group being in a net 
divestment position of £125 million (2011: £110 million net 
investment). The net cash inflow in the year was £307 million 
as the Group took advantage of favourable exit conditions in 
the first half of the year and remained selective with regard 
to new investment throughout.

Investment 
The Group maintained its selective approach to investment, 
with a total of £374 million invested in nine (2011: nine) 
new portfolio companies in the year to 31 March 2012 
(2011: £308 million), which are detailed in Table 7. There was 
a marked slow down in investment activity in the second 
half of the year, primarily as a result of economic uncertainty 
surrounding the euro crisis and a general slow down in 
M&A activity. 

The Private Equity business line completed seven new 
investments in the year to 31 March 2012 (2011: six),  
investing £345 million (2011: £270 million).

The Infrastructure business line invested £70 million in the 
year, with £33 million resulting from the Group exercising 
3i Infrastructure plc warrants, which were issued at IPO  
in 2007. The new investment in LNI of £28 million was made 
alongside a £195 million investment by 3i Infrastructure plc. 
The Group also invested a further £8 million into GVK, 
through its commitment to the 3i India Infrastructure Fund.

The Debt Management business line launched a Credit 
Opportunities Fund, Palace Street I, in August 2011 and at  
31 March 2012 had invested €43 million of the €50 million 
Group commitment to the Fund.

The non-cash element of investment relates to capitalised 
interest earned mainly on shareholder loans and PIK notes 
in the Private Equity business line. This amounted to 
£163 million in the year to 31 March 2012 (2011: £158 million). 

Total investment was £646 million in the year to 31 March 
2012 (2011: £719 million).

2012  
£m

374

12

9

163

–

88

646

2012  
£m

540

70

36

646

2011 
£m

308

54

16

158

110

73

719

2011  
£m

634

36

49

719

2012  
£m

2011  
£m

133

469

18

26

646

221

433

3

62

719

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28

3i Group plc  Annual report and accounts 2012

Investment and realisations 

Table 7:  New investment

year to 31 March 2012

Investment

Business line

Country

Sector

Action

Hilite

Etanco

LNI

Loxam

Private Equity

Netherlands

Consumer

Private Equity

Germany/US

Industrials and Energy

Private Equity

France

Industrials and Energy

Infrastructure

Finland

Infrastructure

Private Equity

France

Business Services

3i 
investment  
£m

Date

Value at  
31 March 
2012  
£m

Sept 2011

June 2011

Oct 2011

Jan 2012

June 2011

April 2011

April 2011

July 2011

114

94

70

28

19

18

17

13

1

143

115

67

29

23

22

13

11

1

374

424

2012  
£m

756

1

–

14

771

2011  
£m

372

1

145

91

609

2012  
£m

2011  
£m

76

670

16

9

771

2012  
£m

291

349

18

76

–

37

771

376

190

25

18

609

2011  
£m

156

104

33

16

127

173

609

TouchTunes

Private Equity

GO Outdoors

Private Equity

US

UK

Consumer

Technology, Media, Telecoms

Aug 2011

World Freight

Private Equity

France

Business Services

Dalmore

Total

Infrastructure

UK

Infrastructure

Realisations 

Table 8: Realisations by business line 

Proceeds from the sale of investments in the year to 
31 March 2012 totalled £771 million (2011: £609 million) were 
achieved at a lower uplift over opening value of 3% than 
previous years (2011: 26%). This was driven by the majority of 
these assets being valued on an imminent sales basis at the 
beginning of the year, with proceeds therefore being received 
at close to opening value. The aggregate money multiple for 
the ten largest realisations in the year was 2.9x.

The Developed Markets Private Equity business accounted 
for the majority of exits in the year to 31 March 2012.  
Key realisations included £197 million for MWM, £180 million 
for Hyva, £139 million for Ålö Intressenter and £77 million  
for the partial realisation of NORMA. A consistent theme in 
these industrial businesses was the international element  
in their value growth through both sales generation  
and sourcing.

Developing Markets Private Equity received a loan 
repayment from Joyon (£8 million) and a partial realisation 
from UFO Moviez (£7 million). 

The Non-core portfolio continues to be reduced, with 
proceeds of £14 million received in the year to 31 March 2012 
(2011: £91 million), leaving a remaining portfolio of 
£103 million at 31 March 2012. 

Realisations from sales to trade buyers at £291 million  
(2011: £156 million) and secondary investors at £349 million 
(2011: £104 million) reflected the increase in M&A market 
activity in the first half of the year.

for the year to 31 March

Private Equity

Infrastructure

Debt Management

Non-core activities

Total

Table 9: Realisations by geography 

for the year to 31 March

UK

Continental Europe

Asia

North America

Total

Table 10: Realisations by type 

for the year to 31 March

Trade sales

Secondaries

Loan repayment

IPO

Management buyback

Other

Total

3i Group plc  Annual report and accounts 2012

29

Table 11: Ten largest realisations 

Investment

Business line

Country

Sector

MWM

Hyva 

Private Equity Germany

Industrials & Energy

Private Equity Netherlands Industrials & Energy

Ålö Intressenter 

Private Equity Sweden

Industrials & Energy

NORMA2

RBG

KemFine

Private Equity Germany

Industrials & Energy

Private Equity UK

Industrials & Energy

Private Equity Finland

Industrials & Energy

TeknikMagasinet 

Private Equity Sweden

Consumer

Scandlines3

Private Equity Germany

Industrials & Energy

Joyon4

Private Equity China

Industrials & Energy

Butterfield 
Fulcrum Group

Total

Private Equity USA

Financial Services

3i realised 
proceeds  
£m

3i money 
multiple
over cost1

197

180

139

77

47

44

10

9

8

7

718

2.9x

7.8x

5.4x

5.7x

3.6x

2.7x

2.2x

1.9x

1.9x

0.1x

2.9x

IRR

Date

29%

Nov 2011

46% April 2011

23% July 2011

40% April 2011

23% May 2011

18%

13%

Aug 2011

Nov 2011

23% May 2011

17%

Feb 2012

(55)% June 2011

25%

1   Money multiples are calculated on a 3i only basis in sterling using the prevailing exchange rate at the time of cash flows. For partial 

realisations made in the year, the valuation of the remaining investment at 31 March 2012 has been used to calculate the money multiple.

2   Partial realisation: 3i retains 21.1% stake (residual cost nil, value at 31 March 2012: £103 million).
3   Partial realisation: 3i retains 27.3% stake (residual cost of £39 million, value at 31 March 2012: £89 million).
4   Loan repayment: 3i retains 49.9% stake (residual cost of £8 million, value at 31 March 2012: £20 million). 

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30

3i Group plc  Annual report and accounts 2012

Business lines: Private Equity

Business model
3i’s Private Equity business is focused on investing in 
mid-market buyout and growth capital transactions.

The investment strategy for the business is built around the 
following core components:

n identifying and investing in leading mid-market businesses 

where significant value can be created;

n utilising 3i’s local knowledge, range of Business Leaders 

Network contacts, sector expertise and investment 
disciplines to select attractive assets, purchase them 
at the right price and then finance them appropriately;

n building these businesses through organic growth, 
international expansion and acquisitions, as well as 
optimising their operations in partnership with top class 
management teams; 

n maximising value through timely and well-executed exit 

strategies; and 

n generating management fees and carried interest from 
external funds, which are managed alongside 3i’s own 
balance sheet commitments. 

3i’s Private Equity business operates on an international 
basis across Europe, Asia and the Americas. It is managed 
operationally on a regional basis with Developed Markets 
Private Equity, covering Europe and North America, 
and Developing Markets Private Equity covering Asia 
and South America. At 31 March 2012, the Private Equity  
portfolio consisted of 90 companies, with operations in  
over 70 different countries. The direct value of this portfolio 
at 31 March 2012 was £2.5 billion and it accounted for  
£5.3 billion of assets under management.

In recent years, the business has invested through funds 
containing third-party capital, alongside which 3i co-invests 
its own balance sheet capital. Eurofund V for buyouts has 
largely invested in the European market. The Growth Capital 
Fund, for minority situations, has invested in Europe, Asia 
and North America. 

In 2010, the decision was taken to merge the Buyouts and 
Growth Capital businesses to form a single Private Equity 
business line, managed on a regional basis. This new 
organisational structure facilitates greater collaboration 
across 3i’s international office network. It also delivers an 
enhanced origination capability and encourages greater 
emphasis on Active Partnership, sector and Business 
Leaders Network activities. Significant progress has been 
made on merging the businesses operationally, at the same 
time as ensuring that investment and portfolio decision 
making continued to be managed in line with the existing 
fund mandates.

During the financial year, 3i extended the reach of the  
Private Equity business to Brazil. Initially, investments 
in Brazil will be made fully from the 3i balance sheet, 
with the medium-term aim of raising a separate fund 
for investment in this region.

Case study Hilite

Eurofund V invested €190 million (3i balance sheet 
proportion: £94 million) in May 2011 to support the 
buyout of Hilite and to accelerate the international 
growth of the business. We gained access to this 
investment through our local presence in Germany 
and the US and our strong reputation and network  
in the sector through investments such as NORMA 
and Hyva. 
The investment case was predicated upon  
the opportunity for market growth and the  
potential for performance improvement. Hilite 
operates in a high growth segment of the global 
automotive market – the manufacturing of hydraulic  
actuators and timing systems, which improve fuel 
consumption and reduce emissions. The company’s 
products are used by the world’s major automotive 
manufacturers in the engines, transmissions and 
exhaust systems of passenger and commercial 
vehicles. 

Hilite’s technological expertise and differentiated 
product offering are enabling it to benefit from the 
global demand for increased fuel efficiency and 
emissions reduction. Revenues for calendar year 
2011 were up 21% to approximately €370 million.
Based in Marktheidenfeld, Germany, Hilite also has 
production facilities in the US and, in November 2011, 
opened a new plant in China. 
Since investment, a new Chief Executive Officer, 
Chief Financial Officer and Chief Operating Officer 
have been appointed. In addition, a number of  
Active Partnership initiatives have also helped  
to identify potential operational improvements.  
In April 2012, the company reached agreement  
with Cummins to sell its emissions control 
business, delivering an effective multiple of 2.1x 
the proportionate entry price for this part of 
the business. 

3i Group plc  Annual report and accounts 2012

31

The investment process is structured as a series of  
carefully planned stages. The early stages consist of  
filtering investment opportunities to create a pool of high 
potential opportunities, which capitalise on 3i’s strengths 
both to win the investment and to add value once invested.  
During the year, 93 new opportunities passed these  
early filter stages and were formally considered as  
work in progress. During the work in progress stage,  
the investment case is then built and validated rigorously,  
the deal structure is optimised, negotiations over detailed 
terms take place and 3i’s competitive position and tactics  
are determined. 

Investment teams working on each opportunity are typically 
drawn from across our business, based on experience  
and sector knowledge. All investments are subject to both 
partner review and final Investment Committee processes. 
Of the 27 investment opportunities considered for partner 
review during the year, five were completed as investments 
and an additional two were signed and are due for 
completion in the next financial year. Two investments 
completed in the year, GO Outdoors and World Freight,  
were considered in the prior year.

Long-term performance
From the Buyouts and Growth Capital investments 
completed since 2001, there have been 113 realisations 
to date. These have generated a realised money multiple of 
2.1x (£5.6 billion of cash returned) and a realised IRR of 46%. 
These numbers include realised losses in the period, as well 
as successful realisations. 

As can be seen from Chart 6, earnings growth was the 
largest contributor to value creation for these realised 
investments (60%). Enhanced multiples on exit from an 
improved strategic position and growth prospects, as well  
as market movements (30%), was the next most significant 
factor. Optimising the financial structure provided a further 
enhancement (10%).

Chart 6: Private Equity sources of value creation 
from realised investments (%)

30

10

60

Total equity
value at entry

Earnings
growth

Multiple
enhancement

Debt
reduction

Total equity
value at exit

Source 3i: 113 realised Private Equity investments since 2001, exited prior 
to 31 March 2012.

Case study Mold-Masters

Mold-Masters is a leading manufacturer of melt 
delivery and control systems for the plastics 
industry. From its manufacturing facilities in 
Canada, China, Germany, India and Brazil, it serves  
a diverse and global customer base across high 
growth end markets. These include consumer 
electronics, medical devices, personal care 
consumer products, telecommunications, packaging 
and automotive.
3i invested in Mold-Masters in August 2007 to 
accelerate organic growth in Asia, Eastern Europe 
and Latin America, and to support acquisitions.

Since investing, we have leveraged our global 
Business Leaders Network to build the board  
and executive team. We have also supported  
the company through a range of performance 
improvements, including sales force effectiveness, 
global manufacturing footprint optimisation,  
new product introductions, upgraded financial 
management and controls and a de-leveraging  
in 2009.
Mold-Masters’ revenue and earnings for the year  
to 31 December 2011 were up 23% and 21%, 
respectively, repeating the 20%+ growth for the 
previous year. Much of this was achieved through 
expanding international sales, with core revenue 
up 20% in Europe and 34% in Asia in 2011.

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32

3i Group plc  Annual report and accounts 2012

Business lines: Private Equity

The 10-year track record of the Private Equity business 
remains positive, with strong performance in the 2003–2006 
vintages, and encouraging early performance from the 
2011–2012 vintages. The 2007–2010 vintages have 
performed poorly to date, reflecting the higher multiples that 
were originally paid for these vintages and a higher level of 
realised losses than seen in other vintage years. We have 
continued to present the long-term performance as Buyouts 
and Growth Capital, reflecting the basis on which the 
vintages were managed in recent periods.

Table 12: Long-term performance – Private Equity: Buyouts

New investments made in  
financial years to 31 March
Vintage year

Total
investment¹
£m

Return
flow
£m

Value
remaining
£m

IRR to
31 March
2012

IRR to
31 March
2011

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

281

274

–

429

843

764

521

387

332

278

–

–

–

5

353

390

1,176

1,044

705

671

326

275

–

198

204

309

3

52

1

21

n/a

5%

–

(13)%

(7)%

9%

48%

63%

35%

49%

n/a

n/a

–

1%

(6)%

17%

49%

61%

35%

49%

1  Total investment includes capitalised interest.

Table 13: Long-term performance – Private Equity: Growth Capital

New investments made in  
financial years to 31 March
Vintage year

Total
investment¹
£m

Return
flow
£m

Value
remaining
£m

IRR to
31 March
2012

IRR to
31 March
2011

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

70

21

46

210

1,076

554

487

179

297

233

–

–

–

47

481

238

629

302

528

551

68

25

17

84

525

294

57

6

–

–

n/a

20%

(52)%

(16)%

(1)%

(1)%

23%

25%

26%

27%

n/a

n/a

8%

(5)%

1%

1%

23%

26%

26%

27%

1  Total investment includes capitalised interest.

3i Group plc  Annual report and accounts 2012

33

Performance for the year 
The Private Equity business invested in seven new 
investments in the year, and delivered a number of good 
realisations with the largest 10 realising an average 
of 2.9x return over invested cost (Table 11 on page 29). 

Overall, gross portfolio return at £(339) million represented 
a 10% loss on the opening portfolio value. Within the total 
portfolio return for the year, the two most recent vintages 
(March 2011 and 2012) performed well, delivering a 14% 
gross portfolio return.

The following section provides further details on the overall 
Private Equity portfolio, including details on earnings and 
leverage. The performance of the Private Equity business  
is then broken down into Developed Markets Private Equity 
and Developing Markets Private Equity, the basis on which  
it is currently managed.

Despite challenging conditions in many sectors, overall the 
portfolio grew its earnings on a value weighted basis by 9% 
in calendar year 2011. Chart 7 below shows the growth rates 
for earnings across the portfolio for the year to 31 December 
2011, weighted by carrying values at 31 March 2012.

Chart 7: Portfolio earnings growth

1,000

900

800

700

600

500

400

300

200

100

16*

18*

14*

7*

8*

10*

0

<(20)%

(20)–(11)%
3i carrying value at 31 March 2012 £m

(10)–(1)%

0–9%

10–20%

>20%

*   Number of companies

In the year to 31 March 2012, 80% of the portfolio by value 
grew its earnings, with 42% growing at more than 10% 
year-on-year. Investments in the two most recent vintages 
saw strong earnings growth at 20% on a value weighted 
basis. Of the 20% of the portfolio by value where earnings 
were lower, a large proportion were in Spain, reflecting 
market conditions.

Leverage levels in the portfolio at 31 March 2012 remained 
similar to the previous year, with net debt/EBITDA of 3.4x 
(2011: 3.3x). Chart 8 shows leverage levels across the Private 
Equity portfolio on a value weighted basis. Leverage levels 
in the majority of the portfolio on this basis are below 4x 
EBITDA, with 36% below 2x.

Chart 8: Ratio of net debt to EBITDA – Private Equity 
portfolio weighted by March 2012 carrying 
values (£m) as at 31 March 2012

587

538

453

315

319

187

88

<1x

1–2x

2–3x

3–4x

4–5x

5–6x

>6x

The repayment profile of the debt in the portfolio is shown  
in Chart 9. A number of refinancings were successfully 
closed in the year, as a number of portfolio companies 
extended their existing facilities or took advantage of a  
period of relatively positive credit markets over the first  
half of the year to issue high yield bonds. 

These refinancings, combined with the leverage profile 
included on new investments, extended the overall 
repayment profile of the portfolio. Over 65% is due for 
repayment in 2015 or later (2011: 59%). A relatively small 
number of companies drive the 2014 repayment level  
shown in Chart 9, and plans are underway to either 
refinance or exit these investments.

Chart 9: Debt repayment proﬁle – Private Equity portfolio
repayment index weighted by 3i carrying 
values (%) as at 31 March 2012

43

23

13

7

4

7

3

2012

2013

2014

2015

2016

2017

2018
or later

New investment and realisations data and commentary 
are provided on pages 27 to 29.

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34

3i Group plc  Annual report and accounts 2012

Business lines: Private Equity

Portfolio and performance – 
Developed Markets
As can be seen from the charts below, the portfolio is well 
diversified by sector. More than half of the Developed 
Markets portfolio value is in continental Europe. Of this,  
86% is in the Nordics, Benelux, France and Germany and  
only 14% is in Spain and Italy. 

The largest single vintage by value remains the 2008 vintage. 
30% of the portfolio is in the two most recent vintages.

Chart 10: Direct portfolio by number 

By region as at 31 March 2012

Chart 11: Direct portfolio by value 

By region as at 31 March 2012

7%

33%

Continental Europe

UK

The Americas

13%

Continental Europe

UK

The Americas

60%

27%

60%

Chart 12: Direct portfolio by number 

By sector as at 31 March 2012

Chart 13: Direct portfolio by value 

By sector as at 31 March 2012

10%

20%

11%

23%

Business & 
Financial Services

36%

Consumer

Healthcare

Industrials & Energy

30%

TMT

8%

13%

Business & 
Financial Services

Consumer

Healthcare

Industrials & Energy

TMT

27%

22%

Chart 14: Direct portfolio by number 

By vintage year as at 31 March 2012

Chart 15: Direct portfolio by value 

By vintage year as at 31 March 2012

10%

27%

7%

1%

10%

2012

2011

2010

2009

2008

2007
2006 and prior

7%

18%

18%

2012

2011

2010

2009

2008

2007
2006 and prior

13%

1%

12%

20%

25%

31%

3i Group plc  Annual report and accounts 2012

35

Portfolio earnings
Earnings, weighted by 3i carrying value as at 31 March 2012, 
increased in the year by 8%. This performance was driven 
primarily by the investments made since the 3i Group rights 
issue in June 2009, which accounts for 32% of the portfolio. 
These companies demonstrated earnings growth in the year 
of 17% on a value weighted basis in calendar 2011. 

Investments made in the 2006 to 2008 vintages (52% of  
the portfolio) delivered a lower value weighted earnings 
performance at 6%, albeit there were some strong 
performers within this group, for example, Mold-Masters, 
AES and Lekolar. Underperformance was driven by 
continued pressure on top line revenues and margins, 
particularly for those companies operating in the most 
challenged economic environments in Europe. 

Performance

Table 14:  Returns from Private Equity 
– Developed Markets

year to 31 March

Realised profits over value on the 
disposal of investments

Unrealised (losses)/profits on the 
revaluation of investments

Portfolio income

Gross portfolio return

2012  
£m

2011  
£m

16

(405)

126

(263)

61

229

121

411

Gross portfolio return %

(8.9)%

16.7%

Fees receivable from external funds

Net carried interest

Operating expenses

Net portfolio return

31

(5)

(102)

(339)

39

(32)

(125)

293

Net portfolio return %

(11.5)%

11.9%

Returns from investments are achieved through a mix  
of capital realisations upon exit and returns of capital  
and portfolio income during the life of the investment. 
Returns to 3i Group are enhanced through management  
fees and carried interest from external funds, which we 
manage alongside 3i’s own balance sheet commitments.

Gross portfolio return
The gross portfolio return in the year to 31 March 2012  
for Developed Markets Private Equity was £(263) million 
(2011: £411 million), representing a loss on opening portfolio 
value of (8.9)% (2011: 16.7%). Net realised profits over opening 
book value of £16 million (2011: £61 million) were lower due  
to the higher proportion of investments held on an imminent 
sale basis at the beginning of the year. Net realised profits 
comprised profits of £50 million, offset by losses of  
£34 million. The losses related primarily to Radius,  
which accounted for £32 million of the total.

Portfolio income of £126 million (2011: £121 million) includes 
dividends received of £26 million. There was an unrealised 
loss of £(405) million for the year to 31 March 2012 (2011: 
£229 million). Further details are included in the Portfolio 
valuations section.

While UK and US stock markets had largely recovered 
to their March 2011 levels by the year end, European 
benchmarks remained down in the year to 31 March 2012. 
A proxy market constructed to be representative of the  
3i portfolio was down 4% in the year. 

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Priorities for the year ahead
Given the uncertain market environment, particularly  
in Europe, the priority remains to ensure that portfolio 
earnings are robust and grow, and that we continue  
to improve the strategic positions of these businesses.  
In some cases, this will include making further acquisitions. 

The team’s core focus is to deliver strong returns, in the 
medium to longer term, over current book value. Where 
appropriate, portfolio companies will be realised where 
our value creation plan has been delivered to drive returns 
for shareholders and investors. 

We will look to invest selectively in attractive new 
opportunities, in line with our investment strategy and fund 
mandates, building an attractive and increasingly diversified 
portfolio that is well positioned to deliver value growth.

36

3i Group plc  Annual report and accounts 2012

Business lines: Private Equity

Portfolio leverage
Average debt levels in the Developed Markets Private Equity 
portfolio have remained stable in the year at 3.5x (2011: 3.5x). 

Three assets, with a total value of £nil at the beginning of  
the year, were in breach of their covenants at 31 March 2012 
(2011: 6, 2010: 7, 2009: 16). Where covenants are in breach,  
3i works hard with the companies’ lenders to reach an 
adequate solution for all parties involved. 

Covenant positions are monitored actively by our in-house 
banking advisory team, who work closely with the wider 
investment team and portfolio companies to mitigate and 
manage potentially challenging situations. This involves 
working with the small remaining number of companies  
in our portfolio that are highly leveraged, helping them to 
de-gear, not only by strengthening the balance sheet but  
also by driving operational improvements.

Portfolio valuations
The unrealised value reduction of £(405) million (2011:  
£229 million increase) in the year comprised £181 million 
(2011: £619 million) of positive value movements, net of  
value reductions of £(586) million (2011: £(390) million).  
The largest value reductions were primarily in southern 
Europe, due to the continued economic challenges facing 
companies in those regions.

At 31 March 2012, 88% (2011: 72%) of the Developed Markets 
portfolio was valued on an earnings basis. The average 
multiple used in the valuation of companies valued on an 
earnings basis was 8% lower than in the previous year.  
The weighted average EBITDA multiple pre-marketability 
discount was 8.1x (2011: 8.8x) and post discount 7.5x  
(2011: 8.1x).

Three of the largest positive valuations movements,  
Action (£35 million); Element (£28 million); and Hilite  
(£22 million), were from the 2011 and 2012 vintages.  
The largest reductions in value were in the Spanish portfolio 
(GES £(83) million and Memora £(45) million). The valuation  
in GES was reduced to nil at 31 March 2012 due to its 
performance outlook. This value movement is included 
within provisions for the year. The Memora reduction in  
value relates to the selection of a lower valuation multiple, 
reflecting the challenging market outlook in Spain.

Net portfolio return
Net portfolio return includes the impact of operating 
expenses, which fell by 18% in the year to 31 March 2012. 
These expenses are expected to fall further as a number  
of operational efficiencies, introduced in the year, begin  
to deliver significant cost savings and the full effect of 
redundancies is recognised. The net portfolio return for the 
year to 31 March 2012 was £(339) million (2011: £293 million).

3i Group plc  Annual report and accounts 2012

37

Portfolio and performance –  
Developing Markets 

Portfolio
As can be seen from the charts below, the Developing 
Markets Private Equity portfolio at 31 March 2012, is spread 
across our three regions in Asia. The launch in Brazil during 
the year resulted in our first investment in the region being 
signed in December. This $55 million investment, in Blue 
Interactive Group, is due to be completed shortly. 

The portfolio is well diversified by sector, with a weighting 
towards Business and Financial Services. Portfolio value 
is weighted towards the post-2006 vintages. 

The value of the 17 investments in the portfolio at 31 March 
2012 was £354 million (2011: 17, £442 million).

Chart 16: Direct portfolio by number 

By region as at 31 March 2012

Chart 17: Direct portfolio by value 

By region as at 31 March 2012

24%

29%

China

India

Other Asia

37%

China

India

Other Asia

31%

47%

32%

Chart 18: Direct portfolio by number 

By sector as at 31 March 2012

Chart 19: Direct portfolio by value 

By sector as at 31 March 2012

18%

23%

Business & 
Financial Services

4%

Consumer

Healthcare

Industrials & Energy

30%

TMT

12%

Business & 
Financial Services

41%

Consumer

Healthcare

Industrials & Energy

TMT

35%

12%

8%

17%

Chart 20: Direct portfolio by number 

By vintage year as at 31 March 2012

Chart 21: Direct portfolio by value

By vintage year as at 31 March 2012

18%

6%

6%

2011

2010: 0%

2009

2008

2007

2006 and prior

29%

7%

8%

2011

2010: 0%

2009

2008

2007

12%

2006 and prior: 0%

41%

73%

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38

3i Group plc  Annual report and accounts 2012

Business lines: Private Equity

Performance

Table 15:  Returns from Private Equity 
– Developing Markets

year to 31 March

Realised profits over value on the 
disposal of investments

Unrealised (losses)/profits on the 
revaluation of investments

Portfolio income

Gross portfolio return

2012
£m

2011
£m

1

(76)

(1)

(76)

1

48

2

51

Gross portfolio return %

(17.2)%

12.4%

Fees receivable from external funds

Net carried interest

Operating expenses

Net portfolio return

1

5

(25)

(95)

1

(3)

(22)

27

Net portfolio return %

(21.5)%

6.6%

Gross portfolio return
The Developing Markets Private Equity gross portfolio  
return, a loss of £76 million (2011: £51 million profit), was 
substantially driven by an unrealised value reduction of 
£76 million (2011: £48 million increase).

A number of the portfolio companies performed well 
in the year. However, the South East Asia region had 
a challenging year with the value reduction in ACR, an 
Asian reinsurance business, accounting for a significant 
proportion of the unrealised loss for the Developing 
Markets Private Equity business. 

Realised profits, and portfolio income from the 
Developing Markets Private Equity portfolio were 
£1 million (2011: £1 million) and a £1 million charge 
(2011: £2 million) respectively.

Portfolio earnings
Excluding ACR, which is not valued on an earnings basis, 
earnings weighted by 3i carrying value as at 31 March 2012 
increased in the year by 28%.

We have seen good earnings growth in our Chinese and 
Indian portfolios, with earnings growth of 30% and 36% 
respectively on a value weighted basis. Within these 
portfolios, we have seen strong growth in companies in the 
Business Services and Industrials sectors. We believe that, 
as well as delivering earnings performance, these assets are 
also building strategic value which will benefit their ultimate 
exit multiples. 

The South East Asian portfolio had a difficult year, with 
challenging market conditions. ACR faced an unprecedented 
year in terms of natural catastrophes in Asia. Three of the 
10 largest insured losses of all time were recorded in Asia in 
2011 and the Thai floods were particularly costly. However, 
because of the strength of the business and its differentiated 
position within its market, it was able to secure an attractive 
quota sharing arrangement with Berkshire Hathaway and, 
post year end, the Japanese trading group, Marubeni, agreed 
to make a substantial investment in the business. AM Best 
and S&P have confirmed ACR’s A- rating and initial trading 
in the first months of 2012 has been in line with budget, with 
both investment and underwriting profits being delivered. 
The net effect of these events was a reduction of £29 million 
in the value of ACR in the period.

Portfolio leverage
In line with our strategy for investing in developing markets, 
leverage within the portfolio is low. There were two covenant 
breaches in portfolio companies valued at nil at 31 March 
2011 and 31 March 2012.

3i Group plc  Annual report and accounts 2012

39

Priorities for the year ahead
We have strengthened our teams in Asia and will maintain 
our focus on actively managing the current portfolio.

In Brazil, a team was established in São Paulo and an 
Advisory Board was formed. Having developed its market 
approach, the team will help to develop 3i’s presence in the 
growing Brazilian private equity market. It will do this by 
making investments and by supporting portfolio companies 
elsewhere in the world with the development of their 
business in the region. They have signed their first deal for  
$55 million, in Blue Interactive, a cable television provider,  
 which is expected to complete shortly.

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Portfolio valuations
The value reduction of £(76) million in the year (2011: 
£48 million increase), comprised £20 million (2011: 
£85 million) of positive value movements, net of value 
reductions of £96 million (2011: £37 million), including 
ACR at £29 million.

At 31 March 2012, 37% (2011: 29%) of the Developing Markets 
portfolio was valued on an earnings basis; 6% (2011: 9%)  
on a DCF basis; and the remainder, 57% (2011: 62%), on  
other valuation bases such as industry metrics or sum 
of constituent parts (where different divisions are valued 
on a different basis). The average EBITDA multiple used, 
before applying a marketability discount, on those companies 
valued on an earnings basis using EBITDA at the start and 
end of the year, fell 4% from 9.9x to 9.5x. The largest value 
movements in the year related to assets valued on industry 
metrics, or sum of the parts methodologies, notably, ACR.

Net portfolio return
A net portfolio return of (22)% (2011: 7%) reflects the 
unrealised losses mentioned above. Costs increased in  
the year due to the expansion of the business into Brazil.  
Net carried interest income reflects the reversal of carried 
interest liabilities from prior years, following the reduction 
in value of a number of assets.

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Case study BVG

Established in 1997, BVG is now one of India’s  
largest facilities management services companies. 
The company provides a wide range of services, 
including mechanised housekeeping, landscaping 
and gardening, logistics and transportation and 
electrical and mechanical services. 
Leveraging our credentials in the Business Services 
sector and local market access, 3i invested  
£21 million in BVG in January 2011 in a proprietary 
transaction originated by its Indian team.
BVG has over 300 clients in India, across a range of 
industrial and service sectors. These include some 
of the world’s largest international companies, as 
well as leading public sector entities such as the 
Indian Parliament and the Indian Railways.

The investment case was predicated upon backing 
a market leader in a high growth market with the 
opportunity to leverage 3i’s experience in similar 
businesses in other parts of the world to create 
value. The low level of outsourcing in India has 
enabled BVG to grow EBITDA and profit after tax  
at a compound annual growth rate of over 40% in  
the three years prior to 3i’s investment. This trend 
has continued since 3i invested. 
3i has worked closely with the company to 
strengthen its financial reporting and controls.  
We are also supporting the management on a series 
of initiatives, including strengthening systems and 
processes, improving working capital management 
and strengthening the sales team.

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40

3i Group plc  Annual report and accounts 2012

Business lines: Infrastructure

The Infrastructure business line currently invests principally 
in Europe and in India through two investment vehicles.

3iN and the India Fund are represented on the boards of their 
equity investments.

n 3i Infrastructure plc (“3iN”), an infrastructure investment 
company listed in London (in which 3i owns a 34% stake);

n the 3i India Infrastructure Fund (the “India Fund”), 
a limited partnership fund focused on investing in 
Indian infrastructure (to which 3i and 3iN committed 
$250 million each).

Returns for 3i from the Infrastructure business line are 
generated from:

n dividend income and capital growth from its 34% 

holding in 3iN;

n capital returns from its investment in the 3i India 

Infrastructure Fund; and

n advisory and management fees from the two vehicles.

Business model
The Infrastructure investment team seeks to create value 
for 3iN and the India Fund through a three-step process:

1. Rigorous approach to investment
It originates new investment opportunities by building 
proprietary knowledge and networks in target sectors and 
geographies and applies rigorous selection criteria to choose 
the best investments.

2. Best-in-class portfolio management
Following investment, it engages with the management 
teams of portfolio companies to deliver improvements 
in operational and financial performance and to monitor 
performance to ensure that any issues are identified quickly. 

3. Focus on long-term value creation
The team focuses on creating and maintaining value 
over the long term by supporting and encouraging the 
management teams of portfolio companies to devise and 
implement business strategies that deliver value accretion 
over the longer term. This requires an in-depth knowledge 
of market and sector dynamics, as well as an understanding 
of the long-term value drivers for each of the businesses.

The investments made by the team are categorised as 
shown in the diagram below. As shown in the diagram, 
returns available from investments targeted by the 
infrastructure team typically range from 8% to 15% or greater, 
depending on the risks associated with the investment. 
Yields generated from the investments also vary, depending, 
among other factors, on the stage of development of the 
businesses (eg in construction versus mature).

3iN aims to deliver a 12% net return per annum when  
fully invested, of which 5% is delivered to shareholders 
through dividends. It has exposure across the spectrum  
but, in line with its objectives, has a strong focus on  
core infrastructure (which would include businesses 
in the regulated utilities and transportation sectors in 
the developed world), with some investments in social 
infrastructure (eg hospitals and schools procured through 
PFI/PPP-type schemes) and in hybrid infrastructure  
through its commitment to the India Fund (described 
in more detail below).

The investments made by the India Fund can be categorised 
as hybrid infrastructure: these tend to have higher market 
or geopolitical risk. Accordingly, the India Fund’s return 
objectives are higher.

Infrastructure market characteristics

Social infrastructure/  
PPP/PFI

Core infrastructure

Hybrid infrastructure

8% – 12% Expected return

10% – 16% Expected return

>15% Expected return

n High inflation correlation

n Mainly government-backed  

revenue streams

n Lower risk/return profile 

n Strong yield when fully 

operational.

n Dynamic businesses owning their 
asset base, not concessions with 
a finite life

n Low volatility across economic 

cycles and strong market position

n Asset management skills key 

to driving value

 – operational expertise
 – management of long-term 

performance

 – management incentives

n High risk characteristics
 – country risk
 – market/volume risk
 – GDP correlation
n Operational expertise in building 
out the assets and running the 
business is more important

Yield

Capital growth

3i Group plc  Annual report and accounts 2012

41

Portfolio and performance
3i Infrastructure plc
3i has a 34% holding in 3iN, an investment company listed  
on the London Stock Exchange and a component of the  
FTSE 250. At 31 March 2012, 3iN had a market capitalisation 
of £1,097 million.

3iN targets a 12% total return over the long term, of which 
5% is returned to shareholders through dividends. Further 
information on 3iN is available on its own dedicated website, 
www.3i-infrastructure.com.

3i acts as investment adviser to 3iN and receives an annual 
advisory fee of 1.5% of the invested capital (excluding cash 
balances), declining to 1.25% for any portion of assets held 
for more than five years. 3i can also receive an annual 
performance fee of 20% on the growth in net asset value, 
before distributions, over an 8% hurdle calculated each year.

Chart 22: 3iN – portfolio by category 

as at 31 March 2012 

13%

11%

Social Infrastructure

Core

Hybrid

76%

Chart 23: 3iN – portfolio by sector 

as at 31 March 2012

3iN has a $250 million commitment to the India Fund and 
participated in the investments completed in the year by 
the Fund, described on page 42.

52%

3iN announced its annual results on 9 May 2012. The total 
return for the year to 31 March 2012 was £56 million, or 
5.6% of average shareholders’ equity (2011: £86 million, 
9.2%). The return for the year to 31 March 2012 was lower 
compared to the previous year, as strong returns from 3iN’s 
European investments were partly offset by declines in the 
mark-to-market valuation of Adani Power Limited (“Adani 
Power”), held through the India Fund, and foreign exchange 
losses sustained in the India Fund. 

Case study LNI

11%

Social Infrastructure

Transportation

Utilities

37%

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Transaction structure
Lakeside Network Investments (“LNI”) was 
purchased from Vattenfall AB in January 2012,  
for an enterprise value of approximately €1.54 billion.  
It holds 100% of two companies: LNI Verkko Oy  
(“LNI Verkko”), and LNI Lämpö Oy (“LNI Lämpö”). 
LNI was acquired by a consortium comprising:
–  3i Infrastructure plc (39% share) and 3i (6% share)
–  GS Infrastructure Partners (45% share)
–  Ilmarinen Mutual Pension Insurance Company 

(10% share)
The businesses
LNI Verkko (~85% of value) is the second-largest 
electricity distribution business in Finland, with a 
12% market share, and serves 400,000 customers 
in South West Finland. The business is regulated 
on a four-year cycle, delivering a set return on its 
Regulated Asset Base.
LNI Lämpö (~15% of value) operates 17 local district 
heating networks, with strong market positions  
in their areas. District heating, which involves the 
pumping of hot water for heating and general 
purposes directly into homes from central hubs,  
is not regulated in Finland.

Investment case
1.  Stable and transparent regulatory 

environment for LNI Verkko

The new regulatory period began in January  
2012, providing clarity over the medium term.  
The framework encourages investment, providing 
opportunities for value-accretive growth, as well  
as network development and innovation. 
2.  Profitable, with inflation linkage and 

attractive yield

LNI generates high EBITDA margins, supporting a 
strong yield over the long term. Returns from LNI 
Verkko are linked to inflation, and LNI Lämpö has 
generally been able to increase its charges at least 
in line with inflation. 
3.  Attractive market, with opportunities for growth
Finland is among the largest per capita electricity 
consumers in Europe, with demand expected to 
grow steadily. LNI Verkko may be able to leverage 
its operational efficiencies and technical superiority 
to create consolidation opportunities in its market.

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42

3i Group plc  Annual report and accounts 2012

Business lines: Infrastructure

3iN has built a strong track record over its five-year history, 
delivering an annualised growth in returns to shareholders 
of 9.4%, and a total annualised asset IRR of 16%, underpinned 
by strong cash generation in the portfolio through income 
receipts, asset sales and capital returns.

The core infrastructure investments represented 76% of  
total portfolio value at 31 March 2012. At that date, 3iN also 
had 11% of its portfolio invested in social infrastructure 
investments, providing support for the delivery of its  
yield objective, and 13% of its portfolio invested in hybrid 
infrastructure through the India Fund, providing opportunities 
for capital growth over time.

3iN completed a significant investment in LNI in the year.  
This transaction was announced in December 2011 and is 
profiled on page 41.

Chart 24: India fund – portfolio split by sector

as at 31 March 2012

Power

Roads

Ports

48%

27%

25%

Chart 25: India fund – investor base by type of investor

Financial institutions

Funds of funds

Pension funds

Endowments

Government agencies

Other

3i India Infrastructure Fund
The India Fund is a $1.2 billion Limited Partnership fund,  
with a particular focus on ports, airports, roads and power 
assets. 3i and 3iN each have a $250 million commitment  
to the Fund. 

33%

as at 31 March 2012

7%

2%

17%

1%

40%

The India Fund closed in 2008 and, as at 31 March 2012,  
was 70% invested. Since inception, the Fund has generated  
a gross money multiple on invested cash of 1.21x in rupee 
terms, and 1.05x in US dollar terms.

During the year, the performance of the India Fund was 
impacted negatively by mark-to-market declines in the 
valuation of its holding in Adani Power Limited (“Adani 
Power”), reflecting broader declines in the Indian stock 
markets, as well as by foreign exchange losses, as the 
US dollar appreciated by 14% against the Indian rupee. 

3i earns an annual management fee and carry above 
a performance hurdle. During the year, the India Fund 
completed one follow-on investment in GVK Energy  
Limited. 3i’s share of this investment was £8 million.  
The fundamentals of the power sector in India continue to 
support long-term investment despite broader fuel supply 
issues, as the imbalances between power demand and 
supply in India are expected to continue in the next decade. 

Other infrastructure assets
As detailed above, in January 2012 3i Group made a  
£28 million direct investment in a 6% holding in LNI.  
This holding was valued at £29 million at 31 March 2012. 

3i also has other direct investments in infrastructure, 
including a small residual holding in Anglian Water Group, 
and an investment in Dalmore Capital, an infrastructure 
asset management business focused on the secondary PFI 
market, which were valued at £7 million and £1 million 
respectively at 31 March 2012.

3i Group plc  Annual report and accounts 2012

43

Infrastructure performance

Table 16: Returns from Infrastructure

year to 31 March

Realised profits over value on the 
disposal of investments

Unrealised (losses)/profits on  
the revaluation of investments

Portfolio income

Gross portfolio return

2012
£m

2011
£m

–

(7)

18

11

–

29

16

45

Gross portfolio return %

2.4%

11.1%

Fees receivable from external funds

Net carried interest

Operating expenses

Net portfolio return

25

(6)

(17)

13

25

(2)

(23)

45

Net portfolio return %

2.8%

11.1%

The infrastructure business line generated a gross 
portfolio return of £11 million in the year to 31 March 2012 
(2011: £45 million). This was driven by portfolio income 
of £18 million (2011: £16 million) and an unrealised value 
loss of £7 million (2011: £29 million gain), as the unrealised 
value gain of £22 million from the Group’s holding in 3iN 
(2011: £21 million) was more than offset by an unrealised 
value loss of £30 million from the holding in the 3i India 
Infrastructure Fund (2011: £8 million gain). 

During the year to 31 March 2012, 3iN shares appreciated 
by 6.2% (against a decline of 2.1% for the FTSE All-Share), 
supported by the continued robust operational performance 
and income generation from the underlying European portfolio.

The valuation of the Group’s holding in the India Fund was 
impacted by a mark-to-market reduction in the valuation of 
Adani Power, the India Fund’s largest investment, as well as 
by foreign exchange losses. Shares in Adani Power declined 
by 39% in the year to 31 March 2012 (2011: (2.8)%). In addition, 
the US dollar appreciated by 14% against the Indian rupee 
in the year, resulting in foreign exchange losses for the US 
dollar denominated India Fund, whose exposure to the Indian 
rupee is unhedged. 

The investments in the India Fund continue to make good 
operational progress, with steady advances in the build-out 
of their facilities.

Portfolio income grew year-on-year, principally as a result 
of the increase in the 3iN dividend. In addition, the Group’s 
exercise of 3iN warrants in June 2011 resulted in a  
£32.5 million increase in its holding of 3iN shares, all of  
which received 3iN’s dividend payments.

Fees receivable from 3iN and the 3i India Infrastructure Fund 
amounted to £25 million (2011: £25 million). Fees remained 
flat in the year, as the increase in the advisory fee from 3iN, 
following the growth in its portfolio, was offset by the fact 
that no performance fees were receivable from 3iN for the 
year (2011: £3 million).

Priorities for the year ahead
We will continue to strengthen our position as a leading 
participant in the infrastructure market through the ongoing 
investment of our advised and managed vehicles in a 
portfolio of strong businesses, which can continue to 
generate attractive returns for shareholders and  
limited partners.

We will maintain a rigorous investment approach, using our 
proprietary sector knowledge and our broad network of 
contacts in our chosen sectors and geographies to originate 
transactions that contribute to the delivery of the target 
return objectives. This will be key to positioning the business 
line and 3iN for future fundraisings.

Seeking to generate attractive returns from the existing 
portfolio will also remain a priority for the Infrastructure 
team. The businesses in the two vehicles are performing 
well. The team’s portfolio management expertise, as well as 
the Group’s resources, will be leveraged to continue to drive 
value from those investments.

The opportunity for 3i is to grow the funds it manages  
or advises and to raise new funds, generating increased  
fee income. 

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44

3i Group plc  Annual report and accounts 2012

Business lines: Debt Management

3i Group first established a debt management capability 
in October 2007 to capitalise on the opportunity to invest  
in non-investment grade debt of European businesses. 
Investments were initially made through a debt warehouse 
facility. In 2011, and in line with our strategy of growing 
in areas consistent with our investment expertise, a new 
distinct business line, Debt Management, was formed 
following the acquisition of Mizuho Investment Management 
(UK) Ltd (“MIM”) in February 2011. During 2011, the original  
3i Debt Warehouse was realised, generating an annualised 
return of c.13.5%.

Business model
Debt Management currently manages and/or advises 
10 funds with total assets under management of £3.4 billion 
as at 31 March 2012.

n Harvest I – V (five senior debt focused Collateralised Loan 

Obligations “CLOs”);

n Windmill I (managed account);

n Vintage I & II (private equity funds of funds);

n Friday Street (dedicated mezzanine fund); and

n Palace Street I (Credit Opportunities Fund)

The main driver of returns for the Debt Management 
business line is fees earned from managing the underlying 
Collateralised Loan Obligation (“CLO”) and debt funds.

The fees that 3i Debt Management receives are structured  
to align the interests of the portfolio manager with those of 
the underlying debt and equity investors. The fee structure 
provides the portfolio manager with a modest senior 
management fee, with the remainder of the management fee 
performance related. In addition to the above fee structure, 
some of the funds have incentive fees which are typically 
paid only after the investors have received a stated return, 
after which the portfolio manager receives a percentage 
of the investment returns.

The Debt Management team, comprising 30 professionals, 
have strong primary market syndication relationships  
and well established private equity sponsor relationships. 
This ensures that a high proportion of opportunities in the 
market are seen. An in-depth credit analysis is undertaken 
for each opportunity. 

Ongoing portfolio management is a critical area of focus for 
the team and is central to driving fund returns. Analysts are 
arranged by sector and each investment has a dedicated 
analyst who monitors performance to ensure that any issues 
are identified early.

The objective is that as new funds are launched in Debt 
Management, the Group aims to have up to 10% of assets 
under management funded by 3i. As at 31 March 2012, this 
percentage was 1%.

3i Group plc  Annual report and accounts 2012

45

Portfolio and performance
As can be seen from the charts below, the CLO funds and 
Palace Street I Fund are well diversified by sector, with a 
concentration in Europe by geography. Within Europe, there is 
considerable diversity across 14 countries. The private equity 
fund of funds portfolio is excluded from the analysis below.

Chart 26: Portfolio by number by sector
as at 31 March 2012

Chart 27: Portfolio by value by sector
as at 31 March 2012

13%

11%

27%

Business Services/ 
Financial Services

Consumer

General Industrial

Healthcare

TMT

25%

24%

15%

11%

19%

Business Services/ 
Financial Services

29%

Consumer

General Industrial

Healthcare

TMT

26%

Chart 28: Portfolio by number by geography

Chart 29: Portfolio by value by geography

as at 31 March 2012

as at 31 March 2012

32%

1%

5%

Continental Europe

North America

Rest of World

UK

25%

1%

5%

62%

Continental Europe

North America

Rest of World

UK

69%

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46

3i Group plc  Annual report and accounts 2012

Business lines: Debt Management

New strategic initiatives include Palace Street I, which  
was launched in August 2011. Rob Reynolds (ex CIO  
Resource Europe) joined the Debt Management team in 
September 2011 as the CIO of Palace Street I. The Fund was 
launched with a 3i Group (€50 million commitment), with an 
investment mandate to target European bonds, loans and 
floating rate notes. Since its launch, Palace Street I has 
generated an annualised return of 9%, including paying a 
5.7% (8.8% annualised) interim dividend to 3i on its equity 
investment.

In addition, following on from the success of Vintage I (a 
private equity fund of funds vehicle launched in March 2007 
with a fund multiple of 4.3x as at 31 March 2012), a successor 
fund, Vintage II, was launched in November 2011 and had its 
final close in March 2012. Vintage II, is a $400 million fund 
primarily investing in US LP funds. 

Priorities for the year ahead
We intend to strengthen our position as a leading participant 
in the debt management market, through active portfolio 
management, the raising of new funds and growth 
opportunities through selective acquisitions. 

By maintaining a rigorous investment approach, through 
the ongoing investment of our funds in a diversified portfolio 
of assets, we aim to generate attractive returns for our 
shareholders and limited partners. 

In addition, our strong brand and robust track record 
provides 3i the opportunity to raise new funds through 
product diversification, generating increased fee income. 
The launch of Palace Street I and Vintage II demonstrates  
this capacity. 

We will also continue to actively consider acquisition 
opportunities and making strategic acquisitions both in 
Europe and the US as we look to develop a global debt 
management platform.

Table 17: Returns from Debt Management

year to 31 March

Realised profits over value on the 
disposal of investments

Unrealised (losses)/profits on the 
revaluation of investments

Portfolio income

Gross portfolio return

2012
£m

2011
£m

1

(3)

3

1

24

8

7

39

Gross portfolio return %

7.1%

52.0%

Fees receivable from external funds

Net carried interest

Operating expenses

Net portfolio return

32

1

(31)

3

2

(1)

(5)

35

Net portfolio return %

21.4%

46.7%

The Debt Management business line generated a gross 
portfolio return of £1 million in the year to 31 March 2012 
(2011: £39 million). The prior year gross portfolio return 
figure was driven by the realisation of the 2007 3i Debt 
Warehouse. Debt Management’s gross portfolio return 
reflects the performance of Palace Street I and the value 
movement and associated income resulting from the equity 
holdings owned by the Group in the underlying CLOs, 
managed by the Debt Management team. 

The broker quotes used to value these holdings fell in value 
during the period, creating a value decrease of £3 million 
in the year to 31 March 2012 (2011: £8 million increase).  
This value loss was offset by £1 million of interest income 
from the portfolio within Palace Street I and £2 million in 
equity distribution on our holdings in the CLO funds.

The main driver of net portfolio returns for the Debt 
Management business line is fees earned from managing 
the underlying Collateralised Loan Obligation (“CLO”)  
and debt funds. Fees receivable amounted to £32 million 
(2011: £2 million). Fee income was strong as a result of a 
robust performance in the underlying funds since acquisition 
– all six CLOs are currently paying subordinated fees versus 
one at the time of the acquisition of MIM.

Operating expenses increased significantly in the year to 
£31 million (2011: £5 million), following the acquisition of MIM 
and also reflects the inclusion of £4 million of amortisation 
costs relating to the acquisition.

The underlying profitability of the Debt Management 
business was £9 million, excluding amortisation and other 
acquisition accounting adjustments.

Financial review

3i Group plc  Annual report and accounts 2012

47

Returns 
In summary, gross portfolio return represents the performance of the investment portfolio. Net portfolio return includes 
additional income generated from managing external funds, through management fees and carried interest receivable, less 
the costs of running our business and carried interest paid to our investment teams. Finally, total return is the net portfolio 
return, less our funding costs and the impact of foreign exchange and other factors. 

Each of these aspects of our returns is considered in greater detail in this review. 

Table 18: Total return 

year to 31 March

Realised profits over value on disposal of investments

Unrealised (losses)/profits on revaluation of investments

Portfolio income

  Dividends

Income from loans and receivables

  Net fees receivable/(payable)

Gross portfolio return

Gross portfolio return on opening portfolio value

Fees receivable from external funds

Carried interest receivable from external funds

Carried interest and performance fees payable

Operating expenses

Net portfolio return

Net portfolio return on opening portfolio value

Net interest payable

Movement in the fair value of derivatives

Net foreign exchange movements

Pension actuarial (loss)/gain

Other (including taxes)

Total comprehensive income (“Total return”)

Total return on opening shareholders’ funds

2012
£m

23

(498)

47

95

4

(329)

2011
£m

124

325

41

110

1

601

(8.2)%

17.1%

89

(15)

10

(180)

(425)

67

25

(63)

(181)

449

(10.6)%

12.8%

(91)

(19)

(49)

(67)

(5)

(127)

(1)

(17)

20

–

(656)

324

(19.5)%

10.6%

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48

3i Group plc  Annual report and accounts 2012

Financial review

Gross portfolio return
Given the proportion of balance sheet capital allocated to 
Private Equity, this business line is the main driver of gross 
portfolio return for the Group.

The average EBITDA multiple used to value the portfolio 
on an earnings basis was 8.2x pre-marketability discount, 
(2011: 8.8x) and 7.5x post discount (2011: 7.8x). This remains 
substantially below the FTSE 250 reference of 9.6x at 
31 March 2012.

Realised profits
Realised profits at £23 million (2011: £124 million) in the year 
to 31 March 2012 were lower than the prior year. A lower 
uplift over opening value of 3% (2011: 26%) reflects the fact 
that key realisations in the year were valued on an imminent 
sale basis at 31 March 2011. Exits for the largest realisations 
were achieved at 2.9x original cost.

Unrealised value movements 

Table 19:  Unrealised (losses)/profits 

on revaluation of investments

year to 31 March

Private Equity, Infrastructure 
and non-core

Earnings and multiples  
based valuations1

  Equity – Earnings multiples

– Earnings

  Loans –  Impairments  

(earnings basis)

Other bases

  Provisions

  Uplift to imminent sale

  Discounted Cash Flow

  Loans – Impairments (other basis)

 Other movements on  
unquoted investments

  Quoted portfolio

Debt Management

  Broker quotes

Total

2012
£m

2011
£m

(130)

23

(76)

295

(138)

–

(1)

(21)

(51)

(20)

(3)

(498)

(71)

240

54

5

48

23

8

325

1  The split between multiples and earnings is derived by applying 

the closing multiples to the opening valuations.

Earnings multiple movements 
The continued uncertainty in the year to 31 March 2012 
regarding the euro debt crisis and global growth 
expectations impacted the valuation of the portfolio.  
Earnings multiples used to value the portfolio decreased  
by 7% in the year to 31 March 2012 (2011: 7% decrease).  
This led to a value reduction of £130 million in the equity 
value of the portfolio (2011: £76 million reduction).

Earnings movements
When valuing a portfolio investment on an earnings basis, 
the earnings applied are based on the management 
accounts earnings for the 12 months to the quarter end 
preceding the reporting period, adjusted on a pro forma 
basis for acquisitions, disposals and non-recurring items.  
If the portfolio company’s current year forecast is lower,  
or more recent data provides a more reliable picture of 
maintainable earnings performance, then these will be 
used instead. 

The earnings used to value the portfolio at 31 March 2012 
were 90% management accounts (2011: 84%), 8% current 
year forecast accounts (2011: 12%) and 2% audited accounts 
(2011: 4%). 

There was a 2% increase in aggregate earnings used for 
valuations in the portfolio valued on an earnings basis in 
the year to 31 March 2012, which led to an increase in equity 
value of £23 million (2011: £295 million).

The earnings of the portfolio as a whole, increased by 9% 
on a value weighted basis.

year to 
31 March

Earnings

Multiples

% change

2%

(7)%

2012

Equity 
value 
impact 
£m

23

(130)

% change

13%

(7)%

2011

Equity 
value 
impact 
£m

295

(76)

1  For those companies valued on an earnings basis.

Loan impairments
Where the net attributable enterprise value of a portfolio 
company is less than the carrying value of 3i’s shareholder 
loans, the shortfall recognised is classified as an impairment. 
The total impairments for the year to 31 March 2012 were 
£(178) million (2011: £(196) million), of which £(157) million 
(2011: £(201) million) related to assets valued on an 
earnings basis. These shortfalls were driven by the multiple 
and earnings movements noted above.

(157)

(201)

Table 20: Movement in earnings and multiples1

 
 
 
3i Group plc  Annual report and accounts 2012

49

Provisions
A provision is recognised where we anticipate that there 
is a 50% or greater chance that the Group’s investment in 
the portfolio company will fail within the next 12 months. 
The £(138) million provisions for the year to 31 March 2012 
(2011: £(71) million) relate to six portfolio companies, 
representing a range of sectors and geographies. 
The provisions for the year to 31 March 2012 account 
for 3% of the opening portfolio (2011: 2%).

Broker quotes
The Debt Management business line has investments in 
a number of the CLOs, which the Group manages as well 
as the Credit Opportunities Fund, Palace Street I, which 
commenced investment in the year. These assets are valued 
using broker quotes, which resulted in a £(3) million reduction 
in value in the year (2011: £8 million). 

Table 21: Proportion of portfolio value by valuation basis 

Uplift to imminent sale
Portfolio companies which are currently in a negotiated 
sales process are valued on an uplift to imminent sale basis. 
At 31 March 2012, there were no material portfolio 
companies in an advanced sales process (2011: £240 million).

Discounted Cash Flow
The Discounted Cash Flow (DCF) valuation basis is used to 
value portfolio companies with predictable and stable cash 
flows, typically infrastructure investments. As at 31 March 
2012, there were 11 portfolio companies valued using 
the DCF valuations basis, the majority of which relate to 
the Group’s investment in the 3i India Infrastructure Fund. 
These assets contributed to a reduction in value of 
£(1) million in the year to 31 March 2012 (2011: £54 million).

Other
Where a different valuation basis is more appropriate for a 
portfolio company, the “other” category is used to determine 
fair value, for example, the sum of the parts of the business 
or industry specific methods. The “other” valuation basis 
category includes Asia re-insurance business, ACR,  
which contributed to the total “other” reduction in value of 
£(51) million in the year to 31 March 2012 (2011: £48 million). 

Quoted portfolio
The quoted portfolio at £535 million now represents 17% 
(2011: 10%) of the Group’s total portfolio, which has increased 
from £405 million at 31 March 2011. The Group’s 34% 
investment in 3i Infrastructure plc represents the majority 
of the quoted portfolio. 3i Infrastructure plc has had a 6% 
increase in share price in the year, increasing in value by 
£22 million. However, this was offset by the remaining quoted 
portfolio reducing in value by £(42) million, resulting in a net 
reduction in the quoted portfolio value of £(20) million in the 
year to 31 March 2012 (2011: £23 million). 

as at 31 March 2012

Earnings

Imminent sale

Quoted

Discounted Cash Flow

Other

Broker quotes

Portfolio income
Table 22: Portfolio income

year to 31 March

Dividends

Income from loans and receivables

Net fees receivable/(payable)

Portfolio income

2012
£m

47

95

4

146

%

67

–

17

8

7

1

2011
£m

41

110

1

152

Portfolio income/opening portfolio 
(“income yield”)

3.7%

4.3%

Income from the portfolio was £146 million in the year to 
31 March 2012 (2011: £152 million). Dividends of £47 million 
were received (2011: £41 million), including £18 million  
from 3i Infrastructure plc and £19 million from Quintiles,  
a US Private Equity investment. Interest income from loans  
was £95 million (2011: £110 million), including £1 million  
from Palace Street I. A further £4 million in net fees was 
received in the year (2011: £1 million).

Portfolio income received as cash in the year was £60 million 
(2011: £57 million), reflecting the relatively high proportion  
of capitalised interest generated by the Private Equity portfolio. 

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50

3i Group plc  Annual report and accounts 2012

Financial review

Net portfolio return
Table 23: Net portfolio return 

Gross portfolio return

Fees receivable from external funds

Net carried interest and  
performance fees payable

Operating expenses

Net portfolio return

2012
£m

(329)

89

(5)

(180)

(425)

2011
£m

601

67

(38)

(181)

449

Fees receivable from external funds
Fees earned from external funds in the year to 31 March 
2012 of £89 million have increased (2011: £67 million). The effect 
of the acquisition of MIM by the Debt Management business 
line has accounted for the majority of the increase with  
an improved performance in the underlying CLO funds 
generating £32 million of fees (2011: £2 million, while under  
3i Group ownership).

The remaining fees in the year comprised £32 million  
(2011: £40 million) from our managed private equity funds 
and £25 million (2011: £25 million) receivable from advisory 
and management services to 3i Infrastructure plc and the 
3i India Infrastructure Fund.

The fees received from our managed private equity funds 
reduced in the second half of the year as Eurofund V came 
to the end of its investing period.

Net carried interest and  
performance fees payable
Carried interest and performance fees are accrued on the 
realised and unrealised profits generated, taking relevant 
performance hurdles into consideration. 

Net carried interest and performance fees payable in the 
year were broadly neutral with a net payable amount of 
£5 million (2011: £38 million payable). The portfolio value 
movement in the period has been mostly recognised in  
those carried interest funds where the performance hurdle 
has not been achieved. As a result, there was a £5 million 
charge in the year to 31 March 2012.

Operating expenses

Table 24: Cost efficiency

year to 31 March

Operating expenses

Fees receivable from external funds

Net operating expenses

Net operating expenses/opening 
portfolio (“cost efficiency”)

Operating expenses/AUM1

1 Weighted average AUM.

2012
£m

180

(89)

91

2.3%

1.5%

2011
£m

181

(67)

114

3.2%

1.8%

The Group continued its focus on reducing operating costs. 
The restructuring of the European Private Equity team 
during the year included significant rationalisation of the 
teams in the UK and Spain and the closure of the Italian 
office. Furthermore, a number of initiatives have been 
implemented in order to ensure the Group’s professional 
services functions are appropriately sized for the business. 

Operating expenses were marginally lower at £180 million 
(2011: £181 million). Excluding the costs of the Debt 
Management business, the newly established Private 
Equity business in Brazil, and the restructuring and 
one-off costs involved in organisational change, underlying 
operating expenses in the year have fallen by 16% to 
£148 million (2011: £177 million). Headcount at the end 
of the year was 435 (2011: 491) and reflects the changes 
in both the Private Equity business and the professional 
services functions.

Net operating expenses continued to improve at £91 million 
(2011: £114 million), helped by the performance of the Debt 
Management business line increasing fees in the year to 
31 March 2012. This is also reflected in the improvement 
in both the cost efficiency metric (net operating expenses/
opening portfolio) at 2.3% (2011: 3.2%) and operating 
expenses per AUM of 1.5% (2011: 1.8%).

3i Group plc  Annual report and accounts 2012

51

with a further 25% hedged using derivatives. The overall 
impact of foreign exchange on total return was a charge of 
£49 million in the year to 31 March 2012 (2011: £17 million). 
This was primarily driven by the weakening of both the 
euro (5%) and Indian rupee (8%) in the year.

Pensions
The Group’s UK-defined benefit pension scheme was 
closed to new members in April 2006 and to future accrual 
in April 2011. In the year to 31 March 2012 there was an 
IAS 19 pension actuarial loss of £66 million (2011: £20 million 
profit) arising from the UK pension scheme and £1 million 
on non-UK defined benefit pension schemes. This loss 
reflected the negative impact of the financial markets, 
predominantly due to a decrease in the discount rate 
increasing the scheme liabilities. 

The latest triennial funding valuation was agreed in 
September 2011, and resulted in the Group committing 
to fund £72 million in the year to 31 March 2012 and a 
further £36 million in April 2012. This second payment 
has been factored into the calculation of the IAS 19 pension 
actuarial loss at 31 March 2012. The Group also entered 
into a contingent asset arrangement with the Trustees at 
no cash or strategic cost to the Group, allowing flexibility to 
implement a longer term de-risking strategy. Further details 
of these arrangements are included in note 32 to the accounts.

Total return

Net interest payable
Net interest payable decreased in the year to £91 million 
(2011: £127 million). This improvement was driven by  
the reduction in gross debt, following the maturing of  
the remainder of the convertible bond in May 2011  
and repurchases and repayments of other debt balances  
in the year. 

Interest payable reduced to £103 million (2011: £139 million) 
in the year to 31 March 2012. Interest receivable was in 
line with the prior year at £12 million (2011: £12 million), 
with interest rates continuing to be at record lows.

Derivative movements
The Group uses foreign exchange contracts and interest rate 
swaps as part of its general hedging programme. There was 
a £19 million loss recognised from the fair value movement 
of the derivatives during the year (2011: £1 million loss), 
principally relating to long-term legacy interest rate swaps.

Net foreign exchange movements
The Group maintained its partial hedging policy in the  
year, using core currency borrowings and derivatives as 
appropriate. This resulted in 44% of the foreign currency 
portfolio being hedged by borrowings at 31 March 2012, 

Portfolio value

Portfolio assets directly owned by the Group

Table 25: Portfolio value movement by business line

Business lines

Private Equity

  Developed Markets

  Developing Markets

Debt Management

Infrastructure

Non-core activities

Total

Opening
portfolio 
value
1 April 
2011
£m

Investment
£m

Value
disposed
£m

Unrealised
value
movement
£m

Other
movement1
£m

Closing
portfolio
value
31 March 
2012
£m

2,952

522

442

14

464

3,872

121

3,993

18

36

70

646

–

646

(724)

(15)

1

(1)

(739)

(9)

(748)

(405)

(76)

(3)

(7)

(491)

(7)

(498)

(168)

(15)

(6)

2

2,177

354

42

528

(187)

3,101

(2)

103

(189)

3,204

1  Other relates to foreign exchange and the provisioning of capitalised interest.

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52

3i Group plc  Annual report and accounts 2012

Financial review

Balance sheet

Table 26: Group balance sheet

as at 31 March

Shareholders’ funds

Gross debt

Net debt

Gearing

2012

2011

£2,627m £3,357m

£1,623m £2,043m

£464m £522m

18%

16%

Diluted net asset value per share

£2.79

£3.51

Gearing and borrowings
The Group has maintained its conservative balance 
sheet approach with gross debt reducing by 21% in the 
year to £1,623 million (2011: £2,043 million). Gross debt 
has reduced primarily due to the repayment of £139 million 
of the convertible bond, which matured in May 2011, and 
repurchases of €154 million of the €500 million floating  
rate note in the year. £278 million remained outstanding  
as at 31 March 2012. Repayment of a $50 million bond and  
a £67 million banking facility also took place in the year.

Net debt at £464 million remained within our self-imposed 
£1 billion limit (2011: £522 million). Gearing marginally 
increased to 18% in the year (2011: 16%) as a result of the 
reduction in shareholders’ funds to £2,627 million (2011: 
£3,357 million) following the negative total return noted 
in the year to 31 March 2012.

Liquidity
Liquidity reduced in the year to £1,653 million (2011: 
£1,846 million). This comprised cash and deposits of 
£1,159 million (2011: £1,521 million) and undrawn facilities of 
£494 million (2011: £325 million). The cash balance reduced 
primarily as a result of the repayment of debt in the year,  
with cash inflows from divestment activity being offset 
by investment and other operating cash flows.

Undrawn facilities available to the Group have increased 
following the successful and early refinancing of the  
£300 million multi-currency facility to £450 million, extending 
maturity from October 2012 to June 2016, partially offset 
by the refinancing of the £100 million multi-currency facility 
to £50 million with maturity extended from October 2012 
to April 2016.

Diluted NAV
The diluted NAV per share at 31 March 2012 was £2.79 
(2011: £3.51). This was driven by the negative total return  
in the year of £(656) million (2011: £324 million), as well 
as dividend payments in the year of £49 million 
(2011: £30 million). 

3i Group plc  Annual report and accounts 2012

53

Risk

A description of our risk management 
framework, a review of key risks, 
as well as our approach to risk mitigation.

Review of risks 
Risk governance framework 
Oversight and operation 
Risk factors 

54
56
57
58

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54

3i Group plc  Annual report and accounts 2012

Risk

This section provides a review of the evolution and management of 3i’s key 
risks during the year, together with an overview of the main elements of 3i’s risk 
governance framework. This is followed by a description of the main inherent 
risk factors. Further details on the management of key risks, and related 
results and outcomes, can be found in the relevant section on risk factors.

Review of risks

External
The key external risks affecting 3i over the course of the 
financial year remain centred on the impact of the continuing 
difficult macroeconomic and market conditions, especially  
in Europe.

These uncertain conditions impact 3i’s operating 
environment in a number of ways. For example, fundraising 
conditions are challenging for the private equity industry 
as a whole, as recent fund vintages have underperformed  
and investors have become more selective. General M&A 
activity remains relatively subdued, partly reflecting 
companies’ preference for high levels of liquidity over 
investment. Finally, there is still a significant private 
equity funding overhang which continues to underpin 
high prices for transactions.

Economic conditions also present varying degrees of risk for 
the operations and growth of 3i’s portfolio companies and 
therefore overall performance and valuations, as described 
under Investment risk on the following page. 

Key factors include the risk of below trend economic growth, 
in the context of government deficit reduction programmes, 
and the impact and uncertainties of sovereign debt 
refinancing on the wider credit markets. The majority  
of European financing transactions were structured at  
the peak of the market in 2006 and 2007, with tenors of 
between seven and nine years. This means that refinancing 
requirements will increase substantially, peaking in 2013 and 
2014. The market, therefore, is likely to become increasingly 
focused on this risk in the run up to 2013. 

At this stage, it is difficult to predict how this will unfold, 
particularly given the wider fundamental economic 
uncertainties, fragile confidence, and refinancing 
requirements for both corporate and sovereign debt.  
3i has been managing this risk actively and, as can be seen 
from the chart on page 33, the debt repayment profile of  
3i’s Private Equity portfolio, weighted by 3i carrying values, 
means that only 34% of the debt in these companies falls 
due before the end of 2014 and 43% falls due during or 
after 2018. 

There is a trend towards closer scrutiny of the integrity and 
transparency of financial service firms by investors and a 
greater emphasis on Responsible Investing. Firms that are 
able to differentiate themselves in these areas are likely  
to be at an advantage in the future. In recognition of this,  
3i completed a wide-ranging strategic review of Responsible 
Investing and launched a new set of enhanced policies  
and processes. In addition, the Group refreshed and 
relaunched its values supported by training for all staff. 
Further information is set out in the sections on Corporate 
responsibility and Business model and values.

Regulatory developments continue to be monitored closely. 
The key developments affecting 3i include: the European 
AIFM Directive, which will deliver higher levels of disclosure 
for applicable firms; the implementation of the UK Bribery 
Act; FATCA, which requires additional monitoring and 
reporting on transactions between 3i and US companies  
and citizens; and US financial reform, which requires certain 
3i entities to be registered with the Securities and Exchange 
Commission. Changes which have been finalised or 
implemented so far have required some modifications to 
related policies and processes. The effect on 3i’s overall 
business to date has not been disproportionate in the context 
of the wider Financial Services industry.

Finally, changes to the investment trust rules by HM Revenue 
& Customs in April 2012, will help 3i simplify its business, 
facilitate growth in developing markets and make it easier 
for the Group to invest without third-party funds.

3i Group plc  Annual report and accounts 2012

55

Strategic
3i continues to anticipate and to respond to market 
conditions, risks and opportunities. The strategic focus 
has been on performance improvement and growth, taking 
full account of the challenges of the current environment.

The key strategic risks are similar to last year, and are 
focused around performance at this point of the economic 
cycle and the Group’s funding strategy factoring in the 
current external fund raising environment, expected 
investment and realisation levels, and balance sheet 
management. The growth of 3i’s debt management 
business and investment in developing markets have 
also been areas of focus.

Investment
The Group’s key investment risks remain closely linked to 
the adverse economic and market conditions, described 
earlier. These conditions affect each of 3i’s business lines 
in different ways and to varying degrees. 3i’s Private Equity 
business line remains the largest in terms of both direct 
balance sheet investment and assets under management 
and has, therefore, been the main area of focus. Risks 
include the pricing of investment opportunities and potential 
underperformance of portfolio companies, impacting 
valuations and, for some investments, debt covenant tests. 
As part of the investment assessment and asset review 
process, ESG risks are also considered.

The overall health of 3i’s investment portfolio has been 
mixed over the year, with some geographies and types 
of investment more exposed than others and, accordingly, 
some valuation reductions were required. Although it 
remains well diversified, the Group’s investment portfolio has 
become relatively more concentrated over time, which may 
increase exposure to the performance of a smaller number 
of large investments and, therefore, the potential for material 
individual valuation movements. The level of concentration 
risk will vary over time as the composition of the Group’s 
largest investments changes.

3i’s Private Equity portfolio management processes and 
capabilities have been a subject of focus during the year. 
The portfolio company review process includes both the 
identification of risks that might affect a substantial 
proportion of the portfolio and the assessment of significant 
exposures to specific known risks. Examples of the latter 
include exposure to weaker Eurozone countries, where  
the direct impact is limited to a small number of portfolio 
companies. The indirect impact of a significant shock in 
the region, however, is more complex to assess.

Compliance with covenant tests – and for some portfolio 
companies, refinancing of debt – has become more 
challenging over the past year for some of the more highly 
leveraged portfolio investments. This is mainly as a result 
of slower growth in earnings together with some tightening 
of credit markets, reflecting the generally weak and 
uncertain macroeconomic environment. These risks are 
being closely monitored with input from 3i’s banking team.

A further area of focus has been the trend in 3i’s private 
equity investment and realisation levels. A cautious and 
highly selective approach has continued to be applied to 
new investment over the year. The run rate of realisations 
slowed in the second half of the year, reflecting caution on 
the part of buyers. 

Treasury and funding
The Group maintains a conservative financial structure 
which is supported by a strong control framework and 
balance sheet targets. For example, a net debt limit is in 
place and a target maximum quantum for future refinancing 
in any single financial year.

The Group’s bond refinancing strategy continues to focus 
on extending the overall maturity profile with a reduction of 
the overall gross debt level over time. Funding requirements  
are evaluated on a rolling 12 month outlook to ensure 
appropriate levels of liquidity are maintained. 3i’s rating is 
BBB stable/Baa1 negative. In the context of uncertain market 
conditions, it is appropriate to continue to monitor the full 
range of refinancing options in advance of bond maturities.  
It remains important to balance liquidity benefits against the 
cost of funding and management of interest costs.

Liquidity continues to be monitored on a weekly basis and 
there is close review of counterparty exposures. The majority 
of funds continue to be placed with AAA liquidity funds and 
selected banking counterparties. The AAA liquidity funds  
are regularly evaluated to understand the nature of the 
underlying counterparty exposures and geographic mix.

The unprecedented current levels of uncertainty around the 
euro are expected to continue well into 2012. This could give 
rise to a number of possible scenarios, including a break-up 
of the Eurozone. Based on a review of these scenarios, 
the key issues potentially impacting 3i are around the euro 
hedging strategy and euro liabilities. A break-up would give 
rise to inevitably complex legal questions. In this context, 
a review has been undertaken of the Company’s key loan 
documentation.

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56

3i Group plc  Annual report and accounts 2012

Risk

The Group uses core currency borrowing to hedge foreign 
exchange exposures in the portfolio, which are primarily  
in euro and US dollars. This is supplemented where 
necessary by the use of derivatives, subject to a maximum 
overall derivative limit agreed by the Board. In the current 
volatile market conditions, 3i’s ability to re-finance currency 
debt at a time of its own choosing may be constrained.  
This could impact the Group’s ability to sufficiently hedge  
the non-sterling portfolio in line with agreed targets.  
The effectiveness of the hedging strategy is closely monitored 
in the context of the Group’s portfolio strategy, as well as 
market conditions and possible funding constraints.

Operational
The key operational risks facing the Group during the  
year relate mainly to people. In common with many  
other businesses, the difficult economic environment has 
contributed to a degree of uncertainty for staff. A number 
of teams have downsized to align with business needs and 
manage costs. This has involved some process changes 
and reallocation of responsibilities, which have required 
close management to ensure the internal control 
environment remains robust.

During the year, the Company refreshed and relaunched  
its core values, which involved workshops for all staff,  
and completed its annual employee engagement survey,  
the results of which are reported on page 64.

The process of integrating the 3i Debt Management team 
and bedding down related oversight, compliance and control 
processes has been completed during the year. In the Private 
Equity business, operational responsibilities have been 
realigned between Developed and Developing Markets.

A number of policies and procedures have been upgraded 
during the year. This has included a complete update of 
the Group’s incident response plan; a review and update 
of human resources policies; the launch of an updated 
anti-bribery policy, supported by all staff e-learning; and 
some process changes in response to the Financial Service 
Authority’s remuneration code.

Risk governance framework
3i’s risk governance framework provides a structured 
process to oversee the identification, assessment and 
approach to mitigation in respect of those risks which  
could materially impact the Group’s strategic objectives  
or execution.

Risk management operates at all levels throughout the 
Group, across business lines, geographies and professional 
functions. The Board is ultimately responsible for risk 
management, which includes the Group’s risk governance 
or oversight structure and maintaining an appropriate 
internal control framework. Management’s responsibility 
is to manage risk on behalf of the Board.

By reporting regularly to Audit and Compliance Committee, 
the Group’s Risk Committee provides support to the Board  
in maintaining oversight of the effectiveness of risk 
management across the Group.

The risk governance framework and the responsibilities  
of the main committees involved are shown opposite.  
Details can also be found in the Governance section  
(Pillar 3 disclosures) at www.3igroup.com.

There have been no changes to 3i’s risk management 
framework over the course of the year. Risk reviews are 
generally carried out on a quarterly basis and aligned 
with the Group Risk Committee meetings, which are held 
as part of the Leadership Team meetings.

Related committees
The Brand and Values Committee oversees a range 
of matters which could create reputational risks for the 
Company, complementing the work of the Group Risk 
Committee. This includes identifying and assessing the 
significant risks and opportunities for 3i arising from 
corporate responsibility issues.

3i Group plc  Annual report and accounts 2012

57

Oversight and operation

Risk areas

Key reports

Board reporting

 External 

stakeholders
 Reputational
 Government/
regulation

 Pre-close briefings, interim 

Board – pre-publication

updates and results 
announcements

 Group management report – 

Audit Committee – quarterly

market review; investor relations

 Market/economic

 Group risk review

Audit Committee – quarterly

External 
risk

 Strategic delivery
 Returns model
 New business 
opportunities

 Managing 

communications

Strategic 
risk

 Portfolio 

performance
 Investment level 
management

 Divestment levels
 Valuations
 New investment 

decisions

Investment

 Long-term funding
 Gearing
 Liquidity
 Market risks 

(FX etc)

Treasury 
and funding

 People, processes 

and systems

 Legal and 
regulatory 
compliance
 Reputational

Operational

 Review of brand and trends 

affecting reputation

Brand and Values Committee 
– annually

 Reputational risk log

Brand and Values Committee  
– 3 times p.a.

 Group management report – 

Board – 6 times p.a.

headline performance; strategic 
plan delivery

 New business proposals and 

Board – as required

business case

 Group risk review

 Strategic plan (and updates)

 Valuations Committee report

Audit Committee – quarterly

Board – annual update or 
refresh

Valuations Committee and 
Board – half yearly

 Group management report – 

Board – 6 times p.a.

portfolio update; fund 
performance; new investments

 Long-term vintage performance 

Board – 2 times p.a.

update

 Periodic business updates

Board – as required

 Portfolio Committee report

Audit Committee – 2 times p.a.

 Group risk review

Audit Committee – quarterly

 Group management report – 

key financial highlights; 
financial performance; ICAAP

Board – 6 times p.a.

 Group risk review

Audit Committee – quarterly

 Annual budget (and rebase)

Board – 2 times p.a.

 Financial forecasts

Board – 3 times p.a.

 Group financial resources review Board – at least six monthly
Audit Committee – quarterly

 Risk log summary

 Group risk review

 Litigation summary

 Review of 3i values

 Compliance update reports

Audit Committee – quarterly

Audit Committee – quarterly

Brand and Values Committee 
– annually
Audit Committee – quarterly

 Internal control effectiveness 

Audit Committee – 2 times p.a.

review

Risk 
management 
oversight

Group Risk 
Committee 
(Leadership Team)
Chair: CEO

Quarterly 
updates

Audit  
Committee

Investment 
& Portfolio 
Committees
Chair: CIO

Treasury 
Management 
Committee
Chair: CEO

Operating 
Committee
Chair: Group FD

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58

3i Group plc  Annual report and accounts 2012

Risk

Risk factors 

Inherent risks

External

Strategic

Investment

Treasury and funding

Operational

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

 Changes in macroeconomic variables,  

eg rates of growth, inflation

 General health of capital markets, 

eg conditions for initial public offerings
 Exposure to new and emerging markets
 Regulatory developments
 Changes in government policy, eg taxation
 Reputational risks
 Reputation risk in portfolio companies, 
which may impact 3i by association

Risks in relation to the Group’s key 
strategic choices, including the design 
and delivery of the Group’s business 
model, and key decisions on areas 
of investment and capital allocation.

 Understanding and analysis of risks and rewards
 Appropriateness of business model
 Unexpected changes in the Group’s operating 

environment

 Unanticipated outcomes versus assumptions
 Potential loss of key staff in areas critical to the  

Group’s strategic delivery

Risk mitigation

 Diversified investment portfolio in a range 
of sectors, with different economic cycles, 
across geographical markets

 Close monitoring of regulatory and fiscal 

developments in main markets by in-house 
specialists and external advisors

 Due diligence when entering new markets 

or business areas

 Periodic strategic reviews
 Regular monitoring of key risks by Group Risk 

Committee and the Board

 Monitoring of a range of key performance indicators, 

forecasts and periodic updates of plans and 
underlying assumptions

 Disciplined management of key strategic projects

Key developments

Further information

 Continuing uncertain economic conditions, 

 Continued challenging market and economic 

 Investment levels below planned run rate owing to a 

 Continued uncertainty and dislocation within 

 Integration of debt management business

particularly in Europe

 Regulatory developments which may 

impose additional costs

conditions impacting investment performance and, 
therefore, strategic delivery

 Continued caution on the part of third-party investors
 Greater reliance on developing markets as a source 

of new investment opportunities

cautious and selective approach to new investments

the Eurozone

 Continued impact of current economic environment 

on the growth of portfolio companies’ earnings

 Availability and terms of credit adversely affected 

by uncertainty in the wider credit markets

 Generally difficult M&A market conditions

 Launch of 3i’s new Responsible Investing guidelines

Overview 
Chairman’s statement p4

Strategy and business model 
Chief Executive’s review p11
Business model p14
Strategy and performance p16

Business review 
Market environment p24

Overview 
Chairman’s statement p4

Strategy and business model 
Chief Executive’s statement p11
Business model p14
Strategy and performance p16

Business review 
Market environment p24

Overview 

Our business p8

Strategy and business model 

Chief Executive’s statement p11

Business model p14

Strategy and performance p16

Business review 

Market environment p24

Financial statements 

Notes 1 to 3 p102 to p104

Note 13 p111

Risks in respect of specific asset 

Risks in relation to changes in market 

Risks arising from inadequate or failed 

investment decisions, the subsequent 

prices and rates; access to capital 

processes, people and systems or 

from external factors affecting these.

markets and third-party funds; and 

the Group’s capital structure.

performance of an investment or 

exposure concentrations across 

business line portfolios.

 Market competition, eg number of participants 

 Liquidity

and availability of funds

 Asset pricing and access to deals,  

eg on a proprietary basis

 Investor capability and investment discipline

 Alignment of remuneration

 Underlying asset performance, eg earnings growth, 

cash headroom, ESG issues

 Asset valuations

 Overexposure to a particular sector, geography 

or small number of assets

 Investment performance track record

 Reputational risks arising from portfolio related events

 Level of gearing

 Debt levels and maturity profile

 Credit rating and access to funds

 Counterparty risk

 Foreign exchange exposure

 Interest rate exposure

 Impact of volatility of investment valuations

 Resource balance, including recruitment, retention 

and development of capable people

 Appropriate systems, processes and procedures

 Adherence to tax regulations, including permanent 

establishment risk

 Complexity of regulatory operating environment 

and ability to influence regulatory change

 Potential exposure to litigation

 Reputational risks arising from operational  

risk incidents

 Exposure to fraud

 Business disruption

 In-depth market and competitor analysis, 

 Weekly detailed cash flow forecasts, tracked against 

 Framework of core values, global policies, a code 

supported by an international network of sector 

minimum liquidity headroom

of business conduct and delegated authorities

and industry specialists

 Rigorous investment appraisal and approval process

 Monitoring of material debt maturities within 

 Responsible Investing guidelines incorporated into 

a 12 month rolling period

line management responsibilities for identifying, 

assessing, controlling and reporting operational risks

 Monitoring of gross and net debt against target limits

 Procedures and job descriptions setting out  

investment procedures

 Use of currency borrowings to reduce structural 

 Regular asset reviews, including risk assessment, 

currency exposures

based on up-to-date management accounts and 

 Use of “plain vanilla” derivatives where appropriate

 Regular Board reviews of the Group’s financial 

resources and treasury policy

 Strong liquidity position maintained

reporting

 Consistent application of detailed valuation guidelines 

and review processes

 Representation by a 3i executive on the boards 

of investee companies

 Setting of investment concentration limits

 Periodic portfolio reviews to monitor exposure 

to sectors, geographies and larger assets

 Rigorous staff recruitment, vetting, review 

and appraisal processes

 Appropriate remuneration structures

 Succession planning

 Close monitoring of legal, regulatory and tax 

developments by specialist teams

 Internal Audit and Compliance functions carry 

out independent periodic reviews

 Business continuity and contingency planning

 Controls over information security, confidentiality 

and conflicts of interest

 Anti-fraud programme

 Changes in applicable tax and regulatory requirements

 Downsizing in response to business needs and 

to manage costs

 Refresh and relaunch of core values

 New or upgraded policies and procedures  

eg anti-bribery

Business review 

Financial review (Balance sheet) p52

Financial statements 

Notes 19 to 22 p115 to p122

Corporate responsibility p60

Governance p65

External

Strategic

Investment

Treasury and funding

Operational

Risks arising from external factors 

including political, legal, regulatory, 

economic and competitor changes 

which affect the Group’s operations.

Risks in relation to the Group’s key 

strategic choices, including the design 

and delivery of the Group’s business 

model, and key decisions on areas 

of investment and capital allocation.

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

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

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

 Changes in macroeconomic variables,  

 Understanding and analysis of risks and rewards

 Market competition, eg number of participants 

 Changes in government policy, eg taxation

Group’s strategic delivery

 Appropriateness of business model

 Unexpected changes in the Group’s operating 

environment

 Unanticipated outcomes versus assumptions

 Potential loss of key staff in areas critical to the  

eg rates of growth, inflation

 General health of capital markets, 

eg conditions for initial public offerings

 Exposure to new and emerging markets

 Regulatory developments

 Reputational risks

 Reputation risk in portfolio companies, 

which may impact 3i by association

and availability of funds

 Asset pricing and access to deals,  

eg on a proprietary basis

 Investor capability and investment discipline
 Alignment of remuneration
 Underlying asset performance, eg earnings growth, 

cash headroom, ESG issues

 Asset valuations
 Overexposure to a particular sector, geography 

or small number of assets

 Investment performance track record
 Reputational risks arising from portfolio related events

 Liquidity
 Level of gearing
 Debt levels and maturity profile
 Credit rating and access to funds
 Counterparty risk
 Foreign exchange exposure
 Interest rate exposure
 Impact of volatility of investment valuations

 In-depth market and competitor analysis, 

 Weekly detailed cash flow forecasts, tracked against 

3i Group plc  Annual report and accounts 2012

59

 Resource balance, including recruitment, retention 

and development of capable people

 Appropriate systems, processes and procedures
 Adherence to tax regulations, including permanent 

establishment risk

 Complexity of regulatory operating environment 

and ability to influence regulatory change

 Potential exposure to litigation
 Reputational risks arising from operational  

risk incidents
 Exposure to fraud
 Business disruption

 Framework of core values, global policies, a code 
of business conduct and delegated authorities

 Procedures and job descriptions setting out  

line management responsibilities for identifying, 
assessing, controlling and reporting operational risks

 Rigorous staff recruitment, vetting, review 

and appraisal processes

 Appropriate remuneration structures
 Succession planning
 Close monitoring of legal, regulatory and tax 

developments by specialist teams

 Internal Audit and Compliance functions carry 

out independent periodic reviews

 Business continuity and contingency planning
 Controls over information security, confidentiality 

and conflicts of interest
 Anti-fraud programme

 Integration of debt management business
 Changes in applicable tax and regulatory requirements
 Downsizing in response to business needs and 

to manage costs

 Refresh and relaunch of core values
 New or upgraded policies and procedures  

eg anti-bribery

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minimum liquidity headroom

 Monitoring of gross and net debt against target limits
 Monitoring of material debt maturities within 

a 12 month rolling period

 Use of currency borrowings to reduce structural 

currency exposures

 Use of “plain vanilla” derivatives where appropriate
 Regular Board reviews of the Group’s financial 

resources and treasury policy

 Strong liquidity position maintained

 Continued uncertainty and dislocation within 

the Eurozone

supported by an international network of sector 
and industry specialists

 Rigorous investment appraisal and approval process
 Responsible Investing guidelines incorporated into 

investment procedures

 Regular asset reviews, including risk assessment, 
based on up-to-date management accounts and 
reporting

 Consistent application of detailed valuation guidelines 

and review processes

 Representation by a 3i executive on the boards 

of investee companies

 Setting of investment concentration limits
 Periodic portfolio reviews to monitor exposure 

to sectors, geographies and larger assets

 Investment levels below planned run rate owing to a 
cautious and selective approach to new investments
 Continued impact of current economic environment 

on the growth of portfolio companies’ earnings
 Availability and terms of credit adversely affected 

by uncertainty in the wider credit markets
 Generally difficult M&A market conditions
 Launch of 3i’s new Responsible Investing guidelines

Overview 
Our business p8

Strategy and business model 
Chief Executive’s statement p11
Business model p14
Strategy and performance p16

Business review 
Market environment p24

Financial statements 
Notes 1 to 3 p102 to p104
Note 13 p111

Business review 
Financial review (Balance sheet) p52

Financial statements 
Notes 19 to 22 p115 to p122

Corporate responsibility p60

Governance p65

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Risk factors 

Inherent risks

Risk mitigation

 Diversified investment portfolio in a range 

of sectors, with different economic cycles, 

across geographical markets

 Close monitoring of regulatory and fiscal 

developments in main markets by in-house 

specialists and external advisors

 Due diligence when entering new markets 

or business areas

 Periodic strategic reviews

 Regular monitoring of key risks by Group Risk 

Committee and the Board

 Monitoring of a range of key performance indicators, 

forecasts and periodic updates of plans and 

underlying assumptions

 Disciplined management of key strategic projects

Key developments

 Continuing uncertain economic conditions, 

 Continued challenging market and economic 

particularly in Europe

 Regulatory developments which may 

impose additional costs

conditions impacting investment performance and, 

therefore, strategic delivery

 Continued caution on the part of third-party investors

 Greater reliance on developing markets as a source 

of new investment opportunities

Further information

Overview 

Chairman’s statement p4

Strategy and business model 

Chief Executive’s review p11

Business model p14

Strategy and performance p16

Business review 

Market environment p24

Overview 

Chairman’s statement p4

Strategy and business model 

Chief Executive’s statement p11

Business model p14

Strategy and performance p16

Business review 

Market environment p24

 
 
 
 
 
 
 
 
 
 
 
60

3i Group plc  Annual report and accounts 2012

Corporate responsibility

This section explains how we take a 
committed, engaged and responsible 
approach to everything that we do, to 
ensure that we are both a responsible 
company and a responsible investor.

Corporate responsibility at 3i 
Corporate responsibility and our Business model 
3i’s values 
Responsible Investing 

61
62
62
63

Corporate responsibility at 3i

3i Group plc  Annual report and accounts 2012

61

For 3i, corporate responsibility is about being both a responsible investor and 
a responsible company. It means taking responsibility for our actions, carefully 
considering how others will be affected by our choices and ensuring that 
our values are integrated into our formal business policies, practices and 
plans. Most of all, it is about behaving in a responsible way.

During the year, we further developed our brand, our  
values and our approach to Responsible Investment  
(“RI”). I am particularly pleased with the work that 
we have done to refresh and embed our RI policy 
and procedures.

We believe that companies with high environmental, 
social and governance (“ESG”) standards are typically 
better run, have fewer business risks and are easier 
to realise value from.

I am pleased that we have become signatories to 
the UN Principles for Responsible Investing. At a time 
when the investment community is being challenged 
by stakeholders, it is important that we come together 
as an industry and demonstrate our commitment to 
behaving responsibly in our investment activities.

I hope that you find the following report of interest.  
More information is also available online at  
www.3igroup.com.

Michael Queen  
Chief Executive

Organisation and governance
Board and senior level

Investment Committee
Portfolio Committee
Operating Committee

Brand and Values Committee
Chaired by 3i Chairman

Group Risk Committee
Chaired by  
Chief Executive

Operational level

Implementation by staff with the support of in-house and external expertise

For more information, please go to ‘Accountability’ in the corporate responsibility section of our Investor relations website.

For more information, go to:
www.3igroup.com/cr

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62

3i Group plc  Annual report and accounts 2012

Corporate responsibility at 3i

Corporate responsibility and our business model
Corporate responsibility is integrated into our business model, as the diagram below shows. 

Secure access to capital 
from multiple sources
Our annual Corporate Governance  
event with shareholders, individual 
engagements with the investors in our 
funds, and our round-table discussions 
with the wider investment community 
have provided useful input to developing 
our approach.

Invest in our network, 
people and knowledge
Further investment in our “One 3i” 
initiative through, for example, Values 
workshops for all staff, reinforced our 
focus on the retention and engagement 
of our staff. 

See the best  
investment opportunities 
We have invested time and resources 
in seeking earlier and greater 
visibility of material ESG matters 
in our investment processes. 

Invest in our  
network, people  
and knowledge

Secure access 
to capital from 
multiple sources

See the best  
investment  
opportunities

Core  
Brand

Build great  
companies and  
deliver outstanding  
returns

Create innovative 
financial solutions 
and ensure excellent 
execution

Achieve full  
potential through  
active partnership

Build great companies and 
deliver outstanding returns
We have developed a more explicit 
Responsible Investment policy and 
integrated a deeper analysis of the 
materiality and management of ESG 
matters in our investment process and 
in our portfolio company review process.

Achieve full potential through 
active partnership 
Increased training and improved tools 
for our investment professionals on a 
range of ESG topics has been developed 
in order to create greater awareness and 
capability, as well as helping to identify 
opportunities for enhanced returns. 

Create innovative financial 
solutions and ensure 
excellent execution
As part of our increased awareness  
on ESG issues, there is a focus on 
transparency and on good governance.

3i’s values
Our approach to corporate responsibility and our business model is underpinned by our values, which together commit 
us to doing the right thing in the right way. 

The values of ambition, courage, responsibility, collaboration and integrity collectively drive our objective to be a successful 
investor and deliver superior performance. 

3i Group plc  Annual report and accounts 2012

63

Responsible Investing
Our vision is to be recognised as a leading international 
investor based on the value we add to our portfolio, the 
returns we deliver to our investors and our responsible 
approach to investing.

We believe that:

 the effective assessment and management of ESG 

matters has a positive effect on the value of our investee 
companies and of 3i Group itself;

 compliance with local laws and regulations may not be 
enough to meet global expectations, deliver value and 
enhance our reputation and licence to operate; and

 it is vital that we seek to identify all material ESG risks and 
opportunities through our due diligence and effectively 
manage them during the period of 3i’s investment.

During the year, we initiated a project to review and improve 
our RI approach. The result was a refreshed policy supported 
by “on the ground” tools, resources and procedures to 
embed the policy into our investment processes and apply 
them consistently across the business.

 a referral list of activities that we may invest in but which 
may be sensitive and require additional scrutiny; and

 a set of minimum ESG standards that we will seek to 

implement during the period of our investment.

The policy is underpinned by:

 a set of updated RI procedures that complement our 

investment processes and ensure that they are 
consistently applied across all of our investment activities;

Our policy makes it clear that we aim to use our influence 
as an investor to promote a commitment in our investee 
companies to:

 an online toolkit that provides screening and risk 

assessment tools for ESG risks, including anti-bribery 
and corruption risks;

 comply, as a minimum, with applicable local and 

international laws;

 mitigate adverse environmental and social impacts and 
enhance positive effects on the environment, workers 
and relevant stakeholders; and

 uphold high standards of business integrity and good 

corporate governance.

Main features of the policy include:

 clear statements of our commitment to mitigate 
adverse environmental and social impacts and 
uphold high standards of business integrity and good 
corporate governance;

 an exclusion list of businesses and activities in which 

we will not invest;

 a series of guidance notes for investment teams, 

covering key issues and sectors, with links to case studies, 
international norms and standards and information about 
specific emerging markets;

 a list of preferred ESG due diligence suppliers;

 a “one-stop shop” RI portal that provides access for staff 

to all these resources; and

 a full-time internal Responsible Investing Manager who 

supports the deal teams in the application of the RI policy.

Working with advisers, as part of this project, we reviewed 
our Private Equity and Infrastructure portfolios, identifying 
over 25 companies for more rigorous analysis in 
environmental, social and governance (“ESG”) matters.  
This review focused not only on ESG risks, but also on 
the opportunities for creating value. Going forward, our 
investment teams will work with our Active Partnership 
programme to drive the themes more consistently through 
our investments to create value.

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64

3i Group plc  Annual report and accounts 2012

Corporate responsibility at 3i

External benchmarking

2011

2010

2009

Dow Jones Sustainability 
Index (DJSI)

Score: 
62%

Score: 
62%

Score: 
61%

Carbon Disclosure  
Project

Business in the 
Community (BitC) 
CR Index

Disclosure 
score:  
71%

Disclosure 
score:
43%

CDP:
51%

Score: 
81%
Silver

Score: 
81%
Silver

Score: 
80%
Silver

As a founder member of BitC over thirty years ago, we are 
proud to have maintained our ranking in the 2011 BitC CR 
Index. We have also maintained our ranking in the DJSI and 
have been included in the FTSE4Good for the first time. Also, 
our disclosure score from the Carbon Disclosure Project has 
seen some improvement.

We ensure that 3i is an attractive place to work through 
investment in staff, internal communications and our brand. 
We believe that investing in these areas will foster a strong 
and unified culture. This is best illustrated by our “best team 
for the job” approach, which aims to harness the skills and 
knowledge of our teams from around the world.

During the year, we refreshed both our brand and values,  
and held a series of internal discussions and workshops 
to ensure that our brand and values accurately reflect 
our markets and the needs of all of our stakeholders.

Employee 
engagement

2012

2011

2010

2009

69%

86%

74%

83%

We achieved good scores in our annual employee 
engagement survey, particularly in the areas of being 
committed to helping us meet our objectives, taking 
responsibility to act according to our values, teamwork 
and loyalty, with 72% of respondents saying they are 
proud to work for us.

However, the challenging operating environment has been 
reflected in an overall employee engagement score of 69%, 
which is lower than in previous periods, although broadly 
in line with other UK companies surveyed.

Employee engagement is a composite measure of 
employees’ views of how well their abilities are used, 
recognised and valued by the company, their commitment 
and pride in working for us and their understanding of their 
contribution, commitment and pride in working for us.

Our priorities for the year ahead
We recognise that we have more to do in this area, and 
have identified the following priorities for the year ahead:

 ensuring that our revised Responsible Investing 

procedures are fully implemented and supported 
by appropriate training and resources;

 further work on enhancing our monitoring and reporting 
to include meaningful KPIs with respect to ESG matters 
in our portfolio; and

 building on the results of our portfolio review on ESG 
matters to engage with portfolio management teams 
and assist them in achieving improvements.

For more information, please go to the Corporate 
responsibility section of our Investor relations website.

For more information, go to:
www.3igroup.com/cr

 
3i Group plc  Annual report and accounts 2012

65

Governance

Information on how 3i is governed and 
managed, as well as our Remuneration 
report and details on our Board and 
Leadership Team.

Board of Directors and Leadership Team 
Statutory and corporate governance information 
Corporate governance statement 
Directors’ remuneration report 

66
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66

3i Group plc  Annual report and accounts 2012

Board of Directors and Leadership Team

Board of Directors

Sir Adrian Montague  

Michael Queen 

Julia Wilson

Simon Borrows

Jonathan Asquith

Alistair Cox

Richard Meddings

Willem Mesdag

Martine Verluyten

Non-Executive Directors
Jonathan Asquith
Non-executive Director since March 2011. 
Non-executive director of Ashmore 
Group plc, AXA UK plc and Chairman of 
AXA Investment Managers. 
Previous experience
A director of Schroders plc from 2002 
until 2008, during which time he was 
Chief Financial Officer and later 
Vice-Chairman. Previously spent  
18 years in investment banking with 
Morgan Grenfell and Deutsche Bank.

Alistair Cox
Non-executive Director since 2009.  
Chief Executive of Hays plc. 
Previous experience
Chief Executive of Xansa plc from 2002 
to 2007, and Regional President of Asia 
and Group Strategy Director at Lafarge 
(formerly Blue Circle Industries) between 
1994 and 2002.

Richard Meddings
Non-executive Director since 2008,  
and Senior Independent Director since 
October 2010. Group Finance Director 
of Standard Chartered PLC since 2006, 
having joined the board of Standard 
Chartered PLC as a Group Executive 
Director in 2002. A member of 
the Governing Council of the International 
Chamber of Commerce, United Kingdom.
Previous experience
Chief Operating Officer, Barclays Private 
Clients, Group Financial Controller at 
Barclays PLC and Group Finance Director 
of Woolwich PLC.

Willem Mesdag
Non-executive Director since 2007. 
Managing Partner of Red Mountain 
Capital Partners LLC. 
Previous experience
A Partner and Managing Director 
of Goldman, Sachs & Co. 

Martine Verluyten
Non-executive Director since 
January 2012. A non-executive 
director of Thomas Cook Group plc.

Previous experience
Chief Financial Officer of Umicore,  
a Brussels-based listed materials 
technology group, from 2006 to 
December 2011. Before joining Umicore, 
was Group Controller and then Chief 
Financial Officer of Mobistar.

Chairman
Sir Adrian Montague  
Chairman
Chairman since July 2010 and a 
non-executive Director since June 2010. 
Chairman of CellMark Investments AB, 
Anglian Water Group, Hurricane 
Exploration plc and the Green Investment 
Bank Advisory Group. A director of 
Skanska AB and Morrison plc.
Previous experience
Chairman of Michael Page International 
plc, London First, Friends Provident PLC, 
British Energy Group PLC, Cross London 
Rail Links Ltd (Crossrail) and Deputy 
Chairman of Network Rail. 

Executive Directors
Michael Queen 
Chief Executive
Chief Executive since 2009, and an 
executive Director since 1997. Chairman 
of the Group Risk Committee and a 
member of the Leadership Team. 
A member of the Group’s Investment 
Committee and Portfolio Committee. 
Joined 3i in 1987. A member of the Prime 
Minister’s Business Advisory Group.
Previous experience
Seconded to HM Treasury 1994 to 1996. 
Group Financial Controller from 1996 to 
1997 and Finance Director from 1997 to 
2005. Managing Partner, Growth Capital 
2005 to 2008 and Managing Partner, 
Infrastructure 2005 to 2009. Chairman 
of the British Venture Capital Association 
from 2002 to 2003.

Julia Wilson 
Group Finance Director
Group Finance Director and member of 
the Leadership Team since 2008. Chair of 
the Group’s Operating Committee since 
it was established in September 2010. 
Joined 3i in 2006 as Deputy Finance 
Director, with responsibility for the 
Group’s finance, taxation and treasury 
functions. Also a non-executive director 
of Legal & General Group Plc. 
Previous experience
Group Director of Corporate Finance 
at Cable & Wireless plc. 

Simon Borrows 
Chief Investment Officer
Executive Director, Chief Investment 
Officer and a member of the Leadership 
Team since October 2011. Chairman of 
the Group’s Investment Committee and 
Portfolio Committee since October 2011. 
Also a non-executive director of  
The British Land Company plc and  
of Inchcape plc.
Previous experience
Formerly Chairman of Greenhill & Co 
International LLP, having previously been 
Co-Chief Executive Officer of Greenhill & 
Co, Inc. Before founding the European 
operations of Greenhill & Co in 1998, he 
was the Managing Director of Baring 
Brothers International Limited.

3i Group plc  Annual report and accounts 2012

67

Leadership Team

Menno Antal

Kevin Dunn

Jeremy Ghose

Alan Giddins

Cressida Hogg

Paul Waller

Guy Zarzavatdjian

Leadership Team 
Menno Antal
Managing Partner, Developed Markets, 
Private Equity. A member of the 
Leadership Team since September 2010. 
A member of the Group’s Investment 
Committee and Portfolio Committee 
since September 2010. 
Previous experience
Joined 3i in 2000 and Managing Director, 
Benelux, since 2003. Prior to joining 3i, 
held a broad range of international 
managerial positions within Heineken.

Kevin Dunn
General Counsel, Company Secretary 
and Head of Human Resources, 
responsible for 3i’s legal, compliance, 
internal audit, human resources 
and company secretarial functions.  
A member of the Leadership Team  
since joining 3i in 2007.
Previous experience
A Senior Managing Director, running GE’s 
European Leveraged Finance business 
after serving as European General 
Counsel for GE. Prior to GE, was a partner 
at the law firms Travers Smith and 
Latham & Watkins.

Jeremy Ghose
Managing Partner and CEO of 3i Debt 
Management. A member of the 
Leadership Team since joining 3i in 
February 2011 on 3i’s acquisition of 
Mizuho Investment Management (UK) 
Limited from Mizuho Corporate Bank.
Previous experience
Prior to joining 3i, was with Mizuho 
Corporate Bank (formerly The Fuji Bank) 
since 1988 and on its executive board 
since 2005. Founder of Mizuho’s 
Leveraged Finance business in 1988 and 
of the third-party independent debt fund 
management business in 2005.

Alan Giddins
Managing Partner, Developed Markets, 
Private Equity. A member of the 
Leadership Team since September 2010. 
A member of the Group’s Investment 
Committee and Portfolio Committee 
since September 2010. 
Previous experience
Joined 3i in 2005. Prior to joining 3i, spent 
13 years in investment banking, latterly 
as a Managing Director at Société 
Générale. 

Cressida Hogg
Managing Partner, Infrastructure. 
A member of the Leadership Team 
since September 2010. A member of 
the Group’s Investment Committee and 
Portfolio Committee since September 
2010. Responsible for the Infrastructure 
business line and for leading the advisory 
relationship with the independent Board 
of 3i Infrastructure plc. 
Previous experience 
Joined 3i in 1995. Co-founded  
3i’s Infrastructure business in 2005  
and became Managing Partner, 
Infrastructure in 2009.

Paul Waller
Managing Partner, Fund Management. 
A member of the Leadership Team  
since 1999. A member of the Group’s 
Investment Committee since 1997 
and a member of the Group’s Portfolio 
Committee since it was established 
in September 2010. A non-executive 
director of 3i Infrastructure plc.
Previous experience
Joined 3i in 1978. Chairman of the 
European Private Equity and Venture 
Capital Association from 1998 to 1999.

Guy Zarzavatdjian
Managing Partner, Developing Markets, 
Private Equity and Chairman, France. 
A member of the Leadership Team  
since 2007. A member of the Group’s 
Investment Committee since 2006 and 
of the Group’s Portfolio Committee since 
it was established in September 2010.
Previous experience
Joined 3i’s Paris office in 1987. Managing 
Director, Benelux from 1999 to 2002 
and Managing Director, France from 
2002 until 2007.

Board Committees
Audit and Compliance 
Committee:
Richard Meddings  
(Chairman)
Jonathan Asquith
Alistair Cox
Martine Verluyten

Remuneration 
Committee:
Jonathan Asquith  
(Chairman)
Alistair Cox
Willem Mesdag

Nominations Committee:
Sir Adrian Montague 
(Chairman)
Jonathan Asquith
Alistair Cox
Richard Meddings
Willem Mesdag
Michael Queen
Martine Verluyten

Valuations Committee:
Willem Mesdag  
(Chairman)
Sir Adrian Montague
Michael Queen
Julia Wilson 

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68

3i Group plc  Annual report and accounts 2012

Statutory and corporate governance information

This section of the Directors’ report contains statutory 
and corporate governance information for the year 
to 31 March 2012 (“the year”) concerning the Company 
and its subsidiaries (“the Group”).

Principal activity
3i is an international investor focused on private equity, 
infrastructure and debt management, investing in Europe, 
Asia and the Americas. 

Group investment policy
3i’s investment policy, which as a closed-ended investment 
fund it is required to publish, is as follows:

 3i is an investment company which aims to provide its 

shareholders with quoted access to private equity returns. 
Currently, its main focus is on making quoted and 
unquoted equity and/or debt investments in businesses 
and funds across Europe, Asia and the Americas. 
The geographies, economic sectors, funds and asset 
classes in which 3i invests continue to evolve as 
opportunities are identified. Proposed investments are 
assessed individually and all significant investments 
require approval from the Group’s Investment Committee. 
Overall investment targets are subject to periodic reviews 
and the investment portfolio is also reviewed to monitor 
exposure to specific geographies, economic sectors and 
asset classes.

 3i seeks to diversify risk through significant dispersion 
of investments by geography, economic sector, asset 
class and size as well as through the maturity profile 
of its investment portfolio. In addition, although 3i does 
not set maximum exposure limits for asset allocations, 
no more than 15% by value of 3i’s portfolio can be held 
in a single investment.

 Investments are generally funded with a mixture of debt 

and shareholders’ funds with a view to maximising returns 
to shareholders, whilst maintaining a strong capital base. 
3i’s gearing depends not only on its level of debt, but also 
on the impact of market movements and other factors  
on the value of its investments. The Board takes this into 
account when, as required, it sets a precise maximum 
level of gearing. The Board has therefore set the maximum 
level of gearing at 150% and has set no minimum level  
of gearing. If the gearing ratio should exceed the 150% 
maximum limit, the Board will take steps to reduce the 
gearing ratio to below that limit as soon as practicable 
thereafter. 3i is committed to achieving balance 
sheet efficiency.

During the year, the Company has continued its approach 
of conservative balance sheet management. The Board 
recognises the current need to manage liquidity and gross 
and net debt levels on a conservative basis such that the 
Company should be well-placed to deal with external events, 
take advantage of opportunities and manage its investment 
and divestment activities in a flexible manner. The Board has 
decided that net debt should not currently exceed £1 billion 
and may at times be significantly below this limit. As a 
consequence, gearing, which is a function of both net debt 
and asset values, is expected to be in the range of 0%–30% 
for the immediate future. It should be noted that (subject 
always to the formal gearing limit in the Company’s 
investment policy statement set out above) the actual 
gearing level at any point in time will fluctuate, since it is a 
function of, among other things, asset valuations and the 
timing of investment and realisation cash flows. The Board 
anticipates that the Company may be in a net cash position 
during certain periods (for example during periods of high 
valuations where realisations might be expected to exceed 
investment) but may have net debt in other periods (for 
example where valuations are relatively low or after periods 
of low return flows).

Tax and investment company status
The Company is an investment company as defined by 
section 833 of the Companies Act 2006. HM Revenue & 
Customs has approved the Company as an investment trust 
under section 1158 of the Corporation Tax Act 2010 for the 
year to 31 March 2011. Since that date the Company has 
directed its affairs to enable it to continue to be so approved.

Regulation
3i Investments plc, 3i Debt Management Investments 
Limited, 3i Europe plc and 3i Nordic plc, subsidiaries of the 
Company, are authorised and regulated by the FSA under the 
Financial Services and Markets Act 2000. Where applicable, 
certain Group subsidiaries’ businesses outside the United 
Kingdom are regulated locally by relevant authorities.

Management arrangements
3i Investments plc acts as investment manager to the 
Company and certain of its subsidiaries. Contracts for these 
investment management and other services, for which 
regulatory authorisation is required, provide for fees based 
on the work done and costs incurred in providing such 
services. These contracts may be terminated by either party 
on reasonable notice.

3i plc provides the Group with certain corporate and 
administrative services, for which no regulatory 
authorisation is required, under contracts which provide for 
fees based on the work done and costs incurred in providing 
such services together with a performance fee based on 
realised profits on the sale of assets.

Results and dividends
Total comprehensive income for the year was £(656) million 
(2011: £324 million). An interim dividend of 2.7p per ordinary  
share in respect of the year to 31 March 2012 was paid  
on 11 January 2012. The Directors recommend a final 
dividend of 5.4p per ordinary share be paid in respect of  
the year to 31 March 2012 to shareholders on the Register  
at the close of business on 22 June 2012.

The trustee of The 3i Group Employee Trust (“the Employee 
Trust”) has waived (subject to certain minor exceptions) 
dividends declared by the Company after 26 May 1994 on 
shares held by the Employee Trust.

Business review
The Group’s development during the year to 31 March 2012, 
its position at that date and the Group’s likely future 
development are detailed in the Chairman’s statement, the 
Chief Executive’s review and the Business review.

Share capital
The issued share capital of the Company as at 31 March 2012 
comprised 971,069,281 ordinary shares of 7319/22p each and 
4,635,018 B shares (cumulative preference shares of 1p 
each), which represented 99.99% and 0.01% respectively of 
the nominal value of the Company’s issued share capital. 
During the year, the issued share capital of the Company 
altered as set out below.

Ordinary shares
The issued ordinary share capital of the Company as at 
1 April 2011 was 970,650,620 ordinary shares. During the 
year to 31 March 2012 this increased by 418,661 ordinary 
shares as a result of the issue of shares to the trustee of 
the 3i Group Share Incentive Plan.

At the Annual General Meeting (“AGM”) on 6 July 2011, the 
Directors were authorised to repurchase up to 97,000,000 
ordinary shares in the Company (representing approximately 
10% of the Company’s issued ordinary share capital as at 
11 May 2011) until the Company’s AGM in 2012 or 5 October 
2012, if earlier. This authority was not exercised in the year.

3i Group plc  Annual report and accounts 2012

69

B shares
The issued B share capital of the Company as at 1 April 2011 
was 4,635,018 B shares. No B shares were issued in the year 
to 31 March 2012. At the AGM on 6 July 2011, the Directors 
were authorised to repurchase up to 4,635,018 B shares in 
the Company until the Company’s AGM in 2012 or 5 October 
2012, if earlier. This authority was not exercised in the year.

Directors’ interests
In accordance with FSA Listing Rule 9.8.6(R)(1), Directors’ 
interests in the shares of the Company (in respect of which 
transactions are notifiable to the Company under FSA 
Disclosure and Transparency Rule 3.1.2(R)) as at 31 March 
2012 are shown below:

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Sir Adrian Montague

J P Asquith

S A Borrows

A R Cox

R H Meddings 

W Mesdag

M J Queen

M G Verluyten

J S Wilson 

Ordinary 
shares

57,758 

2,500

1,567,158 

4.900

18,460

224,174

B shares

0

0

0

0

0

0

1,703,162

6,227

0

0

59,686

1,038

The share interests shown for Mr M J Queen and Mrs J S 
Wilson include shares held in the 3i Group Share Incentive 
Plan and share bonus awards under the 3i Group Deferred 
Bonus Plan. The share interests shown exclude share option 
and performance share awards detailed in the Directors’ 
remuneration report. From 1 April 2012 to 10 May 2012, 
Mr M J Queen and Mrs J S Wilson became interested in an 
additional 201 and 198 ordinary shares, respectively, and 
there were no other changes to Directors’ share interests.

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70

3i Group plc  Annual report and accounts 2012

Statutory and corporate governance information

Major interests in ordinary shares
Notifications of the following voting interests in the Company’s ordinary share capital (which are notifiable in accordance with 
Chapter 5 of the FSA’s Disclosure and Transparency Rules and section 793 Companies Act 2006) had been received by the 
Company as at 31 March 2012 and 10 May 2012:

As at  
31 March  
2012

% of issued  
share capital

As at  
10 May  
2012

% of issued 
share capital

Nature of holding

BlackRock, Inc

106,259,273

10.943

106,259,273

10.943

Indirect 

Ameriprise Financial, Inc. and its group

Standard Life Investments plc

Schroders Plc

Legal & General Group Plc and/or its 
subsidiaries

66,041,715

48,482,387

47,870,160

6.805

4.996

4.933

66,041,715

48,482,387

47,870,160

6.805 Direct and Indirect

4.996 Direct and Indirect

4.933

Indirect

38,620,595

3.979

38,620,595

3.979

Direct

Rights and restrictions attaching to shares
A summary of the rights and restrictions attaching to shares 
as at 31 March 2012 is set out below.

The amendment of the Company’s Articles of Association is 
governed by relevant statutes. The Articles may be amended 
by special resolution of the shareholders in general meeting.

Holders of ordinary shares and B shares enjoy the rights 
accorded to them under the Articles of Association of the 
Company and under the laws of England and Wales. 
Any share may be issued with or have attached to it 
such rights and restrictions as the Company by ordinary 
resolution or failing such resolution the Board may decide.

Holders of ordinary shares are entitled to attend, speak and 
vote at general meetings of the Company and to appoint 
proxies and, in the case of corporations, corporate 
representatives to attend, speak and vote at such meetings 
on their behalf. On a poll, holders of ordinary shares are 
entitled to one vote for each share held. Holders of ordinary 
shares are entitled to receive the Company’s Annual Report 
and accounts, to receive such dividends and other 
distributions as may lawfully be paid or declared on such 
shares and, on any liquidation of the Company, to share in 
the surplus assets of the Company after satisfaction of the 
entitlements of the holders of the B shares or such other 
shares with preferred rights as may then be in issue.

Holders of B shares are entitled, out of the profits available 
for distribution in any year and in priority to any payment 
of dividend or other distribution to holders of ordinary shares, 
to a cumulative preferential dividend of 3.75% per annum 
calculated on the amount of 127p per B share (“the Return 
Amount”). On a return of capital (other than a solvent intra 
group reorganisation) holders of B shares are entitled to 
receive in priority to any payment to holders of ordinary shares 
payment of the Return Amount together with any accrued 
but unpaid dividends but are not entitled to any further right 
of participation in the profits or assets of the Company.

Holders of B shares are not entitled to receive notice of or 
attend, speak or vote at general meetings of the Company 
save where the B share dividend has remained unpaid for 
six months or more or where the business of the meeting 

includes consideration of a resolution for the winding-up 
of the Company (other than a solvent intra group 
reorganisation) in which case holders of B shares shall be 
entitled to attend, speak and vote only in relation to such 
resolution and in either case shall, on a poll, be entitled to  
one vote per B share held.

There are no restrictions on the transfer of fully paid shares 
in the Company, save as follows. The Board may decline 
to register a transfer of uncertificated shares in the 
circumstances set out in the Uncertificated Securities 
Regulations 2001 or where a transfer is to more than four 
joint holders. The Board may decline to register any transfer 
of certificated shares which is not in respect of only one class 
of share, which is to more than four joint holders, which is  
not accompanied by the certificate for the shares to which it 
relates, which is not duly stamped in circumstances where a 
duly stamped instrument is required, or where in accordance 
with section 794 of the Companies Act 2006 a notice (under 
section 793 of that Act) has been served by the Company on 
a shareholder who has then failed to give the information 
required within the specified time. In the latter circumstances 
the Company may make the relevant shares subject to 
certain restrictions (including in respect of the ability to 
exercise voting rights, to transfer the shares validly and, 
except in the case of a liquidation, to receive the payment 
of sums due from the Company). Since 14 July 2009 the 
Company has been entitled to appoint a person to execute 
a transfer on behalf of all holders of B shares in acceptance  
of an offer, paying the holders such amount as they would 
have been entitled to on a winding-up of the Company.

There are no shares carrying special rights with regard to 
control of the Company. There are no restrictions placed on 
voting rights of fully paid shares, save where in accordance 
with Article 12 of the Company’s Articles of Association a 
restriction notice has been served by the Company in respect 
of shares for failure to comply with statutory notices or where 
a transfer notice (as described below) has been served 
in respect of shares and has not yet been complied with.

In the circumstances specified in Article 38 of the Company’s 
Articles of Association the Company may serve a transfer 
notice on holders of shares. The relevant circumstances 

3i Group plc  Annual report and accounts 2012

71

relate to: (a) potential tax disadvantage to the Company,  
(b) the number of “United States Residents” who own or  
hold shares becoming 75 or more, or (c) the Company being 
required to be registered as an investment company under 
relevant US legislation. The notice would require the transfer 
of relevant shares and pending such transfer the rights and 
privileges attaching to those shares would be suspended.

To attend and vote at a Company general meeting a 
shareholder must be entered on the register of members 
at such time (not being earlier than 48 hours before the 
meeting) as stated in the notice of general meeting.

The Company is not aware of any agreements between 
holders of its securities that may restrict the transfer of 
shares or exercise of voting rights.

Debentures
As detailed in note 21 to the Accounts, as at 31 March 2012 
the Company had in issue Notes issued under the 3i Group 
plc £2,000 million Note Issuance Programme.

Appointment and re-election of Directors
Subject to the Company’s Articles of Association, the 
Companies Acts and satisfactory performance evaluation, 
non-executive Directors are appointed for an initial period 
of three years. Before the third and sixth anniversaries of 
a non-executive Director’s first appointment, the Director 
discusses with the Board whether it is appropriate for a 
further three year term to be served.

The Company’s Articles of Association provide for:

(a)  the minimum number of Directors to be two and 

the maximum to be 20, unless otherwise determined 
by the Company by ordinary resolution;

(b)  Directors to be appointed by ordinary resolution 

of the Company’s shareholders in general meeting 
or by the Board;

(c)  Directors to retire by rotation at an AGM if: 

(i)  they have been appointed by the Board since the 

preceding AGM;

(ii)  they held office during the two preceding AGMs 

but did not retire at either of them;

(iii) not being Chairman of the Board, they held 

non-executive office for a continuous period of 
nine years or more at the date of that AGM; or

(iv) they choose to retire from office; and

(d)   shareholders to have the power to remove any Director 

by special resolution.

Subject to the Company’s Articles of Association, retiring 
Directors are eligible for reappointment. The office of 
Director shall be vacated if the Director resigns, becomes 
bankrupt or is prohibited by law from being a Director or 
where the Board so resolves following the Director suffering 
from mental ill-health or being absent from Board meetings 
for 12 months without the Board’s permission.

In accordance with the UK Corporate Governance Code all 
Directors submit to reappointment every year. Accordingly 
at the AGM to be held on 29 June 2012 all the Directors will 
retire from office. All these Directors are eligible for and, 
save for Mr M J Queen who is stepping down from the Board, 
seek reappointment.

The Board’s recommendation for the reappointment 
of Directors is set out in the 2012 Notice of AGM.

Directors’ conflicts of interests
Directors have a statutory duty to avoid conflicts of 
interest with the Company. The Company’s Articles 
of Association enable Directors to approve conflicts of 
interest and include other conflict of interest provisions. 
The Company has implemented processes to identify 
potential and actual conflicts of interest. Such conflicts 
are then considered for approval by the Board, subject, 
if necessary, to appropriate conditions.

Directors’ indemnities
As permitted by the Company’s Articles of Association, the 
Company has maintained Qualifying Third-Party Indemnity 
Provisions (as defined under relevant legislation) for the 
benefit of the Company’s Directors throughout the year.

Employment
The policy of the Group is one of equal opportunity in the 
selection, training, career development and promotion of 
employees, regardless of age, gender, sexual orientation, 
ethnic origin, religion and whether disabled or otherwise.

3i treats applicants and employees with disabilities equally 
and fairly and provides facilities, equipment and training to 
assist disabled employees to do their jobs. Arrangements  
are made as necessary to ensure access and support to 
job applicants who happen to be disabled and who respond 
to our request to inform the Company of any requirements. 
Should an employee become disabled during their 
employment, efforts would be made to retain them in their 
current employment or to explore the opportunities for their 
retraining or redeployment within 3i. Financial support is  
also provided by 3i to support disabled employees who are 
unable to work, as appropriate to local market conditions.

3i’s principal means of keeping in touch with the views of  
its employees are through employee appraisals, informal 
consultations, team briefings, and staff conferences  
and surveys. Managers throughout 3i have a continuing 
responsibility to keep their staff fully informed of 
developments and to communicate financial results and 
other matters of interest. This is achieved by structured 
communication including regular meetings of employees.

3i is an equal opportunities employer and has clear grievance 
and disciplinary procedures in place. 3i also has an employee 
assistance programme which provides a confidential, free 
and independent counselling service and is available to all 
staff and their families in the UK.

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72

3i Group plc  Annual report and accounts 2012

Statutory and corporate governance information

3i’s employment policies are designed to provide a 
competitive reward package which will attract and retain 
high quality staff, whilst ensuring that the relevant costs 
remain at an appropriate level.

Remuneration policy is reviewed by the 3i Group plc 
Remuneration Committee, comprising 3i Group plc non-
executive Directors.

3i’s remuneration policy is influenced by 3i’s financial and 
other performance conditions and market practices in the 
countries in which it operates. All employees receive a base 
salary and are eligible for a performance-related bonus. 
Where appropriate, employees are eligible to participate in  
3i share schemes to encourage employees’ involvement in 
3i’s performance. Investment executives in the Private Equity 
business line may also participate in co-investment plans 
and carried interest schemes, which allow executives to 
share directly in any future profits on investments. Similarly, 
investment executives in the Infrastructure and Debt 
Management business lines may participate in asset-linked 
and/or fee-linked incentive arrangements. Employees 
participate in local state or company pension schemes 
as appropriate to local market conditions.

Charitable and political donations
Charitable donations made by the Group in the year to 
31 March 2012 amounted to £409,828. Detail on these 
donations is provided in the CR section of our Investor 
relations website, www.3igroup.com.

In line with Group policy, during the year to 31 March 2012 
no donations were made to political parties or organisations, 
or independent election candidates, and no political 
expenditure was incurred.

Policy for paying creditors
The Group’s policy is to pay suppliers in accordance with  
the terms and conditions of the relevant markets in which it 
operates. Expenses are paid on a timely basis in the ordinary 
course of business. The Company had no trade creditors 
outstanding at the year end. The Group had trade creditors 
outstanding at the year end representing on average  
18.7 days’ purchases.

Significant agreements
As at 31 March 2012 the Company was party to the following 
agreements that take effect, alter or terminate on a change 
of control of the Company following a takeover bid:

(a)  £200 million Revolving Credit Facility Agreement dated 

4 November 2009, between the Company, 3i Holdings plc 
and Lloyds TSB Bank plc in relation to the provision of a 
multi-currency term and revolving credit facility to the 
Company and 3i Holdings plc. Under this agreement, the 
Company would be required to notify Lloyds TSB Bank plc 
within five days of any change of control of the Company. 
Such notification would open a negotiation period of 20 
days (from the date of the change of control) to determine 
whether Lloyds TSB Bank plc would be willing to continue 
to make available the facility and, if so, on what terms. 

Failing agreement and if so required by Lloyds TSB Bank 
plc, amounts outstanding would be required to be repaid 
and the facility cancelled;

(b)  £450 million Revolving Credit Facility Agreement dated 
30 June 2011, between the Company, 3i Holdings plc, 
Lloyds TSB Bank plc, Barclays Capital, Goldman Sachs 
International, Lloyds TSB Bank plc, The Royal Bank of 
Scotland plc, Société Générale London Branch, Abbey 
National Treasury Services Plc, Citigroup Global Markets 
Limited, Commerzbank Aktiengesellschaft London 
Branch, Credit Suisse Ag London Branch, Deutsche Bank 
Ag London Branch, JPMorgan Chase Bank N.A., Standard 
Chartered Bank and UBS Limited in relation to the 
provision of a multi-currency revolving credit facility to 
the Company and 3i Holdings plc. Under this agreement, 
the Company would be required to notify Lloyds TSB 
Bank plc, in its capacity as agent for the banks, within 
five days of any change of control of the Company. Such 
notification would open a negotiation period of 20 days 
(from the date of the change of control) to determine 
whether the Majority Lenders (as defined in the 
agreement) would be willing to continue to make available 
the facility and, if so, on what terms. Failing agreement 
and if so required by the Majority Lenders, amounts 
outstanding would be required to be repaid and the 
facility cancelled;

(c)  £50 million Revolving Credit Facility Agreement dated 

29 September 2011, between the Company, 3i Holdings 
plc and Nordea Bank Finland PLC London Branch in 
relation to the provision of a multi-currency revolving 
credit facility to the Company and 3i Holdings plc. Under 
this agreement, the Company would be required to notify 
Nordea Bank Finland PLC London Branch within five 
days, of any change of control of the Company. Such 
notification would open a negotiation period of 20 days 
(from the date of the change of control) to determine 
whether Nordea Bank Finland PLC London Branch would 
be willing to continue to make available the facility and, if 
so, on what terms. Failing agreement, and if so required 
by Nordea Bank Finland PLC London Branch, amounts 
outstanding would be required to be repaid and the 
facility cancelled; and

(d)  Limited Partnership Agreements dated 24 March 2010, 

between 3i GC GP Limited, the Company, other 3i entities 
and other investors from time to time in relation to the 
formation of partnerships to carry on the business of 
investing as the fund known as 3i Growth Capital Fund. 
Under these agreements, the manager, 3i Investments 
plc, would be required to notify the investors of any 
change of control of the Company. If such a change 
of control occurred before the end of the relevant 
investment period, the manager’s powers to make 
new investments on behalf of the partnerships would 
be suspended unless the investors had given consent 
before the change of control occurred. Where suspension 
occurs, the investors may consent at any time before 
the end of the investment period to the resumption of 
the manager’s powers.

3i Group plc  Annual report and accounts 2012

73

Going concern
The Directors have acknowledged their responsibilities  
in relation to the financial statements for the year to  
31 March 2012.

The Group’s business activities, together with the factors 
likely to affect its future development, performance and 
position are set out in the Business review section. The 
financial position of the Group, its capital structure, gearing 
and liquidity positions are described in the Financial review 
section. The Group’s policies on risk management, including 
treasury and funding risks, are contained in the Risk section. 
Further details are contained in the financial statements and 
notes including, in particular, details on financial risk 
management and derivative financial instruments.

The Directors believe that the Group is well placed to manage 
its business risks successfully despite the continuing uncertain 
economic outlook. The Directors have considered the 
uncertainties inherent in current and expected future market 
conditions and their possible impact upon the financial 
performance of the Group. After consideration, the Directors 
are satisfied that the Company has and will maintain sufficient 
financial resources to enable it to continue operating in the 
foreseeable future and therefore continue to adopt the going 
concern basis in preparing the Annual Report and accounts.

Audit information
Pursuant to section 418(2) of the Companies Act 2006, each 
of the Directors confirms that: (a) so far as they are aware, 
there is no relevant audit information of which the Company’s 
auditors are unaware; and (b) they have taken all steps they 
ought to have taken to make themselves aware of any relevant 
audit information and to establish that the Company’s auditors 
are aware of such information.

Appointment of auditors
In accordance with section 489 of the Companies Act 2006, 
a resolution proposing the reappointment of Ernst & Young 
LLP as the Company’s auditors will be put to members at  
the forthcoming AGM. 

By order of the Board

K J Dunn 
Company Secretary 
16 May 2012

Registered Office: 
16 Palace Street, London SW1E 5JD

Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual 
Report and the Group financial statements in accordance 
with applicable United Kingdom law and those International 
Financial Reporting Standards (“IFRSs”) which have been 
adopted by the European Union.

Under Company Law the Directors must not approve the 
Group financial statements unless they are satisfied that they 
present fairly the financial position, financial performance 
and cash flows of the Group for that period. In preparing the 
Group financial statements the Directors:

(a)  select suitable accounting policies in accordance with 

International Accounting Standard 8: Accounting Policies, 
Changes in Accounting Estimates and Errors and then 
apply them consistently;

(b)  present information, including accounting policies, in a 

manner that provides relevant, reliable, comparable and 
understandable information;

(c)  provide additional disclosures when compliance with the 
specific requirements in IFRSs is insufficient to enable 
users to understand the impact of particular transactions, 
other events and conditions on the Group’s financial 
position and financial performance;

(d)  state that the Group has complied with IFRSs, subject 
to any material departures disclosed and explained in 
the financial statements; and 

(e)  make judgements and estimates that are reasonable.

The Directors have a responsibility for ensuring that proper 
accounting records are kept which are sufficient to show 
and explain the Group’s transactions and disclose with 
reasonable accuracy at any time the financial position of the 
Group and enable them to ensure that the Group financial 
statements comply with the Companies Act 2006.

They have a general responsibility for taking such steps 
as are reasonably open to them to safeguard the assets 
of the Group and to prevent and detect fraud and other 
irregularities.

In accordance with the FSA’s Disclosure and Transparency 
Rules, the Directors confirm to the best of their knowledge that:

(a)  the financial statements, prepared in accordance with 
applicable accounting standards, give a true and fair 
view of the assets, liabilities, financial position and profit 
or loss of the Company and the undertakings included 
in the consolidation taken as a whole; and

(b)  the Directors’ report includes a fair review of the 

development and performance of the business and the 
position of the Company and the undertakings included 
in the consolidation taken as a whole together with a 
description of the principal risks and uncertainties that 
they face.

The Directors of the Company and their functions are listed 
in the Board of Directors and Leadership Team section.

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74

3i Group plc  Annual report and accounts 2012

Statutory and corporate governance information

Corporate governance statement

purchases of its own shares if the purchase has first been 
authorised by a resolution of the Company.

Corporate governance
Throughout the year, the Company complied with the 
provisions of the UK Corporate Governance Code (the “Code”) 
published by the Financial Reporting Council in May 2010.

The Company’s approach to  
corporate governance
The Company has a policy of seeking to comply with 
established best practice in the field of corporate governance. 
The Board has adopted core values and global policies which 
set out the behaviour expected of staff in their dealings with 
shareholders, customers, colleagues, suppliers and others 
who engage with the Company. The values which employees 
are expected to display were refreshed during the year.

The Board’s responsibilities and processes
The Board is responsible to shareholders for the overall 
management of the Group and may exercise all the powers 
of the Company subject to the provisions of relevant statutes, 
the Company’s Articles of Association and any directions 
given by special resolution of the shareholders. The Articles 
of Association empower the Board to offer, allot, grant 
options over or otherwise deal with or dispose of the 
Company’s shares as the Board may decide. The Companies 
Act 2006 authorises the Company to make market 

At the AGM in July 2011, shareholders renewed the Board’s 
authority to allot ordinary shares and to repurchase ordinary 
shares on behalf of the Company subject to certain limits. 
At the AGM in July 2011, shareholders authorised the Board 
to repurchase B shares on behalf of the Company subject to 
certain limits. Details of the authorities which the Board will 
be seeking at the 2012 AGM are set out in the 2012 Notice 
of AGM.

The Articles of Association also specifically empower the 
Board to exercise the Company’s powers to borrow money 
and to mortgage or charge the Company’s assets and any 
uncalled capital and to issue debentures and other securities.

The Board determines matters including financial strategy 
and planning and takes major business decisions. The Board 
has put in place an organisational structure. This is further 
described under the heading “internal control”.

Attendance at Board and  
Committee Meetings
The table below shows the number of scheduled meetings 
attended by Directors during the year to 31 March 2012 and, 
in brackets, the number of such meetings they were eligible 
to attend. In addition to these meetings a number of ad hoc 
meetings were held to deal with specific items as they arose.

Total meetings held

Number attended:

Sir Adrian Montague

M J Queen

S A Borrows1

J S Wilson

J M Allan2

J P Asquith

A R Cox3

R H Meddings

W Mesdag

C J M Morin-Postel4

M G Verluyten5

Audit and 
Compliance 
Committee

Nominations 
Committee

Remuneration 
Committee

Valuations 
Committee

Brand and 
Values 
Committee

4

–

–

–

–

–

4 (4)

3 (4)

4 (4)

–

–

1 (1)

4

4 (4)

4 (4)

–

–

–

4 (4)

4 (4)

4 (4)

4 (4)

–

1 (1)

6

–

–

–

–

1 (1)

6 (6)

5 (5)

–

6 (6)

1 (1)

–

3

3

3 (3)

3 (3)

–

3 (3)

–

–

–

–

3 (3)

–

–

3 (3)

3 (3)

–

–

–

–

–

–

–

–

–

Board

6

6 (6)

6 (6)

3 (3)

6 (6)

0 (0)

6 (6)

6 (6)

6 (6)

6 (6)

1 (1)

2 (2)

1  Appointed to the Board on 17 October 2011.
2  Retired on 1 May 2011.
3  Appointed to Remuneration Committee on 6 July 2011.
4  Retired on 6 July 2011.
5  Appointed to the Board on 1 January 2012, and to the Nominations Committee and Audit and Compliance Committee on 1 February 2012.

3i Group plc  Annual report and accounts 2012

75

Matters reserved for the Board
The Board has approved a formal schedule of matters 
reserved to it and its duly authorised Committees for 
decision. These include:

 approval of the Group’s overall strategy, strategic plan and 

annual operating budget;

 approval of the Company’s half-yearly and annual financial 
statements and changes in the Group’s accounting policies 
or practices;

 changes relating to the capital structure of the Company 

or its regulated status;
 major capital projects;
 major changes in the nature of business operations;
 investments and divestments in the ordinary course 

of business above certain limits set by the Board from 
time to time;

 adequacy of internal control systems;
 appointments to the Board and the Leadership Team;
 principal terms and conditions of employment of members 

of the Leadership Team; and

 changes in employee share schemes and other long-term 

incentive schemes.

Matters delegated by the Board to management include 
implementation of the Board approved strategy, day-to-day 
operation of the business, the appointment and remuneration 
of all executives below the Leadership Team and the 
formulation and execution of risk management policies 
and practices.

A succession and contingency plan for executive leadership 
is prepared by management and reviewed periodically 
by the Board. The purpose of this plan is to identify suitable 
candidates for succession to key senior management 
positions, agree their training and development needs, 
and ensure the necessary human resources are in place 
for the Company to meet its objectives.

Meetings of the Board
The principal matters considered by the Board during the year 
(in addition to matters formally reserved to the Board) included:

 the strategic plan, budget and financial resources;
 regular reports from the Chief Executive;
 regular reports from the Board’s committees;
 the recommendations of the Valuations Committee 

on valuations of investments;

 the business model and its application by different 

business lines;

 the creation of a Brand and Values Committee;
 independence of non-executive Directors; and
 the portfolio company management process.

Information
Reports and papers are circulated to the Directors in a timely 
manner in preparation for Board and committee meetings. 
These papers are supplemented by information specifically 
requested by the Directors from time to time.

Performance evaluation
During the year, the Board conducted its annual evaluation 
of its own performance and that of its committees and 
individual Directors. The evaluation process in the year to 
31 March 2012 was conducted internally by the Chairman 
with the assistance of the Company Secretary. The results 
of this year’s evaluation process were reported to and 
discussed by the Board.

The Board performance evaluation included consideration 
of the overall functioning of the Board. Particular topics 
considered included: the optimum balance of attendance at 
Board meetings by managers below Board level, the balance 
of Board agendas, the adoption of a regular calendar of Board 
presentations and briefings, enhancements to the structure 
and content of Board packs, monitoring by non-executive 
Directors of investment approvals at Investment Committee, 
and increased portfolio company and investment team visits. 
The Board evaluation process also included consideration of 
the size, balance and composition of the Board including its 
diversity, including as to gender. The evaluation process was 
valuable in enabling Directors to identify a number of areas 
where its working practices could usefully be developed.

In his role as Senior Independent Director, Mr R H Meddings 
led a review by the Directors of the performance of the 
Chairman and subsequently reported back to the Board.

The roles of the Chairman, Chief Executive 
and Senior Independent Director
The division of responsibilities between the Chairman of the 
Board and the Chief Executive is clearly defined and has been 
approved by the Board.

The Chairman
The Chairman leads the Board in the determination of 
its strategy and in the achievement of its objectives. 
The Chairman is responsible for organising the business 
of the Board, ensuring its effectiveness and setting its 
agenda. The Chairman has no involvement in the day-to-day 
business of the Group. The Chairman facilitates the effective 
contribution of non-executive Directors and constructive 
relations between executive and non-executive Directors. 
The Chairman ensures that regular reports from the 
Company’s brokers are circulated to the non-executive 
Directors to enable non-executive Directors to remain aware 
of shareholders’ views. The Chairman ensures effective 
communication with the Company’s shareholders.

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76

3i Group plc  Annual report and accounts 2012

Statutory and corporate governance information

The Chief Executive
The Chief Executive has direct charge of the Group on a 
day-to-day basis and is accountable to the Board for the 
financial and operational performance of the Group. The 
Chief Executive has formed a committee called Leadership 
Team to enable him to carry out the responsibilities 
delegated to him by the Board. The Committee comprises 
Mr M J Queen, Mr S A Borrows, Mrs J S Wilson, Mr M A Antal, 
Mr K J Dunn, Mr A C B Giddins, Mr J R Ghose, Ms C M Hogg, 
Mr P Waller and Mr G A R Zarzavatdjian. The Committee 
meets on a regular basis to consider operational matters 
and the implementation of the Group’s strategy.

Senior Independent Director
Mr R H Meddings has served as Senior Independent Director 
since October 2010, to whom, in accordance with the Code, 
concerns can be conveyed.

Directors
The Board comprises the Chairman, five independent 
non-executive Directors and three executive Directors. 
Biographical details for each of the Directors are set out 
in the Board of Directors and Leadership Team section. 
Sir Adrian Montague served as Chairman and a Director 
throughout the year under review. Mr J P Asquith, Mr A R Cox,  
Mr R H Meddings, Mr W Mesdag, Mr M J Queen and  
Mrs J S Wilson served as Directors throughout the year  
under review. Mr S A Borrows and Ms M G Verluyten 
served as Directors from 17 October 2011 and 1 January  
2012 respectively. Mr J M Allan and Mme C J M Morin-Postel 
served as Directors until 30 April 2011 and 6 July 2011 
respectively.

In addition to fulfilling their legal responsibilities as 
Directors, non-executive Directors are expected to bring 
an independent judgement to bear on issues of strategy, 
performance, resources and standards of conduct, and 
to help the Board provide the Company with effective 
leadership. They are also expected to ensure high standards 
of financial probity on the part of the Company and to monitor 
the effectiveness of the executive Directors. Directors 
are expected to make available sufficient time to meet 
the requirements of the appointment. The average time 
commitment for a non-executive Director is expected to 
be around 15 days a year together with additional time 
for serving on the Board’s committees.

The Board’s discussions, and its approval of the Group’s 
strategic plan and annual budget, provide the non-executive 
Directors with the opportunity to contribute to and validate 
management’s plans and assist in the development of 
strategy. The non-executive Directors receive regular 
management accounts, reports and information which 
enable them to scrutinise the Company’s and management’s 
performance against agreed objectives.

Directors’ independence
All the non-executive Directors (other than the Chairman, 
who was independent on appointment) were considered 
by the Board to be independent for the purposes of the Code 
in the year to 31 March 2012.

The Board assesses and reviews the independence of 
each of the non-executive Directors at least annually, 
having regard to the potential relevance and materiality 
of a Director’s interests and relationships rather than 
applying rigid criteria in a mechanistic manner. No Director 
was materially interested in any contract or arrangement 
subsisting during or at the end of the financial period that 
was significant in relation to the business of the Company.

Directors’ employment contracts
Details of executive Directors’ employment contracts are set 
out in the Directors’ remuneration report.

Training and development
The Company has developed a training policy which provides 
a framework within which training for Directors is planned 
with the objective of ensuring Directors understand the duties  
and responsibilities of being a director of a listed company.  
All Directors are required to update their skills and maintain 
their familiarity with the Company and its business continually. 
Presentations on different aspects of the Company’s business 
are made regularly to the Board. On appointment, all non-
executive Directors have discussions with the Chairman and 
the Chief Executive following which appropriate briefings on the 
responsibilities of Directors, the Company’s business and the 
Company’s procedures are arranged. The Company provides 
opportunities for non-executive Directors to obtain a thorough 
understanding of the Company’s business by meeting 
members of the senior management team who in turn 
arrange, as required, visits to investment or support teams.

The Company has procedures for Directors to take 
independent legal or other professional advice about the 
performance of their duties.

3i Group plc  Annual report and accounts 2012

77

The Board’s committees
The Board is assisted by various standing committees of the 
Board which report regularly to the Board. The membership 
of these committees is regularly reviewed by the Board. 
When considering committee membership and chairmanship, 
the Board aims to ensure that undue reliance is not placed on 
particular Directors.

These committees all have clearly defined terms of reference. 
The terms of reference of the Audit and Compliance 
Committee, the Remuneration Committee and the 
Nominations Committee are available at www.3igroup.com. 
The terms of reference provide that no one other than the 
particular committee chairman and members may attend a 
meeting unless invited to attend by the relevant committee.

Audit and Compliance Committee
The Audit and Compliance Committee comprises 
Mr R H Meddings (Chairman), Mr J P Asquith, Mr A R Cox and 
Ms M G Verluyten, all of whom served throughout the year, 
save for Ms M G Verluyten who served as a member of the 
Committee from 1 February 2012. Mme C J M Morin-Postel 
served as a member of the Committee until 6 July 2011. 
All the members of the Committee are independent 
non-executive Directors. The Board is satisfied that the 
Committee Chairman, Mr R H Meddings, has recent and 
relevant financial experience.

During the year, the Committee:

 reviewed the effectiveness of the internal control 

environment of the Group and the Group’s compliance 
with its regulatory requirements and received reports 
on bank covenants and third-party liabilities;

 reviewed and recommended to the Board the accounting 

disclosures comprised in the half-yearly and annual 
financial statements of the Company and reviewed the 
scope of the annual external audit plan and the external 
audit findings;

 received the reports of the Valuations Committee on the 

valuation of the Group’s investment assets;

 received Portfolio Committee reports;
 received regular reports from the Group’s internal audit 
function, monitored its activities and effectiveness, and 
agreed the annual internal audit plan;

 received regular reports from the Group’s regulatory 
compliance function and Group Risk Committee, and 
monitored their activities and effectiveness;

 oversaw the Company’s relations with its external auditors 
including assessing auditor performance, independence 
and objectivity, recommending the auditors’ reappointment 
and approving the auditors’ fees;

 met with the external auditors in the absence of 

management; and

 reviewed the portfolio management processes.

Remuneration Committee
The Remuneration Committee comprises Mr J P Asquith 
(Chairman from 9 May 2011), Mr A R Cox and Mr W Mesdag, 
all of whom served throughout the year, save for Mr A R Cox 
who served from 6 July 2011. Mr J M Allan stepped 
down as Chairman of the Committee on 30 April 2011. 
Mme C J M Morin-Postel served as a member of the 
Committee until 6 July 2011. All the current members of 
the Committee are independent non-executive Directors.

The work of the Remuneration Committee is described 
in the Directors’ remuneration report.

Nominations Committee 
The Nominations Committee comprises Sir Adrian Montague 
(Chairman), Mr M J Queen, Mr J P Asquith, Mr A R Cox, 
Mr R H Meddings, Mr W Mesdag and Ms M G Verluyten, all of 
whom served throughout the year, save for Ms M G Verluyten 
who served from 1 February 2012. Mme C J M Morin-Postel 
served as a member of the Committee until 6 July 2011.

During the year, the Nominations Committee:

 considered and recommended Mr S A Borrows for 

appointment as Chief Investment Officer and executive 
Director of the Company;

 considered and recommended Ms M G Verluyten for 

appointment as a non-executive Director of the Company;
 considered other potential candidates for non-executive 

Director appointments; and

 considered the size, balance, diversity (including gender) 

and composition of the Board.

A formal, rigorous and transparent process for the 
appointment of Directors has been established with the 
objective of identifying the skills and experience profile 
required of new Directors and identifying suitable candidates. 
The procedure includes the appraisal and selection of 
potential candidates, including (in the case of non-executive 
Directors) whether they have sufficient time to fulfil their 
roles. Specialist recruitment consultants assist the 
Committee to identify suitable candidates for appointment. 
The Committee’s recommendations for appointment are 
put to the full Board for approval.

Further to the publication of the Davies Report on Women 
on Boards, and Code Provision B.2.4 which will take effect 
for financial years commencing on or after 1 October 2012, 
the Board strongly supports the principle of boardroom 
diversity, of which gender is one important aspect. 
The Board’s aim is to have a broad range of approaches, 
backgrounds, skills and experience represented on the 
Board and to make appointments on merit and against 
objective criteria, including diversity.

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78

3i Group plc  Annual report and accounts 2012

Statutory and corporate governance information

The Nominations Committee agreed during the year that 
standing instructions for search agents engaged by the 
Company should be to put forward for all Board positions 
a diversity of candidates including women candidates.

Valuations Committee
The Valuations Committee comprises Mr W Mesdag 
(Chairman), Sir Adrian Montague, Mr M J Queen and 
Mrs J S Wilson, all of whom served throughout the year.

During the year, the Valuations Committee considered 
and made recommendations to the Audit and Compliance 
Committee and the Board on valuations of the Group’s 
investments to be included in the half-yearly and annual 
financial statements of the Group and reviewed valuations 
policy and methodology.

Brand and Values Committee
The Brand and Values Committee comprises Sir Adrian 
Montague (Chairman), Mr M J Queen and Mr K J Dunn, 
all of whom served throughout the year, together with 
two or more non-executive Directors determined by the 
Board from time to time.

During the year, the Brand and Values Committee 
considered and made recommendations on a range 
of matters pertaining to the Group’s reputation, brand 
and values, and its approach as a responsible investor 
and a responsible business. The Committee reviewed the 
Responsible Investment policy, the approach to membership 
of ethical indices, the brand and trends affecting reputation, 
the 3i Values workshops, reputational risks in emerging 
markets, training on responsible investment, the staff survey, 
whistle-blowing reports and the reputational risk log.

The Company Secretary
All Directors have access to the advice and services of the 
General Counsel and Company Secretary, who is responsible  
for advising the Board, through the Chairman, on governance 
matters. The Company’s Articles of Association and the 
schedule of matters reserved to the Board or its duly authorised 
committees for decision provide that the appointment and 
removal of the Company Secretary is a matter for the full Board.

Relations with shareholders
The Board recognises the importance of maintaining a 
purposeful relationship with the Company’s shareholders. 
The Chief Executive and the Finance Director, together 
with the Group Communications Director, meet with the 
Company’s principal institutional shareholders to discuss 
relevant issues as they arise. The Chairman maintains  
a dialogue with shareholders on strategy, corporate 
governance and Directors’ remuneration as required.

The Board receives reports from the Company’s brokers 
on shareholder issues and non-executive Directors are 
invited to attend the Company’s presentations to analysts 
and are offered the opportunity to meet shareholders.

The Company’s major shareholders are offered the 
opportunity to meet newly-appointed non-executive Directors.

The Company also uses its AGM as an opportunity to 
communicate with its shareholders. At the Meeting, business 
presentations are generally made by the Chairman and the 
Chief Executive. The Chairmen of the Remuneration, Audit 
and Compliance, and Nominations Committees are generally 
available to answer shareholders’ questions.

During the year, at the invitation of the Chairman, the 
Company’s major shareholders met with the Chairman 
and the Company Secretary to discuss matters of corporate 
governance and corporate responsibility relevant to the 
Company and its shareholders.

The 2011 Notice of AGM was dispatched to shareholders not 
less than 20 working days before the Meeting. At that Meeting, 
voting on each resolution was taken on a poll and the poll 
results were made available on the Company’s website.

Portfolio management and voting policy
In relation to unquoted investments, the Group’s approach 
is to seek to add value to the businesses in which the 
Group invests through the Group’s extensive experience, 
resources and contacts. In relation to quoted investments, 
the Group’s policy is to exercise voting rights on matters 
affecting its interests.

3i Group plc  Annual report and accounts 2012

79

Internal control
The Board is responsible for the Group’s system of internal 
control and reviews its effectiveness at least annually. Such a 
system is designed to manage rather than eliminate the risk 
of failure to achieve business objectives and can provide only 
reasonable and not absolute assurance against material 
misstatement or loss.

Through the regular meetings of the Board and the schedule 
of matters reserved to the Board or its duly authorised 
committees for decision, the Board aims to maintain full 
and effective control over appropriate strategic, financial, 
operational and compliance issues.

The Board has put in place an organisational structure 
with clearly defined lines of responsibility and delegation 
of authority. The Board considers and approves a strategic 
plan regularly and approves a budget on an annual basis. 
In addition, there are established procedures and processes 
for planning and controlling expenditure and the making 
of investments. There are also information and reporting 
systems for monitoring the Group’s businesses and 
their performance.

The Group Risk Committee is a management committee 
formed by the Chief Executive and its purpose is to review 
the business of the Group in order to ensure that business 
risk is considered, assessed and managed as an integral 
part of the business. There is an ongoing process for 
identifying, evaluating and managing the Group’s significant 
risks. This process was in place for the year to 31 March 
2012 and up to the date of this report.

The Group Risk Committee’s activities are supported by the 
activities of Treasury Management Committee as well as  
the Portfolio Committee and Operating Committee. Details  
of the risk management framework can be found in the  
Risk section.

The overall internal control process is regularly reviewed  
by the Board and the Audit and Compliance Committee and 
complies with the internal control guidance for Directors 
on the Code issued by the Turnbull Committee. The process 
established for the Group includes:

Policies
 core values and global policies together comprising the 
Group’s high level principles and controls, with which all 
staff are expected to comply;

 manuals of policies and procedures, applicable to all 

business units, with procedures for reporting weaknesses 
and for monitoring corrective action; and

 a code of business conduct, with procedures for reporting 

compliance therewith.

Processes
 appointment of experienced and professional staff, both 

by recruitment and promotion, of the necessary calibre to 
fulfil their allotted responsibilities;

 a planning framework which incorporates a Board approved 

strategic plan, with objectives for each business unit;

 formal business risk reviews performed by management 

which evaluate the potential financial impact and likelihood 
of identified risks and possible new risk areas;
 the setting of control, mitigation and monitoring 

procedures and the review of actual occurrences, 
identifying lessons to be learnt;

 a comprehensive system of financial reporting to the 

Board, based on an annual budget with monthly reporting 
of actual results, analysis of variances, scrutiny of key 
performance indicators and regular re-forecasting;

 regular treasury reports to the Board, which analyse the 
funding requirements of each class of assets, track the 
generation and use of capital and the volume of liquidity, 
measure the Group’s exposure to interest and exchange 
rate movements and record the level of compliance with 
the Group’s funding objectives;

 a Group Compliance function whose role is to integrate 
regulatory compliance procedures and best practices 
into the Group’s systems; and

 well defined procedures governing the appraisal and 

approval of investments, including detailed investment 
and divestment approval procedures, incorporating 
appropriate levels of authority and regular post-
investment reviews.

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80

3i Group plc  Annual report and accounts 2012

Statutory and corporate governance information

Auditors’ independence and objectivity
Subject to annual appointment by shareholders, auditor 
performance is monitored on an ongoing basis and formally 
reviewed every five years, the last review being held during 
the year to 31 March 2009. Following this review the Audit 
and Compliance Committee concluded that Ernst & Young 
LLP’s appointment as the Company’s auditors should  
be continued.

The Audit and Compliance Committee recognises the 
importance of ensuring the independence and objectivity 
of the Company’s auditors. It reviews the nature and extent 
of the services provided by them, the level of their fees and 
the element comprising non-audit fees.

The Audit and Compliance Committee Chairman is notified 
of all assignments allocated to Ernst & Young over a set 
threshold, other than those related to due diligence within the 
Group’s investment process where the team engaged would 
be independent of the audit team. Safeguards have been put 
in place to reduce the likelihood of compromising auditor 
independence, including the following principles which are 
applied in respect of services provided by the auditors and 
other accounting firms and monitored by the Audit and 
Compliance Committee:

 services required to be undertaken by the auditors, 

which include regulatory returns, formalities relating to 
borrowings, shareholder and other circulars. This work 
is normally allocated directly to the auditors;

 services which it is most efficient for the auditors to 

provide. In this case, information relating to the service  
is largely derived from the Company’s audited financial 
records; for example, corporate tax services. This work is 
normally allocated to the auditors subject to consideration 
of any impact on their independence; and

 services that could be provided by a number of firms 
including general consultancy work. All significant 
consultancy projects are normally put out to tender and 
work would be allocated to the auditors only if it did not 
present a potential threat to the independence of the audit 
team. Included in this category is due diligence work 
relating to the investment process. If this service were 
to be provided by the auditors, the specific team engaged 
would be independent of the audit team.

Details of the fees paid to the auditors are disclosed in note 6 
to the financial statements.

Verification
 an Internal Audit function which undertakes periodic 
examination of business units and processes and 
recommends improvements in controls to management;

 the external auditors who are engaged to express an 

opinion on the annual financial statements; and

 an Audit and Compliance Committee which considers 
significant control matters and receives reports from 
Internal Audit, the external auditors and Group Compliance 
on a regular basis.

The internal control system is monitored and supported 
by Internal Audit and Compliance, which operate on an 
international basis and report to management and the 
Audit and Compliance Committee on the Group’s operations. 
The work of Internal Audit is focused on the areas of greatest 
risk to the Group determined on the basis of the Group’s risk 
management process.

The external auditors independently and objectively review 
the approach of management to reporting operating results 
and financial condition. In co-ordination with Internal Audit, 
they also review and test the system of internal financial 
control and the information contained in the annual financial 
statements to the extent necessary for expressing  
their opinion.

Financial reporting
In the context of the above internal control framework, there 
are specific processes in place in relation to Financial 
Reporting, including:

 comprehensive system of key control and oversight 

processes, including regular reconciliations, line manager 
reviews and systems’ access controls;

 updates for consideration by the Audit and Compliance 
Committee of accounting developments, including draft 
and new accounting standards and legislation;

 a separate Valuations Committee which considers the 
Group’s investment valuation policies, application and 
outcome;

 approval of the Group’s budget by the Board and regular 
updates on actual and forecast financial performance 
against budget;

 reports from Internal Audit on matters relevant to 
the financial reporting process, including periodic 
assessments of internal controls, processes and 
fraud risk;

 independent updates and reports from the external 
auditors on accounting developments, application 
of accounting standards, key accounting judgements 
and observations on systems and controls; and
 regular risk reviews, including an assessment of 

risks to reliable financial reporting covering people, 
processes and systems, and updates on the management 
of identified risks or actual incidents.

3i Group plc  Annual report and accounts 2012

81

Directors’ remuneration report

Directors’ Remuneration Report for the financial year 
1 April 2011 to 31 March 2012 (“the year”). References to 
“the current year” relate to the financial year 1 April 2012 
to 31 March 2013.

Key considerations
Decisions in relation to executive Director remuneration 
taken by the Committee have been made in the context of:

 The review of the reward framework referred to below 

which took place in the early part of the year;

 The performance of the Company over the year;

 The decision of the Chief Executive to stand down once 

a successor had been appointed, which was announced 
on 29 March 2012, and his subsequent request not to be 
considered for a bonus in respect of the year; and

 The appointment to the Board earlier in the year of a new 

executive Director as Chief Investment Officer.

Remuneration Committee

J P Asquith (Member from  
31 March 2011 and Committee 
Chairman from 9 May 2011)

A R Cox (from 6 July 2011)

W Mesdag

J M Allan (Member and Committee 
Chairman until 30 April 2011)

C J M Morin-Postel  
(until 6 July 2011)

Regular 
meetings 
attended 
in the year

Regular 
meetings  
eligible 
to attend  
in the year

6

5

6

1

1

6

5

6

1

1

Notes:
1.  In addition to the regular meetings referred to above additional 

ad hoc meetings were held from time to time to approve specific 
matters as they arose. The Committee’s terms of reference are 
available on the Company’s website.

2.  The Committee was advised in the year by Kepler Associates 
(external remuneration advisers appointed by the Committee) 
and by Mr M J Queen (Chief Executive), who did not advise the 
Committee on his own remuneration. 

3.  Kepler Associates did not provide any services to the Group during 

the year other than to the Remuneration Committee.

Remuneration Policy for the current 
and future years

Background 
The Company’s primary reward objective is to ensure that 
the Group’s performance is sustainable over the long term, 
and that the Company’s shareholders and fund investors 
are well rewarded for their investment. The key principles 
underpinning this are that:

 Reward should be structured to support Group strategy 

and sound risk management; 

 Employees’ interests should be aligned with the long-term 

interests and returns of shareholders and, where 
applicable, fund investors;

 The Company should attract, retain and incentivise the 

required quality of staff by offering a market competitive 
total package which:

 – Reflects the individual’s current and potential value to 

the Group; and

 – Recognises business and individual financial and 

non-financial performance; and

 Particular consideration should be given to the use  

(where appropriate) of:

 – Investment staff performance metrics based on  

cash-to-cash returns or cash/fee receipts;

 – The deferral of some elements of variable pay; and

 – The requirement for staff in some situations to “co-invest” 

in shares or in one of 3i’s funds (which is in effect an 
additional form of long-term deferral).

Chairman and non-executive Directors
Fees are intended to be competitive with fees paid by 
companies of comparable size and by listed financial 
services companies. The Chairman and non-executive 
Directors are not eligible for bonuses, long-term incentives, 
pensions or performance-related remuneration. Fees 
are reviewed regularly by the Board (or, in the case of 
the Chairman’s fee, by the Committee.) No changes to 
remuneration policy for the Chairman and non-executive 
Directors are expected for the current or subsequent years.

Executive Directors
During the early part of the year the Committee reviewed 
the overall reward framework for executive Directors in the 
context of:

 The Board’s belief that management’s priorities should be 
to drive performance in the core Private Equity business 
by striking the right balance between investment and 
realisation and by optimising the performance of portfolio 
companies, whilst seeking to alleviate the volatility in the 
Group’s results, inter alia, by building on the success of the 
Infrastructure and Debt Management businesses; and

 Regulatory developments, including the FSA 

Remuneration Code.

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82

3i Group plc  Annual report and accounts 2012

Directors’ remuneration report

The review took account of the competitiveness of each 
executive Director’s total remuneration against comparable 
positions at FTSE 100 Financial Services companies, 
alternative investment managers and private equity firms. 
When considering the executive Directors’ remuneration, 
the Committee is also sensitive to wider issues, including 
pay and employment issues elsewhere in the Group.

As a result of the review the Committee decided to:

 Keep the fair value of the total package (including salary 

levels) unchanged;

 Increase the annual bonus opportunity, with the maximum 

cash bonus opportunity being maintained at 100% of 
salary, and with the additional opportunity being delivered 
in shares deferred for three years (rather than two years, 
as previously), subject to clawback, and to provide that 
more than 75% of the total bonus opportunity could only 
be awarded for exceptional performance;

 Use a scorecard of annual bonus metrics to drive in-year 

performance and a culture of greater accountability 
throughout the organisation; and

 Introduce new performance share arrangements to focus 

management on medium-term objectives. 

The performance shares awarded to the executive  
Directors under these new arrangements in 2011 are  
subject to a Total Return on Equity performance condition 
measured over a three year period as set out on page 86. 
The vesting schedule reflects the Board’s desire to motivate 
management to secure consistent returns without assuming 
the incremental risk that aiming for higher returns might 
involve. To the extent the performance condition is satisfied 
shares are released on a phased basis in three annual 
instalments subject to leaver terms and to the clawback 
provision. The Committee can also reduce the percentage 
of an award which vests if it is not satisfied that the Total 
Return on Equity fairly reflects the Company’s financial 
performance or where the Group’s liabilities are not in line 
with Board policy.

Total Return on Equity is considered by the Board to be the 
key internal measure of the Group’s financial performance;  
it is highly visible and is regularly monitored and reported. 
The Committee believes that:

 Linking vesting of such awards to Total Return on Equity 
will improve participant line-of-sight, making the long-
term incentive more motivational for participants; and 

 Delivering a significant element of the remuneration 

package in shares will help align the interests of executives 
with those of shareholders. 

Further details are provided in the following sections.

Executive Director salaries
As at 31 March 2012, executive Directors’ salaries were:  
Mr M J Queen, £550,000 per annum, Mr S A Borrows, 
£475,000 per annum and Mrs J S Wilson, £400,000 per 
annum. These salaries have not increased since the 
Directors’ appointments, being January 2009 for 

Mr M J Queen, October 2011 for Mr S A Borrows and 
October 2008 for Mrs J S Wilson and are to remain 
unchanged for the current year. 

Annual bonuses
Executive Directors are eligible for non-pensionable 
discretionary annual bonuses. Maximum bonus opportunities 
are determined by the Committee, expressed as a multiple  
of salary. Executive Directors’ maximum bonus opportunities 
for the year were 400% of base salary for Mr M J Queen, 
300% of base salary for Mr S A Borrows and 250% of base 
salary for Mrs J S Wilson. Any bonus in excess of 100% 
of base salary is payable in shares deferred for three 
years, subject to the clawback policy. Exceptional 
performance would be required to justify an award above 
75% of the maximum.

The Committee retains discretion to make adjustments 
to bonus arrangements in appropriate circumstances.

Although the Chief Executive, Mr M J Queen, was a Director 
for the whole of the year, he asked not be considered for 
a bonus in respect of the year, given his decision to leave 
the Board following the appointment of his successor as 
Chief Executive.

The final bonus for the year was awarded against a balanced 
scorecard, with 70% of the bonus opportunity attributable 
to budgeted financial indicators (including Total Return on 
Equity, comparative gross returns, net debt and operating 
efficiency), 15% on strategic deliverables and 15% on 
personal and other internal objectives. The Committee  
uses the scorecard as a prompt and guide to judgement  
and considers it in the wider context of risk, market and  
other factors.

In determining bonus levels for the year the Committee 
considered first and foremost the overall performance of the 
Company and shareholder returns. It also took into account:

 Progress made towards reshaping the business; 

 A number of strong team performances;

 Work to strengthen the portfolio;

 The quality of recent investments; and

 The need to reward and retain key staff.

Mr S A Borrows (who was employed for approximately 
half the year) was awarded a bonus of 45% of base salary 
being 30% of his pro-rated maximum bonus opportunity. 
Mrs J S Wilson was awarded a bonus of 82.5% of base 
salary being 33% of her maximum bonus opportunity.

For the current year, executive Directors’ annual bonuses 
are expected to again be determined based on a balanced 
scorecard. It is likely the majority of the award will continue 
to be based on performance against budgeted financial 
indicators; the balance will be based on strategic deliverables 
and personal objectives. The Committee intends to finalise 
the performance indicators as soon as practicable following 
the appointment of a new Chief Executive. 

3i Group plc  Annual report and accounts 2012

83

Long-term incentives
Executive Directors are eligible for long-term share-based 
incentives. Awards are determined each year by the 
Committee and are subject to performance conditions.

Following the review of the reward framework referred to 
above, the previous long-term incentive arrangements for 
executive Directors were changed for the grants made in the 
year. The changes were intended to focus executive Directors 
on the realisation of two core objectives, namely enhancing 
financial performance and reducing volatility. 

Long-term incentives had previously comprised grants of 
share options with performance conditions linked to NAV 
growth and Performance Share awards with performance 
conditions linked to total shareholder return compared to the 
FTSE 100 index. During the year, the Committee decided to: 

 Cease making annual share option awards to executive 
Directors, recognising the evolution of market practice. 
(The option plan remains available for use in appropriate 
changed or exceptional circumstances.) 

Co-investment and carried interest plans
3i’s co-investment and carried interest plans provide 
long-term incentives for senior executives other than the 
executive Directors. Executive Directors are not eligible 
to participate, although as detailed on pages 89 and 90, 
Mr Queen retained certain interests acquired before he 
became Chief Executive. 

Performance graphs

TSR graph:
This graph compares the Company’s total shareholder return 
(“3i TSR”) for the five financial years to 31 March 2012 with 
the total shareholder return of the FTSE All-Share Index. 
The FTSE All-Share Index is a widely used performance 
comparison for UK companies.

3i total shareholder return versus FTSE All-Share 
total return (cumulative)

 Grant Performance Share awards with a face value of 

400% of base salary for the Chief Executive, 350% of salary 
for the Chief Investment Officer and 250% of salary for the 
Finance Director. 

 Apply a performance condition to the Performance Share 
awards based on three year annualised Total Return on 
Equity, with any shares which satisfy the performance 
condition being released in instalments of 50% on the third, 
25% on the fourth and 25% on the fifth anniversaries of 
grant, subject to the clawback policy.

140

120

100

80

60

40

20

3i

2007

2008

2011
FTSE All-Share Rebased at 100 at 1 April 2007

2009

2010

2012

In appropriate circumstances the Committee can also  
grant restricted shares, with no performance condition  
but subject only to leaver conditions. A one-off award was 
made to Mr S A Borrows on his appointment as a Director  
in recognition of awards forfeited on leaving previous 
employment. This award is detailed on page 85. 

Clawback policy
The Remuneration Committee has agreed a “clawback” 
policy, which applies to long-term incentive awards and 
share bonus awards made during the year to executive 
Directors (and certain other senior executives). Under this 
policy awards are subject to forfeiture or reduction (prior to 
vesting) in such exceptional circumstances as the Committee 
considers fair, reasonable and proportionate. This would 
include material misstatement of Group financial statements, 
dismissal for cause, or cases where an individual is deemed 
to have caused a material loss for the Group as a result of 
reckless, negligent or wilful actions or inappropriate values 
or behaviour.

Share ownership
The Company’s share ownership and retention policy 
requires executive Directors to build up over time, 
and thereafter maintain, a shareholding equivalent 
to at least 1.5 times salary in the Company’s shares.

Diluted NAV graph:
This graph compares percentage changes in the Company’s 
diluted net asset value (“NAV”) per share over each of the last 
five financial years (with dividends reinvested) with the FTSE 
All-Share Index total return over the same periods. NAV prior 
to June 2009 has been adjusted to reflect the rights issue in 
June 2009.

3i diluted NAV versus FTSE All-Share total return
% (non-cumulative)

60

40

20

0

-20

-40

-60

2008

2009
3i diluted NAV (with dividends reinvested)

2010

2011
FTSE All-Share

2012

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84

3i Group plc  Annual report and accounts 2012

Directors’ remuneration report

Directors’ remuneration during the year

(note 1) 

(note 2)  

(note 3)  

Salary  
and fees  
£’000

Bonus for 
the year 
£’000

Deferred  
share bonus  
£’000

Cash 
benefits 
£’000

Benefits  
in kind  
£’000

Total 
remuneration 
year to 
31 March  
2012  
£’000

Total 
remuneration 
year to 
31 March  
2011  
£’000

Executive Directors

M J Queen

S A Borrows (from 17 October 2011)

J S Wilson

Chairman and non-executive Directors 
(note 4)

Sir Adrian Montague (Chairman) 

J P Asquith 

A R Cox

R H Meddings

W Mesdag 

M G Verluyten (from 1 January 2012)

Former Directors

Baroness Hogg (until 7 July 2010) 

J M Allan (until 30 April 2011)

C J M Morin-Postel (until 6 July 2011)

R W A Swannell (until 1 October 2010)

550

217

388

295

77

62

85

79

13

–

7

17

–

–

214

330

–

–

–

–

–

–

–

–

–

–

Total

1,790

544

–

–

–

–

–

–

–

–

–

–

–

–

–

–

88

12

12

–

–

–

–

–

–

–

–

–

–

112

2

1

2

–

–

–

–

–

–

–

–

–

–

5

640

444

732

1,302

–

802

295

260

77

62

85

79

13

–

7

17

–

3

56

70

66

–

76

76

59

48

2,451

2,818

Notes:
1.  No deferred share bonuses were awarded for the year to 31 March 2012.
2.  “Cash benefits” for Mr Queen included car allowance (£12k), salary supplement in lieu of pension contributions (£50k) and a payment in lieu 

of dividends on shares released to him in the year on the vesting of the share award disclosed in note 3 on page 83 of the 2009 Remuneration 
Report (£25k). Cash benefits for Mr Borrows included car allowance (£5k) and salary supplement in lieu of pension contributions (£6k).  
Cash benefits for Mrs Wilson included car allowance (£12k).
3.  “Benefits in kind” relate to the provision of health insurance.
4. Salary and fees for the Chairman and non-executive Directors include fees used to purchase 3i shares.
5.  In addition to the fees shown above, Mrs J S Wilson received director’s fees of £26k from Legal & General Group Plc and Mr S A Borrows 

received director’s fees of £61k from British Land Public Limited Company and £59k from Inchcape plc.

Chairman and non-executive Director Fees

Chairman fee

Non-executive Directors:

– Board membership fee

– Senior Independent Director fee

Committee fees:

– Chairman

– Member

Fees for 2011–12

£265,000 plus £30,000 of 3i shares

£50,000 plus 2,500 3i shares

£10,000

£20,000

£4,000

Notes:
1.  Committee fees are payable in respect of the Audit and Compliance Committee, Remuneration Committee and Valuations Committee.
2.  The fees shown above took effect from 1 April 2011 and are to remain unchanged for the current year. 

 
 
 
 
 
 
 
3i Group plc  Annual report and accounts 2012

85

Long-term incentive awards
No long-term share incentive awards or share options held by Directors vested or were exercised in the year. It should be noted 
that the Company’s awards do not allow performance conditions to be retested after the initial three year performance period. 
The Committee determines the fulfilment of performance conditions based on appropriate calculations relevant to the 
performance condition concerned.

Long-term share awards held by Directors during the year
The performance condition has not yet been met for any of the awards shown below.

Held at  
1 April  
2011 (or 
appointment, 
if later)

Date of  
award

Granted  
during the 
year

Lapsed  
during the 
year

Held at  
31 March  
2012

Market price 
on date of 
grant  
£

M J Queen

06.02.09

1,127,528

S A Borrows 
(appointed 17 October 2011)

J S Wilson

15.06.09

17.06.10

28.07.11

15.11.11

30.11.11

23.06.08

12.11.08

15.06.09

17.06.10

28.07.11

202,205

540,677

–

793,593

–

–

–

1,127,528

–

–

–

–

202,205

540,677

793,593

1,870,410

793,593

1,127,528

1,536,475

–

–

–

823,917

513,261

1,337,178

75,456*

200,524

147,058

203,389

–

626,427

–

–

–

–

360,724

360,724

–

–

–

823,917

513,261

1,337,178

75,456*

200,524

–

–

–

–

–

147,058

203,389

360,724

275,980

711,171

Date of  
vesting

06.02.12

15.06.12

17.06.13

2.35

2.72

2.95

2.77 28.07.14–16

2.02 15.11.14–16

1.90 17.10.12–14

8.29

4.81

2.72

2.95

23.06.11

12.11.11

15.06.12

17.06.13

2.77 28.07.14–16

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*  Awarded before appointment as a Director.

Notes:
1.  The above awards are Performance Shares granted subject to performance conditions save for the 30 November 2011 award to Mr S A Borrows 
which was a recruitment award in recognition of awards forfeited on leaving previous employment. Vesting is subject to continued service 
and to the clawback policy, but is not subject to a performance condition. The award vests as to one-third on 17 October 2012, one-third on 
17 October 2013 and as to the balance on 17 October 2014.

2.  The performance condition for pre-2011 awards compares the growth in value of a shareholding in the Company over three years (averaged 

over a 60 day period) with the FTSE 100 Index (both with dividends re-invested).

Growth in value for Company versus FTSE 100 (as described above) 

% of award vesting

Below the FTSE 100

Same as the FTSE 100*

8% p.a. above the FTSE 100*

*  Between these levels, awards vest pro rata.

Zero

35%

100%

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86

3i Group plc  Annual report and accounts 2012

Directors’ remuneration report

3.  The performance condition for 2011 Performance Shares measured over a three year performance period, is based on annualised three year 

Total Return on Equity. Total Return on Equity is equivalent to growth in net asset value with dividends deemed reinvested.

Annualised three year Total Return on Equity

Below 10% pa

10%

11%

12%

13%

14%

15%

16%

17%

18%

Percentage vesting

0.0%

20.0%

27.5%

35.0%

45.0%

60.0%

75.0%

85.0%

92.5%

100.0%

Between these levels awards vest pro rata.

  To the extent the performance condition is satisfied and subject to continued service and subject to the clawback policy, shares are released 

as to 50% on the third anniversary of grant, 25% on the fourth anniversary and 25% on the fifth anniversary.

Share options held by Directors during the year

M J Queen

J S Wilson

Date of  
grant

Held at  
1 April  
2011

Lapsed  
during the 
year

Held at  
31 March  
2012

Exercise  
price  
£

Earliest 
normal 
exercise date

Expiry date 

27.06.02

211,337

25.06.03

91,884

23.06.04

143,808

21.06.05

71,835

09.02.09

1,503,371

15.06.09

595,667

17.06.10

1,118,644

3,736,546

21,057*

42,615*

11.01.06

23.06.08

–

–

–

–

–

–

–

–

–

42,615*

12.11.08

401,049

401,049

211,337

91,884

143,808

71,835

1,503,371#

595,667#

1,118,644

3,736,546

21,057*

–

–

15.06.09

17.06.10

288,808

406,779

–

–

288,808#

406,779

1,160,308

443,664

716,644

4.19

3.54

3.76

4.32

2.18

2.77

2.95

5.58

5.16

2.99

2.77

2.95

27.06.05

26.06.12

25.06.06

24.06.13

23.06.07

22.06.14

21.06.08

20.06.15

31.03.12

08.02.19

15.06.12

14.06.19

17.06.13

16.06.20

11.01.09

10.01.16

23.06.11

22.06.18

12.11.11

11.11.18

15.06.12

14.06.19

17.06.13

16.06.20

*  Awarded before appointment as a Director.
#  These options lapsed following the year end.

3i Group plc  Annual report and accounts 2012

87

Notes:
1.  No options were granted to or exercised by Directors during the year. Options were granted for nil consideration. The performance condition 
has not yet been met for those options shown in italics. The market price of ordinary shares in the Company at 31 March 2012 was 214p and 
the range during the period 1 April 2011 to 31 March 2012 was 166.9p to 294.1p. No gains were made by the highest paid Director (2011: nil) 
or by the Directors in aggregate (2011: nil).

2.  Options vest subject to a three year performance condition relating to annual percentage compound growth in net asset value per share with 

dividends re-invested, relative to the annual percentage change in RPI, as shown below. 

Award granted

NAV growth required 
for minimum vesting % vesting

NAV growth required 
for maximum vesting % vesting

For NAV growth between 
minimum and maximum  
vesting levels

Since 31 March 2005

RPI + 3 percentage points

30%

In year to 31 March 2005 RPI + 3 percentage points

50%

Before 31 March 2004

RPI + 5 percentage points

50%

RPI + 8 percentage 
points

RPI + 8 percentage 
points

RPI + 10 
percentage points

100% The grant vests pro rata

100% The grant vests pro rata

100% The grant vests pro rata

Share Incentive Plan
Participants in the HMRC approved Share Incentive Plan (“SIP”) invest up to £125 per month from pre-tax salary in ordinary 
shares (“Partnership Shares”). For each Partnership Share the Company grants two free ordinary shares (“Matching Shares”) 
which are normally forfeited if employment ceases (other than on retirement or for other “qualifying reasons”) within three 
years of grant. Dividends are reinvested in further ordinary shares (“Dividend Shares”).

Held at  
31 March 2011:  
Partnership Shares

Held at  
31 March 2011:  
Matching Shares

Held at  
31 March 2011:  
Dividend Shares

Held at  
31 March 2012:  
Partnership Shares

Held at  
31 March 2012:  
Matching Shares

Held at  
31 March 2012:  
Dividend Shares

M J Queen

J S Wilson

Ord

2,343

1,652 

B

975

344

Ord

B

4,684

1,998

3,304

690 

Ord

504

114

B

20

4

Ord

3,038

2,347

B

Ord

B

975

344

6,074

1,998

4,694

690

Ord

704

256

B

20

4

Notes:
1.  From 1 April 2012 to 1 May 2012, Mr M J Queen acquired a further 67 partnership and 134 matching ordinary shares and Mrs J S Wilson 

acquired a further 66 partnership and 132 matching ordinary shares.

2.  Ordinary shares were awarded in the year at prices between 176p and 286p per share, with an average price of 222p per share.
3.  B shares held within the plan result from the bonus issues of B shares in 2006 and 2007.
4. Shares within the SIP are held by a nominee on behalf of participants. The nominee exercises the votes on such shares on the participants’ 

instructions.

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88

3i Group plc  Annual report and accounts 2012

Directors’ remuneration report

Pension arrangements
Mr M J Queen and Mrs J S Wilson were members of the 3i Group Pension Plan, a defined benefit contributory scheme, in the 
year to 31 March 2012. Pension accrual ceased for all members with effect from 5 April 2011 although a link to final salary is 
maintained for existing accrual up to the date of leaving the Company. Further details of the Plan are set out in note 9 to the 
financial statements on pages 108 and 109.

Details of Directors’ entitlements under the Plan are set out below. Each of the Directors’ total accrued pensions increased over 
the year by less than £1,000 per annum. These small increases in accrued pensions contrast with the large increases in the 
transfer values of the Directors’ pension entitlements over the year shown in the last but one column of the table. These 
transfer value increases are almost entirely the result of changes in the value placed on each £1 per annum of pension by the 
Trustees of the Plan for transfer value purposes. This value reflects financial conditions at the time of calculation as well as 
actuarial assumptions and increased over the year as a result of: changes made by the Trustees of the Plan during the year to 
the actuarial assumptions used to calculate transfer values (principally reflecting changes in the Plan’s investment strategy); 
changes to market conditions between the beginning and end of the year (principally a significant fall in gilt yields); and the 
Directors being one year older than before.

(note 1)  

(note 2)  

(note 3)  

(note 1)  

(note 2)  

(note 4)  

(note 4)  

Increase in 
accrued 
pension 
(excluding 
inflation) 
during the 
year to  
31 March  
2012  
£’000 pa

Director’s 
own 
contributions 
(excluding 
AVCs) paid 
into the plan 
during the 
year to  
31 March  
2012  
£’000 pa

Increase in 
accrued 
pension 
(including 
inflation) 
during the 
year to  
31 March  
2012  
£’000 pa

Total 
accrued 
pension at  
31 March  
2012  
£’000 pa

Transfer 
value of the 
accrued 
benefits at  
31 March  
2012  
£’000 

Transfer 
value of the 
accrued 
benefits at  
31 March  
2011  
£’000

Complete 
years of 
pensionable 
service at  
31 March  
2012

Age at  
31 March  
2012

Difference 
between 
transfer 
values at 
start and 
end of the 
accounting 
year, less 
Director’s 
contribution 
£’000 

Transfer 
value at the 
end of the 
year of the 
increase in 
accrued 
benefits 
during the 
year less 
Director’s 
contribution 
£’000

M J Queen

J S Wilson

50

44

23

5

(12.3)

254.2

(0.1)

13.6

0.0

0.0

0.9

0.6

7,573.1

4,744.7

2,828.4

360.6

181.8

178.8

(23.2)

(1.8)

Notes:
1.  The Plan closed to future accrual on 5 April 2011 and pensionable service ceased at this date. Mr Queen opted out of the Plan on 5 April 2011. 

No member contributions were paid into the Plan during the year.

2.  The increase in accrued pension shown reflects the difference between deferred pensions on leaving, payable from age 60.
3.  The pensions shown are deferred pensions payable from the Normal Retirement Age of 60.
4.  The transfer values have been calculated in accordance with regulations 7 to 7E of the Occupational Pension Schemes (Transfer Values) 

Regulations 1996.

5.  Additional voluntary contributions are excluded from the above table.

Mrs J S Wilson became a member of the 3i Retirement Plan, a defined contribution stakeholder pension scheme, with effect 
from 6 April 2011. During the year the Company made contributions of £57,000 to this plan in respect of Mrs Wilson.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3i Group plc  Annual report and accounts 2012

89

Directors’ service contracts
The main terms of the service contracts of the executive Directors are as follows:

Dates of contracts

Mr M J Queen: 
Mr S A Borrows: 
Mrs J S Wilson:  

31 March 2009
5 September 2011
8 September 2008

Notice period  – by the Director 
– by the Company

– Six months 
– 12 months 

Company policy is that executive Directors’ notice periods should not 
exceed one year. Save for these notice periods, the contracts have 
no unexpired terms. 

Termination payments

There are no provisions for compensation of executive Directors on early termination 
save that: (a) Mr Queen’s and Mr Borrows’ contracts entitle the Company to terminate 
employment without notice subject to making 12 monthly payments thereafter equivalent 
to monthly basic pay and benefits less any amounts earned from alternative employment; 
and (b) all Directors’ contracts entitle the Company to give pay in lieu of notice.

The Chairman and the non-executive Directors do not have service contracts. Their appointment letters provide for no 
entitlement to compensation or other benefits on ceasing to be a Director.

Arrangements relating to Mr Queen’s previous responsibilities
Before becoming Chief Executive Mr Queen had interests in arrangements relating to his roles as Managing Partner, 
Infrastructure and Managing Partner, Growth Capital. Since becoming Chief Executive in 2009, he has not been eligible 
for Infrastructure Incentive Plan awards or to participate in further carried interest and co-investment arrangements.

Scheme interests, being the percentage of the  
bonus pool in which the participant is interested

Award  
as at  
1 April 2011  
(%)

Awarded  
in year  
(%)

As at  
31 March 2012 
%

End of period 
over which 
interests  
may vest

Amounts 
received  
in respect  
of scheme 
interests  
in year  
£’000

Amounts 
receivable  
in respect  
of scheme 
interests in 
future years  
£’000

M J Queen

Infrastructure Incentive Plan

Vintage year 2008–09

15.5

–

15.5

Fully vested

322

nil

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90

3i Group plc  Annual report and accounts 2012

Directors’ remuneration report

Amounts co-invested

Scheme interests, being the percentage of the relevant  
pool of investments in respect of which the participant  
is entitled to participate in the realised profits

Invested 
during  
the year  
£’000

Total 
invested to  
31 March  
2012  
£’000

As at  
1 April  
2011  
(%)

Awarded  
in year  
(%)

Forfeited  
in year  
(%)

As at  
31 March  
2012  
(%)

End of 
period over 
which 
interests 
may vest

Amounts 
receivable 
in respect 
of scheme 
interests 
vested  
in year  
£’000

Accrued 
value of 
scheme 
interests 
as at  
31 March  
2012  
£’000

M J Queen

Co-investment plans

Global Growth Co-invest 
2006–08 plans

Carried interest plans

Pan-European Growth 
Capital 2005–06

Infrastructure 2005–06

Primary Infrastructure 
2005–06

Global Growth 2006–08 
plans

Combined carried interest 
and co-investment plans

Global Growth 08–10

India Infrastructure 07–10

–

–

–

–

–

–

–

97

0.023

–

–

–

–

18

285

0.44

0.69

0.53

0.34

0.03

1.00

–

–

–

–

–

–

–

–

–

–

–

–

–

–

0.023 31.07.08

nil

nil

0.44 31.03.10

0.69 16.05.10

125

221

0.53 19.08.10

0.34 31.03.11

0.03 31.03.13

1.00 30.09.12

nil

nil

nil

nil

268

nil

161

nil

nil

nil

Notes:
1.  Under the Infrastructure Incentive Plan executives are granted a percentage interest in a bonus pool, provided they invest certain of their 

own monies in 3i Infrastructure plc shares. For vintage year 2008–09, amounts were payable as follows: 50% was paid in July 2009, 25% was 
paid in July 2010 and the final 25% was paid in July 2011. Mr Queen will receive no further payments from the Infrastructure Incentive Plan.

2.  Following his appointment as Chief Executive, Mr Queen forfeited a proportion of his interests in the Global Growth 08–10 and India 

Infrastructure 07–10 plans.

3.  Accrued values of plan interests are calculated on the basis set out in note 5 on page 104. Accrued values can increase and decrease with 

investment valuations and other factors and will not necessarily lead to an actual payment to the participant.

Audit
The tables in this report (including the notes thereto) on pages 84 to 90 have been audited by Ernst & Young LLP.

By Order of the Board

Jonathan Asquith 
Chairman, Remuneration Committee 
16 May 2012

3i Group plc  Annual report and accounts 2012

91

Financial statements

Our financial statements, significant 
accounting policies and our Independent 
auditor’s report.

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Statement of comprehensive income 
Consolidated statement of changes in equity  
Company statement of changes in equity 
Statement of financial position 
Cash flow statement 
Significant accounting policies 
Notes to the financial statements 
Independent auditor’s report 

92
93
94
95
96
97
102
128

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92

3i Group plc  Annual report and accounts 2012

Statement of comprehensive income
for the year to 31 March

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

Portfolio income
  Dividends

Income from loans and receivables

  Fees receivable/(payable)
Gross portfolio return
Fees receivable from external funds
Carried interest
  Carried interest receivable from external funds
  Carried interest and performance fees payable
Operating expenses
Net portfolio return
Interest receivable
Interest payable
Movement in the fair value of derivatives
Exchange movements
Other income
(Loss)/profit before tax
Income taxes
(Loss)/profit for the year
Other comprehensive income 
Exchange differences on translation of foreign operations
Actuarial (loss)/gain 
Other comprehensive income for the year
Total comprehensive (loss)/income for the year (“Total return”)
Analysed in reserves as:
  Revenue
  Capital
  Translation reserve

Earnings per share
  Basic (pence)
  Diluted (pence) 

Notes
2
3

4
1
1

5
5
6
1
10
10
11

12

9

2012 
£m
23
(498)
(475)

47
95
4
(329)
89

(15)
10
(180)
(425)
12
(103)
(19)
(243)
1
(777)
(6)
(783)

194
(67)
127
(656)

3
(853)
194
(656)

28
28

(82.8)
(82.8)

2011 
£m
124
325
449

41
110
1
601
67

25
(63)
(181)
449
12
(139)
(1)
(135)
3
189
(3)
186

118
20
138
324

72
134
118
324

19.6
19.5

 
Consolidated statement of changes in equity
for the year to 31 March

3i Group plc  Annual report and accounts 2012

93

2012 Group
Total equity at the start 

of the year

(Loss)/income for the year
Exchange differences 
on translation of 
foreign operations

Actuarial loss
Total comprehensive 
(loss)/income for 
the year

Release on lapse of equity 

settled call options
Share-based payments
Release on forfeiture 
of share options 

Purchase of own shares 
Loss on sale of own shares
Ordinary dividends
Issue of ordinary shares
Total equity at the end 

of the year

2011 Group
Total equity at the start 

of the year
Profit for the year
Exchange differences 
on translation of 
foreign operations

Actuarial gain
Total comprehensive 
income for the year

Release on forfeiture 
of share options 
Ordinary dividends
Total equity at the end 

of the year

Total  
equity 
£m

3,357
(783)

194
(67)

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u
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s
s

Share  
Capital 
£m

Share  
Premium 
£m

Capital  
redemption 
reserve 
£m

Share-
based 
payment 
reserve  
£m

Translation 
reserve 
£m

Capital  
reserve 
£m

Revenue  
reserve 
£m

Other  
reserves 
£m

Own  
shares 
£m

717

779

43

17

263

1,093
(786)

526
3

5

(86)

–

5

 (11)

194

(67)

194

(853)

3

5

(12)

11

(49)

–

–

–

1

–

(5)

–

(656)

–
5

–
(31)
–
(49)
1

(31)
12

717

780

43

11

457

233

491

–

(105)

2,627

Share  
Capital 
£m

Share  
Premium 
£m

Capital  
redemption 
reserve 
£m

Share-
based 
payment 
reserve  
£m

Translation 
reserve 
£m

Capital  
reserve 
£m

Revenue  
reserve 
£m

Other  
reserves 
£m

Own  
shares 
£m

717

779

43

24

145

–

–

–

118

118

–

(7)

959
114

20

134

482
72

72

2
(30)

717

779

43

17

263

1,093

526

5

(86)

–

–

5

Total  
equity 
£m

3,068
186

118
20

324

(5)
(30)

r
e
s
p
o
n
s
b

i

i
l
i
t
y

(86)

3,357

i

n
f
o
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m
a
t
i
o
n

i

B
u
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e
s
s
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i

R
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C
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p
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a
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e

G
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a
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e

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a
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t
a
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e
m
e
n
t
s

P
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t
f
o
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i
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a
n
d
o
t
h
e
r

  
  
 
 
 
 
 
 
 
 
 
 
 
94

3i Group plc  Annual report and accounts 2012

Company statement of changes in equity
for the year to 31 March

2012 Company
Total equity at the start of the year
Loss for the year
Total comprehensive loss for the year
Release on lapse of equity settled call options
Share-based payments
Release on forfeiture of share options 
Ordinary dividends
Issue of ordinary shares
Total equity at the end of the year

2011 Company
Total equity at the start of the year
Profit for the year
Total comprehensive income for the year
Release on forfeiture of share options 
Ordinary dividends
Total equity at the end of the year

Share  
capital 
£m
717

Share  
premium 
£m
779

Capital  
redemption 
reserve 
£m
43

–

–

–

Share-
based 
payment 
reserve  
£m
17

–

5
(11)

Capital  
reserve 
£m
1,614
(683)
(683)
5

Revenue  
reserve 
£m
291
(21)
(21)

Other  
reserves 
£m
5

–
(5)

11
(49)

717

1
780

43

11

936

232

–

Share  
capital 
£m
717

Share  
premium 
£m
779

Capital  
redemption 
reserve 
£m
43

–

–

717

779

–

43

Share- 
based 
payment 
reserve  
£m
20

–
(3)

Capital  
reserve 
£m
1,328
286
286

17

1,614

Revenue  
reserve 
£m
296
17
17
8
(30)
291

Other  
reserves 
£m
5

–

5

Total  
equity 
£m
3,466
(704)
(704)
–
5
–
(49)
1
2,719

Total  
equity 
£m
3,188
303
303
5
(30)
3,466

Further information regarding the components of equity can be found in note 26. 

  
  
Statement of financial position
as at 31 March

3i Group plc  Annual report and accounts 2012

95

Assets
Non-current assets
Investments
  Quoted equity investments
  Unquoted equity investments
  Loans and receivables
Investment portfolio
Carried interest receivable
Interests in Group entities
Intangible assets
Retirement benefit surplus
Property, plant and equipment
Derivative financial instruments
Total non-current assets
Current assets
Traded portfolio
Other current assets
Derivative financial instruments
Deposits
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Non-current liabilities
Carried interest and performance fees payable
Loans and borrowings
B shares
Retirement benefit deficit
Derivative financial instruments
Deferred income taxes
Provisions
Total non-current liabilities
Current liabilities
Trade and other payables
Carried interest and performance fees payable
Convertible bonds
Loans and borrowings
Derivative financial instruments
Current income taxes
Provisions
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital 
Share premium
Capital redemption reserve
Share-based payment reserve
Translation reserve
Capital reserve
Revenue reserve
Other reserves
Own shares
Total equity

Sir Adrian Montague  
Chairman 
16 May 2012

Group 
2012 
£m

Group 
2011 
£m

Company 
2012 
£m

Company 
2011 
£m

Notes

535
1,392
1,242
3,169
36
–
17
56
13
6
3,297

35
102
7
441
718
1,303
4,600

(45)
(1,358)
(6)
(10)
(41)
(4)
(2)
(1,466)

(227)
(40)
–
(231)
–
(3)
(6)
(507)
(1,973)
2,627

717
780
43
11
457
233
491
–
(105)
2,627

405
2,134
1,454
3,993
82
–
21
44
15
1
4,156

–
80
2
560
961
1,603
5,759

(81)
(1,837)
(6)
(4)
(25)
(6)
(4)
(1,963)

(198)
(58)
(138)
(31)
(9)
(1)
(4)
(439)
(2,402)
3,357

717
779
43
17
263
1,093
526
5
(86)
3,357

392
299
179
870
24
2,324
–
–
4
6
3,228

–
105
7
441
541
1,094
4,322

–
(1,152)
(6)
–
(41)
–
–
(1,199)

(173)
–
–
(231)
–
–
–
(404)
(1,603)
2,719

717
780
43
11
–
936
232
–
–
2,719

332
584
247
1,163
82
2,714
–
–
4
1
3,964

–
258
2
560
836
1,656
5,620

–
(1,612)
(6)
–
(25)
–
–
(1,643)

(333)
–
(138)
(31)
(9)
–
–
(511)
(2,154)
3,466

717
779
43
17
–
1,614
291
5
–
3,466

13

14
16
9
17
20

13
18
20

21

9
20
12
24

23

22
21
20

24

25

26
26
26
26
26

27

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96

3i Group plc  Annual report and accounts 2012

Cash flow statement 
for the year to 31 March

Cash flow from operating activities
Purchase of investments
Proceeds from investments
Net purchase/proceeds from traded portfolio
Portfolio interest received
Portfolio dividends received
Portfolio fees received
Fees received from external funds
Carried interest received
Carried interest and performance fees paid
Operating expenses 
Interest received
Interest paid
Income taxes paid
Net cash flow from operating activities

Cash flow from financing activities
Purchase of own shares
Dividend paid
Repayment of long-term borrowings and convertible bond
Repurchase of long-term borrowings
Repurchase of convertible bonds
Net cash flow from short-term borrowings
Net cash flow from derivatives
Net cash flow from financing activities

Cash flow from investing activities
Acquisition of subsidiary
Net cash acquired with the subsidiary
Purchase of property, plant and equipment
Proceeds on sale of property, plant and equipment
Net cash flow from deposits
Net cash flow from investing activities

Change in cash and cash equivalents
Cash and cash equivalents at the start of year
Effect of exchange rate fluctuations
Cash and cash equivalents at the end of year

Group 
2012 
£m

Group 
2011 
£m

Company 
2012 
£m

Company 
2011 
£m

Notes

(447)
771
(17)
9
44
7
91
30
(40)
(240)
12
(101)
(7)
112

(31)
(49)
(169)
(201)
–
–
(5)
(455)

–
–
(2)
1
119
118

(225)
961
(18)
718

(561)
609
–
15
41
1
62
17
(54)
(218)
12
(124)
(2)
(202)

–
(30)
(56)
(48)
(249)
(88)
(34)
(505)

(18)
18
(5)
2
168
165

(542)
1,524
(21)
961

(704)
828
–
3
24
–
–
29
–
(85)
11
(97)
–
9

–
(49)
(169)
(184)
–
–
(5)
(407)

–
–
–
–
119
119

(279)
836
(16)
541

(594)
609
–
8
26
–
–
17
–
(202)
11
(110)
–
(235)

–
(30)
(44)
(48)
(249)
(88)
(34)
(493)

–
–
–
–
153
153

(575)
1,427
(16)
836

15
15

3i Group plc  Annual report and accounts 2012

97

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 for 
the year to 31 March 2012 comprise the financial statements of the Company and its subsidiaries (together referred to as the “Group”). Separate financial 
statements of the Company are also presented.
The accounting policies of the Company are the same as for the Group except where separately disclosed.
The financial statements were authorised for issue by the Directors on 16 May 2012.

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 consolidated and separate financial statements have been prepared in accordance with and in compliance with the Companies Act 2006.
New standards and interpretations not applied
The IASB has issued the following standards and interpretations to be applied to financial statements with periods commencing on or after the 
following dates:

IFRS 7
IFRS 7
IFRS 9
IFRS 10
IFRS 11
IFRS 12
IFRS 13
IAS 12
IAS 19
IAS 27 
IAS 28
IAS 32

Amendments enhancing disclosures about transfers of financial assets
Amendment to offsetting financial assets and liabilities
Financial instruments – classification and measurement
Consolidated financial statements
Joint arrangements
Disclosure of interest in other entities
Fair value measurement
Limited scope amendment (recovery of underlying assets)
Amendment to employee benefits
Amendment to separate financial statements
Amendment to Investments in associates and joint ventures
Amendment to offsetting financial assets and financial liabilities

Effective for period beginning on or after
1 July 2011
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2012
1 January 2013
1 January 2013
1 January 2013
1 January 2014

With the exception of IFRS 10, 11, 12 and IAS 27 and 28 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 and have decided not to adopt early.
The initial application of IFRS 10, 11, 12 and IAS 27 and 28 could have a material effect on the financial statements of the Group. The key impact is the 
potential consolidation of portfolio investments and funds managed by 3i in the Group financial statements. The development of these standards and 
industry interpretation is being closely monitored including the recent issue of an Investment Entity exposure draft which potentially exempts qualifying 
entities from consolidation under IFRS 10.

B  Basis of preparation
The financial statements are presented in sterling, the functional currency of the Company, rounded to the nearest million pounds (£m) except where 
otherwise indicated.
The preparation of financial statements in conformity with IFRS requires management to make judgements, 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 judgements about carrying values of assets and liabilities that are not readily apparent 
from other sources. The most significant estimates relate to the fair valuation of the investment portfolio, the basis of consolidation and the actuarial 
valuation of the defined benefit pension scheme. These are further disclosed in accounting policies C, E and K and notes 9 and 13. The 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 accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. The statement 
of comprehensive income of the Company has been omitted from these financial statements in accordance with section 408 of the Companies Act 2006.
The accounting policies have been consistently applied across all Group entities for the purposes of producing these consolidated financial statements.

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98

3i Group plc  Annual report and accounts 2012

Significant accounting policies

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 benefit 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 statement of financial position at fair value even though the Group may have significant 
influence over those companies. This treatment is permitted by IAS 28 Investment in Associates, 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 the statement of comprehensive income in the period of the change. 
The Group has no interests in associates through which it carries on its business.
(iii) Joint ventures
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, 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 are accounted for in accordance with IAS 39, 
with changes in fair value recognised in the statement of comprehensive income in the period of the change.

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 statement of comprehensive income. 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 date 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 in other 
comprehensive income and accumulated within 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
(i) Recognition and measurement
Investments are recognised and de-recognised on a date where the purchase or sale of an investment is under a contract whose terms require the 
delivery or settlement of the investment. The Group manages its investments with a view to profiting from the receipt of investment income and capital 
appreciation from changes in the fair value of equity investments.
Quoted investments are designated at fair value through profit and loss and subsequently carried in the balance sheet at fair value. Fair value is 
measured using the closing bid price at the reporting date, where the investment is quoted on an active stock market.
Unquoted equity investments are designated at fair value through profit and loss and are subsequently carried in the balance sheet at fair value. 
Fair value is measured using the International Private Equity and Venture Capital valuation guidelines (IPEV), details of which are in the section called 
Portfolio valuation – an explanation.
Other investments including loan investments, bonds, fixed income shares and variable funding notes are included as loans and receivables. Loans, 
bonds and fixed income shares are carried in the balance sheet at amortised cost less impairment. For more detail see the section called Portfolio 
valuation – an explanation. Variable funding notes are used to invest in debt instruments and are carried in the balance sheet at the value derived from 
the bid prices of the underlying debt instruments taking into account the Group’s obligations under the funding contract. The fair value of loans and 
receivables is not anticipated to be substantially different to the holding value.
The traded portfolio includes investments in loans and associated investments which are traded on a regular basis within Palace Street I, the Credit 
Opportunities Fund. These loans are measured at fair value through profit or loss upon initial recognition and classified as held for trading in accordance 
with IAS 39.
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 Group’s valuation policies.

3i Group plc  Annual report and accounts 2012

99

(ii) Income
Gross portfolio return is equivalent to “revenue” for the purposes of IAS 1. It represents the overall increase in net assets from the investment portfolio 
net of deal-related costs but excluding exchange movements. Investment income is analysed into the following components:
(a) Realised profits or losses over value on the disposal of investments are the difference between the fair value of the consideration received less any 
directly attributable costs, on the sale of equity, traded loans 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 or losses on the revaluation of investments are the movement in the 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:
 Dividends from equity investments are recognised in the statement of comprehensive income when the shareholders’ rights to receive payment 

have been established.

 Income from loans and receivables and the traded portfolio 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 the 
asset’s carrying value.

 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  Fees receivable from external funds
(i) Fund management fees
The Group manages private equity, infrastructure and debt management funds. Fees earned from the ongoing management of these funds are 
recognised to the extent that it is probable that there will be economic benefit and the income can be reliably measured.
(ii) Advisory fees
The Group acts as investment adviser to private equity funds. Fees earned from the provision of investment advisory services are recognised on an 
accruals basis in accordance with the substance of the relevant investment advisory agreement.
(iii) Performance fees
The Group earns a performance fee from funds to which it provides investment advisory services where specified performance targets are achieved. 
Performance fees are recognised to the extent that it is probable that there will be economic benefit and the income can be reliably measured.
(iv) Support services fees
The Group provides support services to external funds, including accounting, treasury management, corporate secretariat and investor relations. Fees 
earned from the provision of these support services are recognised on an accruals basis in accordance with the relevant support services agreement.

G  Carried interest
(i) 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.
(ii) 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  Intangible assets
Fund management contracts, acquired by the Group in connection with the acquisition of a subsidiary, are stated at their fair value at the date of 
acquisition less accumulated amortisation and impairment losses. Amortisation is charged to the statement of comprehensive income on a straight-line 
basis over the estimated useful life of the fund management contract, typically five to 10 years.

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100

3i Group plc  Annual report and accounts 2012

Significant accounting policies

I  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 recognised in other comprehensive income 
and credited to the Capital reserve except to the extent that it reverses a previous valuation deficit on the same asset recognised in profit or loss in which 
case the surplus is recognised in profit or loss 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 that previously recognised in surplus is recognised in the statement of comprehensive income.
Depreciation on revalued buildings is charged in the statement of comprehensive income over their estimated useful life, generally over 50 years.
(ii) Vehicles and office equipment
Vehicles and office equipment 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 statement of comprehensive income over the period of the agreement and represents a constant 
proportion of the balance of capital repayments outstanding.

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. 
De-recognition occurs when rights to cash flows from a financial asset expire, or when a liability is extinguished.
(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 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
The convertible bonds are cash settled and are regarded as compound instruments consisting of a liability and a derivative instrument (see policy below 
for derivatives). Subsequent to initial recognition the conversion option is measured as a derivative financial instrument with the market value of the 
instrument at period end used as its fair value. The remainder of the proceeds are allocated to the liability component and this amount is carried as a 
liability on the amortised cost basis until extinguished on conversion, redemption or repurchase.
(v) Derivative financial instruments
Derivative financial instruments are used to manage the risk 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 exchange 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 re-measured to the 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 financial instruments are taken to the statement of comprehensive income.

3i Group plc  Annual report and accounts 2012

101

K  Employee benefits
(i) Retirement benefit costs
Payments to defined contribution retirement benefit plans are charged to the statement of comprehensive income as they fall due.
For defined benefit retirement plans, the cost of providing benefits is determined using the projected unit method with actuarial valuations being carried 
out at each balance sheet date. Current service costs are recognised in the statement of comprehensive income. Actuarial gains or losses are recognised 
in full as they arise in other comprehensive income.
A retirement benefit deficit is recognised in the balance sheet to the extent that the present value of the defined benefit obligations exceeds the fair value 
of plan assets.
A retirement benefit surplus is recognised in the balance sheet where the fair value of plan assets exceeds the present value of the defined benefit 
obligations limited to the extent that the Group can benefit from that surplus.
(ii) Share-based payments
The costs of share-based payments made by the Company in respect of subsidiaries’ employees are treated as additional investments in those 
subsidiaries.
The Group enters into arrangements that are equity-settled share-based payments with certain employees. These are measured at fair value at the 
date of grant, which is then recognised in the statement of comprehensive income 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 conditions linked to the price of the shares of 3i Group plc. 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 charges since the previous balance 
sheet is recognised in the statement of comprehensive income, 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 the statement of comprehensive income. 
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 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  Share capital
Ordinary shares 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.

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 statement of comprehensive income 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 statement of 
comprehensive income, except where 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 statement of comprehensive income 
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. 
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 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 reversal of the 
temporary difference and it is probable that the temporary differences will 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.
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.

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102

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

1  Segmental analysis
Operating segments are components of the entity whose results are regularly reviewed by the entity’s chief operating decision-maker to make decisions 
about resources to be allocated to the segment and to assess its performance. The chief operating decision-maker for the Group is considered to be 
the Chief Executive Officer. The Group’s operating segments have been defined as the Group’s business lines, namely Private Equity, Infrastructure, 
Debt Management and Non-core Investments. The business lines are determined with reference to market focus, geographic focus, and investment 
funding model. 
The Private Equity business was restructured in the second half of the year to align with the Group’s Leadership Team focus on the developed (US and 
European) markets and the developing (India, China, Latin American) markets. The Private Equity business line has been segregated accordingly.
The performance of operating segments is assessed based on the net portfolio return, principally comprising gains and losses on investments and 
investment income, fees received from management of external funds and the associated costs of the business line. Segmental assets are represented 
by the investment portfolio value for each business line.

Private 
Equity 
Developed 
Markets
 £m 

Private 
Equity 
Developing
Markets 
£m 

Total 
Private 
Equity  
£m

Infrastructure 
£m

Debt 
Management 
£m

Non-core 
Investments 
£m

Year to 31 March 2012
Gross portfolio return
Realised profits over value on the disposal of investments
Unrealised losses on the revaluation of investments
Portfolio income
  Dividends

Income from loans and receivables

  Fees receivable/(payable)

Net portfolio return
Fees receivable from external funds
Carried interest receivable from external funds
Carried interest and performance fees payable
Operating expenses

Net (investment)/divestment
Realisations
Investment

16
(405)

26
93
7
(263)

31
(13)
8
(102)
(339)

740
(522)
218

1
(76)

–
1
(2)
(76)

1
–
5
(25)
(95)

16
(18)
(2)

17
(481)

26
94
5
(339)

32
(13)
13
(127)
(434)

756
(540)
216

–
(7)

18
–
–
11

25
(14)
8
(17)
13

1
(70)
(69)

Balance sheet
Value of investment portfolio at the end of the year

2,177

354

2,531

528

103

3,204

Private 
Equity 
Developed
Markets 
£m 

Private 
Equity 
Developing 
Markets
£m 

Total  
Private 
Equity 
£m

Infrastructure 
£m

Debt 
Management 
£m

Non-core 
Investments 
£m

Year to 31 March 2011
Gross portfolio return
Realised profits over value on the disposal of investments
Unrealised profits on the revaluation of investments
Portfolio income
  Dividends

Income from loans and receivables

  Fees receivable/(payable)

Net portfolio return
Fees receivable from external funds
Carried interest receivable from external funds
Carried interest and performance fees payable
Operating expenses

Net (investment)/divestment
Realisations
Investment

61
229

20
100
1
411

39
19
(51)
(125)
293

347
(607)
(260)

1
48

–
2
–
51

1
–
(3)
(22)
27

25
(27)
(2)

62
277

20
102
1
462

40
19
(54)
(147)
320

372
(634)
(262)

–
29

17
(1)
–
45

25
6
(8)
(23)
45

1
(36)
(35)

Balance sheet
Value of investment portfolio at the end of the year

2,952

442

3,394

464

121

3,993

Total  
£m

23
(498)

47
95
4
(329)

89
(15)
10
(180)
(425)

771
(646)
125

Total 
£m

124
325

41
110
1
601

67
25
(63)
(181)
449

609
(719)
(110)

5
(7)

1
–
(1)
(2)

–
–
–
(5)
(7)

14
–
14

38
11

4
2
–
55

–
–
–
(6)
49

91
–
91

1
(3)

2
1
–
1

32
12
(11)
(31)
3

–
(36)
(36)

42

24
8

–
7
–
39

2
–
(1)
(5)
35

145
(49)
96

14

 
 
3i Group plc  Annual report and accounts 2012

103

1  Segmental analysis (continued)

Year to 31 March 2012
Gross portfolio return
Realised (losses)/profits over value on the disposal of investments
Unrealised losses on the revaluation of investments
Portfolio income

Net (investment)/divestment
Realisations
Investment

Balance sheet
Value of investment portfolio at the end of the year

Year to 31 March 2011
Gross portfolio return
Realised profits/(losses) over value on the disposal of investments
Unrealised (losses)/profits on the revaluation of investments
Portfolio income

Net (investment)/divestment
Realisations
Investment

Balance sheet
Value of investment portfolio at the end of the year

2  Realised profits over value on the disposal of investments

Realisations
Valuation of disposed investments
Investments written off

Realisations
Valuation of disposed investments
Investments written off

Continental 
Europe  
£m

UK  
£m

The 
Americas  
£m

(19)
(36)
66
11

76
(133)
(57)

40
(351)
59
(252)

670
(469)
201

1
(4)
21
18

9
(18)
(9)

Asia  
£m

1
(107)
–
(106)

16
(26)
(10)

1,029

1,421

278

470

Continental 
Europe  
£m

UK  
£m

North 
America  
£m

72
(125)
79
26

376
(221)
155

59
374
57
490

190
(433)
(243)

(8)
20
15
27

18
(3)
15

Asia  
£m

1
56
1
58

25
(62)
(37)

1,071

2,060

579

277

Rest of 
World  
£m

–
–
–
–

–
–
–

6

Rest of 
World  
£m

–
–
–
–

–
–
–

6

2012 
Unquoted 
equity  
£m
557
(517)
–
40

2011 
Unquoted 
equity  
£m
263
(160)
(1)
102

2012 
Quoted 
equity  
£m
1
(2)
–
(1)

2012  
Loans and 
receivables  
£m
213
(197)
(33)
(17)

2011  
Quoted 
equity  
£m
16
(14)
–
2

2011  
Loans and
receivables1
£m
330
(310)
–
20

2012  
Traded 
portfolio  
£m
–
1
– 
1

2011  
Traded 
portfolio  
£m
–
–
–
–

Total  
£m

23
(498)
146
(329)

771
(646)
125

3,204

Total  
£m

124
325
152
601

609
(719)
(110)

3,993

2012  
Total  
£m
771
(715)
(33)
23

2011  
Total  
£m
609
(484)
(1)
124

1  Loans and receivables include net proceeds of £145 million and realised profits of £24 million from variable funding notes relating to the Debt Warehouse 

in the year to 31 March 2011.

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104

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

3  Unrealised (losses)/profits on the revaluation of investments

Movement in the fair value of equity and traded loans
Provisions, loan impairments and other movements

Movement in the fair value of equity and traded loans
Provisions, loan impairments and other movements1

2012 
Unquoted 
equity  
£m
(160)
(64)
(224)

2011 
 Unquoted 
equity  
£m
572
(20)
552

2012  
Quoted 
equity 
£m
(20)
–
(20)

2012  
Loans and 
receivables  
£m
–
(253)
(253)

2011  
Quoted 
equity  
£m
23
–
23

2011  
Loans and 
receivables  
£m
–
(250)
(250)

2012  
Traded 
portfolio  
£m
(1)
–
(1)

2011  
Traded 
portfolio  
£m
–
–
–

2012  
Total  
£m
(181)
(317)
(498)

2011  
Total  
£m
595
(270)
325

1  Included within loan impairments is a £1 million value increase for variable funding notes relating to the Debt Warehouse in the year to 31 March 2011.

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

4  Fees receivable/(payable)

Fees receivable
Deal-related costs

2012  
£m
12
(8)
4

2011  
£m 
6
(5)
1

Fees receivable include fees arising from the ongoing management of the portfolio together with fees arising from making investments. Deal-related 
costs represent fees incurred on aborted deals and fees incurred in the process of acquiring an investment.

5  Carried interest and performance fees payable

Carried interest receivable from external funds
Carried interest and performance fees payable

2012  
£m
(15)
10
(5)

2011  
£m
25
(63)
(38)

Carried interest receivable represents the Group’s share of profits from external funds. Each fund is reviewed at the balance sheet date and income is 
accrued based on fund profits in excess of the performance conditions within the fund, taking into account cash already returned to fund investors and 
the fair value of assets remaining in the fund.
Carried interest and performance fees payable represents the amount payable to executives from the Group’s carried interest schemes and also 
includes the fees payable to Infrastructure and Debt Management executives that are based on fund performance. As with carried interest receivable, 
each scheme is separately reviewed at the balance sheet date, and an accrual made equal to the executives’ share of profits once the performance 
conditions in the scheme have been met.

6  Operating expenses
Operating expenses include the following amounts:

Depreciation of property, plant and equipment
Amortisation of fund management contracts
Audit fees
Staff costs (note 7)
Restructuring and redundancy costs

2012  
£m
3
4
2
98
9

2011  
£m
6
1
2
117
2

 
6  Operating expenses (continued)
Services provided by the Group’s auditors
During the year the Group obtained the following services from the Group’s auditors, Ernst & Young LLP:

Audit services
Statutory audit – Company

– UK subsidiaries
– Overseas subsidiaries

Audit-related regulatory reporting

Non-audit services
Other assurance services
Investment due diligence
Tax services (compliance and advisory services)

3i Group plc  Annual report and accounts 2012

105

2012  
£m

2011  
£m

1.2
0.5
0.2
0.1
2.0

0.1
0.4
0.2
2.7

0.8
0.6
0.3
0.2
1.9

0.2
–
0.3
2.4

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Non-audit services
These services are services that could be provided by a number of firms and include general consultancy work. Work is allocated to the auditors only if it 
does not impact the independence of the audit team.
In addition to the above, Ernst & Young LLP has received fees from investee companies. It is estimated that Ernst & Young LLP receive less than 20% of 
the total investment-related fees paid to the four largest accounting firms.
Ernst & Young LLP also acts as auditor to the 3i Group Pension Plan. The appointment of the auditors to this Plan and the fees paid in respect of the audit 
are agreed by the trustees who act independently from the management of the Group. The aggregate fees paid to the Group’s auditors for audit services 
to the pension scheme during the year were less than £0.1 million (2011: less than £0.1 million).

7  Staff costs

Wages and salaries
Social security costs
Share-based payment costs (note 8)
Pension costs

2012  
£m
72
12
6
8
98

2011  
£m
90
12
3
12
117

The average number of employees during the year was 472 (2011: 470).
Wages and salaries shown above include salaries paid in the year, bonuses and portfolio incentive schemes relating to the year. These costs are included 
in operating expenses.

8  Share-based payments 
The total cost recognised in the statement of comprehensive income is shown below:

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Share options1
Share awards included as operating expenses1
Share incentive plan
Cash settled share awards
Accrual for share-based bonus

1  Credited to equity. 

2012  
£m
(1)
6
1
(1)
1
6

2011  
£m
(1)
1
1
–
2
3

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106

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

8  Share-based payments (continued)
The features of the Group’s share schemes are set out on the following page. For legal, regulatory or practical reasons certain participants may be 
granted “phantom awards” under these schemes, which are intended to replicate the financial effects of a share award without entitling the participant 
to acquire shares. The carrying amount of liabilities arising from share-based payment transactions at 31 March 2012 is £1 million (2011: £2 million). 
The intrinsic value of liabilities arising from share-based payment transactions which have vested by 31 March 2012 is £nil (2011: £nil). 
The following information shows details of the share-based payment awards made during the year. 

Grant date
Vesting period
Life of the award
Valuation methodology

Share awards
June 2011, July 2011, 
November 2011, 
March 2012
1–4 years
10 years
Share price at grant

Cash settled  
share awards
June 2011, 
December 2011, 
March 2012
2–3 years
10 years
Share price at grant

Share options
Options granted under the 3i Group Discretionary Share Plan are normally exercisable between the third and tenth anniversaries of the date of grant to 
the extent a performance condition has been met over a performance period of three years from the date of grant. Details of the performance conditions 
to which unvested options are subject are set out in the Directors’ remuneration report. 
Details of share options outstanding during the year are as follows:

Outstanding at the start of the year
Granted
Lapsed
Outstanding at the end of year
Exercisable at the end of year

2012  
Number  
of share  
options
15,608,993
–
(5,869,851)
9,739,142
5,063,933

2012  
Weighted average 
exercise price  
(pence)
366
–
408
341
395

2011 
Number  
of share  
options
17,778,502
1,525,423
(3,694,932)
15,608,993
 5,900,348

2011  
Weighted average  
exercise price  
(pence)
436
295
 673
366
395

Included within the total number of share options are options over 1 million (2011: 1 million) shares that have not been recognised in accordance with 
IFRS 2 as the options were granted on or before 7 November 2002.
The range of exercise prices for options outstanding at the year end was:

Grant date:  
year to 31 March
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

2012  
Weighted average 
exercise price  
(pence) 
–
417
355
373
434
–
–
–
277
295
341

2012  
Number
–
819,294
1,068,850
1,652,911
1,522,878
–
–
–
3,149,786
1,525,423
9,739,142

2011  
Weighted average  
exercise price  
(pence) 
 557
417
355
373
434
–
–
412
277
295
366

2011  
Number
4,978
1,060,613
1,245,831
1,849,686
1,739,240
–
–
4,928,164
3,255,058
 1,525,423
15,608,993

Options are exercisable at a price based on the market value of the Company’s shares on the date of grant. 

3i Group plc  Annual report and accounts 2012

107

8  Share-based payments (continued)
No options were exercised during the year (2011: nil). The options outstanding at the end of the year have a weighted average contractual life of 4.67 years 
(2011: 6.10 years). The cost of share options is spread over the vesting period of three to five years. No options were granted during the year. The weighted 
average fair value of options granted during the year to 31 March 2011 was 129p, calculated using the Black-Scholes option pricing model.
Share awards
Details of share awards outstanding during the year are as follows:

Outstanding at the start of the year
Granted
Exercised
Lapsed
Expired
Outstanding at the end of year

2012
9,867,630
12,341,866
(2,859,857)
(2,650,746)
–
16,698,893

2011
8,364,297
2,876,006
(126,898)
(1,245,775)
–
9,867,630

The awards outstanding at the end of the year have a weighted average contractual life of 8.84 years (2011: 6.21 years). The cost of share awards is 
spread over the vesting period of two to three years. 
A summary of the vesting conditions of share awards is as follows:
Performance share awards (market condition)
The performance condition for Performance shares issued before July 2011 is based on the outperformance of the theoretical growth in value of a 
shareholding in the Company (with dividends reinvested) for the three year performance period from grant (averaged over a 60-day period) compared 
to the growth in value of the FTSE 100 Index (with dividends reinvested) adjusted for mergers, demergers and de-listings over that period.
Performance share awards (non market condition)
Performance shares issued after June 2011 will vest, subject to a vesting scale, if the annualised growth of the Group’s return on opening equity during 
the three year performance period equals or exceeds 10% per annum.
Performance-based awards
During the year share awards were made to certain investment executives. This plan operates in a similar format to a carry scheme where a percentage 
of shares will vest once a realised profit hurdle has been achieved on a defined group of assets.
Deferred share bonus
Certain employees receive an element of their bonus as a conditional award of shares which vest after two or three years. The awards are not subject 
to a performance condition. The fair value of the deferred shares is the share price at the date of the award.
Deferred share awards
Certain employees receive awards of Deferred Shares which vest after two or three years subject to continued service for that period. These awards 
are not subject to a performance condition. The fair value of the deferred shares is the share price at the date of the award.
Share incentive plan
Eligible UK employees may participate in a HM Revenue and Customs approved Share Incentive Plan intended to encourage employees to invest in 
the Company’s shares. Accordingly it is not subject to a performance condition. During the year participants invested up to £125 per month from their 
pre-tax salaries in the Company’s shares (referred to as partnership shares). For each share so acquired the Company grants two free additional 
shares (referred to as matching shares) which are normally subject to forfeiture if the employee ceases to be employed (other than for certain permitted 
reasons) within three years of grant. 
Employee Share Investment Plan
In conjunction with the June 2009 rights issue, eligible employees could subscribe for between £5,000 and £1.5 million of ordinary shares at market price. 
Employees were then granted one matching share for every two ordinary shares purchased, which are normally subject to forfeiture if the employee 
ceases to be employed (other than for certain permitted reasons) within three years of grant. The matching shares are also subject to the condition that 
fully diluted NAV per share grows by 35% or more between 31 March 2009 and 31 March 2012. This condition has not been met.
Employee Trust
The Group has established the 3i Group Employee Trust which holds shares in 3i Group plc which can be used to meet its obligations under certain share 
schemes. The Trustee has full discretion as to the application of trust assets. However, in accordance with IAS 27 Consolidated and Separate Financial 
Statements, 3i Group plc is considered the ultimate controlling party for accounting purposes and the operations of the 3i Group Employee Trust are fully 
consolidated by the Group.

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108

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

9  Retirement benefits
Retirement benefit plans
(i) Defined contribution plans
The Group operates a number of defined contribution retirement benefit plans for qualifying employees throughout the Group. The assets of these plans 
are held separately from those of the Group. The employees of the Group’s subsidiaries in France are members of a state-managed retirement benefit 
plan operated by the country’s government. 3i Europe plc’s french branch is required to contribute a specific percentage of payroll costs to the retirement 
benefit scheme to fund the benefits.
The total expense recognised in the statement of comprehensive income is £4 million (2011: £3 million), which represents the contributions payable to 
these plans. There were no outstanding payments due to these plans at the balance sheet date.
(ii) Defined benefit schemes
The Group operates a final salary defined benefit plan for qualifying employees of its subsidiaries in the UK (“the Plan”). The Plan has not been offered 
to new employees joining 3i since 1 April 2006. The Plan was closed to the future accrual of benefits by members with effect from 5 April 2011, although 
the final salary link will be maintained on existing accruals. Members of the Plan have been invited to join the Group’s defined contribution plan with effect 
from 6 April 2011. The defined benefit plan is a funded scheme, the assets of which are independent of the Company’s finances and are administered by 
the Trustees.
The last full actuarial valuation as at 30 June 2010 was updated on an IAS 19 basis by an independent qualified actuary as at 31 March 2012. As the fund 
is now closed to future accrual measures have been taken to de-risk the fund through changes to its investment policy.
The principal assumptions made by the actuaries and used for the purpose of the year end valuation of the Plan were as follows:

Discount rate
Expected rate of salary increases
Expected rate of pension increases
Retail Price Index (RPI) inflation
Consumer Price Index (CPI) inflation
Expected return on the Plan assets

2012
4.6%
5.7%
3.4%
3.2%
2.5%
4.6%

2011
5.5%
5.9%
3.5%
3.4%
2.7%
6.0%

The post-retirement mortality assumption used to value the benefit obligation at 31 March 2012 is 80% of the PNA00 tables allowing for improvements 
from 2000 in line with the CMI 2009 core projections with a long-term annual rate of improvement of 1.5% (31 March 2011: 80% of the PNA00 tables 
allowing for improvements from 2000 in line with the medium cohort projections subject to a minimum annual rate of future improvement of 1.5%). 
The life expectancy of a male member reaching age 60 in 2032 (2011: 2031) is projected to be 33.1 (2011: 34.1) years compared to 30.6 (2011: 30.7) years 
for someone reaching 60 in 2012.
The amount recognised in the statement of financial position in respect of the Group’s defined benefit schemes are as follows:

Present value of funded obligations
Fair value of the Plan assets
Asset restriction
Retirement benefit surplus in respect of the Plan
Retirement benefit deficit in respect of other defined benefit schemes

2012  
£m
693
(798)
49
(56)
10

2011  
£m
587
(670)
39
(44)
4

The asset restriction relates to tax that would be deducted at source in respect of the Plan surplus together with the surplus that arises from the present 
value of supplementary contributions to the Plan agreed by the Plan trustees.
Amounts recognised in the statement of comprehensive income in respect of the Plan are as follows:

Included in operating costs
  Current/past service cost
Included in finance costs (note 10)
  Expected return on the Plan assets

Interest on obligation

Included in other comprehensive income
  Actuarial loss/(gain)
  Asset restriction
  Total actuarial loss/(gain) and asset restriction
Total

2012  
£m

2011  
£m

2

(40)
32

56
10
66 
60

6

(37)
32

(37)
17
(20)
(19)

 
3i Group plc  Annual report and accounts 2012

109

9  Retirement benefits (continued)
Changes in the present value of the defined benefit obligation were as follows:

Opening defined benefit obligation
Current/past service cost
Interest cost
Actuarial loss/(gain)
Contributions
Benefits paid
Closing defined benefit obligation

Changes in the fair value of the Plan assets were as follows:

Opening fair value of the Plan assets
Expected returns
Actuarial gain
Contributions
Benefits paid
Closing fair value of the Plan assets

Contributions paid to the Plan are related party transactions as defined by IAS 24 Related party transactions.
The fair value of the Plan assets at the balance sheet date is as follows:

Equities
Corporate bonds
Gilts
Other

2012  
£m
587
2
32
90
–
(18)
693

2012  
£m
670
40
34
72
(18)
798

2012  
£m
272
193
332
1
798

2011  
£m
593
6
32
(29)
1
(16)
587

2011  
£m
587
37
7
55
(16)
670

2011  
£m
353
127
190
–
670

The actual return on the Plan assets for the year was a gain of £74 million (2011: £44 million).
The Plan assets do not include any of the Group’s own equity instruments nor any property in use by the Group. The expected rate of returns of individual 
categories of the Plan assets is determined by reference to individual indices.
The history of the Plan is as follows:

Present value of defined benefit obligation
Fair value of the Plan assets
Asset restriction
(Surplus)/deficit
Experience adjustments on the Plan liabilities
Experience adjustments on the Plan assets

2012  
£m
693
(798)
49
(56)
1%
(4)%

2011  
£m
587
(670)
39
(44)
(2)%
–

2010  
£m
593
(587)
22
28
2%
16%

2009  
£m
437
(419)
–
18
2%
(26)%

2008  
£m
515
(477)
–
38
1%
(6)%

The cumulative actuarial losses recognised in other comprehensive income are £168 million (2011: £102 million). This includes £49 million 
(2011: £39 million) in respect of the asset restriction.
As the Plan was closed to future accrual of benefits by members with effect from 5 April 2011 the Group ceased to make regular contributions to the Plan 
in the year to 31 March 2012. The triennial actuarial funding valuation as at 30 June 2010 was completed in September 2011. This resulted in an actuarial 
deficit of £130 million. The Group has paid contributions to the Plan to fund this deficit. Under an agreed schedule of contributions, the Group paid 
contributions of £72 million during the year, included within operating expenses in the Group cash flow statement, and the final payment of £36 million  
on 30 April 2012. No more additional contributions are due in relation to the funding of the deficit.
Other retirement schemes
Employees in Germany and Spain are entitled to a pension based on their length of service. 3i Deutschland GmbH and the German and Spanish branches 
of 3i Europe plc contribute to individual investment policies for its employees and have agreed to indemnify any shortfall on an employee’s investment 
policy should it arise. The total value of these investment policies intended to cover pension liabilities is £4 million (2011: £10 million) and the future liability 
calculated by German and Spanish actuaries is £14 million (2011: £14 million). The Group has recognised cumulative actuarial losses of £1 million  
(2011: £nil) and £1 million (2011: £1 million) in the statement of comprehensive income in respect of these schemes. 

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110

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

10  Net interest payable

Interest receivable
Interest on bank deposits

Interest payable
Interest on loans and borrowings
Interest on convertible bonds
Amortisation of convertible bonds
Net finance (expense)/income on pension plan

Net interest payable 

11  Movement in the fair value of derivatives

Interest-rate swaps
Call options
Forward foreign exchange contracts

2012  
£m

2011  
£m

12
12

(109)
(1)
(1)
8
(103)
(91)

2012  
£m
(19)
(1)
1
(19)

12
12

(113)
(7)
(24)
5
(139)
(127)

2011  
£m
–
(1)
–
(1)

Exchange movements in relation to forward foreign exchange contracts are included within exchange movements in the statement of comprehensive 
income. During the year, a £16 million gain (2011: £12 million loss) was recognised in exchange movements in relation to forward foreign exchange contracts.

12  Income taxes

Current taxes
Current year
Deferred taxes
Deferred income taxes
Total income taxes in the statement of comprehensive income

Reconciliation of income taxes in the statement of comprehensive income
The tax charge for the year is different to the standard rate of corporation tax in the UK, currently 26% (2011: 28%), and the differences are explained 
below:

Profit before tax
Profit before tax multiplied by rate of corporation tax in the UK of 26% (2011: 28%)
Effects of:
  Permanent differences
  Short-term timing differences
  Non-taxable dividend income
  Foreign tax
  Foreign tax credits available for double tax relief
  Realised profits, changes in fair value and impairment losses not taxable
Total income taxes in the statement of comprehensive income

2012  
£m
(777)
202

12
(12)
2
(4)
–
(206)
(6)

The Group’s realised profits, fair value adjustments and impairment losses are primarily included in the Company, the affairs of which are directed so as 
to allow it to be approved as an investment trust. An investment trust is exempt from tax on capital gains, therefore the Group’s capital return will be 
largely non-taxable.

2012  
£m

2011  
£m

(8)

2
(6)

(4)

1
(3)

2011  
£m
189
(53)

7
2
2
(4)
–
43
(3)

3i Group plc  Annual report and accounts 2012

111

12  Income taxes (continued)
Deferred income taxes

Opening deferred income tax liability
Tax losses
Income in accounts taxable in the future
Deferred tax recognised on acquisition

Recognised through statement of comprehensive income
Tax losses utilised
Income in accounts taxable in the future
Amortisation of intangible asset
Other

Closing deferred income tax liability
Tax losses
Income in accounts taxable in the future
Deferred tax recognised on acquisition
Other

2012  
Group  
£m

2011  
Group  
£m

25
(26)
(5)
(6)

(15)
14
1
2
2

10
(12)
(4)
2
(4)

17
(19)
–
(2)

8
(7)
–
–
1

25
(26)
(5)
–
(6)

At 31 March 2012 the Company had tax losses carried forward of £977 million (2011: £885 million). It is unlikely that the Group will generate sufficient 
taxable profits in the future to utilise these amounts and therefore no deferred tax asset has been recognised in respect of these losses. Deferred income 
taxes are calculated using an expected rate of corporation tax in the UK of 24% (2011: 26%).

13  Investment portfolio

Non-current
Opening book value
Additions
Disposals, repayments and write-offs
Revaluation
Provisions and loan impairments
Other movements
Closing book value
Quoted
Unquoted
Closing book value

Group  
2012  
Equity  
investments  
£m
2,539
98
(519)
(180)
(64)
53
1,927
535
1,392
1,927

Group  
2012  
Loans and 
receivables  
£m
1,454
512
(230)
–
(253)
(241)
1,242
–
1,242
1,242

Group  
2011 
Equity 
investments  
£m
2,130
169
(175)
595
(20)
(160)
2,539
405
2,134
2,539

Group  
2012  
Total  
£m
3,993
610
(749)
(180)
(317)
(188)
3,169
535
2,634
3,169

Group  
2011  
Loans and 
receivables  
£m
1,387
550
(310)
–
(250)
77
1,454
–
1,454
1,454

Group  
2011  
Total  
£m
3,517
719
(485)
595
(270)
(83)
3,993
405
3,588
3,993

The holding period of 3i’s investment portfolio is on average greater than one year. For this reason the portfolio is classified as non-current. It is not 
possible to identify with certainty investments that will be sold within one year.
Additions to loans and receivables includes £163 million (2011: £158 million) of interest received by way of loan notes. A corresponding amount has been 
included in income from loans and receivables.
Other movements include foreign exchange and conversions from one instrument into another. 
Included within the statement of comprehensive income are foreign exchange losses of £243 million (2011: £135 million loss). This includes exchange 
movements on non-monetary items (eg equity investment portfolio) and on monetary items (eg non-sterling loans and borrowings). Of this, foreign 
exchange losses on monetary items not measured at fair value total £83 million (2011: £41 million).

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112

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

13  Investment portfolio (continued)
Palace Street I was launched in August 2011 and started trading loans on a regular basis. The investments within this fund are classified as current 
assets and held for trading and are included here as the Traded portfolio.

Current 
Opening book value
Additions
Disposals, repayments and write-offs
Revaluation
Other movements
Closing book value

Group  
2012  
Traded 
portfolio  
£m
–
78
(42)
(1)
–
35

Group  
2011  
Traded 
portfolio  
£m
–
–
–
–
–
–

Fair value hierarchy
The Group classifies financial instruments measured at fair value in the investment portfolio according to the following hierarchy:

Level
Level 1
Level 2

Level 3

Fair value input description
Quoted prices (unadjusted) from active markets
Inputs other than quoted prices included in Level 1 that  
are observable either directly (ie as prices) or indirectly  
(ie derived from prices)
Inputs that are not based on observable market data 

Financial instruments
Quoted equity instruments

Unquoted equity instruments, variable funding note  
and loan instruments included in the traded portfolio  
(Palace Street I)

Unquoted equity instruments and debt instruments included in the traded portfolio are measured in accordance with the International Private Equity 
and Venture Capital valuation guidelines with reference to the most appropriate information available at the time of measurement. Further information 
regarding the valuation of unquoted equity instruments can be found in the section Portfolio valuation – an explanation.
The variable funding note relating to the Debt Warehouse was sold during the year to 31 March 2012. It is included within the loans and receivables 
balance at a carrying value of £5 million at 31 March 2011. In accordance with the fair value hierarchy the variable funding note is classified as Level 3. 
The variable funding note had investment of £47 million, revaluation of £1 million and generated interest income and fees of £7 million in the prior year. 
The variable funding note also had foreign exchange movements of £3 million in the prior year.
The Group’s investment portfolio for equity instruments, variable funding note and traded portfolio through Palace Street I are classified by the fair value 
hierarchy as follows:

Quoted equity
Unquoted equity
Variable funding note
Traded portfolio
Total

Quoted equity
Unquoted equity
Variable funding note
Total

Group  
2012 
 Level 1  
£m
535
–
–
–
535

Group  
2012  
Level 2  
£m
–
–
–
–
–

Group  
2012  
Level 3  
£m
–
1,392
–
35
1,427

Group  
2012  
Total  
£m
535
1,392
–
35
1,962

Group  
2011 
Level 1 
£m
405
–
–
–
405

Group  
2011 
Level 2  
£m
–
–
–
–
–

Group 
 2011
Level 3 
£m
–
2,134
5
–
2,139

Group  
2011 
Total  
£m
405
2,134
5
–
2,544

Company  
2012  
Level 1  
£m
392
–
–
392

Company  
2012 
 Level 2  
£m
–
–
–
–

Company  
2012  
Level 3  
£m
–
299
–
299

Company  
2012  
Total  
£m
392
299
–
691

Company 
 2011 
Level 1 
£m
332
–
–
332

Company 
 2011 
 Level 2  
£m
–
–
–
–

Company  
2011 
Level 3 
£m
–
584
5
589

Company 
2011  
Total  
£m
332
584
5
921

There were no transfers between Level 1, Level 2 or Level 3 during the year.
This disclosure only relates to the investment portfolio. The fair value hierarchy also applies to derivative financial instruments, see note 20 
for further details.

3i Group plc  Annual report and accounts 2012

113

13  Investment portfolio (continued)
Level 3 fair value reconciliation

Opening book value
Additions
Disposals, repayments and write-offs
Revaluation
Other movements
Closing book value

Group  
2012  
£m
2,139
143
(559)
(225)
(71)
1,427

Group  
2011 
£m
1,835
212
(282)
553
(179)
2,139

Company  
2012  
£m
589
40
(288)
(69)
27
299

Company  
2011 
£m
498
58
(200)
233
–
589

Unquoted equity investments valued using Level 3 inputs also had the following impact on the statement of comprehensive income; realised profits over 
value on disposal of investment of £40 million (2011: £104 million), dividend income of £29 million (2011: £25 million) and foreign exchange losses of 
£48 million (2011: £28 million).
Level 3 inputs are sensitive to assumptions made when ascertaining fair value as described in the Portfolio valuation – an explanation section. 
A reasonable alternative assumption would be to apply a standard marketability discount of 5% for all assets rather than the specific approach adopted. 
This would have a positive impact on the portfolio of £100 million (2011: £146 million) or 7% (2011: 7%) of total unquoted equity value.

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14  Interests in Group entities

Opening book value
Additions
Share of profits
Disposals and repayments
Impairment
Exchange movements
Closing book value

Details of significant Group entities are given in note 34.

Opening book value
Additions
Share of profits
Disposals and repayments
Impairment
Exchange movements
Closing book value

Company 
2012  
Equity 
investments  
£m
95
37
–
(76)
(5)
–
51

Company 
2012 
 Loans and 
receivables 
£m
2,619
873
112
(852)
(377)
(102)
2,273

Company 
2011  
Equity 
investments  
£m
88
21
–
(34)
20
–
95

Company 
2011  
Loans and 
receivables  
£m
2,259
545
(134)
(299)
165
83
2,619

Company 
2012  
Total  
£m
2,714
910
112
(928)
(382)
(102)
2,324

Company 
2011 
Total  
£m
2,347
566
(134)
(333)
185
83
2,714

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15  Acquisition of a subsidiary
No acquisitions were made in the year ending 31 March 2012. However in the prior year, on 15 February 2011, Mizuho Investment Management (UK) 
Limited (“MIM”), one of the leading debt management businesses in Europe, became a subsidiary of the Group. MIM has since changed its name to  
3i Debt Management Investments Limited. The acquisition formed part of the Group’s strategy to build its Debt Management business line.
The acquisition of MIM was effected by 3i Debt Management Limited (“3iDM”) on 15 February 2011. 3iDM paid cash consideration of £18 million for 100% 
of the issued share capital of MIM. The equity shares of 3iDM are owned 55% by the Group and 45% by the management team of MIM.
The Group entered into agreements to purchase this remaining 45% of the equity of 3iDM from the management team over the next five years, with the 
price subject to the performance of 3iDM and its subsidiaries. After the year end the Group entered into agreements to purchase 2.7% of the remaining 
45% equity from a member of the management team who is no longer employed by 3iDM.
In accordance with IFRS 3, the purchase of the management team’s equity holding or “earn-out” was reflected in two parts:
£13 million deferred consideration, for the transfer of the remaining 45% of the shares held by MIM management over five years. This was recognised on 
acquisition and is carried as a liability on the Group balance sheet. 
The remaining amount is contingent on the individuals remaining in employment with 3i and 3iDM. The amount will be determined by the performance 
of 3iDM during the five-year period and will be recognised in the statement of comprehensive income as carried interest and performance fees payable. 

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114

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

15  Acquisition of a subsidiary (continued)
The fair value of the identifiable assets and liabilities of MIM as at 15 February 2011 (date of acquisition) and the consideration paid were:

Fair value of assets received
Cash
Other assets
Intangible assets (fund management contracts)
Total fair value of assets received
Fair value of liabilities assumed
Creditors
Deferred tax liability
Total fair value of liabilities assumed
Total identifiable net assets at fair value
Consideration
Cash
Deferred consideration
Total consideration
Gain on bargain purchase
Net cash outflow arising on acquisition
Cash consideration paid
Cash and cash equivalents acquired
Net cash flow on acquisition

Fair value 
recognised 
 on acquisition  
£m

18
3
22
43

(3)
(6)
(9)
34

18
13
31
3

(18)
18
–

The measurement of fair value of the net assets obtained resulted in a gain on bargain purchase of £3 million which was recognised in other income 
in the statement of comprehensive income in the year to 31 March 2011.
From the date of acquisition to 31 March 2011, MIM contributed £2 million to management fees, and incurred operating expenses and amortisation 
of the fund management contracts of £2 million, which resulted in an overall charge of £nil to the net profit before tax of the Group. 
If the combination had taken place at the beginning of the year to 31 March 2011, the contribution to the Group’s revenue from continuing operations 
would have been £16 million and the profit from continuing operations for the Group would have been £5 million.
Transaction costs of £4 million were charged to operating expenses in the prior year. 
The Group also acquired equity investments in the funds managed by MIM, on which the unrealised profit on revaluation in the period to 31 March 2011 
was £7 million.

16  Intangible assets 

Fund management contracts
Opening cost 
Acquisitions
Closing cost 
Opening accumulated amortisation
Charge for the year
Closing accumulated amortisation
Net book amount

Group  
2012  
£m
22
–
22
1
4
5
17

Group  
2011  
£m
–
22
22
–
1
1
21

The fund management contracts were purchased in the period to 31 March 2011, as disclosed in note 15.
The amortisation charge for the year of £4 million (2011: £1 million) has been recognised in operating expenses in the statement of comprehensive income.
Intangible assets are only recognised in the consolidated financial statements of the Group. 

3i Group plc  Annual report and accounts 2012

115

17  Property, plant and equipment

Land and buildings
Opening cost or valuation
Additions at cost
Disposals
Revaluation
Closing cost or valuation
Net book amount

Depreciation charged in the year on buildings was £nil (2011: £nil).

Plant and equipment
Opening cost or valuation
Additions at cost
Disposals
Closing cost or valuation
Opening accumulated depreciation
Charge for the year
Disposals
Closing accumulated depreciation
Net book amount

Group  
2012  
£m
5
–
(1)
–
4
4

Group  
2012  
£m
32
2
(1)
33
22
3
(1)
24
9

Group  
2011  
£m
5
–
–
–
5
5

Group  
2011  
£m
37
5
(10)
32
24
6
(8)
22
10

Company  
2012  
£m
4
–
–
–
4
4

Company 
2012  
£m
–
–
–
–
–
–
–
–
–

Company  
2011  
£m
4
–
–
–
4
4

Company 
2011  
£m
–
–
–
–
–
–
–
–
–

The Group’s freehold properties and long leasehold properties are revalued at each balance sheet date by professional valuers. The valuations were 
undertaken in accordance with the Appraisal and Valuation Manual of the Royal Institute of Chartered Surveyors in the United Kingdom by CBRE and 
Howell Brooks, independent Chartered Surveyors.

18  Other current assets

Prepayments
Other debtors
Amounts due from subsidiaries

Group  
2012  
£m
6
96
–
102

Group  
2011  
£m
5
75
–
80

Company 
2012  
£m
–
24
81
105

Company 
2011  
£m
2
24
232
258

19  Financial risk management
Introduction
A review of the Group’s objectives, policies and processes for managing and monitoring risk is set out in the Risk section. This note provides further 
detail on financial risk management, cross-referring to the Risk section where applicable, and includes quantitative data on specific financial risks.
The Group is a highly selective investor and each investment is subject to a risk assessment through an investment approval process. The Group’s 
Investment Committee is part of the overall risk management framework set out in the Risk section.
Capital structure
The capital structure of the Group consists of net debt, including cash held on deposit, and shareholders’ equity. The type and maturity of the Group’s 
borrowings are analysed further in note 21 and the Group’s equity is analysed into its various components in the statement of changes in equity. 
Capital is managed so as to maximise long-term return to shareholders, whilst maintaining a capital base to allow the Group to operate effectively 
in the marketplace and sustain future development of the business.

Cash, deposits and derivative financial assets
Borrowings and derivative financial liabilities
Net debt
Total equity
Gearing (net debt/total equity)

Group  
2012  
£m
1,172
(1,636)
(464)
2,627
18%

Group  
2011  
£m
1,524
(2,046)
(522)
3,357
16%

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r

 
 
 
 
 
 
 
 
 
 
 
116

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

19  Financial risk management (continued)
Capital constraints
The Group is generally free to transfer capital from subsidiary undertakings to the parent company subject to maintaining each subsidiary with sufficient 
reserves to meet local statutory obligations. No significant constraints have been identified in the past and the Group has been able to distribute profits in 
a tax-efficient manner. 
The Group’s regulated capital requirement is reviewed regularly by the Board of 3i Investments plc, an investment firm that is regulated by the FSA. 
The last submission to the FSA demonstrated a significant consolidated capital surplus in excess of the FSA’s prudential rules. The Group’s capital 
requirement is updated annually following approval of the Group’s Internal Capital Adequacy Assessment Process (ICAAP) report by the Board of  
3i Investments plc. The Group complies with the Individual Capital Guidance as agreed with the FSA and remains at a significant regulatory capital 
surplus. The Group’s Pillar 3 disclosure document can be found on www.3igroup.com.
Financial risks
Concentration risk
The Group’s exposure to and mitigation of concentration risk is explained within the “investment” and “treasury and funding” sections in the Risk section. 
Quantitative data regarding the concentration risk of the portfolio across geographies can be found in note 1, segmental analysis.
Credit risk
The Group is subject to credit risk on its loans, traded portfolio, receivables, cash and deposits. The Group’s cash and deposits are held with a variety 
of counterparties with circa 41% of the Group’s surplus cash held on demand in AAA Liquidity funds. The balance is held on short-term deposit with 
3i’s relationship banks. The credit quality of loans and receivables within the investment portfolio is based on the financial performance of the individual 
portfolio companies. For those assets that are not past due it is believed that the risk of default is small and that capital repayments and interest 
payments will be made in accordance with the agreed terms and conditions of the Group’s investment. Where the portfolio company has failed or is 
expected to fail in the next 12 months, the Group’s policy is to record a provision for the full amount of the loan. Loan impairments are made when the 
valuation of the portfolio company implies non-recovery of all or part of the Group’s loan investment. In these cases an appropriate loan impairment 
is recorded to reflect the valuation shortfall. Further information on how credit risk is managed is given in the Risk section. In accordance with IFRS 7, 
the amounts shown as past due represent the total credit exposure, not the amount actually past due.

As at 31 March 2012
Loans and receivables and Traded Portfolio  

before provisions and impairments

Provisions on investments that have failed or are 

expected to fail in the next 12 months

Impairments where the valuation of the portfolio 
company implies non-recovery of all or part of 
the Group’s loan investment

Total

As at 31 March 2011
Loans and receivables and Traded Portfolio  

before provisions and impairments

Provisions on investments that have failed or are 

expected to fail in the next 12 months

Impairments where the valuation of the portfolio 
company implies non-recovery of all or part of 
the Group’s loan investment

Total

Group  
not  
past due 
£m

Group 
up to  
12 months  
past due 
£m

Group  
more than  
12 months  
past due 
£m

1,841

104

(142)

–

27

–

Group  
Total 
£m

1,972

(142)

(436)
1,263

(90)
14

(27)
–

(553)
1,277

Company  
not past  
due 
£m

Company  
up to  
12 months 
 past due 
£m

Company  
more than  
12 months  
past due 
£m

Company  
Total 
£m

213

(34)

–
179

–

–

–
–

8

–

(8)
–

221

(34)

(8)
179

Group  
not past  
due 
£m

Group  
up to  
12 months 
 past due 
£m

Group  
more than  
12 months  
past due 
£m

Group 
 Total 
£m

Company  
not past  
due 
£m

Company  
up to  
12 months  
past due 
£m

Company  
more than  
12 months  
past due 
£m

Company  
Total 
£m

1,752

(47)

(330)
1,375

56

–

–
56

152

1,960

(63)

(110)

(66)
23

(396)
1,454

250

(20)

(2)
228

15

–

–
15

39

(21)

(14)
4

304

(41)

(16)
247

The credit quality of the traded portfolio is based on the credit rating of the loans traded. Credit risk is carefully managed with the aim of generating 
profits from market opportunities. At 31 March 2012 the value of the traded portfolio was £35 million and was invested in non-investment grade loans 
in the range B1-B3.

3i Group plc  Annual report and accounts 2012

117

19  Financial risk management (continued)
Movements on loan impairment and provisions are shown below:

Balance as at 31 March 2010
Other movements
(Charged)/credited to income statement in the year1
Balance as at 31 March 2011
Other movements
Charged to income statement in year2
Balance as at 31 March 2012

Group 
provisions 
£m
(29)
(30)
(51)
(110)
36
(68)
(142)

Group 
impairments  
£m
(323)
126
(199)
(396)
29
(186)
(553)

Group  
Total  
£m
(352)
96
(250)
(506)
65
(254)
(695)

Company 
provisions  
£m
(20)
(7)
(14)
(41)
22
(15)
(34)

Company 
impairments  
£m
(68)
34
18
(16)
20
(12)
(8)

Company 
Total  
£m
(88)
27
4
(57)
42
(27)
(42)

1  Included within impairments for the Group and Company is a £1 million value increase for variable funding notes relating to the Debt Warehouse. 
2  Included within impairments for the Group and Company is a £1 million value decrease in relation to the traded portfolio.

Liquidity risk
Further information on how liquidity risk is managed is provided in the Risk section. The table below analyses the maturity of the Group’s gross 
contractual liabilities.
Financial liabilities (excluding forward foreign exchange contracts)

As at 31 March 2012
Gross commitments:
Fixed loan notes
Variable loan notes
Committed multi-currency facility
Interest rate swaps
Carried interest payable  

within one year

Total

Forward foreign exchange contracts

As at 31 March 2012
Gross amount receivable  
from forward foreign  
exchange contracts
Gross amount payable  
for forward foreign  
exchange contracts
Total amount payable

Group  
due  
within  
1 year 
£m

Group 
due 
between  
1 and 2 
years 
£m

Group 
due 
between  
2 and 5 
years 
£m

Group 
due  
more  
than  
5 years 
£m

53
249
9
5

40
356

54
262
9
5

–
330

456
–
218
13

–
687

1,080
–
–
26

–
1,106

Group 
Total 
£m

1,643
511
236
49

40
2,479

Company 
due  
within  
1 year 
£m

Company 
due  
between  
1 and 2  
years 
£m

Company 
due  
between  
2 and 5  
years 
£m

Company 
due  
more  
than  
5 years 
£m

Company 
Total 
£m

53
249
–
5

–
307

54
262
–
5

–
321

456
–
–
13

–
469

1,080
–
–
26

–
1,106

1,643
511
–
49

–
2,203

Group  
due  
within  
1 year  
£m

Group  
due  
between  
1 and 2 
 years  
£m

Group  
due 
 between  
2 and 5 
 years 
 £m

Group  
due  
more  
than  
5 years  
£m

Company  
due  
within  
1 year  
£m

Company  
due 
between  
1 and 2  
years  
£m

Company  
due  
between  
2 and 5  
years  
£m

Company  
due  
more  
than  
5 years  
£m

Group  
Total  
£m

Company  
Total  
£m

301

263

(293)
8

(256)
7

–

–
–

–

–
–

564

307

269

(549)
15

(299)
8

(262)
7

–

–
–

–

–
–

576

(561)
15

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118

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

19  Financial risk management (continued)
Financial liabilities (excluding forward foreign exchange contracts)

As at 31 March 2011
Gross commitments:
Fixed loan notes
Variable loan notes
Convertible bond 2011  

£430m 3.625%

Committed multi-currency facility
Interest rate swaps
Carried interest payable  

within one year

Total

Forward foreign exchange contracts

As at 31 March 2011
Gross amount receivable  
from forward foreign  
exchange contracts

Gross amount payable for forward 

foreign exchange contracts

Total amount payable

Group  
due  
within  
1 year 
£m

Group  
due 
between  
1 and 2  
years  
£m

Group  
due 
between  
2 and 5 
 years  
£m

86
20

142
12
4

58
322

85
397

–
234
2

–
718

158
280

–
56
2

–
496

Group  
due 
 more  
than  
5 years  
£m

1,380
–

–
–
6

Group  
Total  
£m

1,709
697

142
302
14

–
1,386

58
2,922

Company  
due  
within  
1 year  
£m

Company  
due 
between  
1 and 2  
years  
£m

Company  
due 
between  
2 and 5  
years  
£m

Company  
due  
more  
than  
5 years  
£m

Company  
Total  
£m

86
20

142
3
4

–
255

85
397

–
3
2

–
487

158
280

–
56
2

–
496

1,380
–

1,709
697

–
–
6

142
62
14

–
1,386

–
2,624

Group  
due  
within  
1 year  
£m

Group  
due  
between 
 1 and 2 
 years  
£m

Group  
due 
between  
2 and 5  
years  
£m

Group  
due  
more 
 than 
 5 years  
£m

Company  
due  
within  
1 year  
£m

Company  
due 
between  
1 and 2  
years  
£m

Company  
due 
between  
2 and 5  
years  
£m

Company  
due  
more  
than  
5 years  
£m

Group 
 Total  
£m

Company  
Total  
£m

437

139

(445)
(8)

(141)
(2)

–

–
–

–

–
–

576

441

146

(586)
(10)

(449)
(8)

(148)
(2)

6

(6)
–

–

–
–

593

(603)
(10)

Market risk
The valuation of the Group’s investment portfolio is largely dependent on the underlying trading performance of the companies within the portfolio but 
the valuation and other items in the financial statements can also be affected by interest rate, currency and quoted market fluctuations. The Group’s 
sensitivity to these items is set out below.
(i) Interest rate risk
Further information on how interest rate risk is managed is provided in the Risk section. The direct impact of a movement in interest rates is relatively 
small. An increase of 100 basis points would lead to an approximate increase in net assets of £6 million (2011: £5 million increase) for the Group and 
£7 million (2011: £6 million increase) for the Company. This increase arises principally from changes in interest receivable and payable on floating rate, 
short-term instruments, including cash and deposits in the current year. In addition the Group and Company have indirect exposure to interest rates 
through changes to the financial performance of portfolio companies caused by interest rate fluctuations.

3i Group plc  Annual report and accounts 2012

119

19  Financial risk management (continued)
(ii) Currency risk
The Group’s net assets in euro, US dollar, Swedish krona, Indian rupee, Chinese renminbi and all other currencies combined is shown in the table below. 
This sensitivity analysis is performed based on the sensitivity of the Group and Company’s net assets to movements in foreign currency exchange rates 
assuming a 5% movement in exchange rates against sterling. The Group manages currency risk on a consolidated basis. Further information on how 
currency risk is managed is provided in the Risk section.

As at 31 March 2012
Net assets
Sensitivity analysis
Assuming a 5% movement in  

exchange rates against sterling:

Impact on exchange movements in the  
statement of comprehensive income

Impact on the translation of foreign operations 

in other comprehensive income

Total

As at 31 March 2012
Net assets
Sensitivity analysis
Impact on exchange movements in the statement 

of comprehensive income assuming a 5% 
movement in exchange rates against sterling

Total

As at 31 March 2011
Net assets
Sensitivity analysis
Assuming a 5% movement in  

exchange rates against sterling:

Impact on exchange movements in the  
statement of comprehensive income

Impact on the translation of foreign operations 

in other comprehensive income

Total

As at 31 March 2011
Net assets
Sensitivity analysis
Impact on exchange movements in the statement 

of comprehensive income assuming a 5% 
movement in exchange rates against sterling

Total

Group  
sterling  
£m
1,174

Group 
 euro  
£m
643

Group  
US dollar  
£m
532

Group 
Swedish  
krona  
£m
16

Group  
Indian 
rupee  
£m
103

Group
Chinese  
renminbi 
£m
74

Group  
Other  
£m
85

Group  
Total 
£m
2,627

n/a

n/a
n/a

71

(51)
20

23

(13)
10

16

(11)
5

–

5
5

–

4
4

(8)

12
4

102

(54)
48

Company 
sterling  
£m
1,097

Company 
euro  
£m
1,006

Company 
US dollar  
£m
382

Company 
Swedish 
krona  
£m
131

Company 
Indian 
rupee  
£m
25

Company 
Chinese  
renminbi 
£m
–

Company 
Other  
£m
78

Company 
Total  
£m
2,719

n/a
n/a

20
20

6
6

11
11

1
1

–
–

5
5

43
43

Group 
sterling  
£m
2,041

Group  
euro  
£m
407

Group  
US dollar 
 £m
487

Group 
Swedish  
krona 
 £m
113

Group  
Indian  
rupee  
£m
105

Group  
Chinese  
renminbi 
£m
63

Group  
Other  
£m
141

Group  
Total  
£m
3,357

n/a

n/a
n/a

74

(46)
28

43

(27)
16

20

(9)
11

(1)

6
5

–

3
3

(6)

12
6

130

(61)
69

Company  
sterling  
£m
1,899

Company  
euro  
£m
816

Company  
US dollar  
£m
409

Company  
Swedish  
krona  
£m
256

Company  
Indian  
rupee  
£m
–

Company  
Chinese  
renminbi 
£m
–

Company  
Other  
£m
86

Company  
Total  
£m
3,466

n/a
n/a

30
30

16
16

18
18

–
–

–
–

4
4

68
68

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120

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

19  Financial risk management (continued)
(iii) Price risk – market fluctuations
Further information about the management of price risk, which arises principally from quoted and unquoted equity investments, is provided in the 
Risk section. A 5% change in the fair value of those investments would have the following direct impact on the statement of comprehensive income:

Group
Company

2012  
Quoted  
equity  
£m
27
20

2012 
Unquoted 
equity  
£m
70
15

2012  
Traded  
portfolio  
£m
2
–

2012  
Total  
£m
99
35

2011  
Quoted 
equity  
£m
20
17

2011 
Unquoted 
equity  
£m
107
29

2011  
Traded 
portfolio  
£m
–
–

2011  
Total  
£m
127
46

In addition, other price risk arises from carried interest balances.

20  Derivative financial instruments

Non-current assets
Forward foreign exchange contracts

Current assets
Forward foreign exchange contracts
Call options

Non-current liabilities
Forward foreign exchange contracts
Interest rate swaps

Current liabilities
Forward foreign exchange contracts

Group  
2012  
£m

Group  
2011  
£m

Company  
2012  
£m

Company  
2011  
£m

6
6

7
–
7

(1)
(40)
(41)

–
–

1
1

1
1
2

(3)
(22)
(25)

(9)
(9)

6
6

7
–
7

(1)
(40)
(41)

–
–

1
1

1
1
2

(3)
(22)
(25)

(9)
(9)

Forward foreign exchange contracts
The Group continued in its use of derivatives to hedge exchange movements on its US dollar and euro portfolio.
The contracts entered into by the Group are principally denominated in the currencies of the geographic areas in which the Group operates. The fair value 
of these contracts is recorded in the balance sheet and is determined by discounting future cash flows at the prevailing market rates at the balance sheet 
date. No contracts are designated as hedging instruments, as defined in IAS 39, and consequently all changes in fair value are taken to profit and loss.
At the balance sheet date, the notional amount of outstanding forward foreign exchange contracts was £549 million (2011: £603 million).
Interest rate swaps
The Group has one interest rate derivative. The fair value of this contract is recorded in the balance sheet and is determined by discounting future 
cash flows at the prevailing market rates at the balance sheet date. This contract is not designated as a hedging instrument, as defined in IAS 39, 
and consequently all changes in fair value are taken to the statement of comprehensive income.
At the balance sheet date, the notional amount outstanding of the variable rate to variable rate swap was £150 million.
The Group does not trade in derivatives. In general, derivatives held hedge specific exposures and have maturities designed to match the exposures 
they are hedging. It is the intention to hold both the financial instruments giving rise to the exposure and the derivative hedging them until maturity and 
therefore no net gain or loss is expected to be realised.
The derivatives are held at fair value which represents the replacement cost of the instruments at the balance sheet date. Movements in the fair value of 
derivatives are included in the statement of comprehensive income. In accordance with the fair value hierarchy described in note 13, derivative financial 
instruments are measured using Level 2 inputs.
Derivative assets and liabilities have been reclassified for prior periods between current and non-current positions to reflect the maturity of long-dated 
interest rate swaps.

3i Group plc  Annual report and accounts 2012

121

21  Loans and borrowings

Loans and borrowings are repayable as follows:
Within one year
In the second year
In the third year
In the fourth year
In the fifth year
After five years

Principal borrowings include:

Group  
2012  
£m

231
250
50
–
448
610
1,589

Group  
2011  
£m

Company  
2012  
£m

Company  
2011  
£m

31
638
265
50
–
884
1,868

231
250
–
–
292
610
1,383

31
413
265
50
–
884
1,643

Rate

Maturity

Group  
2012  
£m

Group  
2011  
£m

Company  
2012  
£m

Company  
2011  
£m

Issued under the £2,000 million note issuance programme
Fixed rate
£200 million notes (public issue)
£400 million notes (public issue)
€350 million notes (public issue)
Other
Variable rate
€500 million notes (public issue)
Other

6.875%
5.750%
5.625%

2023
2032
2017

EURIBOR+0.200%

2012

Committed multi-currency facilities
£100 million
£300 million
£200 million
£50 million
£450 million

Total loans and borrowings

LIBOR+2.75% to 3.00%
LIBOR+2.75%
LIBOR+3.75%
LIBOR+1.50%
LIBOR+1.00%

2012
2012
2014
2016
2016

200
375
292
35

231
250
1,383

–
–
50
–
156
206
1,589

200
375
309
62

382
265
1,593

69
156
50
–
–
275
1,868

200
375
292
35

231
250
1,383

–
–
–
–
–
–
1,383

200
375
309
62

382
265
1,593

–
–
50
–
–
50
1,643

The £100 million multi-currency facility was refinanced to £50 million with maturity extended from October 2012 to April 2016. The Group has not drawn 
down from this facility at 31 March 2012.
The £300 million multi-currency facility was refinanced to £450 million with maturity extended from October 2012 to June 2016.
The Group is subject to a financial covenant on its committed multi-currency facilities, the Asset Cover Ratio, defined as total assets (including cash) 
divided by loans and borrowings plus derivative financial liabilities. The Asset Cover Ratio limit is 1.45 at 31 March 2012 (2011: 1.40), the Asset Cover Ratio 
at 31 March 2012 is 2.82 (2011: 2.82).
All of the Group’s borrowings are repayable in one instalment on the respective maturity dates. None of the Group’s interest-bearing loans and 
borrowings are secured on the assets of the Group. The fair value of the loans and borrowings is £1,581 million (2011: £1,875 million), determined where 
applicable with reference to their published market price.

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122

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

22  Convertible bonds

Opening balance
Amortisation 
Repurchase during the year
Repayment at maturity
Closing balance

Group  
2012  
£m
138
1
–
(139)
–

Group  
2011  
£m
363
24
(249)
–
138

Company  
2012  
£m
138
1
–
(139)
–

Company 
2011  
£m
363
24
(249)
–
138

On 29 May 2008, a £430 million three-year 3.625% convertible bond was raised. The Group share price on issue was £8.86 and the conversion price for 
bond holders was £11.32. Following the rights issue, the conversion price for bondholders reduced to £7.51. 
On issue, part of the proceeds was recognised as a derivative financial instrument and the remaining amount recognised as a loan held at amortised cost 
with an effective interest rate of 8.5%. The convertible bond matured on 31 May 2011 and was repaid in full.

23  Trade and other payables

Other accruals
Amounts due to subsidiaries

24  Provisions

Opening balance
(Release)/charge for the year
Utilised in the year
Closing balance

Opening balance
(Release)/charge for the year
Utilised in the year
Closing balance

Group  
2012  
£m
227
–
227

Group  
2011  
£m
198
–
198

Company  
2012  
£m
46
127
173

Company  
2011  
£m
30
303
333

Group  
2012  
Property  
£m
7
(2)
(1)
4

Group  
2011  
Property  
£m
12
(1)
(4)
7

Group  
2012  
Redundancy  
£m
1
11
(8)
4

Group  
2011  
Redundancy  
£m
5
3
(7)
1

Group  
2012  
Total  
£m
8
9
(9)
8

Group  
2011  
Total  
£m
17
2
(11)
8

The provision for redundancy relates to staff reductions announced prior to 31 March 2012. Most of the provision is expected to be utilised in the next year.
The Group has a number of leasehold properties whose rent and unavoidable costs exceed the economic benefits expected to be received. These costs 
arise over the period of the lease, and have been provided for to the extent they are not covered by income from subleases. The leases covered by the 
provision have a remaining term of up to 13 years.

25  Issued capital

Issued and fully paid
Ordinary shares of 73 19/22p
Opening balance
Issued under employee share plans
Closing balance

2012  
Number

970,650,620
418,661
971,069,281

2012  
£m

717
–
717

2011  
Number 

970,381,476
269,144
970,650,620

2011  
£m

717
–
717

During the year to 31 March 2012, no options to subscribe for ordinary shares were exercised (2011: nil). 

3i Group plc  Annual report and accounts 2012

123

26   Equity
Capital redemption reserve
The capital redemption reserve is established in respect of the redemption of the Company’s ordinary shares.
Share-based payment reserve
The share-based payment reserve is a reserve to recognise those amounts in retained earnings in respect of share-based payments.
Translation reserve
The translation reserve comprises all exchange differences arising from the translation of the financial statements of international operations.
Capital reserve
The capital reserve recognises all profits that are capital in nature or have been allocated to capital. The Company’s Articles of Association provide that 
these profits are not distributable by way of dividend.
Revenue reserve
The revenue reserve recognises all profits that are revenue in nature or have been allocated to revenue.

27  Own shares

Opening cost
Additions
Disposals
Closing cost

2012  
£m
86
31
(12)
105

2011  
£m
86
–
–
86

Own shares consists of shares in 3i Group plc held by the 3i Group Employee Trust. As at 31 March 2012 the Trust held 32,968,465 shares in 3i Group plc 
(2011: 19,631,587). The market value of these shares at 31 March 2012 was £71 million (2011: £59 million). The Trust is funded by an interest-free loan from 
3i Group plc.

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

As at 31 March
Earnings per share (pence)
Basic
Diluted
Earnings (£m)
(Loss)/profit for the year attributable to equity holders of the Company

As at 31 March
Weighted average number of shares in issue
Ordinary shares
Own shares

Effect of dilutive potential ordinary shares
  Share options and awards
Diluted shares

As at 31 March
Net assets per share (£)
Basic
Diluted
Net assets (£m)
Net assets attributable to equity holders of the Company

As at 31 March
Number of shares in issue
Ordinary shares
Own shares

Effect of dilutive potential ordinary shares
  Share options and awards
Diluted shares

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s
b

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i
l
i
t
y

2012

(82.8)
(82.8)

(783)

2012

2011

19.6
19.5

186

2011

970,832,567
(25,156,748)
945,675,819

970,513,394
(19,660,791)
950,852,603

2,245,376
947,921,195

3,486,081
954,338,684

2012

2.80
2.79

2011

3.53
3.51

2,627

3,357

2012

2011

971,069,281
(32,968,465)
938,100,816

970,650,620
(19,631,587)
951,019,033

2,827,365
940,928,181

4,600,795
955,619,828

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124

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

29  Dividends

Declared and paid during the year
Ordinary shares
Final dividend
Interim dividend

Proposed final dividend

30  Operating leases
Leases as lessee
Future minimum payments due under non-cancellable operating lease rentals are as follows:

Less than one year
Between one and five years
More than five years

2012  
pence  
per share

2012  
£m

2011  
pence  
per share

2011  
£m

2.4
2.7
5.1
5.4

23
26
49
51

2.0
1.2
3.2
2.4

19
11
30
23

Group  
2012  
£m
9
26
27
62

Group  
2011  
£m
11
36
25
72

Company  
2012  
£m
–
–
–
–

Company  
2011  
£m
–
–
–
–

The Group leases a number of its offices under operating leases. None of the leases include contingent rentals.
During the year to 31 March 2012 £10 million (2011: £6 million) was recognised as an expense in the statement of comprehensive income in respect of 
operating leases. Income recognised in the statement of comprehensive income in respect of subleases was £nil (2011: £nil). The total future sublease 
payments expected to be received under non-cancellable subleases is £3 million (2011: £3 million).

31  Commitments

Equity and loan investments

Equity and loan investments

Group  
2012  
due within  
1 year  
£m
38

Group  
2012  
due  
2–5 years  
£m
13

Group  
2012  
due over  
5 years  
£m
–

Group  
2011  
due within  
1 year  
£m
6

Group  
2011  
due  
2–5 years 
£m
2

Group  
2011  
due over  
5 years  
£m
–

Group  
Total  
£m
51

Group  
Total  
£m
8

Company  
2012  
due within  
1 year  
£m
38

Company  
2012  
due  
2–5 years  
£m
8

Company  
2012 
due over  
5 years  
£m
–

Company  
2011  
due within  
1 year  
£m
1

Company  
2011  
due  
2–5 years  
£m
–

Company  
2011  
due over 
 5 years  
£m
–

Company  
Total  
£m
46

Company  
Total  
£m
1

Commitments above represent commitments made by the Group and Company to portfolio companies only, the prior period has been restated to reflect 
this. For commitments to funds managed and advised by the Group refer to page 20.

32  Contingent liabilities

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

Group  
2012  
£m
37

Group  
2011  
£m
5

Company  
2012  
£m
10

Company  
2011  
£m
–

The Company has guaranteed the payment of principal and interest on amounts drawn down by 3i Holdings plc under the committed multi-currency 
facilities. At 31 March 2012, 3i Holdings plc had drawn down £206 million (March 2011: £225 million) under these facilities. 
The Company has provided a guarantee to the Trustees of the 3i Group Pension Plan in respect of liabilities of 3i plc to the Plan. 3i plc is the sponsor of the 
3i Group Pension Plan. On 4 April 2012 the Company transferred eligible assets (£150 million of ordinary shares in 3i Infrastructure plc as defined by the 
agreement) to a wholly-owned subsidiary of the Group. The Company will retain all income and capital rights in relation to the 3i Infrastructure plc shares, 
(as eligible assets), unless the Company becomes insolvent or fails to comply with material obligations in relation to the agreement with the Trustees, all 
of which are under its control. The fair value of eligible assets at 31 March 2012 was £150 million. 
At 31 March 2012, there was no material litigation outstanding against the Company or any of its subsidiary undertakings.

3i Group plc  Annual report and accounts 2012

125

33  Related parties
The Group has various related parties stemming from relationships with limited partnerships managed by the Group, its investment portfolio, 
its advisory arrangements and its key management personnel. In addition the Company has related parties in respect of its subsidiaries.
Limited partnerships
The Group manages a number of external funds which invest through limited partnerships. Group companies act as the general partners of these limited 
partnerships and exert significant influence over them. The following amounts have been included in respect of these limited partnerships:

Statement of comprehensive income
Carried interest receivable
Fees receivable from external funds

Statement of financial position
Carried interest receivable

Group  
2012  
£m
(24)
41

Group  
2012  
£m
27

Group  
2011  
£m
25
47

Company  
2012  
£m
(24)
–

Company  
2011 
 £m
25
–

Group  
2011  
£m
82

Company  
2012  
£m
27

Company  
2011  
£m
82

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

Statement of comprehensive income
Realised (loss)/profit over value on the disposal of investments
Unrealised (losses)/profits on the revaluation of investments
Portfolio income

Statement of financial position
Quoted equity investments
Unquoted equity investments
Loans and receivables

Group  
2012  
£m
(4)
(370)
122

Group  
2012  
£m
480
853
1,141

Group  
2011  
£m
9
313
136

Group  
2011  
£m
321
1,633
1,294

Company  
2012  
£m
15
(57)
37

Company  
2011  
£m
17
245
35

Company  
2012  
£m
377
169
121

Company  
2011  
£m
321
507
201

From time to time transactions occur between related parties within the investment portfolio that the Group influences to facilitate the reorganisation or 
recapitalisation of an investee company. These transactions are made on an arm’s length basis.
Advisory arrangements
The Group acts as an adviser to 3i Infrastructure plc, which is listed on the London Stock Exchange. The following amounts have been included in respect 
of this advisory relationship:

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Statement of comprehensive income
Unrealised profits on the revaluation of investments
Fees receivable from external funds
Dividends

Statement of financial position
Quoted equity investments

Group  
2012  
£m
22
17
18

Group  
2012  
£m
375

Group  
2011  
£m
21
17
16

Company  
2012  
£m
22
–
18

Company  
2011  
£m
21
–
16

Group  
2011  
£m
320

Company  
2012  
£m
375

Company  
2011  
£m
320

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126

3i Group plc  Annual report and accounts 2012

Notes to the financial statements

33  Related parties (continued)
Key management personnel
The Group’s key management personnel comprise the members of the Leadership Team, and the Board’s non-executive Directors. The following 
amounts have been included in respect of these individuals:

Statement of comprehensive income
Salaries, fees, supplements and benefits in kind
Bonuses and deferred share bonuses1
Increase in accrued pension
Carried interest and performance fees payable
Share-based payments
Termination benefits2

1  For further detail, see Directors’ remuneration report, page 81. 
2  No termination benefits were paid to executive Directors during the year.

Statement of financial position
Bonuses and deferred share bonuses
Carried interest and performance fees payable within one year
Carried interest and performance fees payable after one year
Deferred consideration included within trade and other payables1

1  Deferred consideration relates to the acquisition in the prior year, set out in note 15.

Group  
2012  
£m
7
3
–
6
3
1

Group  
2012  
£m
4
4
11
11

Group  
2011  
£m
6
6
–
15
1
–

Group  
2011  
£m
8
8
11
11

Carried interest paid in the year to key management personnel was £6 million (2011: £16 million).
Subsidiaries
Transactions between the Company and its subsidiaries, which are related parties of the Company, are eliminated on consolidation. Details of related 
party transactions between the Company and its subsidiaries are detailed below.
Management, administrative and secretarial arrangements
The Company has appointed 3i Investments plc, a wholly-owned subsidiary of the Company incorporated in England and Wales, as investment manager 
of the Group. 3i Investments plc received a fee of £23 million (2011: £23 million) for this service.
The Company has appointed 3i plc, a wholly-owned subsidiary of the Company incorporated in England and Wales, to provide the Company with a range 
of administrative and secretarial services. 3i plc received a fee of £86 million (2011: £151 million) for this service.
Investment entities
The Company makes investments through a number of subsidiaries by providing funding in the form of capital contributions or loans depending on the 
legal form of the entity making the investment. The legal form of these subsidiaries may be limited partnerships or limited companies or equivalent 
depending on the jurisdiction of the investment. The Company receives interest on this funding, amounting in the year to 31 March 2012 to £nil (2011: £nil).
Other subsidiaries
The Company borrows funds from certain subsidiaries and pays interest on the outstanding balances. The amounts that are included in the Company’s 
statement of comprehensive income are £nil (2011: £nil).

3i Group plc  Annual report and accounts 2012

127

34  Group entities
Significant subsidiaries

Name
3i Holdings plc

Country of incorporation
England and Wales

Issued and fully paid share capital
1,000,000 ordinary shares of £1

Principal activity
Holding company

Registered office
16 Palace Street  
London SW1E 5JD

3i International Holdings
3i plc
3i Debt Management Limited
3i Debt Management Investments 

England and Wales
England and Wales
England and Wales
England and Wales

Limited

2,715,973 ordinary shares of £10
110,000,000 ordinary shares of £1 Services
1,000,000 ordinary shares of £1
12,000,000 ordinary shares of £1

Holding company
Investment manager

Holding company

England and Wales
3i Investments plc
England and Wales
3i Europe plc
3i Nordic plc
England and Wales
Gardens Pension Trustees Limited England and Wales
3i Corporation 

USA

10,000,000 ordinary shares of £1
500,000 ordinary shares of £1
500,000 ordinary shares of £1
100 ordinary shares of £1
15,000 shares of common stock 

Investment manager
Investment adviser
Investment adviser
Pension fund trustee
Investment manager

(no par value)

3i Deutschland Gesellschaft für 
Industriebeteiligungen GmbH

Germany

€25,564,594

Investment manager

375 Park Avenue  
Suite 3001  
New York  
NY 10152, USA
Bockenheimer  
Landstrasse 2-4  
60306 Frankfurt am  
Main, Germany

The list above comprises the principal subsidiary undertakings as at 31 March 2012 all of which were wholly-owned, with the exception of 3i Debt 
Management Limited, which is 55% owned and is in turn the 100% owner of 3i Debt Management Investments Limited. The Group has entered into 
agreements to purchase the remaining 45% of the equity of 3i Debt Management Limited, currently owned by management, over the next five years. 
They are incorporated in Great Britain and registered in England and Wales unless otherwise stated.
Each of the above subsidiary undertakings is included in the consolidated accounts of the Group.
As at 31 March 2012, the entire issued share capital of 3i Holdings plc and 55% of the issued share capital of 3i Debt Management Limited was held by the 
Company. The entire issued share capital of all the other principal subsidiary undertakings listed above was held by subsidiary undertakings of the Company.
The Directors are of the opinion that the number of undertakings in respect of which the Company is required to disclose information under Schedule 4 
to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 is such that compliance would result in information of 
excessive length being given. Full information will be annexed to the Company’s next annual return.
Advantage has been taken of the exemption conferred by Regulation 7 of the Partnerships (Accounts) Regulations 2008 from the requirements to deliver 
to the Register of Companies and publish the accounts of those limited partnerships included in the consolidated accounts of the Group.

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128

3i Group plc  Annual report and accounts 2012

Independent auditor’s report 

Independent auditor’s report to the members of 3i Group plc
We have audited the financial statements of 3i Group plc for the year ended 31 March 2012 which comprise the Statement of comprehensive income,  
the Group and parent company Statement of changes in equity, the Group and parent company Statements of financial position, the Group and parent 
company Cash flow statements and the related notes 1 to 34. The financial reporting framework that has been applied in their preparation is applicable 
law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, 
as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work  
has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no 
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s 
members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ responsibilities statement set out on page 73, the Directors are responsible for the preparation of the financial 
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements 
in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing 
Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the 
financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting 
policies are appropriate to the Group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the 
reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read 
all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become 
aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements
In our opinion:
 the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 March 2012 and of the Group’s 

loss for the year then ended;

 the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and
 the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied 

in accordance with the provisions of the Companies Act 2006; and

 the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial 

statements, Article 4 of the IAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
 the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and
 the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial 

statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
 adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not 

visited by us; or

 the parent company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting 

records and returns; or

 certain disclosures of Directors’ remuneration specified by law are not made; or
 we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
 the Directors’ statement, set out on page 73, in relation to going concern;
 the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code 

specified for our review; and

 certain elements of the report to shareholders by the Board on Directors’ remuneration.

Andrew McIntyre (Senior statutory auditor) 
for and on behalf of Ernst & Young LLP, Statutory Auditor 
London 
16 May 2012

 
3i Group plc  Annual report and accounts 2012

129

Portfolio

Information on the composition of our 
portfolio and how we determine the value 
of our portfolio.

Portfolio valuation – an explanation 
Portfolio composition 
Fifty large investments 

130
133
136

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130

3i Group plc  Annual report and accounts 2012

Portfolio valuation – an explanation

The Group’s valuation policy is the responsibility of the Board, with additional 
oversight from the Board’s Valuations Committee. This section sets out our 
valuation policy in detail and explains how we value investments in each of 
our business lines.

Policy
Our policy is to value 3i’s investment portfolio at fair value 
and achieve this by valuing individual investments on an 
appropriate basis using a consistent approach across the 
portfolio. The Group’s valuation policy is the responsibility 
of the Board and is reviewed by the Board’s Valuations 
Committee at least annually. The policy ensures that the 
portfolio valuation is compliant with the fair value guidelines 
under IFRS and, in so doing, is also compliant with the 
guidelines issued by the International Private Equity and 
Venture Capital valuation board (the “IPEV guidelines”). 
The policy covers the Group’s Private Equity, Infrastructure 
and Debt Management investment valuations.
Fair value is the underlying principle and is defined as 
“the price at which an orderly transaction would take 
place between market participants at the reporting date” 
(IPEV guidelines, September 2009). Fair value is therefore 
an estimate and, as such, determining fair value requires 
the use of judgement.

Private Equity valuation

Determining enterprise value
To arrive at the fair value of the Group’s Private Equity 
investments, we first estimate the entire value of the 
company we have invested in – the enterprise value. 
This enterprise value is determined using one of a 
selection of methodologies depending on the nature, 
facts and circumstances of the investment.
Where possible, we use methodologies which draw 
heavily on observable market prices, whether listed equity 
markets or reported merger and acquisition transactions.
The quoted assets in our portfolio are valued at their 
closing bid price on the balance sheet date.
The majority of the rest of our portfolio, however, is 
represented by unquoted investments. These are valued, 
in the vast majority of cases, with reference to market 
comparables, or to recent reported transactions. 
As unquoted investments are not traded on an active 
market, as quoted investments are, the Group adjusts 
the estimated enterprise value by a marketability or 
liquidity discount. The marketability or liquidity discount is 
applied to the total enterprise value and we apply a higher 
discount rate for investments where there are material 
restrictions on our ability to sell at a time of our choosing.
The table on page 132 outlines in more detail the range 
of valuation methodologies available to us, as well as the 
inputs and adjustments necessary for each.

3i Group plc  Annual report and accounts 2012

131

Apportioning the enterprise value 
between 3i, other shareholders and 
lenders
Once we have estimated the enterprise value using one  
of the methodologies outlined in the table on page 132,  
the following steps are taken:
1.  We subtract the value of any claims, net of free cash 
balances, that are more senior to the most senior of 
our investments;

2.  The resulting attributable enterprise value is apportioned 
to the Group’s investment, and equal ranking investments 
by other parties, according to contractual terms and 
conditions, to arrive at a fair value of the entirety of 
the investment. The value is then distributed amongst 
the different loan, equity and other financial 
instruments accordingly.

3.  If the value attributed to a specific shareholder loan 

investment in a company is less than its par or nominal 
value, a shortfall is implied, which is recognised in our 
valuation. In exceptional cases, we may judge that the 
shortfall is temporary; to recognise the shortfall in such 
a scenario would lead to unrepresentative volatility and 
hence we may choose not to recognise the shortfall.

Other factors
In applying this framework, there are additional 
considerations that are factored into the valuation 
of some assets.

Impacts from structuring
Structural rights are instruments convertible into equity or 
cash at specific points in time or linked to specific events. 
For example, where a majority shareholder chooses to sell, 
and we have a minority interest, we may have the right to a 
minimum return on our investment.
Debt instruments, in particular, may have structural rights. 
In the valuation, it is assumed third parties, such as lenders 
or holders of convertible instruments, fully exercise any 
rights they might have, and that the value to the Group may 
therefore be reduced by such rights held by third parties. 
The Group’s own rights are valued on the basis they are 
exercisable on the reporting date.

Assets classified as “terminal”
If we believe an investment has more than a 50% probability 
of failing in the 12 months following the valuation date,  
we value the investment on the basis of its expected 
recoverable amount in the event of failure. It is important  
to distinguish between our investment failing and the 
business failing; the failure of our investment does not 
always mean that the business has failed, just that our 
recoverable value has dropped significantly. This would 
generally result in the equity and loan components of our 
investment being valued at nil.

Infrastructure valuation
The primary valuation methodology used for infrastructure 
investments is the discounted cash flow method (“DCF”). 
Fair value is estimated by deriving the present value of 
the investment using reasonable assumptions of expected 
future cash flows and the terminal value and date, and 
the appropriate risk-adjusted discount rate that quantifies 
the risk inherent to the investment. The discount rate is 
estimated with reference to the market risk-free rate, a risk 
adjusted premium and information specific to the investment 
or market sector.
Currently, the Group’s investment in the Infrastructure 
business line predominantly consists of the investment 
in the quoted vehicle, 3i Infrastructure plc, and the 
unquoted portfolio in the 3i India Infrastructure Fund. 
These vehicles use DCF as the primary method of valuing 
their underlying portfolio.

Debt Management valuation
The Group’s Debt Management business line typically 
invests in traded debt instruments and the subordinated 
notes that it is required to hold in the debt funds which it 
manages. The traded debt instruments are valued using 
an average of broker quotes available, reflecting the best 
available market observable data.
The subordinated notes that it is required to hold in the debt 
funds are also valued using average broker quotes in the first 
instance. Where broker quotes are unavailable or deemed 
unreliable, ie in the absence of an orderly market or where 
transactions take place in a market where the motivations of 
buyers and sellers is not fully transparent, then the net asset 
value of the fund can be used to determine the valuation of 
the equity investment.

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132

3i Group plc  Annual report and accounts 2012

Portfolio valuation – an explanation

Methodology

Description

Inputs

Earnings
(Private Equity)

 – Most commonly used Private 
Equity valuation methodology
 – Used for investments which 
are profitable and for which 
we can determine a set 
of listed companies and 
precedent transactions, 
where relevant, with 
similar characteristics

Earnings multiples are applied to the earnings of the company 
to determine the enterprise value

Earnings
 – Reported earnings adjusted for non-recurring items, such 
as restructuring expenses, and for significant corporate 
actions, to arrive at maintainable earnings

 – Most common measure is earnings before interest, tax, 

depreciation and amortisation (“EBITDA”)

 – Earnings used are usually the management accounts for 
the 12 months to the quarter end preceding the reporting 
period, unless data from forecasts or the latest audited 
accounts provides a more reliable picture of maintainable 
earnings

Earnings multiples
 – The earnings multiple is derived from comparable listed 
companies or relevant market transaction multiples

 – We select companies in the same industry, where possible, 
with a similar business model and profile in terms of size, 
products, services and customers, growth rates and, 
where possible, in the same geographic region

 – We track the multiple paid at our initial investment against 
this set of comparable companies, taking into account a 
relative premium or discount where the underlying risk 
and earnings growth rate support that relative ranking
 – We adjust for changes in the relative performance in the 

set of comparables

Closing bid price at balance sheet date

Contracted proceeds for the transaction, or best estimate 
of the expected proceeds

Net asset value reported by the fund manager

% of  
portfolio 
valued on 
this basis

67%

Adjustments

A marketability or 
liquidity discount is 
applied to the enterprise 
value, typically between 
5% and 15%, using factors 
such as our alignment 
with management and 
other investors and our 
investment rights in 
the deal structure

No adjustments or 
discounts applied

A discount of typically 
2.5% is applied to reflect 
any uncertain adjustments 
to expected proceeds

Typically no further 
discount applied in 
addition to that applied 
by the fund manager

An appropriate discount 
is applied, depending on 
the valuation metric used

17%

<1%

<1%

5%

Used for investments 
in listed companies

Used where an asset is in 
a sales process, a price 
has been agreed but the 
transaction has not yet settled

Used for investments 
in unlisted funds

Quoted
(Infrastructure/
Private Equity)

Imminent sale
(Infrastructure/
Private Equity)

Fund
(Infrastructure/ 
Private Equity/Debt 
Management)

Specific industry 
metrics
(Private Equity)

Used for investments in 
industries which have well 
defined metrics as bases 
for valuation – eg book value 
for insurance underwriters, 
or regulated asset bases 
for utilities

We create a set of comparable listed companies and derive 
the implied values of the relevant metric

We track and adjust this metric as in the case of an earnings 
multiple

Comparable companies are selected using the same criteria 
as described for the earnings methodology

Broker quotes
(Debt Management/
Infrastructure)

Net assets
(Private Equity)

Other
(Private Equity)

Discounted 
Cash Flow
(Infrastructure/ 
Private Equity)

Appropriate for businesses with 
long-term stable cash flows, 
typically in infrastructure

Long-term cash flows are discounted at a rate which 
is benchmarked against market data, where possible, 
or adjusted from the rate at the initial investment based on 
changes in the risk profile of the investment

Used to value debt instruments

Broker quotes obtained from banks which trade the specific 
instruments concerned

Discount already implicit 
in the discount rate 
applied to long-term 
cash flows – no further 
discounts applied

No discount is applied

Used for businesses that are 
loss making, or where the 
probability of liquidation is high

Used where elements of a 
business are valued on 
different bases

Assets are valued at the best estimate of the proceeds in a 
liquidation scenario

A discount is applied to 
reflect the uncertainty 
over the ultimate outcome

Values of separate elements prepared on one of the 
methodologies listed above

No further discount 
is applied

For a small proportion of our smaller investments (less than 3% of the portfolio), the valuation is determined by a more mechanical 
approach using information from the latest audited accounts. Equity shares are valued at the higher of an earnings or net assets 
methodology. Fixed income shares and loan investments are measured using amortised cost and any implied impairment, in line with IFRS.
Consistent with IPEV guidelines, all equity investments are held at fair value using the most appropriate methodology and no investments 
are held at historical cost.

8%

1%

0%

2%

3i Group plc  Annual report and accounts 2012

133

Portfolio composition

3i direct portfolio by business line (£m)

Private Equity

  Developed Markets

  Developing Markets

Total Private Equity

Infrastructure

Debt Management

Non-core

Total

3i direct portfolio by geography (£m)

Continental Europe

UK

India

China

Other Asia1

The Americas

Rest of World

Total

1  Includes Japan and Singapore.
2  One asset has been reclassified from Other Asia to China.

3i direct continental European portfolio value (£m)

Benelux

France

Germany/Austria/Switzerland

Italy

Nordic

Spain

Other European1

Total

31 March
2012

31 March
2011

2,177

354

2,531

528

42

103

3,204

31 March
2012

1,421

1,029

228

111

131

278

6

2,952

442

3,394

464

14

121

3,993

31 March
20112

2,060

1,071

277

127

175

277

6

3,204

3,993

31 March
2012

31 March
2011

286

228

418

6

232

178

73

406

153

566

10

459

389

77

1,421

2,060

1  Other European includes investments in countries where 3i did not have an office at 31 March 2012.

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134

3i Group plc  Annual report and accounts 2012

Portfolio composition

3i direct portfolio value by sector (£m)

Business and Financial Services

Consumer

Industrials and Energy

Healthcare

TMT

Infrastructure

Total

3i direct portfolio value by valuation method (£m)

Imminent sale or IPO

Quoted

Earnings

Net assets

Fund

Industry metric

DCF

Broker quotes

Other

Total

3i direct Private Equity portfolio value by valuation method (£m)

Imminent sale or IPO

Quoted

Earnings

Net assets

Fund

Industry metric

DCF

Other

Total

31 March
2012

31 March
2011

782

537

828

335

194

528

3,204

31 March
2012

8

535

2,128

–

18

152

231

42

90

877

449

1,491

483

229

464

3,993

31 March
2011

594

405

2,345

4

5

174

216

14

236

3,204

3,993

31 March
2012

4

131

2,037

–

17

152

108

82

31 March
2011

594

29

2,242

2

5

174

142

206

2,531

3,394

3i Group plc  Annual report and accounts 2012

135

3i direct Infrastructure portfolio value by valuation method (£m)

Quoted

DCF

Other

Total

3i direct Debt Management portfolio value by valuation method (£m)

Broker quotes

Total

3i direct Non-core portfolio value by valuation method (£m)

Imminent sale or IPO

Quoted

Earnings

Net assets

Other

Total

For details of investments by business line, please see page 27.
For details of realisations by business line, please see page 28.

31 March
2012

31 March
2011

403

123

2

528

374

73

17

464

31 March
2012

31 March
2011

42

42

14

14

31 March
2012

31 March
2011

4

1

92

–

6

103

–

2

103

2

14

121

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136

3i Group plc  Annual report and accounts 2012

Fifty large investments

The investments listed in these tables are substantially all of the Group’s investments over £13 million. They do not include four investments that 
have been excluded for commercial reasons.

Investment

3i Infrastructure plc
3i-infrastructure.com

Peer Holdings BV (Action)
action.nl

ACR Capital Holdings Pte Ltd
asiacapitalre.com

Description of business

Quoted investment company, investing 
in infrastructure

Business line

Geography

Infrastructure

UK

Non-food discount retailer

Private Equity

Benelux

Reinsurance in large risk segments

Private Equity

Singapore

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

Plastic processing technology provider

Private Equity

Canada

Eco US Holdings Inc (HILITE)
hilite.com

Foster + Partners
fosterandpartners.com

Mayborn Group Limited
mayborngroup.com

NORMA Group Holding GmbH3
normagroup.com 

Element Materials Technology
element.com

Scandferries Holding GmbH (Scandlines)4
scandlines.de

43% of total portfolio value

Quintiles Transnational Corporation
quintiles.com

Mémora Servicios Funerarias
memora.es

Eltel Networks Oy
eltelnetworks.com

Cornwall Topco Limited (Civica)
civica.co.uk

Etanco
etanco.eu

AES Engineering Limited
aesseal.co.uk

Navayuga Engineering Company Limited4
necltd.com

Tato Holdings Limited
thor.com

Azelis Holding S.A.
azelis.com

Amor GmbH
amor.de

63% of total portfolio value

Fluid control component provider

Private Equity

Germany

Architectural services

Private Equity

Manufacturer and distributor of baby products

Private Equity

UK

UK

Provider of engineered joining technology

Private Equity

Germany

Testing and inspection

Private Equity

Benelux

Ferry operator in the Baltic Sea 

Private Equity

Germany

Clinical research outsourcing solutions

Private Equity

US

Funeral service provider

Private Equity

Spain

Network Services maintenance

Private Equity

Finland

Public sector IT and services

Private Equity

UK

Designer, manufacturer and distributor of fasteners 
and fixing systems

Private Equity

France

Manufacturer of mechanical seals 
and support systems

Engineering and construction

Private Equity

Private Equity

Manufacturer and sales of speciality chemicals

SMi

UK

India

UK

Distributor of speciality chemicals, polymers  
and related services

Private Equity

Benelux

Distributor and retailer of affordable jewellery

Private Equity

Germany

1  “First invested in” is calendar year.
2  The residual cost of this investment cannot be disclosed per a confidentiality agreement in place at investment.
3  3i realised £74 million upon the IPO of NORMA in April 2011.
4  Valued using a combination of DCF and earnings and classified here as DCF. 

Proportion  

of equity  

shares held 

Residual cost

March 2011 

Residual cost

March 2012 

Valuation  

March 2011  

Valuation 

March 2012

First1

invested  

in

Valuation basis

2007

Quoted

2011

Earnings

2006

Industry metric

2007

Earnings

2011

Earnings

2007

Earnings

2006

Earnings

2006

Quoted

2010

Earnings

2007

DCF

2008

Earnings

2008

Earnings

2007

Earnings

2008

Earnings

2012

1996

2006

Earnings

Earnings

DCF

1990

Earnings

2007

Earnings

2010

Earnings

%

34.1

35.9

31.1

49.3

21.9

40.0

44.7

21.1

42.2

27.3

4.9

34.7

42.6

40.2

30.3

40.6

10.0

26.1

36.5

42.1

£m

270

n/a

105

75

n/a

2

89

33

56

45

74

109

85

90

n/a

30

23

2

49

48

£m

302

115

105

103

75

99

2

0

63

39

74

116

85

92

72

30

23

2

51

46

£m

375

143

118

115

115

112

105

103

90

89

86

74

68

68

67

63

61

59

56

55

£m

320

n/a

146

86

n/a

132

95

197

57

102

118

82

60

n/a

51

66

62

84

50

1,135

108

1,365

1,816

2,022

Peer Holdings BV (Action)

Non-food discount retailer

Private Equity

Benelux

Description of business

Business line

Geography

Quoted investment company, investing 

Infrastructure

UK

in infrastructure

Reinsurance in large risk segments

Private Equity

Singapore

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

Plastic processing technology provider

Private Equity

Canada

Eco US Holdings Inc (HILITE)

Fluid control component provider

Private Equity

Germany

Architectural services

Private Equity

Manufacturer and distributor of baby products

Private Equity

UK

UK

NORMA Group Holding GmbH3

Provider of engineered joining technology

Private Equity

Germany

Element Materials Technology

Testing and inspection

Private Equity

Benelux

Scandferries Holding GmbH (Scandlines)4

Ferry operator in the Baltic Sea 

Private Equity

Germany

43% of total portfolio value

Quintiles Transnational Corporation

Clinical research outsourcing solutions

Private Equity

US

Mémora Servicios Funerarias

Funeral service provider

Private Equity

Spain

Network Services maintenance

Private Equity

Finland

Cornwall Topco Limited (Civica)

Public sector IT and services

Private Equity

UK

Navayuga Engineering Company Limited4

Engineering and construction

Designer, manufacturer and distributor of fasteners 

Private Equity

France

and fixing systems

Manufacturer of mechanical seals 

and support systems

Private Equity

Private Equity

UK

India

UK

Manufacturer and sales of speciality chemicals

SMi

Distributor of speciality chemicals, polymers  

Private Equity

Benelux

and related services

Distributor and retailer of affordable jewellery

Private Equity

Germany

Investment

3i Infrastructure plc

3i-infrastructure.com

action.nl

ACR Capital Holdings Pte Ltd

asiacapitalre.com

moldmasters.com

hilite.com

Foster + Partners

fosterandpartners.com

Mayborn Group Limited

mayborngroup.com

normagroup.com 

element.com

scandlines.de

quintiles.com

memora.es

Eltel Networks Oy

eltelnetworks.com

civica.co.uk

Etanco

etanco.eu

AES Engineering Limited

aesseal.co.uk

necltd.com

Tato Holdings Limited

thor.com

Azelis Holding S.A.

azelis.com

Amor GmbH

amor.de

63% of total portfolio value

1  “First invested in” is calendar year.

2  The residual cost of this investment cannot be disclosed per a confidentiality agreement in place at investment.

3  3i realised £74 million upon the IPO of NORMA in April 2011.

4  Valued using a combination of DCF and earnings and classified here as DCF. 

3i Group plc  Annual report and accounts 2012

137

First1
invested  
in

2007

Valuation basis

Quoted

2011

Earnings

2006

Industry metric

2007

Earnings

2011

Earnings

2007

Earnings

2006

Earnings

2006

Quoted

2010

Earnings

2007

DCF

2008

Earnings

2008

Earnings

2007

Earnings

2008

Earnings

2012

1996

2006

Earnings

Earnings

DCF

1990

Earnings

2007

Earnings

2010

Earnings

Proportion  
of equity  
shares held 
%

Residual cost
March 2011 
£m

Residual cost
March 2012 
£m

Valuation  
March 2011  
£m

Valuation 
March 2012
£m

34.1

35.9

31.1

49.3

21.9

40.0

44.7

21.1

42.2

27.3

4.9

34.7

42.6

40.2

30.3

40.6

10.0

26.1

36.5

42.1

270

n/a

105

75

n/a

2

89

33

56

45

74

109

85

90

n/a

30

23

2

49

48

302

115

105

75

99

2

103

0

63

39

74

116

85

92

72

30

23

2

51

46

320

n/a

146

86

n/a

132

95

197

57

102

1,135

108

118

82

60

n/a

51

66

62

84

50

375

143

118

115

115

112

105

103

90

89

1,365

86

74

68

68

67

63

61

59

56

55

1,816

2,022

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138

3i Group plc  Annual report and accounts 2012

Fifty large investments

Investment

OneMed Group

Description of business

Distributor of consumable medical products, 
devices and technology

Business line

Geography

Private Equity

Sweden

Proportion  

of equity  

shares held 

Residual cost

March 2011 

Residual cost

March 2012 

Valuation  

March 2011  

Valuation 

March 2012

Phibro Animal Health Corporation

Animal healthcare

Trescal

Lekolar AB

Palace Street I

Calibration services

Distributor of pedagogical products 
and educational materials

Debt Management 
(Credit Opportunities Fund)

Hyperion Insurance Group Limited

Specialist insurance intermediary

Everis Participaciones S.L.

IT consulting business

Krishnapatnam Port

India Port

LHI Technology Private Limited

Medical cable assemblies

Lakeside Network Investments

Electricity distribution

Polyconcept Investments BV

Supplier of promotional products

Adani Power

Power generation

Otnortopco AS (Xellia/alpharma)

Developer and supplier of specialist active 
pharmaceutical ingredients

BVG India Ltd

Labco SA

Soya Concept A/S

Business Services

Diagnostics laboratories

Fashion design company

SLR Management Limited

Specialist environmental consultancy

Loxam Holdings

Touch Tunes Interactive Networks

Professional equipment rental

Out of home interactive media and 
entertainment network

GVK Energy

Power generation

Environmental Scientifics Group

Testing, inspection and compliance

MKM Building Supplies (Holdings) Limited

Builders’ merchant

Consultim Finance SAS

Wholesaler of rental real estate

Joyon Southside

Refresco Group B.V.

KMC Roads

UFO Moviez

Gain Capital

Franklin Offshore Holdings Pte Limited

Inspecta

87% of total portfolio value

1  “First invested in” is calendar year.

Real estate

Manufacturer of private label juices and soft drinks

Private Equity

Engineering, procurement and construction services

Infrastructure

Provider of digital cinema services

Retail online forex trading

Manufacture, installation and maintenance 
of mooring and rigging equipment

Supplier of testing, inspection and 
certification services

Private Equity

Private Equity

Private Equity

Debt 
Management

Private Equity

Private Equity

Infrastructure

Private Equity

Infrastructure

Private Equity

Infrastructure

Private Equity

Private Equity

Private Equity

US

France 

Sweden 

UK

UK

Spain

India

China

Finland

Benelux

India

Norway

India

France

Private Equity

Denmark

Private Equity

Private Equity

Private Equity

Infrastructure

Private Equity

Private Equity

Private Equity

Private Equity

Private Equity

Private Equity

UK

France

US

India

UK

UK

France

China

Benelux

India

India

US

Private Equity

Singapore

Private Equity

Finland

First1

invested  

in

Valuation basis

2011

Earnings

2011

Broker quotes

2008

Industry metric

2009

2010

2007

2007

2009

2008

2012

2005

2007

2007

2011

2008

2007

2008

2011

2011

2010

2007

1998

2007

2007

2010

2011

2007

2008

2007

2007

Earnings

Earnings

Earnings

Earnings

DCF

Earnings

DCF

Earnings

Quoted

Earnings

Earnings

Earnings

Earnings

Earnings

Earnings

Earnings

DCF

Earnings

Earnings

Earnings

Earnings

DCF

DCF

Earnings

Quoted

Other

Earnings

%

30.5

29.9

23.5

33.3

n/a

19.1

18.3

3.0

37.5

5.7

13.0

1.6

30.4

19.6

12.3

45.0

25.9

3.8

9.4

2.3

38

30.3

20.0

49.9

10.7

6.7

27.6

10.1

30.9

39.2

£m

89

90

27

28

n/a

n/a

22

30

24

16

21

25

77

21

65

13

22

n/a

n/a

15

27

14

12

15

46

15

14

24

12

51

£m

93

89

31

30

36

21

30

24

16

28

43

25

86

21

66

13

23

21

18

23

32

15

24

8

46

15

11

24

12

51

£m

91

54

32

33

n/a

n/a

28

36

31

41

25

54

60

20

57

27

23

n/a

n/a

15

41

23

24

25

47

15

32

20

29

23

£m

46

41

38

36

35

34

31

31

30

29

29

28

27

25

24

23

23

23

22

22

21

21

20

20

17

16

14

13

13

13

2,722

2,787

3i Group plc  Annual report and accounts 2012

139

Phibro Animal Health Corporation

Animal healthcare

Description of business

Business line

Geography

Distributor of consumable medical products, 

Private Equity

Sweden

devices and technology

Investment

OneMed Group

Trescal

Lekolar AB

Palace Street I

Calibration services

Distributor of pedagogical products 

and educational materials

Debt Management 

(Credit Opportunities Fund)

Hyperion Insurance Group Limited

Specialist insurance intermediary

Everis Participaciones S.L.

IT consulting business

Krishnapatnam Port

India Port

LHI Technology Private Limited

Medical cable assemblies

Lakeside Network Investments

Electricity distribution

Polyconcept Investments BV

Supplier of promotional products

Adani Power

Power generation

Otnortopco AS (Xellia/alpharma)

Developer and supplier of specialist active 

BVG India Ltd

Labco SA

Soya Concept A/S

pharmaceutical ingredients

Business Services

Diagnostics laboratories

Fashion design company

Touch Tunes Interactive Networks

Out of home interactive media and 

entertainment network

GVK Energy

Power generation

Environmental Scientifics Group

Testing, inspection and compliance

MKM Building Supplies (Holdings) Limited

Builders’ merchant

Consultim Finance SAS

Wholesaler of rental real estate

SLR Management Limited

Specialist environmental consultancy

Private Equity

Loxam Holdings

Professional equipment rental

Private Equity

France

Private Equity

Denmark

Private Equity

Private Equity

Private Equity

Debt 

Management

Private Equity

Private Equity

Infrastructure

Private Equity

Infrastructure

Private Equity

Infrastructure

Private Equity

Private Equity

Private Equity

Private Equity

Infrastructure

Private Equity

Private Equity

Private Equity

Private Equity

Private Equity

Private Equity

US

France 

Sweden 

UK

UK

Spain

India

China

Finland

Benelux

India

Norway

India

France

UK

US

India

UK

UK

France

China

Benelux

India

India

US

Real estate

Manufacturer of private label juices and soft drinks

Private Equity

Engineering, procurement and construction services

Infrastructure

Franklin Offshore Holdings Pte Limited

Manufacture, installation and maintenance 

Private Equity

Singapore

Private Equity

Finland

Provider of digital cinema services

Retail online forex trading

of mooring and rigging equipment

Supplier of testing, inspection and 

certification services

Joyon Southside

Refresco Group B.V.

KMC Roads

UFO Moviez

Gain Capital

Inspecta

87% of total portfolio value

1  “First invested in” is calendar year.

First1
invested  
in

2011

2009

2010

2007

Valuation basis

Earnings

Earnings

Earnings

Earnings

2011

Broker quotes

2008

Industry metric

2007

2009

2008

2012

2005

2007

2007

2011

2008

2007

2008

2011

2011

2010

2007

1998

2007

2007

2010

2011

2007

2008

2007

2007

Earnings

DCF

Earnings

DCF

Earnings

Quoted

Earnings

Earnings

Earnings

Earnings

Earnings

Earnings

Earnings

DCF

Earnings

Earnings

Earnings

DCF

Earnings

DCF

Earnings

Quoted

Other

Earnings

Proportion  
of equity  
shares held 
%

Residual cost
March 2011 
£m

Residual cost
March 2012 
£m

Valuation  
March 2011  
£m

Valuation 
March 2012
£m

30.5

29.9

23.5

33.3

n/a

19.1

18.3

3.0

37.5

5.7

13.0

1.6

30.4

19.6

12.3

45.0

25.9

3.8

9.4

2.3

38

30.3

20.0

49.9

10.7

6.7

27.6

10.1

30.9

39.2

89

90

27

28

n/a

22

30

24

16

n/a

21

25

77

21

65

13

22

n/a

n/a

15

27

14

12

15

46

15

14

24

12

51

93

89

31

30

36

21

30

24

16

28

43

25

86

21

66

13

23

21

18

23

32

15

24

8

46

15

11

24

12

51

91

54

32

33

n/a

28

36

31

41

n/a

25

54

60

20

57

27

23

n/a

n/a

15

41

23

24

25

47

15

32

20

29

23

46

41

38

36

35

34

31

31

30

29

29

28

27

25

24

23

23

23

22

22

21

21

20

20

17

16

14

13

13

13

2,722

2,787

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140

3i Group plc  Annual report and accounts 2012

Information for shareholders

Financial calendar
Ex-dividend date

Record date

Annual General Meeting*

Final dividend to be paid

Half-year results (available online only)

Interim dividend expected to be paid

20 June 2012

22 June 2012

29 June 2012

20 July 2012

November 2012

January 2013

*  The 2012 Annual General Meeting will be held at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE on 29 June 

2012 at 10.30am. For further details please see the Notice of Annual General Meeting 2012.

Information on ordinary shares
Shareholder profile: Location of investors at 31 March 2012

UK

North America

Continental Europe

Other international

Share price
Share price at 31 March 2012

High during the year (17 May 2011)

Low during the year (19 December 2011)

Dividends paid in the year to 31 March 2012
2010/2011 Final dividend, paid 15 July 2011

2011/2012 Interim dividend, paid 11 January 2012

Balance analysis summary

1 – 1,000

1,001 – 10,000

10,001 – 100,000

100,001 – 1,000,000

1,000,001 – 10,000,000

10,000,001 – highest

Total

78.5%

8.7%

9.7%

3.1%

214.0p

294.1p

166.9p

2.4p

2.7p

%

0.82

1.80

1.74

10.89

37.11

47.64

Number of holdings
Individuals

Number of holdings 
Corporate Bodies

Balance as at
31 March 2012

16,304

6,225

185

20

0

0

814

1,204

353

276

125

23

7,959,417

17,518,245

16,914,945

105,696,516

360,363,991

462,616,167

22,734

2,795

971,069,281

100.00

The table above provides details of the number of shareholdings within each of the bands stated in the register of members at 31 March 2012.

Unsolicited telephone calls
In the past, some of our shareholders have received unsolicited telephone  
calls or correspondence concerning investment matters from organisations 
or persons claiming or implying that they have some connection with the 
Company. These are typically from overseas based “brokers” who target 
UK shareholders offering to sell them what often turn out to be worthless 
or high risk shares in UK or overseas investments. Shareholders are advised 
to be very wary of any unsolicited advice, offers to buy shares at a discount 
or offers of free reports into the Company. These approaches are operated 
out of what is more commonly known as a “boiler room”. You may also 
be approached by brokers offering to purchase your shares for an upfront 
payment in the form of a broker fee, tax payment or de-restriction fee. 
This is a common secondary scam operated by the boiler rooms.
If you receive any unsolicited investment advice:
 always ensure the firm is on the Financial Services Authority (“FSA”) 

Register and is allowed to give financial advice before handing over your 
money. You can check at www.fsa.gov.uk/pages/register;

 double-check the caller is from the firm they say they are – ask for  

their name and telephone number and say you will call them back. Check 

their identity by calling the firm using the contact number listed on the 
FSA Register. This is important as the FSA has seen instances where an 
authorised firm’s website has been cloned but with a few subtle changes, 
such as a different phone number or false email address;
 check the FSA’s list of known unauthorised overseas firms at  

www.fsa.gov.uk/pages/doing/regulated/law/alerts/overseas.shtml. 
However, these firms change their name regularly, so even if a firm is 
not listed it does not mean they are legitimate. Always check that they 
are listed on the FSA Register;

 if you have any doubts, call the FSA Consumer Helpline on 0845 606 1234 

with details, or complete the Unauthorised Firms Reporting Form  
at www.fsa.gov.uk/pages/doing/regulated/law/alerts/form.shtml.  
If you deal with an unauthorised firm, you will not be eligible to receive 
payment under the Financial Services Compensation Scheme.  
More detailed information on this or similar activity can be found  
on the FSA website at www.moneymadeclear.org.uk. You should also report 
any approach to Operation Archway, an initiative by the City of London Police 
in conjunction with the FSA, the Serious Fraud Office, the Serious 
Organised Crime Agency and police forces within the UK, by email to: 
operationarchway@cityoflondon.pnn.police.uk.

Annual and half-yearly reports online 
If you would prefer to receive shareholder 
communications electronically in future, 
including annual reports and notices of 
meetings, please visit our Registrars’ website  
at www.shareview.co.uk/clients/3isignup and 
follow the instructions there to register. The 2012  
half-yearly report will only be available online.  
Please register to ensure you are notified when 
it becomes available.
More general information on electronic 
communications is available on our website  
at www.3igroup.com/e-comms

Investor relations and general enquiries
For all investor relations and general enquiries 
about 3i Group plc, including requests for further 
copies of the Report and accounts, please contact:
Group Communications 
3i Group plc 
16 Palace Street 
London SW1E 5JD
Telephone +44 (0)20 7928 3131 
Fax +44 (0)20 7928 0058 
email ir@3igroup.com 
or visit our Investor relations website,  
www.3igroup.com, for full up-to-date 
investor relations information, including the latest 
share price, Reporting centre, results presentations 
and financial news.

Registrars 
For shareholder administration enquiries, 
including changes of address, please contact:
Equiniti 
Aspect House 
Spencer Road 
Lancing 
West Sussex BN99 6DA
Telephone 0871 384 2031
Calls to this number are charged at 8p per minute from a BT landline, 
other telephony provider costs may vary. Lines are open from 8.30am 
to 5.30pm, Monday to Friday.
(International callers +44 121 415 7183)

3i Group plc 
Registered office:  
16 Palace Street,  
London SW1E 5JD, UK 
Registered in England No. 1142830 
An investment company as defined  
by section 833 of the Companies Act 2006.

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2012 have been measured and  
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3i Group plc  
16 Palace Street, London SW1E 5JD, UK 
Telephone +44 (0)20 7928 3131 
Fax +44 (0)20 7928 0058
Website www.3igroup.com
M72312 May 2012

For investor relations information, please visit:  
www.3igroup.com
For other information about 3i, please visit: 
www.3i.com