Information Services Group, Inc. Annual Report 2017

FY2017 Annual Report · Information Services Group, Inc.
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3i Group plc
Annual report  
and accounts 
2017

In this report

Strategic report:  
pages 3 to 57.

Directors’ report: 
pages 58 to 76 and  
95 to 99.

Directors’ remuneration 
report: pages 77 to 94.

Overview

Introduction 

Performance highlights 

Chairman’s statement 

Chief Executive’s review 

Action 

Our business at a glance 

Business activity 

How we create value 

Our strategic objectives 

Key performance indicators 

Private Equity

Investments in the year

  BoConcept 

  Schlemmer 

  Ponroy Santé 

Business review 

Infrastructure

Selected 3i Infrastructure plc investments 
in the year

  TCR 

  Wireless Infrastructure Group 

Business review 

Financial review, Risk and 
Corporate responsibility

Financial review 

Investment basis  

Reconciliation of Investment basis and IFRS 

Alternative Performance Measures  

Risk management  

Principal risks and mitigations  

Corporate responsibility  

01

02

03

04

07

08 

09 

10

12

14

17

18

19

20

26

27

28

30

35

39

43

44

48

54

Corporate Governance

Chairman’s introduction 

Board of Directors and  
Executive Committee 

The role of the Board 

Relations with shareholders 

Nominations Committee report 

Audit and Compliance Committee report 

Valuations Committee report 

Directors’ remuneration report 

Additional statutory and corporate  
governance information 

Audited ﬁnancial  
statements

Consolidated statement  
of comprehensive income 

Consolidated statement  
of ﬁnancial position 

Consolidated statement  
of changes in equity 

Consolidated cash ﬂow statement 

Company statement of ﬁnancial position 

Company statement of changes in equity 

Company cash ﬂow statement 

Signiﬁcant accounting policies 

Notes to the accounts 

Independent Auditor’s report 

Portfolio and  
other information

20 Large investments 

Portfolio valuation – an explanation 

Information for shareholders 

Glossary 

For deﬁnitions of our ﬁnancial terms,  
used throughout this report, please see  
our glossary on pages 162 and 164.

59

60

62

67

68

69

74

77

95

101 

102

103

104

105

106

107

108

112

149

156

158

160

162

Consistent with our approach since the introduction of IFRS 10 in 2014, the ﬁnancial data presented 
in the Overview and Strategic report is taken from the Investment basis ﬁnancial statements. 
The Investment basis (which is unaudited) is an alternative performance measure (“APM”) and 
is described on page 38 and the differences from, and the reconciliation to, the IFRS Audited 
ﬁnancial statements are detailed on pages 39 to 42. 

Disclaimer
The Annual report and accounts have been prepared solely to provide information to shareholders.  
They should not be relied on by any other party or for any other purpose.

The Strategic report on pages 3 to 57, the Directors’ report on pages 58 to 76 and 95 to 99, and the Directors’ 
remuneration report on pages 77 to 94 have been drawn up and presented in accordance with and in reliance 
upon English company law and the liabilities of the Directors in connection with those reports shall be subject  
to the limitations and restrictions provided by that law.

This Annual report may contain statements about the future, including certain statements about the future 
outlook for 3i Group plc and its subsidiaries (“3i”). These are not guarantees of future performance and will 
not be updated. 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.

For more information on 3i’s business, its 
portfolio and the latest news, please visit

www.3i.com

 
 
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Introduction
Starting with capital of £15 million in 1945, 
3i today is a leading international investor 
and manager focusing on private equity 
and infrastructure.

Our permanent capital is a distinct, 
competitive advantage. We use it to 
invest in opportunities where our active 
management approach, combined with 
our strong balance sheet, can create 
material value.

What we do
3i is an investment company with two 
complementary businesses, Private Equity 
and Infrastructure, specialising in core 
investment markets in northern Europe 
and North America.

Business model and strategy
We have a diverse investment portfolio 
and disciplined investment processes. 
This, together with our clear and 
consistent strategy, underpins our 
competitive advantage.

08 For more

information

Grow investment  
portfolio earnings

Realise investments with  
good cash-to-cash returns

Maintain an operating  
cash proﬁt

Use our strong  
balance sheet

Increase shareholder 
distributions

10 For more

information

3i Group Annual report and accounts 2017

01

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Overview

 Performance  
 highlights

for the year to 31 March 2017

 36%

Total return on equity
(2016: 22%)

 26.5p

Full year dividend  
per share
(2016: 22p)

 £982m

Private Equity 
realisation proceeds
(2016: £743m)

 £59m

Infrastructure operating  
cash income
(2016: £49m)

 604p

NAV per share
(31 March 2016: 463p)

 £33m

Operating  
cash proﬁt
(20163: £37m)

 £478m

Private Equity  
cash invested
(2016: £365m)

 £479m

Advised 3i Infrastructure plc  
on six new investments
(2016: £193m and four investments)

1  Certain ﬁnancial measures used in our Annual Report, such as operating cash proﬁt, are not deﬁned under IFRS and are therefore 

termed APMs. Further details on APMs are included on page 43.

2  The sale of our Debt Management business completed on 3 March 2017. The total return from the Debt Management business sold 

to Investcorp has been classiﬁed as discontinued operations and the prior period results have been re-presented. 

3  Operating cash proﬁt has been redeﬁned in the year and the prior year comparative restated. The rationale for the change together 

with the calculation is explained on page 31. Operating cash proﬁt includes the result of Debt Management.

02

3i Group Annual report and accounts 2017

Chairman’s  
statement

  Our clear strategy and focus on 
investment discipline and effective asset 
management delivered strong returns 
in FY2017. 

The Group delivered another robust 
performance in FY2017. The sale of Debt 
Management, completed in March 2017, 
has simpliﬁed and focused the Group 
on its two principal businesses, both 
of which performed well. Private Equity 
delivered very strong returns, driven 
by signiﬁcant portfolio earnings growth. 
Infrastructure continues to execute its 
updated strategy effectively, generating 
good returns with a strong pipeline of 
new business.

Market environment
FY2017 was dominated by unexpected 
political events, including the UK’s decision 
to leave the EU and the result of the US 
presidential election. These events created 
volatile conditions, but with supportive 
debt markets and high volumes of 
capital still seeking attractive investment 
opportunities in both Private Equity 
and Infrastructure, the market environment  
remains intensely competitive. Under these 
conditions, our permanent capital base, 
strong balance sheet and long-established 
business networks in our target sectors 
and geographies represent a distinct 
competitive advantage. They enable the 
Group to be agile and opportunistic while 
remaining focused on investment discipline 
and effective asset management.

Performance and dividend
The Group’s total return increased by 
93% to £1,592 million (2016: £824 million). 
Net asset value increased to 604 pence 
per share (31 March 2016: 463 pence) and 
our return on opening shareholders’ funds 
was 36% (2016: 22%). A strong market 
for realisations meant that we were, as 
anticipated, net divestors during FY2017. 
We repaid our €331 million bond in March 
2017 and ended the year with a net cash 
balance of £419 million and liquidity of 
£1,323 million (31 March 2016: net cash of 
£165 million and liquidity of £1,352 million).

In recognition of the strong level of cash 
realisations (including the proceeds 
from the sale of our Debt Management 
business) and taking into account the 
strength of the investment pipeline, the 
Board has recommended a ﬁnal dividend 
of 18.5 pence per share (2016: 16 pence 
per share) for FY2017. This is made up 
of the balance of the base dividend 
(8 pence per share, after the 8 pence 
interim dividend paid in January 2017) 
and an additional ﬁnal dividend of 10.5 
pence per share. The total dividend for 
the year of 26.5 pence per share reﬂects 
the Board’s continuing conﬁdence in 
the Group’s future prospects and cash 
generation capability.

Board changes
I am pleased to welcome Stephen Daintith, 
Chief Financial Ofﬁcer of Rolls-Royce 
Holdings, who joined the Board on 
1 October 2016. Stephen brings ﬁnancial, 
operating and international experience 
across a range of relevant sectors, 
including consumer and digital, and has 
already made a strong contribution to the 
Board and its committees.

Martine Verluyten has decided not to 
seek re-election at the Annual General 
Meeting on 29 June 2017. I would like to 
thank Martine for her valuable contribution 
since 2012 during a period of signiﬁcant 
transformation for the Group.

Outlook
We enter FY2018 with a capable and 
experienced team of investors, a strong 
balance sheet, a high performing 
portfolio of assets, a good pipeline 
of new investment opportunities and 
a broadened platform in Infrastructure 
with good growth prospects. I am 
conﬁdent that the Group will remain 
opportunistic but disciplined as we 
navigate what promises to be another 
year of signiﬁcant uncertainty.

Simon Thompson
Chairman

3i Group Annual report and accounts 2017

03

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Overview

Chief Executive’s  
review

FY2017 was another important year 
for 3i. Our Private Equity and Infrastructure 
businesses performed well and we simpliﬁed 
the Group by selling our Debt Management 
platform. Our efforts over the last few years 
in reshaping the portfolio mean we are now 
able to focus on active asset management 
and origination. 

We continued to make very strong 
progress at 3i in FY2017. Our ﬁnancial 
results were excellent and underpinned 
by strong fundamentals. 

Our Private Equity investment portfolio 
has undergone a major transformation 
over the last ﬁve years as we have sold 
many of the weaker, legacy assets and 
made new investments in good quality 
companies at attractive prices.

Our Infrastructure team has also been 
busy and assembled a sizeable economic 
infrastructure portfolio for 3i Infrastructure 
plc (“3iN”), as well as pursuing a number 
of new initiatives to broaden our 
investment capability.

We sold our Debt Management business 
for £270 million during the year, as we were 
not conﬁdent that this business would 
meet our return requirements and justify 
its relative complexity in a more onerous 
regulatory environment in the future.

A measure of the success of these changes 
can be seen in this year’s ﬁnancial results;  
3i generated a total return on shareholders’ 
funds of £1,592 million, or 36% (2016: £824 
million, or 22%), ending the year with a 
NAV per share of 604 pence (31 March 
2016: 463 pence). Our results include the 
beneﬁt of currency movements; 71% of 
the Group’s assets are denominated in 
euros or US dollars and we generated a 
£297 million gain (2016: £143 million gain) 
from the weakness of sterling in the year. 
Cash realisations, including the proceeds 
from the sale of Debt Management, were 
strong at £1,308 million and we saw a good 
step forward in cash investment to £638 
million. We ﬁnished the year with net cash 
of £419 million (31 March 2016: £165 million) 
and have announced a further good lift in 
the pay out to shareholders.

A high quality Private Equity 
investment portfolio
Our plan with new Private Equity 
investments is simple, but the execution 
is not and requires diligence, discipline 
and good judgement. We aim to double 
the earnings of new investments under 
our ownership through operational 
improvements, international growth and 
careful M&A strategies. This year, 93% 
of our portfolio companies by value grew 
their earnings (2016: 84%).

Action was the strongest performer 
again; it is a very special company and a 
low price, consumer champion. As a fast 
growth, disruptive retailer, Action has been 
transformed by the successful execution 

of its international expansion strategy. 
Store openings increased from 52 in 2012 
to 197 in 2016 and Action now has more 
than 890 stores and annual sales in excess 
of €2.6 billion. The compound annual 
growth rates for sales and EBITDA since 
2012 exceed 30%, like for like growth rates 
are 6%–7% per annum and cash ﬂow is 
strong. This sector-leading performance 
under our ownership has already resulted 
in cash distributions to 3i equivalent to  
4.9x our original investment.

There is still plenty of runway for expansion 
at Action and potential for further rapid 
value growth for 3i. Action has been 
welcomed in each country it has opened 
in and its store opening programme 
now covers six countries and more new 
stores are planned in 2017 over 2016. 
Action is also set to open its fourth 
and ﬁfth distribution centres in 2017. 
Such material growth requires strong 
operational capability and Action, with 
support from 3i, is focused on managing 
the risks associated with this rapid 
growth by enhancing its teams and other 
resources in logistics, direct sourcing, 
IT and inventory control to meet the 
increasing demands of the business.

But 3i is not just about Action. The  
portfolio we have constructed in recent 
years, our 2013–16 vintage, produced a 
gross investment return of 29% in FY2017, 
and is already a top quartile performer, 
valued on a multiple of 1.7x (31 March 
2016: 1.5x).

04

3i Group Annual report and accounts 2017

 
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The performance of Scandlines has 
accelerated since our further investment 
in 2013. We expect further delays to the 
competing Rødby Puttgarten tunnel 
project, while the business continues to 
generate good levels of cash ﬂow and 
earnings growth. 

A fundamental part of our investment 
strategy is to facilitate the international 
expansion of our portfolio companies. 
Since our investment in 2013, ATESTEO, 
the world’s leading drivetrain testing 
services provider to the automotive 
industry, has increased the utilisation  
of its testing facilities in Germany and 
expanded its Chinese footprint. As a result, 
its Chinese capacity has doubled and 
sales have increased by more than 100%. 
The outlook looks promising, with further 
expansion in China and North America 
in progress.

Aspen Pumps, Audley Travel, Basic-Fit,  
Q Holding and Euro-Diesel also performed 
well, with strong, organic earnings growth. 
However, it is inevitable that there will 
be some challenges in any broad-based 
Private Equity portfolio and our high 
street retailer, Christ, suffered from 
declining footfall.

As mentioned earlier, we have refocused 
our model and have largely exited the 
older and often minority investments that 
we invested in before the strategic review 
in 2012. Many of these assets have required 
a great deal of asset management. Some, 
but not all, have been a signiﬁcant drag on 
the value growth of our portfolio over the 
last few years.

In August 2016, we became aware 
of accounting irregularities at Agent 
Provocateur which had concealed its true 
ﬁnancial position and lack of liquidity. 
We wrote down the investment to nil 
and the business was subsequently sold 
through an administration process, with 
the proceeds being insufﬁcient to return 
any value to 3i, resulting in a total write-
down in the year of £49 million.

In total, our Private Equity realisation 
activity produced approximately 
£1 billion of cash proceeds this 
year (2016: £718 million) at good 
return multiples and we now own 
a leaner, higher-performing portfolio 
of 37 assets and three quoted stakes 
(2016: 47 assets and ﬁve quoted stakes).

Our permanent capital is a distinct 
competitive advantage. It ensures we 
can be ﬂexible and opportunistic and it is 
a fundamental aspect of our differentiated 
strategy. It enables us to hold assets for 
longer periods if we believe that there 
is potential for additional value creation. 
This is particularly important in an 
economic environment where there are 
limited opportunities for attractive new 
investment at sensible prices.

We are well established in continental 
Europe and were the ﬁrst private equity 
ﬁrm to set up a number of ofﬁces across 
Europe. Our brand and local investment 
teams are held in high regard in these 
markets and we enjoy good visibility 
over the deal ﬂow in our chosen sectors. 
As the requirements of managing the 
older assets have diminished, we have 
been able to source and complete more 
new investment opportunities. 

We completed new investments in 
BoConcept, Schlemmer and Ponroy 
Santé together with a further investment 
in Q Holding to support its acquisition of 
Degania in FY2017. A German investment, 
Lampenwelt, and a Dutch investment, 
Hans Anders, were announced in March 
2017 and April 2017 respectively and 
should complete by the end of June 2017. 
We also announced an investment in 
Formel D in May 2017.

A year of exceptional 
investment activity 
in Infrastructure
Our Infrastructure business has 
achieved good growth since 3iN’s 
change of strategy and update to its 
return target, announced in May 2015. 
Although the infrastructure market is 
very competitive, particularly for larger 
economic infrastructure assets, 3iN’s 
revised investment strategy enabled the 
business to compete with conﬁdence for 
assets that ﬁtted its current mid-market 
remit. We advised 3iN on £479 million 
of new investments in total in the year 
and have recruited selectively to ensure 
that we have the strength and depth to 
manage the investment portfolio, as well 
as boost origination.

To support this expansion, we maintained 
our 34% share of 3iN in its June 2016 
capital raise, the proceeds of which have 
since been fully invested. The 3iN shares 
have performed strongly, generating 
a total shareholder return of 16% in the 
year (2016: 13%).

3i Group Annual report and accounts 2017

05

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Overview

Chief Executive’s  
review

continued

Over the last year, we have been working 
on a number of new fund platforms, one 
in North America and two in Europe, to 
broaden our capabilities and deal ﬂow and 
complement our mandate as investment 
adviser to 3iN.

In Europe, we announced the launch of 
a new £700 million fund, managed by 3i, 
to purchase a portfolio of assets from the 
EISER Global Infrastructure fund. Post year 
end, 3i invested £35 million in this fund, 
alongside two pension fund investors. 
Our Infrastructure business manages two 
funds dedicated to operational PPP and 
renewables projects, one of which was 
coming to the end of its investment life. 
In April 2017, we seeded a new fund with 
substantially all of its remaining assets. 
3i has committed up to €40 million to 
this fund alongside a group of external 
investors and we expect a ﬁnal close 
later on in the year. We launched our 
North American Infrastructure business 
in March 2017 as a natural and key 
strategic extension of 3i’s established 
European platform. 

Continuing to focus  
on driving performance
Following our successful disposal of Debt 
Management we have a more streamlined 
investment capability, focused on Private 
Equity and Infrastructure, and built on 
our proprietary capital foundation, with 
a growing fund management capability 
in Infrastructure. The broader macro-
economic back-drop has improved over 
the last year and we see generally decent 
GDP growth ahead in our main markets  
of northern Europe and North America.

However, the market for new investment 
remains challenging. High asset valuations, 
together with intense competition from 
corporate buyers and other private 
equity investors, mean that maintaining 
our selective and disciplined approach is 
essential in order to continue to generate 
attractive returns.

Outlook
3i is now performing as it should, with 
careful investment and active asset 
management generating very strong 
returns. The broader environment 
remains volatile and challenging but we 
remain conﬁdent in our ability to deliver 
continued, good growth for shareholders. 
We have strong investment capabilities in 
both our divisions and our well-established 
international network, together with 
our proprietorial approach, give us real 
competitive advantage.

We will avoid complacency and maintain 
our disciplined approach to investment 
and the costs of our platform, as well 
as maintaining our focus on the mid 
market where we see the most attractive 
opportunities. This approach should 
underpin high returns for shareholders, 
together with healthy cash dividends.

I would like to thank the 3i team for their 
hard work and contribution to what has 
been an excellent year for the Group.  
3i is now a much more balanced and 
resilient business, with a clear strategy 
and a well-funded balance sheet. 

Simon Borrows
Chief Executive 

06

3i Group Annual report and accounts 2017

Action

 £106m

Invested in September 2011

 £1,708m

Value at March 2017

For Action, 2016 was a record breaking 
year. It opened its third distribution 
centre, its 100th store in Germany and its 
200th store in France. In total, 197 stores 
were opened in 2016 and another 6,000 
people were employed in six countries, 
taking the total headcount to 35,000. 
In 2012, Action employed 11,500 people.

The charts below demonstrate that 
Action is an outstanding company. It is 
well positioned in the growing non-food 
discount market with superior earnings 
and cash conversion capability relative  
to its peers. 

For more information, visit  
www.action.nl

Action is Europe’s fastest growing  
non-food retailer with more than 890 
stores in six countries. It offers over  
6,000 different items, with more than 
150 new products a week and its 
range includes an increasing number 
of A-brands and own-label products.

Action offers its customers more than 
they expect, for less than they imagine. 
The combination of a wide and ever-
changing range of products at the lowest 
possible prices, as well as friendly and 
motivated staff, is what makes Action 
a unique retail formula. More than half 
of the people that shop at Action arrive 
home with more products than they 
initially planned to buy.

Action’s model is successful because 
it is simple. There is a single formula for 
all of its stores, regardless of location. 
Its product range consists of 13 
categories, with products sourced from 
over 400 suppliers, offered at low prices 
due to Action’s scale and highly efﬁcient 
supply chain. It buys in large volumes and 
stocks its stores daily from its distribution 
centres in the Netherlands and France.

Net sales (€m)

EBITDA (€m)

873

1,155

1,506

1,995

2,675

Sales CAGR  

32%

99

129

166

226

310

EBITDA CAGR  

33%

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

3i Group Annual report and accounts 2017

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Overview

Our business  
at a glance

3i is an investment company focused on Private Equity and Infrastructure, 
investing primarily in northern Europe and North America.

Private Equity

Infrastructure

 £4,831m

Proprietary capital value

£2.9bn

Assets under 
Management

£6.9bn

 £706m

Proprietary capital value

Activity
•   Investment and asset management 

to generate capital returns

•  Investing in companies typically with an 
Enterprise Value of €100m–€500m at 
acquisition in our core investment markets  
of northern Europe and North America

•  Focused on three sectors: Consumer, Industrial 

and Business and Technology Services

•  Portfolio of 37 unquoted assets and  

Activity
•  Investment and asset management to generate 

capital returns and cash income

•  Investment Adviser to 3iN
•  Investing in economic infrastructure and 

greenﬁeld projects in developed economies, 
principally in Europe 

•  Increasing fund management capability with 

the launch of two new managed funds in Europe 
and a new North America Infrastructure platform

three quoted stakes

16 Read more about  

Private Equity

25 Read more about  

Infrastructure

Investment proﬁle – AUM1
Breakdown  
by geography

Breakdown  
by sector

Investment proﬁle – AUM1
Breakdown  
by investment vehicle

Breakdown  
by geography

6%

10%

5%

2%

9%

28%

79%

32%

57%

5%

67%

  Northern Europe
  North America
  UK
  Other

  Consumer 
  Industrial 
  Business and Technology Services 
  Other 

  3i Infrastructure plc 
  India fund 
  Partnership funds

5%

95%

  Europe
  India

1  Our deﬁnition of AUM was reﬁned in the year. Further details are included in the Glossary on page 162. 
We also hold £138 million of retained Debt Management investments not sold to Investcorp and these are classiﬁed as “Other” within our Annual report and accounts.  
These investments are not included in the charts above.

08

3i Group Annual report and accounts 2017

Business activity

Selected highlights in FY2017

Ponroy Santé
New investment

 £122m

(January 2017)

Basic-Fit
Proceeds from IPO 

 £82m

(June 2016)

Schlemmer
New investment 

 £155m

(August 2016)

Action
Proceeds from reﬁnancing

 £187m

(December 2016)

TCR
Advised 3iN on its investment 

3iN
Participation in capital raise 

 £151m

(July 2016)

 £131m

(June 2016)

3i Group Annual report and accounts 2017

09

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1

Key resources

Expert people
Our asset management capability 
is built on the strength of our people. 
Our investment professionals have 
deep knowledge in their core markets 
and sectors.

We are committed to offering 
our people the best training and 
development opportunities to ensure 
that they operate at the highest level. 

Network
Essential to support our businesses, 
we have a well-developed international 
network of advisers and business 
leaders across our chosen markets. 
Together they assist us to identify and 
access opportunities and carry out due 
diligence, as well as being an invaluable 
resource to our portfolio companies.

Strong balance sheet
Our strong balance sheet allows us the 
ﬂexibility and speed to invest in Private 
Equity and Infrastructure opportunities. 

Reputation
As an investment company, established  
for over 70 years, listed on the London 
Stock Exchange and a member of the 
FTSE 100, we have developed a strong 
brand and reputation.

Invest in 
opportunities  
in line with our 
risk appetite

Overview

How we  
create value

Our business model
Our expertise and proprietary  
capital differentiate our investment 
proposition and underpin our 
capability to deliver growth  
and returns to shareholders.

12 Our strategic  

objectives

We re-invest a 
proportion of our 
returns to ﬁnance 
the business

10

3i Group Annual report and accounts 2017

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2

What we do

Private Equity

Infrastructure

Disciplined approach

Our institutional investment platform ensures a consistent approach 
to making investment and divestment decisions

Active management

Our robust portfolio monitoring enables us to pursue opportunities 
for growth as well as to identify issues promptly

3

Value created

Total Return

£1,592m
36%

Dividend

26.5p

Generate returns 
for our 
shareholders

Cash realisations

£1,308m

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Capable of generating mid to high teens returns through the cycle

16 Read more about  

Private Equity

25 Read more about  

Infrastructure

3i Group Annual report and accounts 2017

11

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Overview

Our strategic 
objectives

We focus on opportunities 
where our sector and market 
expertise, combined with 
our strong capital position, 
can create material value 
for our stakeholders.

12

3i Group Annual report and accounts 2017

Grow investment 
portfolio earnings

Realise investments with 
good cash-to-cash returns

Maintain an operating 
cash proﬁt

Use our strong 
balance sheet

Increase shareholder 
distributions

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FY2017 progress

FY2018 outlook

Percentage of Private 
Equity portfolio 
companies1 (by value) that  
grew earnings in FY2017

 93%

• Action’s pace of growth is expected to 

continue, with further expansion planned 
in France and Germany

• Positive outlook for the portfolio invested  

in since the strategic review in 2012

• Macro-economic pressures expected to continue, 

particularly in the high street retail sector

• Portfolio to contain fewer problem legacy assets

16 For further information see 

the Private Equity section

Private Equity  
proceeds

 £982m

• Expect realisations to be at least £750 million, 

subject to market conditions

16 For further information see 

the Private Equity section 

Operating cash proﬁt2 
including Debt 
Management

 £33m

• New Infrastructure initiatives expected to 

generate cash income that will partially offset 
the loss of Debt Management income 

• Continue to focus on generating income where 
appropriate from the Private Equity portfolio

• Cost discipline to be maintained

30 For further information 

see the Financial review

 £478m 

invested in Private Equity 

• Plan to invest up to £750 million p.a. in  

four to seven Private Equity investments, 
whilst maintaining discipline on entry prices

 £131m  

invested in Infrastructure

• Manage 3iN’s new investments actively and  

source further investment opportunities

• Support Infrastructure’s new fund management 

initiatives in Europe and North America 

30 For further information 

see the Financial review

Dividend

 26.5p

• Committed to pay a base dividend of 16 pence 

per share in respect of FY2018

• The amount of the additional dividend will be 
subject to the level of investment, realisations 
and balance sheet strength

03 For further information see 

the Chairman’s statement

1  Includes 22 companies valued on an earnings basis, Basic-Fit and Scandlines.
2  Operating cash proﬁt is an APM. Further details are included on page 31.

3i Group Annual report and accounts 2017

13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Overview

Key performance  
indicators

KPI

Gross 
investment 
return (“GIR”)1  
as % of opening 
portfolio value

The performance of the 
proprietary investment 
portfolio expressed as a 
percentage of the opening 
portfolio value.

Cash 
realisations1  
£m

Cash proceeds from our 
investments support our 
returns to shareholders, as 
well as our ability to invest 
in new opportunities.

  Cash realisations
   Proceeds from the sale 
of Debt Management

Cash 
investment1  
£m

Identifying new opportunities 
in which to invest proprietary 
capital is the primary driver 
of the Group’s ability to 
deliver attractive returns. 
We also invest further capital 
in existing investments.

Operating cash 
proﬁt/(loss)2  
£m

By covering the cash 
operating cost of running 
our business with cash 
income, we reduce the 
potential dilution of 
capital returns.

Net Asset 
Value (“NAV”) 
per share 
pence

The measure of the fair 
value per share of our 
proprietary investments 
after the net cost of 
operating the business.

Total 
shareholder 
return (“TSR”)  
%

The return to our 
shareholders through the 
movement in the share 
price and dividends paid 
during the year. 

  Dividends
  Share price

18%

20%

24%

29%

40%

Link to strategic objectives

Grow investment  
portfolio earnings

Realise investments with  
good cash-to-cash returns

2013

2014

2015

2016

2017

606m

671m

841m

718m

1,308m

270m

1,038m

Realise investments with  
good cash-to-cash returns

Increase shareholder 
distributions

2013

2014

2015

2016

2017

126m

276m

369m

433m 638m

2013

2014

2015

2016

2017

(32)m

11m

45m

37m

33m

2013

2014

2015

2016

2017

311p

348p

396p

463p

604p

Grow investment  
portfolio earnings

Use our strong  
balance sheet

Increase shareholder 
distributions

Maintain an operating  
cash proﬁt

Increase shareholder 
distributions

Grow investment  
portfolio earnings

Realise investments with  
good cash-to-cash returns

Maintain an operating  
cash proﬁt

2013

2014

2015

2016

2017

54%

30%

27%

(2)%

71%

Increase shareholder 
distributions

4%

50%

4%

26%

5%

22%

2013

2014

2015

7%
64%

4%

(6)%
2016

2017

1  A number of our KPIs are calculated using ﬁnancial information which is not deﬁned under IFRS and therefore they are classiﬁed as APMs.  

Further details on these APMs are included in our Financial review on page 43.

14

3i Group Annual report and accounts 2017

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FY2017 progress 

Key risks

•  Another year of strong performance with a GIR in Private Equity of  

•  Investment rates or quality of new investments are lower 

£1,624 million or 43% and a Group GIR of £1,755 million or 40%

than expected

•  Action performed strongly, opening 197 new stores in calendar year 2016  

•  Subdued M&A activity and/or reduced prices in 3i’s core sectors 

and continuing to show growth in like-for-like sales 

could impact timing of exits and cash returns

•  2013–16 vintage investments, such as ATESTEO, Audley Travel and 

•  Operational underperformance in the portfolio companies impacts 

Aspen Pumps delivered a GIR of 29% 

earnings growth and exit plans

•  3iN delivered a TSR of 16% and Infrastructure generated £59 million  

•  Sterling materially strengthens against the euro and US dollar;  

of cash income to the Group

•  Material devaluation of sterling resulted in a gain on translation of £269 million

at 31 March 2017, 71% of the portfolio was denominated in euros  
or US dollars

•  Private Equity generated proceeds of £982 million from the disposal 

•  Subdued M&A activity in our core sectors reduces investor appetite 

of nine companies, the reﬁnancing of two assets and the full realisation 
of three quoted stakes

for our assets

•  Macro-economic uncertainty limits investor appetite for the 

•  We sold our Debt Management business to Investcorp for cash proceeds 

Private Equity asset class

of £270 million

•  Debt markets become less supportive of leveraged buyouts

•  Invested £478 million (2016: £365 million) in three new Private Equity investments 
and in a further investment in Q Holding to support its acquisition of Degania
•  Supported 3iN’s capital raise in June 2016, investing £131 million (2016: nil) to 

•  Competition from other private equity investors, as well as trade and 
other strategic buyers, could make it more challenging to source 
investments at prices that will meet our return targets 

maintain our 34% stake

•  Failure to attract, invest in and retain the right investment executives 

impacts our ability to originate and manage assets

•  Failure to maintain and develop our network of advisers and business 

leaders reduces the quality of potential deal ﬂow

•  Continued to beneﬁt from Debt Management’s cash income in the  

ﬁrst half of the year

•  Portfolio performance, and therefore portfolio income is weak
•  Reduced ability to generate interest and dividend income in a  

•  Operating cash proﬁt from Private Equity, Infrastructure and the retained  

private equity structure

Debt Management investments was £5 million

•  Measure redeﬁned in FY2017 to be cash income less cash expenses 
(previously it was deﬁned as cash income less accrued expenses)

•  Investor appetite in a volatile macro-economic environment
•  New Infrastructure initiatives do not generate sufﬁcient fee income 
•  Unplanned increase in the cost base; for example legal, compliance 

or regulatory costs

•  30% increase in NAV per share to 604 pence (31 March 2016: 463 pence) 
•  Excellent GIR from Private Equity
•  Performance is strong with or without the beneﬁt of foreign 

exchange movements

•  Ongoing geo-political uncertainty further dampens investor sentiment
•  Implications of the UK’s decision to leave the EU and further negative 

implications of the US presidential election 

•  Wider G20 political and economic uncertainty impacts 3i’s portfolio 

companies and valuations

•  TSR of 71% as share price increased by 64% in the year, together with the  

•  Lower NAV due to investment underperformance or political 

ﬁnal FY2016 dividend of 16.0 pence and interim FY2017 dividend of 8.0 pence 
•  Net divestment, strong balance sheet and closing net cash support a full year 

and economic uncertainty

•  Investor appetite in a volatile macro-economic environment

dividend of 26.5 pence

2  Operating cash proﬁt has been redeﬁned in the year and the FY2016 comparative restated. The rationale for the change together with the revised calculation is explained on page 43. 

The balances include the contribution of the Debt Management business sold to Investcorp.

3i Group Annual report and accounts 2017

15

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Equity

Top ten investments1

1

Action

2

Scandlines

3

Q Holding

4

Weener Plastic

5

Audley Travel

6 Basic-Fit

7 ATESTEO
8 Schlemmer 

 18

9 BoConcept 

 17

10 Ponroy Santé 

 19

1  This does not include one investment that has been excluded for commercial reasons.

16

3i Group Annual report and accounts 2017

Investments in the year

BoConcept
 £132m

invested

Established in 1952, BoConcept has 
evolved into a leading developer 
of interior design and furniture 
concepts and built a strong following. 
It is now present in more than 
60 markets through a network 
of c.250 brand stores. 

BoConcept is a successful international 
brand with a proven track record and 
customer appeal worldwide, and active 
in an attractive segment of the market. 
We are supporting management in 
continuing the successful international 
store roll-out by leveraging the strength 
of the store concept and product 
collection. In addition, we will support 
the company in accelerating its efforts 
to build a multi-channel presence, 
as well as expanding its fast-growing 
B2B business.

For more information, visit  
www.boconcept.com

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3i Group Annual report and accounts 2017

17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Equity

Investments in the year

continued

Schlemmer
 £155m

invested

Schlemmer is a global leader in 
cable management solutions for the 
automotive industry. Founded in 1954 
and headquartered near Munich, 
Germany, Schlemmer develops and 
produces cable protection, as well 
as air and ﬂuid handling systems, 
for automotive and commercial 
applications. It offers a well-diversiﬁed 
product portfolio, operates a global 
manufacturing network of 26 plants in 
21 countries and employs 2,900 people.

As well as beneﬁting from the expected 
future growth of the automotive 
industry, the cable management sector 
is well positioned to take advantage 
of megatrends such as connectivity, 
e-mobility, and autonomous driving 
and safety, which are shaping the 
car industry. We will work with the 
Schlemmer team to build on the 
company’s strength in Europe and Asia, 
and further grow its global footprint 
by strengthening its presence in the 
US market.

For more information, visit  
www.schlemmer.com

18

3i Group Annual report and accounts 2017

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Ponroy Santé
 £122m

invested

Ponroy Santé Group (“Ponroy 
Santé”) was founded in 1975 and 
is headquartered in Boufféré, near 
Nantes, France. It manufactures a 
wide range of natural healthcare and 
cosmetics products ranging from 
functional and natural food supplements 
(for stress control, energy and memory 
boosters, sleeping aids etc.) to natural 
cosmetics and hygiene products for 
adults and babies. It owns several 
well-known brands, including Biolane, 
Yves Ponroy, Vitarmonyl, Manhaé, 
Lécitone, Force G, Ultrabiotique 
and Naturé Moi.

As well as beneﬁting from the 
expected organic growth coming from 
global trends in natural healthcare 
and well-being, Ponroy Santé is well 
positioned to participate actively in 
the consolidation taking place in this 
highly fragmented market. We will 
work with Ponroy Santé’s management 
team to build on the company’s 
strength in Europe to expand its 
international footprint, especially in 
Asia. Additionally, we will identify and 
analyse external growth opportunities 
using our global network and strong 
experience in buy and build strategies. 
Lastly, we will support the management 
team in implementing a coherent digital 
strategy for its different brands.

For more information, visit  
www.ponroy.com
www.vitarmonyl.com
www.biolane.fr

3i Group Annual report and accounts 2017

19

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Equity

Business review

Private Equity performed very strongly in 
FY2017. Although it was a year of political 
change, with ﬁnancial markets subject to 
periods of signiﬁcant volatility, our portfolio 
generated excellent returns with a GIR 
of £1,624 million or 43% on the opening 
portfolio (2016: £1,011 million, 32%).  
We recognised value growth in excess 
of £1.25 billion, with strong performance 
from assets such as Action and Scandlines, 
together with very good progress from 
investments made in the more recent  
2013–2016 vintage. With over 81% of 
the portfolio denominated in euros or 
US dollars, the sharp fall in sterling that 
followed the UK’s decision to leave the EU 
resulted in a translation gain of £248 million 
(2016: £168 million).

Investment activity
We completed three new investments in the year and made  
a material further investment. 

In July 2016, we invested DKK1,144 million (£132 million) in 
BoConcept, an urban living brand headquartered in Denmark. 
This was a public-to-private transaction where the majority 
of the shares were owned by the founding family. In August 2016, 
we invested €182 million (£155 million) in Schlemmer, a global 
leader in cable management solutions for the automotive 
industry, headquartered in Germany. In January 2017, we 
completed our €141 million (£122 million) investment in Ponroy 
Santé, a manufacturer of natural healthcare and cosmetics 
products. All three companies have strong market positions and 
3i will use its experience to help them expand internationally, 
maximise market opportunities and drive operational efﬁciencies.

An important component of enhancing the strategic value 
of our investments is our ability to enable transformative M&A 
in our portfolio companies. In December 2016, we invested 
£62 million in Q Holding to support its acquisition of Degania. 
This transaction almost doubles Q Holding’s medical revenues 
and diversiﬁes its product mix and geographic exposure. 

The availability of capital, together with favourable debt ﬁnancing 
terms, continues to attract investors to the Private Equity asset 
class and so our price discipline remains essential. Our local 
teams have been able to ﬁnd an interesting range of investment 
opportunities, both for 3i and its portfolio companies, particularly 
in Europe.

In addition to the £478 million investment in the year to 31 March 
2017, we announced investments in Lampenwelt (€120 million), 
a German online lighting retailer and Hans Anders (€200 million), 
a leading optical retailer in the Benelux, in March 2017 and April 
2017 respectively. Both investments should complete by the end 
of June 2017. We also announced an investment in Formel D,  
the leading quality services provider for the automotive industry, 
in May 2017.

Table 1: Private Equity cash investment in the year to 31 March 2017

Investment

Type

Business description

New
New
New
Further

BoConcept
Schlemmer
Ponroy Santé
Q Holding 
(Degania)
Agent 
Provocateur
Other
n/a
Total Private Equity investment

Further

Urban living brand 
Provider of cable management solutions for the automotive industry
Manufacturer of natural healthcare and cosmetics products
Manufacturer of precision engineered elastomeric components

Women’s lingerie and associated products

Date

July 2016
August 2016
January 2017
December 2016

Various

n/a

Total
investment
£m

Proprietary
capital
investment
£m

133
156
135
63

14

(1)
500

132
155
122
62

8

(1)
478

20

3i Group Annual report and accounts 2017

Realisations activity
As market conditions remained favourable, we had a very strong 
year for realisations and generated £982 million of proceeds at an 
average money multiple of 3.7x. We disposed of nine unquoted 
investments, including older investments such as Mayborn, 
Lekolar and Polyconcept, and more recent investments such 
as Geka. We also took advantage of supportive equity market 
conditions to exit or reduce a number of quoted holdings, 
generating proceeds of £154 million (2016: £111 million). 

We continue to reﬁnance our most cash generative assets 
where appropriate for the business, and where market 
conditions allow. Due to Action’s strong growth and cash ﬂow 
generation, it was able to de-lever rapidly during 2016 ahead 
of a €1.675 billion reﬁnancing in December 2016. The proceeds 
were used to reﬁnance the existing debt and fund a distribution 
to shareholders. As a result, 3i received £187 million of proceeds. 

Since investment, Action has returned £526 million of 
reﬁnancing proceeds to 3i, a 4.9x sterling cash return 
on the original investment. 

In addition, we took the opportunity to reﬁnance the debt in 
ATESTEO in June 2016. Its strong EBITDA growth since our 
investment facilitated a reﬁnancing and return of £48 million to 3i.

During the year, we completed the successful exits of Mayborn 
(3.5x) and Amor (2.3x). Both had been valued on an imminent 
sales basis at 31 March 2016. In March 2017, Agent Provocateur 
went into administration, giving rise to a realised loss of 
£49 million on our investment. In aggregate, we generated total 
realised proﬁts of £38 million in the year, an uplift over opening 
value of 5%, excluding reﬁnancings (2016: £67 million and 14%). 

We continue to make good progress towards our longer-term 
plan to hold a portfolio of 30 to 40 assets. As at 31 March 2017, 
the portfolio had reduced to 37 assets and three quoted stakes 
(31 March 2016: 47 assets and ﬁve quoted stakes).

Table 2: Private Equity realisations in the year to 31 March 2017

Investment

Country/region

Calendar
year
invested

31 March
2016
value1
£m

3i realised
proceeds
£m

Proﬁt/(loss) 
in the
year2
£m

Uplift on
opening
value2
%

Residual
value
£m

Money
multiple
over
cost3

Full realisations
Mayborn
Quintiles
Amor
Geka
Polyconcept
Eltel
UFO Moviez
GO Outdoors
Loxam
Lekolar
ESG
Agent Provocateur
Partial realisations1,3
Basic-Fit4
Scandlines

UK
USA
Germany
Germany
UK
Sweden
India
UK
France
Sweden
UK
UK

Benelux
Denmark/ 
Germany
Benelux
n/a

Refresco Gerber
Other
Reﬁnancings3
ATESTEO
Action
Deferred consideration
Other
Total Private Equity realisations

Germany
Benelux

n/a

2006
2008
2010
2012
2005
2007
2007
2012
2011
2007
2007
2006

2013
2007/2013

2010
n/a

2013
2011

n/a

135
92
87
55
37
20
12
17
22
29
22
42

82
16

13
13

48
187

1
930

136
107
88
85
44
20
16
21
40
34
30
–

82
16

11
10

48
187

7
982

3
10
2
27
3
1
3
5
16
4
8
(49)

nil
nil

(2)
1

nil
nil

6
38

2%
10%
2%
47%
7%
5%
23%
31%
67%
13%
36%
(100)%

–%
–%

(15)%
n/a

–%
–%

n/a
4%

nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil

184
538

32
60

160
1,708

1
2,683

3.5x
3.3x
2.3x
1.8x
2.1x
1.0x
2.9x
1.0x
1.9x
1.6x
1.4x
–

3.3x
4.6x

1.8x
n/a

2.7x
20.8x

n/a
3.7x

1  For partial realisations, 31 March 2016 value represents value of stake sold.
2  Cash proceeds in the period over opening value realised.
3  Cash proceeds over cash invested. For partial realisations and reﬁnancings, valuations of any remaining investment are included in the multiple.
4  Proceeds returned to 3i through the repayment of shareholder loans.

3i Group Annual report and accounts 2017

21

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IRR

17%
23%
18%
16%
7%
(1)%
16%
1%
13%
5%
12%
–%

49%
31%

11%
n/a

40%
84%

n/a
n/a

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Equity

Business review

continued 

Portfolio valuation
The strong performance of the portfolio resulted in unrealised 
value growth of £1,274 million (2016: £690 million).

Performance
The continued strong performance of the investments valued on 
an earnings basis resulted in an increase in value of £827 million 
(2016: £460 million) with the most signiﬁcant contribution coming  
from Action. For its year ended 31 December 2016, Action reported 
sales of €2.675 billion (a 34% increase over 2015), a 37% increase 
in operating EBITDA, and 6.9% like-for-like sales growth and 
opened 197 new stores in six countries. Action has delivered 
EBITDA CAGR growth in excess of 30% p.a. since 3i’s investment 
in 2011. Since 2013, our previous valuations have used run-
rate adjusted earnings for the 12 months to the quarter end 
preceding the reporting period. For the valuation of Action 
at 31 March 2017, we have reﬁned our valuation methodology 
better to reﬂect its consistent ﬁnancial delivery. As is typical 
for retail businesses, Action prepares its results in four weekly 
periods. At 31 March 2017, we are valuing this investment using 
run-rate earnings to 26 March 2017, the closest period end to 3i’s. 
The valuation earnings increased by 33% in the last 12 months 
and, as at 31 March 2017, Action was valued at £1,708 million 
(2016: £902 million). As the largest Private Equity investment 
by value, it represented 35% of the Private Equity portfolio 
(2016: 24%). 

The investments in our 2013–16 vintage are delivering good 
earnings growth, with assets such as ATESTEO, Aspen Pumps, 
Audley Travel, Q Holding and Euro-Diesel showing good value 
uplifts in the year. 

We invested in ATESTEO in 2013 and have transformed it 
from an owner-managed diversiﬁed engineering company 
into a world leading testing and industrial specialist for the 
automotive industry. Its earnings have almost doubled under 
our ownership; driven by a 30% increase in testing capacity 
through opening a new facility in Germany and the expansion 
of its Chinese operations. 

Aspen Pumps is the global leader in the design and assembly 
of condensate removal pumps, accessories for air conditioning 
(“AC”) installers and rooftop support systems for AC products. 
It had a strong 2016, ﬁnancially and operationally, as it continued 
to gain market share in its core markets. It also completed two 
small acquisitions, designed to allow direct control of  
its distribution channels and product bolt-ons. 

Table 3: Unrealised proﬁts/(losses) on the revaluation of Private Equity investments1 in the year to 31 March 

Earnings based valuations
  Performance
  Multiple movements
Other bases
  Uplift to imminent sale
  Discounted cash ﬂow
  Other movements on unquoted investments
  Quoted portfolio
Total

2017
£m

827
239

8
158
(1)
43
1,274

2016
£m

460
95

13
124
5
(7)
690

1  Further information on our valuation methodology, including deﬁnitions and rationale, is included in the Portfolio valuation – an explanation section on pages 158 and 159.

22

3i Group Annual report and accounts 2017

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Euro-Diesel designs and assembles standby power supply 
systems for data centres and other customers for whom power 
security is critical. The business performed well in 2016 and the 
order book for 2017 is promising. 

Macro-economic developments are impacting a small number of 
our investments, especially those exposed to capital expenditure 
in the oil and commodities sector (Dynatect) or weaker consumer 
sentiment and decelerating tourist ﬂows which have reduced 
spending on the high street in Europe (Christ). 

Overall, the majority of the portfolio (93% of assets valued on 
an earnings basis, as well as Scandlines and Basic-Fit) grew their 
earnings in the year (2016: 84%). One investment was valued 
using forecast earnings at 31 March 2017 (31 March 2016: two), 
representing 2% of the portfolio by value (31 March 2016: 3%). 
Chart 1 shows the earnings growth of our top 20 assets.

Overall, net debt across the portfolio increased to 3.1x EBITDA 
(31 March 2016: 2.9x) principally due to the reﬁnancing of Action. 
Chart 2 shows the ratio of net debt to EBITDA by portfolio value 
at 31 March 2017.

Multiple movements
Due to its consistent ﬁnancial and operational outperformance, 
we increased the post discount run-rate multiple used to value 
Action from 14.0x at 31 March 2016 to 16.0x post discount 
at 31 March 2017. As at 31 March 2017, a 1.0x movement of 
Action’s multiple would increase or decrease the valuation of 
3i’s investment by £135 million. Excluding Action, the weighted 
average EBITDA multiple declined to 10.6x before liquidity 
discount (2016: 10.8x) and was 9.9x after liquidity discount 
(2016: 10.1x). The decline in multiple is principally due to  
Basic-Fit, which listed in June; it was previously valued using  
a multiple materially higher than the portfolio average at 
31 March 2016, and is now held on a quoted basis. 

When setting multiples, we consider factors such as exit plans, 
relative performance and investment size. As a result of market 
volatility in the year, we continued our practice of adjusting 
multiples down, relative to their comparable set, in 14 out of the 
22 companies (2016: 17 out of 29) valued on an earnings basis. 
The pre-discount multiples used to value the portfolio ranged 
between 5.0x and 16.8x (2016: 6.5x and 14.7x) and the post-
discount multiples ranged between 4.8x and 16.0x (2016: 5.5x  
and 14.0x). 

The combined effect of changes in multiples across the portfolio 
resulted in an increase in value of £239 million in the period 
(2016: £95 million increase).

Chart 1:  Portfolio earnings growth of the top 20 
Private Equity1 investments £m

Chart 2: Ratio of net debt to EBITDA1 £m 

2,362

3,181

1,327

241

370

112

595

545

472

32

<0%

0–9%

10–19% 20–30% >30%

<1x

1–2x

2–3x

3–4x

4–5x

–
>5x

  3i carrying value at 31 March 2017

  3i carrying value at 31 March 2017 

1  Includes top 20 Private Equity companies by value. This represents 91%  

1  For 99.9% of the Private Equity portfolio by value (31 March 2016: 99.2%).

of the Private Equity portfolio by value (31 March 2016: 86%).

3i Group Annual report and accounts 2017

23

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Equity

Business review

continued 

Uplift to imminent sale
We announced the sale of MKM in March 2017 and recognised an 
increase in value of £8 million. The sale is expected to complete 
by the end of June 2017.

In October 2016, we announced an implementation agreement 
to sell ACR to two Shenzhen government sponsored investment 
companies, subject to regulatory and other approvals. This 
approval process remains ongoing and, as a result, we did 
not value ACR on an imminent sales basis as at 31 March 2017. 
Its valuation movement in FY2017 is classiﬁed within the other 
movements on unquoted investments category.

Discounted cash ﬂow (“DCF”)
As at 31 March 2017, the largest Private Equity investment valued 
on a DCF basis was Scandlines, valued at £538 million (31 March 
2016: £369 million). It generated value growth of £155 million due 
to continued strong trading, the expectation of further delays in 
the opening date of a competing tunnel on its key route between 
Rødby and Puttgarden, as well as a modest reduction in its 
weighted average cost of capital. 

Quoted portfolio
The Private Equity quoted portfolio generated an unrealised 
value gain of £43 million (2016: £7 million loss) in the year.

Basic-Fit’s strong FY2016 ﬁnancial and operational performance, 
resulting in the business ending the year with 419 clubs and 
1.2 million members, was reﬂected in the share price increasing 
from its June 2016 IPO price of €15.00 to close at €16.27 and an 
unrealised value gain of £51 million in the year. 3i’s remaining 
stake was valued at £184 million at 31 March 2017.

Assets under management

The value of Eurofund V (“EFV”), covering buyout investments 
made in the period between 2007 and 2012, continued to grow 
and at 31 March 2017 the fund had a gross money multiple  
of 2.2x (31 March 2016: 1.7x). 

Investments made since the change in investment strategy in 
2012, including the further investment in Scandlines, are making 
good progress with a sterling multiple of 1.7x at 31 March 2017 
(31 March 2016: 1.5x). 

The value of 3i’s Proprietary Capital increased to £4.8 billion in 
the year (2016: £3.7 billion). The value of the portfolio including 
third-party capital increased to €8.1 billion (2016: €7.0 billion).

Table 4: Quoted portfolio movement for the year to 31 March 2017

Investment

IPO date

Quintiles
Dphone 
Eltel
Refresco Gerber 
UFO Moviez
Basic-Fit

May 2013
July 2014
February 2015
March 2015
May 2015
June 2016

1  Other movements include foreign exchange.

24

3i Group Annual report and accounts 2017

Opening
value at  
1 April 2016
£m

Disposals
at opening
book value
£m

Unrealised
value
movement
£m

Other
movements1
£m

Closing
value at
31 March 2017
£m

92
25
20
44
12
208
401

(92)
–
(20)
(13)
(12)
(82)
(219)

–
(5)
–
(3)
–
51
43

–
1
–
4
–
7
12

–
21
–
32
–
184
237

 
Infrastructure

Selected 3i Infrastructure plc investments

Oystercatcher

TCR

Wireless Infrastructure Group

26

Anglian Water Group

27

Elenia

3i Group Annual report and accounts 2017

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Infrastructure

Selected 3i Infrastructure plc  
investments in the year

TCR
 £151m

invested

Headquartered in Brussels, Belgium, 
TCR is Europe’s largest independent 
asset manager of airport ground 
support equipment (“GSE”) and 
operates at over 100 airports across 
12 countries. The GSE that TCR provides 
is critical infrastructure, without which 
some of Europe’s busiest airports could 
not operate.

TCR ﬁts with 3iN’s strategy of investing 
in companies with good asset backing, 
strong market positions and barriers 
to entry, yet with operational levers 
to achieve attractive returns for 
3iN’s shareholders through active 
asset management.

For more information, visit  
www.tcr-group.com

26

3i Group Annual report and accounts 2017

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Wireless 
Infrastructure Group
 £75m

invested

Wireless Infrastructure Group (“WIG”) 
is an independent communications 
infrastructure provider headquartered 
in Bellshill, Scotland. The business 
builds and operates communication 
towers in rural and suburban areas, 
together with ﬁbre-based networks 
to improve mobile coverage in large 
buildings and on city streets. WIG is 
independent of any network operator 
and invests in infrastructure that can  
be accessed by all networks.

3iN acquired a 36% economic 
interest in WIG, investing £75 million. 
WIG diversiﬁes 3iN’s portfolio and 
provides exposure to a growing 
communications infrastructure business. 
With its scalable platform and track 
record of building new infrastructure 
and making accretive acquisitions, WIG 
is well placed to target further growth 
in the UK and across Europe.

For more information, visit  
www.wirelessinfrastructure.co.uk

3i Group Annual report and accounts 2017

27

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Infrastructure

Business review 

Infrastructure contributed a gross investment 
return of £87 million, or 17% on the 
opening portfolio (2016: £47 million, 8%). 
This was driven by 3iN’s strong share price 
appreciation together with good levels of 
dividend and fee income from both 3iN  
and the other funds managed by the team.

In May 2016, 3iN announced a 7.55 pence per share annual 
dividend target for FY2017, as well as a £350 million capital 
raise. Both initiatives were well received and the ﬁnal amount 
raised in the placing, gross of fees, was £385 million. 3i invested 
£131 million in this placing to maintain its 34% stake in 3iN. 
The shares were offered at 165 pence per share and closed  
at 189 pence on 31 March 2017, generating a total shareholder 
return for investors in that placing of 17%. 

We made excellent progress in sourcing assets in 3iN’s target 
markets of economic infrastructure and greenﬁeld projects. 
In total we advised 3iN on £479 million of new investment in the 
year (2016: £193 million). 3iN completed six new investments: 
Wireless Infrastructure Group, TCR, Valorem, the Hart van Zuid 
greenﬁeld PPP project, the A27/A1 greenﬁeld PPP project and 
Inﬁnis. As a result, all of the proceeds from the capital raise 
were deployed. 

Overall, the 3iN portfolio continues to perform well and the 
company generated a total return of 9% in the year (2016: 14%). 
Under the terms of the investment advisory agreement, 3iN  
paid an advisory fee of £25 million to 3i (2016: £16 million),  
with the increase attributable to new investment activity, and 
a NAV-based performance fee of £4 million (2016: £20 million). 
Of this, £3 million (2016: £15 million) was accrued as payable  
to the team. 

28

3i Group Annual report and accounts 2017

Investment portfolio performance
The Group’s infrastructure portfolio consists primarily of its  
34% stake in 3iN. 

3iN’s share price performed strongly in the year as the yield 
offered by 3iN continues to be attractive to investors in the 
current low interest rate environment. 3iN’s TSR for the year was 
16% (2016: 13%) and 3iN generated £23 million (2016: £21 million) 
of dividend income for 3i. 3i also has an investment in the 3i 
India Infrastructure Fund, where the team continues to focus 
on managing this portfolio to maximise value for fund investors. 

In total, the Infrastructure portfolio generated unrealised value 
growth of £59 million (2016: £22 million).

Table 5:  Unrealised proﬁts/(losses) on the revaluation 

of Infrastructure investments1 in the year to 31 March 
2016
£m

2017
£m

Quoted
Discounted cash ﬂow
Total

63
(4)
59

31
(9)
22

1  More information on our valuation methodology, including deﬁnitions and rationale,  
is included in the Portfolio valuation – an explanation section on pages 158 and 159.

Assets under management
Infrastructure AUM increased to £2.9 billion (31 March 2016:  
£2.3 billion) principally due to 3iN’s fundraising and strong 
portfolio performance. 

We are focused on managing the 3iN portfolio actively and 
embedding the new assets to ensure that they meet or exceed 
the investment plan. While we continue to see a good ﬂow of 
new investment opportunities, there remains strong demand 
for infrastructure assets as capital ﬂows towards more defensive 
sectors. In this environment, we remain disciplined and focused 
on maintaining a balanced and attractive portfolio in 3iN.

We remain committed to the importance of our 3iN mandate  
and sourcing and managing its attractive portfolio of assets.  
To broaden 3i’s infrastructure strategy, and generate increased 
cash income for the Group in the medium term, we have also 
announced several complementary new initiatives. In each 
case, we are adding resources to ensure that the new initiatives 
are successful, and that our focus on the 3iN mandate is not 
compromised. We launched a new £700 million fund to purchase 
assets from the EISER Global Infrastructure Fund. In addition,  
we announced a new fund, the 3i European Operational Projects 
Fund SCSP. 3i will provide seed capital of c.£35 million to each  
of these funds. Finally, we announced the launch of a  
US Infrastructure platform in March 2017.

Financial  
review, Risk  
and Corporate 
responsibility

Financial review 
Investment basis 
Reconciliation of Investment  
basis and IFRS 
Alternative Performance Measures 
Risk management 
Principal risks and mitigations 
Corporate responsibility 

30
35

39
43
44
48
54

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3i Group Annual report and accounts 2017

29

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

Financial review

Strong ﬁnancial performance
FY2017 was another year of strong ﬁnancial performance. It was also the year in which we sold our Debt Management business 
to Investcorp. The sale of Debt Management completed on 3 March 2017 and the business we sold to Investcorp is classiﬁed as 
discontinued operations throughout this report. We retained the CLO investments not required for regulatory or contractual purposes, 
as well as investments in the Global Income Fund and Senior Loan Fund. These investments are classiﬁed within Other in the Financial 
review and our segmental reporting.

We generated an excellent gross investment return from Private Equity, Infrastructure and the retained Debt Management investments 
of £1,755 million (2016: £1,051 million) and an operating proﬁt before carried interest of £1,675 million (2016: £911 million). This was 
driven by the strong unrealised value growth from our investments, together with the positive impact of foreign exchange translation. 

Total return was £1,592 million, or a proﬁt on opening shareholders’ funds of 36% (2016: £824 million or 22%) and, as a result, the diluted 
NAV per share at 31 March 2017 increased by 30% to 604 pence (31 March 2016: 463 pence). 

Table 6: Total return for the year to 31 March 

Investment basis

Realised proﬁts over value on the disposal of investments
Unrealised proﬁts on the revaluation of investments
Portfolio income
  Dividends

Interest income from investment portfolio

  Fees receivable
Foreign exchange on investments
Gross investment return
Fees receivable from external funds
Operating expenses
Interest received 
Interest paid
Exchange movements
Other income
Operating proﬁt before carried interest
Carried interest
  Carried interest and performance fees receivable 
  Carried interest and performance fees payable
Operating proﬁt from continuing operations
Income taxes
Re-measurements of deﬁned beneﬁt plans
Total comprehensive income: continuing operations 
(“Total return from continued operations”)
Total comprehensive income from discontinued operations, net of tax

(“Total return from discontinued operations”)
Total comprehensive income (“Total return”)
Total return on opening shareholders’ funds

12 months to
31 March 2017
£m

38
1,342

50
50
6
269
1,755
46
(117)
2
(49)
28
10
1,675

279
(434)
1,520
3
(22)

1,501

91
1,592
36%

12 months to
31 March 20161 

£m

72
690

49
59
7
174
1,051
41
(107)
4
(47)
(31)
–
911

78
(186)
803
–
(6)

797

27
824
22%

1  Comparatives have been re-presented to reﬂect the classiﬁcation of the Group’s Debt Management business, sold to Investcorp, as discontinued operations.

Alternative performance measures (“APMs”)
In October 2015, the European Securities and Markets Authority (“ESMA”) published guidelines about the use of APMs. These are 
ﬁnancial measures such as KPIs that are not deﬁned under IFRS. In our Strategic report we describe our ﬁnancial performance under 
our Investment basis, which is itself an APM, and use a number of other measures which, on account of being derived from the 
Investment basis, are also APMs. Further information about our use of APMs, including the applicable reconciliations to the IFRS 
equivalent where appropriate, is provided in page 43, and should be read alongside our Investment basis to IFRS reconciliation. 
Our APMs are gross investment return as a percentage of the opening investment portfolio value, cash realisations, cash 
investment, operating cash proﬁt, net cash/(debt) and gearing.

30

3i Group Annual report and accounts 2017

 
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Realised proﬁts
Supportive market conditions, together with the co-incidental 
maturity of our exit pipeline, resulted in realised proceeds 
of £1,005 million (2016: £796 million). Proﬁts on disposal of 
£38 million (2016: £72 million) were net of the £49 million realised 
loss on Agent Provocateur which was sold after it was entered 
into administration in March 2017. This, combined with the fact 
that the successful exits of Mayborn and Amor were valued on 
an imminent sales basis at 31 March 2016, meant realisations 
(excluding reﬁnancings) were achieved at an uplift over opening 
value of 5% (2016: 13%) in the year.

Operating expenses
Operating expenses were £117 million (2016: £107 million), 
principally due to a £4 million increase in the Infrastructure team’s 
share of the 3iN fee income referred to above. The share-based 
payment expense also increased by £3 million due to the strong 
performance of 3i Group’s share price.

We continue to invest in the front ofﬁce capability in Private 
Equity and Infrastructure but remain disciplined on cost. 
We expect that expenses in FY2018 will be broadly double  
the second half costs of £63 million.

Unrealised value movements
The unrealised value movement of £1,342 million (2016: £690 million) 
was due to strong earnings growth in a number of our Private 
Equity assets. Action contributed £911 million to value growth 
and we also saw improved performance from Private Equity 
investments in our 2013–16 vintage, such as Scandlines (a further 
investment in 2013), ATESTEO, Basic-Fit and Euro-Diesel.

Table 7:  Unrealised proﬁts on revaluation of investments 

(continuing operations) for the year to 31 March 

Private Equity
Infrastructure
Other (residual Debt Management)
Total

2017
£m

1,274
59
9
1,342

2016 
£m

690
22
(22)
690

Our residual Debt Management positions recovered some of 
the mark-to-market losses seen in the ﬁrst quarter of calendar 
year 2016 and generated an unrealised value gain of £9 million 
(2016: £22 million loss) in the year.

Further information on the Private Equity and Infrastructure 
valuations is included in their respective Business reviews.

Portfolio income
The portfolio generated income of £106 million during the year 
(2016: £115 million). The increase in dividends from 3iN (up from 
£21 million to £23 million) was offset by a reduction in dividends 
from Private Equity, as income in FY2016 included a signiﬁcant 
dividend from Scandlines as well as dividends from older assets 
which have been sold. Interest income on loans in Private Equity 
reduced to £50 million (2016: £59 million) due to the timing of 
asset disposals or IPOs relative to the completion of our three 
new investments. Portfolio fees were broadly stable as the 
increase in deal fees on new investments completed in the year 
was offset by abort costs incurred on prospective transactions.

Fees receivable from external funds
Fees increased to £46 million (2016: £41 million) due to increased 
fee income from 3iN. 3i, as investment adviser, receives a fee for 
sourcing and completing new investments for 3iN; 3iN completed 
six new investments in FY2017 and invested £479 million 
(2016: four investments and £193 million). 

Operating cash proﬁt 
Operating cash proﬁt is a Group KPI; by covering the operating 
costs of running our business with income, we reduce the 
dilution of shareholder returns. Since its introduction in 2012, 
this measure has been deﬁned as cash portfolio and fee income 
less accrued operating expenses, the latter being used as it was 
not considered to be materially different from cash operating 
expenses. The deﬁnition has been updated to be cash portfolio 
income and fee income less cash expenses. The principal non-
cash expense now excluded from the measure is share-based 
payments; these have become signiﬁcantly more material since 
the measure was originally implemented, as more compensation 
is delivered in the form of shares, and as the share price 
has increased.

Table 8:  Operating cash proﬁt for the year to 31 March 
2017
£m

Third-party capital fees 
Cash portfolio fees
Cash portfolio dividends and interest
Cash income from continuing operations
Operating expenses1 from continuing operations
Operating cash proﬁt/(loss): continuing operations
Operating cash proﬁt: discontinued operations
Operating cash proﬁt

47
12
62
121
(116)
5
28
33

20162 
£m

40
8
60
108
(117)
(9)
46
37

1  Operating expenses are now calculated on a cash basis and the 2016 comparative has 

been re-presented.

2  Comparatives have been re-presented to reﬂect the classiﬁcation of the Group’s Debt 

Management business, sold to Investcorp, as discontinued operations.

Excluding the Debt Management business sold to Investcorp, 
3i made an operating cash proﬁt of £5 million in the year 
(2016: £9 million loss). Cash income increased to £121 million 
(2016: £108 million) principally due to the increase in the third-
party capital fees in Infrastructure to £37 million (2016: £29 million). 

The Debt Management business was a signiﬁcant contributor to 
the Group’s operating cash proﬁt. Including the contribution of 
the Debt Management business, the Group made an operating 
cash proﬁt of £33 million in the year (2016: £37 million).

3i Group Annual report and accounts 2017

31

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

Financial review 

continued

Net interest payable
Gross interest payable was £49 million (2016: £47 million), of 
which £15 million related to interest charges on the €331 million 
bond which was repaid in March 2017. The undrawn revolving 
credit facility was extended by one year to September 2021 at 
no additional cost, following an agreement with all but one of the 
participating banks. The total amount of the facility is £329 million 
(31 March 2016: £350 million). 

Interest receivable on cash balances was £2 million (2016: £4 million).

Carried interest and performance fees
We receive carried interest from third-party funds and pay a 
portion to participants in our carry plans. We also pay carried 
interest to participants on our proprietary capital invested. 
The accounting recognition of carried interest is driven by the 
valuation of the underlying investment portfolio and is accounted 
for by assuming that all investments are realised at the balance 
sheet value.

Our carried interest plans pay cash to participants when the 
underlying investments are realised, for example through a 
disposal or a reﬁnancing event, but only when a performance 
hurdle has been met. Due to the length of time between 
investment and realisation, the schemes are usually active for 
a number of years and their participants are both current and 
previous employees of 3i.

We generated a very strong gross investment return of 
£1,624 million in Private Equity (2016: £1,011 million) and this 
material valuation uplift has resulted in signiﬁcant increases in 
our carried interest balances in FY2017. The consequence of this 
year’s valuation increase is that our largest Private Equity fund, 
EFV, went through its performance hurdle and consequently we 
recognised signiﬁcant carried interest receivable. A share of this 
receivable is accrued as carried interest payable to the associated 
plan participants. The strong run of realisations from investments 
made between 2010 and 2012 that have completed over the last 
few years meant that we went through the cash hurdle on the 
Group’s associated proprietary capital plan (the so-called Buyouts 
2010–12 carried interest scheme) and began paying carried 
interest to its participants for the ﬁrst time this year.

Table 9:  Carried interest and performance fees 

(continuing operations) for the year to 31 March 

Statement of comprehensive income

Carried interest and performance fees receivable
Private Equity
Infrastructure
Total
Carried interest and performance fees payable
Private Equity
Infrastructure
Total
Net carried interest payable

2017
£m

2016 
£m

275
4
279

(431)
(3)
(434)
(155)

58
20
78

(171)
(15)
(186)
(108)

32

3i Group Annual report and accounts 2017

We typically accrue carried interest payable on 3i’s investment 
portfolio at between 10% and 15% of gross investment return. 
The majority of assets by value are now held in schemes that 
would have met their performance hurdles, assuming that the 
portfolio was realised at the 31 March 2017 valuation. 

We accrued carried interest payable of £431 million (2016:  
£171 million) for Private Equity, of which £202 million relates to  
the carry plan participant’s share of carried interest receivable 
from EFV (2016: £48 million). Carried interest payable accrued  
on 3i’s investment portfolio was £229 million (2016: £123 million). 
£159 million (31 March 2016: £71 million) of this £229 million 
balance relates to the carry payable on the Buyouts 2010–12 plan, 
which includes Action. 

Carried interest is only paid to participants when the hurdles 
are passed in cash terms and then only when the cash proceeds 
are actually received following a realisation or reﬁnancing 
event. During the year, £127 million of cash was paid out to the 
participants in the Private Equity plans (2016: £9 million). Of this 
£98 million related to the carry payable on the Buyouts 2010–12 
scheme which went through its cash hurdle in the year.

3iN pays a performance fee based on 3iN’s NAV on an annual 
basis, subject to a hurdle rate of return and a high watermark. 
The continued good performance of the assets held by 3iN 
resulted in the recognition of £4 million (2016: £20 million) of 
performance fees receivable. Carried interest of £3 million was 
accrued as payable to the Infrastructure team. 

Overall, the effect of the income statement charge, the cash 
movement, as well as the currency translation meant that the 
balance sheet carried interest and performance fees payable 
increased to £685 million (31 March 2016: £404 million) and the 
receivable increased to £366 million (31 March 2016: £122 million).

Table 10:  Carried interest and performance fees  

for the year to 31 March 

Statement of ﬁnancial position

Carried interest and performance fees receivable
Private Equity
Infrastructure
Other
Total
Carried interest and performance fees payable
Private Equity
Infrastructure
Other
Total

2017
£m

2016 
£m

359

4
3
366

(650)
(35)
–
(685)

92

20
10
122

(356)
(43)
(5)
(404)

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Net foreign exchange movements
At 31 March 2017, 71% of the Group’s net assets were 
denominated in euros or US dollars. Following the result of 
the UK’s referendum on its membership of the EU and the 
subsequent weakening of sterling against the euro and the  
US dollar, the Group recorded a total net foreign exchange 
gain of £297 million (2016: £143 million) in the year. 

The Group is a long-term investor and does not hedge its foreign 
currency denominated portfolio. Where possible, ﬂows from 
currency realisations are matched with currency investments. 
Short-term derivative contracts are used occasionally and 
typically to hedge investments and realisations between signing 
and completion.

The net foreign exchange gain also reﬂects the translation 
of non-portfolio net assets, including non-sterling cash held 
at the balance sheet date.

Table 11:  Net assets and sensitivity by currency  

at 31 March 2017 

Sterling
Euro
US dollar
Danish krona
Other

FX rate

n/a
1.1701
1.2516
8.7015
n/a

£m

1,420
3,373
751
147
145

1% 
sensitivity
£m

n/a
34
8
1
n/a

%

24%
58%
13%
3%
2%

Pension
On an IAS 19 basis the pension scheme remains in a surplus. 
There was a re-measurement loss on the Group’s pension scheme 
of £22 million during the year (2016: £6 million loss). The liability of 
the Group’s UK deﬁned beneﬁt pension scheme increased in the 
year following a decrease in the discount rate. This was partially 
offset by an increase in the underlying asset valuations.

During the year, the Trustees of the 3i Group Pension Plan 
implemented a buy-in transaction, which is a bulk annuity 
purchase that partially reduces member longevity risk while 
improving the investment returns of the pension scheme. 
The transaction is expected to improve the actuarial funding 
position of the plan, which in turn inﬂuences the future cash 
contributions by 3i. The transaction resulted in an accounting 
charge in accordance with IAS 19 of £14 million.

The triennial valuation of the scheme’s funding position at 
30 June 2016 is underway and will be completed no later than 
30 September 2017.

Tax
The Group’s parent company has operated in the UK as an 
approved investment trust company since its listing on the 
London Stock Exchange in 1994. An approved investment trust 
is a UK investment company which is required to meet certain 
conditions set out in the UK tax rules to obtain and maintain its 
tax status. This approval allows certain investment proﬁts of the 
Company, broadly its capital proﬁts, to be exempt from tax in the 
UK. Approved investment trust companies are particularly suited 
for investment vehicles as their tax status allows them to ensure 
that their shareholders do not suffer double taxation of their 
investment returns. The Group recognised a tax credit in the 
period of £3 million (2016: nil).

Sale of Debt Management
On 3 March 2017, we completed the sale of our Debt 
Management business to Investcorp for total proceeds of 
£270 million. The sale comprised the entire Debt Management 
fund management business, which had teams based in London 
and New York, and the CLO investments required by the buyer 
for regulatory and contractual purposes. We retained the CLO 
investments in excess of those requirements. During the period 
between signing and completion we continued to support CLO 
warehouses in the US and Europe, and the outstanding balances 
of £33 million were repaid in full on completion. In addition,  
we retained our investments in the Global Income Fund and  
the Senior Loan Fund.

Table 12: Debt Management investments as at 31 March

Valuation

CLO equity sold
CLO warehouses repaid
CLO equity retained
Global Income Fund
Senior Loan Fund
Total

2017
£m

Net
movement1
£m

–
1
50
79
8
138

(119)
(16)
16
27
1
(91)

2016 
£m

119
17
34
52
7
229

1  Net movement is inclusive of investments, currency translation and 

mark-to-market adjustments.

The transaction was signed on 25 October 2016, and the 
economic beneﬁt of the fund management business and relevant 
CLO equity interest transferred with effect from 1 October 2016. 
The total return from discontinued operations of £91 million 
(2016: £27 million) includes the economics of the business up  
to 30 September 2016, compensation for the period to closing 
and the proﬁt on disposal.

The £270 million of proceeds was split between £232 million  
for the sale of the subsidiaries, proceeds of £22 million from  
the sale of directly held investments in CLO equity and 
warehouses and £16 million for the settlement of an inter-
company loan.

3i Group Annual report and accounts 2017

33

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Key accounting judgements and estimates
In preparing these accounts, the key accounting judgement 
relates to the carrying value of our investment assets which 
are stated at fair value.

Given the importance of this area the Board has a separate 
Valuations Committee to review the valuation policy, process 
and application to individual investments. However, asset 
valuations for unquoted investments are inherently subjective, 
as they are made on the basis of assumptions which may not 
prove to be accurate. At 31 March 2017, 84% by value of the 
investment assets were unquoted (31 March 2016: 85%).

The valuation of the Proprietary Capital portfolio is a primary 
input into the carried interest payable and receivable balances, 
which are determined by reference to the valuation at 31 March 
2017 and the underlying investment management agreements.

Accounting for investment entities 
An assessment is required to determine the degree of 
control or inﬂuence the Group exercises and the form of any 
control to ensure that the ﬁnancial treatment of investment 
entities is accurate. The introduction of IFRS 10 resulted in a 
number of intermediate holding companies being presented 
at fair value, which has led to reduced transparency of the 
underlying investment performance. As a result, the Group 
continues to present a non-GAAP Investment basis set of 
ﬁnancial statements to ensure that the commentary in the 
Strategic report remains fair, balanced and understandable. 
The reconciliation of the Investment basis to IFRS is shown  
on pages 39 to 42.

Financial review, Risk and Corporate responsibility

Financial review 

continued

Balance sheet

Net cash and liquidity

Table 13: Net cash as at 31 March

Cash and cash equivalents
Deposits
Loans and borrowings
Net cash 

2017
£m

954
40
(575)
419

2016 
£m

962
40
(837)
165

Net cash is calculated as cash and cash equivalents and 
deposits less total loans and borrowings. As at 31 March 2017, 
net cash was £419 million (2016: £165 million). The increase 
reﬂects the signiﬁcant level of realisations which, including the 
proceeds of the sale of Debt Management, were £1,275 million 
(2016: £796 million). The balance will reduce by c.£272 million 
(c.€320 million) when the signed investments in Hans Anders 
and Lampenwelt complete (expected by the end of June 2017). 
Subject to shareholder approval, the ﬁnal dividend of £178 million 
will also be paid in July 2017.

Liquidity
Liquidity remained strong at £1,323 million (31 March 2016:  
£1,352 million) after the repayment of our €331 million bond 
in March 2017. Liquidity comprised cash and deposits of 
£994 million (31 March 2016: £1,002 million) and undrawn facilities 
of £329 million (31 March 2016: £350 million).

Gross debt and gearing 

Table 14: Gross debt as at 31 March

€331 million notes at 5.625% (2017)
£200 million notes at 6.875% (2023)
£375 million notes at 5.750% (2032)
Loans and borrowings
Gearing

2017
£m

–
200
375
575
nil

2016 
£m

262
200
375
837
nil

On 17 March 2017, the €310 million outstanding balance of the 
€331 million bond was repaid out of cash resources. This reduced 
the total gross debt outstanding to £575 million as at 31 March 
2017 (31 March 2016: £837 million). As a result, the annual interest 
cost on the remaining bonds will reduce to £35 million per annum 
in FY2018 (2017: £49 million). 

Gearing
Gearing is deﬁned as net debt as a percentage of the Group’s net 
assets. As the Group was in a net cash position at 31 March 2017 
and 2016 under both the Investment basis and IFRS, gearing 
was nil.

34

3i Group Annual report and accounts 2017

Investment basis

Consolidated statement of comprehensive income

Realised proﬁts over value on the disposal of investments
Unrealised proﬁts on the revaluation of investments
Portfolio income
  Dividends

Interest income from investment portfolio

  Fees receivable
Foreign exchange gain on investments
Gross investment return

Fees receivable from external funds
Operating expenses
Interest receivable
Interest payable
Foreign exchange gain/(loss)
Other income
Operating proﬁt before carried interest

Carried interest
  Carried interest and performance fees receivable 
  Carried interest and performance fees payable
Operating proﬁt from continuing operations
Income taxes 
Proﬁt for the year from continuing operations

Proﬁt for the year from discontinued operations, net of tax
Proﬁt for the year

Other comprehensive income
  Re-measurements of deﬁned beneﬁt plans
Total comprehensive income for the year (“Total return”)

Total 
2017
£m

38
1,342

50
50
6
269

Total
20161 
£m

72
690

49
59
7
174

1,755

1,051

46
(117)
2
(49)
28
10

1,675

279
(434)

1,520
3

1,523

91

1,614

(22)

1,592

41
(107)
4
(47)
(31)
– 

911

78
(186)

803
–

803

27

830

(6)

824

1  Comparatives for the year ended 31 March 2016 have been re-presented to reﬂect the classiﬁcation of the Group’s Debt Management business sold to Investcorp as discontinued operations. 

See Note 31.

3i Group Annual report and accounts 2017

35

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n

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

Investment basis

continued

Consolidated statement of ﬁnancial position

Assets
Non-current assets
Investments
  Quoted investments 
  Unquoted investments 
Investment portfolio
Carried interest and performance fees receivable
Other non-current assets
Intangible assets
Retirement beneﬁt surplus
Property, plant and equipment
Deferred income taxes
Total non-current assets

Current assets
Carried interest and performance fees receivable
Other current assets
Current income tax receivable
Deposits
Cash and cash equivalents
Total current assets

Total assets

Liabilities
Non-current liabilities
Trade and other payables
Carried interest and performance fees payable
Loans and borrowings
Retirement beneﬁt deﬁcit
Deferred income taxes
Provisions
Total non-current liabilities

Current liabilities

Trade and other payables
Carried interest and performance fees payable
Acquisition related earn-out charges payable
Loans and borrowings
Current income taxes
Provisions
Total current liabilities

Total liabilities

Net assets

Equity
Issued capital 
Share premium
Other reserves
Own shares
Total equity

36

3i Group Annual report and accounts 2017

Total 
2017
£m

Total
2016 
£m

893
4,782

5,675
359
106
–
121
5
–

6,266

7
10
2
40
954

1,013

7,279

(29)
(644)
(575)
(22)
(1)
(2)

(1,273)

(125)
(41)
–
–
–
(4)

(170)

(1,443)

5,836

719
785
4,370
(38)
5,836

658
3,839

4,497
94
37
12
132
5
3

4,780

28
53
–
40
962

1,083

5,863

(27)
(290)
(575)
(20)
(2)
(1)

(915)

(107)
(114)
(1)
(262)
(2)
(7)

(493)

(1,408)

4,455

719
784
3,006
(54)
4,455

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Consolidated cash ﬂow statement

Cash ﬂow from operating activities
Purchase of investments
Proceeds from investments
Net cash ﬂow from derivatives
Portfolio interest received
Portfolio dividends received
Portfolio fees received
Fees received from external funds
Carried interest and performance fees received
Carried interest and performance fees paid
Carried interest held in non-current assets
Acquisition related earn-out charges paid
Operating expenses 
Income taxes paid
Other cash income
Net cash ﬂow from operating activities

Cash ﬂow from ﬁnancing activities
Issue of shares
Dividends paid
Interest received
Interest paid
Repayment of short-term borrowings
Repurchase of short-term borrowings
Co-investment loans
Net cash ﬂow from ﬁnancing activities

Cash ﬂow from investing activities
Purchase of property, plant and equipment
Proceeds from sale of Debt Management business 
Cash held in sold subsidiaries
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

Total 
2017
£m

(692)
1,063
–
16
66
11
71
39
(131)
(56)
(1)
(131)
(2)
2

255

1
(230)
2
(51)
(264)
(17)
1

(558)

(1)
232
(4)
–

227

(76)

962
68
954

Total
2016 
£m

(449)
771
(14)
15
71
7
78
52
(15)
–
(30)
(134)
–
–

352

–
(190)
4
(51)
–
–
–

(237)

(1)
–
–
(40)

(41)

74

864
24
962

3i Group Annual report and accounts 2017

37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

Investment basis

continued

Background to Investment basis 
ﬁnancial statements
The Group makes investments in portfolio companies directly, 
held by 3i Group plc, and indirectly, held through intermediate 
holding company and partnership structures (“Investment 
entity subsidiaries“). It also has other operational subsidiaries 
which provide services and other activities such as employment, 
regulatory activities, management and advice (“Trading 
subsidiaries”). The application of IFRS 10 requires us to fair 
value a number of intermediate holding companies that were 
previously consolidated line by line. This fair value approach, 
applied at the intermediate holding company level, effectively 
obscures the performance of our proprietary capital investments 
and associated transactions occurring in the intermediate 
holding companies. The ﬁnancial effect of the underlying 
portfolio companies and fee income, operating expenses and 
carried interest transactions occurring in Investment entity 
subsidiaries are aggregated into a single value. Other items 
which were previously eliminated on consolidation are now 
included separately.

To maintain transparency in our report and aid understanding we 
introduced separate non-GAAP “Investment basis” Statements 
of comprehensive income, ﬁnancial position and cash ﬂow in 
our 2014 Annual report and accounts. The Investment basis is an 
APM and the Strategic report is prepared using the Investment 
basis as we believe it provides a more understandable view of 
our performance. Total return and net assets are equal under the 
Investment basis and IFRS; the Investment basis is simply a “look 
through” of IFRS 10 to present the underlying performance. 

Reconciliation of Investment basis and IFRS 
A detailed reconciliation from the Investment basis to IFRS 
basis of the Consolidated statement of comprehensive income, 
Consolidated statement of ﬁnancial position and Consolidated 
cash ﬂow statement is shown on pages 39 to 42.

Investment basis of consolidation

3i Group plc

The Group

Investment 
entity 
subsidiaries

Portfolio 
companies

Inter-company  
balance eliminated 
on consolidation

Trading 
subsidiaries 
(regulated 
investment 
advisers, 
employment 
entities, etc.)

Portfolio 
companies 
(held directly by 
3i Group plc)

  Consolidated
  Fair valued

IFRS 10 basis of consolidation

3i Group plc

The Group

Investment 
entity 
subsidiaries

Portfolio 
companies

Inter-company  
balance

Trading 
subsidiaries 
(regulated 
investment 
advisers, 
employment 
entities, etc.)

Portfolio 
companies 
(held directly by 
3i Group plc)

  Consolidated
  Fair valued

38

3i Group Annual report and accounts 2017

Reconciliation of Investment basis and IFRS

Reconciliation of consolidated statement of comprehensive income

Investment
basis
2017
£m

IFRS
adjustments
2017
£m

Notes

Investment
basis
20165
£m

IFRS
adjustments
20165
£m

IFRS
basis
20165
£m

38

(63)

1,342

(1,080)

1,041

1,041

1, 2

1, 2

1

1, 2
1, 2
1, 2
1, 3

1, 4
1, 4

1, 3

1

1, 4

1, 4

1, 4

1, 3

Realised proﬁts/(losses) over value  
on the disposal of investments
Unrealised proﬁts on the 
revaluation of investments
Fair value movements on 
investment entity subsidiaries
Portfolio income
Dividends
Interest income from investment portfolio
Fees receivable

Foreign exchange on investments
Gross investment return
Fees receivable from  
external funds
Operating expenses
Interest receivable
Interest payable
Exchange movements
Other income
Income/(expense) from investment entity 
subsidiaries
Operating proﬁt before carried interest
Carried interest

Carried interest and performance  
fees receivable 
Carried interest and performance 
fees payable

Operating proﬁt from continuing operations

Income taxes 
Proﬁt for the year from continuing operations

Proﬁt for the year from discontinued operations
Proﬁt for the year
Other comprehensive income
Exchange differences on 
translation of foreign operations
Re-measurements of deﬁned  
beneﬁt plans

Other comprehensive (expense)/income for 
the year from continuing operations

Other comprehensive (expense)/income for 
the year from discontinued operations

Total comprehensive income for 
the year (“Total return”)

–

50
50
6
269

1,755

46
(117)
2
(49)
28
10

–

1,675

279

(434)

1,520

3

1,523

91

1,614

–

(22)

(22)

–

1,592

(12)
(40)
3
(205)

(356)

–
1
–
–
14
–

18

(323)

1

326

4

–

4

7

11

(4)

–

(4)

(7)

–

IFRS
basis
2017
£m

(25)

262

38
10
9
64

72

690

–

49
59
7
174

1,399

1,051

46
(116)
2
(49)
42
10

18

1,352

280

(108)

1,524

3

1,527

98

1,625

(4)

(22)

(26)

(7)

41
(107)
4
(47)
(31)
–

–

911

78

(186)

803

–

803

27

830

–

(6)

(6)

–

1,592

824

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(61)

(576)

591

(13)
(37)
2
(145)

(239)

–
2
–
–
95
–

(10)

(152)

(5)

148

(9)

(2)

(11)

(2)

(13)

11

–

11

2

–

11

114

591

36
22
9
29

812

41
(105)
4
(47)
64
–

(10)

759

73

(38)

794

(2)

792

25

817

11

(6)

5

2

824

Notes:
1  Applying IFRS 10 to the Consolidated statement of comprehensive income consolidates the line items of a number of previously consolidated subsidiaries into a single line item “Fair value 

movements on investment entity subsidiaries”. In the “Investment basis” accounts we have disaggregated these line items to analyse our total return as if these Investment entity subsidiaries 
were fully consolidated, consistent with prior years. The adjustments simply reclassify the Consolidated statement of comprehensive income of the Group, and the total return is equal under 
the Investment basis and the IFRS basis. 

2  Realised proﬁts, unrealised proﬁts, and portfolio income shown in the IFRS accounts only relate to portfolio companies that are held directly by 3i Group plc and not those portfolio 
companies held through Investment entity subsidiaries. Realised proﬁts, unrealised proﬁts, and portfolio income in relation to portfolio companies held through Investment entity 
subsidiaries are aggregated into the single “Fair value movement on investment entity subsidiaries” line. This is the most signiﬁcant reduction of information in our IFRS accounts. 

3  Foreign exchange movements have been reclassiﬁed under the Investment basis as foreign currency asset and liability movements. Movements within the Investment entity subsidiaries 

are included within “Fair value movements on investment entities”.

4  Other items also aggregated into the “Fair value movements on investment entity subsidiaries” line include fees receivable from external funds, audit fees, administration expenses, 

carried interest and tax.

5  Comparatives for the year ended 31 March 2016 have been re-presented to reﬂect the classiﬁcation of the Group’s Debt Management business sold to Investcorp as discontinued operations. 

See Note 31 to the IFRS ﬁnancial statements.

6  The IFRS basis is audited and the Investment basis is unaudited.

3i Group Annual report and accounts 2017

39

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

Reconciliation of Investment basis and IFRS

continued

Reconciliation of consolidated statement of ﬁnancial position

Investment
basis
2017
£m

IFRS
adjustments
2017
£m

Notes

IFRS
basis
2017
£m

Investment
basis
2016
£m

IFRS
adjustments
2016
£m

Assets 
Non-current assets
Investments

Quoted investments
Unquoted investments

Investments in investment entity subsidiaries
Investment portfolio
Carried interest and performance  
fees receivable
Other non-current assets
Intangible assets
Retirement beneﬁt surplus
Property, plant and equipment
Deferred income taxes
Total non-current assets
Current assets
Carried interest and performance 
fees receivable
Other current assets
Current income tax receivable
Deposits
Cash and cash equivalents
Total current assets

Total assets
Liabilities
Non-current liabilities
Trade and other payables
Carried interest and performance fees payable
Loans and borrowings
Retirement beneﬁt deﬁcit
Deferred income taxes
Provisions
Total non-current liabilities
Current liabilities
Trade and other payables
Carried interest and performance fees payable
Acquisition related earn-out charges payable
Loans and borrowings
Current income taxes
Provisions
Total current liabilities

Total liabilities

Net assets

Equity
Issued capital 
Share premium
Other reserves
Own shares
Total equity

40

3i Group Annual report and accounts 2017

1
1
1, 2

1

1

1, 2

1

1

1
1

3

893
4,782
–

5,675

359
106
–
121
5
–
6,266

7
10
2
40
954

1,013

7,279

(29)
(644)
(575)
(22)
(1)
(2)

(1,273)

(125)
(41)
–
–
–
(4)

(170)

(1,443)

5,836

719
785
4,370
(38)

5,836

(503)
(3,466)
3,483

(486)

(5)
(56)
–
–
–
–
(547)

2
2
–
–
(23)

(19)

390
1,316
3,483

5,189

354
50
–
121
5
–
5,719

9
12
2
40
931

994

(566)

6,713

5
520
–
–
1
–

526

22
18
–
–
–
–

40

566

–

–
–
–
–

–

(24)
(124)
(575)
(22)
–
(2)

(747)

(103)
(23)
–
–
–
(4)

(130)

(877)

5,836

719
785
4,370
(38)

5,836

658
3,839
–

4,497

94
37
12
132
5
3
4,780

28
53
–
40
962

1,083

5,863

(27)
(290)
(575)
(20)
(2)
(1)

(915)

(107)
(114)
(1)
(262)
(2)
(7)

(493)

(1,408)

4,455

719
784
3,006
(54)

4,455

(361)
(2,596)
2,680

(277)

(5)
–
–
–
–
–
(282)

–
(22)
–
–
(5)

(27)

(309)

–
205
–
–
2
–

207

8
94
–
–
–
–

102

309

–

–
–
–
–

–

IFRS
basis
2016
£m

297
1,243
2,680

4,220

89
37
12
132
5
3
4,498

28
31
–
40
957

1,056

5,554

(27)
(85)
(575)
(20)
–
(1)

(708)

(99)
(20)
(1)
(262)
(2)
(7)

(391)

(1,099)

4,455

719
784
3,006
(54)

4,455

Notes:
1  Applying IFRS 10 to the Consolidated statement of ﬁnancial position aggregates the line items into the single line item “Investment in investment entities”. In the Investment basis we have 
disaggregated these items to analyse our net assets as if the Investment entity subsidiaries were consolidated. The adjustment reclassiﬁes items in the Consolidated statement of ﬁnancial 
position. There is no change to the net assets, although for reasons explained below, gross assets and gross liabilities are different.

  The disclosure relating to portfolio companies is signiﬁcantly reduced by the aggregation, as the fair value of all investments held by Investment entity subsidiaries is aggregated into 

the “Investments in investment entities” line. We have disaggregated this fair value and disclosed the underlying portfolio holding in the relevant line item, ie, quoted equity investments 
or unquoted equity investments.

  Other items which may be aggregated are carried interest and other payables, and the Investment basis presentation again disaggregates these items.
2  Intercompany balances between Investment entity subsidiaries and trading subsidiaries also impact the transparency of our results under the IFRS basis. If an Investment entity subsidiary 

has an intercompany balance with a consolidated trading subsidiary of the Group, then the asset or liability of the Investment entity subsidiary will be aggregated into its fair value, while the 
asset or liability of the consolidated trading subsidiary will be disclosed as an asset or liability in the Consolidated statement of ﬁnancial position for the Group. 

3  Investment basis ﬁnancial statements are prepared for performance measurement and therefore reserves are not analysed separately under this basis.
4  The IFRS basis is audited and the Investment basis is unaudited.

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3i Group Annual report and accounts 2017

41

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

Reconciliation of Investment basis and IFRS

continued

Reconciliation of consolidated cash ﬂow statement 

Investment
basis
2017
£m

IFRS
adjustments
2017
£m

Notes

Cash ﬂow from operating activities
Purchase of investments
Proceeds from investments
Cash inﬂow from investment 
entity subsidiaries
Net cash ﬂow from derivatives
Portfolio interest received
Portfolio dividends received
Portfolio fees received
Fees received from external funds
Carried interest and performance 
fees received
Carried interest and performance 
fees paid
Carried interest held in non-current assets
Acquisition related earn-out charges paid
Operating expenses 
Income taxes paid
Other cash income
Net cash ﬂow from operating activities

Cash ﬂow from ﬁnancing activities
Issue of shares
Dividends paid
Interest received
Interest paid
Repayment of short-term borrowings
Repurchase of short-term borrowings
Co-investment loans
Net cash ﬂow from ﬁnancing activities

Cash ﬂow from investing activities
Purchase of property, plant and equipment
Proceeds from sale of Debt Management 
business
Cash held in sold subsidiaries
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

1
1

1

1
1

1

1

1

1

2

2
1

2

(692)
1,063

–
–
16
66
11
71

39

(131)
(56)
(1)
(131)
(2)
2

255

1
(230)
2
(51)
(264)
(17)
1

(558)

(1)

232
(4)
–

227

(76)

962
68

954

358
(753)

246
–
(9)
(12)
(2)
–

–

104
56
–
–
–
–

(12)

–
–
–
–
–
–
1

1

–

–
–
–

–

(11)

(5)
(7)

(23)

IFRS
basis
2017
£m

(334)
310

246
–
7
54
9
71

39

(27)
–
(1)
(131)
(2)
2

243

1
(230)
2
(51)
(264)
(17)
2

(557)

(1)

232
(4)
–

227

(87)

957
61

931

Investment
basis
2016
£m

IFRS
adjustments
2016
£m

IFRS
basis
2016
£m

(449)
771

–
(14)
15
71
7
78

52

(15)
–
(30)
(134)
–
–

352

–
(190)
4
(51)
–
–
–

(237)

(1)

–
–
(40)

(41)

74

864
24

962

362
(535)

206
–
(10)
(13)
–
–

–

2
–
–
–
–
–

12

–
–
–
–
–
–
–

–

–

–
–
–

–

12

(3)
(14)

(5)

(87)
236

206
(14)
5
58
7
78

52

(13)
–
(30)
(134)
–
–

364

–
(190)
4
(51)
–
–
–

(237)

(1)

–
–
(40)

(41)

86

861
10

957

Notes:
1   The Consolidated cash ﬂow statement is impacted by the application of IFRS 10 as cash ﬂows to and from Investment entity subsidiaries are disclosed, rather than the cash ﬂows to and from 

the underlying portfolio.

  Therefore in our Investment basis ﬁnancial statements, we have disclosed our cash ﬂow statement on a “look through” basis, in order to reﬂect the underlying sources and uses of cash ﬂows 

and disclose the underlying investment activity.

2  There is a difference between the change in cash and cash equivalents of the Investment basis ﬁnancial statements and the IFRS ﬁnancial statements because there are cash balances held  

in Investment entity subsidiary vehicles. Cash held within Investment entity subsidiaries will not be shown in the IFRS statements but will be seen in the Investment basis statements.

3  The IFRS basis is audited and the Investment basis is unaudited. 

42

3i Group Annual report and accounts 2017

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alternative Performance Measures (“APMs”)
We assess our performance using a variety of measures that are not speciﬁcally deﬁned under IFRS and are therefore termed APMs. 
The APMs that we use may not be directly comparable with those used by other companies. Our Investment basis is itself an APM.

The explanation of and rationale for the Investment basis and its reconciliation to IFRS is provided on pages 38 to 42. 

The table below deﬁnes our additional APMs. 

APM

Purpose

Calculation

Reconciliation to IFRS

Gross investment return
as a percentage of opening 
portfolio value

A measure of the performance of 
our proprietary investment portfolio.

For further information see the 
Group KPIs on page 14).

It is calculated as the gross 
investment return, as shown in  
the Investment basis Consolidated 
statement of comprehensive 
income, as a % of the opening 
portfolio value.

Cash realisations

Cash investment

Operating cash proﬁt

Cash proceeds from our investments 
support our returns to shareholders, 
as well as our ability to invest in new 
opportunities. 

The cash received from the disposal 
of investments in the year as shown 
in the Investment basis Consolidated 
cash ﬂow statement on page 37.

For further information see the 
Group KPIs on page 14.

Identifying new opportunities in 
which to invest proprietary capital  
is the primary driver of the Group’s 
ability to deliver attractive returns. 

The cash paid to acquire 
investments in the year as shown on 
the Investment basis Consolidated 
cash ﬂow statement on page 37.

For further information see the 
Group KPIs on page 14.

By covering the cash cost of running 
the business with cash income,  
we reduce the potential dilution  
of capital returns.

Net cash/(net debt)

A measure of the ﬁnancial risk 
in the Group’s balance sheet.

Gearing

A measure of the ﬁnancial risk 
in the Group’s balance sheet.

The cash income from the portfolio 
(interest, dividends and fees) 
together with fees received from 
external funds less cash operating 
expenses as shown on the 
Investment basis Consolidated  
cash ﬂow statement on page 37.  
The calculation is shown in Table 8 
on page 31 of the Financial review.

Cash and cash equivalents plus 
deposits less loans and borrowings 
as shown on the Investment basis 
Consolidated statement of ﬁnancial 
position on page 36.

Net debt (as deﬁned above) as a % 
of the Group’s net assets under the 
Investment basis. It cannot be less 
than zero.

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The equivalent balances under  
IFRS and the reconciliation to the 
Investment basis are shown on page 
39 and 40 for the Reconciliation of 
the consolidated statement of 
comprehensive income and the 
Reconciliation of the consolidated 
statement of ﬁnancial position 
respectively.

The equivalent balance under  
IFRS and the reconciliation to the 
Investment basis is shown in the 
Reconciliation of the consolidated 
cash ﬂow statement on page 42.

The equivalent balance under  
IFRS and the reconciliation to the 
Investment basis is shown in the 
Reconciliation of the consolidated 
cash ﬂow statement on page 42.

The equivalent balance under  
IFRS and the reconciliation to the 
Investment basis is shown in the 
Reconciliation of the consolidated 
cash ﬂow statement on page 42.

The equivalent balance under  
IFRS and the reconciliation to the 
Investment basis is shown in the 
Reconciliation of the consolidated 
statement of ﬁnancial position 
on page 40. 

The equivalent balance under  
IFRS and the reconciliation to the 
Investment basis is shown in the 
Reconciliation of the consolidated 
statement of ﬁnancial position 
on page 40. 

3i Group Annual report and accounts 2017

43

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

Risk management

Effective risk management underpins the 
successful delivery of our strategy. Integrity, 
rigour and accountability are central to our 
values and culture at 3i and are embedded 
in our approach to risk management.

Understanding our risk appetite and culture
As both an investor and asset manager, 3i is in the business of 
taking risk in order to seek to achieve its targeted returns for 
investors and shareholders. The Board approves the strategic 
objectives that determine the level and types of risk that 3i is 
prepared to accept. The Board reviews 3i’s strategic objectives 
and risk appetite at least annually. 

3i’s risk appetite policy, which is consistent with previous years,  
is built on rigorous and comprehensive investment procedures 
and conservative capital management. 

Culture
Integrity, rigour and accountability are central to our values 
and culture and are embedded in our approach to risk 
management. Our Investment Committee, which has oversight 
of the investment pipeline development and approves new 
investments, signiﬁcant portfolio changes and divestments, 
is integral to embedding our institutional approach across the 
business. It ensures consistency and compliance with 3i’s ﬁnancial 
and strategic requirements, cultural values and appropriate 
investment behaviours. Members of the Executive Committee 
have responsibility for their own business or functional areas and 
the Group expects individual behaviours to meet the Group’s 
high standards of conduct. All employees share the responsibility 
for upholding 3i’s strong control culture and supporting effective 
risk management. Senior managers, typically those who report 
to Executive Committee members, are required to conﬁrm their 
individual and business area compliance annually. In addition, 
all staff are assessed on how they have demonstrated 3i’s values 
as part of their annual appraisal. 

The following sections explain how we control and manage the 
risks in our business. They outline the key risks, our assessment 
of their potential impact on our business in the context of the 
current environment and how we seek to mitigate them. 

44

3i Group Annual report and accounts 2017

Risk appetite 
Our risk appetite is deﬁned by our strategic objectives. 
We invest capital in investment opportunities that will 
deliver capital returns and portfolio and fund management 
cash income to cover our costs, and increase returns to 
our investors. 

Investment risk 
The substantial majority of the Group’s capital is invested in 
Private Equity. Before the Group commits to an investment, 
we assess the opportunity using the following criteria:

•  return objective: individually assessed and subject to  
a minimum target of 2x money multiple over three to 
ﬁve years;

•  geographic focus: core markets of northern Europe and 

North America;

•  sector expertise: focus on Business Services, Consumer 

and Industrials; and

•  vintage: invest up to £750 million per annum in four to seven 

new investments in companies with an enterprise value 
range of €100 million to €500 million at investment.

Investments made by 3iN need to be consistent with 
3iN’s overall return target of 8% to 10% over the medium 
term and generate a mix of capital and income returns. 
Other infrastructure investments made by the Group should 
be capable of delivering capital growth and fund management 
fees which together generate mid-teens returns. 

Capital management
3i adopts a conservative approach to managing its capital 
resources as follows:

•  There is no appetite for structural gearing at the Group 

level, but short-term tactical gearing will be used. 

•  The Group does not hedge its currency exposure but it 

does match currency realisations with investments where 
possible and takes out short-term hedges occasionally 
to hedge investments and realisations between signing 
and completion. 

•  We have limited appetite for the dilution of capital returns 
as a result of operating and interest expenses. Both Private 
Equity and Infrastructure generate cash income to mitigate 
this risk. 

3i Group’s Pillar 3 document 
can be found at www.3i.com

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Approach to risk governance
The Board is responsible for risk assessment, the risk management 
process and for the protection of the Group’s reputation and 
brand integrity. It considers the most signiﬁcant risks facing 
the Group and uses quantitative analyses, such as the vintage 
control which considers the portfolio concentration by revenue, 
geography and sector, and liquidity reporting, where appropriate. 

Risk governance structure
Overview of risk management framework and governance structure

Non-executive oversight is also exercised through the Audit and 
Compliance Committee which focuses on upholding standards 
of integrity, ﬁnancial reporting, risk management, going concern 
and internal control. The Audit and Compliance Committee’s 
activities are discussed further on pages 69 to 73. 

Treasury Transactions Committee

Board

Audit and Compliance Committee

•  Considers risk implications of speciﬁc 
treasury transactions as required. 

•  Determines the Group’s risk appetite  

as part of strategy setting.

•  A quorum of members meet  

•  Overall responsibility for maintaining 

as required.

a system of internal controls that ensures 
an effective risk management and 
oversight process operates across  
the Group.

•  Considers risks to the Group’s brand, 
values and reputation as required.

•  Meets at least six times a year.

•  Receives reports from the Head of 
Internal Audit on the Group’s risk 
management processes and system  
of internal controls.

•  Receives reports from the Head 

of Group Compliance on regulatory  
and compliance matters.

•  Receives reports from the Head 

of Tax on the Group’s tax position.
•  Updated at each meeting on the 
outputs of the latest Group Risk 
Committee meeting with the 
opportunity to contribute views  
or raise questions.

•  Meets at least four times a year.

Investment Committee

Executive Committee

Group Risk Committee

Chief Executive

•  Central body approving all investments, 

divestments and material portfolio 
decisions.

•  Principal decision-making body in 
respect of managing the business.

•  Meets monthly.

•  Considers risk in the context of 

individual investments, portfolio 
management decisions and 
divestments.

•  Meets as required.

Conﬂicts Committee

•  Deals with potential conﬂict issues.
•  Meets as required.

•  Delegated responsibility for risk 

management and oversight across the 
Group, reﬂecting the Board’s appetite 
for risk and any speciﬁc limits set.

•  Maintains the Group risk review, which 
summarises the Group’s risk exposure 
and associated mitigation or response 
plan based on risks identiﬁed.

•  Meets four times a year to consider the 
Group risk review, including adequacy  
of risk mitigation and controls.

•  Chairman provides an update at each 
meeting of the Audit and Compliance 
Committee.

  Committees of the Board 
  Committees of the Chief Executive and chaired by the Chief Executive 
  Independent review of potential conﬂict issues 
  Risk reporting to Audit and Compliance Committee

3i Group Annual report and accounts 2017

45

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

Risk management

continued

The Board has delegated the responsibility for risk oversight to 
the Chief Executive. He is assisted by the Group Risk Committee 
(“GRC”) in managing this responsibility, and guided by the 
Board’s appetite for risk and any speciﬁc limits set. The GRC 
maintains the Group risk review, which summarises the Group’s 
principal risks, associated mitigating actions and key risk 
indicators, and identiﬁes any changes to the Group’s risk proﬁle. 
The risk review is updated quarterly and the Chief Executive 
provides quarterly updates to each Audit and Compliance 
Committee meeting where the Committee members contribute 
views and raise questions. The last risk review was completed 
in May 2017.

The risk framework is augmented by a separate Risk Management 
Function which has speciﬁc responsibilities under the FCA’s 
Investment Funds Sourcebook. It meets ahead of the GRC 
meetings to consider the key risks impacting the Group, 
and any changes in the relevant period where appropriate. 
It also considers the separate risk reports for each Alternative 
Investment Fund (“AIF”) managed by the Group, including areas 
such as portfolio composition, portfolio valuation, operational 
updates and team changes, which are then considered by 
the GRC. 

Assurance over the robustness and effectiveness of the Group’s 
overarching risk management processes and compliance with 
relevant policies is provided to the Audit and Compliance 
Committee through the independent assessment by Internal 
Audit and the work of Group Compliance on regulatory risks. 

Assurance over the robustness of the Group’s valuation policy 
is provided by the Valuations Committee, whose report can 
be found on pages 74 to 76.

In addition to the above, a number of other committees 
contribute to the Group’s overall risk governance structure, 
as set out on page 45.

Risk management framework
The Group’s risk management framework is designed to support 
the delivery of the Group’s strategic objectives.

The key principles that underpin risk management in the 
Group are:

•  the Board and the Executive Committee promote a culture in 
which risks are identiﬁed, assessed and reported in an open, 
transparent and objective manner; 

•  the Investment Committee ensures a centralised process-led 

approach to investment; and

•  the over-riding priority is to protect the Group’s long-term 
viability and reputation and produce sustainable, medium 
to long-term cash-to-cash returns. 

Managing the Group’s Environmental, Social and Governance 
(“ESG”) risks is central to how we do business and a key part 
of our risk management framework. It also forms part of our 
half-yearly portfolio company reviews as described in the 
Valuations Committee report on page 74. 

In practice, the Group operates a “three lines of defence” 
framework for managing and identifying risk. The ﬁrst line 
of defence against outcomes outside our risk appetite is 
the business function and the respective Managing Partners 
across Private Equity and Infrastructure, and Debt Management 
(until 3 March 2017). 

Line management is supported by oversight and control 
functions such as ﬁnance, human resources and legal which 
constitute the second line of defence. The compliance 
function is also in the second line of defence; its duties include 
reviewing the effective operation of our processes in meeting 
regulatory requirements. 

Internal audit provides independent assurance over the operation 
of controls and is the third line of defence. The internal audit 
programme includes the review of risk management 
processes and recommendations to improve the internal 
control environment. 

46

3i Group Annual report and accounts 2017

Risk review process
The Group risk review process includes the monitoring of key 
strategic and ﬁnancial metrics considered to be indicators of 
potential changes in the Group’s risk proﬁle. The review includes, 
but is not limited to, the following reference data:

•  Group and business line KPIs;
•  portfolio analysis; 
•  risk reports for managed AIFs; and
•  quarterly Group risk log.

In addition to the above, the GRC considers the impact of any 
changes and developments to its risk proﬁle, strategic delivery 
and reputation quarterly.

The GRC uses the above to identify its principal risks. It then 
evaluates the impact and likelihood of each risk, with reference 
to associated measures and key performance indicators. 
The adequacy of the mitigation plans is then assessed and, 
if necessary, additional actions are agreed and then reviewed 
at the subsequent meeting. 

A number of focus topics are also agreed in advance of each 
meeting. In FY2017, the GRC covered the following:

•  a preliminary analysis of the potential impact of the UK’s 

decision to leave the EU on the Group; 

•  a refresh of the Group’s risk review process and reporting;
•  an update on ESG issues and themes, especially with respect 

to its portfolio companies;

•  a review of the Group’s stress tests to support its Internal 
Capital Adequacy Assessment Process (“ICAAP”) and 
Viability Statement;

•  a review of the Group’s IT framework including cyber security; 
•  the proposed risk disclosures in the 2017 Annual report and 

accounts; and

•  an overview of the main risk management aspects 
of the Group’s remuneration and performance 
management structures. 

There were no signiﬁcant changes to the Group’s approach to 
risk governance or its operation in FY2017 but we have continued 
to reﬁne our framework for risk management where appropriate, 
including further steps to monitor our investment in Action. 

Further details on 3i’s approach as a responsible investor are 
available at www.3i.com.

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3i Group Annual report and accounts 2017

47

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

 Principal risks and mitigations

Aligning risk to our strategic objectives

Managing these requirements is a priority and regular updates 
are provided to the Executive Committee and the Board. To date, 
whilst complex to interpret and implement, they have had limited 
practical impact on 3i’s ability to deliver its strategy. 

Investment
Investment risks are those in respect of speciﬁc asset investment 
decisions and the subsequent performance of an investment 
or exposure concentrations across business line portfolios. 
They could materially impact our ability to achieve our strategic 
objectives. To mitigate these risks, we focus on Private Equity 
and Infrastructure sectors and geographies where our expertise 
and network can drive signiﬁcant outperformance. 

Our overarching objectives are to source attractive investment 
opportunities at the right price and execute their investment 
plans successfully.

The investment case presented at the outset includes the 
expected beneﬁt of operational improvements, growth 
initiatives and M&A activity that will be driven by our investment 
professionals together with the portfolio company’s management 
team. It will also include a view on the likely exit strategy 
and timing. 

The execution of this investment case is monitored through two 
key review processes. Our monthly portfolio monitoring reviews 
current performance against budget and prior year and a set 
of trafﬁc light indicators and KPIs. Our semi-annual reviews focus 
on the longer term plan for the investment together with any 
strategic developments. 

Finally, we recognise the need to plan and execute a successful 
exit at the optimum time for the portfolio company’s development, 
taking consideration of market conditions. This risk is closely 
linked to the economic environment noted above. Exit plans are 
refreshed where appropriate in the semi-annual portfolio reviews 
and the divestment process is clearly deﬁned and overseen by 
the Investment Committee. 

The Investment Committee is involved in and approves every 
step of the investment and realisation process.

Review of principal risks
The disclosures on the following pages are not an exhaustive 
list of risks and uncertainties faced by the Group, but rather 
a summary of those principal risks which are under active review 
by the GRC and Board, and are believed to have the potential 
to affect materially the achievement of the Group’s strategic 
objectives and impact its ﬁnancial performance, reputation 
and brand integrity. 

Although the business environment over the last 12 months has 
been challenging, given the political and economic uncertainty 
and volatile market conditions, there has been no signiﬁcant 
change to our risk management approach or risk appetite. 
The sale of our Debt Management business, which completed on 
3 March 2017, will allow the Group to focus on proprietary capital 
investment, its advisory relationship with 3iN, as well as new fund 
management initiatives in Infrastructure. The sale of the Debt 
Management business has reduced the regulatory complexity 
of the Group as it is no longer subject to the CRDIV regime.

The Group believes that its consistent strategy of focusing 
on core sectors and geographies, its institutional process-
led approach to investment and strong culture will help it to 
navigate what it expects will be another challenging year for 
ﬁnancial markets.

External
The external environment remains difﬁcult. There has been a 
signiﬁcant amount of uncertainty in the Eurozone and the wider 
emerging markets economies, fuelled by a challenging global 
macro-economic context and ongoing geo-political tensions. 
There has been a signiﬁcant amount of uncertainty in the global 
economy over the last year and in particular following the result 
of the US election and the UK’s referendum on its membership 
of the EU. This has been shown by the signiﬁcant volatility seen in 
foreign exchange and quoted markets this year. Our well-funded 
balance sheet and diverse portfolio of international companies 
position us well to address the wider implications of the EU 
referendum as they unfold. 

Notwithstanding this, large amounts of capital are focused on 
Private Equity and Infrastructure which requires us to be diligent 
and selective in our investment approach.

The Group is subject to a range of regulatory and tax reporting 
requirements. In particular, as a multinational investment 
company, the changes to the tax landscape require careful 
monitoring as countries begin to consider and adopt the 
recommendations made by the OECD’s Base Erosion and Proﬁt 
Shifting (“BEPS”) project. The UK has been among the ﬁrst to 
adopt a number of the BEPS recommendations, including the tax 
deductibility for corporate interest expense, the tax treatment 
of hybrid instruments and country-by-country reporting. 
The Group continues to monitor these tax developments. 
Whilst the increased reporting is expected to lead to an increase 
in the Group’s interaction with the tax authorities in the various 
jurisdictions in which it operates, it is not currently expected 
to lead to a signiﬁcant change in the Group’s overall tax proﬁle.

48

3i Group Annual report and accounts 2017

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In addition, there are a number of risks speciﬁc to each business 
line as follows:

Private Equity
Regular and robust portfolio monitoring procedures remain 
critical given the volatile economic backdrop and as the 
investment portfolio becomes more concentrated. The Private 
Equity partners’ detailed monthly portfolio monitoring meeting 
is attended by the Group Chief Executive and the Group Finance 
Director. In addition, the Valuations Committee reviews the 
valuation assumptions of our more material assets quarterly. 
Individual portfolio company failures could have adverse 
reputational consequences for the Group, even though the value 
impact may not be material. We review our internal processes 
and investment decisions in light of actual outcomes on an 
ongoing basis. 

Infrastructure
Infrastructure remains focused on investing selectively within 
its target sectors and developing both organic and inorganic 
growth opportunities. The Infrastructure business was very active 
in FY2016 and FY2017, where 3iN saw particularly strong levels of 
investment, and a £385 million capital raise, in FY2017. In addition, 
the team has launched three initiatives in Europe and North 
America to broaden its coverage of the infrastructure sector 
in areas of the market complementary to the core investment 
focus of 3iN, which remains the primary investment vehicle for 
the business line. To mitigate risks associated with managing 
this strong growth in 3iN and the wider infrastructure business, 
the team has invested in its origination and asset management 
capability through new hires and internal promotions to Partner 
and Director level in Europe and an Infrastructure team in 
the US, and has enhanced its ﬁnance, strategy and investor 
relations teams. Further hires will be made in FY2018. We also 
hold monthly portfolio monitoring meetings and bi-annual 
investment reviews. 

Operational
Following an external review of 3i’s cyber security capabilities 
and controls, the Group implemented a number of new 
protection and detection tools. This, together with a major 
upgrade to our IT infrastructure, has delivered a more robust 
cyber security framework.

The Board also received regular updates on ESG risks and 
whether our investors’ skill sets and business development 
capabilities could support the Group’s strategic delivery. 
Detailed resource plans are in place at the business line level 
and the Board conducts an annual review of the Group’s 
organisational capability and succession plans (which include 
contingencies against loss of key staff). The last review was 
conducted in September 2016.

Viability statement
The Directors have assessed 3i’s viability over a three-year 
period to March 2020. 3i conducts its strategic planning over 
a ﬁve-year period; this statement is based on the ﬁrst three 
years, which provides more certainty over the forecasting 
assumptions used. 3i’s strategic plan, ICAAP and associated 
principal risks (as set out on pages 50 to 53 of the Strategic 
report) are the foundation of the Directors’ assessment. 

The assessment is overseen by the Group Finance Director 
and is subject to challenge by the GRC, review by the Audit 
and Compliance Committee and the Board. 

Our Group strategic plan projects the performance, net asset 
value and liquidity of 3i over a ﬁve-year period and is presented 
at the Directors’ annual strategy away day and updated 
throughout the year as appropriate. At the strategy away day, 
the Directors consider the strategy and opportunities for, 
and threats to, each business line and the Group as a whole. 
The outcome of those discussions is included in the next 
iteration of the strategic plan which is then used to support 
the viability assessment.

The Group’s ICAAP and viability testing considers multiple 
severe, yet plausible, scenarios including a severe downside 
economic scenario and the impact of a material single asset 
event. The severe downside used in FY2017 assumes that the 
global economy enters a severe recession; global equities 
fall and long-term interest rates reach new lows. The material 
single asset event considers the impact of a signiﬁcant asset 
experiencing a severe downturn in performance. 

We project the amount of capital we need in the business to 
cover our risks, including ﬁnancial and operational risks, under 
such stress scenarios. Our analysis shows that, while there may 
be a signiﬁcant impact on the Group’s reported performance 
in the short term under these scenarios, the resilience and 
quality of our balance sheet is such that solvency is maintained 
and our business remains viable.

Taking the inputs from the strategic planning process, 
the ICAAP and its stress scenarios, Directors reviewed an 
assessment of the potential effects of 3i’s principal risks on 
its current portfolio and forecast investment and realisation 
activity and the consequent impact on 3i’s capital and liquidity. 

Based on this assessment, the Directors have a reasonable 
expectation that the Company and the Group will be able 
to continue in operation and meet all their liabilities as they 
fall due up to at least March 2020.

3i Group Annual report and accounts 2017

49

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

 Principal risks and mitigations

continued

External

Key risk factors

Link to strategic objectives

Potential impact

Economic growth and investor 
and market conﬁdence 
is vulnerable to ongoing 
challenges, including 
geo-political developments, 
in the global economy

Grow investment  
portfolio earnings

Realise investments with  
good cash-to-cash returns

Volatility in foreign exchange 
and capital markets

Grow investment  
portfolio earnings

Realise investments with  
good cash-to-cash returns

Increase shareholder 
distributions

•  Limited growth or reduction in NAV 
owing to contraction of earnings in 
our investments in Private Equity 
or Infrastructure and/or changes 
in multiples and discount rates used 
for their valuations

•  Increases covenant risks or limits ability 

to reﬁnance our investments

•  Impacts general market conﬁdence and 

risk appetite

•  Leads to reduced M&A volumes, 

economic instability and lower growth

•  Unhedged foreign exchange rate 

movements impact total return and NAV

•  May impact portfolio performance 
•  Increases risks with IPO exit route and 

bank ﬁnancing

•  Potential for large equity market fall 

to impact valuation

Competitive M&A markets and 
high pricing in 3i’s core sectors

Realise investments with  
good cash-to-cash returns

Use our strong  
balance sheet

Increase shareholder 
distributions

•  Reduced investment rates in Private 

Equity and Infrastructure

•  Increased risk of overpaying which 

impacts potential returns

•  Potential for higher cash realisations 

on exits

50

3i Group Annual report and accounts 2017

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Risk management and mitigation

•  Regular portfolio company reviews and Investment 

Committee focus on investment strategy, exit 
processes and reﬁnancing strategies

•  Monthly portfolio monitoring to address portfolio 

issues promptly

•  Valuations Committee/Board monitoring 
of valuations and application of policy
•  Regular liquidity and currency monitoring 
and strategic reviews of the balance sheet 

•  Use of short-term hedging on investment entry 

or exit on a case-by-case basis

•  Active management of exit strategies by 

Investment Committee to enable us to adapt  
to market conditions

•  Portfolio company review focus on investment 
strategy, exit plans and reﬁnancing strategies 

•  Strong central oversight and disciplined 

approach to investment pipeline 

•  Active management of investments and 
exit strategies by Investment Committee 

Movement in  
risk status in FY2017

FY2017 outcome

•  GIR strong at 40% with impact from negative 

macro-economic and geo-political uncertainty 
on 3i and its portfolio companies limited by 
robust performance in largest investments 
and sterling weakness

•  Gearing remains nil and liquidity strong at £1.3bn
•  Implication of the UK’s decision to leave the EU 
reviewed at the Board, Executive Committee  
and GRC

•  Positive foreign exchange impact on NAV 
•  Foreign exchange exposures at the portfolio 

company level monitored and hedged 
appropriately

•  Realised £154m from continued sales of quoted 

stakes when the markets permitted and completed 
the IPO of Basic-Fit

•  Quoted asset exposure of 16%, with 12% being  

3iN (16% TSR in the year)

•  Policy to adjust multiples to reﬂect longer-term 

trends mitigated volatility in FY2017

•  Markets were supportive in the year and we 

disposed of nine assets and three quoted stakes 

•  Invested in three new Private Equity companies 
and made a further investment in Q Holding

•  Advised 3iN on six new investments

Risk exposure 
has increased 

No signiﬁcant change 
in risk exposure

Risk exposure 
has decreased

3i Group Annual report and accounts 2017

51

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

 Principal risks and mitigations

continued

Investment

Key risk factors

Link to strategic objectives

Potential impact

Investment rate or quality 
is lower than expected due 
to low M&A volumes or high 
levels of uninvested capital 
leading to high prices

Use our strong  
balance sheet

Increase shareholder 
distributions

Underperformance of 
portfolio companies

Grow investment  
portfolio earnings

Realise investments with  
good cash-to-cash returns

Increase shareholder 
distributions

•  Impacts longer-term returns and capital 
management and therefore ability to 
deliver strategic plan

•  Reduces staff morale and conﬁdence
•  Cost base may not be sustainable
•  Poor investment impacts Group’s 

reputation as an investor of proprietary 
capital and an adviser to 3iN

•  Reduction in NAV and realisation 

potential, impacting shareholder returns

•  Higher value concentration in the 
portfolio increases the potential 
impact and proﬁle of speciﬁc cases 
of underperformance

•  Underperformance impacts reputation 
as an investor of proprietary capital and 
an adviser to 3iN

Operational

Key risk factors

Attract and retain key people

New Infrastructure initiatives

Link to strategic objectives

Potential impact

Realise investments with  
good cash-to-cash returns

Maintain an operating  
cash proﬁt

Increase shareholder 
distributions

Maintain an operating  
cash proﬁt

Use our strong  
balance sheet

Increase shareholder 
distributions

•  Potential to undermine investor/ 

shareholder conﬁdence

•  Potential to delay execution  

of strategic plan

•  Slower growth could impact operating 

cash proﬁt and potentially dilute 
capital returns

•  Distract from the 3iN advisory mandate

52

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Risk management and mitigation

•  Regular monitoring of investment and divestment 

pipeline

•  Close oversight by management and early 

involvement of Investment Committee when  
key targets identiﬁed

•  Disciplined approach to sourcing investment 

opportunities

•  Regular review of asset allocation

•  Rigorous initial assessment of new investment 

opportunities to maintain quality of our investment 
pipeline

•  Monthly portfolio monitoring to review operating 
performance, identify weakness and opportunity 
early and take action as appropriate

•  Additional monitoring of Action, including 3i Chief 

Executive membership of the Action board

•  ESG and governance requirements and monitoring

Risk management and mitigation

•  Annual Board review of succession planning
•  Regular review of resourcing and key man 
exposures as part of business line reviews  
and the Portfolio Company Review process

Movement in  
risk status in FY2017

FY2017 outcome

•  Substantial amounts of capital chasing yield but 
made three new investments and one signiﬁcant 
further investment and also generated £982m of 
proceeds in Private Equity 

•  Signiﬁcant increase in origination activity in 

Infrastructure with six new investments as well 
as the launch of a new £700m infrastructure fund, 
and the ﬁrst close of an operational projects fund 

•  93% of the assets valued on an earnings basis grew 

their earnings over the last 12 months

•  Portfolio size continues to reduce which allows 
for a more targeted approach to Responsible 
Investment/ESG risk evaluation

•  Accounting irregularities and a liquidity shortfall 

uncovered at Agent Provocateur. The business was 
entered into administration in March 2017

Movement in  
risk status in FY2017

FY2017 outcome

•  Organisational capability and succession plan 
reviewed by the Board in September 2016

•  Rigorous assessment of new opportunities
•  Regular business updates and monthly portfolio 

monitoring

•  Additional recruitment to ensure no dilution  

of our focus on the 3iN mandate
•  Induction and oversight of new hires

•  Enhanced monthly portfolio monitoring 

in Infrastructure

New

•  Close oversight by Investment Committee 

of new initiatives

Risk exposure 
has increased 

No signiﬁcant change 
in risk exposure

Risk exposure 
has decreased

3i Group Annual report and accounts 2017

53

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

 Corporate responsibility

3i is committed to achieving its strategic 
and investment objectives while behaving 
responsibly as an employer, as an investor 
and as an international corporate citizen. 
We take responsibility for our actions, 
carefully consider how others will be affected 
by our choices and ensure that our values 
and ethics are integrated into our formal 
business policies, practices and plans. 

Our corporate responsibility strategy 
is deﬁned by three key priorities:

1.  Recruit and develop a diverse pool 

of talent

2. Invest responsibly

3.  Embed responsible business practices 

throughout the organisation

This section aims to provide a brief summary 
of our approach to corporate responsibility. 

For more information, please see our Corporate 
responsibility report, available on our website. 

Further information on our approach to corporate 
responsibility, including summaries of relevant policies, 
can also be found on our website.

A responsible employer
Recruiting, retaining and developing our talent is one of our 
most important priorities. We work towards that objective by 
communicating openly and consistently with our employees, 
providing training and opportunities for career advancement, 
rewarding our employees fairly and by encouraging employees 
to give direct feedback to senior management. We are a 
meritocracy and our employees are recruited, promoted  
and rewarded on the basis of merit, ability and performance.

We recognise the importance of providing a supportive working 
environment and of providing a healthy work/life balance for all 
our employees. 3i has a suite of human resources policies and 
procedures covering areas including recruitment, vetting and 
performance management, equal opportunities and diversity, 
family-friendly policies, medical insurance and health screening, 
health and safety and ﬂexible working, and appropriate processes 
to monitor their application. Summaries of a number of these 
policies can be found on our website.

Human rights
Whilst 3i does not have a formal human rights policy, our 
policies are consistent with internationally-proclaimed human 
rights principles. We comply fully with applicable human rights 
legislation in the countries in which we operate, for example 
covering areas such as freedom of association and the right to 
collective bargaining, equal remuneration and protection against 
discrimination. For all matters relating to human rights, we comply 
with local laws, and if those laws provide lesser protection than 
UK law, we apply the principles enshrined in UK law. 3i is an equal 
opportunities employer and has clear grievance and disciplinary 
procedures, an employee assistance programme and an 
independent, external “whistle blowing” hotline service.

We are committed to ensuring that the businesses we invest in 
comply with all applicable laws in relation to their employees 
(amongst other things) and, where appropriate, that they work 
towards meeting relevant international standards (such as the 
ILO Fundamental Conventions) where those are more stringent. 
We also encourage our business partners and suppliers to adopt 
the same standards with respect to human rights.

Corporate
responsibility
report

May 2017

For more information, visit  
ponsibility
www.3i.com/corporate-responsibility

54

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Equal opportunity and diversity
3i is fully committed to being an equal opportunities employer, 
and is opposed to all forms of unlawful and unfair discrimination. 
We believe that there are great beneﬁts to be gained from having 
a diverse and varied workforce. We do not set speciﬁc diversity 
targets, but seek to ensure that our corporate culture and policies 
create an inclusive work environment that helps to bring out the 
best in any qualiﬁed person. 

3i’s Equal Opportunities and Diversity policy establishes that all 
3i employees (temporary and permanent), contract workers and 
job applicants are treated fairly and are offered equal opportunity 
in selection, training, career development, promotion 
and remuneration. 

Achieving better gender diversity is important to 3i, and we 
believe we are making good progress in that respect, within the 
constraints imposed by being a small organisation with limited 
staff turnover. At 31 March 2017, 3i had a total of 241 employees. 
The breakdown by gender was as follows:

(number)

All 3i employees
3i Group Directors1
Senior managers2

Total3

Male

Female

241
9
38

142
6
28

99
3
10

1  Includes non-executive Directors who are not 3i employees.
2  “Senior managers” excludes Simon Borrows and Julia Wilson (who are included as 

Directors of 3i Group plc) and includes 23 people who were directors of undertakings 
included in the consolidated Group accounts, of whom 19 were male and four were female.
3  We sold our Debt Management division with effect from 3 March 2017. The average number 

of employees for FY2017 was 281. 

The McGregor-Smith review on Race in the Workplace, published 
on 28 February 2017, highlighted the under-employment and 
under-promotion of people of Black or Minority Ethnic (“BME”) 
background in UK businesses and makes the case for more 
inclusive organisations. The review noted that, while one in 
eight of the UK working age population in 2015 was from a BME 
background, BME individuals made up only 10% of the workforce 
and held only 6% of top management positions. The review 
contained a number of wide-ranging recommendations, including 
one for listed companies and all businesses and public bodies 
with more than 50 UK-based employees to publish a breakdown 
of their UK-based employees by race and pay band, and to 
publish aspirational targets and report against these annually. 
These recommendations have not been made mandatory.

As at 31 March 2017, the representation of UK-based BME 
employees as a percentage of total 3i employees was ahead 
of the one in eight proportion of people of BME background 
in the UK working age population. In addition, the proportion 
of employees of BME background as at 31 March 2017 in mid 
to higher salary brackets also exceeded one in eight. 

Employee engagement
We encourage a culture of open communication between our 
employees and senior and executive management. We beneﬁt 
from being a small organisation, operating in a relatively ﬂat 
structure, with few hierarchies. The members of our Executive 
Committee have an open-door policy and know most employees 
by name. 

We promote and facilitate the ownership of 3i shares among 
employees through variable compensation or share investment 
plans. As a result, most of our employees are shareholders in the 
Company and feel invested in the success of the organisation.

We pride ourselves on the engagement and the sense of 
ownership we have fostered over the years, which has resulted 
in low unplanned turnover rates. 

83% Participation in UK SIP1

10% Unplanned employee turnover rate2

1  Proportion of UK-based employees who subscribe to a Share Incentive Plan available 

to UK employees only.

2  During the year, 3i sold its Debt Management business, which employed approximately 
50 people, to Investcorp, and closed its Stockholm operations. The impact of these 
changes is excluded from the calculation of the employee turnover rate. 

Graduate training scheme
Our graduate recruitment scheme, designed to develop our next 
generation of world-class investment professionals and business 
leaders, was launched in 2015. We are a small organisation, 
however we believe this programme is important in fostering 
a distinctive 3i culture. Our ﬁrst ﬁve graduate analysts joined us 
in 2015, a further ﬁve joined us in September 2016 and a further 
three will join us in September 2017. The top performers on 
the programme are offered the opportunity to be fast-tracked 
directly into our business.

A responsible investor
With fewer than 250 employees globally, as a company we have 
a relatively small impact in terms of the environment and other 
corporate responsibility issues. However, with assets under 
management of approximately £10 billion we recognise that our 
decisions as an investor potentially matter to a broad range of 
people. We are, therefore, committed to investing responsibly 
and believe that:

•  the effective assessment 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 license to operate; and

•  it is vital that we seek to identify all material ESG risks and 

opportunities through our due diligence at the point we invest 
and effectively manage those risks and opportunities during 
the period of 3i’s investment.

3i Group Annual report and accounts 2017

55

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial review, Risk and Corporate responsibility

 Corporate responsibility

continued

UNPRI
Since 2011 we have been signatories to the UN Principles 
for Responsible Investment. 

Our Responsible Investment policy
We have a clear and comprehensive Responsible Investment 
(“RI”) policy which is embedded into our investment and portfolio 
monitoring processes. In our experience, companies with high 
ESG standards are typically better run, better at identifying and 
managing their business risks and generate better earnings 
growth. This policy sets out the businesses and activities in 
which 3i will not invest, as well as minimum standards in relation 
to ESG matters which we expect new portfolio companies to 
meet, or to commit to meeting over a reasonable time period. 
The policy applies to all our investments, irrespective of their 
country or sector.

Our RI policy has been integrated into our investment and 
portfolio management processes and procedures and is 
supported by detailed guidance notes, a global network of 
specialist external advisers and dedicated internal resource.

3i commits to use its inﬂuence as an investor to promote 
a commitment in our investee companies to:

•  comply, as a minimum, with applicable local and international 

laws and regulations and, where appropriate, relevant 
international standards (such as the IFC Performance Standards 
and the ILO Fundamental Conventions), where these are more 
stringent than applicable laws;

•  mitigate any 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.

For more information on our approach to Responsible Investing, 
including a summary of our Responsible Investment policy, 
please visit www.3i.com.

A good corporate citizen
As a company, we strive to embed responsible business practices 
throughout the organisation. Good corporate citizenship is 
achieved not only by having robust policies and processes in 
place, but also by promoting the right values and culture within 
our organisation. 

All employees are assessed annually against our corporate 
values and have a responsibility to be aware of, and abide 
by, 3i’s compliance, behaviour and environmental, ethical 
and social policies and procedures. For more information on 
our values, policies and processes, please see our Corporate 
responsibility report.

Governance
Good corporate governance is fundamental to 3i and its activities 
and is critical to the delivery of value to our stakeholders. For full 
details of our governance structure and processes, please see 
the Corporate Governance section of this report.

Transparency
As a publicly-listed company, 3i operates within a framework 
of formal legal and regulatory disclosure requirements as 
well as meeting the high expectations for transparency of 
our shareholders, fund investors, staff and the media. We are 
committed to communicating both our ﬁnancial and non-ﬁnancial 
performance in a clear, open and comprehensive manner.

Anti-bribery and corruption
3i does not offer, pay or accept bribes and we only work with third 
parties whose standards of business integrity are substantively 
consistent with ours. We expect the businesses we invest in to 
operate in compliance with all applicable laws and regulations and, 
where appropriate, work towards meeting relevant international 
standards where these are more stringent. This includes, in 
particular, upholding high standards of business integrity, avoiding 
corruption in all its forms and complying with applicable anti-
bribery, anti-fraud and anti-money laundering laws and regulations.

Modern slavery
3i published its slavery and human trafﬁcking statement, 
as required by section 54 of the Modern Slavery Act 2015, 
in September 2016 and will update this statement by the 
end of September 2017. 3i is committed to ensuring that:

•  there is no slavery and human trafﬁcking in any part of its 

business or supply chains; and

•  the companies in which it invests are similarly committed 

to ensuring that there is no slavery or human trafﬁcking in any 
part of their business or supply chains.

During FY2016, we commissioned KPMG to conduct a review 
of 30 portfolio companies (being those which are not directly 
subject to the Modern Slavery Act themselves) based on public 
records to identify whether any might have a higher risk of 
exposure to slavery or human trafﬁcking. This review found no 
reports of, or references to, slavery in any of the 30 companies 
reviewed. Of these, 12 were identiﬁed as operating in countries 
or sectors with an inherently higher risk of exposure to slavery – 
10 of these companies are in 3i’s residual India/Asia portfolio. 
We will carry out further work to better understand the potential 
risks in relation to these companies. 

56

3i Group Annual report and accounts 2017

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Environmental impact
This section has been prepared in accordance with our regulatory 
obligation to report greenhouse gas (“GHG”) emissions pursuant 
to Section 7 of the Companies Act 2006 (Strategic Report and 
Directors’ Report) Regulations 2013. 

During the year to 31 March 2017, our measured Scope 1 and 2 
emissions (location-based) totalled 959.8 tCO2e. This comprised:

Scope 

1 
2
2

Location-based
Market-based1

FY2017

FY2016

191.0
768.8
174.8

252.4
854.2
544.4

1  Emissions from the consumption of electricity outside the UK and emissions from 

purchased electricity are calculated using the market-based approach using supplier-
speciﬁc emission factors are reported in tCO2 rather than tCO2e due to the availability 
of emission factors. 

This is equivalent to 3.4 tCO2e per full-time equivalent employee, 
based on an average of 281 employees during the year 
(2016: 4.0 tCO2e; 276 employees). Overall our Scope 1 and 2 
emissions decreased by 13% in the year. 

Our emissions have been veriﬁed to a reasonable level of 
assurance by an external third party according to the  
ISO 14064-3 standard.

We quantify and report our organisational GHG emissions in 
alignment with the World Resources Institute’s Greenhouse Gas 
Protocol Corporate Accounting and Reporting Standard and in 
alignment with the new Scope 2 Guidance, which is the most 
signiﬁcant update to the Corporate Standard since its inception. 

We consolidate our organisational boundary according to the 
operational control approach, which includes all our ofﬁces. 
We have adopted a materiality threshold of 5% for GHG reporting 
purposes. The GHG sources that constituted our operational 
boundary for the year to 31 March 2017 are: 

•  Scope 1: natural gas combustion within boilers and fuel 

combustion within leased vehicles; and

•  Scope 2: purchased electricity and heat consumption for our 

own use.

In some cases, where data is missing, values have been estimated 
using either extrapolation of available data or data from the 
previous year as a proxy. 

The new Scope 2 Guidance requires that we quantify and report 
Scope 2 emissions according to two different methodologies 
(“dual reporting”): (i) the location-based method, using average 
emissions factors for the country in which the reported operations 
take place; and (ii) the market-based method, which uses the 
actual emissions factors of the energy procured. 

Whilst we have a very low footprint on the environment, we are 
committed to reducing it further. In our London ofﬁce, where 
approximately two-thirds of our employees are based and 
which accounts for 80% of our overall electricity consumption, 
we purchase all of our electricity from 100% renewable sources. 

Community
Success in our business relies on being able to recruit, motivate 
and retain a talented group of professionals, drawn from a diverse 
and representative background. We believe that diverse teams 
drawn from different sectors of society have a broader outlook 
and are better equipped to originate attractive investment 
opportunities and manage our portfolio. We therefore focus 
our charitable activities on the disadvantaged, on young 
people and on education, aiming to equip young people from 
all backgrounds with the tools and opportunities to pursue a 
successful career. The charities we partner with are supported 
on the basis of their effectiveness and impact. We also support 
staff giving and sponsorship through matching donations. 
Our charitable giving for the year to 31 March 2017 totalled 
£288,000.

Further details of the charities we support are available in our 
Corporate responsibility report.

External benchmarking

We believe that it is important to evidence our commitment 
to operating responsibly and to show how we are performing. 
Accordingly, we provide information to shareholders and other 
interested stakeholders. 

Sustainability indices
We have been a member of the Dow Jones Sustainability 
Indices and of the FTSE4Good Index Series since 2001 and 2011 
respectively. In addition, 3i became a member of the Ethibel 
Sustainability Index (ESI) Excellence Europe in September 2016 
and was reconﬁrmed as a constituent of that index in March 2017.

Carbon Disclosure Project
The Carbon Disclosure Project is an international, not-for-proﬁt 
organisation providing a framework which enables businesses to 
disclose their greenhouse emissions and other metrics voluntarily. 
3i has been making annual submissions to the Carbon Disclosure 
Project since 2006. 

In 2016, 3i was the winner of the “Most improved” award for CDP 
responders based in the UK, having improved its score from 94D 
in 2015 to A- (Leadership) in 2016.

By order of the Board

Simon Borrows
Chief Executive
17 May 2017

For more information, please see 
www.sustainability-indices.com
www.ftse.com/products/indices/FTSE4Good 
www.forumethibel.org/content/ethibel_
sustainability_index_excellence_europe.html 

3i Group Annual report and accounts 2017

57

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate  
Governance

Chairman’s introduction 
Board of Directors  
and Executive Committee 
The role of the Board 
Relations with shareholders 
Nominations Committee report 
Audit and Compliance  
Committee report 
Valuations Committee report 
Directors’ remuneration report 
Additional statutory and corporate 
governance information 

59

60
62
67
68

69
74
77

95

58

3i Group Annual report and accounts 2017

Chairman’s  
introduction

In an uncertain environment,  
strong corporate governance is critical  
to ensuring our long-term success. 

Good corporate governance is fundamental 
to the way that 3i, and its investee companies, 
conduct business. Particularly in the current 
volatile economic and political environment, 
effective oversight of strategy, people and 
risk management are vital to the delivery of 
long-term, sustainable value to the Group’s 
stakeholders. The Board must also remain 
responsive to the evolving regulatory 
environment and changing societal 
expectations of business.

The Board is responsible to shareholders for the overall 
management and oversight of the Group to ensure its 
long-term success. In particular, the Board is responsible 
for approving the Group’s strategy, setting the Group’s risk 
appetite, monitoring performance, and maintaining an effective 
system of risk management and internal controls. The Board is 
also responsible for ensuring that the Group has the necessary 
people, resources and structures to deliver the strategy.

Simon Thompson
Chairman

Corporate governance statement
The Company seeks 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. 

Throughout the year, the Company complied with the provisions of the UK Corporate Governance Code (the “Code”) published by the Financial Reporting Council 
in September 2014 which is available on the FRC website.

3i Group Annual report and accounts 2017

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Corporate Governance

 Board of Directors 
and Executive Committee

Board of Directors

Simon Thompson
Chairman

Simon Borrows
Chief Executive

Julia Wilson
Group Finance Director

Jonathan Asquith
Deputy Chairman

Non-executive Director since 
April 2015 and appointed Chairman 
with effect from close of 2015 
AGM. Non-executive director 
of Rio Tinto plc.

Previous experience
Until April 2017 Chairman of Tullow 
Oil plc. Formerly an executive 
director of Anglo American plc 
and chairman of the Tarmac 
Group. Non-executive director of 
AngloGold Ashanti Ltd, Newmont 
Mining Corporation and Sandvik 
AB. Senior Independent Director 
of Amec Foster Wheeler plc. 
Previous career in investment 
banking with N M Rothschild  
and S.G. Warburg.

Chief Executive since 2012, and 
an Executive Director since he 
joined 3i in 2011. Chairman of 
the Group Risk Committee, the 
Executive Committee and the 
Group’s Investment Committee. 
Member of the Supervisory Board 
of Peer Holding I B.V., the Dutch 
holding company for the Group’s 
and EFV’s investment in Action. 
Also a non-executive director at 
The British Land Company 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.

Group Finance Director and 
member of the Executive 
Committee since 2008. A member 
of the Group’s Investment 
Committee since 2012. Joined 3i 
in 2006 as Deputy Finance Director. 
Also a non-executive director 
at Legal & General Group Plc.

Previous experience
Formerly Group Director of 
Corporate Finance at Cable & 
Wireless plc.

Deputy Chairman since April 2015 
and Senior Independent Director 
since July 2014. Non-executive 
Director since 2011. Chairman of 
Citigroup Global Markets Limited 
and a non-executive Director of 
CiCap Limited, the parent company 
of Coller Capital.

Previous experience
Formerly Chairman of AXA 
Investment Managers. Non-
executive director of Ashmore 
Group plc and Dexion Capital plc. 
Director of Schroders plc from 2002 
to 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.

David Hutchison
Non-executive Director

Non-executive Director since 
2013. Chief Executive of Social 
Finance Limited.

Previous experience
Until 2009 Head of UK Investment 
Banking at Dresdner Kleinwort 
Limited and a member of its Global 
Banking Operating Committee. 
From 2012 to 2017, a non-executive 
director of the Start-Up 
Loans Company.

Caroline Banszky
Non-executive Director

Non-executive Director since 
July 2014.

Previous experience
Formerly the Managing Director 
of the Law Debenture Corporation 
p.l.c. from 2002 to 2016. 
Chief Operating Ofﬁcer of SVB 
Holdings PLC, now Novae Group 
plc, a Lloyd’s listed integrated 
vehicle, from 1997 to 2002. 
Previously, Finance Director of N.M. 
Rothschild & Sons Limited from 1995 
to 1997, having joined the bank in 
1981. She originally trained at what  
is now KPMG. 

Peter Grosch
Non-executive Director

Non-executive Director since 
November 2015. Deputy Chairman 
of SLM Solutions AG as well as 
being chairman of Euro-Diesel S.A., 
a 3i investee company.

Previous experience
Formerly CEO and President of 
Diehl Aerospace and Defence 
Systems, Executive Vice President 
DaimlerChrysler Off-Highway and 
Managing Director and Board 
Member of MTU Friedrichhafen 
(now Rolls Royce Power Systems).

60

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Executive Committee

Martine Verluyten
Non-executive Director

Non-executive Director since 2012. 
A non-executive director of Thomas 
Cook Group plc, STMicroelectronics 
NV and Groupe Bruxelles Lambert.

Will retire from the Board after the 
AGM in June 2017.

Previous experience
Formerly 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.

Menno Antal
Managing Partner, 
Private Equity

Kevin Dunn
General Counsel and 
Company Secretary

A member of the Executive 
Committee and the Group’s 
Investment Committee since 2010. 
Member of the Supervisory Board 
of Peer Holding I B.V., the Dutch 
holding company for the Group’s 
and EFV’s investment in Action.

Previous experience
Joined 3i in 2000 and Managing 
Director, Benelux, since 2003. 
Prior to joining 3i, spent 10 years at 
Heineken in a range of international 
managerial positions. Holds an 
engineering degree from Delft 
University and an MBA from IMD.

Responsible for 3i’s legal, compliance, 
internal audit, human resources 
and company secretarial functions. 
A member of the Executive 
Committee since joining 3i in 2007.

Previous experience
Prior to joining 3i, was 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.

Stephen Daintith
Non-executive Director

Non-executive Director since October 
2016. Chief Financial Ofﬁcer and an 
executive director of Rolls-Royce 
Holdings plc.

Previous experience
Formerly Finance Director of Daily 
Mail and General Trust plc (“DMGT”) 
from January 2011 to April 2017. 
Non-executive director at ZPG Plc. 
Prior to joining DMGT he was Chief 
Operating Ofﬁcer and Chief Financial 
Ofﬁcer of Dow Jones and prior to 
that Chief Financial Ofﬁcer of News 
International. He originally qualiﬁed 
as a Chartered Accountant with 
Price Waterhouse (now part of PwC).

Alan Giddins
Managing Partner, 
Private Equity

Phil White
Managing Partner, 
Infrastructure

A member of the Executive 
Committee and the Group’s 
Investment Committee since 2010.

A member of the Executive 
Committee and the Group’s 
Investment Committee since 2014.

Previous experience
Joined 3i in 2005. Prior to joining 
3i, spent 13 years in investment 
banking, latterly as a Managing 
Director at Société Générale. 
Qualiﬁed as a chartered accountant 
with KPMG and has a degree 
in economics.

Previous experience
Joined 3i in 2007. Prior to joining 
3i, experience in infrastructure 
investment, advisory and ﬁnancing, 
including roles at Macquarie, 
WestLB and Barclays. Holds an MBA 
from London Business School.

3i Group Annual report and accounts 2017

61

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

The role of the Board

Board and Committee structure
The Board is responsible for ensuring that there is an effective 
organisational and reporting structure in place such that there are 
clear reporting lines within the Group and well deﬁned roles and 
responsibilities. This is to ensure that the right decisions are being 
made with involvement from the right people.

The Board is assisted by various Principal Committees of the 
Board which report to it regularly. The membership and activities 
of the Audit and Compliance Committee, the Remuneration 
Committee, the Valuations Committee and the Nominations 
Committee are described in their separate reports on pages 
68 to 94.

The Board reviews membership of these Committees regularly 
and aims to ensure that undue reliance is not placed on particular 
Directors. These Board Committees have clearly deﬁned terms 
of reference which are available at www.3i.com.

Day-to-day management of the Group is the responsibility of the 
Chief Executive. To assist him in this role, the Chief Executive has 
established a number of additional management Committees 
which are outlined in the Risk section of the Strategic report 
on page 45.

Board composition
Composition

Tenure

Gender diversity

  Executive
  Non-executive

11%

22%

  3–9 years
   1–3 years
  Under 1 year

  Male
  Female

33%

56%

67%

33%

78%

Division of responsibilities 

Role of the Chairman

Role of the Chief Executive

Role of non-executive Directors

•  Leads the Board in setting its agenda,  
agreeing strategy, monitoring ﬁnancial 
and operational performance, and 
establishing the Group’s risk appetite.
•  Organises the business of the Board, 

ensuring its effectiveness, and maintains 
an effective system of internal controls.

•  Ensures that non-executive Directors 

receive relevant and accurate information 
to facilitate an open and effective 
discussion. This includes ensuring that the 
non-executive Directors receive regular 
reports on shareholders’ views on the 
Group.

•  Responsible for the composition of 

the Board and facilitates the effective 
contribution of non-executive Directors 
and constructive relationships between 
Executive and non-executive Directors.

•  Direct charge of the Group on a day-

•  Scrutinise the performance of 

to-day basis and is accountable to the 
Board for the ﬁnancial and operational 
performance of the Group.

management in meeting agreed 
objectives and monitor the reporting  
of performance.

•  Leads the Executive Committee to 

develop and implement the Group’s 
strategy and manage risk and the internal 
control framework.

•  Seek assurance on the integrity of the 
ﬁnancial information and that ﬁnancial 
controls and systems of risk management 
are robust and defensible.

•  Chairs the Investment Committee to 

•  Determine appropriate levels of 

review the acquisition, management and 
disposal of investments.

•  Reports to the Board on ﬁnancial 
and operational performance, risk 
management and progress in delivering 
the strategic objectives.

•  Regularly engages with shareholders and 
other key stakeholders on the Group’s 
activities and progress.

remuneration for Executive Directors  
and Executive Committee and have a 
prime role in appointing Directors and  
in succession planning.

•  Constructively challenge and help 
develop proposals on strategy; this 
occurs at meetings of the Board, and in 
particular at the annual review meeting to 
discuss ongoing strategy, the most recent 
of which took place in December 2016.

The Board has a formal schedule of matters reserved to it and its duly authorised Committees for decision. This is described on  
page 95. Matters delegated by the Board to management include implementation of the Board approved strategy, day-to-day 
management and operation of the business, the appointment and remuneration of staff below the Executive Committee and the 
formulation and implementation of risk management policies and processes.

62

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•  Reports on regulatory matters including signiﬁcant 

regulation affecting the Group;
•  Review of balance sheet strategy;
•  Organisational capability and succession plans; and
•  Increase in the valuation of Action in June 2016.

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.

Attendance at Board and Committee meetings
The table below shows the number of full meetings of the Board 
and its Committees attended by Directors during the year to 
31 March 2017 and, in brackets, the number of such meetings 
they were eligible to attend. In addition to these meetings  
a number of additional ad hoc meetings were held to deal 
with speciﬁc items as they arose.

The Chairman is not a member of the Audit and Compliance 
Committee but attends in order to keep abreast of 
its discussions.

How the Board operates
The Board and its Committees meet regularly, operating 
to an agreed timetable. Meetings are usually held in London.

Directors are expected to attend all the regular scheduled 
meetings of the Board and the Committees on which they serve, 
and to devote enough time to perform their duties. Before each 
Board and Committee meeting, relevant reports and papers, 
including ﬁnancial performance data and detailed updates on 
the progress and implementation of the strategic plan where 
appropriate, are circulated to Directors. The Board is able to 
discuss these reports and updates and to challenge directly the 
Executive Directors and other senior management, who attend 
all or part of the Board meetings where relevant.

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

•  The Group’s strategic plan, related KPIs and annual budget;
•  Regular reports from the Chief Executive;
•  Sale of the Group’s Debt Management business;
•  Reviews of and updates on the Group’s Private Equity, 

Infrastructure and Debt Management businesses;

•  Regular reports from the Board’s Committees;
•  Remuneration and pension matters including remuneration 

philosophy and strategy;

•  The recommendations of the Valuations Committee 

on valuations of investments;

•  The Annual report and accounts, Half-yearly report 

and quarterly performance updates;

•  Dividend policy and dividends;

Total meetings held
Number attended:
S R Thompson
S A Borrows
J S Wilson
J P Asquith
C J Banszky
S W Daintith1
P Grosch
D A M Hutchison
M G Verluyten

1  Appointed 1 October 2016.

Board

7

7(7)
7(7)
7(7)
7(7)
7(7)
4(4)
7(7)
7(7)
6(7)

Audit and 
Compliance 
Committee

6

6(6)
6(6)
3(3)

5(6)

Nominations 
Committee

Remuneration 
Committee

Valuations 
Committee

3

3(3)

3(3)
3(3)
1(1)
3(3)
3(3)
2(3)

7

7(7)
7(7)

7(7)

4

4(4)
4(4)
4(4)

2(2)
4(4)
4(4)
0(4)

3i Group Annual report and accounts 2017

63

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Directors
Directors’ biographical details are set out on pages 60 and 61. 
The Board currently comprises the Chairman, six non-executive 
Directors and two Executive Directors. Mr S R Thompson, 
Mr J P Asquith, Ms C J Banszky, Mr S A Borrows, Mr P Grosch, 
Mr D A M Hutchison, Ms M G Verluyten and Mrs J S Wilson 
served as Directors throughout the year under review. 
Mr S W Daintith was appointed as a non-executive Director 
on 1 October 2016.

Mr J P Asquith served as Senior Independent Director (“SID”) 
throughout the year. The SID supports the Chairman and 
meets with him regularly. He is also available to the Company’s 
shareholders in relation to any concerns that they may not have 
been able to resolve through the channels of Chairman, Chief 
Executive or Group Finance Director, or where the shareholder 
considers these channels are inappropriate.

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. Further details of their role 
are set out on page 62. Non-executive Directors are expected 
to make available sufﬁcient time to meet the requirements of the 
appointment. The average time commitment 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.

Corporate Governance

The role of the Board

continued

Composition of the Board
The Nominations Committee is responsible for reviewing the 
composition of the Board and making recommendations for 
appointments to the Board. The Committee considers the 
balance of skills, experience and knowledge needed in order  
to enhance the Board and support the Company in the execution 
of its strategy. Details of the work undertaken by the Committee 
are set out on page 68.

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

Under the Company’s Articles of Association, the minimum 
number of Directors is two and the maximum is 20, unless 
otherwise determined by the Company by ordinary resolution. 
Directors are appointed by ordinary resolution of shareholders or 
by the Board. The Company’s Articles of Association provide for 
Directors to retire by rotation at an AGM if they were appointed 
by the Board since the preceding AGM, they held ofﬁce during 
the two preceding AGMs but did not retire at either of them,  
they held non-executive ofﬁce for a continuous period of nine 
years or more at the date of that AGM, or they choose to retire 
from ofﬁce. Shareholders can remove any Director by special 
resolution and appoint another person to be a Director in their 
place by ordinary resolution. Shareholders can also remove 
any Director by ordinary resolution of which special notice has 
been given.

Subject to the Company’s Articles of Association, retiring 
Directors are eligible for reappointment. The ofﬁce of Director 
is 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 ill-health 
or being absent from Board meetings for 12 months without 
the Board’s permission.

In accordance with the UK Corporate Governance Code 
(“the Code”), all Directors are subject to reappointment every 
year. Accordingly, at the AGM to be held on 29 June 2017, all 
the Directors will retire from ofﬁce. All the Directors are eligible 
for and (save for Ms M G Verluyten who will step down from the 
Board at the end of the AGM) seek reappointment. The Board’s 
recommendation for the reappointment of Directors is set out 
in the 2017 Notice of AGM.

64

3i Group Annual report and accounts 2017

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Directors’ independence
All the non-executive Directors (other than the Chairman (who 
was independent on appointment) and Mr P Grosch) were 
considered by the Board to be independent for the purposes 
of the Code in the year to 31 March 2017. Mr P Grosch is not 
considered independent because of his links with the Group’s 
Private Equity business including his position as chairman of 
Euro-Diesel, a company in which the Group is invested.

The Board reviews non-executive Director independence at 
least annually, having regard to the potential relevance and 
materiality of a Director’s interests and relationships. Other than 
for Mr P Grosch, 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. Mr P Grosch receives director’s fees from and 
is a shareholder in Euro-Diesel, a company in which the Group 
is invested.

Training and advice
The Company has 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 keep their skills up to date 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 in relation to the performance 
of their duties. In addition, Directors have access to the 
advice and services of the General Counsel and Company 
Secretary, who advises the Board, through the Chairman, 
on governance matters.

Performance and evaluation
During the year, the Board conducted its annual evaluation of 
its own performance and that of its committees and individual 
Directors. The evaluation had been externally facilitated in the 
previous year by Lintstock Limited. On this occasion, the process 
was conducted internally by the Chairman with support from 
Lintstock Limited. The Chairman held one-to-one interviews 
with Directors informed by the results of a questionnaire 
prepared by Lintstock Limited which was completed by all Board 
members and the Company Secretary. He reported the results 
of the evaluation to the Board and proposed an action plan for 
discussion and agreement. Overall, the evaluation concluded that 
the Board continued to perform well, but some areas for further 
improvement were identiﬁed and agreed. It also identiﬁed for 
further Board attention matters seen as the top strategic issues 
to be faced over the next three to ﬁve years. 

The topics covered by the evaluation included: 

•  consideration of Board composition;
•  Board dynamics;
•  time management and Board support;
•  the performance of the Board’s Committees;
•  the Board’s strategic and operational oversight; 
•  risk management and internal control; 
•  succession planning and human resources management; and
•  priorities for change.

During the review Directors identiﬁed areas for further 
broadening of the Board’s expertise through recruitment as 
opportunities arise. Priorities for the Board for the coming year 
were agreed. Areas requiring greater time for Board discussion 
and areas for additional Board reporting were also agreed. 

In his role as Senior Independent Director, Mr J P Asquith led a 
review by the Directors of the performance of the Chairman and 
subsequently reported back to the Board and provided feedback 
to the Chairman.

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.

3i Group Annual report and accounts 2017

65

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial reporting
In the context of the Group’s internal control and risk 
management systems, 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 a 

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

•  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 Auditor on 
accounting developments, application of accounting standards, 
key accounting judgements and observations on systems 
and controls;

•  appointment of experienced and professional staff, both by 
recruitment and promotion, of the necessary calibre to fulﬁl 
their allotted responsibilities; and 

•  appropriate Board oversight of external reporting.

Corporate Governance

The role of the Board

continued

Risk management and internal control
The Board has overall responsibility for risk management and 
internal control, including for the determination of the nature 
and extent of the principal risks it is willing to take to achieve 
its strategic objectives and for ensuring that an appropriate 
culture has been embedded throughout the organisation. 
Risk management and internal control systems cannot eliminate 
all risks but it is the role of the Board to ensure such systems are 
robust and effective and take account of such risks. In addition 
such systems are 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 and budget 
on an annual basis and receives regular updates. 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 identify and assess 
the principal risks faced by the business, in the context of the 
Group’s risk appetite, and oversee the mitigation or management 
of those risks. This process was in place for the year to 31 March 
2017 and up to the date of this report. Details of the risk 
management framework can be found in the Risk section  
of the Strategic report on pages 44 to 53.

The overall risk management and internal control process is 
regularly reviewed by the Board and the Audit and Compliance 
Committee and complies with the Guidance on Risk 
Management, Internal Control and Related Financial and Business 
Reporting issued by the Financial Reporting Council. The Audit 
and Compliance Committee performed its annual review of the 
system’s effectiveness and reported its conclusions to the Board. 
The process has been in place for the year under review and up 
to the date of approval of this Annual report and accounts 2017. 

66

3i Group Annual report and accounts 2017

Relations with shareholders

Approach to Investor Relations
The Board recognises the importance of maintaining a 
purposeful relationship with shareholders. The Group has a 
comprehensive Investor Relations programme to help existing 
and potential investors to understand its activities, strategy 
and ﬁnancial performance. The Chief Executive and the Group 
Finance Director meet with the Company’s principal shareholders 
to discuss relevant issues as they arise. The Chairman is 
available to maintain a dialogue with shareholders on strategy, 
corporate governance and Directors’ remuneration as required. 
Non-executive Directors are invited to attend the Company’s 
presentations to analysts and are offered the opportunity to 
meet shareholders.

Board oversight
The Executive Directors brief the Board on a regular basis on 
the implementation of the Investor Relations programme and 
on feedback received from analysts and investors. Any signiﬁcant 
concern raised by shareholders in relation to the Group is also 
communicated to the Board. In addition, research reports 
published by investment banks on 3i are circulated to the Board 
on a regular basis.

The Board also receives periodic feedback from existing 
shareholders and potential investors through 3i’s corporate 
brokers, Bank of America Merrill Lynch and Barclays.

Investor Relations programme

Meetings with principal shareholders
The Executive Directors meet with the Group’s principal 
shareholders on a twice yearly basis, following the publication 
of annual and half-yearly results and as required during the year. 
The Chairman and Senior Independent Director are also available 
to meet with shareholders as required. The Investor Relations 
team also manages a programme of engagement with smaller 
shareholders, implemented through regular presentations 
and meetings.

Meetings with potential investors
During the year, the Executive Directors and the Investor Relations 
team held regular meetings with potential investors internationally 
to communicate the strategy and performance of 3i.

Annual and half-yearly results presentations
The Executive Directors present the annual and half-yearly 
results to institutional investors and analysts. These presentations 
are webcast live on 3i’s website, and the on-demand webcast 
remains available on the website for a period of 12 months.

Capital markets day
The 2016 capital markets day, held in June, consisted of a 
presentation to signiﬁcant shareholders and analysts by senior 
3i executives and the management team of Action, the largest 
investment by value in our Private Equity portfolio. This event 
was held in London. The presentation was focused on the Action 
business model and strategy and on Action’s recent ﬁnancial 
performance. The presentation materials used on the day were 
made available on 3i’s website to enable those investors and 
analysts that could not attend to access the information provided 
at the meeting.

Industry conferences
Throughout the year, the Executive Directors also participated in 
a number of industry conferences organised by investment banks 
for their institutional investor base. These included conferences 
organised by Morgan Stanley, Société Générale, KBW, Bank of 
America Merrill Lynch, JPMorgan Cazenove and Citi.

Individual investors
Individual investors are encouraged to engage with the Group 
and provide feedback through the Investor Relations team and 
the Company Secretary, whose contact details are available on 
the website.

Website
3i’s website provides a brief description of 3i’s history, current 
operations and strategy, as well as an archive of over 10 years of 
news and historical ﬁnancial information on the Group and details 
of forthcoming events for shareholders and analysts. Annual and 
half-yearly results presentations are also webcast live and 
on-demand on 3i’s website.

Annual General Meeting
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. Business to be 
discussed at the meeting is notiﬁed to shareholders in advance 
through the Notice of Meeting and covers matters such as the 
annual election of Directors, the appointment of the Auditor and 
the dividend declaration. During the meeting, shareholders are 
also asked to approve the ﬁnancial statements and reports of the 
Directors and the Auditor. In addition, shareholders are asked to 
approve the Directors’ remuneration report. The 2016 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.

3i Group Annual report and accounts 2017

67

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Corporate Governance

 Nominations  
 Committee report

The Nominations Committee has a 
vital role to play in ensuring the Board has 
the right balance of skills and experience 
to lead the Company. 

Membership during the year

Name

Membership status

Simon Thompson

Member since April 2015 and  
Chairman since June 2015

Jonathan Asquith

Member since March 2011

Caroline Banszky

Member since July 2014

Stephen Daintith

Member since October 2016

Peter Grosch

Member since November 2015

David Hutchison

Member since November 2013

Martine Verluyten

Member since January 2012

During the year, the Nominations Committee held three 
meetings. Attendance of members at those meetings is shown 
in the table on page 63.

The principal role of the Committee is to ensure that the Board 
has the requisite skills and experience to enable the Group to 
deliver its current and future strategic objectives. To this end,  
the Committee regularly reviews the balance and composition  
of the Board, and develops appropriate succession plans, 
including contingency plans.

The Company has a formal, rigorous and transparent process for 
the appointment of Directors, with the objective of identifying the 
skills and experience required of new Directors, and identifying 
and appraising suitable candidates. In the case of non-executive 
Directors, the appraisal includes an assessment of whether 
potential candidates have sufﬁcient time available to fulﬁl their 
roles. Specialist recruitment consultants assist the Committee 
with this process. The Committee’s recommendations for 
appointment are put to the full Board for approval.

During the year, the Committee considered a number of 
candidates for appointment as non-executive Director and 
recommended to the Board the appointment of Stephen 
Daintith, who was subsequently appointed as a Director on 
1 October 2016.

Further to the publication of the Davies Report on Women on 
Boards, and Code Provision B.2.4, the Board strongly supports 
the principle of boardroom diversity, of which gender is one 
important aspect. The Board’s aim is to have a diverse Board 
in terms of gender, industry experience, skills and educational 
background, and nationality. The Board makes appointments 
on merit and against objective criteria. External search 
consultancies engaged by the Company are instructed to put 
forward for all Board positions a diversity of candidates including 
female candidates. External search consultants engaged by 
the Committee during the year were The Zygos Partnership. 
The Zygos Partnership had no other connections with the 
Company during the year.

By order of the Board

Simon Thompson
Chairman, Nominations Committee
17 May 2017

68

3i Group Annual report and accounts 2017

 
Audit and Compliance  
Committee report

The Audit and Compliance 

Committee’s priorities in FY2017 were 
to maintain the strength of 3i’s internal 
control environment as well as the integrity 
of its ﬁnancial reporting. 

Membership during the year

Name

Membership status

Caroline Banszky 
(Chairman)

Jonathan Asquith

Stephen Daintith

Member since July 2014  
Chairman since January 2015

Member since March 2011

Member since October 2016

Martine Verluyten

Member since November 2015

The Committee is composed of independent non-executive 
Directors, with recent and relevant ﬁnancial experience. 
In particular, the Board is satisﬁed that the Chairman has the 
recent and relevant ﬁnancial experience as outlined in the 
Financial Reporting Council’s Corporate Governance Code. 
Further detail on each non-executive Director’s experience 
can be found in the Directors’ biographies on pages 60 and 61.

The Committee schedules six meetings per annum and four 
of the meetings are coordinated with 3i’s external reporting 
timetable. The attendance of members at meetings is shown 
in the table on page 63.

Invitations to attend the meetings are regularly extended to 
the Group Chief Executive, Group Finance Director, Group 
General Counsel, Group Financial Controller, the Head of Internal 
Audit, the Head of Compliance and the external Auditor, Ernst 
& Young LLP. Invitations are given to other members of senior 
management including the Head of Tax and Head of IT as 
appropriate. The Chairman of the Committee meets the majority 
of these individuals separately during the course of the year.

During the year, the Committee held private discussions with 
each of the Group Finance Director, the Head of Internal Audit, 
the Head of Compliance, and the external Auditor in the absence 
of management.

Caroline Banszky
Chairman, Audit and Compliance Committee
17 May 2017

3i Group Annual report and accounts 2017

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Corporate Governance

Audit and Compliance  
Committee report

continued

What the Committee reviewed in FY2017
During the year the Committee’s activities included the following:

External audit

Risk reviews

Financial reporting

•  Annual and half-year reports
•  Quarterly performance 

updates

•  Key accounting judgements 

and estimates

•  Update on Alternative 
Performance Measures
•  Developments in ﬁnancial 

reporting

•  Reviewing the Annual 
report to ensure that 
it is fair, balanced and 
understandable

Internal control and 
risk management

•  Review of 3i’s system 
of control and risk 
management

•  Conﬁrmation of the external 
Auditor’s independence
•  Policy and approval for 

•  External and internal audit 

non-audit fees

reports

•  Review of the viability 

statement

•  External quality assessment 

of Internal Audit

•  Update on cyber security
•  Update on SAO regime

•  The FY2017 Audit plan, 

including signiﬁcant audit 
risks (being the valuation of 
the unquoted investment 
portfolio and the calculation 
of carried interest) as well 
as the area of audit focus 
(revenue recognition) 

•  Audit results report
•  Auditor performance and 

effectiveness

•  Valuation reports and 
recommending the 
investment portfolio 
valuation to the Board 

•  Regular reviews of 

compliance with regulatory 
rules

•  Annual report on taxation
•  Litigation
•  Liquidity and going concern
•  Update on BEPS and 
Country by Country 
reporting

In addition to the areas of signiﬁcant accounting judgement  
and monitoring the effectiveness of 3i’s risk management,  
the Committee particularly focused on a number of topics:

Alternative Performance Measures (APMs)
Since the implementation of IFRS 10 in FY2014, 3i has presented 
its results under its non-GAAP Investment basis as well as 
preparing IFRS ﬁnancial statements. However, the Investment 
basis contains APMs and is itself an APM. Management prepared 
a report for the Committee which reviewed the rationale and 
presentation of the Group’s APMs. This review considered 
the guidelines issued by the European Securities and Markets 
Authority (“ESMA”) in the year and the Group’s compliance with 
them. In addition, the Committee also reviewed the rationale  
for the changes in the calculation of operating cash proﬁt and 
Assets under Management (AUM).

Upcoming changes in IFRS
The Committee considered future changes to accounting 
standards (in particular, IFRS 15 Revenue from Contracts with 
Customers, IFRS 9 Financial Instruments and IFRS 16 Leases).

Taxation
The Committee receives an annual update on the Group’s 
taxation status as well as a more general update from the Head 
of Tax on the status of current and upcoming legislative and 
regulatory changes. This year’s report covered the potential 
impact of a number of tax transparency initiatives that have come 
into force, the current disclosure provided on the Group’s website 
as well as the FRC’s thematic review on tax disclosures.

Disposal of the Debt Management business
The Committee reviewed management papers on the 
discontinued operations disclosure and the proﬁt on disposal.

Going concern and viability
The Directors are required to make a statement in the Annual 
report as to 3i’s long-term viability. The Committee provides 
advice to the Board on the form and content of the statement, 
including the underlying assumptions. At year end, the 
Committee evaluated a report from management setting out 
its view of 3i’s long-term viability and content of the proposed 
Viability Statement. This report was based on the Group’s  
ﬁve-year strategic plan and covered forecasts for investments and 
realisations, liquidity and leverage, including forecast outcomes 
of the stress test of the plan and forecast capital and liquidity 
performance against an assessment of the Group’s risk proﬁle. 
The three year period was chosen as it provided more certainty 
on the Group’s performance.

Taking into account the assessment of the Group’s stress testing 
results and its risk appetite statement (as disclosed on page 44), 
the Committee agreed to recommend the viability statement and 
three-year viability period to the Board for approval.

70

3i Group Annual report and accounts 2017

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Areas of accounting judgement and control focus
The Committee pays particular attention to matters it considers 
to be important by virtue of their size, complexity, level of 
judgement and potential impact on the ﬁnancial statements 
and wider business model. 

Signiﬁcant areas of accounting and control focus considered 
by the Committee are detailed in the table below, alongside 
the actions taken by the Committee (with appropriate input, 
guidance and challenge from the external Auditor) to address 
these issues/judgements.

Area of signiﬁcant attention

What the Committee reviewed and concluded

Valuation of the Proprietary Capital investment portfolio

The most material area of judgement in the ﬁnancial statements, and 
noted as a signiﬁcant risk by the external Auditor, relates to the 
valuation of the unquoted Proprietary Capital investment portfolio, 
which at 31 March 2017 was £4,782 million, or 82% of net assets, under 
the Investment basis.

On behalf of the Board, the Committee examined quarterly reports 
from the Chairman of the Valuations Committee and the Group Finance 
Director, with particular focus on the assumptions supporting the 
unquoted asset investments, any valuation uncertainties and the 
proposed disclosure in the ﬁnancial statements. 

In recognition of the importance of this area the Board has a separate 
Valuations Committee to review the valuations policy, process and 
application to individual investments. This Committee provides 
quarterly reports to the Committee and the Board.

The 2017 Annual Report includes a separate report from the Valuations 
Committee. The detail on the key valuation considerations and the 
review and challenge undertaken in the year is included in the 
Valuations Committee Report on page 74 to 76.

Carried interest payable and receivable

The valuation of the Proprietary Capital portfolio is a primary input 
into the carried interest payable and receivable balances, which are 
determined by reference to the valuation at 31 March 2017. 

Internal Audit reviews carry plan distributions made to plan participants 
before the payments are made and summaries of the work done are 
included in updates to the Committee.

During the year, we went through the hurdle to recognise carried 
interest receivable from EFV on an accounting basis. We are also 
through the hurdle to pay carried interest payable to investment teams 
on 3i’s proprietary capital invested.

The Committee reviewed the carried interest payable and receivable 
as part of the overall summary prepared by management to support 
the 2017 Annual report and accounts.

Fair, balanced and understandable and the presentation of 3i’s results 

Under the UK Corporate Governance Code the Board should establish 
arrangements to ensure the Annual report presents a fair, balanced and 
understandable assessment of the Group’s position and prospects.

The Group prepares the non-GAAP Investment basis ﬁnancial 
statements to ensure that its results remained understandable.

The Committee reviewed the Half-yearly and full year ﬁnancial 
statements as well as the Quarterly Performance Updates with 
management, focusing on the integrity and clarity of disclosure 
and to ultimately enable the Board to provide the fair, balanced and 
understandable conﬁrmation to shareholders in the 2017 Annual report.

A report summarising the considerations for the 2017 Annual report was 
reviewed by the Committee in advance of the year end and a summary 
of the detailed procedures undertaken was prepared alongside the 2017 
Annual report.

Cognisant of the ESMA guidelines on APMs as well as the FRC’s thematic 
review, the Committee reviewed a detailed paper from management on 
the Group’s APMs which include the Investment basis. 

The external Auditor also conﬁrmed that the inclusion of the Investment 
basis remained consistent with the prior year.

3i Group Annual report and accounts 2017

71

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

Audit and Compliance  
Committee report

continued

Risk and internal control reviews
The Committee is responsible on behalf of the Board for 
overseeing the effectiveness of the Group’s risk management and 
internal control systems. It monitors the activities of the Group 
Risk Committee (“GRC”), the risk management processes in 
place and the activities of the Internal Audit function, including its 
reporting on the effectiveness of controls, the use of the Group’s 
whistleblowing facility and compliance with the UK Bribery Act.

A report summarising each quarterly GRC meeting, along with 
the risk report considered, is provided to the Committee for 
review and discussion. The risk report details the principal risks, 
which are derived from the Group Risk process, along with 
commentary on how the exposure to these risks has moved in 
the quarter. The Committee also monitors Internal Audit activity 
quarterly, covering change management and other areas of 
identiﬁed higher risk. 

The Director, Internal Audit prepares a report on the internal 
controls for presentation to the Committee. The review 
documents the components of the internal control framework 
and highlights the key developments in the year. A commentary 
on the operation of the internal control framework over the year is 
also independently prepared by Internal Audit. The effectiveness 
of such controls is reviewed by Internal Audit annually, either 
through dedicated procedures or in the course of other Internal 
Audit reviews over the course of the year. Group Compliance 
carries out desk-based monitoring, business unit and 
thematic reviews in relation to compliance policies and other 
regulatory matters.

The Group maintains a framework of controls related to key 
ﬁnancial processes, including the preparation of consolidated 
ﬁnancial statements, and management of the associated risks. 
The Group’s control policies and procedures, which are in 
accordance with the Financial Reporting Council’s Guidance 
on risk management, internal control and related ﬁnancial and 
business reporting has been in place throughout the ﬁnancial 
year and up to the date on which this report was approved. 

Internal audit 
The Committee continued to monitor the scope, activity, and 
resources of the Group’s internal audit function including whether 
the current operating model remained effective and concluded 
that it remained appropriate. 

During the year the Committee approved the annual internal 
audit plan. It also received a report from the Director, Internal 
Audit at each meeting summarising the audits concluded in the 
period and updates on outstanding agreed actions from previous 
reports. The Director, Internal Audit meets the Committee 
privately as well as meeting regularly with the Audit Committee 
Chairman throughout the year. 

The Committee Chairman engaged an external provider in 
FY2017 to carry out an external quality assessment review of 3i’s 
internal audit function. They noted that 3i generally conforms to 
The Institute of Internal Auditors Standards; the highest rating 
available for an internal audit activity. 

External audit
Ernst & Young LLP has been the Group’s statutory external 
Auditor since before the Group was listed on the London Stock 
Exchange in 1994. The Committee assesses the independence 
and objectivity, qualiﬁcations and effectiveness of Ernst & Young 
LLP on an annual basis. The Committee also concludes on 
whether to recommend the reappointment of Ernst & Young LLP 
as Auditor to the Board.

The total audit fee for the year was £1.9 million (2016: £2.0 million). 
The Committee is satisﬁed that this fee is appropriate. 
The Committee oversees the Group’s policy on the provision 
of non-audit services by the external Auditor. 

72

3i Group Annual report and accounts 2017

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Auditor independence
The Group has a policy for setting out what non-audit services 
can be purchased from the ﬁrm appointed as external 
Auditor. The aim of the policy is to support and safeguard 
the objectivity and independence of the external Auditor 
and to comply with the FRC’s Ethical Standards for auditors 
(“Ethical Standards”) as updated in June 2016. It also ensures 
that where fees for approved non-audit services are greater 
than a pre-determined limit, they are subject to the Committee 
Chairman’s prior approval. 

The Policy permits certain non-audit services to be purchased, 
following approval, when the Committee continues to see 
beneﬁts for the Group in engaging Ernst & Young LLP. 
Examples of this include:

•  Work that is closely related to the external audit;
•  A detailed understanding of the Group is required; 
•  Ernst & Young LLP is able to provide a higher quality and/or 

better value service than other potential providers.

The key principle of our policy is that permission to engage 
the external Auditor will always be refused when a threat to 
independence and/or objectivity is perceived. The Committee 
Chairman is asked to approve all assignments to be allocated to 
Ernst & Young LLP over the deﬁned limit, other than those related 
to due diligence undertaken as part of the Group’s investment 
process. Appointments in relation to the investment process 
are independent of the audit team and are reviewed separately 
by the Investment Committee. Ernst & Young LLP inform the 
Group of all due diligence engagements before they accept 
them and all material due diligence commitments are reported 
to the Committee Chairman. 

Ernst & Young LLP has reviewed its own independence in line 
with these criteria and its own ethical guideline standards. 
This includes due diligence processes undertaken within the 
Group’s investment activities. Ernst & Young LLP has conﬁrmed 
to the Committee that following its review it is satisﬁed 
that it has acted in accordance with relevant regulatory and 
professional requirements. 

Details of the non-audit fees paid to the Auditor are disclosed in 
Note 6 to the ﬁnancial statements. The Committee concluded 
that all of these fees fell within its criteria for engaging Ernst 
& Young LLP and does not believe they pose a threat to the 
Auditor’s independence or objectivity. 

Assessing external audit effectiveness
The Committee reviews the effectiveness of Ernst & Young LLP 
through the use of questionnaires completed by management, 
by considering the extent of their contribution at its meetings 
throughout the course of the year, and in one-to-one meetings. 
The Committee Chairman met Ernst & Young LLP’s Head of Audit 
Quality for UK Financial services and their Head of Assurance for 
UK Financial services to discuss their approach to audit quality 
and what assurance had been taken in connection with their 
audit of 3i.

The FY2017 evaluation also reviewed the quality of the audit 
process, the use of Ernst & Young LLP’s valuation practice 
to support the audit of the portfolio valuations, the technical 
knowledge of the team and the staff turnover within the  
Ernst & Young LLP audit team and the Committee concluded  
that the audit was effective.

Audit tender
As noted in the FY2016 report, the Committee reviewed its audit 
tender timetable and delayed the tender until no later than 2020. 
The scale of the current engagements across the Group and its 
portfolio companies with the ﬁrms that may participate in any 
tender, as well as the complexities around how the rules would 
apply to private equity investment, meant that the Committee 
concluded that it would be appropriate to use the full transitional 
arrangements in relation to auditor rotation, as outlined by the 
Financial Reporting Council. The Committee currently expects 
that Ernst & Young LLP will be retained until 2020. The lead audit 
partner was replaced in 2016 to provide continuity until 2020, 
when mandatory rotation will be required. 3i is in compliance 
with the requirements of The Statutory Audit Services for Large 
Companies Market Investigation (Mandatory Use of Competitive 
Tender Processes and Audit Committee Responsibilities) Order 
2014, in the year ended 31 March 2017.

By order of the Board

C J Banszky
Chairman, Audit and Compliance Committee
17 May 2017

Further information on the Audit and Compliance Committee’s 
terms of reference can be found on our website www.3i.com

3i Group Annual report and accounts 2017

73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

Valuations  
Committee report

A robust valuations process is fundamental 

to the integrity of the Group’s ﬁnancial 
reporting. The Committee plays an important 
role in providing the Board with assurance 
that the valuation process is solid and 
independently challenged. 

Membership during the year

Name

Membership status

David Hutchison 
(Chairman)

Chairman and member since December 2013

Simon Thompson

Member since June 2015

Stephen Daintith

Member since October 2016

Peter Grosch

Member since January 2016

Martine Verluyten

Member since December 2013

Simon Borrows

Member since May 2012

Julia Wilson

Member since December 2008

The Valuations Committee reports to the Audit and Compliance 
Committee and the Board on the valuation of the Group’s 
investment assets. It reviews and challenges the assumptions 
behind management’s proposed asset valuation.

The Committee’s activity is principally focused on the Private 
Equity investments as a high level of judgement is required 
to value the unquoted portfolio. As in previous years, the 
Committee devoted less time to Infrastructure due to the fact 
that its principal investment during FY2017 was its shareholding 
in 3i Infrastructure plc which is quoted. The Committee 
actively reviewed the value of the assets in the Group’s Debt 
Management business until its disposal completed on 3 March 
2017 and will continue to review the valuation of the remaining 
positions until they are sold. 

The Committee is responsible for keeping the Group’s valuation 
policy under review and recommending any changes to the 
policy to the Audit and Compliance Committee and the Board. 
The policy is reviewed at least annually with the last update 
in January 2017. The Group’s valuation policy is based on the 
International Private Equity and Valuation (“IPEV”) guidelines 
which set out recommended practice for fair valuing unquoted 
investments within the IFRS framework and incorporates 
references to AIFMD where appropriate.

Overview of the valuation process  
during the year
The Group’s valuation process remained substantially unchanged 
in FY2017. The Committee met four times, coinciding with the 
Group’s external reporting obligations, and received a detailed 
report from the Group Finance Director at each meeting 
recommending the proposed valuation of the Group’s investment 
portfolio. This report highlighted the main drivers of value 
movement analysed between performance, multiple movements 
and other factors. At each meeting the Committee also reviewed 
selected assets for detailed discussion; examples of such assets 
covered during the year included Action, Scandlines, Christ, 
Weener Plastic, Audley Travel, ATESTEO, Agent Provocateur 
and ACR. Where relevant, the Committee also received updates 
on signiﬁcant issues such as the ﬁrst review of the impact of the 
UK’s decision to leave the EU on our UK assets. 

In advance of the full-year and half-year reporting, management 
hold individual portfolio company reviews with the respective 
investment teams. Non-executive Directors, including members 
of the Valuations Committee, attended a signiﬁcant proportion 
of the meetings held in September 2016 and March 2017 and 
were represented at all of the top ﬁve Private Equity portfolio 
company review meetings. 

Meetings are open to all Directors and attended by other 
members of the Executive Committee as required, the Group 
Financial Controller and the external Auditor. The Committee 
Chairman meets the Group Finance Director and Group 
Financial Controller in advance of each meeting to discuss 
the key valuation assumptions and will also meet members 
of Investment Committee on an ad hoc basis. In addition, the 
Committee Chairman met privately with the external Auditor 
in advance of each meeting to discuss the output of their review 
and towards the end of the year to discuss their approach to the 
year-end audit. 

74

3i Group Annual report and accounts 2017

 
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Outside of the regular quarterly valuation process, the Board 
approved a material revaluation of Action, which was announced 
on 30 June 2016, as a result of third-party interest in the 
investment and its continued growth and ﬁnancial trajectory. 
The Committee Chairman and other Committee members 
reviewed and discussed the valuation proposal with management 
ahead of its approval by the Board.

External audit
As part of its external audit, Ernst & Young LLP reviews the 
proposed investment portfolio valuation to determine that 
the valuation policy is being complied with and that there 
is consistent application and support for the underlying 
assumptions. As part of their year-end audit, and to support their 
opinion on the Financial statements as a whole, Ernst & Young 
LLP’s specialist valuations team review a selection of Private 
Equity investments to provide assurance on their overall audit 
conclusion on the appropriateness of 3i’s portfolio valuation. 

FY2017 update
More information on our valuation methodology, including deﬁnitions and rationale, is included in the Portfolio valuation  
– an explanation section on pages 158 and 159.

The Committee focused on the following signiﬁcant issues in the year:

Area of judgement

Private Equity

Earnings and multiple assumptions

The majority (78%) of the portfolio is valued using a multiple of 
earnings. This requires judgement as the earnings of the portfolio 
company may be adjusted so that they are considered “maintainable”. 

There is also a signiﬁcant degree of judgement in selecting the 
appropriate set of comparable quoted companies to determine the 
appropriate multiple to generate an enterprise value. Multiples are 
selected by reference to quoted comparable companies, M&A 
transactions and input in certain cases from corporate ﬁnance advisers. 
We also take into account growth proﬁle, geographic location, business 
mix, degree of diversiﬁcation and leverage/reﬁnancing risk. The multiple 
implied by the quoted comparables may be adjusted if, in certain cases, 
the longer-term view (cycle or exit plan) supports the use of a different 
multiple. This has been a particularly important exercise in light of 
the increased volatility experienced in the quoted equity markets 
over the period under review. 

Imminent sale assets

At any point in time it is likely that a number of potential exit 
processes from the portfolio are underway. Judgement is applied by 
management as to the likely eventual exit proceeds and certainty of 
completion. This means that in some cases an asset may not be moved 
to an imminent sales basis until very shortly before completion; in other 
cases the switch may occur on signing. However, as a general rule an 
asset moves to an imminent sale basis only when a process is materially 
complete and the remaining risks are estimated to be small, given the 
amount of completion risk around unquoted equity transactions.

What the Committee did

Earnings data is received monthly from Private Equity portfolio 
companies and monitored closely by management. Actual earnings 
may then be adjusted in management’s proposed valuations, for 
example, to reﬂect a full year’s trading of an acquired business, 
removing proﬁt from discontinued activities, any forecast uncertainty  
or to exclude exceptional transaction costs. Material adjustments are 
highlighted to the Committee in the quarterly report for review and 
approval, including the use of March 2017 run-rate earnings for the 
Action valuation.

Management continued to adjust a signiﬁcant proportion of multiples 
used if the longer term view (of the exit or multiple) supports the use  
of a different multiple. Notable changes in multiples in a quarter are 
presented to the Committee and adjustments are reviewed by the 
Committee at each meeting. 

Assets that are within active sales processes are reviewed by the 
Committee including details such as the timeline to potential 
completion, the number and make-up of bidders for investments, 
execution and due diligence risks and regulatory or competition 
clearance issues. Management propose a treatment for each asset 
which the Committee reviews.

Although not an area of valuation judgement, the Committee actively 
reviews the results of the back-testing that management prepares on 
assets disposed in each quarter to reconcile the price achieved with the 
carrying value at the last balance sheet date. This acts as a hindsight 
test of the fair value applied to assets in the quarters up to disposal.

Assets valued using a DCF basis

For assets valued using DCF techniques the key valuation judgements 
relate to longer-term assumptions that drive the underlying business 
plan and cash ﬂows and the decision on the appropriate discount rates.

Material assumptions and changes to these assumptions are reviewed 
by the Committee. This may include third-party support if available. 
Sensitivity to assumptions is also noted.

Discount rates are selected by management with reference to market 
transactions, weighted average cost of capital calculations and other 
public data. Any material changes are reviewed by the Committee and 
external advice is sought from time to time.

3i Group Annual report and accounts 2017

75

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

Valuations  
Committee report

continued

As part of its challenge and review process, the Committee:

•  considered the management information provided to 

support the Committee’s review of the valuations, including 
management’s responses to any challenges raised by the 
Committee members or the external Auditor;

•  sought assurance from the external Auditor as to whether and 

how they had considered each of these areas; and

•  reviewed the consistency of the views of management and 

the external Auditor.

The Committee was satisﬁed that the application of the policy 
and process was appropriate during the applicable period, 
and recommended the portfolio valuation to the Audit and 
Compliance Committee and the Board at each quarter end 
for approval by the Board.

Portfolio trends
At least annually the Committee Chairman and management 
conduct a review of the valuation outcomes in the portfolio 
over the preceding three years. The Committee Chairman and 
Group Finance Director reported to the Board in May 2017 on  
the key observations.

By order of the Board

D A M Hutchison
Chairman, Valuations Committee
17 May 2017

Further information on the Valuation Committee’s terms 
of reference can be found on our website www.3i.com 

76

3i Group Annual report and accounts 2017

 Directors’ remuneration report

  Our remuneration framework ensures 
alignment with shareholders’ interests and 
rewards the achievement of our strategic 
objectives. 

Statement by the Remuneration 
Committee Chairman
As Remuneration Committee Chairman, I am pleased to 
introduce the Directors’ remuneration report for the ﬁnancial 
year 1 April 2016 to 31 March 2017 (“the year”) and to provide 
some details of the background against which the Committee’s 
decisions have been taken in the year. References to “FY2018” 
relate to the ﬁnancial year 1 April 2017 to 31 March 2018.

This year’s report contains two sections, being the annual report 
on remuneration and a new proposed Directors’ remuneration 
policy which will be presented for approval at the 2017 AGM.

Performance in the year
I am pleased to report that this has been another successful 
year for the Company with management delivering strong 
results across the board which are reﬂected in the Committee’s 
decisions concerning the Executive Directors’ remuneration. 
These decisions are underpinned by a balanced scorecard 
of both ﬁnancial and strategic measures agreed by the 
Committee in May 2016. While the facts driving our assessment 
of performance against that balanced scorecard are available 
elsewhere in this Annual report, we have summarised them here 
for ease of reference.

In addition to driving the excellent performance recorded 
in Private Equity and Infrastructure in FY2017, the team also 
executed the successful sale of the Debt Management business 
to Investcorp half way through the year in accordance with the 
agreed strategy. As noted below, the Committee adjusted the 
threshold and target metrics for operating cash proﬁt  
and Investment to take account of the timing of this sale.

Portfolio return
Exceptional performance of the Private Equity portfolio, as well 
as very strong returns from the Infrastructure portfolio, generated 
a gross investment return of £1,755 million (2016: £1,051 million) 
or 40% of opening portfolio value. This was an outstanding 
performance against target and industry benchmarks. This year, 
93% of our portfolio companies by value grew their earnings in 
FY2017, while 3iN’s investment return of 9.4% was at the upper 

end of its 8% to 10% target range. Weighted annualised TSR 
on our investment in 3iN, including the rights issue, was 16% 
for the year.

Investment
Investment levels within our Private Equity business increased 
through the year, while still maintaining a disciplined and 
selective approach to new investments, resulting in £409 million 
being deployed through three new investments in Schlemmer, 
BoConcept and Ponroy Santé, as well as a further £62 million 
investment in Q Holding. The Infrastructure business advised 
3iN on the acquisition of £479 million of investments. They also 
announced a £700 million fund for both 3i Group and third 
parties to purchase assets from the Eiser Global Infrastructure 
Fund. The Committee set a business as usual target for new 
fund launches in the Debt Management CLO business at the 
beginning of the year but this was removed in the light of the 
Board’s decision to sell the business.

Operating proﬁt
Annual operating cash proﬁts remained positive at £33 million 
in FY2017 (2016: £37 million) despite a reduction of £9 million, 
resulting from the timing of the sale of the Debt Management 
business, reﬂecting the budgeted cash income from that area 
in the second half of the year. Operating cash proﬁts were 
supported by the performance of the Debt Management 
business in the ﬁrst half, combined with strong fee and 
dividend income from the Infrastructure business and good 
dividend and interest income from the Private Equity portfolio. 
Operating expenses, including Debt Management, decreased 
by 3% from £134 million in FY2016 to £130 million in FY2017.

Strategy and people
The principal strategic achievement of the year was the 
successful disposal of the Debt Management business, 
which was accomplished at a good price in a controlled and 
disciplined process by the in-house team without the need for 
an external adviser. Meanwhile, we continued to strengthen 
our investment capabilities through new hires and talent 
management in both remaining businesses.

3i Group Annual report and accounts 2017

77

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Corporate Governance

 Directors’ remuneration report

continued

The proposed Remuneration policy  
and FY2018 implementation
The current Remuneration policy was approved at the 2014 
AGM, which means that the Company is required to submit its 
policy for the next binding vote at the 2017 AGM. Over the three 
years in which the existing policy has operated, management 
have delivered exceptional returns for shareholders. In absolute 
terms, management have delivered total shareholder returns 
to 31 March 2017 of just under 104%, corresponding to 26.8% 
compound per annum. In relative terms, this performance puts  
3i in the 94th percentile of the FTSE 250 and the 97th percentile 
of the FTSE 100.

Over the same period, the bonus opportunity for the Executive 
Directors has remained capped, growing by 3% per annum. 
Across the annual bonus and LTIP, 80% of awards have been 
delivered in the form of deferred shares and the appreciation 
of these shares prior to vesting has been a signiﬁcant component 
in total remuneration for the Executive Directors at no additional 
cost to the Company (see chart).

The Remuneration Committee believes that total shareholder 
return (“TSR”) continues to be an appropriate metric for 
measuring longer-term performance in an investment business 
such as 3i. The Committee has reviewed the suitability of the 
vesting proﬁle of the absolute TSR metric in light of the economic 
environment and the need to ensure that Executives do not take 
excessive risk. We have concluded that the 10% to 18% range 
remains a demanding test of medium-term performance.

The Remuneration Committee believes that the existing policy 
has been demonstrably effective in aligning Executive Directors’ 
interests with those of shareholders and therefore no material 
changes to the existing policy are proposed at this time. 
The overall remuneration framework and incentive levels will 
remain the same. However, taking into account feedback from 
our investors and current best market practice, the shareholder 
requirement for the Group Finance Director has been increased 
to 200% of base salary.

Changes in the year
During the year, the Committee considered the structure of 
the Executive Directors’ remuneration and concluded that 
the existing relatively low level of base salary, coupled with 
a substantial variable element, is one that allows the Committee 
more ﬂexibility to align annual remuneration to the Company’s 
performance in this highly competitive sector. Neither of the 
Executive Directors is entitled to participate in the Group’s 
carried interest schemes.

During FY2017, 3i has worked to ensure that it continues to 
comply with changes in regulation. The Group must comply with 
the Alternative Investment Fund Managers Directive (“AIFMD”), 
which requires the Company to deliver variable remuneration to 
certain staff in a particular form. The two Executive Directors are 
considered to be AIFMD Identiﬁed Staff, and as such, 60% of their 
annual bonuses will be delivered in deferred 3i Group plc shares 
which vest in equal instalments over four years. The remaining 
40% will be delivered half in cash bonus and half in 3i Group plc 
shares which are subject to a six-month retention period.

The Committee reviewed the level of disclosure it makes through 
the annual performance metrics and the impact on remuneration. 
The FY2017 scorecard, which the Committee uses as a prompt 
and guide to judgement of performance, has been improved 
with half of the scorecard being linked to quantitative measures 
(Portfolio returns and Operating performance). As shown 
on page 80, these metrics have been set with threshold and 
maximum levels.

The Committee remains committed to maintaining a remuneration 
framework which rewards progress in meeting the Group’s 
strategic objectives. We will also continue to monitor and comply 
with relevant guidelines and regulatory changes.

Jonathan Asquith
Chairman, Remuneration Committee
17 May 2017

Chief Executive’s single ﬁgure remuneration

FY2017

628

457

1,827

2,200

2,433

FY2016

610

432

1,727

2,156

896

FY2015

593

1,047

1,047

2,324

3,267

Fixed remuneration

Cash Bonus

Deferred Share Award

Value of LTIP vesting at grant price

Additional LTIP value due to share price growth and dividends

78

3i Group Annual report and accounts 2017

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The Annual report of remuneration (Implementation report)
During FY2017, we continued to operate under the remuneration policy approved at the 2014 AGM, which can be found on our 
website at www.3i.com.

Director remuneration for the year
Single total ﬁgure of remuneration for each Director

£’000

S A Borrows

J S Wilson

S Thompson

Sir Adrian Montague

J P Asquith

C J Banszky

A R Cox

S W Daintith

P Grosch

D A M Hutchison

M G Verluyten

Salary/ 

fees Beneﬁts Pension

597

434

295

 –

131

108

 –

42

250

99

87

14

17

–

–

–

–

–

–

–

–

–

16

46

–

–

–

–

–

–

–

–

–

Annual 
Bonus

2,284

1,011

FY2017

LTIP

4,633

2,106

Total

7,544

3,614

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

295

–

131

108

–

42

250

99

87

Salary/ 

fees Beneﬁts Pension

579

421

239

70

122

103

50

–

69

91

74

15

18

–

–

–

–

–

–

–

–

–

16

44

–

–

–

–

–

–

–

–

–

Annual 
Bonus

2,159

902

LTIP

3,052

1,387

FY2016

Total

5,821

2,772

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

239

70

122

103

50

–

69

91

74

•  Beneﬁts include a car allowance, provision of health insurance and, for Mrs Wilson, the value of the Share Incentive Plan matching 

share awards.

•  Mr Borrows and Mrs Wilson received salary supplements in lieu of pension contributions of £16k and £46k respectively. 

These supplements were in line with pension contributions for the Group’s employees generally.

•  Annual bonus awards made in respect of the year are delivered as 60% payable in 3i Group plc shares deferred for four years, and 
the remaining 40% being half as a cash payment immediately and half as 3i Group plc shares which are subject to a six-month 
retention period. All annual bonus awards are subject to the malus/clawback policy. Those shares deferred for four years are released 
in four equal annual instalments over the four years commencing June 2018 and all share awards carry the right to receive dividends 
and other distributions.

•  In the case of Ms Banszky, the sum shown for FY2017 includes an amount of £69k (including VAT) paid to her then principal employer, 

the Law Debenture Corporation p.l.c., which released her to serve as a non-executive Director (FY2016: £103k).

•  In the case of Mr P Grosch, the sum shown includes €200k of fees paid to him by Euro-Diesel (a 3i portfolio company) for his role 

as Chairman.

•  In addition to the table above, dividends or dividend equivalents on unvested deferred share awards were paid during the year 

(Mr Borrows £120k, Mrs Wilson £49k).

•  The values shown in the LTIP represent the performance shares vesting from the 2014 LTIP, together with the value of accrued 

dividends on those shares. The shares have been valued using the 31 March 2017 closing share price (749.5 pence). Further detail 
is provided on page 81.

•  The fees shown for the non-executive Directors include fees used to purchase shares in the Company.
•  In addition to the fees shown above, Mr Borrows retained directors’ fees of £75k from The British Land Company PLC, and 

Mrs Wilson retained directors’ fees of £105k from Legal and General Group plc.

3i Group Annual report and accounts 2017

79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

 Directors’ remuneration report

continued

FY2017 performance

Formulaic performance measures (50% of total)

Area of strategic focus

Portfolio returns

Operating performance 

10% Operating cash proﬁt 

40% Gross investment return  

(% of opening portfolio value)

10%

£5m

20%

£31m1

36%  
(35% ex. DM)
£33m

Payout

100%

100%

Weighting Metric

Threshold

Maximum

Performance

1  In FY2017, the Group completed the successful sale of the Debt Management business. This results in the loss of the Debt Management’s fee income and portfolio income contributions 
in the second half of the year. As a result, the amount of operating cash proﬁt required for maximum award has been reduced by £9 million to £31 million to reﬂect the sale of the Debt 
Management business.

Qualitative performance measures (50% of total)

Area of  
strategic focus

Weighting

Metric

Target/Expectation

Performance

Comments

Portfolio returns 10%

Private Equity portfolio 
earnings growth

3iN total return

Investment

30%

New capital invested in 
Private Equity

New 3iN capital committed 
in Core/PPP 

Debt Management 

T

T

E

E

E

10%

23%

10%

9.4%

€500m to 
€750m

€583m

n/a* 

£479m

Very strong realisations and operational 
performance from the underlying PE portfolio 
driven by growth in Action and other key assets.

3iN’s investment return at the upper end of  
its 8%–10% target.

Higher investment levels in Private Equity 
than FY2016 (£365 million) while still retaining 
a disciplined and selective approach 
to new investments.

A strong level of new 3iN investment 
commitments in FY2017 exceeding expectations 
(FY2016: £193 million).

n/a*

n/a

N/a as business line sold.

Strategy and 
people

10%

Achievement of strategy and people targets is measured 
against a balanced scorecard of objectives set by the 
Remuneration Committee

Successful sale of the DM business, creating 
a higher return proprietary capital platform 
focused on the complementary Private Equity 
and Infrastructure businesses.

Consistent positive feedback from shareholders 
who continue to be supportive of the Group’s 
performance and strategy.

Continued development of the Infrastructure 
business to deepen team capability and broaden 
the platform with announcement of expansion into 
North America.

Development, retention and succession plans 
for the Group’s key talent and leadership team 
in place and progressing according to plan.

Two-year extension to November 2018 obtained 
for Eurofund V.

T = Target  E = Expectation
*  These expectations are not disclosed as they are commercially sensitive.

Consistent with last year, the Board set expectations rather than targets for some metrics. This is because the timing of acquisitions 
and disposals is highly sensitive to market conditions, and a more prescriptive approach would run the risk of creating perverse 
incentives for executives. For example, to achieve a target level of realisations may result in the earlier sale of assets than would 
otherwise be appropriate, or to achieve a target level of investments may result in investing at inﬂated prices. Adjusting for the timing 
of the sale of the Debt Management business, the expectations the Board set for realisations and investment were met or exceeded  
in each case.

In light of the achievements detailed above, and the exceptional performance of the Group in the year, the Committee awarded 
Mr Borrows a bonus in respect of FY2017 of £2,283,800 (being 95% of his maximum bonus opportunity), and awarded Mrs Wilson 
a bonus in respect of FY2017 of £1,010,770 (being 92.5% of her maximum bonus opportunity). In each case, 20% of the award will be 
paid in cash immediately, 20% will be delivered as shares with a retention period of six months and the remaining 60% will be deferred 
into the Company’s shares vesting in equal instalments over four years. Annual bonus awards are subject to the malus/clawback policy. 
The differential between the Executive Directors’ bonus percentages reﬂects the wider contribution of Mr Borrows to strategic and 
investment outcomes.

80

3i Group Annual report and accounts 2017

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Share awards vesting in 2017 subject to performance conditions

2014 Long-term incentive award
The long-term incentive awards granted in June 2014 to Mr Borrows and Mrs Wilson were subject to performance conditions based on 
absolute and relative Total Shareholder Return over the three ﬁnancial years to 31 March 2017. The table below shows the achievement 
against these conditions and the resulting proportion of the awards which will vest in June 2017.

Weighting

Threshold

Maximum

Actual

Total Shareholder Return Measure

% Performance

% vesting

Performance

% vesting

Performance

% vesting

Absolute Total Shareholder Return
Relative Total Shareholder Return  
(as measured against the FTSE 250 Index)

50%

50%

10% p.a.

Median

20%

25%

18% p.a.
Upper  
quartile

100%

100%

26.8%
Above  
upper quartile

100%

100%

The table below shows the grants made to each Executive Director on 30 June 2014 at a share price of 387.7 pence and the resulting 
number of shares that will vest due to the achievement against the performance targets as set out above. The value of the shares 
vesting has been included in the single ﬁgure table using the 31 March 2017 closing share price of 749.5p.

Basis of award at grant

S A Borrows
J S Wilson

Face value award of 4 times base salary of £550k
Face value award of 2.5 times base salary of £400k

Number 
of shares 
awarded 
at 387.7p 
per share

567,449
257,931

Face value 
at grant

£2,200k
£1,000k

% vesting

Number of 
shares vesting

Value of share 
vesting at 
749.5p per 
share

100%
100%

567,449
257,931

£4,253k
£1,933k

The proportion of the award vesting will be released 50% in June 2017, 25% in June 2018 and 25% in June 2019 together with the value 
of dividends that would have been received during the period from grant to the release date.

Change in the remuneration of the Chief Executive compared to other employees
The table below shows the percentage change in remuneration awarded to the Chief Executive and employees as a whole, between 
the year to 31 March 2016 and the year to 31 March 2017.

Chief Executive
All other employees

Salary

Beneﬁts

3%
6%

0%
0%

Bonus

6%
10%

3i Group Annual report and accounts 2017

81

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

 Directors’ remuneration report

continued

Details of share awards granted in the year

LTIP
Performance share awards were granted to the two Executive Directors during the year as shown in the table below.

Description of award

Face value

A performance share-based award, which releases shares, subject to satisfying the performance conditions, 
50% on the third anniversary of grant and 25% on the fourth and ﬁfth anniversaries.
Chief Executive – 400% of salary, being 451,708 shares. 

Group Finance Director – 250% of salary, being 205,322 shares.

The share price used to make the award was the average mid-market closing price over the ﬁve working 
days starting with the day of the announcement of the 2016 annual results (516.7p).

Performance period

1 April 2016 to 31 March 2019.

Performance targets

50% of the award is based on absolute TSR measured over the performance period, and vests:

•  0% vesting below 10% p.a. TSR;
•  20% vesting at 10% p.a. TSR;
•  Straight-line vesting between 10% and 18% p.a. TSR; and
•  100% vesting at 18% p.a. TSR.

50% of the award is based on relative TSR measured against the FTSE 350 Index over the performance period, 
and vests:

•  0% vesting for below median performance against the index;
•  25% vesting for median performance against the index;
•  100% vesting for upper quartile performance against the index; and
•  Straight-line vesting between median and upper quartile performance.

Remuneration Committee 
discretion

The Committee can reduce any award which would otherwise vest if gross debt or gearing targets are missed.

Deferred bonuses awarded in FY2017
The two Executive Directors are considered to be AIFMD Identiﬁed Staff and, as such, 60% of their annual bonuses will be delivered 
in 3i Group plc shares deferred for four years (and which vest one quarter per annum over those four years). The remaining 40% will be 
delivered half as a cash bonus and half in 3i Group plc shares which are subject to a six-month retention period. The following awards 
were made on 4 June 2016 in respect of FY2016 performance:

60% of FY2016 bonus deferred for four years

S A Borrows

J S Wilson

Face value at grant

£1,296,359

£541,059

Number of shares 
awarded at 
516.7p per share

250,698

104,714

20% of FY2016 delivered as shares  
subject to a six-month retention period

Number of shares 
awarded at 
516.7p per share

Released

Vesting

Face value at grant

Four equal 
instalments 
annually from 
1 June 2017

£431,786

£180,353

83,566

34,904

At the expiry  
of the six-month 
retention period

These face values were reported in the FY2016 single ﬁgure of remuneration for each Director. The share price used to calculate 
face value was the average of the mid-market closing prices over the ﬁve working days starting with the date of the announcement 
of the Company’s results for the year ended 31 March 2016 (14 May 2016 to 20 May 2016), which was 516.7 pence. These awards are 
not subject to further performance conditions.

82

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Share Incentive Plan
During the year Mrs Wilson participated in the HMRC approved Share Incentive Plan which allowed employees to invest up to £150 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 within three years of grant. Dividends are reinvested in 
further ordinary shares (“dividend shares”).

During the year Mrs Wilson purchased 292 partnership shares, and received 584 matching shares and 564 dividend shares at prices 
ranging between £4.83 and £7.26 per share, with an average price of £6.28.

Pension arrangements
Mr Borrows and Mrs Wilson receive pension beneﬁts on the same basis as other employees of the Company. During the year they 
received salary supplements in lieu of pension of £16k and £46k respectively.

Payments to past Directors
Mr Queen, who resigned as Chief Executive on 16 May 2012, retained interests in arrangements relating to his previous roles 
as Managing Partner, Infrastructure and Managing Partner, Growth Capital. During the year he received payments under those 
arrangements totalling £186k together with a return of a capital commitment of €89k. It is anticipated that he will receive a further 
payments during 2017 of £335k and €106k from these arrangements. 

Payments for loss of ofﬁce
No payments to Directors for loss of ofﬁce have been made in the year.

Statement of Directors’ shareholding and share interests
The Company’s share ownership and retention policy requires Executive Directors to build up over time, and thereafter maintain, 
a shareholding in the Company’s shares equivalent to at least 3.0 times gross salary in the case of the Chief Executive and 2.0 times 
gross salary for the Group Finance Director. In addition, shareholding targets have been introduced for other members of Executive 
Committee at the 1.5 times their gross salary levels and for partners in the Group’s businesses at 1.0 times their gross salaries.

Details of Directors’ interests (including interest of their connected persons) in the Company’s shares as at 31 March 2017 are shown 
below. The share price on 31 March 2017 was £7.495.

S A Borrows3
J S Wilson3

S Thompson3
J P Asquith3
C Banszky3
S Daintith3
P Grosch3
D Hutchison3
M G Verluyten3

Owned 
outright1

11,777,499
432,554

Deferred
shares

1,622,556
721,134

Subject to
performance2

Shareholding 
requirement

870,476
395,671

300%
200%

Current 
shareholding 
(% salary)

14,688%
742%

Shares owned outright

45,457
43,001
9,995
1,241
4,249
59,966
24,000

1  The share interests shown for Mrs Wilson include shares held in the 3i Group Share Incentive Plan. The owned outright column includes partnership and dividend shares under the SIP. 

The deferred shares column includes matching shares under the SIP. 

2  The number of shares shown includes the 2014 Performance Share award. The performance target has been met with 100% of the shares being released as described on page 81.
3  Directors are restricted from hedging their exposure to the 3i share price.
4  From 1 April 2017 to 1 May 2017, Mrs Wilson became interested in a further 19 shares overall outright (SIP Partnership Shares) and a further 38 deferred shares (SIP Matching Shares). 

There were no other changes to Directors’ share interests in that period.

3i Group Annual report and accounts 2017

83

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

 Directors’ remuneration report

continued

Performance graph and table

TSR Graph
This graph compares the Company’s total shareholder return for the eight ﬁnancial years to 31 March 2017 with the total shareholder 
return of the FTSE 250 Index. The FTSE 250 Index is considered to be an appropriate comparator as it is representative of the 
underlying companies in which the Company invests.

3i total shareholder return vs FTSE 250 total return over the eight years to 31 March 2017

700

600

500

400

300

200

100

0

2009

2010

2011

2012

2013

2014

2015

2016

2017

3i Group

FTSE 250

Rebased at 100 at 31 March 2009

Table of historic Chief Executive data

Year

FY2017
FY2016
FY2015
FY2014

FY20131

FY2012
FY2011
FY2010

Chief Executive

Single ﬁgure of  
total remuneration 
£’000

Percentage 
of maximum 
bonus paid

Percentage 
of maximum 
LTIP vesting

S A Borrows
S A Borrows
S A Borrows
S A Borrows
S A Borrows
M J Queen
M J Queen
M J Queen
M J Queen

7,544
5,821
8,278
3,222
2,932
429
641
1,305
1,989

95%
92.5%
92.5%
92.5%
90%
0%
0%
54%
75%

100%
98%
90.85%
0%
n/a
0%
0%
0%
0%

Change 
% 

6%
21%

1  M J Queen ceased to be a Director on 16 May 2012. Mr Borrows was appointed Chief Executive on 17 May 2012 having previously been Chief Investment Ofﬁcer.

Relative importance of spend on pay

Remuneration of all employees
Dividends paid to shareholders

2016/17

£88m
£230m

2015/16

£83m
£190m

84

3i Group Annual report and accounts 2017

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Statement of implementation of the remuneration policy in the coming year
As explained in the statement by the Committee Chairman, we are seeking approval for a new remuneration policy at the 2017 AGM. 
The table below sets out how the Committee intends to operate the remuneration policy in FY2018, on the basis that it is approved 
by shareholders at the 2017 AGM. 

Policy element
Base salary

Implementation of policy during FY2018
A Group-wide 3% increase to salaries will take place in FY2018, which will also be applied to Executive Director 
salaries. Effective from 1 July 2017, salaries for the Executive Directors will therefore be as follows:

•  Chief Executive: £619,030 (+3%)
•  Group Finance Director: £450,203 (+3%)

Pension

No changes to the current arrangements are proposed for FY2018. The Executive Directors will continue to receive 
a pension contribution or salary supplement as follows:

•  Chief Executive: £16k 
•  Group Finance Director: 12% of salary

Beneﬁts

No changes to the current arrangements are proposed for FY2018.

Beneﬁts will continue to include a car allowance, provision of health insurance and any Share Incentive Plan matching 
share awards.

Annual bonus

The maximum annual bonus opportunities for FY2018 will remain unchanged, in line with the remuneration policy, 
as follows:

•  Chief Executive: 400% of salary
•  Group Finance Director: 250% of salary

Any bonus will be awarded based on a balanced scorecard of both ﬁnancial and strategic measures agreed by 
the Committee, alongside a consideration of the wider context of personal performance (including values and 
behaviours), risk, market and other factors.

Measures for the FY2018 scorecard are based 90% on ﬁnancial measures (50% portfolio return, 30% investment 
management and 10% operating performance) and 10% on strategic and people objectives. They are calibrated 
to current business strategy and will evolve year-on-year as the Group’s situation and priorities develop.

The Committee considers that the speciﬁc targets and expectations contained within the FY2018 scorecard are 
commercially sensitive and therefore will not be disclosed in advance. We will report to shareholders next year 
on performance and the resulting bonus outturns.

At least 50% of any bonus award will be deferred into shares vesting in equal instalments over four years.

Awards are subject to the Company’s malus and clawback policy.

Long-term incentive plan

Awards under the long-term incentive plan in FY2018 will remain unchanged and be made as follows:

•  Chief Executive: 400% of salary
•  Group Finance Director: 250% of salary

Performance will be measured over a three-year period and will be determined by the Remuneration Committee. 
Performance measures remained unchanged from the previous year and will be as follows:

50% of the award is based on absolute TSR measured over the performance period, and vests:

•  0% vesting below 10% p.a. TSR;
•  20% vesting at 10% p.a. TSR;
•  Straight-line vesting between 10% and 18% p.a. TSR; and

•  100% vesting at 18% p.a. TSR.

50% of the award is based on relative TSR measured against the FTSE 350 Index over the performance period, 
and vests:

•  0% for below median performance against the index;
•  25% for median performance against the index;
•  100% for upper quartile performance against the index; and
•  Straight-line vesting between median and upper quartile performance.

Awards are subject to the Company’s malus and clawback policy.

Shareholding requirements

Shareholding requirements will be as follows:

•  Chief Executive: 300% of salary
•  Group Finance Director: 200% of salary 

3i Group Annual report and accounts 2017

85

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

 Directors’ remuneration report

continued

Policy element

Implementation of policy during FY2018

Non-executive Director fees The fees for the Non-executive Directors for FY2018 will be:

Malus and Clawback policy

Chairman fee:  

£280,000 plus £30,000 in 3i shares

Non-executive Directors:
Board membership fee: 
Deputy Chairman (including SID fee) 
Senior independent director fee: 
Committee chairman:  
Committee member: 

£50,000 plus 3,000 3i shares
£40,000
£10,000
£20,000
£8,000

Committee fees are payable in respect of the Audit and Compliance Committee, Remuneration Committee and 
Valuations Committee.

Long-term incentive awards and deferred bonus share awards made during the year to Executive Directors 
(and certain other Senior Executives), may be forfeited or reduced prior to vesting in exceptional circumstances 
on such basis as the Committee considers fair, reasonable and proportionate. This would include, but is not limited 
to, material misstatement of Group ﬁnancial statements, 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.

The Group may recover amounts that have been paid or released from awards (including cash bonus awards), as 
long as a written request for the recovery of such sums is made in the two-year period from the date of payment or 
release and in circumstances where either (a) there has been a material misstatement of Group ﬁnancial statements 
or (b) the Group suffers a material loss, and (in either case) the Committee considers that there is reasonable 
evidence to show that the misstatement or loss has been caused by the individual’s reckless, negligent or wilful 
actions or inappropriate values or behaviours.

Consideration by the Directors of matters relating to Directors’ remuneration
The following Directors were members of the Remuneration Committee during the year:

Remuneration Committee

Name

Role

Membership status

J P Asquith (Chairman)

Non-executive Director

C J Banszky
D A M Hutchison

Non-executive Director
Non-executive Director

Member since March 2011
Chairman since May 2011
Member since November 2015
Member since December 2013

The Committee’s terms of reference are available on the Company’s website.

Meetings attended 
in the year

Meetings eligible to 
attend in the year

7

7
7

7

7
7

The Committee appointed Deloitte LLP as advisers in 2013 and during the year they provided the Committee with external, 
independent advice.

Deloitte are members of the Remuneration Consultants Group and as such, voluntarily operate under the code of conduct in relation 
to executive remuneration consulting in the UK. During the year, Deloitte LLP also provided 3i with certain tax advisory services. 
The Committee has reviewed the advice provided during the year and is satisﬁed that it has been objective and independent. 
The total fees for advice during the year were £44,350 (excluding VAT).

The Company Chairman, Chief Executive, the Remuneration Director and the General Counsel, Company Secretary & Head 
of HR attend Committee meetings by invitation, other than when their personal remuneration is being discussed.

86

3i Group Annual report and accounts 2017

Result of voting at the 2016 AGM
At the 2016 AGM shareholders approved the Remuneration report that was published in the 2016 Annual report and accounts. 
At the 2014 AGM, shareholders approved the Directors’ remuneration policy. The results for both of these votes are shown below:

Resolution

Approval of the Directors’ remuneration report at the 2016 AGM

Approval of the Directors’ remuneration policy at the 2014 AGM

Votes for

Votes against

Total votes cast

Votes withheld

680,338,260
(94.19%)

701,059,781
(98.10%)

41,956,098
(5.81%)

13,563,200
(1.90%)

722,294,358

7,275,252

714,622,981

1,798,709

Audit
The tables in this report (including the Notes thereto) on pages 79 to 84 have been audited by Ernst & Young LLP.

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3i Group Annual report and accounts 2017

87

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

 Directors’ remuneration report

continued

Policy report

Remuneration policy table
The table below summarises the policy in respect of each element of the Company’s remuneration for Executive and non-executive 
Directors effective from the date of the 2017 Annual General Meeting. This policy will be put forward for shareholder approval at the 
2017 Annual General Meeting in accordance with section 439A of the Companies Act 2006.

This policy remains materially unchanged from the policy approved by shareholders at the 2014 Annual General Meeting. While the 
Committee will consider the appropriateness of the Remuneration policy annually to ensure it continues to align with the business 
strategy, there is no current intention to revise the policy more often than every three years, unless required to through changes 
to regulations or legislation. 

Executive Directors

Purpose and link  
to strategic objectives
Base salary

•  To provide a ﬁxed 
element of pay at 
a level that aids the 
recruitment, retention 
and motivation of high 
performing people.

•  To reﬂect their 

role, experience 
and importance 
to the business.

Pension

•  To provide contributions 
to Executive Directors 
to enable them to 
make long-term 
savings to provide post-
retirement income.
•  Pension contributions 
are provided to both 
support retention and 
recruit people of the 
necessary calibre.

Beneﬁts

Operation

Opportunity

•  Salaries are normally reviewed annually 
by the Committee, with any changes 
usually becoming effective from 1 July.

•  These are reviewed by taking into 

account a number of factors, including:
 – performance of the Company and 

individual;

 – wider market and economic 

conditions;

 – any changes in responsibilities; and
 – the level of increases made across 

the Company.

•  Whilst there is no maximum salary level, 
increases are generally considered in 
the context of those awarded to other 
employees and the wider market.
•  Higher increases may be awarded in 

exceptional circumstances. For example, 
this may include a change  
in size, scope or responsibility of role, or 
development within the role or a speciﬁc 
retention issue. 

•  The annual base salary for each Executive 
Director is set out in the Annual report on 
Remuneration for the year.

Performance 
metrics

•  None, although the 

Committee considers 
when setting salary 
levels the breadth 
and responsibilities 
of the role as well 
as the competence 
and experience 
of the individual.

•  Participation in the deﬁned contribution 
pension scheme (3i Retirement Plan) or 
cash equivalent.

•  Executive Directors receive a pension 
contribution or cash allowance of 
12% of pensionable salary.

•  N/A

•  Prior to 2011 Executive Directors were 

eligible for membership of the  
3i Group Pension Plan, a deﬁned beneﬁt 
contributory scheme. 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.

•  For those Executive Directors who were 
members of the 3i Group Pension Plan, 
their deferred pension will change to 
reﬂect the deferred pension available 
on leaving, payable from age 60. 
•  Details for the current Executive 

Directors are set out in the Annual 
report of remuneration for the year.

•  To provide market 

•  Executive Directors are entitled to 

•  Whilst there is no maximum level 

•  N/A

competitive beneﬁts 
at the level needed to 
attract and retain high 
performing people.

a combination of beneﬁts, including 
a non-pensionable car allowance, private 
medical insurance, an annual health 
assessment and life assurance.

•  To provide health 

•  The Remuneration Committee may 

beneﬁts to support 
the well being 
of employees.

remove beneﬁts that Executive Directors 
receive or introduce other beneﬁts if it is 
appropriate to do so.

of beneﬁts, they are generally set at 
an appropriate market competitive 
level, taking into account a number of 
factors including market practice for 
comparable roles within appropriate 
pay comparators.

•  The Remuneration Committee may 
review the beneﬁts for an existing or 
new Executive Director at any point.

88

3i Group Annual report and accounts 2017

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Purpose and link  
to strategic objectives

Annual bonus

•  To incentivise the 

achievement of the 
Group’s strategic 
objectives on an 
annual basis.

•  Deferral into shares 
reinforces retention 
and enhances alignment 
with shareholders 
by encouraging  
longer-term focus 
and risk alignment.

Long-term Incentive Plan

•  Alignment of reward with 
long-term, sustainable 
Company performance 
and the creation of 
shareholder value 
over the longer-term.
•  The combination of 

total shareholder return 
targets and strategic 
performance measures 
balance internal and 
external perspectives 
of performance, and 
align participants with 
shareholders’ interests.

Operation

Opportunity

•  Bonus awards are considered annually 
based on performance in the relevant 
ﬁnancial year.

•  All performance targets are reviewed and 
set by the Committee early in the year.

•  Maximum bonus of 400% of salary 

for the Chief Executive.

•  Maximum bonus of 250% of salary 
for the Group Finance Director.

•  Awards are determined by the 

Committee after the year based 
upon the actual performance 
against these targets.

•  No more than 50% of any bonus award 

is paid as cash.

•  At least 50% of any bonus award will be 
deferred into shares vesting in equal 
instalments over four years.

•  Deferred bonus awards may be granted 
in the form of conditional share awards, 
options or forfeitable shares. Awards 
may also be settled in cash.

•  Participants receive the value of 
dividends in cash on the shares 
which are subject to the award. 
•  Awards are subject to the malus/
clawback policy (as set out in the 
Notes on page 90).

•  All performance targets, along with 
relative weightings, are reviewed 
and set by the Committee prior 
to awards being made.

•  The Committee may make an award 
in the form of forfeitable shares, 
conditional share awards, stock 
appreciation rights, or options under 
the plan. Awards may be settled in cash.

•  Award levels are determined by 

reference to individual performance 
prior to grant.

•  Awards vest subject to the Group’s 

achievements against the performance 
targets over a ﬁxed three-year period.

•  To the extent that shares vest, they 
are released 50% on or around (but 
not earlier than) the third anniversary 
of grant, and 25% on or around 
(but not earlier than) the fourth 
and ﬁfth anniversaries of grant.

•  The Committee may determine that 
participants may receive the value 
of dividends in cash or shares which 
would have been paid on the shares 
that vest under awards. 

•  Performance share awards are subject 

to the malus/clawback policy (as set out 
on the next page).

•  Awards granted in respect of a ﬁnancial 
year will have a face value of up to 400% 
of salary for the Chief Executive.

•  Awards granted in respect of a ﬁnancial 
year will have a face value of up to 250% 
of salary for the Group Finance Director.

•  Normally, no payment will be made 
for below threshold performance. 
Between 20% and 25% of the award vests 
at threshold performance, depending 
upon the performance condition.

Performance 
metrics

•  Performance is assessed 

against a balanced 
scorecard which aligns 
with the strategic 
objectives of the Group. 
•  The targets can be a range 
of ﬁnancial, business line 
speciﬁc, personal, risk and 
other key Group targets.
•  The Committee uses the 
scorecard as a prompt 
and guide to judgement 
and considers the 
performance outcomes 
in the wider context of 
personal performance 
(including values and 
behaviours), risk, market 
and other factors.
•  Details of the annual 
performance targets 
(and performance against 
targets) are shown 
within the Annual report 
of remuneration.

•  The scorecard used 

to measure the 
performance links at least 
half of the award to total 
shareholder returns and 
the balance, if any, to 
strategic objectives set 
by the Board.
•  The achievement 

against these targets 
is measured over 
a three-year period 
and is determined 
by the Committee.
•  The Committee can 

reduce any award which 
would otherwise vest 
if gross debt or gearing 
targets are missed. 
•  Details of the current 

performance conditions 
are shown within 
the Annual report 
of remuneration.

3i Group Annual report and accounts 2017

89

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

 Directors’ remuneration report

continued

Purpose and link  
to strategic objectives

Operation

Shareholding requirements

•  To create alignment 
with shareholders 
by encouraging 
longer-term focus.

•  Executive Directors are required to build 
up over a reasonable period of time, 
and thereafter maintain, a shareholding 
in the Company’s shares. Vested shares 
(net of income tax and National Insurance 
contributions) under the Deferred Bonus 
Plan and Long-term Incentive Plan 
should be retained until the shareholding 
requirement is met.

•  In addition, shareholding targets 

exist for other members of the Executive 
Committee and for staff designated as 
“partners” in the Group’s businesses.

•  The Committee retains the 

ability to introduce additional 
retention conditions.

Opportunity

Performance 
metrics

•  The shareholding targets for the 

•  N/A

Executive Directors are:
 – Chief Executive – 3.0 times salary
 – Group Finance Director – 2.0 times 

salary

•  Executive Committee members have 

a target of 1.5 times salary and selected 
“partners” 1.0 times salary.

Notes to the Remuneration policy table

Performance conditions
The Committee selected the performance conditions used for determining the annual bonus and LTIP awards as they align directly 
with the short and long-term strategy of the business. These conditions are set annually by the Committee at levels that take into 
account the Board’s business plan.

Changes to the policy operated in FY2017
There have been no major changes to the remuneration policy from that which was applied during the year, other than an increase 
in the shareholding requirement of the Finance Director from 150% to 200% of base salary.

Consistency with policy for all employees
All employees are eligible to receive salary, pension contributions and beneﬁts and to be considered for a discretionary annual bonus, 
with the maximum opportunities reﬂecting the role and seniority of each employee. Other members of the Executive Committee 
are subject to the same bonus deferral arrangements as the Executive Directors. Higher-earning members of staff below Executive 
Committee have a portion of their bonus deferred into shares vesting in equal instalments over a three-year period.

Within each of the Group’s businesses, senior members of staff have a signiﬁcant part of their compensation linked to the long-term 
performance of the Group’s and its clients’ investments through carried interest schemes or similar arrangements. 

Co-investment and carried interest plans
Executive Directors, other than the Chief Executive and Group Finance Director, are permitted to participate in carried interest plans 
and similar arrangements. This was approved by shareholders on 4 July 2001 and 6 July 2011 when approving the Group’s Long-term 
Incentive Plan. No current Executive Director beneﬁts from these arrangements.

Malus/Clawback policy
The Committee has agreed a policy, which applies to long-term incentive awards and deferred bonus share awards made during the 
year to Executive Directors (and certain other Senior Executives), under which awards may be forfeited or reduced prior to vesting in 
exceptional circumstances on such basis as the Committee considers fair, reasonable and proportionate. This would include, but is not 
limited to, material misstatement of Group ﬁnancial statements, 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.

The Group may recover amounts that have been paid or released from awards (including cash bonus awards), as long as a written 
request for the recovery of such sums is made in the two-year period from the date of payment or release and in circumstances where 
either (a) there has been a material misstatement of Group ﬁnancial statements or (b) the Group suffers a material loss, and (in either 
case) the Committee considers that there is reasonable evidence to show that the misstatement or loss has been caused by the 
individual’s reckless, negligent or wilful actions or inappropriate values or behaviours.

The Committee may make minor changes to this policy, which do not have a material advantage to Directors, to aid in its operation 
or implementation without seeking shareholder approval for a revised version of this Policy report.

90

3i Group Annual report and accounts 2017

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Non-executive Directors – Fees

Purpose and link  
to strategy

•  To attract and retain 
high performing 
non-executive Directors 
of the calibre required.

Operation

Opportunity

•  Non-executive Directors receive a basic annual fee. 
•  The fee is delivered in a mix of cash and shares.
•  The Chairman’s fee is reviewed annually by 

the Committee.

•  Fees are benchmarked against other companies 
of comparable size and against listed ﬁnancial 
services companies.

•  The Board is responsible for determining all other 
non-executive Director fees, which are reviewed 
annually to ensure they remain appropriate.

•  Fees are set at a level which is considered appropriate 
to attract and retain the calibre of individual required 
by the Company but the Company avoids paying more 
than necessary for this purpose. 

•  Additional fees are paid for the following  

roles/duties:
 – Senior Independent Director
 – Committee Chairman
 – Committee membership

•  Committee fees are payable in respect of the Audit 

and Compliance Committee, Remuneration Committee 
and Valuations Committee.

Recruitment policy
In determining remuneration arrangements for new executive appointments to the Board (including internal promotions), the 
Committee will take into consideration all relevant factors, including the calibre of the individual, the nature of the role, local market 
practice, the individual’s current remuneration package, 3i remuneration policy, internal relativities and existing arrangements for 
other Executive Directors. For external appointments, some variation may be necessary in order to attract the successful candidate 
and to reﬂect particular skills or experience speciﬁcally required.

The maximum level of variable pay (as expressed as a multiple of base salary) which may be awarded to new Executive Directors in 
respect of their appointment shall be no more generous than the combined maximum limits expressed in the Remuneration policy 
table above in respect of the Chief Executive, with an appropriate mix between annual bonus and LTIP opportunity, excluding any 
awards made to compensate the Executive Director for awards forfeited by their previous employer.

It may be necessary to compensate the new Executive Director for variable pay being forfeited from their current employer. 
The Committee’s intention is that any such award would be no more generous than the awards being forfeited and would 
be determined on a comparable basis at the time of grant, including the pay out schedule and performance conditions, 
where appropriate.

In determining whether it is appropriate to use such judgement, the Committee will ensure that any awards made are in the best 
interests of both the Company and its shareholders. The Committee is at all times conscious of the need to pay no more than 
is necessary, particularly when determining buy out arrangements.

For both internal and external appointments, it may be deemed appropriate to buy out awards held in carried interest or other 
asset-related incentive arrangements. The Committee’s intention is that any such buy out would be at a fair value at the time 
of appointment. 

In the event of the appointment of a new non-executive Director, remuneration arrangements will normally be in line with those 
detailed in the relevant table above.

3i Group Annual report and accounts 2017

91

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

 Directors’ remuneration report

continued

Service contracts
The main terms of the service contracts of the Executive Directors who served in the year were as follows:

Provision

Notice period

Policy

•  12 months’ notice if given by the Company
•  6 months’ notice if given by the Executive Director
•  Company policy is that Executive Directors’ notice periods should not normally exceed one year.  

Save for these notice periods the contracts have no unexpired terms.

Dates of contracts

•  Mr S A Borrows – 17 May 2012
•  Mrs J S Wilson – 1 October 2008

Termination payments

•  Mr Borrows’ contract entitles 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.

•  All Directors’ contracts entitle the Company to give pay in lieu of notice.

Remuneration 
and beneﬁts

•  The operation of all incentive plans, including being eligible to be considered for an annual bonus and Long-term 

Incentive Plan awards, is non-contractual.

•  On termination of employment outstanding awards will be treated in accordance with the relevant plan rules.

The Chairman and the non-executive Directors do not have service contracts or contracts for services. Their appointment letters 
provide for no entitlement to compensation or other beneﬁts on ceasing to be a Director. Service contracts are available for inspection 
at the Company’s headquarters in business hours.

Payment for loss of ofﬁce
As outlined above, the Committee must satisfy any contractual obligations agreed with the Executive Directors. Details of the 
Directors’ notice periods are shown alongside the service contract information. 

An Executive Director may be eligible to receive a time pro-rated annual bonus in respect of the year up until he or she ceased 
employment. In determining whether to award any bonus, the Committee will assess performance during the ﬁnancial year 
up to the date of cessation of active involvement in their management role. 

The treatment of outstanding share awards is governed by the relevant share plan rules. The following table and the note below 
it summarise the leaver categories and the impact on the share awards which employees (including Executive Directors) may hold.

For the avoidance of doubt, the Committee reserves the right to make any remuneration payments and payments for loss of ofﬁce 
notwithstanding that they are not in line with the policy set out above, where the terms of that payment were agreed (i) before the 
2014 policy came into effect or (ii) before this policy came into effect, provided that the terms of payment were consistent with 
the shareholder approved Directors’ remuneration policy in force at the time they were agreed; or (iii) at a time when the relevant 
individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the 
individual becoming a Director of the Company. For these purposes “payments” includes the Committee satisfying awards of 
variable remuneration and, in relation to an award or option over shares, the terms of the payment are “agreed” at the time the 
award is granted.

92

3i Group Annual report and accounts 2017

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Plan

Good leaver categories

Good leaver treatment1

Bad leaver treatment1

Deferred share awards

Long-term Incentive Plan

•  Death
•  Retirement
•  Ill-health, injury, disability
•  Redundancy
•  Employing company/business ceasing 

to be part of 3i Group

•  “Scheduled Departure” (ie a participant 
leaving on such a basis and/or within 
a speciﬁed timeframe as agreed by 
the Committee)

•  Death
•  Retirement
•  Ill-health, injury, disability
•  Redundancy 
•  Employing company/business ceasing 

to be part of 3i Group

•  “Scheduled Departure” (ie a participant 
leaving on such a basis and/or within 
a speciﬁed timeframe as agreed by 
the Committee)

Awards vest in full on the normal 
vesting date.

On death, awards vest in full immediately.

Awards vest on the normal vesting date 
subject to performance. Pro rating for 
time will apply.

If a participant dies, the Committee will 
determine the extent to which awards 
should vest as soon as practicable 
following the participant’s death.

Unvested awards lapse 
in full.
Vested awards structured as 
options may be exercised 
for three months following 
the participant’s cessation 
of employment.

Awards normally lapse in full.

If the Committee decides in 
exceptional circumstances 
that the awards should vest 
after the participant’s 
cessation of employment, 
awards will vest subject to 
performance and pro rating 
for time and other conditions 
may be imposed.

1   The treatments set out in the table above apply to all employees and are expected to operate in the vast majority of cases. The Plan rules retain discretion for the Committee to reduce 

awards in exceptional circumstances to Good Leavers or permit vesting (in whole or in part) of awards which would otherwise lapse to Bad Leavers. The Committee will report on the use 
of this discretion if it is exercised in relation to any Executive Director.

Change of control
If there is a takeover or winding up of the Company, awards will vest to the extent determined by the Committee.

Scenarios

Chief Executive (£000s)

Finance Director (£000s)

Maximum

12%

44%

44%

5,436

Maximum

19%

40.5%

40.5%

2,683

Actual
FY2017

12%

43%

45%

5,316

Actual
FY2017

19%

39%

42%

2,602

Minimum

100%

628

Minimum

100%

498

0
Fixed remuneration

1,000

3,000

2,000
Annual bonus 
(including deferred element)

4,000

5,000

6,000
Long-term incentive

0
Fixed remuneration

500

1,500

1,000
Annual bonus 
(including deferred element)

2,000

2,500

3,000
Long-term incentive

3i Group Annual report and accounts 2017

93

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

 Directors’ remuneration report

continued

Consideration of shareholder views
The Committee has remained engaged with shareholders 
during the period since 2014, and will continue to be 
mindful of shareholder views when evaluating and setting 
ongoing remuneration strategy, and commits to consulting 
with shareholders prior to any signiﬁcant changes to 
remuneration policy.

By Order of the Board

Jonathan Asquith
Chairman, Remuneration Committee
17 May 2017

The assumptions made in preparing these graphs are that:

•  Minimum – this includes only the ﬁxed elements of pay, 

being base salary, beneﬁts and pension;

•  Actual – this represents the remuneration received by each 

Executive Director for their performance in the year;

•  Maximum – this is calculated as the ﬁxed elements and the 

maximum Annual Bonus and Long-term Incentive Plan awards; 
and

•  Remuneration arising as a result of share price movements or 

rights to dividends and other distributions have been excluded.

Consideration of wider employee pay
As part of the annual Committee agenda, the Committee reviews 
the overall pay and bonus decisions in aggregate for the Group. 
This ensures that the pay and conditions in the wider Group are 
taken into account when determining Directors’ pay. In particular:

•  Salary increases awarded over time to other employees are 
taken into account when considering salary increases for the 
Executive Directors; and

•  The bonus awards made to Directors are considered and made 
in the context of discretionary bonus awards made within the 
business. These are based upon Company performance, and 
are closely correlated to the Executive Director bonus awards.

The Company does not consult with employees when preparing 
the Executive Director remuneration policy. However, a number 
of our employees are shareholders and so are able to express 
their views in the same way as other shareholders.

94

3i Group Annual report and accounts 2017

Additional statutory and 
corporate governance information

This section of the Directors’ report 
contains the corporate governance 
statement required by FCA Disclosure 
and Transparency Rule 7.2.

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 September 2014 and which 
is available on the FRC website.

The Group’s internal control and risk management systems 
including those in relation to the ﬁnancial reporting process  
are described on page 66.

Details on the appointment and replacement of Directors are 
set out on page 64.

The Board’s responsibilities and processes
The composition of the Board and its Committees as well as 
the Board’s key responsibilities and the way in which it and its 
Committees work are described on pages 60 to 66. 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 purchases 
of its own shares if the purchase has ﬁrst been authorised by a 
resolution of the Company.

At the AGM in June 2016, shareholders renewed the Board’s 
authority to allot ordinary shares and to repurchase ordinary 
shares on behalf of the Company subject to certain limits. 
Details of the authorities which the Board will be seeking  
at the 2017 AGM are set out in the 2017 Notice of AGM.

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 
matters such as the Group’s overall strategy, strategic plan 
and annual operating budget; approval of the Company’s 
ﬁnancial statements and changes to accounting policies or 
practices; changes to the capital structure or regulated status 
of the Company; major capital projects or changes to business 
operations; investments and divestments above certain limits; 
policy on borrowing, gearing, hedging and treasury matters; 
and adequacy of internal control systems.

Investment policy
The current investment policy is set out below.

•  3i is an investment company which aims to provide its 
shareholders with quoted access to private equity and 
infrastructure returns. Currently, its main focus is on making 
quoted and unquoted equity and/or debt investments in 
businesses and funds in 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.

•  Although 3i does not set maximum exposure limits for asset 
allocations, it does have a maximum exposure limit that, 
save as mentioned below, no investment will be made unless 
its cost does not exceed 15% of the investment portfolio 
value as shown in the last published valuation. A further 
investment may be made in an existing investee company 
provided the aggregate cost of that investment and of 
all other investments in that investee company does not 
exceed 15% of the investment portfolio value as shown in 
the last published valuation. A higher limit of 30% will apply 
to the Company’s investment in 3i Infrastructure plc. For the 
avoidance of doubt, 3i may retain an investment even if its 
carrying value is greater than 15% or 30% (as the case may be) 
of the portfolio value at the time of an updated valuation. 
•  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.

3i Group Annual report and accounts 2017

95

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Corporate Governance

Additional statutory and 
corporate governance information

continued

The UK Listing Authority’s Listing Rules require 3i, as a 
closed-ended investment fund, to publish an investment policy. 
Shareholder approval is required for material changes to this 
policy. Non-material changes can be made by the Board. 
Since publication of the Annual report and accounts 2016 the 
Board has made one non-material change to the ﬁrst sentence 
of the policy by deleting reference to debt management returns. 
This sentence previously referred to 3i providing “its shareholders 
with quoted access to private equity, infrastructure, and debt 
management returns.” This change reﬂects the sale during the 
year of the Group’s debt management business. 

Rights and restrictions attaching to shares
A summary of the rights and restrictions attaching to shares 
as at 31 March 2017 is set out below.

The Company’s Articles of Association may be amended by 
special resolution of the shareholders in a general meeting. 
Holders of ordinary shares enjoy the rights set out in 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 and to appoint proxies and, in the 
case of corporations, corporate representatives to attend, speak 
and vote at such meetings on their behalf. To attend and vote 
at a 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. 
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 any shares with preferred rights as may then be 
in issue.

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; a transfer to 
more than four joint holders; a transfer of certiﬁcated shares 
which is not in respect of only one class of share; a transfer which 
is not accompanied by the certiﬁcate for the shares to which it 
relates; a transfer which is not duly stamped in circumstances 
where a duly stamped instrument is required; or a transfer 
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). 

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. Where shares are held on 
behalf of former or current employees under employee share 
schemes, those participants can give instructions to the holder 
of such shares as to how votes attached to such shares should 
be exercised.

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 relate to:  
(a) potential tax disadvantage to the Company, (b) the number 
of “United States Residents” who own or hold shares being 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. 

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. 

Major interests in ordinary shares 
Notiﬁcations of the following major voting interests in the 
Company’s ordinary share capital (notiﬁable in accordance with 
Chapter 5 of the FCA’s Disclosure and Transparency Rules or 
section 793 Companies Act 2006) had been received by the 
Company as at 31 March 2017 and 1 May 2017. 

As at  
31 March 
2017

% of  
issued 
share 
capital

As at  
1 May  
2017

% of  
issued 
share 
capital

84,138,478

8.65 83,690,124

55,778,291

5.73 55,778,291

36,409,636

3.74 36,375,391

32,916,558

3.38 32,939,674

8.60

5.73

3.74

3.39

29,774,593

3.06 29,326,239

3.01

BlackRock, Inc 
Artemis Investment 
Management LLP
Threadneedle Asset 
Management Ltd
UBS Global Asset 
Management
Legal & General 
Investment 
Management Limited

Share capital and debentures
The issued ordinary share capital of the Company as at 1 April 
2016 was 972,661,444 ordinary shares and at 31 March 2017 was 
972,808,424 ordinary shares of 7319/22 pence each. It increased 
over the year by 146,980 ordinary shares on the issue of shares 
to the trustee of the 3i Group Share Incentive Plan. 

At the Annual General Meeting (“AGM”) on 30 June 2016, 
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 16 May 2016) 

96

3i Group Annual report and accounts 2017

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until the Company’s AGM in 2017 or 29 September 2017, 
if earlier. This authority was not exercised in the year. Details  
of the authorities which the Board will be seeking at the 2017 
AGM are set out in the 2017 Notice of AGM.

As detailed in Note 16 to the Accounts, as at 31 March 2016 
the Company had in issue Notes issued under the 3i Group plc 
£2,000 million Note Issuance Programme.

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.

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 and through active engagement with the Boards 
of those companies. In relation to quoted investments, the 
Group’s policy is to exercise voting rights on all matters affecting 
its interests. 

Tax and investment company status
The Company is an investment company under 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 and the Company directs its affairs  
to enable it to continue to remain so approved.

3i Investments plc
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 Investments plc also acts as investment adviser to 
3i Infrastructure plc under a contract which provides for the 
services to be provided and the related fees which are payable. 

3i Investments plc is authorised by the FCA to, among other 
things, manage Alternative Investment Funds (“AIFs”). It is 
currently the Alternative Investment Fund Manager (“AIFM”) 
of ﬁve AIFs. In compliance with regulatory requirements, 
3i Investments plc has ensured that a depository has been 
appointed for each AIF. This is Citibank Europe plc, UK Branch. 

The Annual report and accounts meet the investor disclosure 
requirements as set out in FUND 3.2.2R, 3.2.3R, 3.2.5R and 3.2.6R 
of the FCA’s Investment Funds sourcebook for 3i Group plc as 
a standalone entity. The Company’s proﬁt for the year is stated 
in its Statement of changes in equity and its Financial position 
is shown on page 105. The Company performs substantially all 
of its investment related activities through its subsidiaries and 
therefore the Group’s Consolidated statement of comprehensive 
income is considered to be more useful to investors than a 
Company statement.

Furthermore, in some instances the relevant FUND disclosures 
have been made in relation to the Group on a consolidated basis 
rather than in respect of 3i Group plc as a standalone entity. 
This is because 3i Group plc, as a standalone entity, operates 
through its group subsidiaries and therefore reporting on the 
Group’s activities provides more relevant information on the 
Company and its position. There have been no material changes 
to the Company’s operations in the past year. 

Although the disclosures required by FUND 3.2.2R, 3.2.3R, 
3.2.5R and 3.2.6R of the FCA’s Investment Funds sourcebook 
are covered in this Annual report they are also, for convenience, 
summarised on the 3i website at www.3i.com. This will be 
updated as required and changes noted in future Annual reports.

The Alternative Investment Fund Managers Directive requires 
3i to comply with certain reporting obligations. A summary 
of the remuneration policy of 3i can be found on the 
Company’s website.

The total amount of remuneration paid by 3i to its staff for the 
year was £88 million, of which £41 million was ﬁxed remuneration 
and £47 million was variable remuneration. The aggregate total 
remuneration paid to AIFM Identiﬁed Staff for the year was 
£23 million, of which £22 million was paid to Senior Management 
and £1 million was paid to other AIFM Identiﬁed Staff.

Dividends
An interim dividend of 8.0 pence per ordinary share in respect 
of the year to 31 March 2017 was paid on 4 January 2017. 
The Directors recommend a ﬁnal dividend of 18.5 pence 
(comprising a base dividend of 8.0 pence and an additional 
dividend of 10.5 pence) per ordinary share be paid in respect 
of the year to 31 March 2017 to shareholders on the Register 
at the close of business on 16 June 2017.

The trustee of The 3i Group Employee Trust (“the Employee 
Trust”) has waived (subject to certain minor exceptions) dividends 
declared on shares in the Company held by the Employee Trust 
and the Trustee of The 3i Group Share Incentive Plan has waived 
dividends on unallocated shares in the Company held by it.

Directors’ conﬂicts of interests 
and Directors’ indemnities 
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. 

As permitted by the Company’s Articles of Association during 
the year and as at the date of this Directors’ report, there were 
in place Qualifying Third-Party Indemnity Provisions (as deﬁned 
under relevant legislation) for the beneﬁt of the Company’s 
Directors and for the beneﬁt of directors of one associated 
company and Qualifying Pension Scheme Indemnity Provisions 
for the beneﬁt of the directors of one associated company. 

3i Group Annual report and accounts 2017

97

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Governance

Additional statutory and 
corporate governance information

continued

Directors’ employment contracts
Mr S A Borrows and Mrs J S Wilson each have employment 
contracts with the Group with notice periods of 12 months where 
notice is given by the Group and six months where notice is given 
by the Director. Save for these notice periods their employment 
contracts have no unexpired terms. None of the other Directors 
has a service contract with the Company.

Employment 
The employment 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 fairly and 
provides facilities, equipment and training to assist disabled 
employees to do their jobs. Arrangements are made as necessary 
to ensure support to job applicants who happen to be disabled 
and who respond to requests 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 is through employee appraisals, informal 
consultations, team brieﬁngs and staff conferences. 
Managers throughout 3i have a continuing responsibility to 
keep their staff 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 UK staff 
and their families in the UK. 

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. 

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 also eligible to be considered for a performance-related 
annual variable incentive award. For those members of staff 
receiving higher levels of annual variable incentive awards, a 
proportion of such awards is delivered in 3i shares, vesting over 
a number of years. Remuneration policy is reviewed by the 3i 
Group plc Remuneration Committee, comprising 3i Group plc 
non-executive Directors.

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 carried interest schemes, which allow 
executives to share directly in future proﬁts on investments. 
Similarly, investment executives in the Infrastructure 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. 

Political donations 
In line with Group policy, during the year to 31 March 2017 no 
donations were made to political parties or organisations, or 
independent election candidates, and no political expenditure 
was incurred.

Signiﬁcant agreements 
As at 31 March 2017, the Company was party to one agreement 
subject to a renegotiation period on a change of control of 
the Company following a takeover bid. This agreement is a 
£329 million multi-currency Revolving Credit Facility Agreement 
dated 5 September 2014, between the Company, Barclays Bank 
PLC and a number of other banks. The Company is required to 
notify Barclays Bank PLC, as agent bank, within ﬁve days, of a 
change of control. This opens a 20-day negotiation period to 
determine if the Majority Lenders (as deﬁned in the agreement) 
are willing to continue the facility. Failing agreement, amounts 
outstanding would be repayable and the facility cancelled.

Going concern
The Directors have acknowledged their responsibilities in relation 
to the ﬁnancial statements for the year to 31 March 2017.

After making enquiries, the Directors considered it appropriate to 
prepare the ﬁnancial statements of the Company, and the Group, 
on a going concern basis. 

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 Auditor is 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 Auditor is aware of 
such information.

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

98

3i Group Annual report and accounts 2017

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Information required by listing rule 9.8.4
Information required by Listing Rule 9.8.4 may be found as set 
out below:

Topic

Location

Capitalised interest
Share allotments
Contracts with Directors

Portfolio income on page 31
Note 19 on page 129
Page 65

Information included in Strategic report
In accordance with section 414 C (11) of the Companies Act 2006 
the following information otherwise required to be set out in the 
Directors’ report has been included in the Strategic report: risk 
management objectives and policies; post balance sheet events; 
likely future developments in the business; and greenhouse 
gas emissions. 

The Directors’ viability statement is also shown in the Strategic 
report on page 49.

Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual report 
and accounts 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. The Directors consider that this 
Annual report and accounts, taken as a whole, is fair, balanced 
and understandable and provides the information necessary for 
shareholders to assess the Company’s performance, business 
model and strategy. 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 as adopted by the EU 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 as adopted 
by the EU, 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 FCA’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 Strategic 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  
on pages 60 and 61. 

3i Group plc is registered in England with company 
number 1142830.

Directors’ report
For the purposes of the UK Companies Act 2006, the Directors’ 
report of 3i Group plc comprises the Corporate Governance 
section on pages 58 to 99 other than the Directors’ remuneration 
report on pages 77 to 94. 

The Strategic report, Directors’ report and Directors’ 
remuneration report have been drawn up and presented in 
accordance with and in reliance upon English company law and 
the liabilities of the Directors in connection with those reports 
shall be subject to the limitations and restrictions provided by 
that law.

By order of the Board

K J Dunn
Company Secretary
17 May 2017
Registered Ofﬁce: 
16 Palace Street 
London SW1E 5JD

3i Group Annual report and accounts 2017

99

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited  
ﬁnancial  
statements

Consolidated statement  
of comprehensive income 
Consolidated statement  
of ﬁnancial position 
Consolidated statement  
of changes in equity 
Consolidated cash ﬂow statement 
Company statement  
of ﬁnancial position 
Company statement  
of changes in equity 
Company cash ﬂow statement 
Signiﬁcant accounting policies 
Notes to the accounts 
Independent Auditor’s report 

101

102

103
104

105

106
107
108
112
149

100

3i Group Annual report and accounts 2017

Consolidated statement 
of comprehensive income

for the year to 31 March

Realised (losses)/proﬁts over value on the disposal of investments
Unrealised proﬁts on the revaluation of investments
Fair value movements on investment entity subsidiaries
Portfolio income
Dividends
Interest income from investment portfolio
Fees receivable

Foreign exchange on investments
Gross investment return
Fees receivable from external funds
Operating expenses
Interest received
Interest paid
Exchange movements
Income/(expense) from investment entity subsidiaries
Other income
Carried interest

Carried interest and performance fees receivable 
Carried interest and performance fees payable

Operating proﬁt before tax
Income taxes
Proﬁt for the year from continuing operations
Proﬁt for the year from discontinued operations, net of tax
Proﬁt for the year 

Other comprehensive (expense)/income that may be reclassiﬁed to the income statement

Exchange differences on translation of foreign operations

Other comprehensive expense that will not be reclassiﬁed to the income statement

Re-measurements of deﬁned beneﬁt plans

Other comprehensive (expense)/income for the year from continuing operations

Other comprehensive (expense)/income for the year from discontinued operations

Total comprehensive income for the year (“Total return”)

Earnings per share from continuing operations

Basic (pence)
Diluted (pence)

Earnings per share
Basic (pence)
Diluted (pence)

Dividend per share 

Interim dividend per share paid (pence)
Final dividend per share (pence)

Notes

2
3
11

4

13
13

7

31

26

31

8
8

8
8

9
9

2017
£m

(25)
262
1,041

38
10
9
64

1,399
46
(116)
2
(49)
42
18
10

280
(108)

1,524
3

1,527
98

1,625

(4)

(22)

(26)

(7)

1,592

159.0
158.3

169.2
168.4

8.0
18.5

20161
£m

11
114
591

36
22
9
29

812
41
(105)
4
(47)
64
(10)
–

73
(38)

794
(2)

792
25

817

11

(6)

5

2

824

83.0
82.6

85.6
85.2

6.0
16.0

1  Comparatives for the year ended 31 March 2016 have been re-presented to reﬂect the classiﬁcation of the Group’s Debt Management business, sold on 3 March 2017, as discontinued 

operations. See Note 31.

The Notes on pages 112 to 148 form an integral part of these ﬁnancial statements.

3i Group Annual report and accounts 2017

101

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Audited ﬁnancial statements

 Consolidated statement  
 of ﬁnancial position 

as at 31 March

Assets
Non-current assets
Investments

Quoted investments
Unquoted investments

Investments in investment entity subsidiaries
Investment portfolio
Carried interest and performance fees receivable
Other non-current assets
Intangible assets
Retirement beneﬁt surplus
Property, plant and equipment
Deferred income taxes
Total non-current assets
Current assets
Carried interest and performance fees receivable
Other current assets
Current income tax
Deposits
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Non-current liabilities
Trade and other payables
Carried interest and performance fees payable
Loans and borrowings
Retirement beneﬁt deﬁcit
Provisions
Total non-current liabilities
Current liabilities
Trade and other payables
Carried interest and performance fees payable
Acquisition related earn-out charges payable
Loans and borrowings
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
Own shares
Total equity

The Notes on pages 112 to 148 form an integral part of these ﬁnancial statements. 

Simon Thompson
Chairman 
17 May 2017

102

3i Group Annual report and accounts 2017

Notes

2017
£m

2016
£m

10
10
11

13
15
14
26

7

13
15

18
13
16
26
17

18
13

16

17

19

20

390
1,316
3,483
5,189
354
50
–
121
5
–
5,719

9
12
2
40
931
994
6,713

(24)
(124)
(575)
(22)
(2)
(747)

(103)
(23)
–
–
–
(4)
(130)
(877)
5,836

719
785
43
30
218
3,390
689
(38)
5,836

297
1,243
2,680
4,220
89
37
12
132
5
3
4,498

28
31
–
40
957
1,056
5,554

(27)
(85)
(575)
(20)
(1)
(708)

(99)
(20)
(1)
(262)
(2)
(7)
(391)
(1,099)
4,455

719
784
43
32
229
2,080
622
(54)
4,455

Consolidated statement 
of changes in equity

for the year to 31 March

719

785

43

218

3,390

689

(38)

5,836

2017

Total equity at the start of the year
Proﬁt for the year
Exchange differences on translation  
of foreign operations
Re-measurements of deﬁned beneﬁt plans
Other comprehensive income from 
discontinued operations
Total comprehensive income for the year

Share-based payments
Release on exercise/forfeiture of share options 
Exercise of share awards
Ordinary dividends
Additional dividends
Issue of ordinary shares
Total equity at the end of the year

20161

Total equity at the start of the year
Proﬁt for the year
Exchange differences on translation  
of foreign operations
Re-measurements of deﬁned beneﬁt plans
Other comprehensive income from 
discontinued operations
Total comprehensive income for the year

Share-based payments
Release on exercise/forfeiture of share options 
Exercise of share awards
Ordinary dividends
Additional dividends
Total equity at the end of the year

Share
capital
£m

Share
premium
£m

719
–

784
–

–
–

–

–

–
–
–
–
–
–

–
–

–

–

–
–
–
–
–
1

Share
capital
£m

Share
premium
£m

719
–

784
–

–
–

–

–

–
–
–
–
–

–
–

–

–

–
–
–
–
–

Capital
redemption
reserve
£m

Share-
based
payment
reserve
£m

Translation
reserve
£m

Capital
reserve
£m

2,080
1,489

Revenue
reserve
£m

Own
shares
£m

622
136

(54)
–

Total
equity
£m

4,455
1,625

–
(22)

–

1,467

–
–
(16)
(39)
(102)
–

–
–

–

136

–
20
–
(89)
–
–

–
–

–

–

–
–
16
–
–
–

(4)
(22)

(7)

1,592

18
–
–
(128)
(102)
1

Capital
reserve
£m

1,519
705

Revenue
reserve
£m

Own
shares
£m

573
112

(79)
–

Total
equity
£m

3,806
817

–
(6)

–

699

–
–
(25)
–
(113)

–
–

–

112

–
14
–
(77)
–

622

–
–

–

–

–
–
25
–
–

11
(6)

2

824

15
–
–
(77)
(113)

(54)

4,455

229
–

(4)
–

(7)

(11)

–
–
–
–
–
–

216
–

11
–

2

13

–
–
–
–
–

43
–

–
–

–

–

–
–
–
–
–
–

43
–

–
–

–

–

–
–
–
–
–

32
–

–
–

–

–

18
(20)
–
–
–
–

30

31
–

–
–

–

–

15
(14)
–
–
–

32

Capital
redemption
reserve
£m

Share-
based
payment
reserve
£m

Translation
reserve2
£m

719

784

43

229

2,080

1  Comparatives for the year ended 31 March 2016 have been re-presented to reﬂect the classiﬁcation of the Group’s Debt Management business sold to Investcorp on 3 March 2017, 

as discontinued operations. See Note 31.

2  Translation reserve balance at 31 March 2016 included £7 million in relation to discontinued operations.

The Notes on pages 112 to 148 form an integral part of these ﬁnancial statements.

3i Group Annual report and accounts 2017

103

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Notes

2017
£m

2016
£m

11

13
13

9

31
31

(334)
310
246
–
7
54
9
71
39
(27)
(1)
(131)
2
(2)

243

1
(230)
(264)
(17)
2
(51)
2

(557)

232
(4)
(1)
–

227

(87)

957
61

931

(87)
236
206
(14)
5
58
7
78
52
(13)
(30)
(134)
–
–

364

–
(190)
–
–
4
(51)
–

(237)

–
–
(1)
(40)

(41)

86

861
10

957

Audited ﬁnancial statements

 Consolidated cash ﬂow 
statement

for the year to 31 March

Cash ﬂow from operating activities
Purchase of investments
Proceeds from investments
Cash inﬂow from investment entity subsidiaries
Net cash ﬂow from derivatives
Portfolio interest received
Portfolio dividends received
Portfolio fees received
Fees received from external funds
Carried interest and performance fees received
Carried interest and performance fees paid
Acquisition related earn-out charges paid
Operating expenses paid
Other cash income
Income taxes paid
Net cash ﬂow from operating activities

Cash ﬂow from ﬁnancing activities
Issue of shares
Dividend paid
Repayment of short-term borrowings
Repurchase of short-term borrowings
Interest received
Interest paid
Co-investment loans
Net cash ﬂow from ﬁnancing activities

Cash ﬂow from investing activities
Proceeds from sale of Debt Management business
Cash held in disposed subsidiaries
Purchases 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

The Notes on pages 112 to 148 form an integral part of these ﬁnancial statements.

104

3i Group Annual report and accounts 2017

Company statement 
of ﬁnancial position

as at 31 March

Assets
Non-current assets
Investments

Quoted investments
Unquoted investments

Investment portfolio

Carried interest and performance fees receivable
Interests in Group entities
Other non-current assets
Total non-current assets

Current assets
Carried interest and performance fees receivable
Other current assets
Deposits
Cash and cash equivalents
Total current assets

Total assets

Liabilities
Non-current liabilities
Carried interest and performance fees payable
Loans and borrowings
Total non-current liabilities

Current liabilities
Trade and other payables
Acquisition related earn-out charges payable
Loans and borrowings
Total current liabilities

Total liabilities

Net assets

Equity
Issued capital 
Share premium
Capital redemption reserve
Share-based payment reserve
Capital reserve
Revenue reserve
Own shares

Total equity

The Company proﬁt for the year to 31 March 2017 is £1,650 million (2016: £733 million).

The Notes on pages 112 to 148 form an integral part of these ﬁnancial statements.

Simon Thompson
Chairman 
17 May 2017

Notes

2017
£m

2016
£m

10
10

22
15

15

16

18

16

19

20

390
1,295

1,685

358
3,542
21

5,606

1
4
40
887

932

297
1,103

1,400

82
2,848
17

4,347

5
9
40
857

911

6,538

5,258

(16)
(575)

(591)

(506)
–
–

(506)

(1,097)

5,441

719
785
43
30
3,874
28
(38)

5,441

(1)
(575)

(576)

(417)
(1)
(262)

(680)

(1,256)

4,002

719
784
43
32
2,462
16
(54)

4,002

3i Group Annual report and accounts 2017

105

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a
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Audited ﬁnancial statements

Company statement 
of changes in equity

for the year to 31 March

2017

Total equity at the start of the year
Proﬁt for the year
Total comprehensive income 
for the year

Share-based payments
Release on exercise/forfeiture  
of share options
Exercise of share awards
Ordinary dividends
Additional dividends
Issue of ordinary shares
Total equity at the end of the year

2016

Total equity at the start of the year
Proﬁt for the year
Total comprehensive income 
for the year

Share-based payments
Release on exercise/forfeiture  
of share options
Exercise of share awards
Ordinary dividends
Additional dividends
Total equity at the end of the year

Capital 
redemption 
reserve 
£m

Share-based 
payment 
reserve 
£m

Capital 
reserve 
£m

Revenue 
reserve 
£m

Share  
capital 
£m

Share 
premium 
£m

719
–

784
–

–

–

–
–
–
–
–

–

–

–
–
–
–
1

Share  
capital 
£m

Share 
premium 
£m

719
–

784
–

–

–

–
–
–
–

–

–

–
–
–
–

43
–

–

–

–
–
–
–
–

43
–

–

–

–
–
–
–

719

784

43

719

785

43

Capital 
redemption 
reserve 
£m

Share-based 
payment 
reserve 
£m

32
–

–

18

(20)
–
–
–
–

30

31
–

–

15

(14)
–
–
–

32

2,462
1,569

1,569

–

–
(16)
(39)
(102)
–

3,874

Capital 
reserve 
£m

1,895
705

705

–

–
(25)
–
(113)

2,462

16
81

81

–

20
–
(89)
–
–

28

Revenue 
reserve 
£m

51
28

28

–

14
–
(77)
–

16

Own 
 shares 
£m

(54)
–

–

–

–
16
–
–
–

Total  
equity 
£m

4,002
1,650

1,650

18

–
–
(128)
(102)
1

(38)

5,441

Own 
 shares 
£m

(79)
–

–

–

–
25
–
–

Total  
equity 
£m

3,444
733

733

15

–
–
(77)
(113)

(54)

4,002

The Notes on pages 112 to 148 form an integral part of these ﬁnancial statements.

106

3i Group Annual report and accounts 2017

 
Company cash ﬂow  
statement

for the year to 31 March

Cash ﬂow from operating activities
Purchase of investments
Proceeds from investments
Distributions from subsidiaries
Drawdowns by subsidiaries
Net cash ﬂow from derivatives
Portfolio interest received
Portfolio dividends received
Portfolio fees paid
Carried interest and performance fees received
Carried interest and performance fees paid
Acquisition related earn-out charges paid
Income taxes paid
Net cash ﬂow from operating activities

Cash ﬂow from ﬁnancing activities

Issue of shares
Dividend paid
Repayment of short-term borrowings
Repurchase of short-term borrowings
Interest received
Interest paid
Co-investment loans
Net cash ﬂow from ﬁnancing activities

Cash ﬂow from investing activities
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

The Notes on pages 112 to 148 form an integral part of these ﬁnancial statements.

Notes

9

2017 
£m

(274)
307
1,241
(763)
–
6
30
(3)
15
(28)
(1)
–

530

1
(230)
(264)
(17)
2
(51)
2

(557)

–

–

(27)

857
57

887

2016
£m

(37)
232
530
(332)
(14)
3
35
(1)
1
–
(22)
(1)

394

–
(190)
–
–
3
(51)
– 

(238)

(40)

(40)

116

735
6

857

3i Group Annual report and accounts 2017

107

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n

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Signiﬁcant accounting policies

Reporting entity
3i Group plc (the “Company”) is a public limited company incorporated and domiciled in England and Wales. The Consolidated 
ﬁnancial statements (“the Group accounts”) for the year to 31 March 2017 comprise the ﬁnancial statements of the Company and  
its consolidated subsidiaries (collectively, “the Group”). 

The Group accounts have been prepared and approved by the Directors in accordance with section 395 of the Companies Act 
2006 and the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008. The Company has taken 
advantage of the exemption in section 408 of the Companies Act 2006 not to present its Company statement of comprehensive 
income and related Notes. 

A number of accounting policies are disclosed below, but where possible, they have been shown as part of the Note to which they 
speciﬁcally relate in order to assist the reader’s understanding. 

A Compliance with International Financial Reporting Standards (“IFRS”)
The Group and Company accounts have been prepared and approved by the Directors in accordance with all relevant IFRSs as issued 
by the International Accounting Standards Board (“IASB”), and interpretations issued by the IFRS Interpretations Committee, endorsed 
by the European Union (“EU”). 

The following standards, amendments and interpretations have been issued with implementation dates, subject to EU endorsement  
in some cases, which do not impact on these ﬁnancial statements:

Effective for annual periods beginning on or after

IAS 7 
IFRS 9
IFRS 15
IFRS 16 

Disclosure initiative (amendments to IAS 7 – Statement of Cash Flows)
Financial instruments 
Revenue from contracts with customers
Leases

1 January 2017
1 January 2018
1 January 2018
1 January 2019

The impact of future standards and amendments on the ﬁnancial statements is being assessed by the Group and the Company. 
The Group does not anticipate that IFRS 9 and IFRS 16 will have a material impact on its results. The detailed assessment of the extent 
to which IFRS 15 may affect the carried interest receivable recognition in the Group’s ﬁnancial statements is ongoing.

B Basis of preparation
The ﬁnancial statements are prepared on a going concern basis as disclosed in the Directors’ report and presented to the 
nearest million.

C Basis of consolidation

(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control, as deﬁned by IFRS 10, is achieved when the Group is exposed, or has rights, 
to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. 
Subsidiaries are fully consolidated from the date on which the Group effectively obtains control. They are de-consolidated from the 
date that control ceases. 

3i Group plc is an investment entity and, as such, does not consolidate the investment entities it controls. Most of the Group’s interests 
in subsidiaries are recognised at fair value through proﬁt or loss. Those subsidiaries which provide investment related services, such as 
advisory, management or employment services, are not classiﬁed at fair value through proﬁt and loss and continue to be consolidated 
unless they are deemed investment entities, in which case they are fair valued. 

The acquisition method of accounting is used to account for the acquisition of subsidiaries. Under the acquisition method of 
accounting, with some limited exceptions, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair 
values at the date of acquisition. Any non-controlling interest is measured either at fair value or at the non-controlling interest’s 
proportion of the net assets acquired. Acquisition related costs are accounted for as expenses when incurred. Any excess of the cost 
of acquisition over net assets is capitalised as goodwill. All intra-group balances, transactions, income and expenses are eliminated 
upon consolidation.

108

3i Group Annual report and accounts 2017

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(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 Consolidated statement of ﬁnancial position 
at fair value even though the Group may have signiﬁcant inﬂuence over those companies. 

(iii) Composition of the Group
The Group comprises several different types of subsidiaries. The Group re-assesses the function performed by each type of subsidiary 
to determine its treatment under the IFRS 10 exception from consolidation on an annual basis. The types of subsidiaries and their 
treatment under IFRS 10 are as follows:

General Partners (GPs) – Consolidated
General Partners provide investment management services and do not hold any direct investments in portfolio assets. These entities 
are not investment entities. 

Investment managers/advisers – Consolidated
These entities provide investment related services through the provision of investment management or advice. They do not hold any 
direct investments in portfolio assets. These entities are not investment entities. 

Holding companies of investment managers/advisers – Consolidated
These entities provide investment related services through their subsidiaries. Typically they do not hold any direct investment 
in portfolio assets and these entities are not investment entities. 

Limited Partnerships and other intermediate investment holding structures – Fair valued 
The Group makes investments in portfolio assets through its ultimate parent company as well as through other limited partnerships 
and corporate subsidiaries which the Group has created to align the interests of the investment teams with the performance of the 
assets through the use of various carried interest schemes. The purpose of these limited partnerships and corporate holding vehicles, 
many of which also provide investment related services, is to invest for investment income and capital appreciation. These partnerships 
meet the deﬁnition of an investment entity and are classiﬁed at fair value through proﬁt and loss.

Portfolio investments – Fair valued
Under IFRS 10, the test for accounting subsidiaries takes wider factors of control as well as actual equity ownership into account. 
In accordance with the investment entity exception, these entities have been held at fair value with movements in fair value being 
recognised in the Consolidated statement of comprehensive income.

Structured entities – Fair valued
The Group has retained interests in a number of unconsolidated structured entities, being CLO equity investments, and their current 
carrying value and a description is included in Note 29. 

D Critical accounting estimates and judgements 
The reported results of the Group are sensitive to the accounting policies, assumptions and estimates that underlie the preparation 
of its ﬁnancial statements. UK company law and IFRS require the Directors, in preparing the Group’s ﬁnancial statements, to select 
suitable accounting policies, apply them consistently and make judgements and estimates that are reasonable and prudent. 
The Group’s estimates and assumptions are based on historical experience and expectation of future events and are reviewed 
periodically. The actual outcome may be materially different from that anticipated. 

The judgements, assumptions and estimates involved in the Group’s accounting policies that are considered by the Board  
to be the most important to the portrayal of its ﬁnancial condition are the following:

(a) The fair valuation of the investment portfolio
The investment portfolio is held at fair value. Given the importance of this area, the Board has a separate Valuations Committee to 
review the valuations policies, process and application to individual investments. A report on the activities of the Valuations Committee 
is included in the Governance section of the Annual report. 

3i Group Annual report and accounts 2017

109

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Signiﬁcant accounting policies

continued

(b) Assessment as an investment entity
Entities that meet the deﬁnition of an investment entity within IFRS 10 are required to account for most investments in controlled 
entities, as well as investments in associates and joint ventures, at fair value through proﬁt and loss.

The Board has concluded that the Company continues to meet the deﬁnition of an investment entity as its strategic objective 
of investing in portfolio investments and providing investment management services to investors for the purpose of generating 
returns in the form of investment income and capital appreciation remains unchanged. 

The Group is required to determine the degree of control or inﬂuence the Group exercises and the form of any control to ensure  
that the ﬁnancial treatment is accurate. Further detail on our review of our application of IFRS 10 can be found in the Reconciliation  
of Investment basis to IFRS section. 

(c) Valuation of the deﬁned beneﬁt schemes
The Group also considers the valuation of the deﬁned beneﬁt schemes in accordance with IAS 19 to be a signiﬁcant estimate. 
The Group reviews its assumptions annually with its independent actuaries. 

E Other accounting policies 

(a) Revenue recognition
Gross investment 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 and includes foreign exchange movements in respect of the investment portfolio. 
Investment income is analysed into the following components:

I. 

 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 and the repayment of interest income from investment portfolio, 
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.

II.   Unrealised proﬁts or losses on the revaluation of investments are the movement in the fair 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 fair value assessment.

III.   Fair value movements on investment entity subsidiaries are the movements in the fair value of Group subsidiaries which are 

classiﬁed as investment entities under IFRS 10. The Group makes investments in portfolio assets through these entities which  
are usually limited partnerships or corporate subsidiaries. 

IV.   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 in accordance with IAS 18 must be met before the income is recognised:

•  Dividends from equity investments are recognised in the Consolidated statement of comprehensive income when the 

shareholders’ rights to receive payment have been established. Income received on the investment in the most junior ranked 
level of CLO capital is recognised as a dividend. £26 million was received in the year (2016: £31 million) from continuing and 
discontinued operations. 

•  Interest income from investment 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. When the fair value of an investment is assessed to be below the principal value of 
a loan the Group recognises a provision against any interest accrued from the date of the assessment going forward until the 
investment is assessed to have recovered in value. Income received on the instruments in the most junior level of CLO capital 
is recognised as a dividend as detailed above. £26 million was received in the year (2016: £31 million) from continuing and 
discontinued operations.

•  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.

V.   Foreign exchange on investments arises on investments made in currencies that are different from the functional currency of the 
Group entity. Investments are translated at the exchange rate ruling at the date of the transaction. At each subsequent reporting 
date investments are translated to sterling at the exchange rate ruling at that date.

110

3i Group Annual report and accounts 2017

(b) Foreign currency translation
For the Company and those subsidiaries whose balance sheets are denominated in sterling, which is the Company’s functional and 
presentational currency, monetary assets and liabilities denominated in foreign currencies are translated into sterling at the closing 
rates of exchange at the balance sheet date. Foreign currency transactions are translated into sterling at the average rates of exchange 
over the year and exchange differences arising are taken to the Consolidated statement of comprehensive income.

The statements of ﬁnancial position of subsidiaries and associates denominated in foreign currencies are translated into sterling 
at the closing rates. The statements of comprehensive income for these subsidiaries and associates are translated at the average 
rates and exchange differences arising are taken to other comprehensive income. Such exchange differences are reclassiﬁed to the 
Consolidated statement of comprehensive income in the period in which the subsidiary or associate is disposed of.

Exchange movements in relation to forward foreign exchange contracts are included within exchange movements in the Consolidated 
statement of comprehensive income, where appropriate. No forward foreign exchange contracts were held in the current year and 
in 2016 a £14 million loss was recognised in exchange movements.

(c) Treasury assets and liabilities 
Short-term treasury assets and short and long-term treasury liabilities are used in order to manage cash ﬂows and minimise the overall 
costs of borrowing. 

Cash and cash equivalents comprise cash at bank, short-term deposits and amounts held in money market funds, which are readily 
convertible into cash and there is an insigniﬁcant risk of changes in value. 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.

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3i Group Annual report and accounts 2017

111

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

1  Segmental analysis
Operating segments are the components of the Group whose results are regularly reviewed by the Group’s chief operating decision 
maker to make decisions about resources to be allocated to the segment and assess its performance. 

The Chief Executive, who is considered to be the chief operating decision maker, managed the Group on the basis of business 
divisions determined with reference to market focus, geographic focus, investment funding model and the Group’s management 
hierarchy. A description of the activities, including products and services offered by these divisions and the allocation of resources,  
is given in the Strategic report. For the geographical segmental split, revenue information is based on the locations of the assets held.

The segmental information that follows is presented on the basis used by the Chief Executive to monitor the performance of the 
Group. The reported segments are Private Equity, Infrastructure and other, where other comprises the residual investments retained 
following the sale of our Debt Management business.

Private 
Equity
£m

Infrastructure
£m

Total 
continuing 
operations
£m

Discontinued
 operations1
£m

 Other1
£m

Investment basis

Year to 31 March 2017
Realised proﬁts/(losses) over value on the disposal of 
investments
Unrealised proﬁts on the revaluation of investments
Portfolio income
Dividends
Interest income from investment portfolio
Fees receivable

Foreign exchange on investments
Gross investment return
Fees receivable from external funds
Operating expenses
Interest receivable
Interest payable
Exchange movements
Other income
Operating proﬁt before carry
Carried interest

38
1,274

8
50
6
248
1,624
10
(76)

(1)
59

23
–
–
6
87
36
(41)

Carried interest and performance fees receivable
Carried interest and performance fees payable

275
(431)

4
(3)

Operating proﬁt

Proﬁt on disposal of Debt Management business before tax
Income taxes
Other comprehensive income

Re-measurements of deﬁned beneﬁt plans

Total return
Net divestment/(investment)
Realisations2
Cash investment

Balance sheet
Opening portfolio value at 1 April 20163
Investment4
Value disposed 
Unrealised value movement
Other movement5
Closing portfolio value at 31 March 2017 

982
(478)
504

3,741
548
(944)
1,274
212
4,831

12
(131)
(119)

527
131
(13)
59
2
706

1
9

19
–
–
15
44
–
–

–
–

11
(29)
(18)

92
29
(10)
9
18
138

38
1,342

50
50
6
269
1,755
46
(117)
2
(49)
28
10
1,675

279
(434)
1,520

–
3

(22)
1,501

1,005
(638)
367

4,360
708
(967)
1,342
232
5,675

–
3

16
3
–
16
38
25
(13)
–
–
(9)
2
43

1
–
44

48
(1)

–
91

270
(51)
219

137
51
(191)
3
–
–

Total
£m

38
1,345

66
53
6
285
1,793
71
(130)
2
(49)
19
12
1,718

280
(434)
1,564

48
2

(22)
1,592

1,275
(689)
586

4,497
759
(1,158)
1,345
232
5,675

1  Discontinued operations relate to the Debt Management business sold to Investcorp. Other relates to the residual Debt Management investments retained by 3i.
2  Private Equity does not include proceeds paid from investee holding companies of £33 million. Total proceeds from the sale of the Debt Management business were £270 million, of which 
£17 million related to the investment made by 3i Group plc on behalf of Debt Management Investments Ltd and £16 million related to an intercompany loan provided by 3i Group plc to 
Debt Management US LLC and not included within the consolidated Group.

3  The opening portfolio values have been re-presented to reﬂect the classiﬁcation of the Group’s Debt Management business sold to Investcorp as discontinued operations. See Note 31. 

The residual Debt Management stakes are included within Other. 

4  Includes capitalised interest and other non-cash investment.
5  Other movement relates to foreign exchange and the provisioning of capitalised interest. 

112

3i Group Annual report and accounts 2017

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1  Segmental analysis continued
Investment basis

Year to 31 March 2016

Realised proﬁts over value on the disposal of investments
Unrealised proﬁts/(losses) on the revaluation of investments
Portfolio income
Dividends
Interest income from investment portfolio
Fees receivable/(payable)

Foreign exchange on investments
Gross investment return

Fees receivable from external funds
Operating expenses2
Interest receivable
Interest payable
Exchange movements
Operating proﬁt before carry

Carried interest

Carried interest and performance fees receivable
Carried interest and performance fees payable

Acquisition related earn-out charges
Operating proﬁt

Income taxes
Other comprehensive income

Re-measurements of deﬁned beneﬁt plans

Total return

Net divestment/(investment)
Realisations3
Cash investment4

Balance sheet
Opening portfolio value at 1 April 2015
Investment5
Value disposed 
Unrealised value movement
Other movement6
Closing portfolio value at 31 March 2016 

Private 
Equity
£m

Infrastructure
£m

69
690

18
59
7
168

1,011

13
(75)

58
(171)
–

743

(365)

378

3,148
464
(674)
690
113

3,741

3
22

21
–
–
1

47

28
(32)

20
(15)
–

51

–

51

553
–
(48)
22
–

527

Other1
£m

–
(22)

10
–
–
5

(7)

–
–

–
–
–

–

(68)

(68)

51
68
–
(22)
(5)

92

Total 
continuing 
operations
£m

Discontinued
operations1
£m

72
690

49
59
7
174

1,051

41
(107)
4
(47)
(31)

911

78
(186)
–

803

–

(6)

797

794

(433)

361

3,752
532
(722)
690
108

4,360

–
(21)

22
4
(1)
14

18

38
(27)
–
–
–

29

5
(2)
(5)

27

–

–

27

2

(20)

(18)

125
20
(2)
(21)
15

137

Total
£m

72
669

71
63
6
188

1,069

79
(134)
4
(47)
(31)

940

83
(188)
(5)

830

–

(6)

824

796

(453)

343

3,877
552
(724)
669
123

4,497

1  Discontinued operations comprise the Debt Management business sold to Investcorp on 3 March 2017. Operating expenses have been re-presented to reﬂect only direct expenses relating 

to Debt Management within discontinued operations. Other relates to the residual Debt Management investments retained by 3i. 

2  Includes restructuring costs of £5 million for Private Equity. 
3  £25 million in Private Equity relates to proceeds held back in the holding company of the investee company.
4  Includes £4 million of Debt Management investment awaiting settlement at 31 March 2016.
5  Includes capitalised interest and other non-cash investment.
6  Other movement relates to foreign exchange and the provisioning of capitalised interest. Within discontinued operations, £9 million relates to capital withdrawn from the Palace  

Street I portfolio.

3i Group Annual report and accounts 2017

113

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

1  Segmental analysis continued
Investment basis

Year to 31 March 2017

Gross investment return
Realised (losses)/proﬁts over value on the disposal of investments
Unrealised proﬁts/(losses) on the revaluation of investments
Portfolio income/(expense)
Foreign exchange on investments

Net divestment/(investment)
Realisations
Cash investment

UK
£m

(33)
160
34
1

162

239
(131)

108

Northern 
Europe
£m

North 
America
£m

Rest of  
World
£m

Total
£m

38
1,345
125
285

1,793

1,275
(689)

586

8
(10)
(1)
45

42

39
(1)

38

51
1,183
77
196

1,507

818
(488)

330

12
12
15
43

82

179
(69)

110

349

Balance sheet
Closing portfolio value at 31 March 2017

1,309

3,639

378

5,675

Investment basis

Year to 31 March 2016

Gross investment return
Realised proﬁts over value on the disposal of investments
Unrealised proﬁts/(losses) on the revaluation of investments
Portfolio income
Foreign exchange on investments

Net divestment/(investment)
Realisations
Cash investment

Balance sheet
Closing portfolio value at 31 March 2016

UK
£m

8
11
59
2

80

62
(121)

(59)

Northern 
Europe
£m

North 
America
£m

Rest of  
World
£m

49
707
66
175

997

586
(272)

314

4
(50)
12
11

(23)

96
(60)

36

11
1
3
–

15

52
–

52

Total
£m

72
669
140
188

1,069

796
(453)

343

1,240

2,498

385

374

4,497

114

3i Group Annual report and accounts 2017

 
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2  Realised proﬁts over value on the disposal of investments

Realisations
Valuation of disposed investments

Of which: 

– proﬁts recognised on realisations
– losses recognised on realisations

Realisations
Valuation of disposed investments

Of which: 

– proﬁts recognised on realisations
– losses recognised on realisations

2017
Unquoted
investments
£m

2017
Quoted
investments
£m

266
(292)

(26)

23
(49)

(26)

20
(19)

1

1
–

1

2016
Unquoted
investments1
£m

2016
Quoted
investments1
£m

176
(166)

10

12
(2)

10

60
(59)

1

2
(1)

1

1  Comparatives for the year ended 31 March 2016 have been re-presented to reﬂect the classiﬁcation of the Group’s Debt Management business which was sold on 3 March 2017 as 

discontinued operations. See Note 31.

3  Unrealised proﬁts on the revaluation of investments

Movement in the fair value of investments

Of which: 

– unrealised gains
– unrealised losses

Movement in the fair value of investments

Of which: 

– unrealised gains
– unrealised losses

2017
Unquoted
investments
£m

2017
Quoted
investments
£m

224

243
(19)

224

38

38
–

38

2016
Unquoted
investments1
£m

2016
Quoted
investments1
£m

94

155
(61)

94

20

20
–

20

1  Comparatives for the year ended 31 March 2016 have been re-presented to reﬂect the classiﬁcation of the Group’s Debt Management business which was sold on 3 March 2017 

as discontinued operations. See Note 31. 

2017
Total
£m

286
(311)

(25)

24
(49)

(25)

2016
Total1
£m

236
(225)

11

14
(3)

11

2017
Total
£m

262

281
(19)

262

2016
Total1
£m

114

175
(61)

114

3i Group Annual report and accounts 2017

115

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

4  Operating expenses
Operating expenses of £116 million (2016: £105 million) recognised in the IFRS Consolidated statement of comprehensive income 
include the following amounts:

Depreciation of property, plant and equipment
Audit fees
Staff costs (Note 5)
Restructuring and redundancy costs

2017
£m

2
2
78
2

Expenses incurred in the entities accounted for as investment entity subsidiaries were £1 million (2016: £2 million). 

5  Staff costs
The table below is prepared in accordance with Companies Act requirements, which is consistent with both the IFRS and the 
Investment basis.

Wages and salaries from continuing operations1

Social security costs from continuing operations
Share-based payment costs (Note 27) from continuing operations
Pension costs from continuing operations 
Staff costs from continuing operations

Wages and salaries from discontinued operations1
Social security costs from discontinued operations
Share-based payment costs (Note 27) from discontinued operations
Pension costs from discontinued operations
Staff costs from discontinued operations

Total staff costs

The average number of employees during the year was 281 (2016: 276).

2017
£m

57

10
7
4

78

9
1
–
–

10

88

20161
£m

1
2
66
5

20161
£m

48

8
7
3

66

13
2
1
1

17

83

Wages and salaries shown above include salaries paid in the year, bonuses and portfolio incentive schemes relating to the year ended 
31 March 2017. For continuing operations these costs are included in operating expenses. The amounts for discontinued operations 
are included in proﬁt for the year from discontinued operations as shown in Note 31. The table below analyses these costs between 
ﬁxed and variable elements.

Fixed staff costs from continuing operations
Variable staff costs from continuing operations2
Staff costs from continuing operations

Fixed staff costs from discontinued operations
Variable staff costs from discontinued operations2
Staff costs from discontinued operations

Total staff costs

2017
£m

20161
£m

37
41

78

4
6

10

88

34
32

66

7
10

17

83

More detail on this information is included in the Directors’ remuneration report on pages 77 to 94.

1  Comparatives for the year ended 31 March 2016 have been re-presented to reﬂect the classiﬁcation of the Group’s Debt Management business which was sold on 3 March 2017 

as discontinued operations. See Note 31.

2  Includes cash bonuses and cash settled share awards.

116

3i Group Annual report and accounts 2017

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6  Information regarding the Group’s Auditor
During the year the Group obtained the following services from its Auditor, Ernst & Young LLP. The table below is prepared  
in accordance with Companies Act requirements, which is consistent with both the IFRS and the Investment basis.

Audit services 
Statutory audit

– Company
– UK subsidiaries
– Overseas subsidiaries

Non-audit services
Other assurance services
Investment due diligence
Tax services (compliance and advisory services)

7  Income taxes

2017
£m

2016
£m

1.2
0.5
0.2

1.9

0.2
1.0
0.1

3.2

1.2
0.5
0.3

2.0

0.1
1.3
0.1

3.5

Accounting policy: 
Income taxes represent the sum of the tax currently payable, withholding taxes suffered and deferred tax. Tax is charged or 
credited in the Consolidated statement of comprehensive income, except where it relates to items charged or credited directly  
to equity, in which case the tax is also dealt within equity.

The tax currently payable is based on the taxable proﬁt for the year. This may differ from the proﬁt included in the Consolidated 
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.

To enable the tax charge to be based on the proﬁt for the year, deferred tax is provided in full on temporary timing differences, 
at the rates of tax expected to apply when these differences crystallise. Deferred tax assets are recognised only to the extent that 
it is probable that sufﬁcient taxable proﬁts will be available against which temporary differences can be set off. All deferred tax 
liabilities are offset against deferred tax assets, where appropriate, in accordance with the provisions of IAS 12.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer 
probable that sufﬁcient taxable proﬁts will be available to allow all or part of the asset to be recovered.

The main rate of UK corporation tax is to be reduced from 20% to 19% from 1 April 2017, and further to 17% from 1 April 2020.  
These changes will affect future UK corporate taxes payable and the rate at which deferred tax assets are expected to reverse.

Current taxes
Current year
Prior year
Deferred taxes
Deferred income taxes
Total income tax (credit)/charge in the Consolidated statement of comprehensive income

2017
£m

2016
£m

1
(4)

–

(3)

4
(1)

(1)

2

3i Group Annual report and accounts 2017

117

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

7  Income taxes continued

Reconciliation of income taxes in the Consolidated statement of comprehensive income
The tax charge for the year is different to the standard rate of corporation tax in the UK, currently 20% (2016: 20%), and the differences 
are explained below:

Proﬁt before tax 
Proﬁt before tax multiplied by rate of corporation tax in the UK of 20% (2016: 20%)
Effects of:

Non-taxable capital proﬁts due to UK approved investment trust company status
Non-taxable dividend income

Other differences between accounting and tax proﬁts:

Permanent differences – non-deductible items
Temporary differences on which deferred tax is not recognised
Overseas countries taxes
Excess unutilised tax losses arising in the period

Total income tax (credit)/charge in the Consolidated statement of comprehensive income

2017
£m

1,524
305

(309)
(6)

(10)

–
4
(3)
6

(3)

2016
£m

794
159

(165)
(5)

(11)

4
2
2
5

2

The affairs of the Group’s parent company are directed so as to allow it to meet the requisite conditions to continue to operate as an 
approved investment trust company for UK tax purposes. An approved investment trust company is a UK investment company which 
is required to meet certain conditions set out in the UK tax rules to obtain and maintain its tax status. This approval allows certain 
investment proﬁts of the Company, broadly its capital proﬁts, to be exempt from tax in the UK. Approved investment trust companies 
are particularly suited for investment vehicles as their tax status allows them to ensure that their shareholders do not suffer double 
taxation of their returns. 

Including a net tax charge of nil (2016: £2 million credit) in the fair valued entities, the Group recognised a total tax credit of £3 million 
(2016: nil) under the Investment basis. 

Deferred income taxes

Opening deferred income tax asset 
Tax losses
Income in accounts taxable in the future
Other

Recognised through Consolidated statement of comprehensive income
Tax losses recognised
Income in accounts taxable in the future
Other

Recognised within discontinued operations
Deferred tax asset transferred with discontinued operations

Closing deferred income tax asset
Tax losses
Income in accounts taxable in the future
Other

2017
£m

2016
£m

7
(7)
3

3

1
(1)
–

–

(3)

(3)

8
(8)
–

–

7
(7)
2

2

–
–
1

1

–

–

7
(7)
3

3

At 31 March 2017, the Group had carried forward tax losses of £1,390 million (31 March 2016: £1,375 million), capital losses of £93 million 
(31 March 2016: £88 million) and other temporary differences of £94 million (31 March 2016: £69 million). It is uncertain that the Group 
will generate sufﬁcient or relevant taxable proﬁts in the foreseeable 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 19% (2016: 19%).

118

3i Group Annual report and accounts 2017

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8  Per share information
The calculation of basic earnings per share is based on the proﬁt attributable to shareholders and the number of basic average shares. 
When calculating the diluted earnings per share, the weighted average number of shares in issue is adjusted for the effect of all 
dilutive share options and awards.

As at 31 March

Earnings per share (pence)
Basic earnings per share
– of which from continuing operations
– of which from discontinued operations

Diluted earnings per share
– of which from continuing operations
– of which from discontinued operations

Earnings (£m)
Proﬁt for the year attributable to equity holders of the Company
– of which from continuing operations
– of which from discontinued operations

2017

20161

169.2
159.0
10.2

168.4
158.3
10.1

1,625
1,527
98

85.6
83.0
2.6

85.2
82.6
2.6

817
792
25

1  Comparatives for the year ended 31 March 2016 have been re-presented to reﬂect the classiﬁcation of the Group’s Debt Management business which was sold on 3 March 2017  

as discontinued operations. See Note 31.

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

2017

2016

972,734,609
(12,580,145)

972,569,633
(18,427,460)

960,154,464

954,142,173

4,710,808

4,735,616

964,865,272

958,877,789

2017

6.07
6.04

2016

4.66
4.63

5,836

4,455

Basic NAV per share is calculated on 961,458,801 shares in issue at 31 March 2017 (31 March 2016: 956,417,466). Diluted NAV per share is 
calculated on diluted shares of 966,553,549 at 31 March 2017 (31 March 2016: 961,323,047).

9  Dividends

Declared and paid during the year
Ordinary shares
Final dividend
Interim dividend

Proposed ﬁnal dividend

2017
pence per 
share

2017
£m

2016
pence per 
share

16.0
8.0

24.0

18.5

154
76

230

178

14.0
6.0

20.0

16.0

2016
£m

133
57

190

154

The Group’s dividend policy was updated in May 2016. The Group will pay a base dividend of 16 pence per share and an additional 
ﬁnal dividend which is based on cash realisations, the investment pipeline and the balance sheet at year end. The Group will only pay 
an additional ﬁnal dividend if gross debt is less than £1 billion and gearing is less than 20%, to maintain its conservative approach.

3i Group Annual report and accounts 2017

119

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

9  Dividends continued
The distribution policy covers the Group’s total annual dividend, which is split between a base dividend (16 pence per share) and 
an additional dividend. The dividend can be paid out of either the capital reserve or the revenue reserve subject to the investment 
trust rules which state that at least 85% of revenue must be distributed by the Company.

10 Investment portfolio

Accounting policy: 
Investments are recognised and de-recognised on the date when their purchase or sale is subject to a relevant contract and the 
associated risks and rewards have been transferred. 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 investments.

All investments are initially recognised at the fair value of the consideration given and are subsequently measured at fair value,  
in accordance with the Group’s valuation policies. 

Quoted investments are designated at fair value through proﬁt and loss and subsequently carried in the Consolidated statement 
of ﬁnancial position 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 investments, including both equity and loans are designated at fair value through proﬁt and loss and are subsequently 
carried in the Consolidated statement of ﬁnancial position at fair value. Fair value is determined in line with 3i’s valuation policy, 
which is compliant with the fair value guidelines under IFRS and the International Private Equity and Venture Capital (IPEV) Valuation 
Guidelines, details of which are available in “Portfolio valuation – an explanation” on pages 158 and 159.

Interest bearing loans accrue interest which is either settled in cash or capitalised on a regular basis and included as part of the 
principal loan balance. The capitalisation of accrued interest is treated as part of investment additions during the year. If the fair 
value of an investment is assessed to be below the principal value of the loan the Group recognises a fair value reduction against 
any interest income accrued from the date of the assessment going forward. “Capitalisation at nil value” is the term used to 
describe the capitalisation of accrued interest which has been fully provided for. These transactions are disclosed as additions 
to portfolio cost with an equal reduction made where loan notes have nil value.

In accordance with IFRS 10, the proportion of the investment portfolio held by the Group’s unconsolidated subsidiaries is presented as 
part of the fair value of investment entity subsidiaries, along with the fair value of their other assets and liabilities. A reconciliation of the 
fair value of Investments in investment entities is included in Note 11.

Opening book value
Additions from continuing operations
– of which loan notes with nil value
Additions from discontinued operations
Disposals, repayments and write-offs from continuing operations
Disposals, repayments and write-offs from discontinued operations
Fair value movement from continuing operations1
Fair value movement from discontinued operations
Other movements and net cash movements from continuing operations
Other movements and net cash movements from discontinued operations
Closing book value

Quoted investments
Unquoted investments
Closing book value

Group
2017
£m

1,540
291
(10)
70
(311)
(191)
262
3
71
(19)

1,706

390
1,316

1,706

Group
2016
£m

Company
2017
£m

Company
2016
£m

1,671
 164
(13)
–
(225)
–
92
–
(149)
–

1,540

297
1,243

1,540

1,400
306
(10)
18
(307)
(24)
256
–
65
(19)

1,685

390
1,295

1,685

1,416
95
(13)
–
(224)
–
119
–
7
–

1,400

297
1,103

1,400

1  All fair value movements relate to assets held at the end of the period.

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 from continuing operations include £11 million (2016: £35 million) in capitalised interest received by way of loan 
notes, of which £10 million (2016: £13 million) has been written down in the period to nil, as well as cash advanced to Debt 
Management warehouses. 

120

3i Group Annual report and accounts 2017

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10 Investment portfolio continued
Included within the Consolidated statement of comprehensive income is £10 million (31 March 2016: £22 million) of interest income 
which reﬂects the net additions after write downs noted above, £4 million (31 March 2016: £1 million) of cash income and the 
capitalisation of prior year accrued income and non-capitalised accrued income is £5 million (31 March 2016: £(1) million). 

The proﬁt from discontinued operations includes interest income of £3 million (2016: £4 million).

Other movements and net cash movements include the effects of foreign exchange and £19 million which relates to cash returned 
(2016: £38 million) from Debt Management warehouses.

Quoted investments are classiﬁed as Level 1 in the fair value hierarchy and unquoted investments are classiﬁed as Level 3 in the fair 
value hierarchy, see Note 12 for details.

11 Investments in investment entity subsidiaries

Accounting policy: 
Investments in investment entity subsidiaries are accounted for as ﬁnancial instruments at fair value through proﬁt and loss.

These entities are typically limited partnerships and other intermediate investment holding structures which hold the Group’s 
interests in investments in portfolio companies (Investment Entity Holding Companies). The fair value can increase or reduce 
from either cash ﬂows to/from the investment entities or valuation movements in line with the Group’s valuation policy. 

Substantially all of these entities meet the deﬁnition of a Fund under the IPEV guidelines and the fair value and unit of account of 
these entities is their net asset values. There were no adjustments to the subsidiaries’ net asset values in the year. 

We determine that in the ordinary course of business, the net asset values of an investment entity subsidiary are considered to be 
the most appropriate to determine fair value. At each reporting period, we consider whether any additional fair value adjustments 
need to be made to the net asset values of the investment entity subsidiaries. These adjustments may be required to reﬂect market 
participants’ considerations about fair value that may include, but are not limited to, liquidity and the portfolio effect of holding 
multiple investments within the investment entity subsidiary. There was no particular circumstance to indicate that a fair value 
adjustment was required and after due consideration we concluded that the net asset values were the most appropriate reﬂection 
of fair value at 31 March 2017.

Non-current

Opening fair value
Net cash ﬂow from investment entities
Fair value movements on investment entity subsidiaries
Transfer of assets to investment entity subsidiaries
Closing fair value

Group
2017
£m

2,680
(246)
1,041
8

3,483

Group
2016
£m

2,079
(206)
591
216

2,680

All investment entities are classiﬁed as Level 3 in the fair value hierarchy, see Note 12 for details.

A 5% movement in the closing book value of investments in investment entities would have an impact of £174 million (31 March 2016:  
£134 million). 

Restrictions
3i Group plc, the ultimate parent company, receives dividend income from its subsidiaries. There are no restrictions on the ability 
to transfer funds from these subsidiaries to the Group except for a cash balance of £56 million held on escrow in an investment entity 
subsidiary for the carried interest payable. 

Support
3i Group plc continues to provide, where necessary, ongoing support to its investment entity subsidiaries for the purchase of portfolio 
investments. During the year, there were net cash ﬂows to the Group as noted in the table above. The Group’s current commitments 
are disclosed in Note 24.

3i Group Annual report and accounts 2017

121

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

12 Fair values of assets and liabilities

Accounting policy: 
Financial instruments, other than those held at amortised cost, are held at fair value and are designated irrevocably at inception. 
In particular, 3i designates groups of ﬁnancial instruments as being at fair value when they are managed, and their performance 
evaluated, on a fair value basis in accordance with a documented risk management or investment strategy, and where information 
about the groups of ﬁnancial instruments is reported to management on that basis.

(A) Classiﬁcation
The following tables analyse the Group’s assets and liabilities in accordance with the categories of ﬁnancial instruments in IAS 39:

At 31 March

Assets
Quoted investments
Unquoted investments
Investments in investment entities 
Other ﬁnancial assets
Total

Liabilities 
Loans and borrowings 
Other ﬁnancial liabilities 
Total

At 31 March

Assets
Quoted investments
Unquoted investments
Other ﬁnancial assets
Total

Liabilities 
Loans and borrowings 
Other ﬁnancial liabilities 
Total

Group
2017
Designated
at fair value
through
proﬁt and
loss
£m

Group
2017
Other
ﬁnancial
instruments
at amortised
cost
£m

390
1,316
3,483
–

5,189

–
–

–

–
–
–
425

425

575
274

849

Company
2017
Designated
at fair value
through
proﬁt and
loss
£m

Company
2017
Other
ﬁnancial
instruments
at amortised
cost
£m

390
1,295
–

1,685

–
–

–

–
–
384

384

575
522

1,097

Group
2016
Designated
at fair value
through
proﬁt and
loss
£m

Group
2016
Other
ﬁnancial
instruments
at amortised
cost
£m

297
1,243
2,680
–

4,220

–
–

–

–
–
–
185

185

837
232

1,069

Company
2016
Designated
at fair value
through
proﬁt and
loss
£m

Company
2016
Other
ﬁnancial
instruments
at amortised
cost
£m

297
1,103
–

1,400

–
–

–

–
–
113

113

837
419

1,256

Group
2017
Total
£m

390
1,316
3,483
425

5,614

575
274

849

Company
2017
Total
£m

390
1,295
384

2,069

575
522

1,097

Group
2016
Total
£m

297
1,243
2,680
185

4,405

837
232

1,069

Company
2016
Total
£m

297
1,103
113

1,513

837
419

1,256

Within the Company £3,483 million (31 March 2016: £2,680 million) of the Interest in Group entities is held at fair value.

(B) Valuation
The fair values of the Group’s ﬁnancial assets and liabilities are not materially different from their carrying values with the exception 
of loans and borrowings. The fair value of the loans and borrowings is £741 million (31 March 2016: £967 million), determined with 
reference to their published market prices. The carrying value of the loans and borrowings is £575 million (31 March 2016: £837 million).

122

3i Group Annual report and accounts 2017

 
 
 
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12 Fair values of assets and liabilities continued

Valuation 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
Fixed rate loan notes

Unquoted equity instruments and loan instruments

Unquoted equity instruments and debt instruments are measured in accordance with the IPEV Guidelines with reference to the 
most appropriate information available at the time of measurement. Further information regarding the valuation of unquoted equity 
instruments and debt instruments can be found in the section Portfolio valuation – an explanation on pages 158 and 159.

The tables below show the classiﬁcation of ﬁnancial instruments held at fair value into the valuation hierarchy at 31 March 2017:

Assets 
Quoted investments
Unquoted investments
Investment in investment entity subsidiaries
Total

Group
2017
Level 1
£m

Group
2017
Level 2
£m

390
–
–

390

–
–
–

–

Group
2017
Level 3
£m

–
1,316
3,483

4,799

Group
2017
Total
£m

390
1,316
3,483

5,189

Group
2016
Level 1
£m

Group
2016
Level 2
£m

297
–
–

297

–
–
–

–

Group
2016
Level 3
£m

–
1,243
2,680

3,923

Group
2016
Total
£m

297
1,243
2,680

4,220

The above disclosure only relates to the investment portfolio and the investments in our investment entity subsidiaries. We determine 
that in the ordinary course of business, the net asset values of an investment entity subsidiary are considered to be the most 
appropriate to determine fair value. The underlying portfolio is valued under the same methodology as directly held investments,  
with any other assets or liabilities within investment entity subsidiaries fair valued in accordance with the Group’s accounting policies. 
Note 11 details the Directors’ considerations about the fair value of the underlying investment entity subsidiaries.

Movements in the directly held investment portfolio categorised as Level 3 during the year:

Opening book value
Additions from continuing operations
– of which loan notes with nil value
Additions from discontinued operations
Disposals, repayments and write-offs from continuing operations
Disposals, repayments and write-offs from discontinued operations 
Fair value movement from continuing operations1
Fair value movement from discontinued operations
Other movements and net cash movements from continuing operations
Other movements and net cash movements from discontinued operations
Closing book value

1  All fair value movements relate to assets held at the end of the period. 

Group
2017
£m

1,243
213
(10)
70
(292)
(191)
224
3
75
(19)

1,316

Group
2016
£m

Company
2017
£m

Company
2016
£m

1,272
164
(13)
–
(166)
–
72
–
(86)
–

1,243

1,103
228
(10)
18
(288)
(24)
218
–
69
(19)

1,295

1,082
95
(13)
–
(165)
–
98
–
6
–

1,103

3i Group Annual report and accounts 2017

123

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

12 Fair values of assets and liabilities continued
Other movements include the effects of foreign exchange.

On a continuing basis, unquoted investments valued using Level 3 inputs also had the following impact on the Consolidated statement 
of comprehensive income: realised losses over value on disposal of investment of £26 million (2016: £10 million (realised proﬁt)), 
dividend income of £24 million (2016: £46 million) and foreign exchange gains of £63 million (2016: £40 million). 

Level 3 inputs are sensitive to assumptions made when ascertaining fair value as described in the Portfolio valuation – an explanation 
section. On an IFRS basis, of assets held at 31 March 2017, classiﬁed as Level 3, 33% (31 March 2016: 28%) were valued using a multiple 
of earnings and the remaining 67% (31 March 2016: 72%) were valued using alternative valuation methodologies. 

Assets move between Level 1 and Level 3 primarily due to an increase or decrease in observable market activity related to an input 
which is primarily when an unquoted equity investment lists on a quoted market exchange.

Valuation multiple – The valuation multiple is the main assumption applied to a multiple of earnings based valuation. The multiple is 
derived from comparable listed companies or relevant market transaction multiples. Companies in the same industry and geography 
and, where possible, with a similar business model and proﬁle are selected and then adjusted for factors including liquidity risk, growth 
potential and relative performance. They are also adjusted to represent our longer term view of performance through the cycle or 
our exit assumptions. The value weighted average earnings multiple used when valuing the portfolio at 31 March 2017 was 10.23x 
(2016: 9.83x). 

If the multiple used to value each unquoted investment valued on an earnings multiple basis as at 31 March 2017 decreased by 5%, the 
investment portfolio would decrease by £18 million (31 March 2016: £19 million) or 1% (31 March 2016: 1%). If the same sensitivity was 
applied to the underlying portfolio held by investment entities, this would have a negative impact of £224 million (31 March 2016: £173 
million) or 6% (31 March 2016: 6%). 

If the multiple increased by 5% then the investment portfolio would increase by £16 million (31 March 2016: £19 million) or 1% (31 March 
2016: 1%). If the same sensitivity was applied to the underlying portfolio held by investment entities, this would have a positive impact 
of £215 million (31 March 2016: £172 million) or 5% (31 March 2016: 6%).

Alternative valuation methodologies – There are a number of alternative investment valuation methodologies used by the Group, 
for reasons speciﬁc to individual assets. The details of such valuation methodologies, and the inputs that are used, are given in the 
Portfolio valuation – an explanation section on pages 158 and 159. 

Each methodology is used for a proportion of assets by value, and at year end the following techniques were used under an IFRS basis: 
41% DCF (31 March 2016: 30%), 4% broker quotes (31 March 2016: 18%), 2% imminent sale (31 March 2016: 11%), 10% industry metric  
(31 March 2016: 10%) and 10% other (31 March 2016: 3%). 

If the value of all of the investments valued under alternative methodologies moved by 5%, this would have an impact on the 
investment portfolio of £44 million (31 March 2016: £45 million) or 3% (31 March 2016: 3%). If the same sensitivity was applied to the 
underlying portfolio held by investment entities, this would have an impact of £7 million (31 March 2016: £9 million) or 0.2% (31 March 
2016: 0.3%). 

124

3i Group Annual report and accounts 2017

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13 Carried interest and performance fees

Accounting policy:

Carried interest and performance fees receivable
The Group earns a share of proﬁts (“carried interest and performance fees receivable”) from funds which it manages on behalf  
of third parties. These proﬁts are earned when the funds meet certain performance conditions.
Carried interest and performance fees receivable include amounts receivable from Private Equity and Infrastructure. Each scheme 
is separately reviewed at the balance sheet date, and an accrual for carried interest receivable is made once the performance 
conditions would be achieved if the remaining assets in that fund were realised at fair value. 
Fair value of the assets 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.
The performance fee receivable from 3iN is based on 3iN’s most recently published NAV subject to a performance hurdle and  
a high water mark. 

Carried interest and performance fees payable
The Group offers investment executives the opportunity to participate in the returns from investments subject to certain 
performance conditions. “Carried interest and performance fees payable” is the term used for amounts payable to executives 
on these 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 plans. 
Carried interest payable is accrued if its performance conditions, measured at the balance sheet date, would be achieved if the 
remaining assets in that plan 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 plan, discounted to reﬂect the likely actual cash payment date, which may 
be materially later than the time of the accrual.
The Infrastructure performance fee is accrued when the Group becomes contractually liable to make payments to the team. 
Under IFRS 10, where carried interest payable reduces the fair value of an investment entity subsidiary, that movement is recorded 
through “Fair value movements on investment entity subsidiaries”. At 31 March 2017, an additional £538 million of carried interest 
payable was recognised in the Consolidated statement of ﬁnancial position of these investment entity subsidiaries (31 March 
2016: £299 million). 

Opening carried interest and performance fees receivable 
Carried interest and performance fees receivable recognised in the Consolidated statement of comprehensive 
income during the year from continuing operations 
Carried interest and performance fees receivable recognised in the Consolidated statement of comprehensive 
income during the year from discontinued operations 
Cash received in the year from continuing operations 
Cash received in the year from discontinued operations
Carried interest receivable transferred with discontinued operations
Other movements
Closing carried interest and performance fees receivable 
Of which: receivable in greater than one year

Opening carried interest and performance fees payable
Carried interest and performance fees payable recognised in the Consolidated statement of comprehensive income 
during the year from continuing operations1
Carried interest and performance fees payable recognised in the Consolidated statement of comprehensive income 
during the year from discontinued operations
Cash paid in the year from continuing operations
Cash paid in the year from discontinued operations
Carried interest payable transferred with discontinued operations
Other movements
Closing carried interest and performance fees payable
Of which: payable in greater than one year

Group
2017
£m
117

Group
2016
£m
88

280

1
(35)
(4)
(5)
9
363
354

78

–
(52)
–
–
3
117
89

Group
2017
£m
105

Group
2016
£m
85

98

–
(25)
(2)
(3)
(26)
147
124

31

–
(13)
–
–
2
105
85

1  The carry payable charge in the table above does not include £10 million (2016: £9 million) associated with the share-based payment charge arising from related carry schemes. The total 

carried interest and performance fee payable recognised in the Consolidated statement of comprehensive income is £108 million (2016: £38 million). See Note 27 “Share-based payments” 
for further details.

3i Group Annual report and accounts 2017

125

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

14 Intangible assets

Accounting policy:
Fund management contracts, such as those 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 any impairment losses.

Amortisation is charged to the Consolidated statement of comprehensive income, included in operating expenses,  
on a straight-line basis over the estimated useful life of the fund management contract, typically ﬁve to 10 years.

Goodwill is recognised on the acquisition of subsidiaries when the cost of acquisition exceeds the net assets acquired. Goodwill 
is carried at cost less any accumulated impairment, and is assessed annually for impairment.

Fund management contracts

Opening cost
Disposal of discontinued operations
Closing cost

Opening accumulated amortisation
Charge for the year within discontinued operations
Disposal of discontinued operations
Closing accumulated amortisation

Net book amount

Goodwill

Opening value
Disposal of discontinued operations
Closing value

Total intangible assets

15 Other assets

Group
2017
£m

Group
2016
£m

33
(33)

–

30
3
(33)

–

–

33
–

33

23
7
–

30

3

Group
2017
£m

Group
2016
£m

9
(9)

–

–

9
–

9

12

Accounting policy: 
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 Consolidated statement of comprehensive income.

Prepayments
Other debtors
Amounts due from subsidiaries 
Total other assets

Of which: receivable in greater than one year

Group
2017
£m

Group
2016
£m

Company
2017
£m

Company
2016
£m

2
60
–

62

50

2
66
–

68

37

–
24
1

25

21

–
22
4

26

17

At 31 March 2017, there were no amounts that were past due or impaired for Group or Company (31 March 2016: nil for Group 
and Company).

126

3i Group Annual report and accounts 2017

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16 Loans and borrowings

Accounting policy: 
All loans and borrowings are initially recognised at the fair value of the consideration received. 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. Financial liabilities are derecognised when they are extinguished.

Loans and borrowings are repayable as follows:
Within one year
Between the second and ﬁfth year
After ﬁve years

Principal borrowings include:

Group
2017
£m

Group
2016
£m

–
–
575

575

262
–
575

837

Rate

Maturity

Group
2017
£m

Group
2016
£m

Company
2017
£m

Company
2016
£m

Issued under the £2,000 million note issuance programme
Fixed rate
€331 million notes (public issue)
£200 million notes (public issue)
£375 million notes (public issue)

5.625%
6.875%
5.750%

2017
2023
2032

Committed multi-currency facilities 
£329 million

Total loans and borrowings

LIBOR+0.60%

 2021

–
200
375

575

–

–

575

262
200
375

837 

–

–

837

–
200
375

575

–

–

575

262
200
375

837 

–

–

837

The maturity of the Company’s £329 million (31 March 2016: £350 million) syndicated multi-currency facility was extended by one year 
to September 2021 in the current ﬁnancial year, following an agreement with all but one of the participating banks. The £329 million 
facility has no ﬁnancial covenants. 

During the year, the €331 million outstanding of the Company’s €350 million ﬁxed rate notes were repaid in full.

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 £741 million (31 March 2016: £967 million), determined with reference to their published 
market prices. The loans and borrowings are included in Level 2 of the fair value hierarchy.

In accordance with the FCA Handbook (FUNDS 3.2.2. R and Fund 3.2.6. R), 3i Investments plc, as AIFM of the Company is required  
to calculate leverage in accordance with a set formula and disclose this to investors. In line with the relevant requirements, leverage  
for the Group is 115% (31 March 2016: 116%) and the Company is 107% (31 March 2016: 119%) under both the gross method and 
commitment method. The leverage for 3i Investments plc is 100% (31 March 2016: 100%) under both the gross method and the 
commitment method.

Under the Securities Financing Transactions Regulation (“SFTR”) and AIFMD, 3i is required to disclose certain information relating 
to the use of securities ﬁnancing transactions (“SFTs”) and total return swaps. At 31 March 2017, 3i was not party to any transactions 
involving SFTs or total return swaps.

3i Group Annual report and accounts 2017

127

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

17 Provisions

Accounting policy:
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 Consolidated statement 
of comprehensive income for the period.

Opening balance
Charge for the year
Utilised in the year
Closing balance

Of which: payable in greater than one year

Opening balance
Charge for the year
Utilised in the year
Closing balance

Of which: payable in greater than one year

Group
2017
Property
£m

Group
2017
Redundancy
£m

Group
2017
Restructuring
£m

Group
2017
Total
£m

2
1
–

3

2

5
2
(4)

3

–

1
–
(1)

–

–

8
3
(5)

6

2

Group
2016
Property
£m

Group
2016
Redundancy
£m

Group
2016
Restructuring
£m

Group
2016
Total
£m

4
–
(2)

2

1

1
5
(1)

5

–

3
–
(2)

1

–

8
5
(5)

8

1

The provision for redundancy relates to staff reductions communicated prior to 31 March 2017. 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 three years. The property provision also includes an 
estimate of the costs required to restore leased property to its original condition at the end of the lease term.

18 Trade and other payables

Accounting policy:
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.

Amounts due to subsidiaries
Trade and other payables
Total trade and other payables

Of which: payable in greater than one year

Group
2017
£m

–
127

127

24

Group
2016
£m

Company
2017
£m

Company
2016
£m

–
126

126

27

477
29

506

–

408
9

417

–

128

3i Group Annual report and accounts 2017

 
19 Issued capital

Accounting policy: 
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.

Issued and fully paid
Ordinary shares of 7319⁄22p
Opening balance
Issued on exercise of share options and under employee share plans
Closing balance

2017
Number

2017
£m

2016
Number

972,661,444
146,980

972,808,424

719
–

719

972,453,819
207,625

972,661,444

2016
£m

719
–

719

The Company issued 146,980 ordinary shares to the Trustee of the 3i Group Share Incentive Plan for a total cash consideration of 
£919,720 at various prices from 483.30 pence to 726.17 pence per share (being the market prices on the issue dates which were the last 
trading day of each month in the year). These shares were ordinary shares with no additional rights attached to them and had a total 
nominal value of £108,565.

20 Own shares

Accounting policy:
Own shares are recorded by the Group when ordinary shares are acquired by the Company or by The 3i Group Employee Beneﬁt 
Trust. Own shares are deducted from shareholders’ equity. A transfer is made to retained earnings at their weighted average cost 
in line with the vesting of own shares held for the purposes of share-based payments. The number of own shares held by the Trust 
and the schemes are described in Note 27.

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Opening cost
Awards granted and exercised
Closing cost

2017
£m

54
(16)

38

2016
£m

79
(25)

54

21 Capital structure
The capital structure of the Group consists of net debt, including cash held on deposit, long-term borrowings and shareholders’ 
equity. The type and maturity of the Group’s borrowings are analysed further in Note 16. Capital is managed with the objective 
of maximising long-term return to shareholders, whilst maintaining a capital base to allow the Group to operate effectively in the 
marketplace and sustain the future development of the business.

Cash and deposits
Borrowings and derivative ﬁnancial liabilities
Net cash1
Total equity
Gearing (net debt/total equity)

Group
2017
£m

971
(575)

396
5,836
nil

Group
2016
£m

997
(837)

160
4,455
nil

Company
2017
£m

Company
2016
£m

927
(575)

352
5,441
nil

897
(837)

60
4,002
nil

1  The above numbers have been prepared under IFRS and differ from the Investment basis as detailed in the Strategic report. 

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/regulatory obligations. No signiﬁcant constraints (apart from those shown  
in Note 11) have been identiﬁed 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 FCA. The last submission to the FCA demonstrated a signiﬁcant consolidated capital surplus in excess of the FCA’s prudential 
rules. The Group’s capital requirement is updated regularly 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 FCA and operates with a signiﬁcant regulatory capital surplus. The Group’s Pillar 3 disclosure document can be found  
on www.3i.com.

3i Group Annual report and accounts 2017

129

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Audited ﬁnancial statements

 Notes to the accounts

 continued

22 Interests in Group entities

Accounting policy: 
The Company has controlling equity interests in, and makes loans to, both consolidated and fair valued Group entities. Investment 
entities are all held at fair value and all other subsidiaries are held at cost less impairment in the Company’s accounts. The net assets 
of these entities are deemed to represent fair value. 

Opening book value
Additions
Share of proﬁts
Disposals and repayments
Fair value movements
Exchange movements
Closing book value

Opening book value
Additions
Share of proﬁts
Disposals and repayments
Fair value movements
Exchange movements
Closing book value

Company
2017
Equity 
investments
£m
1,240
93
–
(12)
818
–

Company
2017
Loans and 
receivables
£m
1,608
405
373
(1,139)
63
93

Company
2017
Total
£m
2,848
498
373
(1,151)
881
93

2,139

1,403

3,542

Company
2016
Equity 
investments
£m
951
14
–
(104)
379
–

Company
2016
Loans and 
receivables
£m
1,450
487
420
(449)
(401)
101

1,240

1,608

Company
2016
Total
£m
2,401
501
420
(553)
(22)
101

2,848

Details of signiﬁcant Group entities are given in Note 30.

23 Operating leases

Accounting policy:
The Group leases its ofﬁce space. Future minimum payments due under non-cancellable operating lease rentals are shown 
in the table below. The parent company held no operating leases during the year.

Leases as lessee

Less than one year
Between one and ﬁve years
More than ﬁve years

Group
2017
£m

7
19
13

39

Group
2016
£m

7
19
15

41

The Group leases a number of its ofﬁces under operating leases. None of the leases include contingent rentals.

During the year to 31 March 2017, £5 million (2016: £5 million) was recognised as an expense in the Consolidated statement 
of comprehensive income in respect of operating leases. There was no impact (2016: nil) on the Consolidated statement of 
comprehensive income in respect of subleases, as the difference between future lease and sublease obligations was already provided 
for in prior years (refer to Note 17). The total future sublease payments expected to be received under non-cancellable subleases are 
£3 million (2016: £4 million).

130

3i Group Annual report and accounts 2017

 
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24 Commitments

Accounting policy:
Commitments represent amounts the Group has contractually committed to pay third parties but do not yet represent a charge 
or asset. This gives an indication of committed future cash ﬂows. Commitments at the year end do not impact the Group’s ﬁnancial 
results for the year.

At 31 March 2017 the Group had commitments of £395 million (31 March 2016: £90 million) as follows:

Group
2017
due
within
1 year
£m

393

Company
2017
due
within
1 year
£m

190

Group
2017
due
between
2 and 5
years
£m

2

Company
2017
due
between
2 and 5
years
£m

Group
2017
due
over
5 years
£m

–

Group
2017
Total
£m

395

Group
2016
due
within
1 year
£m

90

Company
2017
due
over
5 years
£m

Company
2017
Total
£m

Company
2016
due
within
1 year
£m

Group
2016
due
between
2 and 5
years
£m

–

Company
2016
due
between
2 and 5
years
£m

Group
2016
due
over
5 years
£m

–

Group
2016
Total
£m

90

Company
2016
due
over
5 years
£m

Company
2016
Total
£m

2

–

192

68

–

–

68

Equity and loan investments

Equity and loan investments

The amounts shown above include £272 million and £109 million of estimated commitments made by the Group and Company 
respectively, to invest in two Private Equity companies. They also include £82 million of commitments made by the Group and 
Company for Infrastructure funds.

The Group and Company are contractually committed to these investments, however they were not completed prior to 31 March 2017. 
These commitments are due within one year and are subject to change prior to investment completion.

Operating lease commitments are detailed in Note 23.

25 Contingent liabilities

Accounting policy:
Contingent liabilities are potential liabilities where there is even greater uncertainty, which could include a dependency on events 
not within the Group’s control, but where there is a possible obligation. Contingent liabilities are only disclosed and not included 
within the Consolidated statement of ﬁnancial position.

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 
the assets held by this subsidiary at 31 March 2017 was £265 million (31 March 2016: £187 million) of which £53 million relates to the 
investment made as part of 3iN’s capital raise in June 2016.

At 31 March 2017, there was no material litigation outstanding against the Company or any of its subsidiary undertakings.

3i Group Annual report and accounts 2017

131

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

26 Retirement beneﬁts

Accounting policy:
Payments to deﬁned contribution retirement beneﬁt plans are charged to the Consolidated 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. Interest on the net deﬁned beneﬁt liability/asset, calculated using the 
discount rate used to measure the deﬁned beneﬁt obligation, is recognised in the Consolidated statement of comprehensive 
income. Re-measurement gains or losses are recognised in full as they arise in other comprehensive income.

A retirement beneﬁt deﬁcit is recognised in the Consolidated statement of ﬁnancial position 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 Consolidated statement of ﬁnancial position 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.

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 these beneﬁts.

The total expense recognised in the Consolidated statement of comprehensive income is £3 million (2016: £3 million), which represents 
the contributions paid to these deﬁned contribution plans. There were no outstanding payments due to these plans at the balance 
sheet date.

(ii) Deﬁned beneﬁt plans
The Group operates a ﬁnal salary deﬁned beneﬁt plan for qualifying employees of its subsidiaries in the UK (“the Plan”). The Plan 
is approved by HMRC for tax purposes and is operated separately from the Group and managed by an independent set of Trustees, 
whose appointment and powers are determined by the Plan’s documentation.

Membership of 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 is 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 Trustees are 
responsible for managing and investing the Plan’s assets and for monitoring the Plan’s funding position. As the Plan is now closed  
to future accrual, measures have been taken to de-risk the Plan through changes to its investment policy. 

The valuation of the Plan has been updated on an IAS 19 basis by an independent qualiﬁed actuary as at 31 March 2017.

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 their 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 £1 million (31 March 2016: £1 million) and the future liability calculated by German and Spanish actuaries 
is £23 million (2016: £21 million). The amounts recognised in the Consolidated statement of comprehensive income for the year and 
other comprehensive income for these schemes are a £1 million expense (2016: £1 million expense) and a nil gain (2016: £2 million 
gain), respectively.

132

3i Group Annual report and accounts 2017

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26 Retirement beneﬁts continued
The amount recognised in the Consolidated statement of ﬁnancial position in respect of the Group’s deﬁned beneﬁt plans 
is 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

2017
£m

869
(1,055)
65
(121)
22

2016
£m

789
(992)
71
(132)
20

A retirement beneﬁt surplus is recognised in respect of the Plan on the basis that the Group is entitled to a refund of any remaining 
surplus once all beneﬁts have been settled in the expected course. The asset restriction relates to tax that would be deducted at 
source in respect of a refund of the Plan surplus. 

The amounts recognised in the Consolidated statement of comprehensive income in respect of the Plan are as follows:

Included in interest payable 
Interest income on net deﬁned beneﬁt asset
Included in other income
Reduction in past service cost
Included in other comprehensive income
Re-measurement loss
Asset restriction
Total re-measurement loss and asset restriction

Total

2017
£m

2016
£m

(3)

(6)

30
(8)

22

13

(3)

–

12
(4)

8

5

The total re-measurement loss recognised in other comprehensive income is £22 million (2016: £6 million loss). There were no gains 
on our overseas schemes (2016: £2 million loss), as noted above.

Changes in the present value of the deﬁned beneﬁt obligation were as follows:

Opening deﬁned beneﬁt obligation
Interest on Plan liabilities
Re-measurement loss/(gain):

– loss from change in demographic assumptions
– loss/(gain) from change in ﬁnancial assumptions
– experience gains

Beneﬁts paid
Reduction in past service costs
Closing deﬁned beneﬁt obligation

Changes in the fair value of the Plan assets were as follows:

Opening fair value of the Plan assets
Interest on Plan assets
Actual return on Plan assets less interest on Plan assets
Employer contributions
Beneﬁts paid
Closing fair value of the Plan assets

2017
£m

789
26

–
210
(31)
(119)
(6)

869

2017
£m

992
32
149
1
(119)

1,055

2016
£m

846
27

8
(16)
(5)
(71)
–

789

2016
£m

1,055
32
(25)
1
(71)

992

3i Group Annual report and accounts 2017

133

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

26 Retirement beneﬁts continued
Contributions paid to the Plan are related party transactions as deﬁned by IAS 24 Related party transactions.

The fair value of the Plan’s assets at the balance sheet date is as follows:

Equities
Corporate bonds
Gilts
Annuity contract
Other

2017
£m

237
150
474
182
12

1,055

2016
£m

204
174
594
–
20

992

The Plan’s assets are predominantly invested with Legal and General Investment Management in quoted and liquid funds. The 
annuity contract is provided by Pension Insurance Corporation as a result of a buy-in transaction completed by the 3i Pension Plan 
Trustees during the year. The buy-in, which is a bulk annuity purchase, reduces member longevity risk for those pensioners covered 
while improving investment returns over the assets used to fund the purchase. This contract provides an exact match for the member 
beneﬁts insured and covers two in ﬁve pensioners. The fair value of the insurance policy is calculated using the same assumptions and 
methodology as used to calculate the value of the pension liability as at 31 March 2017. 

The Plan’s assets do not include any of the Group’s own equity instruments nor any property in use by the Group.

Changes in the asset restriction were as follows:

Opening asset restriction
Interest on asset restriction
Re-measurements
Closing asset restriction

2017
£m

71
2
(8)

65

2016
£m

73
2
(4)

71

The principal assumptions made by the actuaries and used for the purpose of the year end valuation of the Plan were as follows:

2017

2016

Discount rate
Expected rate of salary increases
Expected rate of pension increases
Retail Price Index (RPI) inﬂation
Consumer Price Index (CPI) inﬂation

2.5%
5.8%

3.5%
5.7%
0% to 3.4% 3.2% to 3.4%
3.2%
2.2%

3.3%
2.3%

In addition, it is assumed that members exchange 25% of pension for lump sum at retirement on the conversion terms in place 
at 31 March 2017 with an allowance for the terms to increase in future. The duration of the Plan’s deﬁned beneﬁt obligation at the 
accounting date was around 22 years. 

The post-retirement mortality assumption used to value the beneﬁt obligation at 31 March 2017 is 80% of the S1NA Light tables 
allowing for improvements from 2003 in line with the CMI 2012 core projections with a long-term annual rate of improvement of 1.5% 
(unchanged from 31 March 2016). The life expectancy of a male member reaching age 60 in 2037 (31 March 2016: 2036) is projected 
to be 33.7 (31 March 2016: 33.6) years compared to 31.4 (31 March 2016: 31.3) years for someone reaching 60 in 2017.

134

3i Group Annual report and accounts 2017

 
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26 Retirement beneﬁts continued
The sensitivity of the deﬁned beneﬁt obligation to changes in the weighted principal assumptions is:

Discount rate
Retail Price Index (RPI) inﬂation
Life expectancy

Impact on retirement beneﬁt surplus

Change in assumption

2017

2016

Decrease by 0.1%
Increase by 0.1%
Increase by 1 year

Decrease by £10 million
Decrease by £7 million
Decrease by £13 million

Decrease by £10 million
Decrease by £7 million
Decrease by £15 million

The above sensitivity analysis is based on changing one assumption whilst all others remain constant. In practice this is unlikely to 
occur and changes in some of the assumptions may be correlated.

Through its deﬁned beneﬁt plan the Group is exposed to a number of risks, the most signiﬁcant of which are detailed below:

Asset volatility

Changes in bond yields

Inﬂation risk

A fall in the value of the Plan’s assets may reduce the value of the deﬁned beneﬁt surplus and could affect the future 
funding requirements. To reduce the volatility of the Plan’s assets, the Trustees have implemented an investment 
strategy that reduces the Plan’s equity holdings by switching them to bonds over time. The Plan’s assets are also 
diversiﬁed across different asset classes and during FY2017 it purchased an annuity contract that is an exact match  
for a proportion of the Plan’s liabilities.

A decrease in corporate bond yields will increase the Plan’s IAS 19 deﬁned beneﬁt obligation. However, the Plan holds 
a proportion of its assets in corporate bonds and so any increase in the deﬁned beneﬁt obligation would be partially 
offset by an increase in the value of the Plan’s assets.

The Plan’s deﬁned beneﬁt obligations are linked to inﬂation, and higher inﬂation will lead to higher liabilities. The 
majority of the Plan’s assets are either unaffected by or only loosely correlated with inﬂation, meaning that an increase 
in inﬂation could reduce or eliminate the deﬁned beneﬁt surplus.

Life expectancy

The Plan’s obligations are to provide beneﬁts for the life of the member, so increases in life expectancy will result in an 
increase in the Plan’s deﬁned beneﬁt obligation.

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 results of the triennial actuarial funding valuation as at 30 June 2013 showed that the Plan had an actuarial surplus of £1 million at 
30 June 2013 and as a result the Group was not required to make contributions to the Plan in respect of that valuation. The contingent 
asset arrangement entered into during FY2013, details of which are provided in Note 25, remains in place. The next triennial actuarial 
funding valuation exercise, based on the ﬁnancial position of the Plan as at 30 June 2016 commenced during FY2017. The exercise is 
required to be completed by 30 September 2017.

During the early part of FY2017 the Group ﬁnalised its programme, launched in the prior year, to offer the Plan’s members ﬂexibility 
in how they take their pension beneﬁts. 

3i Group Annual report and accounts 2017

135

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

27 Share-based payments

Accounting policy: 
The Group has equity-settled and cash-settled share-based payment transactions with certain employees. Equity-settled schemes 
are measured at fair value at the date of grant, which is then recognised in the Consolidated statement of comprehensive income 
over the period that employees provide services, generally the period between the start of performance period and the vesting 
date of the shares. The number of share awards expected to vest takes into account the likelihood that performance and services 
conditions included in the terms of the award will be met.

Fair value is measured by use of an appropriate model which takes into account the exercise price of the option (if any), the current 
share price, the risk-free interest rate, the expected volatility of the share price over the life of the option and any other relevant 
factors. 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 year. The movement in cumulative charges since the previous balance sheet is recognised  
in the Consolidated statement of comprehensive income, with a corresponding entry in equity.

Liabilities arising from cash-settled share-based payment transactions are recognised in the Consolidated statement of 
comprehensive income over the vesting period. They are fair valued at each reporting date. The cost of cash-settled share-based 
payment transactions is adjusted for the forfeitures of the participants’ rights that no longer meet the plan requirements as well 
as for early vesting.

Share-based payments are in certain circumstances made in lieu of annual cash bonuses or carried interest payments. The cost 
of the share-based payments is allocated either to operating expenses (bonuses) or carried interest depending on the original 
driver of the award. Executive Director Long-Term Incentives are allocated to operating expenses.

The total cost recognised in the Consolidated statement of comprehensive income is shown below:

Share awards included as operating expenses1,2
Share awards included as carried interest1
Cash-settled share awards included within discontinued operations
Cash-settled share awards3

2017
£m

11
7
2
5

25

2016
£m

10
5
–
4

19

1  Credited to equity.
2  For the year ended 31 March 2017, £7 million is shown in Note 5 (2016: £8 million) and is net of a £4 million release from the bonus accrual.
3  Recognised in operating expenses and/or carried interest.

The features of the Group’s share schemes for Executive Directors are described in the Report of the Board on Directors’ remuneration 
on pages 88 and 90. To ensure that employees’ interests are aligned with shareholders, a signiﬁcant amount of variable compensation 
paid to higher earning employees is deferred into shares that vest over a number of years. 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 2017 is £6 million (31 March 2016: £4 million). 

For the share-based awards granted during the year, the weighted average fair value of those options at 31 March 2017 was 436 pence 
(31 March 2016: 457 pence).

The main assumptions for the valuation of certain share-based awards with market conditions attached comprised:

Valuation methodology

Binomial and Monte Carlo models
Black Scholes

Share price
at issue

Exercise
price

Expected
volatility

548p
555p

–
–

26%
31%

Expected
option life
in years

3
0.5–4

Dividend
yield

Risk free
interest rate

–
4.0%

0.10%
1.08%

Expected volatility was determined by reviewing share price volatility for the expected life of each option up to the date of grant. 

136

3i Group Annual report and accounts 2017

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27 Share-based payments continued

Movements in share awards
The number of share-based awards outstanding are as follows:

Outstanding at the start of the year
Granted
Exercised
Lapsed

Outstanding at the end of year

Weighted average remaining contractual life of awards outstanding in years

Exercisable at the end of the year

The weighted average market price at the date of exercise was 574 pence (2016: 545 pence).

2017
Number

11,653,772
3,929,354
(5,360,537)
(108,714)

2016
Number

16,016,623
2,777,789
(6,744,192)
(396,448)

10,113,875

11,653,772

2.8

2.9

109,266

216,479

Holdings of 3i Group plc shares
The Group has established an employee beneﬁt trust and the total number of 3i Group plc shares held in this trust at 31 March 2017 
was 11 million (31 March 2016: 16 million). Dividend rights have been waived on these shares. The total market value of the shares held 
in trust based on the year end share price of 750 pence (31 March 2016: 456 pence) was £85 million (31 March 2016: £74 million).

28 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 on pages  
44 to 53. 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 an individual 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. 
The risk management processes of the Company are aligned with those of the Group and both the Group and the Company share  
the same ﬁnancial risks. 

Financial risks
Concentration risk
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. Although 3i does not set maximum limits for asset allocation, it does have 
a maximum exposure limit for the cost of new investments. This is detailed in the Investment policy on page 95 in the Corporate 
Governance section. Quantitative data regarding the concentration risk of the portfolio across geographies can be found in the 
Segmental analysis in Note 1 and in the 20 large investments table on pages 156 and 157.

Credit risk
The Group is subject to credit risk on its unquoted investments, derivatives, cash and deposits. The Group’s cash and deposits are 
held with a variety of counterparties with 85% of the Group’s surplus cash held on demand in AAA rated money market funds and 
4% held in deposit accounts with an initial notice period of greater than 90 days. The balance is held on short-term deposit with banks 
with a credit rating of A- or higher.

The credit quality of unquoted investments, which are held at fair value and include debt and equity elements, is based on the ﬁnancial 
performance of the individual portfolio companies. The credit risk relating to these assets is based on their enterprise value and is 
reﬂected through fair value movements. Further detail can be found in the Price risk – market ﬂuctuations disclosure in this Note and 
the sensitivity disclosure to changes in the valuation assumptions is provided in the valuation section of Note 12. 

Liquidity risk
The liquidity outlook is monitored monthly by management and regularly by the Board in the context of periodic strategic reviews 
of the balance sheet. The new investment pipeline and forecast realisations are closely monitored and assessed against our vintage 
control policy. These are noted in the risk mitigation section on pages 51 and 53 of the Risk section. The table on the next page 
analyses the maturity of the Group’s gross contractual liabilities.

3i Group Annual report and accounts 2017

137

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

28 Financial risk management continued

Financial liabilities

As at 31 March 2017

Gross commitments:
Fixed loan notes
Committed multi-currency facility
Carried interest and performance fees payable within one year
Trade and other payables
Total

Due
within
1 year
£m

35
1
23
103

162

Due
between
1 and 2
years
£m

Due
between
2 and 5
years
£m

Due
more than
over
5 years
£m

35
1
–
2

38

106
2
–
1

109

825
–
–
21

846

Total
£m

1,001
4
23
127

1,155

Gross commitments include principal amounts and interest and fees where relevant. Carried interest and performance fees 
payable greater than one year of £124 million (31 March 2016: £85 million) have no stated maturity as they result from investment 
related transactions and it is not possible to identify with certainty the timing of when the investments will be sold. Carried interest 
and performance fees payable greater than one year are shown after discounting which has an impact of £4 million (31 March 
2016: £6 million).

As at 31 March 2016

Gross commitments:
Fixed loan notes
Committed multi-currency facility
Carried interest and performance fees payable within one year
Acquisition related earn-out charges payable
Trade and other payables
Total

Due
within
1 year
£m

312
1
20
1
99

433

Due
between
1 and 2
years
£m

Due
between
2 and 5
years
£m

Due
more than
over
5 years
£m

35
1
–
–
–

36

106
2
–
–
–

108

861
–
–
–
27

888

Total
£m

1,314
4
20
1
126

1,465

Forward foreign exchange contracts
At 31 March 2017, there were no forward foreign exchange contracts in place (31 March 2016: none). 

The Company disclosures are the same as those for the Group with the following exceptions; carried interest and performance 
fees payable within one year is nil (31 March 2016: nil) and trade and other payables within one year is £506 million (31 March 
2016: £417 million).

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
On the liability side, the direct impact of a movement in interest rates is limited to any drawings under the committed multi-currency 
facility as the Group’s outstanding debt is ﬁxed rate. The sensitivities below arise principally from changes in interest receivable on 
cash and deposit. 

An increase of 100 basis points, based on the closing balance sheet position over a 12-month period, would lead to an 
approximate increase in total comprehensive income of £10 million (2016: £10 million increase) for the Group and £9 million income 
(2016: £9 million) for the Company. In addition, the Group and Company have indirect exposure to interest rates through changes 
to the ﬁnancial performance and valuation of portfolio companies and valuation of residual debt management investments caused 
by interest rate ﬂuctuations. 

(ii) Currency risk
The Group’s net assets in euro, US dollar, Danish krone, Indian rupee and all other currencies combined are shown in the table below. 
This sensitivity analysis is performed based on the sensitivity of the Group’s net assets to movements in foreign currency exchange 
rates assuming a 10% movement in exchange rates against sterling. The sensitivity of the Company to foreign exchange risk is not 
materially different from the Group.

138

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28 Financial risk management continued
The Group considers currency risk on speciﬁc investment and realisation transactions and has reduced hedging on a consolidated 
basis over time. Further information on how currency risk is managed is provided on page 33. 

As at 31 March 2017

Net assets
Sensitivity analysis
Assuming a 10% movement in exchange rates against sterling:

Sterling
£m

1,420

Euro
£m

3,373

US
dollar
£m

751

Danish
krone 
£m

147

Indian
rupee
£m

53

Other
£m

92

Total
£m

5,836

Impact on net assets 

n/a

337

75

15

5

9

441

As at 31 March 2016

Net assets
Sensitivity analysis
Assuming a 10% movement in exchange rates against sterling:

Sterling
£m

1,364

Euro
£m

2,169

US
dollar
£m

726

Impact on net assets 

n/a

217

73

Danish
krone 
£m

–

–

Indian
rupee
£m

53

Other
£m

143

Total
£m

4,455

5

14

309

(iii) Price risk – market ﬂuctuations
The Group’s management of price risk, which arises primarily from quoted and unquoted equity instruments, is through the careful 
consideration of the investment, asset management and divestment decisions at the Investment Committee. The Investment 
Committee’s role in risk management is discussed further in the Risk section. A 15% change in the fair value of those investments 
would have the following direct impact on the Consolidated statement of comprehensive income:

Group

At 31 March 2017
At 31 March 2016 

Company

At 31 March 2017
At 31 March 2016 

Quoted
investment
£m

Unquoted
investment
£m

Investment in 
investment 
entity 
subsidiaries 
£m

59
45

197
186

522
402

Quoted
investment
£m

Unquoted
investment
£m

59
45

194
165

Total
£m

778
633

Total
£m

253
210

3i Group Annual report and accounts 2017

139

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

29 Related parties and interests in other entities
The Group has various related parties stemming from relationships with limited partnerships managed by the Group, its investment 
portfolio (including unconsolidated subsidiaries), its advisory arrangements and its key management personnel. In addition, 
the Company has related parties in respect of its subsidiaries. Some of these subsidiaries are held at fair value (unconsolidated 
subsidiaries) due to the treatment prescribed in IFRS 10. 

Related parties
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
2017
£m

276
26

Group
2017
£m

356

Group
2016
£m

53
28

Group
2016
£m

87

Company
2017
£m

Company
2016
£m

276
–

53
–

Company
2017
£m

356

Company
2016
£m

87

Investments
The Group makes investments in the equity of unquoted and quoted investments where it does not have control but may be able 
to participate in the ﬁnancial and operating policies of that company. IFRS presumes that it is possible to exert signiﬁcant inﬂuence 
when the equity holding is greater than 20%. The Group has taken the investment entity exception as permitted by IFRS 10 and has 
not equity accounted for these investments, in accordance with IAS 28, but they are related parties. The total amounts included for 
investments where the Group has signiﬁcant inﬂuence but not control are as follows: 

Statement of comprehensive income

Realised proﬁt over value on the disposal of investments
Unrealised proﬁts on the revaluation of investments
Portfolio income 
Proﬁt for the year from discontinued operations

Statement of ﬁnancial position

Unquoted investments

Group
2017
£m

–
57
17
21

Group
2017
£m

429

Group
20161
£m

Company
2017
£m

Company
20161
£m

4
(21)
12
4

–
51
7
4

4
(13)
7
3

Group
2016
£m

480

Company
2017
£m

407

Company
2016
£m

341

1  Comparatives for the year ended 31 March 2016 have been re-presented to reﬂect the classiﬁcation of the Group’s Debt Management business which was sold on 3 March 2017 

as discontinued operations. See Note 31.

From time to time, transactions occur between related parties within the investment portfolio that the Group inﬂuences to facilitate 
the reorganisation or reﬁnancing of an investee company. These transactions are made on an arm’s length basis.

140

3i Group Annual report and accounts 2017

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29 Related parties and interests in other entities continued

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:

Statement of comprehensive income

Realised proﬁt over value on the disposal of investments
Unrealised proﬁts on the revaluation of investments
Fees receivable from external funds
Performance fees receivable
Dividends

Statement of ﬁnancial position

Quoted equity investments
Performance fees receivable

Group
2017
£m

Group
2016
£m

Company
2017
£m

Company
2016
£m

–
38
21
4
14

Group
2017
£m

390
4

2
20
12
20
12

–
38
–
–
14

2
20
–
–
12

Group
2016
£m

277
20

Company
2017
£m

Company
2016
£m

390
–

277
–

The Group participated in 3iN’s capital raise in June 2016 and invested £131 million at the offer price of 165 pence per share to maintain 
its 34% stake. £53 million of this is held by a wholly owned investment entity of the Group, as detailed in Note 25, with the balance held 
by the Company, 3i Group plc.

Subsidiaries
Transactions between the Company and its fully consolidated 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 £13 million (2016: £13 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 £89 million (2016: £69 million) for this service.

Key management personnel
The Group’s key management personnel comprise the members of the Executive Committee 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
Cash bonuses
Carried interest and performance fees payable
Share-based payments
Termination payments
Acquisition related earn-out charges

Statement of ﬁnancial position

Bonuses and share-based payments
Carried interest and performance fees payable within one year
Carried interest and performance fees payable after one year

Group
2017
£m

Group
2016
£m

5
4
43
12
1
–

Group
2017
£m

14
4
68

5
3
21
6
–
1

Group
2016
£m

16
12
33

No carried interest was paid or accrued for the Executive or non-executive Directors (2016: nil). Carried interest paid in the year 
to other key management personnel was £12 million (2016: £3 million). Acquisition related earn-out charges paid in the year to key 
management personnel was £1 million (2016: £19 million).

3i Group Annual report and accounts 2017

141

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

29 Related parties and interests in other entities continued

Unconsolidated structured entities
The application of IFRS 12 requires additional disclosure on the Group’s exposure to unconsolidated structured entities. 

The Group has exposure to a number of unconsolidated structured entities as a result of its investment activities across its Private 
Equity and Infrastructure business lines. These structured entities fall into two categories, namely CLOs and closed end limited 
partnerships (Private Equity and Infrastructure funds). 

The nature, purpose and activities of these entities are detailed below along with the nature of risks associated with these entities  
and the maximum exposure to loss. 

CLO structured entities
The Group used to manage CLO vehicles as part of its Debt Management business. These funds predominantly invested in senior 
secured loans and are ﬁnanced by investors seeking credit rated, structured, investment returns. 

The Group, as the then manager, invested into the equity tranche of these funds and has retained the stakes that were not sold to 
Investcorp. These positions are held at fair value.

The risk and maximum exposure to loss arising from the Group’s involvement with these entities are summarised below:

Balance sheet line item of asset or liability

Unquoted investments
Total 

Carrying amount

Assets
£m

Liabilities
£m

49

49

–

–

Maximum
loss exposure
£m

49

49

Net
£m

49

49

At 31 March 2016, the carrying amount of assets and maximum loss exposure of unquoted investments was £154 million. The carrying 
amount of liabilities was nil.

The Group earned distributions of £31 million (2016: £31 million) and fee income of £21 million (2016: £33 million) during the year from 
CLO structured entities. This includes continuing and discontinued operations.

Closed-end limited partnerships
The Group manages a number of closed-end limited partnerships, which are primarily Private Equity or Infrastructure focused, in 
return for a management fee. The purpose of these partnerships is to invest in Private Equity or Infrastructure investments for capital 
appreciation. Limited Partners, which in some cases may include the Group, ﬁnance these entities by committing capital to them and 
cash is drawn down or distributed for ﬁnancing investment activity. 

The Group’s attributable stakes in these entities are held at fair value, fees receivable are recognised on an accruals basis and carried 
interest is accrued when relevant performance hurdles are met. 

The risk and maximum exposure to loss arising from the Group’s involvement with these entities are summarised below:

Balance sheet line item of asset or liability

Carried interest receivable
Total 

Carrying amount

Assets
£m

356

356

Liabilities
£m

–

–

Maximum
loss exposure
£m

356

356

Net
£m

356

356

At 31 March 2016, the carrying amount of assets and maximum loss exposure of carried interest receivable was £87 million. 
The carrying amount of liabilities was nil.

At 31 March 2017, the total assets under management relating to these entities was £3.0 billion (31 March 2016: £2.7 billion). 
The Group earned fee income of £26 million (2016: £28 million) and carried interest of £276 million (2016: £53 million) in the year. 

142

3i Group Annual report and accounts 2017

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29 Related parties and interests in other entities continued

Regulatory information relating to fees
3i Investments plc acts as the AIFM of 3i Group plc. In performing the activities and functions of the AIFM, the AIFM or another 
3i company may pay or receive fees, commissions or non-monetary beneﬁts to or from third parties of the following nature:

Transaction fees: 3i companies receive monitoring and directors’ fees from portfolio companies. The amount is agreed with the 
portfolio company at the time of the investment but may be re-negotiated. Where applicable, 3i may also receive fees on the 
completion of transactions such as acquisitions, reﬁnancings or syndications either from the portfolio company or a co-investor. 
Transaction fees paid to 3i are included in portfolio income.

Payments for third-party services: 3i companies may retain the services of third-party consultants; for example for an independent 
director or other investment management specialist expertise. The amount paid varies in accordance with the nature of the service 
and the length of the service period and is usually, but not always, paid/reimbursed by the portfolio companies. The payment may 
involve a ﬂat fee, retainer or success fee. Such payments, where borne by 3i companies, are usually included in portfolio income. 

Payments for services from 3i companies: One 3i company may provide investment advisory services to another 3i company 
and receive payment for such services. 

30 Subsidiaries and related undertakings 
IFRS 10 deems control, as opposed to equity ownership, as the key factor when determining what meets the deﬁnition of a 
subsidiary. If a group is exposed to, or has rights to, variable returns from its involvement with the investee, then under IFRS 10 
it has control. This is inconsistent with the UK’s Companies Act 2006, where voting rights being greater than 50% is the key factor 
when identifying subsidiaries. 

Under IFRS 10, 30 of the Group’s portfolio company investments are considered to be accounting subsidiaries. As the Group applies 
the investment entity exception available under IFRS 10, these investee companies are classiﬁed as investment entity subsidiaries. 

The Companies Act 2006 requires disclosure of certain information about the Group’s related undertakings. Related undertakings are 
subsidiaries, joint ventures, associates and other signiﬁcant holdings. In this context, signiﬁcant means either a shareholding greater 
than or equal to 20% of the nominal value of any class of shares or a book value greater than 20% of the Group’s assets. 

The Company’s related undertakings at 31 March 2017 are listed below. 

Description
Subsidiaries

3i Holdings plc

3i Investments plc

3i plc

3i International Holdings

Investors in Industry plc

Mayﬂower GP Limited

3i Trustee Company Limited

3i Assets LLP

3i General Partner No 1 Limited

3i Corporation

3i DM US (SLF) LP

3i Deutschland Gesellschaft für Industriebeteiligungen mbH

Gardens Nominees Limited

Gardens Pension Trustees Limited

3i DM GIF 2015 GP Limited

3i DM Europe Limited

Palace Street 1 Limited

3i Europe plc

3i Nominees Limited

3i 96 Partners Nominees Limited

3i PVLP Nominees Limited

3i EF3 GPA Limited

3i EF3 GPB Limited

Holding/share class

Footnote

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares/
cumulative preference shares 

100% ordinary shares

100% ordinary shares

100% partnership interest

100% ordinary shares

100% ordinary shares

100% partnership interest

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

1

1

1

1

1

1

1

1

1

2

3

4

1

1

1

1

1

1

1

1

1

1

1

3i Group Annual report and accounts 2017

143

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

30 Subsidiaries and related undertakings continued

Description

3i European Operational Projects GP LLP

3i Group Investments LP

3i APTech Nominees Limited

3i APTech GP Limited

3i EF3 Nominees B Limited

3i EF3 Nominees A Limited

Mayﬂower LP

3i Osprey GP Limited

3i Investments GP Limited

3i IIF GP Limited

3i Nordic plc

3i GP 2004 Limited

3i Networks Finland Limited

3i Ademas LP

The 3i Group Employee Trust

3i International Services plc

3i EFIV Nominees Limited

3i EFV Nominees A Limited

3i EFV Nominees B Limited

3i Technology Corporation

3i India Private Limited

3i Sports Media (Mauritius) Limited

3i Asia Limited

3i EFV GP Limited

3i EF4 GP Limited

3i srl

3i Infraprojects (Mauritius) Limited

3i Research (Mauritius) Limited

IIF SLP GP Limited

3i Buyouts 2010 A LP

3i Buyouts 2010 B LP

3i Buyouts 2010 C LP

GP CCC 2010 Limited

3i GC GP Limited

3i GP 2010 Limited

3i Growth Capital A LP

3i Growth Capital G LP

3i Growth Capital (USA) D L.P.

3i Growth 2010 LP

3i Growth USA 2010 L.P.

3i Growth Capital (USA) P L.P.

3i GC Holdings Ref 2 s.a.r.l

Strategic Investments FM (Mauritius) Alpha Limited

3i GC Nominees A Limited

3i GC Nominees B Limited

Ebrain 1 Limited

Ebrain 2 Limited

Ebrain 3 Limited

3i India Infrastructure B LP

3i Pan European Growth Capital 2005-06 LP

144

3i Group Annual report and accounts 2017

Holding/share class

Footnote

100% partnership interest

100% partnership interest

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% partnership interest

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% partnership interest

n/a

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

90% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

99% partnership interest

98% partnership interest

97% partnership interest

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% partnership interest

100% partnership interest

100% partnership interest

85% partnership interest

83% partnership interest 

100% partnership interest

50% ordinary shares

70% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

99% partnership interest

80% partnership interest

1

1

1

1

1

1

5

1

1

5

1

3

1

1

6

1

1

1

1

2

7

8

8

1

1

9

8

8

3

1

1

1

3

1

1

1

1

5

1

5

5

10

8

1

1

43

43

43

1

1

30 Subsidiaries and related undertakings continued

Description

3i Asia Paciﬁc 2004-06 LP

3i UK Private Equity 2004-06 LP

3i Pan European Buyouts 2004-06 LP

3i 2004 GmbH & Co KG

3i General Partner 2004 GmbH

Pan European Buyouts Co-invest 2006-08 LP

Pan Euro Buyouts (Dutch) A Co-invest 2006-08 LP

3i US Growth Partners LP

3i US Growth Corporation

Global Growth Co-invest 2006-08 LP

Pan European Growth Co-invest 2006-08 LP

Pan European Growth (Dutch) A Co-invest 2006-08 LP

Asia Growth Co-invest 2006-08 LP

3i GP 2006-08 Limited

Pan European Buyouts (Nordic) Co-invest 2006-08 LP

Pan European Growth (Nordic) Co-invest 2006-08 LP

3i Infocomm Limited

3i Buyouts 08-10 A LP

3i Buyouts 08-10 B LP

3i Buyouts 08-10 C LP

3i Growth 08-10 LP

GP CCC 08-10 Limited

3i GP 08-10 Limited

3i Growth (Europe) 08-10 LP

3i PE 2013-16A LP

3i PE 2013-16C LP

3i GP 2013 Ltd

GP 2013 Ltd

3i BIFM Investments Limited

BIIF GP Limited

BEIF II Limited

BAM General Partner Limited

BEIF Management Limited

3i BIIF GP LLP

3i BEIF II GP LLP

3i PE 2016-19 A LP

3i PE 2016-19 B LP

3i Managed Infrastructure Acquisitions GP (2017) LLP

3i Managed Infrastructure Acquisitions GP Limited

3i 2016 Gmbh & Co. KG

Retina Midco B.V

Retina Bidco B.V

Retina Holdco B.V

Dasar Holding GmbH

Blitz F15-496 GmbH

Blitz 16-811 GmbH

Blitz 16-812 GmbH

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Holding/share class

Footnote

100% partnership interest

80% partnership interest

79% partnership interest

100% partnership interest

100% ordinary shares

100% partnership interest

100% partnership interest

94% partnership interest

100% ordinary shares

100% partnership interest

100% partnership interest

100% partnership interest

100% partnership interest

100% ordinary shares

100% partnership interest

100% partnership interest

75% ordinary shares

99% partnership interest

98% partnership interest

97% partnership interest

99% partnership interest

100% ordinary shares

100% ordinary shares

99% partnership interest

100% partnership interest

100% partnership interest

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% partnership interest

100% partnership interest

100% partnership interest

100% partnership interest

100% partnership interest

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

3i Managed Infrastructure Acquisitions LP

100% partnership interest

3i Group Annual report and accounts 2017

145

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

30 Subsidiaries and related undertakings continued

Description

3i European Operational Projects S.C.S.P

3i European Operational Projects GP s.a.r.l

US Growth Co-Invest 2006-08 LP

3i GP 2016 Limited

GP 2016 Limited

3i US Holdings LLC

3i European Operational Projects Limited

Associates

3i Growth Carry A LP

3i Growth Carry B LP

Moon Topco GmbH

Layout Holdco A/S

Fuel Holdco SA

Boketto Holdco Limited

Klara HoldCo S.A.

Colorado Holdco Limited 

Shield Holdco LLC 

Q Holdco Ltd

3i Infrastructure plc

ACR Capital Holdings Pte Ltd

Peer Holding 1 BV

AES Engineering Ltd

Chrysanthes 1 S.a.r.l

Mito Holdings S.a.r.l

Carter Thermal Industries Limited 

Echezeaux Investissement SA

Ginger Holding GmbH 

Sortifandus, SL

Hobbs Fashion Holdings Limited

Harper Topco Limited

MDY Healthcare Limited

Mémora S.A

MKM Building Supplies Ltd

OneMed AB

Orange County Fundo de Investmento EM Particpacoes 

Permali Gloucester Limited

Scandferries Holding UK Ltd 

SLR Management Limited 

Tato Holdings Limited

Pearl Group Limited

Lilas 1 SAS

Indiareit Offshore Fund (Mauritius)

Nimbus Communications Ltd

Artisan du Luxe Holding Limited

Asia Strategic MedTech Holdings (Mauritius) Limited

Joint ventures

The Group has no interest in any joint ventures.

146

3i Group Annual report and accounts 2017

Holding/share class

Footnote

100% partnership interest

100% ordinary shares

72% partnership interest

100% ordinary shares

100% ordinary shares

100% ordinary shares

100% ordinary shares

25% partnership interest

25% partnership interest

49% ordinary shares

49% ordinary shares

43% ordinary shares

47% ordinary shares

47% ordinary shares

48% ordinary shares

49% ordinary shares

43% ordinary shares

34% ordinary shares

25% ordinary shares

43% ordinary shares

40% ordinary shares

49% ordinary shares

47% ordinary shares

34% ordinary shares

40% ordinary shares

49% ordinary shares

44% ordinary shares

47% ordinary shares

42% ordinary shares

27% ordinary shares

38% ordinary shares

28% ordinary shares

29% ordinary shares

39% equity units 

32% ordinary shares

48% ordinary shares

21% ordinary shares

27% ordinary shares

37% ordinary shares

49% ordinary shares

20% partnership interest

30% ordinary shares

26% ordinary shares

36% ordinary shares

10

10

1

1

3

2

1

3

3

15

16

10

17

10

18

19

20

21

22

23

24

10

10

25

10

26

27

28

29

30

10

31

32

33

34

35

36

37

38

39

40

41

42

8

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30 Subsidiaries and related undertakings continued
The 20 large portfolio companies by fair value are detailed on pages 156 and 157. The combination of the table above and that 
on pages 156 and 157 is deemed by the Directors to fulﬁl the requirements under IFRS 12 on the disclosure of material subsidiaries. 

Footnote

Address

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33

34
35
36
37
38
39
40

41

42

43

16 Palace Street, London, SW1E 5JD, UK
1 Grand Central Place East, 42nd Street, Suite 4100 New York, NY 10165, USA
50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ, UK
OpernTurm, Bockenheimer Landstresse 2-4, 60306 Frankfurt am Main, Germany
Lime Grove House, Green Street, St Helier, JE1 2ST, Jersey
Computershare, Queensway House, Hilgrove Street, St Helier, JE1 1ES, Jersey
Level 7, The Capital B-Wing, Bandra Kurla Complex, Bandra East, Mumbai, 400051, India
Ebene Esplanade, 24 Cybercity, Ebene, Mauritius
Via Oreﬁci 2, 20123 Milan, Italy
9 Rue Sainte Zithe, L-2763 Luxembourg, Grand Duchy of Luxembourg
2711 Centervilla Road, Suite 4000, Wilmington, DE 19808, New Castle, USA
Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong
Cornelis Schuytstraat 72, 1071JL Amsterdam, Netherlands
60323 Frankfurt am Main, Germany
Gruber Str. 48, 85586 Poing, Germany
Mørupvej 16 Mørup 7400 Herning, Denmark
New Mill, New Mill Lane, Witney, Oxfordshire, England, OX29 9SX, UK
Aspen Building, Apex Way, Hailsham, East Sussex, BN27 3WA, UK
400 Madison Avenue, Suite 9C, New York, NY 10017, USA
Berger House (2nd Floor), 36-38 Berkeley Square, London, United Kingdom, W1J 5AE, UK
12 Castle Street, St Helier, Jersey, JE2 3RT, Jersey
6 Temasek Blvd, Singapore 038986, Singapore
Perenmarkt 15, Zwaagdijk East, 1681PG, Netherlands
Bradmarsh Business Park, Mill Close, Rotherham, South Yorkshire, S60 1BZ
Redhill Rd, Birmingham, B25 8EY, UK
An der Welle 4, 60322 Frankfurt, Germany
Paseo de la Castellana, 171, 28046 Madrid, Spain
Milton Gate, 60 Chiswell Street, London, EC1Y 4AG, UK
5th Floor, 6 St Andrew Street, London, EC4A 3AE, UK
First Floor, Quay 2, 139 Fountainbridge, Edinburgh, EH3 9QG, UK
Stoneferry Road, Hull, HU8 8DE, UK
Svärdvägen 3 B, Danderyd, 182 33, Sweden
Av. Ataulfo de Paiva, 1.100, 7th Floor, Leblon, Rio de Janeiro, RJ 22440-035, Brazil 

Bristol Rd, Gloucester, GL1 5TT, UK
35 Great St Helen’s, London, United Kingdom, EC3A 6AP, UK
7 Wornal Park Menmarsh Road, Worminghall, Aylesbury, Buckinghamshire, HP18 9JX, UK
Thor Group Ltd, Bramling House, Bramling, Canterbury, Kent, CT3 1NB, UK
The Zenith Building, 26 Spring Gardens, Manchester, Greater Manchester, M2 1AB, UK
Park a Eco Vendee Sud Loire, 85600, Bouffere, France
IFS Court, TwentyEight, Cybercity, Ebene, Mauritius

44 Oberoi Complex, Andthei (West), Mumbai, India

42 KCS Chambers, PO BOX 4051, Road Town, Tortola, British Virgin Islands

47 Esplanade, St Helier, Jersey, JE1 0BD

31 Discontinued operations
On 3 March 2017, the Group completed the disposal of its Debt Management business to Investcorp and received cash proceeds 
of £270 million. Included within the cash proceeds was £33 million which related to the repayment of loans provided to Debt 
Management to fund two CLO warehouses. At 31 March 2017, the Group retained residual stakes in a number of CLO funds which 
were not required by Investcorp for risk retention or other contractual requirements together with its holdings in the Global Income 
Fund and the Senior Loan Fund. These investments are treated as continuing operations and there were no assets held for sale 
on 31 March 2017. Since the publication of the Half-yearly report 2016 and following completion of the transaction on 3 March 2017,  

3i Group Annual report and accounts 2017

147

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

 Notes to the accounts

 continued

31 Discontinued operations continued
it is now expected that some of the investments not sold to Investcorp will be retained beyond the 12 month period prescribed by  
IFRS 5. Accordingly they are no longer classiﬁed as assets held for sale and have been included in continuing operations in these 
ﬁnancial statements. As these investments are held at fair value through proﬁt or loss, the reclassiﬁcation out of held for sale had 
no impact on the carrying value of these investments.
The disposal group fulﬁlled the requirement of IFRS 5 to be classiﬁed as “discontinued operations” in the Consolidated statement 
of comprehensive income, the results of which are set out below.

Consolidated statement of comprehensive income

Realised proﬁts over value on the disposal of investments
Unrealised proﬁts/(losses) on the revaluation of investments
Fair value movements on investment entity subsidiaries

Portfolio income
Dividends
Interest income from investment portfolio
Fees receivable/(payable)

Foreign exchange on investments
Gross investment return from discontinued operations
Fees receivable from external funds
Operating expenses
Exchange movements
Other income
Carried interest 

Carried interest and performance fees receivable
Carried interest and performance fees payable

Acquisition related earn-out charges
Operating proﬁt before tax from discontinued operations
Proﬁt on disposal of Debt Management business before tax
Income taxes

Income taxes on disposal of Debt Management business
Other income taxes

Proﬁt for the year from discontinued operations, net of tax 
Other comprehensive income for the year from discontinued operations
Total comprehensive income for the year from discontinued operations 

Cash ﬂows

Purchase of investments 
Proceeds from the sale of investments1
Cash income, net carried interest, operating expenses and other
Net cash ﬂow from operating activities
Sale of subsidiaries1 
Cash held in sold subsidiaries
Net cash ﬂow from investing activities

Total net cash ﬂows from discontinued operations

Group  
2017
£m
–
3
–
3

Group  
2016
£m
–
(22)
–
(22)

16
3
–
16
38
25
(13)
(2)
2

1
–
–
51
48

(1)
–
98
(7)
91

Group 
2017
£m
(51)
25
33
7
232
(4)
228

235

22
4
(1)
12
15
38
(27)
1
–

5
(2)
(5)
25
–

–
–
25
2
27

Group 
2016
£m
(46)
2
18
(26)
–
–
–

(26)

1  Total proceeds from the sale of the Debt Management business were £270 million, consisting of sale of subsidiaries (£232 million), proceeds from the sale of investments (£22 million of the 

£25 million total above) and settlement of an inter-company loan (£16 million).

Earnings per share (pence)

Basic, proﬁt for the year from discontinued operations
Diluted, proﬁt for the year from discontinued operations

148

3i Group Annual report and accounts 2017

Group  
2017
10.2
10.1

Group  
2016
2.6
2.6

Independent Auditor’s report  
to the members of 3i Group plc

Our opinion on the ﬁnancial statements

In our opinion:
•  3i Group plc’s Group ﬁnancial statements and Parent company ﬁnancial statements (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 2017 and of the Group’s proﬁt for the year 
then ended;

•  the Group ﬁnancial statements have been properly prepared in accordance with the International Financial Reporting Standards  

as adopted by the European Union (“IFRSs as adopted by the EU”); 

•  the Parent company ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the EU 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.

What we have audited
3i Group plc’s ﬁnancial statements comprise: 

Group

Parent company

Consolidated statement of comprehensive income for the year  
to 31 March 2017

Company statement of ﬁnancial position as at 31 March 2017

Consolidated statement of ﬁnancial position as at 31 March 2017

Company statement of changes in equity for the year to 31 March 2017

Consolidated statement of changes in equity for the year to  
31 March 2017

Company cash ﬂow statement for the year to 31 March 2017

Consolidated cash ﬂow statement for the year to 31 March 2017

Signiﬁcant accounting policies

Signiﬁcant accounting policies

Related Notes 1 to 31 to the ﬁnancial statements

Related Notes 1 to 31 to the ﬁnancial statements

The ﬁnancial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the EU and, 
as regards the parent company ﬁnancial statements, as applied in accordance with the provisions of the Companies Act 2006.

Overview of our audit approach
Risks of material misstatement

•  Incorrect valuation of unquoted proprietary investments.
•  Incorrect calculation of carried interest.
•  Incorrect recognition of portfolio income and of realised proﬁts on disposal of investments.
•   Incorrect accounting treatment of the sale of the Debt Management business and calculation of the proﬁt 

Audit scope

Materiality

What has changed

on disposal.

The ﬁrst two risks are considered to be signiﬁcant risks, consistent with the 2016 audit.

•   The Group is principally managed from one location in London. All core functions, including ﬁnance and 
operations, are located in London. The Group operates eight international ofﬁces which are primarily 
responsible for deal origination and investment portfolio monitoring.

•   The Group comprises 67 consolidated subsidiaries and 45 investment entity subsidiaries. Monitoring and 

control over the operations of these subsidiaries, including those located overseas, is centralised in London.
•   The London based Group audit team performed direct audit procedures on all items material to the Group 
ﬁnancial statements. Our audit sample covered 99% of the investment portfolio and 99% of carried interest 
accruals.

•  Overall Group materiality is £58m (2016: £44m) which represents 1% of net assets.

•   Incorrect accounting treatment of the sale of the Debt Management business and calculation of the proﬁt 

on disposal is included as a risk of material misstatement. We have included this risk in the 2017 audit as the 
sale of the Debt Management business is a signiﬁcant unusual transaction for the Group, outside the normal 
course of business. 

3i Group Annual report and accounts 2017

149

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Audited ﬁnancial statements

Independent Auditor’s report  
to the members of 3i Group plc

continued
Our assessment of risk of material misstatement 
We identiﬁed the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, 
the allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed 
the procedures below which were designed in the context of the ﬁnancial statements as a whole and, consequently, we do not express 
any opinion on these individual areas.

Risk
Group and parent company risk

Our response to the risk
Our procedures extended to testing 99% of the related amount.

Incorrect valuation of unquoted proprietary investments 

Refer to the Audit and Compliance Committee report (pages 
69 to 73); Signiﬁcant accounting policies (pages 108 to 111); 
and Notes 10, 11 and 12 of the ﬁnancial statements (pages 
120 to 124)

The proprietary investment portfolio comprises a number 
of unquoted securities. In the Consolidated statement of 
ﬁnancial position these are shown both as Investments (which 
are held directly by consolidated subsidiaries of the Group 
and Parent Company), and as Investments in investment 
entity subsidiaries (which are typically limited partnerships 
and other holding structures). In the Company statement of 
ﬁnancial position these are shown both as investments (which 
are held directly by the Parent Company), and as Investments 
in investment entities (which are included within the Interests 
in Group entities line item).

The Group adopts a valuation methodology based on the 
International Private Equity and Venture Capital Valuation 
Guidelines (‘IPEV Guidelines’) – December 2015, in 
conformity with IFRS 13 – Fair Value Measurement. Owing 
to the unquoted and illiquid nature of these investments, 
the assessment of fair valuation is subjective and requires 
a number of signiﬁcant and complex judgments to be made 
by management. The exit value will be determined by the 
market at the time of realisation and therefore despite the 
valuation policy adopted and judgments made by 
management, the ﬁnal sales value on realisation may differ 
materially from the valuation at the year end date. 

There is the risk that inaccurate judgments made in the 
assessment of fair value, in particular in respect of; earnings 
multiples, the application of liquidity discounts, calculation of 
discount rates and the estimation of future maintainable 
earnings, could lead to the incorrect valuation of the 
unquoted proprietary investment portfolio. In turn, this could 
materially misstate the value of the investment portfolio in 
the Statement of ﬁnancial position, the Gross investment 
return and Total return in the Consolidated statement of 
comprehensive income and the Net asset value per share.

There is also the risk that management may inﬂuence the 
signiﬁcant judgments and estimations in respect of unquoted 
proprietary investment valuations in order to meet market 
expectations of the overall Net asset value of the Group. 

We obtained an understanding of management’s processes and controls for 
determining the fair valuation of unquoted proprietary investments by performing 
walkthrough procedures. This included discussing with management the valuation 
governance structure and protocols around their oversight of the valuation process 
and corroborating our understanding by attending Valuations Committee meetings. 
We have identiﬁed key controls in the process, assessed the design adequacy and 
tested the operating effectiveness of those controls. We relied on controls over 
portfolio company and comparable company data used in the valuation of 
unquoted investments.

We compared management’s valuation methodology to IFRS and the IPEV 
guidelines. We sought explanations from management where there are judgments 
applied in their application of the guidelines, discussed and assessed their 
appropriateness. 

With the assistance of our valuations specialists, we formed an independent range 
for the key assumptions used in the valuation of a sample of unquoted investments 
within the private equity business line, with reference to relevant industry and market 
valuation considerations. We derived a range of fair values using our assumptions 
and other qualitative risk factors. We compared these ranges to management’s fair 
values, and discussed our results with both management and the Valuations 
Committee. 

With respect to unquoted investments in the private equity business line, on a 
sample basis we corroborated key inputs in the valuation models, such as earnings 
and net debt to source data. We also performed the following procedures on key 
judgments made by management in the calculation of fair value:

•   assessed the suitability of the comparable companies used in the calculation 

of the earnings multiples;

•   challenged management on the applicability of adjustments made to earnings 
multiples, obtained rationale and supporting evidence for adjustments made; 
•   performed corroborative calculations to assess the appropriateness of discount 

rates; and

•   discussed the adjustments made to calculate future maintainable earnings and 

corroborated this to supporting documentation. 

On a sample basis, we veriﬁed the valuation of unquoted investments retained from 
the Debt Management business to broker quotes and other data from third party 
pricing sources used by management in the calculation of fair value.

We checked the mathematical accuracy of the valuation models on a sample basis. 
We recalculated the unrealised proﬁts on the revaluation of investments impacting 
the Consolidated statement of comprehensive income.

We discussed with management and understood the rationale for any differences 
between the exit prices of investments realised during the year and the prior year 
fair value, to further assess the reasonableness of the current year valuation 
assumptions and methodology adopted by management.

Key observations communicated to the Audit and Compliance Committee:
The valuation of the unquoted proprietary investment portfolio is determined to be within a reasonable range of fair values. All valuations tested 
have been recognised in accordance with IFRS and the IPEV Guidelines. Appropriate inputs to the valuations were used and the valuations 
calculated by management are within a reasonable range. Based on our procedures performed we had no material matters to report to the Audit 
and Compliance Committee.

150

3i Group Annual report and accounts 2017

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Risk

Our response to the risk

Group and parent company risk

Our procedures extended to testing 99% of the related amount.

Incorrect calculation of carried interest 

Refer to the Audit and Compliance Committee report 
(page 69 to 73); and Notes 11 and 13 of the ﬁnancial 
statements (pages 121 and 125)

Carried interest receivable is an accrual of the share of the 
proﬁts from funds managed by the Group on behalf of third 
parties. Carried interest payable is an accrual of amounts 
payable to investment executives in respect of the returns 
on successful investments both from Group proprietary 
capital and third-party capital. Carried interest is only paid 
on realisation of investments. 

Carried interest receivable and payable is calculated as 
a percentage of the proﬁts that would be achieved, if the 
investments within each fund or scheme were realised at fair 
value at the year end date, subject to the relevant hurdle 
rates or performance conditions being met. 

Judgment is required in determining the fair value of the 
investment portfolio (as described in the preceding risk 
section) and therefore, whether hurdles or performance 
conditions have been achieved. 

There are multiple carried interest arrangements in place and 
investment executives may participate in more than one 
scheme. These arrangements have been structured over 
multiple periods and include different pools of investments. 
The process of calculating carried interest receivable and 
payable relies on manual calculations. 

We obtained an understanding of management’s processes and controls for 
the calculation of carried interest by performing walkthrough procedures, and 
discussing with management the governance structure and protocols around their 
oversight of the carried interest arrangements. Given the manual nature of the 
calculation, although controls were deemed to be designed effectively, we adopted 
a substantive approach to our testing.

We agreed a sample of calculation methodologies to their respective terms and 
conditions set out in the underlying agreements. 

Our audit procedures on the fair value of the underlying investments are described 
in the preceding risk section. We performed analytical procedures comparing the 
performance of the reference investments in each fund or scheme, taking into 
account the investment realisations, to the related accruals in the ﬁnancial 
statements. 

On a sample basis we:

•   recalculated the returns on the fund or scheme to test that hurdles or performance 

conditions had been met where carried interest was being accrued;

•   recalculated the carried interest accruals for mathematical accuracy and agreed 
the investment fair values to our audit work on the fair value of the investment 
portfolio, the fee rates to the relevant agreements and realised gains to our audit 
work on realised proﬁts;

•   determined the reasonableness of investment exit dates with reference to our 
audit work on the fair value of the investment portfolio and our understanding 
of the life cycle of the relevant investments, and then compared this against the 
anticipated payment dates used to discount the carried interest accrual; and
•  veriﬁed the resulting cash ﬂows to approvals and bank statement payments.

Due to the complexities inherent in the arrangements and 
the manual nature of the recognition process, there is a risk 
that the carried interest calculations are incorrectly calculated 
or recognised in the wrong period.
Key observations communicated to the Audit and Compliance Committee:
Our audit procedures did not identify any matters regarding the recognition of carried interest in accordance with IFRS. All calculations tested 
have been performed in accordance with contractual terms. Based on our procedures performed we had no material matters to report to the 
Audit and Compliance Committee.

3i Group Annual report and accounts 2017

151

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

Independent Auditor’s report  
to the members of 3i Group plc

continued

Risk

Our response to the risk

Group and parent company risk

Our procedures extended to testing 69% of the related amount.

Incorrect recognition of portfolio income and of realised 
proﬁts on disposal of investments 

Refer to the Audit and Compliance Committee report (pages 
69 to 73); Signiﬁcant accounting policies (pages 108 to 111); 
and Notes 2 and 11 of the ﬁnancial statements (page 115 and 
121)

Portfolio income is directly attributable to the return from 
investments. This includes: dividends from investee 
companies and income from loans and receivables.

Realised proﬁts originate from disposals of investments. 
Realised proﬁts are calculated as the difference between the 
net proceeds and the investment’s fair value at the beginning  
of the year.

Market expectations and revenue based targets may place 
pressure on management to inﬂuence the recognition of 
portfolio income or realised gains. This may result in 
overstatement or deferral of revenues to assist in meeting 
current or future targets or expectations.

We obtained an understanding of management’s processes and controls around 
accounting for portfolio income and realised gains by performing walkthrough 
procedures. We identiﬁed key controls in the processes, assessed design adequacy 
and tested operating effectiveness of those controls. Controls were deemed to be 
designed and operating effectively. 

We performed detailed testing on a sample of transactions to conﬁrm whether they 
had been appropriately recorded in the Consolidated statement of comprehensive 
income. 

For portfolio income, on a sample basis, we:

•  agreed dividends from investee company to the dividend notice; and
•  recalculated interest income based on the terms of the underlying agreements. 

For realised gains, on a sample basis, we:

•   analysed the contract and terms of the sale to determine whether the Group had 
met the stipulated requirements, conﬁrming that the net proceeds and therefore 
the realised proﬁt over opening value could be reliably measured; and

•   re-performed management’s calculations to determine mathematical accuracy 
and conﬁrmed the collection of the net proceeds by agreeing the cash receipt 
to bank statements.

For all samples selected for testing we veriﬁed that revenue is recognised when the 
signiﬁcant risks and rewards of ownership have been transferred.

We performed enquiries of management and read minutes of meetings throughout 
the year and subsequent to the year end in order to address the risk of management 
override of controls to defer revenue recognition. 

Key observations communicated to the Audit and Compliance Committee:
Our audit procedures did not identify any material matters regarding the recognition of portfolio income and of realised proﬁts on disposal of 
investments. All transactions tested have been recognised in accordance with contractual terms and IFRS. Based on our procedures performed 
we had no material matters to report to the Audit and Compliance Committee.

Risk

Group only risk

Our response to the risk

We performed the following procedures:

•   read the contract and terms of the sale to verify that the Group met the 

requirements to derecognise the disposal group;

•   re-performed management’s calculations of the proﬁt on disposal, 

checked mathematical accuracy and veriﬁed collection of the net proceeds and 
accuracy of their recording by agreeing the cash receipts to bank statements; 
•   performed testing over the amounts classiﬁed on the Consolidated statement 

of comprehensive income as income from a discontinued operation, for accuracy 
and for compliance with IFRSs; and

•   reviewed the accounting treatment of the disposed Debt Management business 

line and related disclosures in the ﬁnancial statements, for compliance with IFRS 5. 

Incorrect accounting treatment of the sale of the Debt 
Management business and calculation of the proﬁt on 
disposal

Refer to the Audit and Compliance Committee report (pages 
69 to 73); and Note 31 of the ﬁnancial statements (pages 147 
to 148)

The sale of the Debt Management business completed on 
3 March 2017. The transaction resulted in a proﬁt on disposal 
and discontinued operations recorded within the 
Consolidated statement of comprehensive income. 

The sale of the Debt Management business, is a transaction 
outside the normal course of business for the Group and has 
a number of associated risks, including: the complex and 
manual nature of the calculation of proﬁt on disposal, and the 
complexities involved in accounting in accordance with IFRS 5 
– Non-current Assets Held for Sale and Discontinued 
Operations (IFRS 5).

Key observations communicated to the Audit and Compliance Committee:
Our audit procedures did not identify any material matters regarding the sale of the Debt Management business and calculation of the proﬁt on 
disposal. The transaction has been recognised and disclosed in the ﬁnancial statements in accordance with contractual terms and IFRS. Based on our 
procedures performed we had no material matters to report to the Audit and Compliance Committee.

152

3i Group Annual report and accounts 2017

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The scope of our audit 

Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for 
each entity within the Group. Taken together, this enables us to form an opinion on the consolidated ﬁnancial statements. We take into 
account size, risk proﬁle, the organisation of the group and effectiveness of group-wide controls, changes in the business environment 
and other factors such as recent internal audit results when assessing the level of work to be performed at each entity.

The investment portfolio balance is the most material part of the Consolidated statement of ﬁnancial position. Monitoring and control 
over the valuation of investments is exercised by management centrally in London, and as such is audited wholly by the London based 
Group audit team. Monitoring and control over the operations of the subsidiaries within the Group, including those located overseas, 
is centralised in London. The Group audit team performed all the work necessary to issue the Group and Parent company audit 
opinion, including undertaking all of the audit work on the risks of material misstatement identiﬁed above. 

Involvement with component teams 
All audit work performed for the purposes of the audit was undertaken by the Group audit team.

Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identiﬁed misstatements on 
the audit and in forming our audit opinion. 

Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to inﬂuence the 
economic decisions of the users of the ﬁnancial statements. Materiality provides a basis for determining the nature and extent of our 
audit procedures.

We determined materiality for the Group to be £58m (2016: £44m), which is 1% (2016: 1%) of net assets. We believe that net assets 
provides us with a consistent year on year basis for determining materiality, and is the most relevant measure to the stakeholders 
of the entity. 

We calculated materiality during the planning stage of the audit then reassessed it based on the 31 March 2017 net asset value, 
and adjusted our audit procedures accordingly. 

Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level 
the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgment was 
that performance materiality was 50% (2016: 50%) of our planning materiality, namely £29m (2016: £22m). This is at the lower end of 
the range of 50% to 75%. In arriving at 50%, we considered the judgmental nature of the valuations in the Consolidated statement 
of ﬁnancial position and the relative value of transactions recorded in the other primary statements, to ensure that total uncorrected 
and undetected audit differences in all accounts did not exceed our materiality of £58m.

Reporting threshold
An amount below which identiﬁed misstatements are considered as being clearly trivial.

We agreed with the Audit and Compliance Committee that we would report to them all uncorrected audit differences in excess 
of £2.9m (2016: £2.0m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, 
warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light 
of other relevant qualitative considerations in forming our opinion.

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 and Accounts to identify material inconsistencies with the audited ﬁnancial statements and to identify any information 
that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of 
performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications 
for our report.

3i Group Annual report and accounts 2017

153

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Audited ﬁnancial statements

Independent Auditor’s report  
to the members of 3i Group plc

continued
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors’ Responsibilities set out on page 99, 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.

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. 

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

•  based on the work undertaken in the course of the audit: 

 – the information given in the Strategic Report and the Directors’ Report for the ﬁnancial year for which the ﬁnancial statements 

are prepared is consistent with the ﬁnancial statements;

 – the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception
ISAs (UK and Ireland) reporting

We are required to report to you if, in our opinion, ﬁnancial and non-ﬁnancial information in the annual 
report is: 
•  materially inconsistent with the information in the audited ﬁnancial statements; or 
•   apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group 

Companies Act 2006 reporting

acquired in the course of performing our audit; or 

•  otherwise misleading. 

In particular, we are required to report whether we have identiﬁed any inconsistencies between our knowledge 
acquired in the course of performing the audit and the directors’ statement that they consider the annual 
report and accounts taken as a whole is fair, balanced and understandable and provides the information 
necessary for shareholders to assess the entity’s performance, business model and strategy; and whether the 
annual report appropriately addresses those matters that we communicated to the Audit and Compliance 
Committee that we consider should have been disclosed.
In light of the knowledge and understanding of the Company and its environment obtained in the course 
of the audit, we have identiﬁed no material misstatements in the Strategic Report or Directors’ Report. 

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.

Listing Rules review requirements We are required to review:

•   the directors’ statement in relation to going concern, set out on page 98 and longer-term viability, set out 

on page 49; and

•   the part of the Corporate Governance statement relating to the company’s compliance with the provisions 

of the UK Corporate Governance Code speciﬁed for our review.

Conclusion in respect of all matters on which we are required to report by exception:
We have no exceptions to report in respect of any of the responsibilities above.

154

3i Group Annual report and accounts 2017

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Statement on the directors’ assessment of the principal risks that would threaten  
the solvency or liquidity of the entity
ISAs (UK and Ireland) reporting

We are required to give a statement as to whether we have anything material to add or to draw attention to 
in relation to:
•   the directors’ conﬁrmation in the annual report that they have carried out a robust assessment of the 

principal risks facing the entity, including those that would threaten its business model, future performance, 
solvency or liquidity;

•   the disclosures in the annual report that describe those risks and explain how they are being managed 

or mitigated;

•   the directors’ statement in the ﬁnancial statements about whether they considered it appropriate to adopt 

the going concern basis of accounting in preparing them, and their identiﬁcation of any material 
uncertainties to the entity’s ability to continue to do so over a period of at least twelve months from the date 
of approval of the ﬁnancial statements; and

•   the directors’ explanation in the annual report as to how they have assessed the prospects of the entity, over 
what period they have done so and why they consider that period to be appropriate, and their statement as 
to whether they have a reasonable expectation that the entity will be able to continue in operation and meet 
its liabilities as they fall due over the period of their assessment, including any related disclosures drawing 
attention to any necessary qualiﬁcations or assumptions.

Conclusion
We have nothing material to add or to draw attention to in respect of the above.

Julian Young (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor 
London 
17 May 2017

Notes:
1  The maintenance and integrity of the 3i Group plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, 

accordingly, the auditors accept no responsibility for any changes that may have occurred to the ﬁnancial statements since they were initially presented on the web site.

2  Legislation in the United Kingdom governing the preparation and dissemination of ﬁnancial statements may differ from legislation in other jurisdictions.

3i Group Annual report and accounts 2017

155

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio and other information

20 Large investments

The 20 investments listed below account for 89% of the portfolio at 31 March 2017 (31 March 2016: 70%). This table does not include 
two investments that have been excluded for commercial reasons. For each of our investments we have assessed whether they classify 
as accounting subsidiaries under IFRS and/or subsidiaries under the UK Companies Act. This assessment forms the basis of our 
disclosure of accounting subsidiaries in the ﬁnancial statements. 

The UK Companies Act deﬁnes a subsidiary based on voting rights, with a greater than 50% majority of voting rights resulting in an 
entity being classiﬁed as a subsidiary. IFRS 10 applies a wider test and, if a Group is exposed, or has rights to variable returns from 
its involvement with the investee and has the ability to affect these returns through its power over the investee then it has control, 
and hence the investee is deemed an accounting subsidiary. Controlled subsidiaries under IFRS are noted below. None of these 
investments are UK Companies Act subsidiaries.

In accordance with Part 5 of The Alternative Investment Fund Managers Regulations 2013 (“the Regulations”), 3i Investments plc, 
as AIFM, requires all controlled portfolio companies to make available to employees an annual report which meets the disclosure 
requirements of the Regulations. These are available either on the portfolio company’s website or through ﬁling with the relevant 
local authorities.

Residual
cost1
March
2016
£m

1

Residual
cost1
March
2017
£m

Valuation
March
2016
£m

Valuation
March
2017
£m

Relevant  
transactions 
in the year

1

902

1,708

Reﬁnancing returned 
£187m of proceeds

270

399

464

655

Invested £131m in 3iN’s  
capital raise

114

114

369

538

100

162

120

222

Further investment to support 
Q Holding’s investment in 
Degania

151

161

173

200

161

177

158

185

99

83

–

11

39

208

184

Listed on Amsterdam Stock 
Exchange in June 2016 and 
returned £82m of proceeds

130

160

Reﬁnancing returned
£48m of proceeds

162

–

154 New investment

Investment
Description of business

Action*
Non-food discount retailer

3i Infrastructure plc*
Quoted investment company, 
investing in infrastructure

Scandlines*
Ferry operator between 
Denmark and Germany

Q Holding*
Manufacturer of precision 
engineered elastomeric 
components
Weener Plastic*
Supplier of plastic packaging
solutions

Audley Travel*
Provider of experiential 
tailor made travel

Basic-Fit
Discount gyms operator 

ATESTEO*
International transmission 
testing specialist 

Schlemmer*
Provider of cable management 
solutions for the automotive 
industry

Business line 
Geography  
First invested in 
Valuation basis

Private Equity
Benelux  
2011  
Earnings

Infrastructure
UK  
2007
Quoted

Private Equity
Denmark/
Germany
2007/2013
DCF

Private Equity
US
2014
Earnings

Private Equity
Germany
2015
Earnings

Private Equity
UK
2015
Earnings

Private Equity
Benelux
2013
Quoted

Private Equity
Germany 
2013
Earnings

Private Equity
Germany
2016
Earnings

156

3i Group Annual report and accounts 2017

Investment
Description of business

BoConcept*
Urban living brand

Ponroy Santé*
Manufacturer of natural  
healthcare and cosmetics  
products
AES Engineering
Manufacturer of mechanical 
seals and support systems

Tato
Manufacturer and seller 
of speciality chemicals

Christ*
Distributor and retailer  
of jewellery 

Euro-Diesel*
Manufacturer of uninterruptible
power supply systems

Aspen Pumps*
Manufacturer of pumps 
and accessories for the 
air conditioning, heating 
and refrigeration industry
Global Income Fund
Debt Management open 
ended fund with exposure to 
North America and western 
European issuers
MKM
Building materials supplier

OneMed Group*
Distributor of consumable
medical products, 
devices and technology
Dynatect* 
Manufacturer of engineered,  
mission critical protective 
equipment

*  Controlled in accordance with IFRS.
1  Residual cost includes capitalised interest.

Private Equity
Denmark
2016
Earnings

Private Equity
France
2017
Earnings

Private Equity
UK
1996
Earnings

Private Equity
UK
1989
Earnings

Private Equity
Germany
2014
Earnings

Private Equity
Benelux
2015
Earnings

Private Equity
UK
2015
Earnings

Other
UK
2015
Fund

Private Equity
UK 
2006 
Imminent sale

Private Equity
Sweden
2011
Earnings

Private Equity
US
2014 
Earnings

Business line 
Geography  
First invested in 
Valuation basis

Residual
cost1
March
2016
£m

Valuation
March
2016
£m

Valuation
March
2017
£m

Relevant  
transactions 
in the year

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146 New investment

122 New investment

113

112

98

95

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£24m

68 Sale announced with  
proceeds of £70m

59

56

101

117

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March
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£m

140

123

30

2

57

78

66

24

–

–

30

2

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52

70

48

23

124

130

65

65

–

–

92

80

59

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52

53

60

63

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1,492

2,042

3,164

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3i Group Annual report and accounts 2017

157

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio and other information

Portfolio valuation – an explanation

Policy
The valuation policy is the responsibility of the Board, with 
additional oversight and annual review from the Valuations 
Committee. Our policy is to value 3i’s investment portfolio 
at fair value and we achieve this by valuing investments on 
an appropriate basis, applying a consistent approach across 
the portfolio. 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 the residual Debt Management 
investment valuations. Valuations of the investment portfolio of 
the Group and its subsidiaries are performed at each quarter end.

Fair value is the underlying principle and is deﬁned as “the price 
that would be received to sell an asset in an orderly transaction 
between market participants at the measurement date” (IPEV 
guidelines, December 2015). Fair value is therefore an estimate 
and, as such, determining fair value requires the use of judgement.

The quoted assets in our portfolio are valued at their closing bid 
price at the balance sheet date. The majority of the portfolio, 
however, is represented by unquoted investments. 

Private Equity unquoted valuation
To arrive at the fair value of the Group’s unquoted Private Equity 
investments, we ﬁrst estimate the entire value of the company 
we have invested in – the enterprise value. We then apportion 
that enterprise value between 3i, other shareholders and lenders.

Determining enterprise value
The 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, and trading 
updates from our portfolio.

As unquoted investments are not traded on an active market, 
the Group adjusts the estimated enterprise value by a liquidity 
discount. The liquidity discount is applied to the total enterprise 
value and we apply a higher discount rate for investments where 
there are more restrictions on our ability to sell at a time of 
our choosing.

The table opposite outlines in more detail the range of valuation 
methodologies available to us, as well as the inputs and 
adjustments necessary for each.

Apportioning the enterprise value between 3i, other 
shareholders and lenders
Once we have estimated the enterprise value, 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.

158

3i Group Annual report and accounts 2017

3.  If the value attributed to a speciﬁc shareholder loan 

investment in a company is less than its carrying 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 structural rights 
they might have if they are “in the money”, and that the value to 
the Group may therefore be reduced by such rights held by third 
parties. The Group’s own structural 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. Value movements in the 
period relating to investments classiﬁed as terminal are classiﬁed 
as provisions in our value movement analysis.

Infrastructure unquoted 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.

Debt Management valuation – classiﬁed as other
On 3 March 2017, the Group completed the disposal of its Debt 
Management business to Investcorp for cash consideration of 
£270 million. The remaining CLO assets are held at fair value. 
Fund investments are based on reported NAV. Fair value is 
based on a range of data including broker quotes if available, 
trading data where available, and data from third-party 
valuation providers.

Methodology
Earnings  
(Private Equity)

Description
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

Inputs
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, for signiﬁcant corporate 
actions and, in exceptional cases, run-rate adjustments 
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
Action is valued using its run-rate earnings to the closest 
period end as 3i’s
Earnings multiples
The earnings multiple is derived from comparable listed 
companies or relevant market transaction multiples
We select companies in the same industry and, where 
possible, with a similar business model and proﬁle in 
terms of size, products, services and customers, growth 
rates and geographic focus
We adjust for relative performance in the set of 
comparables, exit expectations and other company 
speciﬁc factors
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

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 
(Private Equity)

Fund (Private 
Equity/Other)

Speciﬁc industry 
metrics (Private 
Equity)

Discounted  
cash ﬂow 
(Private Equity/
Infrastructure)
Broker  
quotes (Other)

Other  
(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
Appropriate for businesses 
with long-term stable 
cash ﬂows, typically 
in Infrastructure
Used to value traded 
debt instruments

Used where elements 
of a business are valued 
on different bases

We create a set of comparable listed companies and 
derive the implied values of the relevant metric
We track and adjust this metric for relative performance, 
as in the case of earnings multiples 
Comparable companies are selected using the same 
criteria as described for the earnings methodology

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
Broker quotes obtained from banks which trade the 
speciﬁc instruments concerned, benchmarked to a range 
of other data such as trade data and other quotes
Values of separate elements prepared on one of the 
methodologies listed above

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% of 
investment 
basis portfolio 
valued on  
this basis
66%

Adjustments
A 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

Discount already implicit in 
the discount rate applied to 
long-term cash ﬂows – no 
further discounts applied
No discount is applied

Discounts applied 
to separate elements 
as above

16%

1%

2%

2%

11%

1%

1%

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For a small proportion of our smaller investments (less than 1% of the portfolio value), 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.

3i Group Annual report and accounts 2017

159

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio and other information

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

Thursday 15 June 2017

Friday 16 June 2017

Thursday 29 June 2017

Friday 21 July 2017

November 2017

January 2018

*  The 2017 Annual General Meeting will be held at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE on 29 June 2017 at 11.00 am.  

For further details please see the Notice of Annual General Meeting 2017.

Information on ordinary shares
Shareholder proﬁle: Location of investors at 31 March 2017

UK

North America

Continental Europe

Other international

Share price
Share price at 31 March 2017

High during the year (31 March 2017)

Low during the year (7 April 2016)

Dividends paid in the year to 31 March 2017
FY2016 Final dividend, paid 22 July 2016

FY2017 Interim dividend, paid 4 January 2017

Balance analysis summary

Number of 
holdings 
individuals

Number of 
holdings 
Corporate 
Bodies

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

12,565

5,281

154

17

0

0
18,017

Balance as at 
31 March 2017

5,789,866

13,373,283

18,727,404

119,099,036

351,396,530

384

577

378

336

126

19
1,820

464,422,305
972,808,424

61.0%

24.3%

10.6%

4.1%

749.5p

749.5p

443.3p

16.0p

8.0p

%

0.60

1.37

1.93

12.24

36.12

47.74
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 2017.

160

3i Group Annual report and accounts 2017

 
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Boiler room and other scams
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 Conduct Authority 

(“FCA”) Register and is allowed to give ﬁnancial advice before 
handing over your money. You can check at www.fca.org.uk/
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 FCA Register. This is important as there 
have been 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 FCA’s list of known unauthorised overseas ﬁrms. 
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 FCA Register; and
•  If you have any doubts, call the Financial Conduct Authority 
Consumer Helpline on 0800 111 6768. If you deal with an 
unauthorised ﬁrm, you will not be eligible to receive payment 
under the Financial Services Compensation Scheme.

Annual reports 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 2017 half-yearly report will be available online only. 
Please register to ensure you are notiﬁed when it becomes 
available at www.3i.com/investor-relations/ﬁnancial-news.

More general information on electronic communications is 
available on our website at www.3i.com/investor-relations/
shareholder-information.

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:

Investor relations 
3i Group plc 
16 Palace Street 
London, SW1E 5JD

Telephone +44 (0)20 7975 3131

email IRTeam@3i.com

or visit the Investor relations section of our website at 
www.3i.com/investor-relations, for full up-to-date investor 
relations information, including the latest share price, 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 0371 384 2031

Lines are open from 8.30am to 5.30pm, Monday to Friday 
(international callers +44 121 415 7183).

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3i Group Annual report and accounts 2017

161

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio and other information

Glossary

Alternative Investment Funds (“AIFs”) At 31 March 2017, 
3i Investments plc as AIFM, managed ﬁve AIFs.

Capital redemption reserve is established in respect of the 
redemption of the Company’s ordinary shares.

Alternative Investment Fund Manager (“AIFM”) is the regulated 
manager of AIFs. Within 3i, this is 3i Investments plc.

Approved Investment Trust Company This is a particular UK 
tax status maintained by 3i Group plc, the parent company 
of 3i Group. An approved investment trust company is a UK 
company which meets certain conditions set out in the UK tax 
rules which include a requirement for the company to undertake 
portfolio investment activity that aims to spread investment 
risk and for the company’s shares to be listed on an approved 
exchange. The “approved” status for an investment trust must 
be agreed by the UK tax authorities and its beneﬁt is that certain 
proﬁts of the company, principally its capital proﬁts, are not 
taxable in the UK.

Assets under management (“AUM”) A measure of the total 
assets that 3i has to invest or manages on behalf of shareholders 
and third-party investors for which it receives a fee. AUM is 
measured at fair value. The measurement changed in the year 
from residual value to fair value to reﬂect the scale of 3i’s business 
and, in the absence of a third-party fund in Private Equity, it is not 
a measure of fee generating capability.

Base Erosion and Proﬁt Shifting (“BEPS”) Project is an OECD 
initiative that was launched in 2013, at the request of the G20 
countries, to develop speciﬁc, detailed proposals, rules and 
instruments required to equip governments and tax authorities 
to address the BEPS challenge and the proposals were 
delivered to and approved by the G20 leaders in November 
2015. Countries are now in the process of considering and 
implementing changes to their domestic tax laws and 
international tax treaties to give effect to the recommendations 
made by the BEPS project team.

Board The Board of Directors of the Company.

Capital reserve recognises all proﬁts that are capital in nature 
or have been allocated to capital. Following changes to 
the Companies Act, the Company amended its Articles of 
Association at the 2012 Annual General Meeting to allow these 
proﬁts to be distributable by way of a dividend.

Carried interest is accrued on the realised and unrealised 
proﬁts generated taking relevant performance hurdles into 
consideration, assuming all investments were realised at the 
prevailing book value. Carried interest is only actually paid or 
received when the relevant performance hurdles are met and 
the accrual is discounted to reﬂect expected payment periods.

Carried interest receivable is generated on third-party capital 
over the life of the relevant fund when relevant performance 
criteria are met.

Collateralised Loan Obligation (“CLO”) A form of securitisation 
where payments from multiple loans are pooled together and 
passed on to different classes of owners in various tranches.

Common Reporting Standard (“CRS”) imposes obligations on 
ﬁnancial groups and entities to identify and report details, relating 
to the foreign investors investing in such groups and entities, 
to the local tax authority who then exchange the information 
with the other relevant tax authorities.

Company 3i Group plc.

Country by Country reporting (“CbC Reporting”) refers to a 
requirement for large multinational groups, operating in different 
countries, to ﬁle an annual report detailing certain information 
about the activities of the entities in the Group, on a country by 
country basis, covering the countries in which the Group entities 
operate. This new requirement applies to the Group for its 
accounting periods beginning after 1 April 2016.

162

3i Group Annual report and accounts 2017

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Discounting The reduction in present value at a given date of 
a future cash transaction at an assumed rate, using a discount 
factor reﬂecting the time value of money.

Fees receivable from external funds are fees received by the 
Group, from third parties, for the management of Private Equity 
and Infrastructure funds.

Disposal Group is comprised of the assets and liabilities 
associated with the Group’s Debt Management business sold 
to Investcorp in March 2017.

Dividend income from equity investments and CLO capital is 
recognised in the Statement of comprehensive income when the 
shareholders’ rights to receive payment have been established.

EBITDA is deﬁned as earnings before interest, taxation, 
depreciation and amortisation and is used as the typical measure 
of portfolio company performance.

EBITDA multiple Calculated as the enterprise value over EBITDA, 
it is used to determine the value of a company.

Executive Committee The Executive Committee is responsible 
for the day-to-day running of the Group and comprises: the Chief 
Executive, Group Finance Director, the Managing Partners of 
the Private Equity and Infrastructure businesses and the Group’s 
General Counsel.

Fair value movements on investment entity subsidiaries The 
movement in the carrying value of Group subsidiaries, classiﬁed 
as investment entities under IFRS 10, between the start and 
end of the accounting period converted into sterling using the 
exchange rates at the date of the movement.

Fair value through proﬁt or loss (“FVTPL”) is an IFRS 
measurement basis permitted for assets and liabilities which 
meet certain criteria. Gains and losses on assets and liabilities 
measured as FVTPL are recognised directly in the Statement 
of comprehensive income.

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.

Foreign Account Tax Compliance Act (“FATCA”) is US tax 
legislation aimed at preventing offshore tax avoidance by US 
persons. The rules impose obligations on non-US ﬁnancial groups 
and entities to identify and report details relating to US investors 
who have invested in those groups and entities.

Foreign exchange on investments arises on investments made 
in currencies that are different from the functional currency of 
the Group entity. Investments are translated at the exchange 
rate ruling at the date of the transaction. At each subsequent 
reporting date investments are translated to sterling at the 
exchange rate ruling at that date.

Gross investment return (“GIR”) includes proﬁt and loss 
on realisations, increases and decreases in the value of the 
investments we hold at the end of a period, any income 
received from the investments such as interest, dividends 
and fee income and foreign exchange movements. GIR is 
measured as a percentage of the opening portfolio value.

Interest income from investment portfolio is recognised as 
it accrues. When the fair value of an investment is assessed 
to be below the principal value of a loan the Group recognises 
a provision against any interest accrued from the date of the 
assessment going forward until the investment is assessed 
to have recovered in value.

International Financial Reporting Standards (“IFRS”) are 
accounting standards issued by the International Accounting 
Standards Board (“IASB”). The Group’s consolidated ﬁnancial 
statements are required to be prepared in accordance with IFRS.

Investment basis Accounts prepared assuming that IFRS 
10 had not been introduced. Under this basis, we fair value 
portfolio companies at the level we believe provides the most 
comprehensive ﬁnancial information.

The commentary in the Strategic report refers to this basis 
as we believe it provides a more understandable view of 
our performance.

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3i Group Annual report and accounts 2017

163

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio and other information

Glossary

continued

Key Performance Indicators (“KPI”) is a measure by reference to 
which the development, performance or position of the Group 
can be measured effectively.

Money multiple is calculated as the cumulative distributions plus 
any residual value divided by paid-in capital.

Net asset value (“NAV”) is a measure of the fair value of 
our proprietary investments and the net costs of operating 
the business.

Operating cash proﬁt is the difference between our cash income 
(consisting of portfolio interest received, portfolio dividends 
received, portfolio fees received and fees received from external 
funds as per the Investment basis Cash ﬂow statement) and 
our operating expenses (as per the Investment basis cash 
ﬂow statement).

Operating proﬁt includes gross investment return, management 
fee income generated from managing external funds, the costs 
of running our business, net interest payable, movements in the 
fair value of derivatives, other losses and carried interest.

Portfolio income is that which 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. It is comprised of dividend income, 
interest income from investment portfolio and fee income.

Revenue reserve recognises all proﬁts that are revenue in nature 
or have been allocated to revenue.

Segmental reporting Operating segments are reported in 
a manner consistent with the internal reporting provided to 
the Chief Executive who is considered to be the Group’s chief 
operating decision maker. All transactions between business 
segments are conducted on an arm’s length basis, with intra-
segment revenue and costs being eliminated on consolidation. 
Income and expenses directly associated with each segment 
are included in determining business segment performance.

Share-based payment reserve is a reserve to recognise 
those amounts in retained earnings in respect of share-
based payments.

Total return comprises operating proﬁt less tax charge less 
movement in actuarial valuation of the historic deﬁned beneﬁt 
pension scheme.

Total shareholder return (“TSR”) is the measure of the overall 
return to shareholders and includes the movement in the share 
price and any dividends paid, assuming that all dividends are 
reinvested on their ex-dividend date.

Translation reserve comprises all exchange differences 
arising from the translation of the ﬁnancial statements of 
international operations.

Proprietary Capital Shareholders’ capital which is available to 
invest to generate proﬁts.

Public Private Partnership (“PPP”) is a government service 
or private business venture which is funded and operated 
through a partnership of government and one or more private 
sector companies.

Unrealised proﬁts or losses on the revaluation of investments 
The movement in the carrying value of investments between the 
start and end of the accounting period converted into sterling 
using the exchange rates at the date of the movement.

Value weighted earnings growth The growth in the last 12-month 
earnings, when comparing to the preceding 12 months.

Realised proﬁts or losses over value on the disposal of 
investments The difference between the fair value of the 
consideration received, less any directly attributable costs, 
on the sale of equity and the repayment of interest income 
from investment portfolio and its carrying value at the start 
of the accounting period, converted into sterling using the 
exchange rates at the date of disposal.

164

3i Group Annual report and accounts 2017

Designed and produced by Radley Yeldar www.ry.com

This report was printed by Pureprint Group 
using their environmental print technology which 
minimises the negative environmental impacts of 
the printing process. Vegetable-based inks were 
used throughout and 99% of the dry waste and 
95% of the cleaning solvents associated with this 
production were recycled. This report is printed 
on Revive 50 Silk, an environmentally-friendly 
stock made with ECF (Elemental Chlorine Free) 
pure cellulose. This paper is FSC® certiﬁed and 
contains 50% recycled material.

FSC® – Forest Stewardship Council
This ensures that there is an audited chain 
of custody from the tree in the well-managed 
forest through to the ﬁnished document in the 
printing factory.

ISO 14001
A pattern of control for an environmental 
management system against which an 
organisation can be accredited by a third party.

Natural Capital Partners
The CO2 emissions associated with the 
production and distribution of our Annual report 
and accounts 2016 have been measured and 
reduced to net zero through veriﬁed carbon 
offset projects (100% renewable energy projects).

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

Coastline by Cheryl Ann Williams
Original painting in acrylic on canvas.

3i Group plc
16 Palace Street, London SW1E 5JD, UK
Telephone +44 (0)20 7975 3131

THR27381

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